JUNE 17, 1994 ANSWERS TO QUESTIONS FROM THE JUNE 6, 1994 FCC BIDDERS SEMINAR FOR THE AUCTION OF NARROWBAND PERSONAL COMMUNICATIONS SERVICES (PCS) LICENSES AND INTERACTIVE VIDEO AND DATA SERVICE LICENSES Questions have been grouped according to the following topics: 1. Completion and Making Changes to FCC Application Forms 2. Designated Entities 3. Auctions 4. PCS Licenses and PCS Auction Rules 5. IVDS Licenses 1. COMPLETION AND MAKING CHANGES TO FCC APPLICATION FORMS 1-1. How should corporations complete the Form 175? Do all shareholders need to be listed? For an IVDS license, the corporation should fill out Block 1 with its corporate name. No shareholders, directors or officers need be listed in Block 1. Note that this is different from the requirements for Narrowband Personal Communications Service, where applicants filling out Form 175 must provide as an exhibit detailed ownership information. For any license for which a corporation may apply on Form 175, the Commission's general auction rules require at Section 1.2105(a)(2) that the name and title of an officer or director must be provided; this information, however, can and should be provided simply by having an officer or director sign the Form 175, listing his or her name and corporate title. 1-2. Does a partnership with corporate partners have to disclose in an exhibit the identity simply of the corporate partners, or the identity of the shareholders in each corporate partner? Or do you disclose the shareholders only in a corporate general partner if you are a female/minority owned small business to show that you are actually 50.1% female/minority [owned business]? Section 1.2105 of the Commission's rules requires disclosure of all partners. Additional disclosures are necessary for narrowband PCS. See also the answer to question 1-1 above and the Introduction to Designated Entity Questions. 1-3. The service specific, i.e. IVDS rules, do not seem to require partnership information on the form 175. May a general partnership continue to enlist general partners after the Form 175 is filed as long as no transfer of control is created? No. Although the addition of general partners to a general partnership after the Form 175 has been filed which does not constitute a transfer of control would not be a major amendment, it would violate Section 1.2105(a)(2)(viii), which requires that all agreements, arrangements or understandings of any kind relating to the licenses to be auctioned be entered into prior to the filing of Form 175 and which forbids such arrangements after the filing of Form 175. Furthermore, Section 1.2105 of the Commission's rules, which is referred to in Section 95.816(2)(i) of the IVDS auction rules, requires disclosure of all partners. 1-4. Form 175 requires disclosure of all partners by June 27, 1994. Instructions in the bidding package state that no changes or major modifications will be allowed after this date. Question: if other partners are added to the bidding entity must they be added to the form 175 and will they be allowed to be added after June 27, 1994? The addition of new partners or shareholders after filing of the Form 175, although not necessarily a major modification, would violate Section 1.2105(a)(2)(viii), which requires that all agreements, arrangements or understandings of any kind relating to the licenses to be auctioned be entered into prior to the filing of Form 175 and which forbids such arrangements after the filing of Form 175. Ownership changes of any kind are also specifically barred for Narrowband PCS after filing of the Form 175. See Section 24.422(b). 1-5. Will a procedure be put in place of the filing of FCC Form 175 that permits entities to add or delete names of entities listed for which there [will] be communications as to bidding strategies? The rules presently provide that after the FCC Form 175 is filed no discussions with companies other than those listed will be permitted. No such procedure will be put in place. Such communications are impermissible. See Section 1.2105(a)(2)(viii). 1-6. Are there any examples of what is needed or format preferred for the three exhibits required with the short form 175 for the Narrowband PCS auction, specifically, the ownership documents. There are no preferred formats. 1-7. What, if any, procedure exists for substitution of bidding agents between the 175 filing deadline and the auction date? What provisions can be made in the event of death or unavailability of an agent listed on the form? Form 175 specifies the use of up to three alternate bidding agents, which should be sufficient to cover almost any eventuality. If unusual circumstances prevent any one of the three agents from participating in the auction, the applicant should immediately request a waiver from the Commission to permit substitution of another agent. 1-8. If one files a short form [FCC 175] for ALL possible licenses in the expectation of winning some and if a large number of licenses are awarded on a non-auction basis, in excess of the number required, must the applicant accept all the licenses in excess of the number the applicant planned to win? If the applicant declines a non-auction award is there a default penalty? As discussed in the Second Report and Order, licenses will be sold at auction only if mutual exclusivity exists, i.e. there are two or more parties interested in acquiring any license. Where there is only one party applying for a license that party will be awarded the particular license at no other cost besides an application filing fee if such fee exists. If the applicant does not want to acquire a license for which (s)he is the only applicant, (s)he may do so by declining the FCC's invitation to file a long form application for the unwanted license(s). 1-9. May a licensee, after submitting a Form 574 and receiving a license change the address of the station in Block 18? A licensee may, after receiving an IVDS license, change the address of the station in Block 18. Such a modification, however, is a modification to a license that itself needs to be submitted on a separate Form 574 and accompanied by appropriate filing fee. 2. DESIGNATED ENTITIES ________________________________ Numerous questions were asked at the seminar concerning capitalization plans and ownership arrangements by Designated Entities. In response to those questions, please be aware that there are an infinite number of capitalization plans and ownership arrangements that could be utilized in creating minority or woman owned businesses. For the Commission's purposes, however, minority and woman ownership is defined as 50.1% equity ownership by the either the minorities or women involved in the applicant. Court and Commission cases have ruled in many different circumstances as to what constitutes minority ownership and can provide guidance in specific instances. For a definition of a small businesses refer to Section 1.2110(b)(1) of the Commission's Rules. If for any reason you are concerned that you are beyond the definition of a small business, or minority-owned or woman-owned business as supported by Court or Commission precedent in organizing your applicant, contact your lawyer. Your legal counsel is in the best position to advise you. Only after you have filed your long form application will the Commission rule on the propriety of the method you elected in organizing your business. __ ______________________________ 2-1. Can a minority join with a white women (together) to own 50.1% and qualify for a bidding preference? Yes. (On the FCC Form 175 please check both woman-owned business and minority- owned business.) 2-2. For a minority or women-owned business to take advantage of the preferences, must the business be a "small business"? If no, how is the FCC 175 filled out in light of question 9 which presumes that the preference is to a minority or women's small business? A minority or woman-owned business does not have to be a small business to be eligible for those preferences applicable to minority-owned or women-owned businesses. There was a misprint in the FCC Form 175, which is being corrected, and which was included in the Bidder Information Packages. The preference types in question 9 should refer to minority-owned and woman-owned businesses and not to minority-owned small business and woman-owned small business. This correction and instructions to complete the FCC 175 have been included in the First Amendment to the Bidder Information Package that was announced as a Public Notice and is being sent to everyone who requested a bid package. 2-3. Are small businesses eligible to pay for nationwide narrowband PCS licenses in installments? No, installment plans are not available for the acquisition of Nationwide Narrowband license. However, eligible small businesses may use installments for the acquisition of any regional, MTA or BTA narrowband PCS license. 2-4. Will the FCC permit funding tied to options for tax credits? No. Funding is not tied to options for tax credits. Please note: to be eligible for a tax certificate, you must either be an initial investor in a minority and/or female-owned business who sells his or her non-controlling interests, or a licensee who assigns or transfers control of his or her license to a minority or women-owned entity. 3. AUCTION 3-1. May a lawyer enter a bidding room with a client? Or is an attorney a member of the general public and thus may be excluded from the bidding room? An attorney may enter the bidding room with a bidder. It is anticipated that bidders may have persons in the auction room to give them advice during the auction. However, depending upon the number of bidders and advisors in the room, a bidder may be restricted to having only two other non-bidding persons with him or her. 3-2. [At the IVDS Auction] when will the $2500 be returned to an unsuccessful bidder? At the IVDS auction, the FCC does not receive any cashier checks from bidders until the bidder is the winning bidder in a round. Thus, there is no instance when a $2,500 cashier's check would need to be returned to an unsuccessful bidder. 3-3. Will tentative selectees who are challenged by a Petition to Deny and ultimately lose their grant due to the FCC and/or court agreeing to the Petition to Deny lose their upfront and down payment? Under the described scenario the tentative selectees would be subject to a default penalty as described in the Second Report and Order at paragraph 197. Should the default penalty be greater than the upfront and down payments, a tentative selectee would owe money to the FCC. If the default penalty was less than the upfront and down payments, the FCC would distribute the excess funds to the tentative selectee. 3-4. May a single bidder bid on behalf of more than one auction applicant? No. 3-5. Will a letter responding to questions requiring additional research be published? Yes. 4. PCS LICENSES AND PCS AUCTION RULES 4-1. In post auction phases [of Narrowband Licensing] will parties interested in challenging the financial or technical capabilities of applicants have an opportunity to do so? Yes. After a high bidder has submitted its down payment and filed the FCC Form 401 long form application, the Commission will release a Public Notice announcing the auction winner for each license. The release of this Public Notice will trigger the initiation of the petition to deny process where other interested parties will have the opportunity to file petitions challenging an auction winner's qualifications to become a licensee. 4-2. How do the narrowband PCS aggregation limits work? Narrowband PCS licensees may hold up to a maximum of three 50 kHz licenses, paired or unpaired, (i.e., no more than 150 kHz paired with 150 kHz) in any geographic area. The 12.5 kHz paging response channels are excluded from this limit. This limit is based on the total spectrum in a licensee's nationwide, regional and local licenses at any point. For example, a licensee could have one 50/50 kHz nationwide channel and two 50/12.5 kHz channels in the Atlanta MTA. The licensee would then be ineligible for another nationwide channel or a 50 kHz channel anywhere in the Atlanta MTA. 4-3. What applications or services envisioned for narrowband PCS will be available under upcoming broadband PCS (i.e. will 2-way paging on narrowband compete with 2-way paging on broadband?) Yes, the possibility exists that 2-way paging on narrowband could compete with 2-way paging on broadband. Please refer to the FCC 94-144 Memorandum and Order, Section 24.3 for a description of permissable uses of these types of licenses. 4-4. Will a bid withdrawal in a round where no new bids or waivers are submitted keep the auction from closing? No. A withdrawal in a round where no new bids or waivers are submitted will not keep the auction from closing. If a bid is withdrawn in such a round, the withdrawing bidder will be subject to the standard bid withdrawal penalty (i.e., the difference between the withdrawn bid amount and the amount of the winning bid the next time the license is offered.) 4-5. What happens if there are multiple bid withdrawals on a license in the same auction? If a high bidder withdraws its bid on a license, that bidder will be required to pay a penalty equal to the difference between the amount of the withdrawn bid and the amount of the winning bid the next time the license is offered by the Commission. If a license is re-offered in the same auction, the winning bid refers to the high bid amount in that auction, made subsequent to the withdrawal. If the subsequent high bidder also withdraws its bid, that bidder will be required to pay a penalty equal to the difference between its withdrawn bid and the amount of the subsequent winning bid the next time the license is offered by the Commission. In a simultaneous multiple round auction (or in the IVDS open outcry auction) the second high bidder will not be held to its bid if the high bidder withdraws. 4-6. Under what circumstances will the Commission modify the amount of the minimum bid increments? The Commission may within its discretion raise or lower the amount of the minimum bid increment at any time during the auction. If the Commission modifies the minimum bid increment, it would expect to raise the amount early in the auction and lower it towards the end of the auction. Generally, the Commission would only raise the minimum bid increment if there is a high level of bidding activity but, nevertheless, high bids are increasing slowly. This would increase the pace of the auction. The Commission would generally only lower the amount of the minimum bid increment when bidding activity lessens and the auction appears to be nearing a close. The lowering of bid increments in this situation would allow bidders to express small differences in valuations. 4-7. How will the Commission decide whether to close the auction by announcing that bidding will end after one or more rounds? This decision, and all other discretionary auction decisions, will be made by the Private Radio and Common Carrier Bureaus acting on authority delegated by the Commission. The FCC does not intend to exercise this option except in extreme circumstances such as where the auction is proceeding very slowly, there is minimal bidding activity and it appears unlikely that the auction will close within a reasonable period of time. Before exercising this option, however, the Commission would first attempt to increase the pace of the auction by announcing that the auction will move into stage two where bidders are required to bid on the maximum number of licenses they want to be eligible for in each round as well as increasing the amount of the bid increment. The Commission would also increase the number of rounds per day under these circumstances in an effort to increase the pace of the auction. For example the Commission may extend the hours of bidding (i.e. begin bidding at 8:00 a.m. and continue until 10:00 p.m.). 4-8. How will bidders exercise the five automatic activity rule waivers? Bidders may use an automatic activity rule waiver in any round of bidding. If an activity rule waiver is entered in a round in which no other bidding activity occurs, the auction will remain open. However, an activity rule waiver entered after a round in which no other bidding activity occurs will not reopen the auction. Only one activity rule waiver per round, not one per license, is required. The use of an activity rule waiver allows a bidder to retain its bidding eligibility although its actual bidding activity drops below the required level. In the first stage of the auction, a waiver will be entered automatically for a bidder who does not submit a bid. For example, in the first stage of the auction a bidder is required to bid on at least one license in each round. During this stage of the auction, if a bidder fails to bid on at least one license and has not used all of its waivers, the Commission will automatically enter an activity rule waiver for that bidder. In this stage, if a bidder fails to bid on at least one license in a round and has used all of its activity rule waivers, its eligibility would drop to "0" and that bidder would be barred from bidding in future rounds. In the second stage of the auction, where a bidder's eligibility is limited by its current level of bidding activity, a bidder will be required to proactively submit an activity rule waiver if it fails to bid or bids below its current activity level if it wishes to retain its current eligibility level. During this stage, the Commission will not automatically enter an activity rule waiver if a bidder fails to submit a bid or decreases its bidding activity level from a previous round. Thus, in order to maintain its current bidding eligibility a bidder must proactively submit a waiver for each round in which it either does not submit a bid or in which its bidding activity falls below the current level. Activity rule waivers can be placed with a bid assistant either in the round where the bidder's activity level decreases or in the subsequent round in which the bidder seeks to reinstate its previous eligibility level. 4-9. Can an activity rule waiver be used to correct an erroneous bid (i.e, if a bidder places a bid on the wrong license or does not bid the desired amount)? No, only one bid per bidder per license per round will be accepted. Activity rule waivers cannot be used to change a bid placed earlier in a round. For this reason, a bidder should place its bid carefully and should confirm its bid with the bid assistant at the bidding station. In addition, bidders may request a written bid confirmation. Bidders will not be permitted to change a bid after it has been placed with a bid assistant. 5. IVDS LICENSES 5-1. If 15 days is too little time to arrange for lease of a control station in each license area -- can you list the company headquarters and then later inform the FCC of the final station location? For an IVDS system license, the FCC is not looking for a control station address but rather for a contact point to be used if there is a problem with the system. When filing for an IVDS system license, item 18 on FCC Form 574 should list a street address and telephone number where a person responsible for system operation can be reached. This can be the company headquarters even if the headquarters is not located in the service area. If the address listed is outside the service area, the system license should be modified to show an address within the service area where the licensee can be contacted once a station or stations are constructed. 5-2. If 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. 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. 5-3. At this time, have any other manufacturers (other than Eon Corp.) applied for type- acceptance for IVDS? 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. 5-4. Are winners of September 1993 IVDS lottery obliged to fulfill the same buildout requirements as auction winners? If so, what might happen if any of these lottery winners fails to offer IVDS services to 10% of their area by fall of 1994? Both lottery and auction winners must meet the same construction or buildout requirements. Those requirements are listed in the rules at 47 C.F.R.  95.833. Failure to meet the 1, 3, or 5 year requirement will result in automatic cancellation of the license whether obtained by lottery or auction. 5-5. You mentioned that other licenses have been auctioned for IVDS. What were the winning bids and the auction in which they were granted? The July auction will be the first time the Commission has used auctions to determine licensees from among mutually exclusive applications in the IVDS. Your question probably concerns IVDS licenses obtained by lottery. On September 15, 1993, the Commission used a lottery to determine license winners from among those who filed mutually exclusive applications in 9 IVDS markets. 5-6. Consider this hypothetical situation: Company X owns the IVDS license in an MSA where the main campus of a university exists. Company Y does not own a license in the same MSA but it does own one in a large city/MSA within the same state. Is Company Y allowed to offer university-based IVDS services -- interactive communications -- to its subscribers without royalties/approvals of Company X? Under these hypothetical facts, "University-based IVDS services" appears to mean that the University is originating data or other programming that will be transmitted in some fashion beyond the MSA in which the University is located. The answer therefore appears to turn on the issue of program ownership. Programming could be transmitted outside the MSA by using wireline or non-wireline methods, and only if Company X held an interest in the University programming would it have any say in the means of transmission or the royalties to be paid. The IVDS rules do not prevent a licensee from holding an interest in programming. Of course, Company Y may not provide IVDS service to subscribers located within Company X's service area. 5-7. Are there any community access or community service requirements for license holders? No. Those requirements play a role in the areas of broadcasting and cable services, and do not apply to the IVDS. The IVDS is a private radio service, and as such its regulations focus on the facilities used for the service and not the content of the data being transmitted. An analogy here would be that of cellular radio (a common carrier service), where the Commission regulates the facilities used for the cellular transmissions, and does not regulate the content of the actual transmissions. 5-8. How much alien ownership is permitted? The alien or foreign ownership rules for the IVDS are found at 47 C.F.R.  95.813(a). The rules do not specify any level or percentage of foreign ownership that is permitted or not permitted. Instead, the rules specify that, to be qualified to hold an IVDS license, an entity must be one of the following: 1) an individual who is not a representative of a foreign government, 2) a partnership, with no partner being a representative of a foreign government, 3) a U.S. corporation, or 4) a trust, with no beneficiary being a representative of a foreign government. In addition, the Communications Act of 1934, as amended, prohibits foreign governments themselves from holding any station license, including an IVDS license. 5-9. In light of the 900 MHz SMR treaty with Mexico -- it could be possible that I buy San Diego for $1 million and then wait five years until the treaty is signed to find out that there are restrictions on power which negates the value -- do I have to follow then with the $1 million? The Commission notified the public that the licenses of specific border service areas, which are identified in the Bidder's Information Package, may later be subject to restrictions resulting from current and subsequent treaties and Commission Rules. This caveat, pertaining to all such potentially affected licenses, should be taken into account by potential bidders when they decide whether to bid on these particular licenses and in deciding how much to bid. All required payments on these licenses are due, however, in accordance with the general rules and procedures -- there are no special arrangements available merely on account of these potential restrictions. 5-10. Will the Commission issue a public notice to publicize any new "rulings" or future elucidation on the IVDS rules? Yes. Whenever the Commission adopts new rules or makes a change in policy that could impact a large segment of the public, it provides the public with notice of the change. This notice may be in the form of a News Release, Public Notice, or, in the case of a rule making proceeding, a decision document such as a Report and Order. The public may obtain copies of any such documents through the Commission's copy contractor. International Transcription Services, Inc., 2100 M Street, N.W., Suite 140, Washington, D.C. 20037, telephone (202) 857-3800. 5-11. The [IVDS] system is wireless but what is the breakdown for the investment involved to have the system up and running for market use? (e.g. home banking, interactive TV, etc.) The FCC has conducted no studies on the potential start-up costs for IVDS systems. Furthermore, to date, no IVDS systems have been built. The FCC cannot, therefore, provide you with the data you seek. For further information, you may wish to contact private sector entities that are in the radio communications business, such as equipment suppliers or radio engineers. 5-12. Are there projections for the potential of each market? (ex. Birmingham, AL; Baltimore, MD; Athens, GA) See answer to question 5-11. 5-13. When is the sealed bid auction for the non-MSA license areas? The date is not set but it is anticipated to be in late 1994 or early 1995. 2-8. Is an individual professional (doctor, lawyer, etc.) incorporated under a special professional corporation (P.C.) considered an "individual" or "Corporation" for small business preference? [I have no idea -- does anyone else know???] 2-1. For purposes of small business preferences, is an individual shareholder in a corporation considered an "affiliate" of the corporation? No. In many cases, however, we will look at the corporate and other affiliations (e.g., whether (s)he is a shareholder, partner, officer, director, or key employee of another company) of that individual shareholder in determining the net worth/net income of the applicant. Please refer to the Second Report and Order at paras. 271-72 for the definition of a small business and examples of what constitutes an affiliate. 2-2. Will the Commission include the individual assets of corporate shareholders who are not officers, directors, or majority shareholders of another entity in determining small business status? No. See answer to question 2-1. 2-3. Does an individual's net worth get attributed to a small business applicant? So can an individual with a net worth of more than $6 million be a general partner in a small business? We will not consider the personal net worth of an applicant's individual general partner for purposes of the small business definition. [See question ____.] 2-4. If a shareholder of an entity is an officer, director or majority shareholder of a second corporation, are his individual assets or the assets of the second corporation, or both, germane to determining small business preference? His individual assets would not be germane, but the net worth/net revenues of the second corporation would be counted. [See question _______]