Broadcast Incentive Auction Scheduled To Begin on March 29, 2016; Procedures for Competitive Bidding in Auction 1000, 61917-61970 [2015-25579]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 80, Number 198 (Wednesday, October 14, 2015)]
[Rules and Regulations]
[Pages 61917-61970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25579]



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Vol. 80

Wednesday,

No. 198

October 14, 2015

Part III





Federal Communications Commission





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47 CFR Part 20





Broadcast Incentive Auction Scheduled To Begin on March 29, 2016; 
Procedures for Competitive Bidding in Auction 1000; Final Rule

Federal Register / Vol. 80 , No. 198 / Wednesday, October 14, 2015 / 
Rules and Regulations

[[Page 61918]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 20

[GN Docket No. 12-268, MB Docket No. 15-146, WT Docket Nos. 14-252, 12-
269; FCC 15-78]


Broadcast Incentive Auction Scheduled To Begin on March 29, 2016; 
Procedures for Competitive Bidding in Auction 1000

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission establishes final bidding 
procedures and qualifications for participation in Auction 1000, the 
Incentive Auction, including the forward and reverse auctions, 1001 and 
1002 respectively. This document is intended to familiarize prospective 
applicants with the procedures and other requirements for participation 
in the Incentive Auction.

DATES: Effective October 14, 2015.

FOR FURTHER INFORMATION CONTACT: Wireless Telecommunications Bureau, 
Auctions and Spectrum Access Division: for general auction questions: 
Linda Sanderson at (717) 338-2868; for reverse auction legal questions: 
Erin Griffith at (202) 418-0660; for forward legal questions: Kathryn 
Hinton at (202) 418-0660. Lisa Stover at (717) 338-2868. Media Bureau, 
Video Division: for broadcaster questions: Dorann Bunkin at (202) 418-
1636.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
document, Auction 1000 BIA Bidding Procedures Public Notice, GN Docket 
No. 12-268, WT Docket Nos. 14-252 and 12-269, MB Docket No. 15-146, FCC 
15-78, adopted on August 6, 2015 and released on August 11, 2015. The 
complete text of this document is available for public inspection and 
copying from 8:00 a.m. to 4:30 p.m. Eastern Time (ET) Monday through 
Thursday or from 8:00 a.m. to 11:30 a.m. ET on Fridays in the FCC 
Reference Information Center, 445 12th Street SW., Room CY-A257, 
Washington, DC 20554. The complete text is available on the 
Commission's Web site at https://wireless.fcc.gov, or by using the 
search function on the ECFS Web page at https://www.fcc.gov/cgb/ecfs/. 
Alternative formats are available to persons with disabilities by 
sending an email to FCC504@fcc.gov or by calling the Consumer & 
Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 
(TTY).

Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act of 1980, as amended 
(RFA), the Commission has prepared this Supplemental Final Regulatory 
Flexibility Analysis (SFRFA) of the possible significant economic 
impact on small entities by the procedures and policies contained in 
the Auction 1000 Bidding Procedures Public Notice.

Report to Small Business Administration

    The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, will send a copy of the Auction 1000 
Bidding Procedures Public Notice, including this SFRFA, to the Chief 
Counsel for Advocacy of the SBA (SBA).

Paperwork Reduction Act

    This document does not contain new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(PRA), Public Law 104-13.

Congressional Review Act

    The Commission will send a copy of the Auction 1000 Bidding 
Procedures Public Notice, including the SFRFA, in a report to be sent 
to Congress and the Government Accountability Office pursuant to the 
Congressional Review Act. A copy of the Auction 1000 Bidding Procedures 
Public Notice and SFRFA (or summaries thereof) will also be published 
in the Federal Register.

I. Introduction and Executive Summary

    1. The Auction 1000 Bidding Procedures Public Notice the Commission 
determined the procedures necessary to carry out the incentive auction, 
and resolves issues it raised in the Auction 1000 Comment Public Notice 
(Auction 1000 Comment PN), 80 FR 4816, January 29, 2015. In particular, 
the Commission establishes final procedures for setting the initial 
spectrum clearing target, qualifying to bid, and bidding in the reverse 
and forward auctions. The Auction 1000 Bidding Procedures Public Notice 
is organized from the perspective of potential bidders, with separate 
sections for the reverse and forward auctions, each ordered consistent 
with the overall sequence of procedures in the incentive auction. 
Bidding in the auction will begin on March 29, 2016, which will be the 
deadline for reverse auction applicants to commit to an initial bid 
option.
    2. The incentive auction is composed of a reverse auction (Auction 
1001) in which broadcasters will offer to voluntarily relinquish some 
or all of their spectrum usage rights and a forward auction (Auction 
1002) of new, flexible-use licenses suitable for providing mobile 
broadband services. Forward auction proceeds will be used to pay 
broadcasters that relinquish rights in the reverse auction. As part of 
the auction process, the broadcast television bands will be reorganized 
or ``repacked'' so that the television stations that remain on the air 
after the incentive auction occupy a smaller portion of the ultra-high 
frequency (UHF) band, thereby clearing contiguous spectrum that will be 
repurposed as the 600 MHz Band. The Commission's decisions implement 
its central objective for the incentive auction: to allow market forces 
to determine the highest and best use of spectrum. In response to the 
robust public record in this proceeding, its key decisions include the 
following: (a) Initial Clearing Target Determination Procedure. The 
procedure the Commission adopts for selecting the initial clearing 
target will allow market forces to determine the highest and best use 
of spectrum on a near-nationwide basis, while permitting a limited 
amount of impairments in the repurposed 600 MHz Band to avoid the 
``least common denominator problem'': limiting the amount of spectrum 
available in most markets to the quantity that is available in the most 
constrained markets. To limit impairments, the Commission modifies its 
proposal in the Auction 1000 Comment PN by adopting a scaled standard 
with a cap that will allow significantly less than the proposed 20 
percent at higher clearing targets, consistent with the consensus that 
impairments must be minimized, particularly at higher clearing targets. 
The Commission's decisions to allow the optimization software to assign 
television stations within the 600 MHz Band so as to minimize impaired 
weighted-pops, and not to ``discount'' impairments located in the 
uplink portion of the Band, also will help the auction to repurpose as 
much near-nationwide spectrum as possible while minimizing impairments; 
(b) Opening Prices. The Commission adopts its proposal for calculating 
opening price offers for each eligible broadcaster based on a 
television station's interference and population characteristics. This 
methodology, which will yield opening price offers in the reverse 
auction of up to $900 million, should attract robust participation in 
all areas without undermining other goals of the auction. Opening 
prices in the reverse auction will be announced at least 60 days in

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advance of the deadline to file an application to participate in the 
reverse auction; (c) For the forward auction, the Commission adopts its 
proposal to assign a specific number of bidding units to each spectrum 
block that will be available in a Partial Economic Area (PEA) based on 
the number of weighted-pops in the PEA, and to use the bidding units to 
calculate minimum opening bids, upfront payments, and bidder 
eligibility, as well as to measure bidding activity. To facilitate 
bidding across license categories, each block available in a PEA will 
have the same number of bidding units. The minimum opening bid for each 
spectrum block will be equal to the number of bidding units assigned to 
the block times $5,000, and upfront payments will be one-half that 
amount. Upfront payments will be due after the initial clearing target 
has been selected; (d) Reverse Auction Bidding. Having considered the 
comments the Commission received on its proposal for a Dynamic Reserve 
Price (DRP) mechanism, it has decided not to adopt DRP. This decision 
will encourage voluntary participation in the reverse auction by 
removing uncertainty among broadcasters, and maximize forward auction 
spectrum value by eliminating the possibility of additional impairments 
in the 600 MHz Band due to the operation of the DRP mechanism. In order 
to make bidding as simple as possible for reverse auction bidders, 
bidders will not be able to submit ``intra-round'' bids. The Commission 
adopts its proposal to establish a simple proxy bid mechanism to make 
it easier for bidders to participate in the auction; (e) The Commission 
also adopts several measures to improve transparency for reverse 
auction bidders. First, the auction system will inform them, for each 
station on which they are bidding, of their bidding status and the new 
price offers for available bid options. Second, bidders also will be 
provided with ``vacancy'' information regarding the availability of 
channels in bands relevant to each of their stations given its bid 
options. Vacancy information may help reverse auction bidders assess 
the likelihood that the price offers for a bid option will continue to 
decrease, as well as how likely any bid option to move to another band 
is to be available through the current round. Once reverse auction 
bidding stops in any stage, the total dollar amount of provisionally 
winning reverse auction bids will be announced publicly; (f) Forward 
Auction Bidding. The Commission adopts its proposal to offer two 
categories of generic spectrum blocks for bidding in the clock phase of 
the forward auction: ``Category 1'' blocks with potential impairments 
that affect zero to 15 percent of the weighted population of a PEA; and 
``Category 2'' blocks with potential impairments that affect between 
greater than 15 percent and up to 50 percent. Prices for frequency-
specific licenses will be adjusted downward at the end of the 
assignment phase of the forward auction by one percent of the final 
clock phase price for each one percent of impairment to the license; 
(g) The Commission adopts several measures to improve transparency for 
forward auction bidders. First, the auction system will provide them in 
advance of bidding with specific information regarding impairments, 
including the actual source and location of the impairment. Second, 
during the clock phase, aggregate price information that reflects the 
progress of the forward auction towards satisfying the final stage 
rule, as well as price and aggregate demand information for blocks in 
each PEA that reflects progress towards completion of bidding in the 
clock phase, will be publicly available; (h) To implement the 
Commission's decision in the Mobile Spectrum Holdings Report and Order 
(Mobile Spectrum Holdings R&O), 79 FR 39977, July 11, 2014, to 
incorporate a market-based spectrum reserve in the forward auction, the 
Commission adopts its proposals to base the maximum number of reserved 
spectrum blocks in a given PEA on the total number of Category 1 and 2 
blocks offered in that PEA; to limit the actual number to demand for 
Category 1 blocks by reserve-eligible bidders when the auction reaches 
the spectrum reserve trigger; to reserve only Category 1 blocks; and to 
limit the number of reserved blocks in a PEA to two if, when the 
trigger is reached, only one reserve-eligible bidder demands such 
blocks. The Commission also affirms its decision that the spectrum 
reserve will be triggered by satisfaction of the final stage rule; (i) 
To implement the final stage rule established in the Incentive Auction 
Report and Order (Incentive Auction R&O), 79 FR 48441, August 15, 2014, 
the Commission adopts the proposed average price and spectrum 
benchmarks of $1.25 and 70 megahertz of licensed spectrum, 
respectively. The benchmarks will help to ensure that winning bids for 
the licenses in the forward auction reflect competitive prices and 
return a portion of the value of the spectrum to taxpayers without 
reducing the amount of spectrum repurposed for new, flexible-use 
licenses. The Commission also adopts its proposals for triggering an 
``extended round'' to give bidders the opportunity to meet the final 
stage rule without moving to another stage, except that an extended 
round will not be triggered if the shortfall is greater than 20 
percent; (j) Assignment Round. The Commission adopts the assignment 
round bidding procedures proposed in the Auction 1000 Comment PN, with 
a modification: in addition to limiting PEA grouping to PEAs with the 
same mix of clock-phase winners and winnings, as proposed, the 
Commission will limit PEA grouping to unimpaired PEAs. Winning clock-
phase bidders will have the opportunity to bid for their preferred 
combinations of licenses, consistent with their clock-phase winnings, 
in a series of single sealed-bid rounds conducted by PEA or, in some 
cases, PEA group; (k) The auction system will incorporate certain 
intra-market contiguity objectives in determining the frequency-
specific license assignments available in the assignment round. To 
assist forward auction bidders in determining whether, and how much, to 
bid in each PEA during the assignment phase, all clock-phase winning 
bidders across all PEAs will be informed of the extent to which 
contiguous blocks feasibly may be assigned to winning bidders from the 
clock phase within each PEA. In addition, the auction system will 
provide each bidder with bidding options that satisfy the feasible 
contiguity objectives for each PEA in which the bidder may bid; (l) 
Final TV Channel Assignments. The Commission will use optimization 
techniques to determine a final TV channel assignment plan that 
satisfies the constraints adopted in the Incentive Auction R&O and 
strives for the additional policy goals of maximizing the number of 
stations that stay on their pre-auction channels, minimizing aggregate 
new interference to individual stations, and avoiding channel 
reassignments for stations with high anticipated costs. These goals, in 
turn, will help to ensure that the total reimbursement costs associated 
with the repacking process remain below the $1.75 billion in the TV 
Broadcaster Relocation Fund that Congress made available, speed the 
post-auction transition process and minimize disruption for stations 
and viewers alike.
    3. Consistent with its decision in the Incentive Auction R&O 
affirming the Wireless Telecommunications Bureau's (WTB's) delegated 
authority regarding auction procedure matters that it typically 
handles, at least 60 days before the deadline to file auction 
applications WTB will release a separate public

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notice which will address the pre-auction application process, 
including detailed instructions and deadlines, as well as post-auction 
procedures (Auction 1000 Application Procedures Public Notice or 
Application Procedures PN). The Application Procedures PN will announce 
the filing window for applications to participate in the reverse and 
forward auctions, as well as upfront payments and minimum opening bids 
for the forward auction. In addition, the Application Procedures PN 
will include technical formulas implementing final decisions regarding 
the initial clearing target determination procedure, the final 
television channel assignment plan, and the assignment of frequency-
specific licenses to forward auction clock-phase winning bidders, as 
well as algorithms for bid processing. The Auction 1000 BIA Procedures 
Public Notice, together with the Application Procedures PN, will 
provide prospective bidders with a complete guide to participating in 
the incentive auction.

II. Background of Proceeding

    4. The Commission will conduct Auction 1000 (including Auctions 
1001 and 1002) pursuant to Title VI of the Middle Class Tax Relief and 
Job Creation Act of 2012 (Spectrum Act), which authorized incentive 
auctions to help meet the Nation's accelerating spectrum needs and 
required the Commission to conduct a broadcast television spectrum 
incentive auction. Since enactment of the Spectrum Act, the Commission 
has released a number of decisions in which it has adopted rules and 
policies that provide the necessary framework for implementing the 
incentive auction. Prospective applicants must be familiar with 
additional specific details from these decisions as well as with the 
Commission's general competitive bidding rules in Part 1, Subpart Q of 
the Code of Federal Regulations and with the procedures, terms, and 
conditions contained in the Auction 1000 BIA Bidding Procedures Public 
Notice, and all other public notices related to Auction 1000, including 
Auctions 1001 and 1002.
    5. In the Incentive Auction R&O, the Commission adopted a ``600 MHz 
Band Plan'' consisting of an uplink band that will begin at channel 51 
(698 MHz), followed by a duplex gap, and then a downlink band. 
Consistent with the Incentive Auction R&O, the Commission refers 
throughout the Auctions 1000 BIA Bidding Procedures Public Notice to 
the UHF band spectrum that is repurposed through the incentive auction 
as ``the 600 MHz Band,'' and to the band plan scenarios adopted in the 
Incentive Auction R&O as ``the 600 MHz Band Plan.'' Because the 
Commission will not know the exact number of licenses or their 
frequencies when the incentive auction begins, the 600 MHz Band Plan 
includes different band plan scenarios associated with different 
spectrum clearing targets.
    6. Additionally, in the Incentive Auction R&O, the Commission 
recognized the importance of finalizing TVStudy, the computer software 
that will be used in the repacking process, well in advance of the 
auction. On June 30, 2015, the Office of Engineering and Technology 
(OET) finalized TVStudy and released a detailed summary of baseline 
coverage area and population served by each station to be protected in 
the repacking process, based on then-current information in its 
databases regarding the stations' facilities. The Commission directs 
OET to release final baseline coverage area and population served data 
no later than 60 days before the deadline for auction applications.

III. Initial Clearing Target Determination Procedure

    7. The Commission adopts the procedure for selecting an initial 
spectrum clearing target for the incentive auction. Examination of the 
record reflects consensus on several basic principles: that the goal 
should be to allow market forces to determine how much spectrum is 
repurposed; that flexibility to allow some degree of impairment is 
critical to achieving that goal; and that forward auction licenses 
should be as free from impairments as possible. Consistent with these 
principles, the procedure the Commission adopts is modified in 
important respects from that proposed in the Auction 1000 Comment PN. 
In particular, the Commission adopts a one-block-equivalent standard 
with a cap for limiting impairments that will allow significantly less 
than the proposed 20 percent nationwide impairment level at higher 
clearing targets.
    8. The following provides a high-level overview of the procedure 
and then addresses in detail the elements of the procedure related to 
handling impairments. In Appendix A to the Auction 1000 Bidding 
Procedures Public Notice, the Commission provides a description of how 
its computer software will apply the procedure the Commission adopts on 
a step-by-step basis. An updated version of Appendix C to the Auction 
1000 Comment PN setting forth the technical details and formulas 
associated with the procedure that the Commission adopts will be 
included with the appendices to the Application Procedures PN.

A. Overview

    9. Based on the array of stations that apply to participate in the 
reverse auction and the bidding options to which they initially commit, 
the procedure the Commission adopts will use mathematical optimization 
techniques to determine a provisional television channel assignment 
plan for every possible spectrum clearing target. For each clearing 
target, the plan must include a feasible channel assignment in its pre-
auction band for every eligible station that does not participate in 
the reverse auction and in the VHF band for every applicant designated 
to move to a VHF relinquishment option. Consistent with the constraints 
adopted in the Incentive Auction R&O to make all reasonable efforts to 
preserve each eligible station's coverage area and population served, 
``[a] feasible assignment is one in which: (1) All stations are given a 
channel assignment, either to a channel or to go off the air; (2) a 
station can only be assigned to one of its allowable channels as 
defined in the domain.csv file; (3) stations' channel assignments must 
not violate adjacent and co-channel pairwise interference restrictions 
as defined in the interference_paired.csv file; (4) all non-
participating stations and stations that have dropped out of bidding in 
the reverse auction are assigned a channel in their pre-auction band; 
and (5) all participating stations in the reverse auction must be 
assigned to a valid relinquishment option, that is, an option 
consistent with the relinquishment options the bidder selected during 
the application process and with the bidding rules of the reverse 
auction.'' Stations currently assigned to channels 50 or 51 will be 
provisionally assigned to different UHF channels. Each applicant 
station must be designated to a relinquishment option consistent with 
its initial bid commitment. If a station initially commits to move to a 
High- or Low-VHF channel as its preferred relinquishment option, and 
the auction system is unable to accommodate that option, the system 
must either designate that station to a fallback relinquishment option 
selected by the applicant or, if the system is unable do so, to a 
feasible channel in the station's pre-auction band. The optimization 
procedure can always accommodate an initial bid commitment to go off-
air, including a commitment to go off-air in order to channel share. 
Due to the limited availability of channels in the VHF band and the 
technical constraints on repacking established in the Incentive

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Auction R&O, the procedure may not be able to accommodate every station 
that commits to move to the Low- or High-VHF band. The procedure will 
try to accommodate initial bid commitments according to the priorities 
proposed in the Auction 1000 Comment PN. If a station's initial 
commitment(s) is not accommodated by the auction system, the applicant 
will be informed prior to the start of the clock phase of the reverse 
auction that the station will be assigned to a feasible channel in its 
pre-auction band. In the event that the procedure determines that 
relinquishment of a station's spectrum usage rights will be unnecessary 
to achieve a clearing target under any circumstances, the station will 
be assigned a feasible channel in its pre-auction band, and the 
applicant will be informed prior to the start of the clock rounds of 
the reverse auction.
    10. Depending on broadcaster participation levels, there may not be 
a feasible channel available in the remaining UHF portion of the TV 
band for all non-participating UHF stations and all UHF applicant 
stations that are not assigned to their initial commitment or fallback 
option(s). In such circumstances, as a last resort, the procedure will 
assign stations to channels in the 600 MHz Band according to the 
primary objective of minimizing the sum of ``weighted-pops''--
population weighted by an index of area-specific prices based on prior 
Commission spectrum auctions--impaired for all licenses by the 
assignments, and according to the additional objectives. The location 
of impairing stations in the 600 MHz Band will not be limited for 
purposes of applying the clearing target objectives; impairing stations 
may be assigned to the uplink, downlink, and duplex gap portions of the 
Band in order to minimize impairments. In addition to the primary 
objective of minimizing impairments, the procedure will apply the 
secondary objective of maximizing the weighted number of ``Category 1'' 
licenses (those licenses with zero to 15 percent impairment) 
nationwide. In order to avoid any increase in impairment levels, the 
secondary objective will be constrained by the primary objective. Thus, 
the secondary objective seeks an assignment plan that satisfies the 
primary objective, and contains the highest weighted number of Category 
1 licenses nationwide.
    11. Having determined the provisional TV channel assignment plan 
for all clearing targets that best satisfies the objectives, the 
clearing target determination procedure, using the 2x2 cell 
calculations, will apply the near-nationwide standard for limiting 
impairments in order to select the highest possible clearing target 
that meets the standard. Under that standard, the amount of impaired 
weighted-pops on a percentage basis will be less than the equivalent of 
the weighted-pops of one paired 5+5 megahertz spectrum block. For 
example, if the provisional TV channel assignment plan is for a 126 
megahertz spectrum clearing target, then the forward auction licenses 
in the associated 600 MHz Band Plan (120 megahertz, or 10 paired 
license blocks) could only be subject to overall impairments on a near-
nationwide basis of up to but not including 10 percent, or less than 
one out of 10 blocks. The procedure then will select the highest 
possible clearing target that satisfies the standard and the 
provisional TV channel assignment plan for that clearing target will be 
selected for the initial stage of the auction, along with the 
associated 600 MHz Band Plan. Application of this procedure will be 
subject to the international agreements the Commission reaches with 
Canada and Mexico. Although the Commission acknowledges it could miss 
the opportunity to clear more spectrum by skipping a clearing target, 
it may be necessary to skip the 144, 138, and/or 108 MHz clearing 
targets to better harmonize its band plan with Canada or Mexico. The 
Commission expects that this issue will be addressed in its 
negotiations with those countries. The Commission expects to reach 
timely arrangements with Canada and Mexico that will enable it to carry 
out the repacking process in a manner fully consistent with the 
requirements of the statute and its goals for the auction.

B. Objectives in Determining a Provisional TV Channel Assignment Plan

1. Primary Objective: Minimizing Impaired Weighted-Pops
    12. The primary objective of minimizing impaired weighted-pops 
nationwide is consistent with the consensus among both broadcasters and 
wireless providers for limiting the impact of impairments overall. In 
addition, by using weighted-pops, the optimization tool will disfavor 
assigning impairing TV stations in major markets where they would have 
the greatest impact on forward auction spectrum prices, consistent with 
commenters' concerns. Weighting will discourage assignment of impairing 
TV stations to 600 MHz Band frequencies in or near major markets by 
increasing the cost of such assignments in the optimization. Its 
decisions to allow the optimization software to assign television 
stations within the 600 MHz Band so as to minimize impaired weighted-
pops in applying the primary objective, and not to ``discount'' 
impairments located in the uplink portion of the Band, also will 
promote its goal of allowing market forces to determine the highest and 
best use of spectrum.
a. Calculation of Weighted-Pops
    13. ``Weighted-pops'' will be calculated using the same price index 
measure the Commission adopts to calculate forward auction bidding 
units. Specifically, to calculate weighted-pops, the index of area-
specific prices from prior auctions is used to weight the population in 
each license area based on the relative price of each Economic Area 
(EA) and Cellular Market Area (CMA) license (for paired spectrum) in 
Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3). The price per MHz-
pop of each license is divided into the average price per MHz-pop of 
the corresponding spectrum block to produce an index value of the 
license relative to the spectrum block. For example, if the price per 
MHz-pop of the winning bid for an EA license equaled the average price 
per MHz-pop for that spectrum block, then the index value for that 
license would be 1; if the price per MHz-pop was half the average, then 
the index value would be 0.5; if the price per MHz-pop was twice the 
average, then the index value would be 2; etc. Because the past prices 
are for EA and CMA licenses, the index value for each EA and CMA 
license area is broken down to the county level and averaged; the 
resulting county-level index values are aggregated to PEAs. The index 
values are aggregated to the PEA level by multiplying the county's 
index value by the percentage of the PEA's population within the 
county, and then summing those results for all of the counties in a 
PEA. In the Auction 1000 Comment PN, the Commission stated its 
intention to update the price index the Commission provided in Appendix 
F to the Auction 1000 Comment PN following Auction 97 to account for 
current values. Those results are now being incorporated into the price 
index to calculate weighted-pops for the incentive auction. An appendix 
providing the final index consistent with these decisions will be 
released with the Application Procedures PN. The explanation the 
Commission provides here together with the Application Procedures PN 
appendix responds to interested parties' requests for additional 
information on how weighted-pops is calculated and how it

[[Page 61922]]

will be used during the incentive auction in relation to impairments 
and to bidding.
    14. Some commenters express concerns with the use of weighted-pops. 
The Commission disagrees with AT&T that its approach using weighted-
pops is imprecise and will tend to understate impairment levels because 
it ignores major highways, railways and airports where population 
levels may be low but spectrum values are high. Indeed, by 
incorporating spectrum values from past auctions into the determination 
of where to locate impairments, the optimization tool will be able to 
account for those areas where spectrum values are high for reasons not 
directly related to population, including transportation hubs, and will 
avoid locating impairments in those areas, consistent with its goal of 
maximizing spectrum value. AT&T's criticism appears to concern how the 
ISIX methodology calculates impairments more than the use of weighted-
pops. The former issue should have been raised in the ISIX proceeding. 
Moreover, the detailed information the auction system will provide to 
forward auction bidders on the locations where it places impairments 
will enable bidders to evaluate precisely their potential impact. The 
Commission also disagrees with NAB, which argues that the weighted-pops 
concept is confusing and overly complex. Although this is the first 
time the Commission will apply this measure for purposes of 
impairments, it has used weighted-pops in prior auctions to calculate 
bidding units. The Commission disagrees that use of weighted-pops adds 
undue complexity; rather, it agrees with those commenters that suggest 
that using weighted-pops will simplify the auction and avoid locating 
impairments where they will unduly harm spectrum values. By evaluating 
impairments based on weighted-pops rather than population alone, the 
procedure the Commission adopts can better account for the costs 
associated with impairing specific areas in order to identify a 
provisional TV channel assignment plan that minimizes impairments.
b. Measuring Potential Impairments
    15. The Commission adopts its proposed procedure for determining 
the extent of potential impairments, with several modifications. The 
technical formulas for implementing the modified procedure the 
Commission adopts will be set forth in the Application Procedures PN. 
Under the measurement procedure the Commission adopts, the impairment 
level--the population subject to impairment--of each license that will 
be available in the forward auction under each spectrum clearing target 
will be pre-calculated for each station on each channel for each 
clearing target. More specifically, the ISIX methodology first will be 
used to predict potential inter-service interference between TV and 
wireless services. The ISIX methodology, which the Commission adopted 
for purposes of the incentive auction, predicts potential inter-service 
interference based on deployment of a hypothetical wireless network. 
The raw data the ISIX methodology produces at a two-by-two kilometer 
cell level will be aggregated into county-level data sets for the 
uplink and downlink portions of the 600 MHz Band and mapped to specific 
forward auction licenses. The ISIX methodology defines each two-by-two 
kilometer cell as ``impaired'' or ``unimpaired'' depending on whether 
it is subject to any inter-service interference. The percentage of the 
population of each county subject to inter-service interference then 
will be calculated for each potential channel assignment of a TV 
station to a location in the 600 MHz Band. The procedure will avoid 
double-counting the population of a county that is subject to potential 
inter-service interference from more than one TV station through the 
use of overlap tables. For any such assignment in which this percentage 
is more than 10 percent in either the uplink or downlink portion, the 
entire population of the county will be considered impaired for the 
license if the station is assigned to the channel. For a given TV 
channel assignment plan, the impairment percentage of a license is 
determined by dividing the sum of the populations of impaired counties 
by the population of the PEA.
    16. The Commission adopts a 10 percent limit on the amount of 
impairment allowed in a county before the entire population of the 
county is considered impaired for the purposes of the measurement 
procedure. The Commission sought comment on setting this threshold 
between 10 and 20 percent. In order to avoid under-predicting potential 
interference, the Commission chooses a more conservative threshold at 
the low end of the proposed range. The Commission emphasized that the 
optimization procedure will use the county measurement only to 
determine the provisional TV channel assignment plans; the selection of 
a specific clearing target will use the more granular 2x2 cell data to 
determine the near-nationwide impairments. The Commission notes that 
because the initial clearing target is ultimately chosen based on the 
2x2 grid cell data, using a 10 percent county threshold to aggregate 
the ISIX data up to the county level has very little impact on the 
overall result.
    17. Rather than ``discounting'' the population for impairments 
located in the uplink portion of the 600 MHz Band, as proposed, the 
procedure the Commission adopts will consider uplink and downlink 
impairments to have equal weight. The Commission proposed to consider a 
county that is impaired in the downlink portion of the 600 MHz Band to 
also be impaired in the uplink portion, but not the reverse. Thus, only 
50 percent of the population of a county with uplink impairments above 
the threshold would be considered impaired (i.e., the portion of the 
population representing the uplink block); 100 percent of the 
population of a county with downlink impairments above the threshold 
would be considered impaired (i.e., the population representing both 
the downlink and uplink blocks). Commenters generally oppose the 
proposal, arguing that it would tend to understate impairment levels. 
The Commission agrees and concludes that adopting it would be 
inconsistent with the strong record support for minimizing impairments. 
Therefore, the percentage of population attributed to uplink 
impairments will not be discounted: if the percentage of population 
with predicted impairment in the uplink exceeds 10, the optimization 
will consider the county wholly impaired, just as it will for 
impairments in the downlink portion of the block. The effect of this 
approach is that the optimization will not favor impairing the uplink 
over impairing the downlink but will focus instead on minimizing 
impaired weighted-pops in the 600 MHz Band overall. Further, the result 
of this approach is that any population that is not considered impaired 
will be usable for two-way communication (i.e., both its uplink and 
downlink blocks will be unimpaired).
    18. The measurement procedure will be used in applying the 
additional objectives as well as the primary objective. In creating the 
provisional TV channel assignment plan for each clearing target, data 
must be aggregated to the county level, and a percentage threshold must 
be applied to determine whether a county is impaired, in order to 
reduce the volume of data inputs to a quantity that reasonably can be 
utilized. Given all of the possible TV station and channel combinations 
under every clearing target, the ISIX methodology produces a quantity 
of data that exceeds the current

[[Page 61923]]

capabilities of optimization techniques. When aggregated to a county 
level, the ISIX methodology produces approximately 3.7 billion separate 
records of data for the roughly 3,000 counties in the United States. 
Use of data at the next possible level of granularity--the Census 
tract--would result in a 20-fold increase in the number of data 
records, and use of data at the cell level would result in a 650-fold 
increase. As it stands at the county level, the measurement procedure 
the Commission adopts must consider more than 100,000 decision 
variables and over two million constraints. At a more granular level 
than the county, the number of decision variables and constraints that 
must be considered would increase to an unsolvable number. For purposes 
of applying the near-nationwide standard to determine whether a plan 
satisfies the impairment limit, however, more granular, cell-level data 
will be used.
    19. Likewise, forward auction licenses will be categorized as 
Category 1 (zero to 15 percent impaired) or Category 2 (greater than 15 
percent and up to 50 percent impaired) based on cell-level impairment 
data, and forward auction bidders will be provided with cell-level data 
to inform their bidding strategies. Specifically, ISIX data will be 
used to identify the impaired population in both the uplink and 
downlink portion in the license. This data will show in which cells a 
potential licensee either will be restricted from operating due to 
harmful interference to an impairing TV station or may have its 
operations infringed upon by harmful interference from a TV station. 
The population of impaired cells across the license--whether the 
impairment results in the uplink or downlink--will be added together 
and divided by the total population of the PEA to calculate the 
impairment percentage. If the total population of the impaired cells 
within a block is less than or equal to 15 percent of the total 
population of the block, the block will be offered as a Category 1 
block. If the total population of the impaired cells is more that 15 
percent but less than or equal to 50 percent, the block will be offered 
as a Category 2 block. The location of an impairment in the 600 MHz 
Band will not be determinative for the purposes of calculating the 
impairment percentage; the population of a cell will be considered 
impaired even if the impairment only affects the uplink or downlink 
portion of the paired 5+5 megahertz spectrum block. This conservative 
approach avoids both the weighting proposed in the Auction 1000 Comment 
PN and double counting. For example, assume a PEA with a population of 
100,000 has impairments that affect 10,000 people in the downlink 
portion of the A block and 5,000 of the same people in the uplink 
portion of the A block. The A block would be considered 10 percent 
impaired (10,000 impaired pops divided by 100,000 total pops in the 
PEA). Though the impairment affects a population of 5,000 in both the 
uplink and the downlink portion of the A block, 5,000 is not added to 
the total impaired pops because that would result in double counting--
the population of 5,000 was already included when tallying the downlink 
impairments. The effect of this approach is that any population that is 
not considered impaired will be fully usable for two-way communication 
(i.e., both its uplink and downlink blocks will be unimpaired), 
consistent with its prioritization of paired spectrum.
c. Assigning TV Stations to the 600 MHz Band To Accommodate Market 
Variation
    20. The Commission adopts its proposal to allow the optimization 
tool to assign television stations within the 600 MHz Band where 
necessary to accommodate market variation in a manner that best 
fulfills the clearing target objectives, and not to restrict it to 
assignments in specific portions of the 600 MHz Band--downlink, uplink, 
or duplex gap. Restricting the optimization tool to certain portions of 
the 600 MHz Band would undermine its efficacy in carrying out the 
primary objective, likely resulting in more impairment of forward 
auction licenses and the selection of a lower spectrum clearing target. 
Such an outcome is not justified by the competing policies that some 
commenters advocate in support of restrictions.
    21. Commenters express conflicting views on where to assign 
impairing television stations, arguing for various reasons that 
impairments should be restricted to the uplink, downlink, and/or the 
duplex gap portion of the 600 MHz Band and identifying problems with 
every possible location within the 600 MHz Band. For example, CCA, C 
Spire, and T-Mobile assert that stations should be assigned to the 
uplink because consumer demand is driving the need for more unimpaired 
downlink spectrum than uplink spectrum. T-Mobile and Verizon also 
suggest that assigning stations to the uplink is preferable because 
carriers can employ mitigation methods, such as base station filters, 
to guard against inter-service interference. On the other hand, Sprint 
supports assigning TV stations on contiguous channels starting at the 
bottom end of the downlink band to facilitate filter design in devices, 
reduce the number of filters needed for base stations, and maximize 
two-way spectrum. Sennheiser supports assigning stations to channels in 
the downlink portion of the band in order to provide greater certainty 
for unlicensed users in the duplex gap. In contrast, AT&T and Verizon 
oppose assigning TV stations to the downlink band because of 
complications to mobile device filter design. Several commenters 
caution against assigning stations to channels in the duplex gap. 
Conversely, AT&T, CCA, Sprint and T-Mobile support assigning stations 
to the duplex gap. AT&T states that it would likely be less harmful as 
a technical matter, and therefore preferable to assignment elsewhere in 
the 600 MHz Band, and T-Mobile argues that it ``will allow for more 
extensive, higher performance 600 MHz broadband transmissions in the 
affected geographic area license(s) than would be possible if the 
broadcast impairment were co-channel with broadband operations.'' 
Sprint states ``in the event of less robust broadcaster participation, 
in which fewer blocks of competitively critical low-band spectrum can 
be repurposed, repacking television stations in the duplex gap may be 
the only way to conduct an auction with a modestly successful amount of 
auctioned spectrum.'' CCA cautions that protecting the duplex gap will 
``reduce the amount of spectrum available in the forward auction.'' 
Henry A. Waxman advocates for an alternative approach in which the 
assignment of TV stations to the duplex gap is dependent upon whether 
the clearing target exceeds 84 megahertz. Some commenters oppose 
repacking TV stations anywhere in the 600 MHz Band.
    22. As an initial matter, the Commission emphasized that the 
optimization tool will assign television stations anywhere in the 600 
MHz Band ``only where absolutely necessary.'' As the Commission 
determined in the Incentive Auction R&O, however, and as many 
commenters acknowledge, flexibility to accommodate some level of market 
variation--thus requiring some level of impairment to 600 MHz Band 
licenses--is critical to avoiding the least common denominator problem. 
The procedure the Commission adopts always will favor assigning 
television stations to channels in the remaining TV bands if possible, 
and, will select a clearing target selection that reflects an 
appropriate trade-off between the amount of spectrum cleared and the 
overall impairment level. Further, the

[[Page 61924]]

Commission disagrees with AT&T that assigning TV stations to the 600 
MHz Band will create problems similar to those in the 700 MHz Lower A 
Block caused by TV stations in channel 51. The Commission developed the 
ISIX methodology to address this issue specifically by creating a 
methodology to predict where inter-service interference is likely to 
occur and proposing to restrict licensees' service in these areas where 
``impairments'' are created. Moreover, wireless licensees will be aware 
of these impairments in advance: The Commission will provide bidders 
with detailed information about impairments in the blocks offered prior 
to the start of the forward auction, including the facility causing the 
impairment, and the resulting areas where they will be restricted from 
operating or not be required to operate due to inter-service 
interference. As a result, bidders can use the facility information 
about the impairing station to determine how their wireless networks 
could be deployed around the impairment, or whether they should not bid 
on impaired licenses (that is, a license to operate in a geographic 
area that is subject to inter-service interference) in that area.
    23. The Commission declines to restrict the optimization procedure 
from assigning TV stations to the uplink, downlink and/or duplex gap 
portions of the 600 MHz Band in order to carry out the clearing target 
objectives. The Commission is not persuaded that any of the technical 
issues identified by commenters justify restricting the optimization 
procedure to create more license impairments and/or a lower initial 
clearing target. Despite the lack of consensus on where to locate 
impairments, most commenters agree with the principles that impairments 
should be minimized to the greatest extent possible, and that the goal 
of the auction should be to repurpose as much spectrum as market forces 
allow. The procedure the Commission adopts is consistent with this view 
because it provides the fullest possible scope for implementing the 
primary objective of minimizing the impact of impairments on 600 MHz 
licenses.
    24. In particular, the Commission disagrees with AT&T and Verizon 
that technical issues justify restricting the optimization procedure 
from assigning stations to the downlink portion of the 600 MHz Band. 
AT&T argues that the Commission underestimates the ``real world'' 
impact of placing a TV station in the downlink portion of the 600 MHz 
Band because the ISIX methodology only measures potential interference 
within 5 MHz of a channel's edge and thus does not adequately predict 
the effect of placing a TV station in the downlink; and because 
wireless user equipment (i.e., mobile and portable devices) cannot 
prevent interference into any frequency within the same filter or 
``duplexer.'' Duplexers are pairs of filters, one transmit and one 
receive, that function together to reduce the potential for 
interference between a transmitter and a receiver in the same piece of 
equipment. AT&T's criticism of the ISIX methodology is unfounded. The 
ISIX methodology is consistent with its rules, which do not offer 
interference protection beyond the first adjacent channel. Moreover, 
AT&T ignores the fact that wireless user equipment is capable of 
attenuating interfering signals at frequencies separated beyond the 
first adjacent channel, as required by 3GPP standards. AT&T's criticism 
of the ISIX methodology also is untimely. AT&T failed to seek 
reconsideration of the final order adopting the ISIX methodology, or to 
raise its criticisms of the ISIX methodology before the Commission 
adopted that order.
    25. AT&T's filter concerns also lack merit. With regard to blocks 
co-channel with or first adjacent channel to an impairing TV station, 
its approach recognizes that filters may be ineffective in impaired 
areas by not requiring wireless user equipment to operate in such 
areas. In addition, wireless user equipment is prohibited from 
operating where such equipment could interfere with digital television 
receivers. Beyond the first adjacent channel, the signal attenuation 
required by 3GPP standards will limit interference regardless of 
duplexer performance. The likely use of two or more duplexers also 
makes it less likely that a TV station assigned to a portion of the 
downlink will render the entire downlink unusable by wireless user 
equipment. To the extent that an impairing TV station is located in the 
non-overlapping part of one duplexer, the non-affected duplexer will be 
able to filter out the interfering signals, a fact that even AT&T 
appears to concede. For example, for an 84 megahertz clearing target 
(encompassing blocks A-G), if a TV station is co-channel with the A 
block, using two duplexers (one covering blocks A-D; the other covering 
blocks D-G), the duplexer covering blocks D-G at the opposite end of 
the downlink band will be able to filter out the interfering TV signal. 
Consequently, wireless user equipment operating in those blocks should 
not experience harmful interference from the impairing TV station. 
Because the optimization tool will prefer TV station assignments that 
overlap with the guard bands where possible in order to minimize the 
impaired weighted-pops pursuant to the primary objective the Commission 
adopts herein, TV stations are more likely to be assigned to the non-
overlapping part of one duplexer than to the central part of the 
downlink where the duplexers overlap. Furthermore, technical solutions 
and enhanced filter technologies can mitigate the potential for 
interference once the 600 MHz Band Plan is finalized following the 
auction. As Sprint suggests, enhanced filter technologies will make it 
possible to use separate filters for separate frequencies in the 
future, further limiting the impact of a TV station in the downlink 
portion of the band by the time this band is deployed. The technical 
details on the 600 MHz duplexers will not be contemplated by 3GPP until 
the band plan and potential market variations are finalized after the 
auction. Once they are finalized, technical solutions, such as 
Sprint's, can mitigate the potential for interference given the actual 
frequencies affected.
    26. Further, the Commission cannot conclude that protecting the 
duplex gap from any impairment is warranted at the risk of repurposing 
less spectrum. Its analysis indicates the duplex gap will not be 
subject to any impairment in most markets even if the optimization 
procedure tool is not restricted in assigning impairing stations. In 
scenarios 1, 2, and 3, the maximum number of TV stations assigned to 
channels that impair the duplex gap are 6, 7, and 2, respectively. Thus 
the duplex gap will remain free from impairment across most of the 
country except for in a relatively small number of markets. Conversely, 
protecting the duplex gap in every market is likely to lead to the 
selection of a lower clearing target as a result of increased 
nationwide impairment levels. In simulation scenarios 1 and 2 (40-50 
percent and 50-60 percent broadcaster participation in the reverse 
auction, respectively), protecting the duplex gap from the assignment 
of TV stations raises the nationwide impairment percentage beyond the 
standard for limiting impairment, thereby requiring the optimization 
procedure to drop down to a lower clearing target. Protecting the 
duplex gap also reduced the number of relatively unimpaired Category 1 
licenses in each scenario. By reducing the amount of spectrum available 
to generate forward auction proceeds, protecting the duplex gap could 
threaten the overall success of the auction, as well as its competition 
goals for licensed providers in the 600 MHz

[[Page 61925]]

Band. The Commission notes that the Spectrum Act prioritizes license 
600 MHz Band services over services operating in the guard bands. By 
contrast, the Commission's decision to authorize guard band use by 
wireless microphones and unlicensed devices was wholly within its 
discretion. Its policy regarding impairments will also affect 
broadcasters and 600 MHz licenses, wireless microphones, and unlicensed 
devices in this limited number of markets. In addition, in the limited 
number of areas where the duplex gap is subject to impairment, it may 
also not be available to protect against interference between licensed 
services. In such areas, the methodology proposed in the ISIX Further 
Notice, 79 FR 76282, December 22, 2014, will be used to prevent inter-
service interference, rather than the guard band. While commenters have 
identified a range of issues associated with assigning stations to the 
duplex gap, the goals of repurposing spectrum for mobile broadband use, 
minimizing impairments, and ensuring a successful auction militate in 
favor of flexibility and outweigh the potential benefits of protecting 
the duplex gap from any impairment.
    27. The Commission also rejects arguments that impairing stations 
should be restricted to the same portion of the 600 MHz Band. For 
example, Sprint proposes that impairing TV stations should, to the 
extent possible, be assigned to channels side-by-side in any market in 
which multiple stations remain and on common frequencies. CCA proposes 
an alternative ``channel stacking plan,'' which would create a pattern 
for impairing station assignments specific to the 600 MHz Band Plan 
associated with the selected clearing target. CTIA also urges 
consistency in assignment of TV stations to the 600 MHz Band. The 
potential costs of such restrictions--reducing the optimization 
procedure's efficacy in minimizing impairments and risking the 
selection of a lower clearing target--outweigh the potential benefits 
that these commenters identify. The unrestricted approach the 
Commission adopts is consistent with the consensus for minimizing 
impairments and maximizing potential spectrum recovery.
    28. Further, the Commission rejects Sinclair's request to impose 
constraints to ensure that no licensee of multiple television stations 
is disproportionately affected by channel assignments in the 600 MHz 
Band. The Commission disagrees with Sinclair's premise that stations 
assigned to the 600 MHz Band will be disadvantaged in comparison to 
stations located in the remaining TV bands. Such stations will be 
entitled to the same robust protections in the repacking process as all 
other eligible TV stations, including preservation of coverage area and 
population served pursuant to the constraints established in the 
Incentive Auction R&O, reimbursement for reasonable relocation costs, 
and protection from inter-service interference. In addition, by 
requiring the optimization tool to potentially forego channel 
assignments that minimize impaired weighted-pops in light of station 
ownership concerns, Sinclair's proposal would risk greater impairments 
to 600 MHz Band licenses and recovery of less spectrum through the 
incentive auction. Accordingly, the Commission concludes that the 
potential benefits of Sinclair's proposal are outweighed by the costs.
    29. In determining a provisional TV channel assignment plan, the 
optimization tool will not assign impairing stations to channels 50 or 
51. Many commenters caution against the assignment of stations to 
channel 51 due to potential interference with Lower 700 MHz A Block 
operations. Recognizing the existing interference concerns between 
television stations on channel 51 and the Lower 700 MHz A Block, the 
Commission took action in the Incentive Auction R&O to encourage early, 
voluntary relocation of channel 51 stations to further mitigate any 
potential interference. Further, its decision to create a 600 MHz Band 
Plan in which channels 50 and 51 would be repurposed for the 600 MHz 
wireless uplink band under every spectrum recovery scenario was 
intended to improve the interference environment for 700 MHz licensees. 
Unlike the 700 MHz service, which is already in operation, 600 MHz Band 
licensees will be able to account for potential loss in the value of 
their licenses as a result of impairments through the mechanism of the 
forward auction, and will have full prior knowledge of the areas of 
operation that may be affected by inter-service interference. Moreover, 
the proposed ISIX methodology would apply only to licenses in the 600 
MHz Band and, therefore, no mechanism is available to prevent 
interference between impairing TV stations and the 700 MHz service. The 
decision to exclude both channels 50 and 51 (each totaling six 
megahertz) will ensure interference protection consistent with its use 
of technically reasonable guard bands of at least seven megahertz.
2. Additional Objectives
    30. The Commission also adopts its proposal to include a secondary 
objective: Maximizing the weighted number of Category 1 blocks 
available in the forward auction. To calculate the weighted number of 
Category 1 blocks, the auction system sums the Category 1 blocks in 
each PEA, multiplies the result by the value weighted price index for 
the PEA, and adds those results for all PEAs. Commenters raise concerns 
that the impact of impairment on the value of spectrum licenses to 
forward auction bidders cannot be measured strictly in terms of 
nationwide percentages. The Commission agrees that it should strive to 
offer as many unimpaired licenses as possible.
    31. In order to avoid any increase in impairment levels, the 
secondary objective will be constrained by the primary objective. 
Specifically, the secondary objective will be constrained by the 
nationwide impairment percentage determined by the primary objective, 
rounded up to the nearest integer. For example, if after applying the 
primary objective, the nationwide impairment percentage is 4.4, the 
procedure will maximize the weighted number of Category 1 licenses up 
to an impairment percentage of five. Thus, the secondary objective will 
function primarily as a tie-breaker in choosing a provisional TV 
channel assignment plan: When more than one potential plan exists with 
the same minimum level of impairment identified through application of 
the primary objective, the secondary objective will cause the 
optimization tool to choose the one that maximizes the weighted number 
of Category 1 licenses. Constraining the secondary objective in this 
manner is consistent with the consensus in favor of minimizing 
impairments and maximizing potential spectrum recovery.
    32. The provisional TV channel assignment plan determined based on 
application of the first two objectives may include licenses that 
cannot be offered in the forward auction because greater than 50 
percent of the population is subject to impairment. The optimization 
procedure will apply a tertiary objective in order to maximize their 
potential value in a subsequent spectrum auction. More specifically, 
the tertiary objective will seek to minimize impaired weighted-pops 
over all licenses, including licenses with greater than 50 percent of 
the population subject to impairment. The primary and secondary 
objectives will not take account of any license with greater than 50 
percent impaired weighted-pops. The tertiary objective will be 
constrained by the first two objectives: It will be applied only to the 
extent that it neither increases the nationwide impairment

[[Page 61926]]

percentage resulting from application of the primary objective nor 
reduces the weighted number of Category 1 licenses resulting from 
application of the secondary objective. Further, it will not decrease 
the weighted number of Category 2 licenses existing after the 
application of the primary and secondary objectives. Solely for 
clearing targets where the lower guard band is 11 MHz, the Commission 
adopts a quaternary objective of minimizing the number of stations 
placed on the lower channel in the lower guard band to the extent it 
does not increase the total number of stations assigned to the 600 MHz 
Band or to any channel in that Band. This objective will not affect the 
results of the other objectives.

C. Standard To Limit Market Variation

    33. The Commission adopts a scaled standard that will limit 
impairments to a level significantly less than the proposed 20 percent 
nationwide level at clearing targets above 72 megahertz, while ensuring 
an appropriate tradeoff between spectrum recovery and impairment level. 
Instead of a percentage-based standard, the standard the Commission 
adopts is equivalent to the weighted-pops of one paired 5+5 megahertz 
spectrum block nationwide, which translates into the percentages at 
each potential clearing target in the 600 MHz Band Plan. At clearing 
targets below 72 megahertz, the standard is capped at 20 percent.
    34. This ``one-block-equivalent'' standard responds to concerns 
expressed by commenters that the proposed 20 percent standard would 
allow excessive impairment, particularly at higher clearing targets. It 
also responds to concerns that repurposing more spectrum may not be 
justified at the cost of allowing more impairment. Instead, T-Mobile 
argues, proportionally less impairment should be allowed at higher 
clearing targets, and more at lower clearing targets. Under the 
standard the Commission adopts, the percentage of impairment that is 
allowed is scaled to the amount of licensed spectrum that would be 
repurposed at each clearing target, increasing target by target from 
approximately eight percent at the highest clearing target to 20 
percent at targets of 72 megahertz and lower. Because the impairment 
percentage is scaled to the amount of licensed spectrum that would be 
repurposed at each clearing target, the standard the Commission adopts 
also responds to criticisms that the proposed 20 percent standard was 
arbitrary and overly complex. The Commission notes that the one-block-
equivalent standard is the same number of weighted-pops across all 
clearing targets and is based on the total nationwide 2010 census 
population multiplied by the index of area-specific prices from prior 
auctions based on the relative price of each EA and CMA license (for 
paired spectrum) in Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3). 
The standard is capped at 20 percent at clearing targets below 72 
megahertz because otherwise the one-block-equivalent approach would 
allow more impairment than the proposed 20 percent. Commenters raise 
concerns that these impairment levels are still too high overall. Even 
if that proves true in a given stage, however, the auction design 
includes a self-correcting mechanism: If the blocks offered in a stage 
are insufficiently valuable to produce the forward auction revenues 
necessary to meet the final stage rule, the auction would transition to 
a new stage with a lower clearing target and a lower level of aggregate 
impairment. Thus, the auction system relies on market forces to 
determine whether blocks offered in the forward auction are too 
impaired, even within the limits the Commission adopts. This market-
based approach avoids unduly constraining the flexibility to set 
reasonable clearing targets that reflect the level of broadcaster 
participation.
    35. The standard the Commission adopts also accounts for the 
tradeoff between the benefits of repurposing spectrum and the costs of 
allowing impairments at different clearing targets. For example, a 126 
megahertz clearing target would repurpose 100 megahertz of licensed 
spectrum, or 10 paired blocks, so the impairment limit at that clearing 
target is the nationwide equivalent of one of the ten blocks. If 
aggregate impairments equal or exceed the equivalent of the population 
of one spectrum block nationwide at that target, the optimization 
procedure will move to the next lower clearing target. An 84 megahertz 
clearing target would repurpose 70 megahertz of licensed spectrum, or 
seven paired blocks, so the standard will tolerate a higher proportion 
of impairment--up to the equivalent of one out of seven blocks 
nationwide, or approximately 14 percent--but the optimization procedure 
likewise will move to the next lower clearing target if aggregate 
impairments equal or exceed that amount. Thus, the standard has the 
effect of moving to a lower clearing target with one less spectrum 
block to offer if impairments equal or exceed the equivalent of one 
block nationwide. The standard tolerates a higher proportion of 
impairment at lower clearing targets because the tradeoff is different: 
The record reflects that more flexibility to accommodate market 
variation is appropriate at lower clearing targets in order to ensure 
the auction's overall success. While commenters agree that minimizing 
impairments should be a high priority, many commenters also urge the 
Commission to balance this goal against the goal of ensuring that 
sufficient spectrum is made available in the forward auction. The 
Commission agrees with T-Mobile that at higher clearing targets the 
balance favors achieving greater uniformity across the band plan (by 
tolerating a lower percentage of impairment) and at lower clearing 
targets the balance favors repurposing spectrum by tolerating a greater 
percentage of impairment.
    36. The Commission emphasized that the population in most PEAs will 
not be subject to any impairment under the standard it adopts, which 
will be applied on a nationwide, aggregate basis. In fact, the 
Commission expects that the vast majority of PEAs will have no impaired 
blocks, although there may be some PEAs with more than one impaired 
block. For example, in the Clearing Target Simulations Public Notice 
(CTS PN), 80 FR 30021, May 26, 2015, the simulation resulting in the 84 
megahertz initial clearing target shows that in 406 PEAs, all but 62 
have only Category 1 licenses. The same is true for all but 53 in the 
114 megahertz scenario and all but 47 in the 126 megahertz scenario. In 
its analysis, AT&T similarly found that in an 84 megahertz initial 
clearing target all but 64 PEAs will have only Category 1 licenses. 
AT&T acknowledges that its results ``align closely with the published 
FCC results for the top 20 markets'' and that differences may be 
attributed to the power and geography differences of stations assigned 
to the 600 MHz Band. Staff simulations project that at a range of 
clearing targets, the overwhelming majority of spectrum blocks would be 
unimpaired or nearly unimpaired. In each of the simulations in the CTS 
PN, at least 93.4 percent of licenses are Category 1 licenses, and 
Category 2 licenses comprise at most 1.3 percent of total possible 
licenses.
    37. To promote transparency and provide information about the 
potential results of the clearing target determination procedure, 
Commission staff released a public notice in May 2015 showing the 
results of simulations of the procedure based on certain assumptions 
regarding broadcaster participation levels and impairments along the 
borders. These simulations project that the procedure, including the 
``one-block-equivalent'' standard, would

[[Page 61927]]

result in the selection of a high initial clearing target with the vast 
majority of licenses available in Category 1. The Commission notes that 
for purposes of the CTS PN impairment analysis, the total number of 
licenses analyzed at each clearing target level included only those 
licenses that could be offered in the continental United States (i.e., 
in 406 out of the 416 PEAs). When calculating impairments for the 
incentive auction, the procedure will include all 416 PEAs. In 
particular, these simulations result in an initial clearing target of 
84 megahertz assuming 40 to 50 percent of broadcasters participate in 
the reverse auction (Scenario 1); an initial clearing target of 114 
megahertz assuming 50 to 60 percent participate (Scenario 2); and an 
initial clearing target of 126 megahertz assuming 60 to 70 percent 
participate (Scenario 3). In Scenario 1, of the 2842 possible licenses, 
only 46 are Category 2 licenses. In Scenario 2, of the 3654 possible 
licenses, only 50 are Category 2 licenses. And in Scenario 3, of the 
4060 possible licenses, only 48 are Category 2 licenses. In all three 
scenarios, 88 to 93 percent of the licenses in the high-demand markets 
(i.e., PEAs 1-40) are Category 1 licenses and 84 to 88 percent of PEAs 
contain only Category 1 licenses. Under Scenario 1, of the 2654 
Category 1 licenses, 2535 are entirely free of impairments (i.e., zero 
percent of the weighted-pops in the PEA are impaired). In Scenario 2, 
of the 3469 Category 1 licenses, 3334 are entirely free of impairments; 
and in Scenario 3, of the 3886 Category 1 licenses, 3753 are entirely 
free of impairments.
    38. While commenters generally support the release of the 
simulations to provide greater transparency, some question the staff's 
assumptions, request release of all of the underlying data or request 
additional simulations based on different assumptions. The Commission 
concluded that additional simulations are not necessary. On July 10, 
2015 the Incentive Auction Task Force provided additional data for each 
of the six scenarios released in the CTS PN, including the assumptions 
regarding broadcaster participation, the specific DMAs with impairing 
TV stations and with stations in the duplex gap, and the channel to 
which each impairing station was assigned. The CTS PN provided 
information regarding a range of illustrative participation scenarios 
and clearing targets that afforded the public ample opportunity to 
understand and comment on the clearing target determination procedure 
that the Commission adopts, which procedure is identical to the one 
used in the CTS PN. The Commission also declines to release all of the 
data underlying the simulations: The CTS PN identified the critical 
information necessary to evaluate its clearing target determination 
procedure, and it is persuaded that the release of more data is 
warranted. With regard to broadcaster participation, rather than 
attempt to predict whether thousands of individual stations will choose 
to participate based on subjective factors, for purposes of the 
simulations certain categories of stations were assumed not to 
participate based on objective factors (e.g., major network affiliates, 
the major PBS station in an area, etc.). Because the simulations 
require some assumptions regarding participation, it was reasonable to 
base those assumptions on such objective factors rather than merely a 
randomized array of stations. In any event, the purpose of the 
scenarios described in the CTS PN was to test the results of the 
clearing target determination procedure against a range of potential 
broadcast stations in the reverse auction.
    39. With regard to impairments along the borders, some commenters 
question why the simulations did not include assumptions based on 
information about interference from Mexican television stations that 
AT&T has placed in the record of this proceeding. Reliable information 
about potential interference from Mexican TV stations is not publicly 
available at present, and AT&T's filing does not reflect Mexico's plans 
to change its television service in the near future. Instead, 
Commission staff chose to use the information reflecting current treaty 
agreements with Mexico--that is, to protect all Mexican allotments--but 
not to consider interference from Mexican stations into the U.S. Thus, 
the only potential impairments excluded from the simulations are areas 
in which 600 MHz licensees could operate but might experience 
interference from Mexican TV stations that may or may not exist. While 
that approach may under-predict such interference to a limited extent, 
the Commission cannot conclude that it was unreasonable. The Commission 
assures forward auction bidders that this information will be made 
available before the forward auction to allow bidders to evaluate all 
types of potential impairments caused by international TV stations, in 
addition to domestic ones. The Commission also does not want to over-
predict Mexican interference into the U.S. given Mexico's suggestions 
that it will try to keep all radio and television broadcast below 
channel 37. The Commission notes that the Instituto Federal de 
Telecomunicaciones (IFT) and the FCC are working on a joint repurposing 
of the 600 MHz Band that places Mexican TV stations below channel 37 
while providing additional channels for U.S. stations to use in the 
reorganized TV band.
    40. The Commission rejects arguments by AT&T, Verizon, and others 
for a standard that allows no impairment except in border areas. In its 
May 1, 2015 Ex Parte Letter, AT&T acknowledges that ``an approach that 
permits the Commission absolutely no flexibility'' except in border 
areas ``is probably too stringent'' and instead suggests allowing up to 
three percent impairment outside border areas plus eight to nine 
percent in border areas. The resulting 11-12 percent standard is 
similar to the standard the Commission adopts at a number of clearing 
targets and indeed, more stringent than what it adopts for higher 
clearing targets. Subsequently, in its July 1, 2015 Ex Parte Letter, 
AT&T proposed that the Commission allow impairments at the border, 
without a set maximum percentage, and a three percent on non-border-
related impairments. Such an approach would not provide the flexibility 
that is necessary to account for the unique challenges the incentive 
auction presents. Market variation may be caused by a variety of 
factors, including varying levels of spectrum congestion and 
broadcaster participation in different areas, as well as border-related 
constraints. Although AT&T argues that 84 megahertz or more of spectrum 
could be repurposed under an approach allowing for impairments only in 
border markets, its analysis relies on optimistic assumptions about 
reverse auction participation by broadcasters. The Commission fully 
expects high levels of participation by broadcasters; indeed, achieving 
such participation is a chief goal of its decision. At the same time, 
the purpose of the nationwide aggregate approach the Commission adopts 
is to provide flexibility in the event of non-participation by 
broadcasters in certain areas or other factors that it cannot fully 
predict in advance.
    41. The Commission also rejects EOBC's proposal to base the 
selection of an initial clearing target on the degree of impairment in 
Los Angeles or New York in the interest of simplicity. Like AT&T's 
proposal, EOBC's simply does not provide sufficient flexibility to 
accommodate market variation. Indeed, depending on levels of 
broadcaster participation, EOBC's approach could defeat the purpose of 
its decision to accommodate market variation in the first place by 
constraining the choice of

[[Page 61928]]

an initial clearing target to the two markets with the most highly 
congested broadcast spectrum in the nation. Further, EOBC's simulations 
showing that the Commission can reallocate at least 126 MHz in New York 
and Los Angeles are simply not possible. Even under the most optimistic 
assumptions regarding broadcaster participation, the simulations 
analyzed in the Clearing Target Simulations PN, did not result in 10 
unimpaired pairs in both New York and Los Angeles. EOBC's approach also 
would sacrifice the precision of the optimization-based approach the 
Commission adopts, focusing exclusively on two important markets, but 
which are not necessarily proxies for the rest of the nation. 
Accordingly, the Commission concludes that EOBC's approach would risk 
its goal of allowing market forces to determine the highest and best 
use of spectrum. For example, in Scenario 1 of the simulations run for 
the CTS PN, the initial clearing target would have to be lowered from 
84 megahertz to 78 megahertz because there are only six unimpaired 
blocks available in the New York PEA. For the same reason, the 
Commission also rejects AT&T's proposal to allow for only three percent 
of the population nationwide to be affected by non-border related 
impairments. Given that the top two PEAs each comprise well over three 
percent of the U.S. population and the next two PEAs each comprise 
approximately three percent, to adopts EOBC's or AT&T's approach would 
also undermine the purpose of adopting market variation in the first 
place: To prevent the lack of spectrum in one or two markets from 
lowering the clearing target. EOBC's and AT&T's approaches also fail to 
reflect that different tradeoffs are appropriate between spectrum 
recovery and impairment level at different clearing target levels in 
order to ensure the auction's overall success.
    42. Finally, the Commission declines to establish a separate 
standard to limit impairment levels in major markets. The procedure the 
Commission adopts protects major markets from impairment by weighting 
the population in such markets more heavily. The Commission rejects 
arguments that the procedure it adopts might disproportionately impair 
top markets. These commenters express concern that the optimization 
procedure will impair top markets to allow for fewer impaired markets 
nationwide. On the contrary, the procedure will seek to avoid impairing 
high-demand markets due to the added cost of such impairments in the 
mathematical optimization. The one-block-equivalent standard strictly 
limits impairment levels on a nationwide, aggregate basis. Accordingly, 
and based on staff simulations reflecting the number of Category 1 
licenses that the Commission projects would be available in major 
markets under the procedure it adopts, the Commission is not persuaded 
that a separate standard to limit impairment levels in major markets is 
necessary, particularly at the cost of added complexity and less 
flexibility in accommodating market variation.

IV. Qualifying To Bid

A. Qualifying To Bid in the Reverse Auction

    43. In order to qualify to bid in the clock phase of Auction 1001, 
the reverse auction, an eligible broadcast television licensee 
interested in voluntarily relinquishing spectrum usage rights in 
exchange for an incentive payment must submit an application in which 
it identifies, for each station that it wishes to enter in the clock 
phase of the reverse auction, every relinquishment option for which it 
would consider bidding for that station. If the broadcaster's 
application is timely filed and deemed complete, it must then commit to 
at least one relinquishment option per station at the opening price for 
that option for that station. Administrative details regarding the 
application and initial bid commitment procedures, including the 
application deadline, will be addressed in the Application Procedures 
PN. The Commission adopts its proposal with respect to an additional 
certification by applicants in the reverse auction regarding their 
exercise of due diligence. In the Auction 1000 Comment PN, the 
Commission sought comment on requiring all applicants in the reverse 
auction to certify to the truth of the following statement: ``The 
applicant acknowledges and agrees that any information provided by the 
Commission's outside contractors who are advising and assisting it with 
education and outreach in connection with the reverse auction is for 
informational purposes only and that neither the Commission nor any of 
its outside contractors makes any representations or warranties with 
respect to any such information and shall have no liability to the 
applicant in connection therewith.'' The Commission noted that this 
certification will help assure that each applicant accepts 
responsibility for its bids and will not attempt to place 
responsibility for its bids on either the Commission or the information 
provided by third parties as part of its outreach. The Commission 
received no comments in response. The additional certification serves 
the intended purpose and the Commission therefore will require all 
applicants in the reverse auction to make the certification. The 
Commission describes the available bid options, adopts procedures for 
setting the opening prices, and adopts the process by which applicants 
that are willing to accept the opening price for one or more 
relinquishment options will commit to that option and a fallback 
option(s), if they so choose, in order to become qualified to bid in 
the clock phase of the reverse auction.
1. Options for Relinquishing Spectrum Usage Rights
    44. Reverse auction applicants will be able to select from three 
possible bid options to relinquish their spectrum usage rights on their 
auction applications. An applicant's ability to select options on its 
application will be limited by its pre-auction band and the hierarchy 
of relinquishment options. These options correspond to the bid options 
that will be available to bidders in the clock phase of the reverse 
auction. The three bid options are a bid to go off-air (available to 
all stations), a bid to move to a Low-VHF channel (available to UHF or 
High-VHF stations), and a bid to move to a High-VHF channel (available 
only to UHF stations). A participant that intends to share a channel 
with another station post-auction will bid to go off-air. The auction 
system will treat the intention to relinquish spectrum usage rights in 
order to channel share the same as a bid to go off-air because ``from 
the perspective of the auction system, a channel sharing bid is 
identical to a license relinquishment bid.'' No parties filed comments 
directly addressing the proposed bid types. The Commission concludes 
that offering these three bid options is appropriate to implement the 
relinquishment options that the Commission adopted in the Incentive 
Auction R&O and is consistent with its goal of making reverse auction 
participation straightforward for broadcasters.
    45. Option Hierarchy. The auction system will treat the three 
possible bid options as a one-way hierarchy during the clock phase of 
reverse auction bidding. The hierarchy reflects the relative value of 
the relinquishment options to the auction system's ability to recover 
spectrum and simplifies the bidding process. Of greatest value in the 
hierarchy is a bid to go off-air, which is a bid to relinquish all 
spectrum usage rights to a particular channel. This option is followed 
in order of value by a bid to move to the Low-VHF band, then a bid to 
move to the High-VHF

[[Page 61929]]

band. For each station, the final option in the hierarchy is always to 
exit the auction in order to remain on the air in its pre-auction band. 
The option to which a bidder is designated pursuant to its initial 
commitment will represent the most spectrum rights it will be able to 
bid to relinquish in the auction. If the bidder subsequently decides to 
switch its bid option in accordance with the reverse auction bidding 
procedures, the only bid option(s) available to the bidder will be 
options that relinquish less spectrum usage rights. The one-directional 
nature of the bid options is important for bidders to consider when 
filling out their auction applications and committing to an initial 
relinquishment option.
    46. Some broadcasters support the one-way option hierarchy because 
it will ``facilitate the orderly conduct of the reverse auction,'' 
while others advocate for flexibility to switch between bid options 
without restriction. Contrary to concerns that its design will 
discourage participation or complicate decision-making, the Commission 
concludes that limiting the direction in which bidders may switch bid 
options--from greater to lesser relinquishments--will make bidding 
easier because it will establish a simple framework for evaluating 
options and will improve price predictability. A bidder that wishes to 
preserve flexibility to bid for all the options may do so by selecting 
all of its options on its auction application and committing to go-off-
air as its preferred initial relinquishment option. Furthermore, 
allowing bidders to ``move freely between any relinquishment options'' 
as Joint Broadcasters suggest would create a significant risk of 
harmful strategic bidding. Allowing bidders to switch bids unrestricted 
by the hierarchy would create opportunities for them to manipulate 
prices in the auction by moving back and forth between off-air and VHF 
options. Creating such strategic opportunities would actually make 
bidding more complicated for broadcasters because they would have to 
consider a broader range of strategies prior to and during the bidding.
    47. Joint Broadcasters posit that the one-way hierarchy will create 
inefficiencies since a bidder might be willing to bid to go off-air 
once the price to move to VHF falls too low, but such a bidder would be 
precluded from doing so by the one-way-hierarchy. The Commission 
disagrees. The one-way hierarchy, together with the reverse auction bid 
processing system the Commission adopts, will provide for a more 
efficient repacking than if broadcasters were able to shift among the 
options without restriction. Based on the available vacancy in the VHF 
band, the reverse auction bid processing system will reduce the price 
differential between the off-air and VHF prices, in order to encourage 
bidders that can be accommodated in the VHF band to bid to move to VHF 
rather than to go off-air. Substantial movement back and forth between 
options could reduce the overall efficiency of repacking in the VHF 
bands. Additionally, bidders that move to VHF are unlikely to want to 
switch to off-air bids, as Joint Broadcasters posit, because generally 
the price to go off-air will decline more rapidly than the price to 
move to High- or Low-VHF. Accordingly, the Commission is unconvinced 
that the one-way hierarchy design will unduly restrict bidders. The 
benefits of the one-way hierarchy in terms of added simplicity, 
preventing harmful strategic bidding, and repacking efficiency outweigh 
any costs in terms of lost bidder flexibility.
2. Opening Price Offers
    48. The Commission adopts its proposal for calculating opening 
price offers for each station using two factors: (i) A base clock price 
of $900, which represents the full per-unit of volume value to the 
auction of clearing a channel in the UHF band; and (ii) a station-
specific ``volume'' factor that equally weights a station's 
interference-free population and the number of constraints that it 
imposes on the auction system's ability to repack other stations. The 
Commission will calculate opening price offers for UHF stations to go 
off-air by multiplying the base clock price of $900 by their station-
specific volumes. Opening price offers for bid options other than a UHF 
station bidding for off-air relinquishment will be calculated by 
multiplying fractional portions of the nationwide uniform $900 base 
clock price by a station's volume. The Commission will publicly 
announce opening price offers for each bid option available to each 
station eligible to participate in the reverse auction at least 60 days 
in advance of the deadline to file an application to participate in the 
reverse auction.
a. Base Clock Price and VHF Clock Prices
    49. The Commission adopts a slightly modified version of its 
proposal to set a nationwide uniform base clock price, representing the 
full per-volume value to the auction of clearing a channel in the UHF 
band, from which it will calculate the opening clock prices for each 
bid option for stations in each band. The Commission will set the base 
clock price at $900 per unit of volume so that the maximum opening 
price offer to any particular station is $900 million. The Commission 
will calculate a volume for each eligible station based on its 
interference and population characteristics. The Commission will then 
re-scale this volume calculation so that the highest volume for a UHF 
station is one million, in order to yield the maximum opening price for 
a UHF station to go off-air of $900 million. If any VHF stations have a 
higher calculated volume than the highest volume UHF station, such 
stations may have their volume re-scaled to greater than one million. 
However, because the opening clock prices for VHF stations are 
calculated as fractional portions of the base clock price, the 
Commission expects that the opening price offers for VHF stations will 
always be lower than $900 million. By scaling based upon the highest 
volume UHF station, the Commission can ensure that one station will be 
offered an opening price of exactly $900 million. Although the 
Commission proposed to scale the volume of other stations based on the 
highest volume station, regardless of its pre-auction band, the 
Commission concludes that using the highest volume UHF station is more 
appropriate because that station's off-air price will reflect the 
greatest value to the auction.
    50. The Commission concludes that a $900 base clock price strikes 
the correct balance between attracting robust broadcaster participation 
across multiple markets and conducting an efficient--and ultimately, 
successful--auction. The Commission disagrees with broadcasters who 
argue that the base clock price should be increased to reflect the 
results of Auction 97 (AWS-3). Raising the base clock price would, 
according to these commenters, motivate greater broadcaster 
participation because stations would be offered higher opening prices, 
and this increased participation would ultimately result in more 
cleared spectrum. There is no basis to believe, beyond broadcasters' 
assertions, that opening prices of up to $900 million will be 
insufficient to encourage reverse auction participation. On the other 
hand, increasing the base clock price as suggested would raise the cost 
of repurposing spectrum and likely reduce the amount of repurposed 
spectrum. Increasing the base clock price would raise clearing costs 
for a given clearing target, increasing the likelihood of not meeting 
the final stage rule, necessitating additional stages at lower spectrum 
clearing targets. These risks would be compounded by the absence

[[Page 61930]]

of a dynamic reserve pricing (DRP) mechanism, because the auction 
system will not have a mechanism to mitigate the risk that a station 
will receive its opening price. Thus, increasing the opening prices in 
actuality would likely result in fewer stations having the opportunity 
to become winners in the auction. In addition, increasing the base 
clock price would risk increasing the length of the auction, making 
participation more difficult and costly for both forward and reverse 
auction bidders. Accordingly, the Commission adopts the $900 base clock 
price to ensure robust broadcaster participation without undermining 
its other auction goals.
    51. While opening price offers for a UHF station to go off-air will 
always equal the base clock price multiplied by the station's volume, 
opening price offers for other bid options--for a UHF station to move 
to VHF or for VHF stations to move to a lower band or to go off-air--
will equal the station's volume multiplied by a portion of the base 
clock price. Because the value to the auction of a cleared channel in 
the UHF band is the same whether a UHF station relinquishes its 
spectrum by going off-air or the channel is cleared through a series of 
intermediate moves involving VHF bids, the Commission will calculate 
the per-volume opening prices for intermediate moves to add up to the 
per-volume opening price for a UHF station to go off-air. Thus, the 
per-volume opening prices for a UHF station to move to High-VHF, a 
High-VHF station to move to Low-VHF, and a Low-VHF station to go off-
air will add up to equal the base clock price, since these three moves 
are equivalent to a UHF station going off-air in terms of value to the 
auction. Likewise, the per-volume opening prices for other intermediate 
moves will add to the opening price for an equivalent direct move. 
Thus, in per-volume terms, the opening price offer for a direct move 
from High-VHF to off-air will equal the sum of the opening price for a 
move from High-VHF to Low-VHF and the opening price for a move from 
Low-VHF to off-air. During the clock rounds, however, the portion of 
the base clock price attributable to each intermediate move will vary 
from round-to-round, since price offers to stations during the clock 
rounds will also depend upon the availability of channels in the VHF 
bands in the station's area. For example, while the per-volume opening 
price for a High-VHF station to go off-air will be 40 percent of the 
opening base clock price, this percentage will vary in subsequent clock 
rounds depending upon congestion in the VHF bands.
    52. More specifically, the Commission will apportion the base clock 
price for a station to move from the UHF band to off-air among the 
equivalent series of intermediate moves using the midpoint of the 
ranges the Commission proposed in the Auction 1000 Comment PN. The per-
volume opening price for a UHF station to move to Low-VHF will be 75 
percent of the base clock price (or $675), and the per-volume opening 
price to move from UHF to High-VHF will be 40 percent of the base clock 
price (or $360). The ranges that the Commission proposed represent the 
relative value of each band and its related relinquishment options to 
the auction, and reflect the scarcity of channels and different 
technical characteristics of each VHF band. In response to commenters 
that urge the Commission to increase the opening prices for VHF 
options, it is persuaded that it should not choose opening prices at 
the bottom of the proposed ranges in order to avoid discouraging 
broadcasters from choosing these options. At the same time, choosing 
opening prices at the top of the ranges proposed would run the risk of 
under-incentivizing the option to go off-air or to consider channel 
sharing. The Commission concludes that the values it choose strike the 
right balance between conducting an efficient auction and encouraging 
bidders to consider all bid options, include the VHF options.
    53. Because the opening price for a UHF station to move to Low-VHF 
will be 75 percent of the base clock price, the opening price for a 
move from Low-VHF to off-air must be 25 percent of the base clock price 
for these two intermediate moves to add up to the base clock price 
(i.e., 100 percent). Similarly, because the opening price for a UHF 
station to move to High-VHF will be 40 percent of the base clock price, 
the opening price for a move from High-VHF to off-air must be 60 
percent of the base clock price. Lastly, since the opening price for a 
UHF station to move to High-VHF is 40 percent and for a Low-VHF station 
to go off-air is 25 percent, the opening price for a move from High-VHF 
to Low-VHF must be 35 percent of the base clock for these intermediate 
moves to sum and equal the base clock price. Given a per-volume opening 
base clock price of $900, the per-volume opening price for a Low-VHF 
station to go off-air will therefore be $225 (25 percent of $900), for 
a High-VHF station to go off-air will be $540 (60 percent of $900), and 
for a High-VHF station to move to Low-VHF will be $315 (35 percent of 
$900).
    54. Several broadcasters oppose offering opening prices for the bid 
options to move to VHF that are lower than the bid option to go off-
air. As an initial matter, the Commission rejects NAB's unsupported 
claim that it lack the statutory authority under the Spectrum Act to 
offer different prices for VHF options. Although the statute does not 
expressly authorize different price offers for VHF options, it does not 
follow that the Commission lacks authority to offer different prices: 
Such authority is inherent in its mandate to conduct a reverse 
auction--which requires establishing opening price offers--and nothing 
in the Spectrum Act's statutory language, context, or legislative 
history suggests that in doing so the Commission cannot distinguish 
between relinquishment options. The Commission also rejects PBS's 
argument that discounting UHF to VHF bid options ``is inconsistent with 
the basic purpose of the auction'' to discover prices through market-
based means. Setting opening price offers for bid options that are 
proportional to the value of the relinquishment to the auction will 
send the appropriate price signals to bidders regarding the relative 
value of the options to the auction system and encourage bidders to 
initially commit to go off-air, recognizing that as price offers are 
reduced, they may request to switch to one of the VHF options. 
Moreover, price offers for VHF options and VHF stations in subsequent 
rounds will be determined by the actual demand for VHF options and the 
availability of channels in the VHF bands. As a result, the relative 
values for the various bid options will not remain fixed at the opening 
bid offer amounts, and the ultimate prices paid to winning bidders will 
reflect market demand for the options in the auction.
    55. The Commission disagrees with NAB and the Joint Broadcasters 
that the auction system should be indifferent between the 
relinquishment options available to UHF stations because each option 
will result in clearing a channel in the UHF band. In order to clear a 
UHF channel by paying a UHF station to move to the VHF band, the 
auction system may first have to pay one or more stations to relinquish 
spectrum usage rights in the VHF band. A bid to go off-air also is of 
greater value than a bid to change bands because it provides the 
auction system with more repacking flexibility: Accepting an off-air 
bid by a UHF station clears a UHF channel without first requiring the 
system to find a feasible channel in another band. Conversely, a UHF 
station that agrees to

[[Page 61931]]

move to one of the VHF bands is less valuable because it must be 
assigned a feasible channel in that band, limiting the auction's 
ability to assign another station to VHF, and significantly increasing 
the complexity of the repacking process. A station that agrees to move 
to Low-VHF is of greater value to the auction than one that agrees to 
move to High-VHF due to the greater availability of channels in the 
Low-VHF band and the greater number of stations for which that bid 
option will be available, both of which make repacking easier. 
Consequently, of least value to the auction is a station that agrees to 
move to High-VHF, since in many markets few channels are available, and 
only UHF stations may bid on this option.
    56. The Commission also disagrees with NAB that offering the same 
price for all three bid options would better serve the public interest 
by encouraging stations to move to the VHF band and continue to provide 
broadcast television service. NAB's premise is flawed, because a UHF 
station moving to VHF may necessitate a VHF station going off-air 
first. In any event, in keeping with its goal of allowing market forces 
to determine the use of spectrum, the public interest will be best 
served by pricing bid options according to their value to the auction 
and the repacking process, rather than based on separate broadcast-
related policy goals. The Commission also rejects PBS's suggestion that 
if the Commission discounts price offers for VHF options, it should 
provide a bidding credit for noncommercial educational (NCE) stations 
that successfully bid to move to VHF in order to help pay for their 
relocation expenses. Unlike in the traditional auction context, where 
bidding credits are intended to help small or disadvantaged businesses 
that may lack the financial resources to effectively compete for 
licenses with larger ones, winning bidders in the reverse auction will 
receive--and not make--payments, and can factor their relocation 
expenses into their consideration of whether to accept a price offer.
    57. The Commission disagrees with the Joint Broadcasters that its 
opening price offers for VHF bid options will fail to account for the 
``substantial technical inferiority of VHF channels'' and to ``provide 
the proper incentives for broadcasters to accept these limitations.'' 
Contrary to Joint Broadcasters' argument, its approach does provide an 
incentive to accept the less favorable propagation characteristics and 
other technical properties of VHF channels--this is precisely the point 
of offering higher opening prices to UHF stations to move to Low-VHF 
than to move to High-VHF. Nor are the Commission persuaded that 
requiring stations moving to VHF to pay relocation expenses will 
``greatly reduc[e] the desirability of a UHF-to-VHF move.'' Bidders 
can--and, the Commission expects, will--factor their relocation 
expenses into their consideration of whether to accept a price offer. 
The value inherent in a station retaining the exclusive right to use a 
full six megahertz channel will encourage stations to seriously 
consider bidding for VHF options.
    58. The Commission also disagrees with the Joint Broadcasters' 
argument that offering lower opening prices for VHF options will hinder 
the efficient use of spectrum by encouraging channel sharing over 
moving to VHF, thereby reducing its flexibility to repurpose additional 
UHF spectrum in the future. First, the Spectrum Act authorizes only one 
broadcast television spectrum incentive auction. Its goal, therefore, 
is to ensure the success of this auction. Second, contrary to the Joint 
Broadcasters' assumption, the two options are not mutually exclusive: 
Two UHF stations may agree to share a channel in VHF (with one agreeing 
to go off-air, and the other bidding to move to a VHF channel which 
both stations would share) in order to receive greater compensation 
than if only one station participated in the auction.
b. Station-Specific Volume
    59. The auction system will calculate each participating station's 
volume using the following formula: Station Volume = (Interference)0.5 
* (Population)0.5. The Commission will set the interference component 
to equal the number of co- and adjacent channel constraints a station 
would impose on repacking on a pairwise basis, and the population 
component to equal the number of people residing within the station's 
interference-free service area. The Commission's approach to setting 
the interference component along the borders will be subject to the 
agreements it reaches with Canada and Mexico. For instance, it may be 
necessary to adjust the interference component for the purpose of 
determining station-specific volume. Considering population will 
``enable[e] the Commission to clear more spectrum in markets where the 
forward auction value of relinquished spectrum usage rights is apt to 
be higher,'' and it concludes that a volume formula that equally 
balances interference and population components will best achieve the 
goals of the incentive auction. Once the auction system has calculated 
a station's volume, its volume metric will be fixed throughout the 
auction. While AT&T encourages the Commission to consider a dynamic 
volume adjustment based upon the provisional assignment of stations to 
channels, the Commission finds that the approach it adopts for 
calculating price reductions will capture similar efficiencies with 
less complexity.
    60. The Commission rejects arguments by EOBC and other broadcasters 
against considering population when calculating each station's volume 
metric. As an initial matter, EOBC's argument that considering 
population is inconsistent with the policies the Commission adopted in 
the Incentive Auction R&O is without merit. The Commission expressly 
stated in the Incentive Auction R&O that the factors to be used in 
setting prices could ``include the number of stations that a station 
would interfere with and block from being assigned channels, the 
population the station covers, or a combination of such factors.'' EOBC 
points out that the Incentive Auction R&O ``explained that a station's 
price would account for objective factors `that affect the availability 
of channels in the repacking process and, therefore, the value of a 
station's bid to voluntarily relinquish spectrum usage rights.' '' The 
Commission's volume formula is wholly consistent with this explanation. 
Likewise, its formula is consistent with its statement that ``a station 
with a high potential for interference will be offered a price that is 
higher than a station with less potential for interference to other 
stations'': Between two otherwise identical stations, the one with more 
interference constraints will have a greater volume, and thus higher 
opening price offers. The Commission did not state that stations with 
more interference constraints would receive higher offers than those 
with fewer interference constraints regardless of other factors. 
Contrary to EOBC's argument that population has nothing to do with a 
station's impact on the repacking process, ``population served [is] one 
of the major constraints on the availability of channels in the 
repacking process'' in light of the Spectrum Act's mandate that during 
the repacking process the Commission make all reasonable efforts to 
preserve the population served of eligible stations that will remain on 
the air.
    61. Moreover, considering population alongside interference will 
allow the auction system to clear more spectrum in markets where the 
value to the forward auction is likely to be highest.

[[Page 61932]]

The purely interference-based approach advocated by EOBC and other 
broadcasters would result in larger payments to stations that serve 
small populations and smaller payments to stations that serve 
particularly large populations--an outcome at odds with both the 
typical metric by which spectrum is valued in spectrum auctions (i.e., 
MHz-pops) and with stations' own assessments: As WRNN points out, 
``[p]opulation is one of the most, if not the most, important elements 
by which the Commission and other broadcasters value its properties, 
and distinguish its stations from others. This is critical for the 
repacking process because participation of many stations with high 
population counts, especially in the major cities, is essential to meet 
larger clearing targets.'' The Commission notes that high participation 
levels by stations that serve small populations in markets adjacent to 
high-demand markets will not make up for low participation levels by 
stations in high-demand markets that serve large populations. 
Participation by both types of stations is required in order to allow 
the auction to repurpose a significant amount of spectrum. While the 
Commission affirms its determination in the Incentive Auction R&O not 
to set bid prices based upon a station's enterprise value, population 
is nevertheless an important metric for assessing spectrum value. 
Ignoring this metric would send the wrong price signals and discourage 
participation by large stations in major markets, thereby harming its 
ability to clear spectrum in such markets. For example, in certain 
border markets, a small Class A station may serve only a small 
population but there may also be few channels available for repacking 
stations. In such markets, the value of clearing and selling this 
spectrum in the forward auction may likewise be low. Ignoring or 
reducing the weight of population, as proposed by EOBC, could 
potentially result in the Class A station being offered an opening 
price significantly higher than a full power station in a major market 
that serves many more people, regardless of the price at which each 
station values itself. Furthermore, the value of clearing and selling 
the spectrum in the forward auction in the larger market is likely to 
be much higher. Using the balanced volume formula that the Commission 
adopts will help to avoid these results and will result in higher price 
offers to stations in markets where the spectrum is particularly 
valuable. The Commission need not resolve EOBC's argument that it is 
not required to consider the statutory goals of recovering a portion of 
the spectrum value for the public and avoiding unjust enrichment in the 
context of the reverse auction because these statutory provisions apply 
only to auctions of licenses. Even if EOBC were correct, nothing in the 
statute precludes the Commission from considering these goals in 
designing the reverse auction, and the Commission concludes that doing 
so will serve the public interest. The Commission also rejects Local 
Media TV's proposal to calculate volume based entirely upon the 
pairwise interference constraint files.
    62. The Commission also disagrees with arguments that, if it 
retains a population component, it should reduce its weight in its 
volume formula. In particular, EOBC proposes a formula that would 
reduce the weight of the population component from 0.5 to 0.25, raising 
opening prices for almost all stations and de-emphasizing the impact of 
population in price offers. The Commission is not persuaded by the 
supposed benefits of this unbalanced weighting. The Commission rejects 
broadcasters' assertions that it more closely reflects the pricing 
policy the Commission adopted in the Incentive Auction R&O, for much 
the same reason it rejected EOBC's consistency argument. The Commission 
has no reason to think, and broadcasters have not established, that its 
opening price methodology results in prices that are too low to attract 
robust participation. However, raising opening prices would raise the 
costs of repurposing spectrum, increase the likelihood of repurposing 
less spectrum, and could even jeopardize the success of the auction. 
Absent Dynamic Reserve Prices (DRP), the Commission no longer has any 
mechanism to reduce prices in markets that are particularly constrained 
(due to the impact of Canadian or Mexican stations, or non-
participants), further increasing opening prices would decrease the 
likelihood of a successful auction. Reducing the weighting of 
population would also likely increase clearing costs significantly for 
the same amount of cleared spectrum, which could drive the auction to 
lower clearing targets because forward auction revenue is insufficient 
to close the auction in a given stage. On the other hand, using a 
balanced weighting where the sum of the exponents equals one will 
result in appropriate price signals for all stations: If a broadcast 
station has twice the number of constraints and twice the population of 
another, under its approach its opening prices will be twice as much. 
Furthermore, a square-root weighted volume score (i.e., using an 
exponent of 0.5) can improve the efficiency of algorithms similar to 
its pricing and bid processing algorithm.
    63. EOBC additionally argues that reducing the weight of population 
would be in the public interest because it would result in less loss in 
broadcast service, since smaller stations would more often become 
winning bidders. In keeping with its goal of allowing market forces to 
determine the highest and best use of spectrum, the public interest 
will be best served by setting prices according to each station's value 
to the auction and the repacking process. While encouraging stations 
that serve smaller populations to go off-air might result in loss of 
service for fewer over-the-air viewers, it would do so at the risk of 
discouraging large stations in high-demand markets from participating 
in the auction. In order to fulfill the goals of the Spectrum Act, it 
is appropriate to set price signals that encourage broadcasters to 
relinquish their spectrum usage rights in the reverse auction, not to 
discourage certain stations from participating so that they will remain 
on the air. The Commission concludes, therefore, that considering 
population and interference, in an equal, balanced weighting, will best 
achieve the goals of the incentive auction.
3. Committing to an Initial Relinquishment Option
    64. As the second condition for qualifying to bid in the clock 
phase of the reverse auction, an applicant that has submitted a timely 
and complete application must commit to a preferred relinquishment 
option for each station that it intends to bid for in the reverse 
auction, and under the circumstances, it may commit to additional 
``fallback'' options. An applicant will be able to commit only to 
relinquishment option(s) that it identified for a particular station 
when initially submitting its auction application. If an applicant did 
not identify a particular relinquishment option on its auction 
application, that option will not be available to the applicant when it 
logs in to the FCC software to commit to an initial relinquishment 
option for that station. The commitment(s) will constitute an 
irrevocable offer by the applicant to relinquish the relevant spectrum 
usage rights in exchange for the opening price offer for that bid 
option. A commitment to a fallback relinquishment option is treated as 
a binding commitment in the alternative to the preferred option. An 
applicant need only commit to a fallback option in the event that its 
preferred option is to move either to the Low- or High-VHF band. 
Therefore, the auction will

[[Page 61933]]

commence with the submission of initial bid commitments. An applicant 
that fails to commit to an initial relinquishment option for a given 
station by the applicable deadline will not be qualified to bid in the 
clock phase of the auction for that station.
    65. As part of determining an initial clearing target, the auction 
system will assign or designate each station to a relinquishment option 
consistent with its initial bid commitment in order of the priority 
rules proposed in the Auction 1000 Comment PN (proposing the following 
priority order: (1) Minimize the number of participating UHF stations 
that must be repacked in their pre-auction band; (2) minimize the 
number of participating VHF stations that must be repacked in their 
pre-auction band; (3) maximize the number of participating stations 
that will commence bidding on their preferred option; (4) maximize the 
number of participating stations that will commence bidding on their 
alternative bid option to go off-air; and (5) minimize the sum of 
impaired weighted-pops across all licenses), modified by the additional 
priority rules the Commission adopts to take account of the secondary 
and tertiary objectives in the initial clearing target determination 
procedure. The technical details of the modification to take account of 
the additional clearing target objectives will be released in an 
appendix to the Application Procedures PN. That relinquishment option 
will be the starting point for each station to bid in the clock phase 
of the reverse auction. Due to the limited availability of VHF channels 
and the technical constraints on repacking, the auction system may not 
be able to accommodate every station that commits to move to the Low- 
or High-VHF band. The auction system can always accommodate going off-
air as a preferred option because going off-air does not require 
finding a feasible channel assignment. In order to increase the 
likelihood that stations will be able to participate in the auction, 
the Commission established procedures to allow applicants that commit 
to move to VHF as their preferred option to also commit to a fallback 
option(s) if they so choose. Applicants that commit to a preferred 
option may decline to commit to fallback options. In order to qualify 
to bid in the clock phase of the reverse auction, an applicant that 
identified only one relinquishment option on its auction application 
must still affirmatively commit to that option as its preferred 
option--it will not have any fallback options available to it. The 
auction system will attempt to designate a station to the preferred 
option for that station. If the auction system is unable to accommodate 
a station in its preferred option, the system will attempt to designate 
the station to its fallback option(s), if the applicant committed to 
any. If an applicant declines to commit to a fallback for a station and 
its preferred option for the station cannot be accommodated--or, if 
neither its preferred nor fallback options can be accommodated-- the 
station will be designated to be repacked in its pre-auction band and 
will not participate in the reverse auction bidding.
    66. As applicants consider which option to commit to as the 
preferred option for a station, they should be mindful that once the 
bidding system designates a station to an initial relinquishment 
option, future bid options for that station will be limited by the one-
way hierarchy of relinquishment options. For example, if a UHF bidder 
identified all three options on its auction application and then 
committed to go off-air, it may, in a subsequent bidding round, request 
to switch to Low-VHF or High-VHF. However, if that same bidder instead 
committed to move to Low-VHF as its preferred option and the auction 
system were able to accommodate that option, that bidder would begin 
the auction bidding to move to Low-VHF and would be precluded from ever 
bidding to go off-air.
4. Final Auction Application Status
    67. Once the auction system processes the initial bid commitments 
and designates each station that can be accommodated to an initial 
relinquishment option, the Commission will send confidential letters to 
each reverse auction applicant to inform them of their status with 
respect to the clock phase of the reverse auction. The letters will 
notify applicants for each of their stations either that (1) the 
station is qualified to participate in the clock phase of the reverse 
auction; (2) the station is not qualified because no initial commitment 
was made, and therefore, that station will be designated to be repacked 
in its pre-auction band; (3) the commitment(s) made by the applicant 
for the station could not be accommodated, and therefore, that station 
is not qualified and will be designated to be repacked in its pre-
auction band, or (4) the auction system determined that the station is 
not needed, and therefore, the station is not qualified and will be 
designated to be repacked in its pre-auction band. As part of the 
process of determining the initial clearing target, the auction system 
may determine that certain stations will always have a feasible 
assignment in their pre-auction band at the initial and all subsequent 
clearing targets. Such stations' spectrum usage rights will never need 
to be purchased to meet the clearing target and their participation in 
the clock phase of the reverse auction is not needed. Qualified bidders 
will begin the first round of the clock phase bidding for each 
station's designated initial relinquishment option. Each applicant that 
submits an initial commitment is obligated to relinquish at the 
relevant opening price the spectrum usage rights associated with its 
initial relinquishment option if the auction system selects its station 
to relinquish its rights at the opening bid price.
    68. Prior to the deadline to apply to participate in the reverse 
auction, the Commission intends to provide, in various formats, 
detailed educational information to would-be participants, including 
among other things an auction tutorial that will be available on the 
Auction 1000 Web page for prospective bidders to walk through the 
auction process and the application and bidding screens. Once 
applicants have qualified to participate in the clock phase of Auction 
1001, registration materials will be distributed. Additionally, all 
bidders qualified to bid in the clock phase will be able to participate 
in a mock reverse auction prior to bidding in the clock phase of 
Auction 1001, which will enable bidders to obtain hands-on experience 
with the auction system. Further details about the mock auction and the 
auction tutorial, including relevant dates and how to access these 
tools, will be announced in the Application Procedures PN.

B. Qualifying To Bid in the Forward Auction

    69. In order to qualify to bid in Auction 1002, an applicant must 
timely submit an auction application that is deemed complete and timely 
make a sufficient upfront payment. The amount of the upfront payment 
will determine a bidder's initial bidding eligibility in terms of 
bidding units, i.e., the maximum number of blocks, as measured by their 
associated bidding units, a bidder may demand in the clock phase of the 
forward auction. The Application Procedures PN will address the process 
of applying to participate in Auction 1002, including descriptions of 
the information required to be disclosed, instructions for completing 
the form, and specific deadlines for submission. The Commission adopts 
procedures for assigning bidding units to each spectrum block that will 
be

[[Page 61934]]

available in the forward auction. The Commission also adopts a method 
for calculating the upfront payment each applicant must make to obtain 
bidding eligibility for forward auction spectrum blocks.
1. Bidding Units
    70. The Commission will assign to each spectrum block that will be 
available in the forward auction a specific number of bidding units and 
will use the bidding units to calculate minimum opening bids, upfront 
payments, and bidder eligibility, and for measuring bidding activity. 
In particular, as the Commission proposed, it will assign bidding units 
to spectrum blocks in each PEA by using a weighted population method 
similar to the method it will use for measuring the extent of 
impairment in a PEA. The only difference is that, in measuring the 
extent of impairment in a PEA, the Commission will use the index value 
specific to the PEA--it will not group the price index by deciles and 
apply the lowest index value in a decile to all of the PEAs in that 
decile, as it does for calculating bidding units.
    71. The Application Procedures PN will set forth the updated 
indices and number of bidding units that will be assigned to spectrum 
blocks in each PEA under its adopted approach. The Commission notes 
that some of the bidding unit values that will be announced will differ 
from those in Appendix F of the Auction 1000 Comment PN because they 
will incorporate the results of Auction 97. The Commission will derive 
these values by incorporating auction results from Auction 66, Advanced 
Wireless Services (AWS-1); Auction 73, 700 MHz Band; and Auction 97, 
Advanced Wireless Services (AWS-3) into an index of area-specific 
relative prices from prior auctions. This relative price index is the 
same index used for measuring the impaired weighted-pops for a license. 
Consistent with the approach used for Auction 96 (H Block) and Auction 
97, the Commission will multiply the population of each PEA by the 
index value for the PEA. The Commission will incorporate the results 
from past auctions for spectrum licensed in Economic Areas (EAs) and 
Cellular Market Areas (CMAs) by breaking the data down to the county 
level and then aggregating the county-level data up to the PEA level. 
For the purpose of assigning bidding units to spectrum blocks in each 
PEA, the Commission will group the relative price index by deciles and 
apply the lowest index value in each decile to all PEAs in that decile. 
Next, the Commission will divide the result of the calculation by 1,000 
and round it using the Commission's standard rounding procedures for 
auctions. Specifically, the Commission will round numbers greater than 
10,000 to the nearest thousand; numbers less than 10,000 and greater 
than 1,000 to the nearest hundred; numbers less than 1,000 and more 
than 10 to the nearest ten; and numbers less than 10 to the nearest 
one. All PEAs will have at least one bidding unit. As a result, the 
Commission will calculate bidding units for the spectrum blocks in most 
PEAs as (pops * index)/1000, rounded. Because not all of the licenses 
covering U.S. territories and protectorates had winning bids in past 
auctions, for spectrum blocks in the PEAs for Puerto Rico, Guam-
Northern Mariana Islands, U.S. Virgin Islands, and American Samoa, the 
Commission will divide the results of the weighted population 
calculation by 2,000 and round the results. Further, the Commission 
will assign one bidding unit to spectrum blocks in the Gulf of Mexico 
PEA.
    72. Each block available in a PEA will have the same number of 
bidding units regardless of category. This approach will facilitate 
bidding across categories by enabling bidders to switch their demand 
for Category 1 blocks to Category 2 blocks and vice versa without 
affecting their bidding eligibility. The number of bidding units for 
the blocks in a given PEA will be fixed and will not change during the 
auction, regardless of price changes.
    73. The Commission disagrees with arguments that it should 
determine bidding units (and, therefore, upfront payments and minimum 
opening bids) based solely on population or without regard for the 
final results from Auction 97. By incorporating past prices, its 
approach reflects the relative value bidders have assigned to the 
different markets in the past better than would a calculation based 
solely on population, and hence, is more likely to reflect the relative 
prices for markets in this auction. Its approach also helps ensure that 
bidders' upfront payments are reasonably proportional to the market 
prices of the spectrum blocks they demand. Further, using a price index 
rather than a population index ensures that the Commission does not 
exclude significant past price differences between similarly-sized 
markets in its calculations. At the same time, using the results of 
several previous auctions and the decile approach helps to reduce the 
impact of any unusual price variation from a single auction. Thus, this 
approach addresses concerns about incorporating auction-specific 
anomalies from prior auctions.
    74. The Commission is not persuaded by CCA's argument that 
including pricing data from Auction 97 will prejudice smaller bidders. 
Prices from Auction 97 are useful in that they provide the most recent 
data on the relative prices bidders were willing to pay for spectrum 
licenses in various markets. While prices in Auction 97 generally were 
higher than in previous auctions, the Auction 97 information being 
incorporated consists of additional data on relative prices across 
markets and does not reflect overall price levels. The updates will 
have a varying effect on different markets, but it will not result in a 
substantial change in the total number of bidding units, upfront 
payments, and minimum opening bids.
2. Upfront Payment Due After Initial 600 MHz Band Plan Determined
    75. The Commission adopts an upfront payment amount of $2,500 per 
bidding unit--half of the amount of the minimum opening bid for each 
spectrum block. The upfront payment amounts for generic blocks in every 
PEA for Auction 1002 will be announced in the Application Procedures 
PN. The Commission will base the upfront payment for each generic block 
on the number of bidding units associated with the blocks in a specific 
PEA established. The Commission notes that in the Auction 1000 Comment 
PN it proposed to multiply the number of bidding units of a spectrum 
block by $2,500 and then round the result of that calculation. The 
upfront payments the Commission adopts here will use the same 
calculation, but the result will not be rounded so as to maintain a two 
to one relationship between minimum opening bids and upfront payments. 
This approach is consistent with its usual practice and supported by 
the record. Thus, to become a qualified bidder, a forward auction 
applicant must make an upfront payment sufficient to obtain bidding 
eligibility for the quantity of generic blocks in each PEA on which it 
may wish to bid in any round.
    76. Its experience in past spectrum license auctions indicates that 
requiring upfront payments protects against frivolous or insincere 
bidding and provides the Commission with a source of funds from which 
to collect payments owed at the close of the auction. For these 
reasons, the Commission declines to reduce the upfront payment to 
$1,000 per bidding unit as suggested by CCA. Contrary to CCA's 
assertions, the Commission finds that insincere bidding is a real risk 
in any spectrum

[[Page 61935]]

license auction. Moreover, the Commission is not persuaded that setting 
an upfront payment amount at half of the minimum opening bid price will 
threaten small carrier participation. Even after applying discounts for 
license impairments and bidding credits, the final winning bid amount 
for a license will exceed the ``cost'' (i.e., upfront payment) to 
obtain enough eligibility to bid for the generic block. Thus, it is 
reasonable to require that forward auction applicants be willing and 
able to make upfront payments in the amount of $2,500 per bidding unit.
    77. The Commission finds it unnecessary to discount upfront 
payments for Category 2 licenses. The upfront payment is a refundable 
deposit meant to help ensure sincere bidding and to establish initial 
eligibility levels for use with the activity rules. Basing an upfront 
payment on a spectrum block's potential degree of impairment would not 
further the purpose of an upfront payment, especially since the number 
of spectrum blocks in each category and their respective degrees of 
impairment may change from stage to stage of the auction.
    78. Upfront payments will be due after the initial clearing target 
and associated band plan scenario has been determined. This timing will 
enable an applicant to take into account the number of spectrum blocks 
in the band plan scenario associated with the initial clearing target 
when determining the amount of its upfront payment. In keeping with the 
Commission's usual practice in spectrum license auctions, all upfront 
payments must be made by wire transfer in U.S. dollars. Specific 
instructions for submitting upfront payments, including wiring 
instructions, will be set forth in the Application Procedures PN.
    79. An applicant's total upfront payment must be enough to 
establish eligibility to bid on at least one block in one of the PEAs 
selected on its auction application for Auction 1002, or else the 
applicant will not be qualified to bid in the auction. An applicant 
must select on its auction application one or more PEAs in which it may 
place bids during the forward auction. An applicant will not be 
required to identify on its auction application the number of blocks 
within a PEA it demands because the Commission will not know the 
maximum number of spectrum blocks that will be offered in the forward 
auction until the initial spectrum clearing target is determined. 
Because bidding unit amounts pertain to a single paired 5+5 megahertz 
block for each PEA, a bidder that wishes to bid on multiple generic 
blocks within a PEA simultaneously will need to ensure that its upfront 
payment provides enough eligibility to cover more than one paired 5+5 
megahertz generic block in the PEA.
    80. An applicant does not have to make an upfront payment to cover 
blocks in all of the PEAs the applicant selected on its auction 
application, but it should make an upfront payment that covers the 
maximum number of bidding units that are associated with the quantity 
of blocks in the PEAs on which it wishes to place bids in any given 
round. The total upfront payment does not affect the total dollar 
amount the bidder may bid for quantities of generic blocks, nor will it 
be attributed to specific blocks or PEAs. Rather, the bidder may place 
bids for quantities of blocks in any combination of the PEAs it selects 
on its auction application, provided that the total number of bidding 
units associated with those blocks will not exceed its eligibility when 
it places the bid(s). Bidders will not be able to increase their 
eligibility during the auction; bidders only will be able to maintain 
or decrease their eligibility. Thus, in calculating its upfront payment 
and hence its initial bidding eligibility, an applicant must determine 
the maximum number of bidding units on which it may wish to bid in any 
single round and submit an upfront payment covering that total number 
of bidding units.
    81. For example, under the approach the Commission adopts, assume 
there are 27,000 bidding units associated with each block in the New 
York, New York PEA, and 21,000 bidding units associated with each block 
in the Los Angeles, California PEA. If a bidder wishes to bid on one 
block in both PEAs in a round, it must have selected both PEAs on its 
auction application and purchased at least 48,000 bidding units (27,000 
+ 21,000) of bidding eligibility. If a bidder only wishes to bid on a 
block in one of these PEAs, purchasing 27,000 bidding units would allow 
the bidder to bid on a block in either PEA, but not on a block in both 
PEAs at the same time. If the bidder purchased only 21,000 bidding 
units, it would have enough eligibility to bid on a block in Los 
Angeles, but not on a block in New York. If a bidder wishes to bid on 
more than one block in a PEA, it must have purchased sufficient 
eligibility for that number of blocks. Thus, continuing with its 
example, a bidder interested in bidding on three blocks in Los Angeles 
must purchase at least 63,000 bidding units (21,000 * 3) of bidding 
eligibility.
    82. The Commission notes that its rules require that any auction 
applicant that certifies it is a former defaulter--i.e., has been in 
default on any Commission license or has been delinquent on any non-tax 
debt owed to any Federal agency--must submit an upfront payment equal 
to 50 percent more than that set for each spectrum block. Recently in 
the Updating Part 1 Competitive Bidding Rules 80 FR 56764, September 
18, 2015 proceeding, the Commission narrowed the scope of the defaults 
and delinquencies considered for purposes of this rule. Under its 
amended rules, applicants may exclude from consideration as a former 
default any cured default on a Commission license or delinquency on a 
non-tax debt owed to a Federal agency for which any of the following 
criteria are met: (1) The notice of the final payment deadline or 
delinquency was received more than seven years before the relevant 
auction application deadline; (2) the default or delinquency amounted 
to less than $100,000; (3) the default or delinquency was paid within 
two quarters (i.e., six months) after receiving the notice of the final 
payment deadline or delinquency; or (4) the default or delinquency was 
the subject of a legal or arbitration proceeding that was cured upon 
resolution of the proceeding. Additional details concerning the 
application of the Commission's former defaulter rules to forward 
auction applicants, including any required certifications and the 
higher upfront payment requirement, will be set forth in the 
Application Procedures PN. After the auction, applicants that are not 
winning bidders or are winning bidders whose upfront payment exceeded 
the total net amount of their winning bids may be entitled to a refund 
of some or all of their upfront payment.
3. Final Auction Application Status
    83. Consistent with its normal auction procedures, a public notice 
will announce all qualified bidders for the forward auction (Qualified 
Bidders PN). Qualified bidders are those applicants with submitted 
auction applications that are deemed timely-filed and complete, 
provided that such applicants have timely submitted an upfront payment 
that is sufficient to qualify them to bid. Since the rule prohibiting 
certain communications applies to both reverse and forward applicants 
and the prohibition commences on the auction application deadline, the 
Commission anticipates setting concurrent application filing deadlines 
for the reverse and forward applicants.
    84. Similar to what will be provided for potential reverse auction 
participants, the Commission intends to provide, in various formats, 
detailed educational information regarding the forward auction, 
including among other

[[Page 61936]]

things an auction tutorial that will be available on the Auction 1000 
Web page for prospective bidders to walk through the auction process 
and the application and bidding screens. Registration materials will be 
distributed to qualified bidders prior to the auction. All qualified 
bidders will be eligible to participate in a mock auction prior to 
bidding in Auction 1002, which will enable bidders to obtain hands-on 
experience with the auction system prior to the auction. Further 
details about the mock auction and the auction tutorial, including 
relevant dates and how to access these tools, will be announced in the 
Application Procedures PN.

V. Reverse Auction Bidding

    85. The Commission will use a descending clock auction format in 
the reverse auction, in which participants will bid over a series of 
rounds by responding to new price offers for one or more relinquishment 
options. The Commission establishes reverse auction bidding procedures 
and explain how the auction system will both calculate new price offers 
during the clock rounds and process bids to determine which bidders 
will be selected by the auction, and at what price, to relinquish 
spectrum usage rights.
    86. The Commission generally adopts the reverse auction bidding 
procedures proposed in the Auction 1000 Comment PN, except that the 
Commission will not use dynamic reserve prices (DRP), and the 
Commission adopts its alternative proposal to simplify the reverse 
auction bidding process by not providing an intra-round bidding option. 
Notwithstanding the potential benefits of using DRP, the Commission 
concludes that not using it will encourage voluntary participation in 
the reverse auction by removing uncertainty among broadcasters, and is 
consistent with the record consensus in favor of minimizing the 
potential for impairments. In addition to the information the 
Commission proposed to provide, the auction system will provide 
information to each active bidder regarding the available room for 
repacking stations at the end of each round of the auction.

A. Availability of Auction-Related Information

    87. The Commission will make auction information public as soon as 
possible, consistent with its rules, policies, and procedures that help 
protect the competitiveness of the auction, as well as with applicable 
statutory requirements. As in past Commission auctions, the public will 
have access to certain auction information, while auction participants 
will have secure access to additional non-public information. Details 
of how to access auction information will be provided in the 
Application Procedures PN.
    88. The Application Procedures PN also will detail the prohibition 
on communicating information relating to bids or bidding strategies, 
such as the non-public information that bidders may access in the 
auction system, to broadcast licensees eligible to participate in the 
reverse auction or to forward auction applicants, subject to specified 
exceptions. The Commission cautions eligible broadcast licensees that 
communicating non-public information that they receive to others, 
whether directly or indirectly through third-parties or public 
disclosure, could violate that prohibition.
    89. In response to the numerous commenters that contend that the 
Commission should make as much information available regarding the 
reverse auction as possible, either to the public or to the auction 
participants, more information will be provided to both the public and 
reverse auction participants than was proposed in the Auction 1000 
Comment PN. The Commission will make public, before the deadline for 
filing applications to participate in the reverse auction, the opening 
prices for all stations whose spectrum usage rights are eligible to be 
offered in the auction and for each bid option available to each 
station. The Commission set forth the formula for these prices in the 
Auction 1000 Bidding Procedures Public Notice. Prices for each station 
and for each bid option for each station may be calculated using this 
formula and publicly available information. Rather than require each 
licensee to make these calculations separately, the Commission will 
make them public. The Commission does so to encourage participation, to 
further the transparency of the auction, and in response to comments 
requesting that the Commission do so.
    90. Reverse auction bidders will be informed of the initial bidding 
round schedule when they are informed that they are qualified to bid in 
the clock phase. The schedule will establish the length of time each 
round will last. Bidders may respond to price offers for available bid 
options in each round. Round results will be released to bidders after 
each bidding round.
    91. The Commission will make public the initial spectrum clearing 
target as soon as possible after completion of the initial clearing 
target determination procedure. Many commenters support this approach. 
Some suggest that the Commission announce a clearing target before 
broadcasters make initial commitments, in order to assist broadcasters 
in doing so. The initial commitments, however, are an essential 
component for determining the initial clearing target. The Commission 
will announce the initial clearing target before any bidding takes 
place in the clock phase of the reverse auction.
    92. Once the bidding in the clock phase of the reverse auction 
begins, the Commission will make publicly available information about 
the current stage of the auction and whether or not reverse (or 
forward) auction bidding is currently open. Information regarding 
amounts necessary to meet the final stage rule will be public, as well 
as whether or not the final stage rule has been met. Such information 
will include the aggregate amount of provisionally winning reverse 
auction bids to relinquish spectrum usage right, which is part of the 
second component of the final stage rule. In addition, the auction 
system will provide each reverse auction bidder with non-public 
information that it can use in determining how it will bid. More 
specifically, the auction system will provide to each bidder--but not 
to the public--each station's bidding status and price offers for all 
options relevant given the station's status.
    93. The auction system also will provide each reverse auction 
bidder with vacancy index information, indicating the relative 
availability of channels in each relevant band, as part of each round's 
bidding results for active stations. Providing this information is 
consistent with the strong record support for providing reverse auction 
participants with as much information as possible to help with bidding. 
A broadcaster can use vacancy information to assess the likelihood of 
various developments, such as whether a price for a given option may 
continue to decline. Given that the auction system incorporates such 
information in price computations, and sophisticated bidders might be 
able to extract the information in a limited set of cases, the 
Commission concludes that providing such information to each bidder 
will promote transparency and information parity among all bidders, and 
that the auction system can provide such information without unduly 
complicating participation or compromising the confidentiality of 
participation in the reverse auction.
    94. The auction system calculates vacancy information when setting 
prices. For a given station, the auction

[[Page 61937]]

system will determine the number of channels available in the station's 
``neighborhood'' for the relevant band. A station's neighborhood 
consists of all active stations, i.e., all participating stations that 
have not exited or become provisional winners including the station 
itself, that could interfere directly with the station in the relevant 
band and therefore potentially limit assigning the station to an 
available channel in that band. The auction system uses each station's 
volume to weight the number of channels available to it and then 
averages those weighted results for all stations in the station's 
neighborhood. The vacancy index information that the auction system 
will provide to bidders will indicate whether the average of weighted 
channels available to active stations in the neighborhood falls within 
one of three ranges, low, medium, or high. The range format should 
prevent the information from being used to identify the neighboring 
stations consistent with its obligation to protect the confidentiality 
of reverse auction participation.
    95. More specifically, for each bidder with an active UHF station, 
the UHF vacancy index will indicate whether the average of weighted UHF 
channels available to the active stations in the neighborhood is: Less 
than three (low); greater than or equal to three, but less than or 
equal to six (medium); or more than six (high). Given the smaller 
number of channels in the VHF band, the ranges will be narrower. For 
each bidder with an active VHF station, the vacancy index in the 
station's pre-auction band will indicate whether the average of 
weighted channels available to the active stations in the neighborhood 
for the pre-auction band of the bidder's station is: Less than two 
(low); greater than or equal to two, but less than or equal to four 
(medium); or more than four (high). With respect to relevant bands 
other than a station's pre-auction band (i.e., for UHF stations, High-
VHF and Low-VHF, and for High-VHF stations, Low-VHF), the values used 
to define the three ranges will be determined based on the ratio of the 
level of vacancy in that band to the level of vacancy in the station's 
pre-auction band. This ratio is already used in setting prices for 
moving to the same bands. Consequently, bidders with prices for a 
station that may move to a new band could infer the information without 
the vacancy index. The vacancy index puts it to use in an explicit 
report to the bidder. The auction system will report the values that 
define the ranges when providing the vacancy index information. The 
technical formulas for setting the values will be provided in the 
Application Procedures PN.
    96. In all cases, a value in the low range for the index will 
indicate a higher potential for the relevant band to fill soon; a value 
in the medium range will indicate less likelihood; and a value in the 
high range will indicate still less likelihood. The Commission 
emphasizes that this information will be based on the results of the 
prior round and will provide no certainty with respect to developments 
in future bidding rounds. Ultimately, the bidding of other reverse 
auction participants will determine when any available channels are 
filled. Nevertheless, the vacancy index information based on past round 
results will help bidders make rough estimates of whether a particular 
bid option will continue to be available, as well as provide bidders 
with a sense of the relative likelihood that a station's various bid 
options will continue to be available. Changes to the vacancy index 
from round to round also may provide helpful information regarding 
changes in the status of neighboring stations at current clock prices. 
The Commission notes, however, that a station's vacancy index may 
change if a second neighboring station becomes provisionally winning, 
even though that did not change the number of available channels. For 
example, if a non-neighboring third station's decision to exit the 
auction made it infeasible to repack the neighboring second station, 
the neighboring station would become a provisional winner and therefore 
would no longer be included in the calculation of the first station's 
vacancy index. In that circumstance, the first station's index may 
change even though no available channel in its neighborhood was filled.
    97. The Commission declines to adopt EOBC's proposed alternative to 
the vacancy index, which likewise uses the average of the weighted 
number of channels available to all stations in a given station's 
neighborhood, but instead of providing station-specific information on 
a confidential basis would involve averaging that information across 
all stations in each Designated Market Area (DMA) and disclosing the 
information publicly. The vacancy index will confidentially provide 
each bidder with information targeted to its station(s), which should 
better predict how soon a price offered that station is likely to 
freeze. The station-specific information provided by the vacancy index 
the Commission adopts also will be more uniformly useful to all bidders 
than EOBC's alternative. EOBC argues that a publicly disclosed metric 
is fairer as it would provide more uniform information, in particular 
assuring that the information each bidder possesses is the same 
regardless of the number of stations it offers in the auction. The 
Commission disagrees. Some bidders might be able to infer information 
unavailable to others based on a combination of average DMA vacancy 
information and station-specific vacancy information, which is used by 
the auction system to calculate prices. The approach the Commission 
adopts will provide each bidder with station-specific information 
without providing an advantage to some bidders. Further, providing 
vacancy index information for each station will avoid putting 
participants with fewer stations in the auction at a disadvantage, as 
bidders will have the same information relative to each of their 
participating stations.
    98. Because the vacancy index the Commission adopts will assist 
broadcasters seeking to forecast the outcome of the auction, it 
addresses requests by commenters for information regarding the reverse 
auction that would enable ``outcome discovery'' by broadcasters. The 
other information that will be provided satisfies many requests that 
commenters make for specific information regarding the reverse auction, 
such as the initial spectrum clearing target and opening prices for all 
stations. In combination, all of the information will facilitate 
efforts by broadcasters to forecast prices in the auction. The 
Commission conclude that providing additional information to reverse 
auction bidders could unduly complicate participation in the reverse 
auction or compromise the confidentiality of such participation.
    99. In addition to the bidding information, the Commission will use 
the auction system to make auction announcements regarding any other 
necessary information to reverse auction participants, such as schedule 
changes. Providing auction announcements through the auction system has 
been an effective and efficient way to communicate necessary 
information to auction participants in past auctions, and the 
Commission expects that this will be the case for the reverse auction 
as well.
    100. The Commission notes that while reverse auction bidders will 
have access to far more information than it originally proposed, in 
order to serve the interests of broadcasters, it is required to make 
less information public regarding the reverse auction than it does 
regarding the forward auction. To begin with, the Spectrum Act 
expressly requires that the Commission take reasonable steps to

[[Page 61938]]

keep confidential Commission-held data of licensees with respect to 
their participation in the reverse auction, including their identities. 
Commission rules further extend confidential treatment with respect to 
non-winning bids and bidders for two years after the close of the 
auction, so that broadcasters may participate in the reverse auction 
without being compelled to disclose their willingness to relinquish 
spectrum usage rights for that longer period.
    101. Accordingly, the Commission will not disclose the name of the 
licensee, the channel number, call sign, or facility identification 
number of its participating station(s), or its network affiliates in 
connection with the participation of any licensee in the reverse 
auction. The Commission also will keep confidential any other 
information that may reasonably be withheld to protect the identity of 
the licensee as a reverse auction participant, such as information 
regarding the status of licensees as participants or provisional 
winners during the auction. To safeguard this confidential information, 
the Commission will not make public any information relating to 
applications to participate in the reverse auction until after the 
auction concludes. Whether similar information was made public in prior 
spectrum license auctions, or has been provided on a non-public basis 
by the Commission, does not change whether the rule applies. Unlike in 
conventional spectrum license auctions, the Commission will not issue 
public notices with respect to the status of the reverse auction 
applications that are filed. Instead, the Commission will communicate 
regarding these applications directly--and confidentially--with the 
respective applicants. Finally, because information regarding a 
participant's station is integral to determining the bids offered in 
the auction, information regarding specific bids during the course of 
the auction cannot be made public.

B. Determining New Price Offers in Clock Rounds

    102. Under the descending clock auction format that the Commission 
adopted for the reverse auction, in every clock round, the auction 
system will decrement the per-volume nationwide base clock price. As 
with opening price offers, a UHF station will be offered a price to go 
off-air in each clock round that will equal the base clock price 
multiplied by its station-specific volume factor. The price offer for a 
UHF station to go off-air is the base clock price times the station's 
volume. Therefore, if the per-volume base clock price is decremented by 
five percent, the price offer will decrease by five percent. Unlike 
opening price offers, however, the new price offers in clock rounds for 
UHF stations to move to the VHF bands, or for VHF stations to move to a 
lower band or go off-air, will reflect the relative availability of 
channels for each station in the VHF bands. Opening prices for 
intermediate moves will in aggregate be equal to the full base clock 
price (or, in percentage terms, will sum to 100 percent) for a move 
from UHF to off-air since in terms of value to the auction intermediate 
moves, when taken together, are equivalent to a move from UHF to off-
air, which is set by the base clock price. The opening prices for 
intermediate moves will form the starting point for prices for such 
moves in the clock bidding rounds, but as relative vacancy rates 
change, these prices will vary. These differences in relative price 
changes are intended to encourage moves that promote more efficient 
repacking of the VHF bands. For example, if the High-VHF band is 
particularly congested in an area, the price offer for a UHF station in 
that area to move to High-VHF will decrease more quickly than if the 
High-VHF band were less congested. As a result, a UHF station will have 
less incentive to request a move to High-VHF than if the High-VHF band 
were less congested and price offers decrease more slowly. By setting 
price offers in this way, the auction system will encourage moves that 
are particularly beneficial to the reverse auction's goal of clearing 
spectrum in the UHF band.
    103. In each round of the reverse auction, the base clock price 
decrement will be the larger of: (i) Five percent of the current base 
clock value or (ii) one percent of the $900 opening base clock price. 
Consistent with the Commission's standard auction procedures and as 
proposed in the Auction 1000 Comment PN (to reduce the base clock price 
by between three percent and 10 percent per round) the size of the 
decrement may be adjusted in the reverse auction. Although the 
Commission does not anticipate that the decrement in the reverse 
auction will need to be adjusted, if circumstances warrant, the change 
and the new decrement will be announced at least 24 hours in advance to 
all bidders. Although several commenters urge the Commission to 
decrease prices by no more than one percent in each round, a decrement 
of five percent will better balance its interests in completing the 
reverse auction bidding within a reasonable amount of time while 
avoiding significant losses of efficiency or increases in costs. 
Because the forward and reverse auctions run sequentially within a 
stage and because there may be multiple stages, it is important to 
limit the number of reverse auction rounds. The combination of (i) and 
(ii) ensures that the reverse auction will require no more than 52 
rounds in any stage. In subsequent stages, the reverse auction may 
require even fewer rounds, depending on the level to which the base 
clock price must be reset after a new stage transition, and how quickly 
newly-active stations either drop out or become provisionally winning. 
Using a decrement of one percent would require considerably more 
bidding rounds. For example, using just part (ii) of the Commission's 
price decrement rule--a price decrement of one percent of the base 
clock's opening value--would require 100 rounds, whereas using a price 
decrement of one percent of the current base clock value, without part 
(ii) or a similar mechanism, could cause the auction to continue for 
hundreds of more rounds as the decrement gets increasingly smaller. The 
Commission recognizes commenters' concerns that larger decrements could 
cause some stations to drop out quickly, but find that with a decrement 
of five percent any loss of efficiency or increased costs is likely to 
be de minimis. Moreover, a decrement of one percent risks increasing 
the cost of repurposing spectrum. In the absence of the proposed DRP 
mechanism, the prices offered to stations in some areas may ``freeze'' 
near opening price levels; in such cases, a one-percent decrement might 
require higher payments to individual stations. Higher payments are 
likely when stations are able to engage in coordinated behavior to 
manipulate the point at which their prices ``freeze.'' The Commission's 
rules and procedures are intended to prevent such manipulation, but do 
not prevent coordinated behavior by bidders that own multiple stations 
within an individual market. In addition, five percent price decrements 
would be small enough to allow the system to provide useful information 
to participants to guide their bidding.

C. Bidding Mechanics

    104. Consistent with its proposed procedures, at the commencement 
of the clock phase of the reverse auction, each participating bidder 
will begin bidding for each of its stations at the opening price for 
that station's ``currently held option,'' which will be the initial 
relinquishment option determined by the initial commitment procedures. 
So long as the auction system can determine a feasible channel 
assignment

[[Page 61939]]

for that station in its pre-auction band--by conducting a ``feasibility 
check'' prior to the clock round--the system will continue making new, 
reduced price offers to that station. For each station the auction 
system must, prior to processing its bid, find a feasible channel 
assignment in the station's pre-auction band--that is, an assignment 
that does not violate any of the pairwise constraints and is therefore 
consistent with the Spectrum Act's preservation mandate. To do this, 
the system conducts a ``feasibility check'' using mathematical 
satisfiability-solver software to quickly determine whether such a 
channel assignment exists. The bid options for which the system will 
calculate price offers will be based on the station's pre-auction band, 
the options the bidder selected for that station on its application, 
the currently held option for that station, and the hierarchy of bid 
options. If, however, a feasible channel assignment does not exist for 
a station in its pre-auction band in the first round, the station will 
be ``frozen'' in its currently held option from the start of the 
auction at the opening price offer to which it initially committed. The 
system will then ask the bidder to place a bid for that station by 
indicating whether it is willing to accept the new price offer for its 
currently held option, wishes to switch to a different bid option (if 
applicable), or wishes to drop out of bidding. If the system is able to 
find a feasible channel assignment for the station in its pre-auction 
band during bid processing, it will adjust the station's currently held 
option according to its bid (honoring its request to switch options if 
feasible) and reduce its current price to the accepted price offer for 
that option. Otherwise, the system will ``freeze'' that station's 
currently held option without reducing its current price. Once a UHF 
station is frozen, it becomes a provisionally winning bidder and will 
not be asked to bid for the rest of the reverse auction in that stage. 
If a VHF station is frozen, however, it does not necessarily become 
provisionally winning if the station may be unfrozen later in the 
reverse auction in the same stage. This could occur, for example, if a 
UHF station that was bidding to move to VHF chooses to drop out of 
bidding, thus freeing up a channel in the VHF band. If this free 
channel enables the system to feasibly assign a frozen VHF station to a 
channel in its pre-auction band, the system will unfreeze the VHF 
station and ask it to bid at its new price offers. The system will 
freeze a station in its currently held option without reducing its 
current price regardless of whether the station submitted a bid to 
accept the new price offer for the option, requested to switch to a 
different option, or bid to drop out of the auction. This will provide 
strategic simplicity for bidders by ensuring that bidding to accept a 
new price offer will never result in a station receiving a lower price 
for its option than it could have received if it refused to accept the 
offer.
    105. A bidder that has or is interested in only a single bid option 
will have a simple choice: Whether to accept the lower clock price 
offered for its station's currently held option or to rejects that 
offer and drop out of the bidding. If a bidder fails to place a bid, 
the auction system will treat this bidder as unwilling to accept a 
lower offer. A bidder that is considering more than one of the 
relinquishment options currently available to its station will 
additionally be able to request to switch bid options, consistent with 
the hierarchy of options. Since the auction system may not always be 
able to find a feasible channel assignment for a station to switch to 
one of the VHF bands, the system will prompt a bidder requesting to 
switch options to provide a fallback bid in case the system cannot 
accommodate its request. A fallback bid allows the bidder to choose 
either to accept the lower price offered for its station's currently 
held option or to drop out of bidding if the system cannot accommodate 
its request to switch bid options. The Commission reminds bidders that 
each bid placed is a binding commitment by the bidder to accept a 
payment that is no less than the price offered in return for 
relinquishing the spectrum usage rights associated with its bid option 
should the auction system select the bid as a winning bid.
    106. Responding to numerous commenters that urge the Commission to 
make reverse auction bidding as simple as possible, the Commission 
determines that it can reduce complexity without sacrificing efficiency 
by foregoing the use of intra-round bidding. In the Auction 1000 
Comment PN, the Commission sought comment on bidding procedures without 
intra-round bidding due to its concern that intra-round bidding could 
increase the complexity of auction participation for broadcasters. 
Absent intra-round bidding, bidders will face a simpler choice to 
accept or rejects a new lower price, or to switch bid options at the 
lower price, rather than having to indicate precise prices at which 
their choices change. In addition, because the number of 
computationally complex feasibility checks that the system must solve 
during bid processing will be greatly reduced, the auction system will 
be able to report round results more quickly. Furthermore, not 
providing for intra-round bidding will have minimal effect on the 
reverse auction's efficiency and cost given the relatively small price 
decrements that the Commission has chosen. For reasonably sized price 
decrements (within the three to 10 percent range that the Commission 
proposed), the loss in efficiency and cost is of ``second-order'' to 
the size of the decrement because the likely number of instances in 
which there is any loss at all for any particular bidder and the 
magnitude of the loss when it occurs are both proportional to the 
percentage bid decrement. Specifically, the likelihood of loss is 
proportional to the bid decrement because there is a loss only when two 
competing bidders attempt to make incompatible changes to their bids in 
exactly the same clock round. The magnitude of the loss is likewise 
proportional to the decrement because two competing bidders that try to 
change in the same round have the same value to the auction, within one 
decrement, in terms of cost and efficiency. The price decrements the 
Commission chooses are large enough to ensure a reasonably speedy 
reverse auction while at the same time small enough that removing 
intra-round bidding will not have a substantial impact on the outcome 
of the auction.
    107. The Commission adopts a simple proxy bid mechanism to make it 
easier for bidders to monitor the auction. EOBC, the only commenter to 
address this proposal, urges the Commission to adopt it. Under the 
bidding procedures the Commission adopts, a bidder will be able to 
submit a proxy bid to continue bidding for its station's currently held 
option until the price offer drops below some specified price. A 
station that is frozen but not provisionally winning (i.e., that has 
the status of either ``frozen--currently infeasible'' or ``frozen--
pending catch up'') may also place a proxy bid notwithstanding the fact 
that it is not given a price offer in the round and it is not otherwise 
submitting a bid, because the station may become unfrozen in a later 
round. Additionally, the Commission will limit the range that a bidder 
can set its proxy bid, so that the specified price for a proxy bid may 
be no less than 75 percent of a station's price offer in the round. 
This limit may be adjusted up or down at any point in the auction. Such 
an adjustment will be announced at least one round before the new limit 
on proxy bids. Thus, a bidder who wishes to remain active in the 
auction may be required to submit a new proxy bid periodically. Bidders 
will be able to

[[Page 61940]]

revise or cancel any proxy bid before it is processed or in subsequent 
rounds while the proxy bid instructions are still in effect. Proxy bids 
will remain confidential from other bidders and from Commission staff 
other than those staff authorized during the auction to monitor bidding 
and the operation of the bidding system.

D. Processing Between Clock Rounds

    108. The Commission establish procedures by which bids will be 
processed at the conclusion of each round to determine new provisional 
channel assignments and the new bidding status for stations. The 
Commission adopts the bid processing procedures detailed in Appendix D 
of the Auction 1000 Comment PN, except that the auction system will not 
use DRP. As bids are processed, for each station bidding in the current 
round, the auction system will either process its bid and reduce its 
current price to the accepted price offer or freeze the station, 
keeping its current price and currently held option unchanged, 
depending on the results of feasibility checking during bid processing. 
Once all bids have been processed, the auction system will update the 
bidding status of all stations and begin a new round or, if the 
stopping rule has been met, the reverse auction will conclude for the 
stage.
1. Bid Processing
    109. After a clock round closes, the auction system will process 
bids using the bid processing algorithm the Commission proposed, except 
without intra-round bidding. Under these procedures, the auction system 
will first establish an order or ``processing queue'' for processing 
the bids of stations that are bidding in the current round. The system 
will order all such stations in descending order of the per-volume 
difference between the station's current price and its new price offer. 
Specifically, this metric is calculated by subtracting the station's 
new price offer from its current price and then dividing by its volume. 
Since the system cannot change the status of provisionally winning 
stations within a stage or of exited stations at any point in the 
auction, the system does not consider such stations during bid 
processing. The auction system will break any ties between stations 
following this calculation by using pseudo-random numbers. The system 
will then sequentially conduct feasibility checks for each station in 
the queue to find the first station in the queue that can feasibly be 
assigned a channel in its pre-auction band given the current 
provisional channel assignment. The system will consider the first 
feasible station and process its bid, removing it from the queue, 
before resuming its search for the next feasible station in the queue. 
The auction system will repeat this process of considering bidding 
stations until each station remaining in the queue is ``frozen'' in its 
currently held option at its current price.
    110. Under the procedures that the Commission established, when the 
auction system considers a station that bids to accept the new price 
offer for the station's currently held option, the auction system will 
reduce the station's current price to the new price offer for that 
option. When the auction system considers a station that bids to switch 
relinquishment options, the system will first perform a feasibility 
check to determine whether the station's request can be accommodated: 
The system will only switch the station's currently held option if the 
station can feasibly be assigned to a channel in the requested VHF 
band. In that case, the auction system will update the station's 
currently held option and current price to the option and price offer 
for the requested bid option. If the station cannot be feasibly 
assigned to a channel in the new band, the system will instead process 
the station's fallback bid--either to accept the lower price offer for 
its currently held option or to drop out of bidding. If a station's 
fallback bid is to drop out of bidding, the system will mark the 
station as exited. Similarly, when the system considers a station whose 
only bid is to drop out of the auction, the system will mark the 
station as exited. An exited station will be assigned a provisional 
channel in its pre-auction band and will no longer be given price 
offers or asked to bid for the remainder of the auction. After bid 
processing, the auction system will again perform feasibility checks 
for all stations to determine if any stations processed earlier in the 
queue that had a feasible assignment are no longer feasible as a result 
of later processing. Any such stations will then be frozen in their 
currently held option at the already-reduced current price. Because the 
system will have already updated the currently held option and reduced 
the current price of stations that became infeasible due to later 
processing, these stations will be frozen at the lower price offer that 
they accepted or in the new bid option that they switched into at the 
start of the next round. For all stations that will be active in the 
next round, the auction system will then calculate prices for the next 
round using the price reduction procedures. The auction system will 
calculate prices for stations that are ``frozen--currently infeasible'' 
so that they may monitor price decreases in case they become unfrozen 
and must resume bidding in later rounds, but such stations will not be 
asked to submit a bid so long as they remain frozen.
    111. Two parties disagree with aspects of the bid processing 
procedures and algorithm the Commission proposed, and filed comments 
proposing alternatives. AT&T proposes that, after each round, the 
auction system recompute the repacking constraint files based upon the 
provisional TV channel assignment plan in order to link price 
decrements to the difficulty of repacking a station in each round. 
Professors Sandholm and Nguyen propose to remove the hierarchical 
restriction on bid options and use mathematical optimization to 
calculate price offers and process bids. As an initial matter, neither 
of these commenters has demonstrated, either in theory or by means of 
simulations, that their proposals have significant advantages over the 
auction procedures the Commission establishes herein. The pricing 
procedures the Commission adopts take into account some measure of 
repacking difficulty for VHF options and VHF stations. However, in 
comparison to AT&T's proposed approach, the procedures that the 
Commission adopts provide the significant advantage of greater price 
certainty and predictability for UHF stations bidding to go off-air, 
which should speed the auction and encourage bidders to consider this 
relinquishment option. The Commission therefore is not persuaded that 
AT&T's proposal offers substantial benefits over the procedures it 
adopts.
    112. The Commission also rejects the alternative approach proposed 
by Professors Sandholm and Nguyen. They argue that the sequencing of 
bids under the approach the Commission adopts provides an unfair 
advantage to stations that are processed first. However, bids must 
always be processed sequentially due to the relationship between the 
reverse auction and the repacking process, which must guarantee a 
feasible assignment: Stations face price competition in the reverse 
auction as a result of the number of stations that must be repacked 
into a limited number of channels. Thus, stations must always be 
repacked one at a time in order to guarantee a feasible assignment. In 
any event, some bid sequencing (and thus possible price variation) is 
required for any processing algorithm. Indeed, even the optimization-
based approach proposed by Professors Sandholm and Nguyen relies upon 
the sequencing of

[[Page 61941]]

bids, they just disagree with how the Commission achieves this 
sequencing and instead propose an optimization-based approach that 
would optimize to reduce costs. While bids processed earlier may limit 
the options available to bidders later in the queue (e.g., if two 
otherwise identical stations both request to switch to High-VHF, but 
there is only one channel available in the band), this sequencing 
provides the best value to the auction, because the stations that have 
the largest price decreases will be processed first. Furthermore, 
stations processed later in the queue are more likely to be frozen at a 
higher price offer. Any price variation due to sequencing will be no 
larger than one price decrement for identical bidders, in line with the 
price variation found in the Commission's simultaneous multiple round 
auctions. The Commission therefore does not regard this outcome to be 
problematic.
    113. In addition, Professors Sandholm's and Nguyen's alternative 
procedures for eliciting information from bidders and for setting clock 
prices would add strategic complexity to the reverse auction and might 
deter participation. For eliciting bids, they propose that each bidder 
indicate a set of acceptable options, rather than a single preferred 
option in each round. For determining prices, they suggest 
optimization-based procedures to set clock prices in which a bidder's 
prices could continue to fall even after it can no longer be assigned a 
feasible channel in its pre-auction band. The Professors claim certain 
advantages of their proposed algorithm, but offer no comparison of 
their proposal to the algorithm described in the Auction 1000 Comment 
PN. Their proposed approach would create significant new opportunities 
for some bidders to affect final prices for their own bid options, 
adding strategic complexity to the auction. Such complexity would make 
bidding errors more likely, raise the costs of bidding, and potentially 
deter participation, making these procedures unsuitable for the reverse 
auction.
2. Dynamic Reserve Prices
    114. The Commission elects not to adopt DRP procedures, which would 
enable the bidding system to reduce the prices offered to all UHF 
stations in the early rounds of the reverse auction, regardless of 
whether a station could be feasibly repacked into its pre-auction band. 
By providing a ``safety valve'' for stations whose opening prices 
otherwise would remain frozen because no feasible channel assignment is 
available for them in the remaining television bands (due to 
international border constraints or other factors), the Commission 
explained that DRP would allow it to set higher opening prices for all 
stations, reduce the overall cost of repurposing spectrum, and increase 
the likelihood of a successful auction. Based on examination of the 
record, however, the Commission concludes that the potential benefits 
of DRP are outweighed by its potential costs. Broadcasters unanimously 
oppose the use of DRP procedures, arguing that it will ``artificially 
reduc[e] prices,'' undermine trust in the fairness of its auction 
procedures, increase complexity and uncertainty, and discourage 
participation. A broad range of commenters also oppose use of DRP 
because it risks increasing the degree of impairment to repurposed 
spectrum. Commenters argue that using DRP will inevitably increase the 
amount of impairments to or close to the near-nationwide standard and 
detract from the value of repurposed spectrum.
    115. The Commission agrees with commenters that it should adopt 
auction procedures that minimize impairments. By not using DRP 
procedures, the Commission eliminates the possibility of creating 
additional impairments after the determination of a clearing target. In 
addition, based on examination of the record, the Commission is 
concerned that using DRP as proposed would discourage voluntary 
broadcaster participation in the auction, contrary to its commitment to 
encouraging such participation. Accordingly, the Commission will not 
use DRP procedures. Instead, price offers will be reduced only in 
accordance with the procedures, and any stations with no feasible 
channel assignments at the beginning of the reverse auction bidding 
will be frozen at their opening prices. Combined with its decisions 
regarding the initial clearing target selection procedure and the 
information that will be available to bidders, not using DRP will 
promote its auction goals by encouraging reverse auction participation, 
minimizing impairments, and providing transparency for bidders.
    116. The Commission also declines to adopts EOBC's alternative 
proposal for a ``round zero reserve'' pricing mechanism which would 
offer, before bidding begins, an undefined (but high) take-it-or-leave-
it price to each station that would otherwise begin the reverse auction 
bidding process ``frozen'' at its opening price. EOBC and others 
support this proposal only as a substitute for DRP, and the Commission 
is not persuaded that EOBC's alternative would provide the benefits of 
its proposed DRP procedures.
3. Bidding Status
    117. Based on the bid processing procedures the auction system will 
determine the bidding status of each station prior to each round of the 
reverse auction. The auction system will also determine the bidding 
status of each bidder prior to the first round of the reverse auction 
after bidders commit to an initial relinquishment option, as well as 
prior to the first round after transitioning to a new stage. The system 
will inform each bidder of the currently held option, the current price 
for this option, and the bidding status of each of its stations. The 
bidding status of each station will be one of the following: (1) 
Bidding in the current round, (2) frozen--provisionally winning, (3) 
frozen--currently infeasible, (4) frozen--pending catch up, (5) 
exited--voluntary, or (6) exited--not needed.
    118. Bidding in the Current Round. If the auction system determines 
that a station can be feasibly assigned a channel in its pre-auction 
band, its bidding status will be ``bidding in the current round'' and 
the system will offer a new reduced price offer for each of the options 
currently available to it, consistent with the bid option hierarchy and 
price determination procedures. A station will be offered lower prices 
and asked to submit a bid in each round so long as its status remains 
``bidding in the current round.'' However, if the system determines 
that a station can be feasibly assigned a channel in its pre-auction 
band but will be not needed for the remainder of the auction, its 
status will become ``exited--not needed.''
    119. Frozen--Provisionally Winning. If the auction system 
determines that a station can never be assigned a feasible channel in 
its pre-auction band in the current stage, the station will be declared 
``frozen--provisionally winning.'' For the remainder of the stage, the 
current price and currently held option of a station with this bidding 
status will remain unchanged. If the final stage rule is met during 
that stage, such stations will become winning stations. Otherwise, at 
the beginning of the next stage, the auction system will again evaluate 
the feasibility of assigning the station to a channel in its pre-
auction band, and the station's status may change to ``frozen--pending 
catch up,'' ``frozen--currently infeasible,'' ``bidding in the current 
round,'' or ``exited--not needed.'' If at any point the system is 
unable to find a feasible assignment for a UHF station, its status will 
become ``frozen--provisionally winning.''
    120. Frozen--Currently Infeasible. If the auction system is 
currently unable

[[Page 61942]]

to find a feasible channel assignment for a VHF station in its pre-
auction band, but a feasible channel assignment could become available 
in a later round of the current stage, the station's bidding status 
will be ``frozen--currently infeasible'' and the system will freeze the 
station in its currently held option at its current price. A station 
with this status will not be asked to bid and will keep its currently 
held option and its current price in each round in which its status 
remains ``frozen--currently infeasible.'' However, a station with this 
status may become unfrozen and resume bidding in later rounds if the 
system is able to find a feasible channel assignment for the station in 
its pre-auction band. Such a station will be able to monitor the price 
offers for its different options as clock prices are decremented, and 
may submit proxy bid instructions that will apply if and when it 
becomes unfrozen. Likewise, stations with this status may later become 
``frozen--provisionally winning'' if the system determines that, for 
all possible future behavior of bidders in the current stage, a 
feasible assignment will never be found. This bidding status is only 
possible for a VHF station because a feasible channel assignment in the 
VHF band may become available in a subsequent round if a UHF station 
currently designated to move to this VHF option drops out of the 
bidding or switches to a different VHF option.
    121. Frozen--Pending Catch Up. If, at the start of a new stage, the 
auction system determines that a station that was ``frozen--
provisionally winning'' at the end of the prior stage is no longer 
provisionally winning, but the base clock has not caught up to the 
station's ``catch up point,'' or the base clock price at the time that 
the station became provisionally winning in a previous stage, the 
station's bidding status will change to ``frozen--pending catch up'' 
and its currently held option and current price will remain unchanged. 
A station with this status will not be offered lower prices nor asked 
to bid in each round so long as the base clock remains above the 
station's catch-up point. However, a station with this status may 
become unfrozen and resume bidding in later rounds if the base clock 
reaches this price. As a result, such a station will be able to submit 
proxy bid instructions that will apply in case it becomes unfrozen and 
its status changes back to ``bidding in the current round.'' Likewise, 
stations with this status may later become ``frozen--provisionally 
winning'' if, prior to the base clock reaching the station's catch up 
point, the system determines that a feasible assignment will never be 
found for all possible future behavior of bidders in this stage.
    122. Exited--Voluntary. If a bidder places a bid for its station to 
drop out (or the system placed this bid because the bidder failed to 
submit a bid for its station that had the status of ``bidding in the 
current round'') and the bid is processed, the station's status will 
become ``exited--voluntary,'' and that station will no longer bid in 
the auction. Stations with this status will no longer be offered prices 
nor allowed to place bids in the auction, and will be designated for 
repacking in their pre-auction bands.
    123. Exited--Not Needed. If the auction system determines at any 
point that a feasible channel assignment will always be available for a 
station in its pre-auction band, its status will change to ``exited--
not needed,'' and that station will no longer bid in the auction. Since 
the auction system will never freeze a station that has a feasible 
assignment, such a station will be dropped out of the bidding rather 
than forcing it to continue bidding until the price offer decreases to 
$0. As with stations that voluntarily drop out, stations with this 
status will be designated for repacking in their pre-auction bands, and 
will not participate in the remainder of the auction.

E. Stopping Rule

    124. Under the procedures the Commission establishes, bidding 
rounds in a stage of the reverse auction will continue until no 
participating stations are ``active'' and all participating stations 
have the status ``frozen--provisionally winning,'' ``exited--
voluntary,'' or ``exited--not needed.'' At that point, each 
participating station will either have its currently held option 
tentatively accepted or it will be provisionally assigned to a feasible 
channel in its pre-auction band. The procedures the Commission adopts 
answer EOBC's objection that bidding should stop when it ``does not 
need any additional volunteers.'' The Commission will ``not need any 
additional volunteers'' when no actively bidding stations remain in the 
auction and the reverse auction in that stage will end.

F. Final Winning Bids

    125. If the current stage is the final stage of the incentive 
auction--that is, if the final stage rule is satisfied in the forward 
auction portion of the current stage--stations with ``frozen--
provisionally winning'' status when the reverse auction stops in that 
stage will become winning stations, and the system will accept the 
currently held relinquishment option of each winning station. Bidders 
whose stations won will receive their current prices at the time the 
stations became ``frozen--provisionally winning.''

VI. Forward Auction Bidding

A. Bidding in the Clock Phase

    126. The forward auction will utilize an ascending clock auction 
format under which each qualified bidder will indicate in successive 
clock bidding rounds its demands for categories of generic license 
blocks in specific geographic areas. After bidding stops in the clock 
phase of the forward auction, the forward auction assignment phase will 
be conducted to assign frequency-specific 600 MHz Band licenses 
consistent with the demands of specific bidders in specific geographic 
areas.
    127. The initial stage of the forward auction will begin on the 
second business day after the close of bidding in the reverse auction, 
but no sooner than 15 business days after the release of the Qualified 
Bidders PN. The Qualified Bidders PN will announce the list of forward 
auction qualified bidders--those applicants with submitted auction 
applications that are deemed timely-filed and complete, provided that 
such applicants have timely submitted an upfront payment that is 
sufficient to qualify them to bid. Forward auction qualified bidders 
will have access to the detailed impairment information once they 
receive their registration materials, which will be sent after release 
of the Qualified Bidders PN. Detailed impairment information will be 
available only to forward auction qualified bidders. Forward auction 
qualified bidders must use the SecurID[supreg] tokens included with 
their registration materials to access the impairment information. All 
forward auction qualified bidders will have an opportunity to 
participate in a mock auction prior to bidding in the clock phase of 
the forward auction. The Commission anticipates that forward auction 
qualified bidders will have at least 10 business days after receiving 
their registration materials to analyze impairment data before the 
first round of bidding begins in the forward auction. In subsequent 
stages, if necessary, the forward auction will begin on the next 
business day after the close of bidding in that stage of the reverse 
auction. Forward auction bidders will be given detailed impairment 
information for a subsequent stage prior to the start of the reverse 
auction in that stage, which will give them adequate time to analyze 
such

[[Page 61943]]

information. Therefore, the Commission declines to provide any 
additional time between the conclusion of the reverse auction and start 
of the forward auction in any subsequent stage.
1. Availability of Auction-Related Information
a. Impairment Information for Bidders
    128. In order to make the forward auction transparent for bidders, 
and in response to commenters' concerns regarding the challenges 
associated with bidding for impaired licenses, more information 
regarding impairments will be available than what the Commission 
proposed in the Comment PN. Forward auction qualified bidders will have 
access to detailed impairment information, including the actual source 
and location of any impairment, upon receipt of their registration 
materials. Information regarding the actual source and location of any 
impairment, i.e., the facility information of the impairing stations, 
will be determined when the clearing target for a stage is set. More 
specifically, the auction system will give forward auction qualified 
bidders access to the following information about the licenses offered 
in all PEAs: (1) Aggregated impairments at the license level (for every 
block of every PEA), with impairment level percentages calculated using 
population (pops) including the associated license category (i.e., 
Category 1 or Category 2), provided in two formats (CSV [Comma-
separated values (CSV) files provide tabular data in a plain text 
format] and PEA maps); (2) uplink and downlink impairments at the 
license level (for every block of every PEA), with impairment level 
percentages calculated using pops, provided in two formats (CSV and PEA 
maps); (3) impairments measured in pops at the 2x2 kilometer cell level 
for each impairing station for ISIX Case 1, including the facility ID 
(i.e., the specific television station, domestic or international, that 
will cause the impairment) of and the channel assigned to the source of 
potential interference to the wireless base station as well as the 
difference between the interference threshold and the interfering field 
strength, provided in CSV format only; (4) impairments measured in pops 
at the 2x2 kilometer cell level for each impairing station for ISIX 
Case 2, including the facility ID, domestic or international, of and 
the channel assigned to the source of potential interference to the 
user equipment as well as the difference between the interference 
threshold and the interfering field strength, provided in CSV format 
only; (5) for ISIX Case 3, impairments measured in pops of counties 
containing the hypothetical wireless base station which causes 
interference to a 2x2 kilometer cell within a television station's 
protected contour, regardless of whether this cell has population 
provided in CSV format only (because 600 MHz Band wireless base 
stations will not be deployed until after the incentive auction, for 
purposes of applying the ISIX methodology during the auction, the 
optimization software will assume the location of hypothetical wireless 
base stations by applying uniformly spaced sample locations, spaced 
every ten kilometers within the boundaries of every wireless license 
area that is within 500 kilometers of the television station); (6) 
impairments measured in pops at the 2x2 kilometer cell level for ISIX 
Case 4, provided in CSV format only; and (7) reference files giving the 
location of all 2x2 cells, the location of all hypothetical base 
stations, information on stations interfered with by hypothetical base 
stations, and information on the spectrum overlap, in megahertz, 
between the interfering transmitter channel and the interfered-with 
receiver channel. This information will be provided to forward auction 
qualified bidders for each stage, and will not become fixed unless and 
until the final stage rule is satisfied. The Commission rejects 
Sprint's suggestion that it re-optimize the provisional channel 
assignment plan at the close of the reverse auction in a stage in order 
to further reduce impairments, then release this information to forward 
auction bidders who would have two weeks before the forward auction 
begins. Because the reverse auction can only increase the number of 
stations that must be assigned channels in the UHF band between the 
start of a stage and the end of a stage, the potential efficiency gains 
of re-optimizing are extremely limited and do not warrant delaying the 
auction for two weeks. If the final stage rule is not satisfied at a 
particular clearing target, the clearing target will be lowered, and 
forward auction bidders will be provided with new impairment 
information for the new clearing target. The Commission also plans to 
release sample data in advance of the auction for bidders to examine, 
which--if desired--would allow bidders to build their own analysis 
tools.
    129. Providing this detailed information responds to concerns 
commenters raised about whether forward auction bidders would have 
sufficiently detailed information to make informed bids on impaired 
licenses. For example, NAB asserts that providing information about all 
potential impairments will aid transparency for bidders in the forward 
auction and prevent disputes as to whether or not winning bidders 
understood their future obligations with respect to inter-service 
interference. Sprint argues that bidders must know precisely how 
impairments may affect particular licenses. Similarly, CTIA states that 
detailed information regarding the location of impairments ``would 
greatly enhance the ability of bidders to develop strategies and make 
sound choices.'' Specifically, CTIA suggests that the FCC provide 
information regarding the impairing stations, including key operating 
parameters--such as station location, antenna height, and power level--
to forward auction bidders on a confidential basis. Bidders will know 
for each impaired license the percentage of impairment (by population), 
whether the impairment is located in the uplink or downlink portion of 
the license, and the geographic location of the impairment. Bidders can 
use the facility information about the impairing station to determine 
how their wireless networks could be deployed around the impairment. 
Further, Verizon recommends Commission outreach in order to ``educate 
potential forward auction bidders about how to participate from a 
technical and administrative point of view.'' The Commission provides 
extensive information prior to the bidding in every auction, including 
publicly available seminars and/or tutorials and--for qualified 
bidders--mock auctions. The Commission intends that the education and 
outreach efforts in advance of Auction 1000 will be even more detailed 
and extensive than normal in light of the many new aspects of this 
auction and the procedures necessary to conduct it. Several commenters 
request that in addition to providing the ISIX data results based on 
the F(50,50) statistical measure incorporated into the Commission's 
ISIX methodology, the auction system provide data using the F(50,10) 
statistical measure. While the Commission declines to provide multiple 
sets of ISIX data results to bidders, the impairment information that 
will be provided will allow a forward auction bidder to analyze the 
potential interference employing any statistical measure it chooses. 
The Commission will address Sprint's pending Petition for 
Reconsideration of the use of the F(50,50) measure for the ISIX 
methodology in the ISIX proceeding.

[[Page 61944]]

    130. The Commission finds that providing information to forward 
auction bidders about impairing stations is consistent with its 
statutory confidentiality obligation because providing this data will 
not reveal the identity of licensees that elect to participate in any 
stage of the reverse auction. Impairing stations in the 600 MHz Band 
could be stations that elected not to participate in the reverse 
auction at all, stations that applied but failed to make an initial 
commitment and therefore did not become qualified to bid in the clock 
phase of the reverse auction, stations that the system could not 
accommodate during the initial commitment process, or stations that 
dropped out in a prior stage. In any subsequent stage, an impairing 
station may also have been a bidder in a prior stage that has dropped 
out. Forward auction bidders will not be able to distinguish previously 
participating impairing stations from impairing stations that never 
participated. Moreover, forward auction bidders will not be able to 
infer which licensees elected to participate in the reverse auction 
from the impairment information they receive. The vast majority of non-
participating stations will be assigned to channels in the remaining TV 
bands, and forward auction bidders will not receive any information 
about those stations. Therefore, forward auction bidders will not have 
enough information about the full complement of non-participating 
stations from which to surmise the identity of participating stations. 
This impairment information will be available only to forward auction 
qualified bidders. Forward auction participants need this information 
to make informed bids, but other parties do not need to know this 
information to participate effectively in the auction; in particular, 
the Commission declines to provide this information to all auction 
participants, because knowing this type of information could lead to 
undesirable strategic behavior by reverse auction bidders. 
Additionally, the Commission will not provide this information to the 
impairing stations. The impairing stations' assignments will remain 
provisional only until the final stage rule is satisfied and the final 
TV channel assignment plan is determined (the assignments will become 
permanent if the auction closes in the current stage, however, so 
forward auction bidders will know the actual impairing stations for any 
given stage). Thus, although the Commission recognizes that impairing 
stations may be interested in this information, it will not provide it 
to them. The Commission cautions forward auction participants that 
communicating the non-public information that they receive to others, 
whether directly or indirectly through third-parties or public 
disclosure, could violate the Commission's rule prohibiting 
communication of certain auction information.
b. Bidding Information
    131. As in past Commission auctions, the public will have access to 
certain auction information, while auction participants will have 
secure access to additional non-public information. Details of how to 
access auction information will be provided in the Application 
Procedures PN.
    132. The Application Procedures PN also will detail the prohibition 
on communicating information relating to bids or bidding strategies, 
such as the non-public information that bidders may access in the 
auction system, to other forward auction applicants or to broadcast 
licensees eligible to participate in the reverse auction, subject to 
specified exceptions. As in all recent Commission spectrum license 
auctions, it will limit the availability of forward auction information 
in order to prevent the identification of forward auction bidders 
placing particular bids until after the auction is over. Specifically, 
the Commission will not make publicly available until after the auction 
concludes: The PEAs that an applicant selects for bidding in its 
application, the amount of any upfront payment made by or on behalf of 
the applicant, any information on any applicant's bidding eligibility, 
including whether an applicant is eligible to bid on reserve spectrum, 
and any other bidding-related information that might reveal the 
identity of the bidders placing bids and taking other bidding-related 
actions. The Commission cautions forward auction participants that 
communicating the non-public information regarding bids or bidding 
strategies, such as PEAs selected in the auction application, could 
violate its rule prohibiting communication of certain auction 
information. These procedures have helped safeguard past auctions 
against potential anti-competitive behavior, such as retaliatory 
bidding, and should do so here as well. As in prior auctions, the 
Commission will make available to the public before the bidding begins 
the other contents of applications to participate in the forward 
auction. The Commission retains the discretion not to limit information 
regarding the identities of forward auction bidders pursuant to the 
procedures if circumstances indicate that these procedures would not be 
an effective tool for deterring anti-competitive behavior. This helps 
ensure the competitiveness of the bidding. The Commission reiterates 
that auction applicants could violate the prohibition on communicating 
certain forward auction information by communicating non-public 
information that they receive to others, whether directly or indirectly 
through third-parties or public disclosure.
    133. The public notice announcing qualified bidders for the forward 
auction also will announce the forward auction's initial bidding round 
schedule. The schedule will establish the length of time each round 
will last. Bidders may respond to prices in each round. Each bidding 
round will be followed by the release of round results.
    134. Before bidding begins in the forward auction clock phase, 
information on the target amount needed to satisfy each component of 
the final stage rule will be publicly available, based on the results 
of the reverse auction bidding for the current stage. Specifically, 
depending on whether or not the clearing target for the stage is above 
the spectrum clearing benchmark of 70 megahertz, the target gross 
proceeds or average price in relevant PEAs required to satisfy the 
first component of the final stage rule and the target estimated 
aggregate net proceeds required to satisfy the second component will be 
publicly announced.
    135. After each round of forward auction clock phase bidding 
concludes, whether the final stage rule has been met and detailed 
information regarding the progress toward meeting it will be publicly 
available. Given the provision of this information regarding whether 
the final stage rule may be satisfied, the Commission need not address 
U.S. Cellular's argument that, if such information is not provided, the 
bidders should have an opportunity to change their bids when the rule 
is satisfied. Available detailed information will include the aggregate 
gross proceeds and average price in relevant PEAs with respect to the 
first component of the final stage rule, and the estimated aggregate 
net proceeds, rounded down to the nearest $10 million, with respect to 
the second. Rounding will help prevent any attempt to infer information 
about applicable bidding credits and the identity of bidders and 
rounding down will prevent any confusion that could result from a 
rounded amount appearing to meet the target before the actual estimate 
does so. In addition, for each category of license in each PEA in the 
just completed round, the supply, the aggregate demand, the price at 
the end

[[Page 61945]]

of the last completed round, and the price for the next round, will be 
publicly announced. This detailed price information will indicate the 
progress of the auction, both towards satisfying the final stage rule 
and, separately, towards completion of bidding. The Commission 
addresses the information that will be provided to forward auction 
bidders regarding the assignment phase of the forward auction below.
    136. In addition to the bidding information described here, the 
Commission will use auction announcements to report any other necessary 
information to forward auction participants, such as schedule changes. 
Providing auction announcements through the auction system has been an 
effective and efficient way to communicate necessary information to 
auction participants in past auctions, and the Commission expects that 
this will be the case for the forward auction as well.
2. Available Generic Spectrum Blocks
    137. In the clock phase of the forward auction, the Commission will 
offer generic blocks in two bidding categories based on the extent to 
which the blocks may be impaired by broadcast television stations 
repacked in the 600 MHz Band. The Commission adopts its proposed 
approach to categorizing blocks for bidding, including how it define 
generic blocks in two categories. The Commission also addressed 
implementation of the spectrum reserve established the Mobile Spectrum 
Holdings R&O.
a. Bidding Categories
    138. The Commission will offer two categories of generic blocks for 
bidding in the clock phase of the forward auction. ``Category 1'' will 
include any block with potential impairments that affect zero to 15 
percent of the population of a PEA. The impairment percentage will be 
calculated based on the population impaired in a PEA as measured at the 
two-by-two kilometer cell level. ``Category 2'' will include any block 
with potential impairments that affect greater than 15 percent but less 
than or equal to 50 percent of the population of a PEA. Any block with 
potential impairments that affect more than 50 percent of the 
population will not be offered in the forward auction. After the 
assignment phase, the auction system will provide a price adjustment to 
the final clock phase price equal to one percent for each one percent 
of impairment to account for varying degrees of impairment to the 
licenses.
    139. Category 1. The Commission adopts its proposal to establish a 
15 percent threshold for Category 1 blocks. Many commenters agree that 
some level of impairment is acceptable in generic blocks, supporting a 
range of percentages. Moreover, the record reflects that wireless 
operators have the ability to mitigate the impact of impairments within 
license areas: Operators normally expect some degree of signal 
degradation due to attenuation, scattering, interference, or other 
factors, and have various methods of mitigating interference from 
impairing TV stations. In choosing a specific threshold, the Commission 
must balance the need to ensure fungibility of blocks within Category 1 
with its auction design goal of maximizing the number of such licenses 
available in the forward auction, which in turn will promote its 
competitive goals and the overall success of the auction. The 
Commission finds that a 15 percent threshold strikes the appropriate 
balance. Its analysis projects that the vast majority of Category 1 
blocks will have no impairments. In Scenario 1 (84 megahertz 
repurposed), 2535 of the 2654 Category 1 licenses in the continental 
United States would have no impairments. In Scenario 2 (114 megahertz), 
3334 of the 3469 Category 1 licenses would have no impairments. And in 
Scenario 3 (126 megahertz), 3753 of the 3886. The 15 percent threshold 
the Commission adopts provides the flexibility to include in this 
Category blocks with a limited range of impairments that should be 
manageable for wireless operators and are unlikely to affect major 
population centers within the PEA. Major population centers in Category 
1 blocks are likely to be unimpaired because in most PEAs, such areas 
would likely comprise more than 15 percent of the population in the 
PEA. The fungibility of such blocks will be enhanced by the discount 
that will be available at the end of the assignment phase of the 
forward auction, and bidders will be provided with detailed information 
in order to prevent uncertainty regarding the inventory of Category 1 
blocks available in each PEA. The Commission recognizes that bidders 
will judge impairments and their impact on the value of a block 
differently. The detailed information the auction system will provide 
on the levels, including locations and types, of impairments in a block 
will enable bidders to reflect their own assessment of the impairment's 
impact on the value of the license with their bids both in the clock 
and assignment phase. For these reasons, the Commission declines to 
adopt the proposed alternative to limit Category 1 to unimpaired blocks 
(and broaden Category 2 to blocks with impairments from one to 50 
percent). The Commission also agrees with CCA, T-Mobile and U.S. 
Cellular that adopting this alternative would create excessively wide 
disparities in the level of impairment in Category 2 licenses, 
ultimately harming their fungibility.
    140. The 15 percent threshold the Commission adopts also serves its 
competition goals. Only Category 1 blocks will be placed in the 
spectrum reserve. In addition, Category 1 blocks will be reserved after 
all bidders, including non-reserve-eligible bidders, have already 
established bidding interests in them. The amount of reserved spectrum 
will be based on demand by reserve-eligible bidders at the time the 
final stage rule is met, in part so that ``entities that acquire 
reserved spectrum would pay their fair share of the cost of the 
Incentive Auction.'' The 15 percent threshold maximizes the number of 
Category 1 blocks, which will help to ensure that a full complement of 
reserved blocks can be made available in each market, while also 
allowing an equitable distribution of Category 1 blocks among reserve-
eligible and non-reserve-eligible bidders.
    141. Category 2. The Commission also adopts its proposal to 
establish an impairment threshold for Category 2 blocks of greater than 
15 percent but less than or equal to 50 percent. The record reflects 
that impaired spectrum blocks retain significant value and utility for 
wireless providers. In the Incentive Auction R&O, the Commission stated 
that it will offer paired spectrum blocks and declined to offer 
downlink-only blocks. The thresholds for Category 2 blocks are 
consistent with this policy, and therefore the Commission declines to 
adopt T-Mobile's proposal to revise the Category 2 thresholds. The 
Commission concludes that the 15-to-50 percent range that it establish 
strikes a reasonable balance between ensuring the fungibility of blocks 
within Category 2 and its other goals. So long as Category 2 blocks in 
a PEA are economic substitutes, which means that sufficiently raising 
the price of one license in a set of Category 2 blocks would cause 
demand to switch to a lower priced license in the set, the relative 
prices of the Category 2 licenses within a PEA can be determined by 
bidding in the assignment phase. The anticipated minimal range of 
impairments between Category 2 blocks within individual PEAs, means 
that the difference between the most impaired license, to which clock 
phase bidders bid, and the other Category 2 blocks will also be minimal 
and bidders, and

[[Page 61946]]

therefore likely economic substitutes. Blocks within Category 2 will be 
subject to significant impairment levels by definition, and the 
Commission projects that there will be very few of them available in 
the forward auction. In many cases, only one Category 2 block will be 
available in a PEA. Staff simulations demonstrate that from among the 
top 20 PEAs, only 2 PEAs had more than one Category 2 block in 
Scenarios 1 & 3 and only three PEAs had more than one Category 2 block 
in Scenario 2. Further, the variation in impairment levels among 
Category 2 blocks in a specific PEA likely will be minimal. Category 2 
blocks within a single PEA will likely be affected by the same 
impairing station, resulting in similar levels of impairment and 
geographic footprints across the Category 2 blocks. Thus, although the 
range of impairments in Category 2 is between 15 and 50 percent, the 
actual range in any one PEA is likely to be much smaller. Accordingly, 
the Commission finds that a wider range of impairments is appropriate 
for Category 2 than for Category 1. Given the minimal number of PEAs in 
which the Commission expects multiple Category 2 blocks to be 
available, and the limited impairment range of Category 2 blocks within 
such PEAs, the Commission is not concerned that its decision puts too 
much emphasis on bidding in the assignment phase, as some commenters 
suggest. As with Category 1 blocks, the fungibility of Category 2 
blocks will be enhanced by the discount that will be available at the 
end of the assignment phase, and bidders will be provided with detailed 
information to prevent uncertainty regarding the available inventory of 
Category 2 blocks. The fungibility of Category 2 licenses will be 
further enhanced by the Commission's decision not to weight impairments 
located in the downlink portion of the 600 MHz Band for purposes of 
measuring the extent of potential impairments, as the percentage of 
impairment permitted for Category 2 licenses will be lower for uplink 
impairments than the Commission proposed initially.
    142. The comparatively wide impairment range for Category 2 also 
serves its auction design goals by enabling the Commission to limit the 
total number of generic blocks categories to two, thereby simplifying 
the auction and providing bidders with more flexibility. Limiting the 
number of categories to two will enable bidders to more easily switch 
their demands from one category to another or from one PEA to another 
than if the clock phase included more, but more narrowly defined, 
categories, as AT&T suggests. Given the need to assure that the final 
stage rule remains satisfied once it is met, the procedures the 
Commission adopts herein will limit bidders' ability to reduce demand 
for blocks in a category unless there is excess demand in the category. 
With fewer categories for bidding, the likelihood that there will be 
excess demand in any one category is greater, giving bidders' greater 
flexibility to modify their bidding strategies. In addition, limiting 
the number of categories to two will simplify the auction interface and 
make the bidding process more manageable for forward auction bidders.
    143. Clock Phase Price Adjustment for Impaired Blocks. To enhance 
the fungibility and offset the variation in value of the generic blocks 
within the two categories the Commission adopts, it incorporates a 
price adjustment to account for impairment for both Category 1 and 
Category 2 blocks. Specifically, for a given frequency-specific 
license, the final clock phase price in the assignment round will be 
discounted by one percent for each one percent of impairment to the 
license. The auction system will calculate the categories of generic 
licenses based on the percentage of the population impaired in each 
block as measured at the two-by-two kilometer cell level. For example, 
if a Category 1 block is ten percent impaired, it will be subject to a 
ten percent discount off the final clock phase price. The price 
adjustment will be applied at the end of the assignment phase of the 
forward auction. While several commenters argue that the impact of 
impairments on forward auction license value will not necessarily be 
linear, most commenters either support or do not oppose a price 
adjustment, and no commenter identifies an alternative that would be 
more effective in enhancing fungibility. Consistent with the 
Commission's reasoning for adopting its proposed price adjustment, it 
declines to adopt T-Mobile's proposal to offer different price 
adjustments for foreign-origin impairments. The value that bidders 
ascribe to each license is likely to vary based on a variety of factors 
in addition to the level of impairment, including the location of the 
impairments and the wireless operators' existing coverage area. The 
price adjustment the Commission adopts is designed to accommodate a 
range in values and enhance fungibility, and is not intended to fully 
compensate for that range or resolve all differences in value, however. 
Indeed, the price adjustment remains consistent for all bidders, 
allowing them to assess each license, its level of impairment (if any), 
and its relative value, which they can then express through their 
bidding in the assignment round.
    144. The Commission also agree with T-Mobile that when the price 
adjustment is ``accompanied by more granular information about the 
impairments,'' it will provide ``enough commonality among [blocks] to 
allow for generic . . . bidding. By providing bidders with detailed 
information about impairments, including the impairing station, the 
auction system will enable bidders to assess whether they should bid 
on, and how much they should bid for, impaired licenses in a particular 
PEA. For example, if a bidder considers impairments in a particular 
block to be more detrimental to the value of the license than is 
accommodated by the discount, it can bid less or shift its preference 
to another block in the assignment round. This includes any valuation a 
bidder may have on either expanding its service footprint to currently 
unserved areas or acquiring more spectrum in its service area. The 
Commission notes that U.S. Cellular's assertion that ``areas subject to 
inter-service interference could be concentrated in the portions of the 
PEA that encompass a carrier's current service area, and thus have the 
greatest value to the carrier,'' assumes that all carriers will value 
spectrum in their existing service areas more than spectrum in areas 
they currently do not serve.
    145. Alternative Proposals. The Commission declines to offer in the 
forward auction any spectrum blocks that are more than 50 percent 
impaired. Specifically, the Commission declines to offer such blocks as 
``overlay'' licenses in the assignment phase in conjunction with 
frequency-adjacent licenses in the same PEA. The Commission finds that 
doing so would unduly complicate the assignment phase of the forward 
auction, making bidder strategies more difficult and potentially 
interfering with the assignment phase's primary purpose: To optimally 
assign licenses to winning bidders consistent with their frequency 
preferences and the contiguity goals the Commission adopts. 
Specifically, this approach would complicate the assignment phase 
priority of assigning contiguous blocks. Consistent with prior 
Commission actions with regard to licenses that remained unsold after 
an initial auction for a new spectrum band, the Commission could offer 
heavily impaired 600 MHz licenses in a subsequent auction.

[[Page 61947]]

    146. The Commission rejects commenters' proposals that it offer 
only one category of generic blocks in the forward auction or a single 
category of wholly-unimpaired licenses outside of border areas. 
Although these commenters assert that their proposals would improve 
fungibility of the generic licenses, the Commission finds that the 
potential benefits in terms of increased fungibility would be 
outweighed by the harms to its other auction goals. Limiting available 
blocks to a single category of unimpaired or lightly impaired blocks, 
whether nationwide or outside of border areas, would limit the amount 
of spectrum available in the forward auction, potentially reducing 
auction revenues, complicating bidding for forward auction bidders, and 
undercutting its competitive goals. With staff simulations 
demonstrating that only a small portion of available licenses will be 
Category 2, and in light of the demonstrated interest in these 
moderately-impaired licenses, the Commission finds good reason to offer 
both types of licenses. Further, the Commission projects that its 
approach will result in the vast majority of licenses available in the 
forward auction being unimpaired or only minimally impaired. The 
Commission is persuaded that the categories it adopts strike the 
appropriate balance between ensuring fungibility and its other goals. 
Conversely, the Commission rejects CCA's suggestion that it offer a 
single category of generic blocks with a wider range of impairments 
because such an approach would fail to ensure the fungibility of 
generic blocks within the one category.
    147. The Commission also rejects Sprint's proposal for bidding on 
frequency-specific spectrum blocks in the clock phase rather than 
generic blocks as inconsistent with the basic auction design the 
Commission established in the Incentive Auction R&O. In the Incentive 
Auction R&O, the Commission adopted an ascending clock mechanism to 
collect bids on generic categories, to be followed by a separate 
assignment mechanism to assign frequency-specific licenses. Because 
auction speed correlates to costs for both forward and reverse auction 
participants, the Commission found that bidding on generic blocks 
enhances the speed and efficiency of the auction because bidders will 
not need to bid iteratively across rounds on several similar blocks. 
Finally, the Commission declines to treat impairments in border regions 
differently. Under the approach the Commission adopts, bidders will 
know whether an impairing station in a PEA is domestic or foreign, and 
can adjust and prioritize their preferences accordingly.
b. Market-Based Spectrum Reserve
    148. The Commission starts by addressing issues related to the 
market-based spectrum reserve adopted in the Mobile Spectrum Holdings 
R&O. First, the Commission denies a petition for reconsideration of the 
Mobile Spectrum Holdings R&O insofar as it seeks to change its 
determination that the spectrum reserve will be triggered when both 
components of the final stage rule are satisfied. The Commission 
addresses this specific T-Mobile reconsideration request here, rather 
than in the Mobile Spectrum Holdings proceeding along with the other 
reconsideration requests filed in that proceeding. Unlike the other 
requests in the Mobile Spectrum Holdings proceeding, T-Mobile's request 
that the Commission reconsider the spectrum reserve trigger is 
interrelated with arguments in this proceeding that the $1.25 benchmark 
that it adopts for the average price component of the final stage rule 
is not an appropriate benchmark for purposes of triggering the spectrum 
reserve. The Commission notes that T-Mobile's Petition for 
Reconsideration also requests that the Commission change the size of 
the maximum spectrum reserve at initial clearing targets, an issue that 
was raised in several of the comments in response to the Auction 1000 
Comment PN. The Commission does not address this issue here. Rather, 
the Commission affirms in the Mobile Spectrum Holdings Order on 
Reconsideration that it will not increase the maximum amount of 
reserved spectrum. The Commission finds that this determination 
continues to further its underlying goals, particularly in light of its 
adoption herein of $1.25 as the average price component of the final 
stage rule. Second, the Commission affirms that the maximum spectrum 
reserve will be set based on the initial clearing target and will be 
reduced in a PEA in the transition to a new stage only if actual demand 
by reserve-eligible bidders in the prior stage does not reach the 
maximum. Third, the Commission clarifies the criteria determining 
whether an applicant will qualify to bid on reserved spectrum in a PEA.
    149. Next, the Commission addresses implementation issues raised in 
the Auction 1000 Comment PN. In particular, the Commission adopts its 
proposals that, for a given PEA in which the Commission offers fewer 
Category 1 blocks than the nationwide clearing target, the maximum 
number of reserved spectrum blocks, will be based on the total number 
of Category 1 blocks and Category 2 blocks (if any) offered in that 
PEA. In addition, the spectrum reserve only will include Category 1 
blocks, and the demand determining the actual amount of reserve at the 
time the spectrum reserve is triggered will be the demand by reserve-
eligible bidders for Category 1 blocks. Further, the Commission adopts 
its proposal that the actual spectrum reserve in a PEA with only one 
reserve-eligible entity bidding on Category 1 blocks at the time the 
spectrum reserve is triggered will be no more than 20 megahertz. 
However, the Commission rejects commenters' proposals to adopt a cap of 
20 megahertz on the amount of reserved spectrum that any reserve-
eligible bidder may acquire in a PEA if there is more than one reserve 
eligible entity bidding at the time the reserve is triggered. Lastly, 
the Commission declines to adopt various other proposals offered by 
commenters in response to the Auction 1000 Comment PN.
(i) Background
    150. In the Mobile Spectrum Holdings R&O, the Commission 
established a market-based spectrum reserve. The Commission first 
established the maximum amount of licensed spectrum that will be 
reserved in each PEA for reserve-eligible entities in the forward 
auction for different initial clearing targets. The Commission affirms 
these maximum amounts in the Mobile Spectrum Holdings Order on 
Reconsideration. The Commission notes that if the available amount of 
spectrum (Category 1 and Category 2 licenses) offered in a PEA at the 
initial stage is 30 megahertz or less, there will be no spectrum 
reserved in that PEA, as the maximum reserve chart in the Mobile 
Spectrum Holdings R&O did not provide for a spectrum reserve at those 
clearing levels.
    151. If the auction does not close, the maximum amount of reserved 
spectrum in each PEA in subsequent stages will be the smaller of the 
maximum amount of reserved spectrum in the previous stage or the amount 
that the reserve-eligible bidders demanded at the end of the previous 
stage. For example, if the initial clearing target is 70 megahertz, the 
maximum reserve will be 30 megahertz in the next stage, provided that 
reserve-eligible bidders continue to demand that amount. If reserve-
eligible bidders demand less than 30 megahertz at the end of the 
initial stage, the maximum reserve for the next stage will be that 
demand. The same rule holds for any subsequent stages as well. In 
addition, the Commission determined

[[Page 61948]]

that the actual amount of reserved spectrum will depend on the demand 
by reserve-eligible bidders when the final stage rule is satisfied. To 
be reserve-eligible, an entity must not hold an attributable interest 
in 45 megahertz or more of below-1-GHz spectrum in a PEA, or must be a 
non-nationwide provider. The Commission noted that it would revise the 
short-form application to provide for a certification by an applicant 
intending to bid on reserved spectrum that it meets the qualification 
criteria. If any entity plans to file a pre-auction divestiture 
application to come into compliance with the below-1-GHz holdings 
threshold, it will have to file in sufficient time to qualify by the 
short-form application deadline. Additional details regarding 
completing the short-form application will be provided in the 
Application Procedures PN.
    152. In the Auction 1000 Comment PN, the Commission proposed that 
in a given PEA, the maximum number of reserved spectrum blocks would be 
based on the total number of Category 1 and Category 2 blocks offered 
in that PEA. Further, the Commission proposed that the spectrum reserve 
would include only Category 1 blocks. The Commission proposed that the 
actual number of reserved blocks would be based on demand for Category 
1 blocks by reserve-eligible bidders at the time the auction reaches 
the spectrum reserve trigger. As a result, in the Commission's 
implementation, if demand for Category 1 blocks in a PEA by reserve-
eligible bidders is less than the maximum reserved spectrum, then fewer 
reserved blocks would be available in that PEA. Alternatively, the 
Commission sought comment on whether it should include Category 2 
blocks in the spectrum reserve in any PEAs with fewer Category 1 blocks 
than the maximum spectrum reserve. Further, the Commission proposed 
that the amount of reserved spectrum in any PEA be limited to 20 
megahertz if there is only one reserve-eligible bidder demanding blocks 
when the trigger is reached.
(ii) Spectrum Reserve Trigger
    153. The spectrum reserve is designed to provide the opportunity 
for multiple service providers to have access to low-band spectrum, 
while also ensuring that all bidders bear a fair share of the cost of 
the forward auction. To facilitate its underlying goals, the Mobile 
Spectrum Holdings R&O tied the actual amount of the spectrum reserve to 
the quantity demanded by reserve-eligible bidders in each PEA at the 
point the final stage rule is satisfied in the forward auction. The 
final stage rule is a reserve price with two components, both of which 
must be satisfied. The first component requires that the average price 
per MHz-pop for licenses in the forward auction meets or exceeds a 
specified price per MHz-pop benchmark (average price component). The 
second ``requires that the proceeds of the forward auction be 
sufficient to meet mandatory expenses set forth in the Spectrum Act and 
any Public Safety Trust Fund amounts needed in connection with 
FirstNet'' (cost component). The Commission rejects various requests 
that it either eliminate or modify the link between the spectrum 
reserve trigger and the final stage rule.
    154. First, the Commission rejects T-Mobile's request, in its 
petition for reconsideration of the Mobile Spectrum Holdings R&O, that 
the Commission eliminate the link between the spectrum reserve trigger 
and the average price component of the final stage rule, as well as 
more recent requests by commenters to eliminate the link between the 
spectrum reserve trigger and the cost component of the final stage rule 
or eliminate the link to the final stage rule altogether. In 
particular, the Commission disagrees with arguments that linking the 
spectrum reserve trigger to one or the other component of the final 
stage rule undermines its goals in establishing the spectrum reserve. 
Rather, the Commission affirms that linking the spectrum reserve 
trigger to the average price component is important to ``fairly 
distribute the responsibility for satisfying the costs of the Incentive 
Auction among all bidders,'' particularly in light of its decision to 
set the average price component at $1.25. Moreover, linking the 
spectrum reserve trigger to the cost component ensures that the 
existence of the spectrum reserve will not reduce the amount of 
spectrum being cleared for mobile broadband use. The Commission found 
in the Mobile Spectrum Holdings R&O that satisfaction of both 
components of the final stage rule would ensure that reserve-eligible 
bidders pay significant prices for spectrum, that they are paying the 
same price as other bidders at the time that the final stage rule is 
met, and that the final stage rule is met before the spectrum reserve 
is implemented. In essence, the Commission concluded that linking the 
spectrum reserve with satisfaction of the final stage rule ensured that 
reserve-eligible bidders would be contributing ``a fair share'' of the 
final stage rule requirements, including ``a portion'' of the value of 
the spectrum for the public and the costs of clearing the spectrum.
    155. The Commission also disagrees with T-Mobile, Sprint, and CCA 
that the link between the spectrum reserve trigger and one or both 
components of the final stage rule creates a significant risk of 
undesirable strategic bidding by non-reserve-eligible bidders. The 
Commission finds that the clock auction format of the forward auction, 
together with the auction procedures it adopts in the Auction 1000 
Bidding Procedures Public Notice, place significant limitations on the 
possibility for such undesirable strategic bidding. First, those 
procedures will not allow bidders to switch demand away from a product 
except when there is excess demand for the product and its price is 
rising, thereby limiting the ability of non-reserve-eligible bidders to 
drive up prices prior to the spectrum reserve being triggered without 
incurring significant risk. Second, the efficacy of a strategy to drive 
up prices will be limited: For instance, since ``jump bidding'' cannot 
occur in a clock auction, bidders will be limited in their ability to 
strategically bid up particular markets relative to other markets. In 
an SMR auction, ``jump bidding'' occurs when an entity bids more than 
what is required or necessary to be a currently winning bidder. Jump 
bidding is not possible in a clock auction. Moreover, in a clock 
auction, prices increase at a steady rate as long as there is any 
excess demand; in an SMR auction, prices can increase more quickly the 
greater the extent of excess demand.
    156. In addition, by limiting the use of extended rounds to 
situations where bidding has come close to meeting the final stage rule 
during the clock phase, the Commission limit the potential for bidders 
to successfully implement an undesirable strategic bidding strategy by 
taking advantage of a higher clock increment in the top 40 markets in 
an extended round. Further, in response to Sprint's contention that 
uncertainty about when the final stage rule will be met will cause 
reserve-eligible bidders to inefficiently maintain bidding activity 
across multiple PEAs and across bidding categories, the Commission 
notes that it will make publicly available during the auction on a 
round-by-round basis information showing how close forward auction 
revenues are to the final stage rule. This will enable reserve-eligible 
bidders to assess how their current bidding activity will affect the 
spectrum reserve in each PEA when the final stage rule is met. 
Accordingly, the Commission denies T-Mobile's petition for 
reconsideration insofar as it requests that the spectrum reserve 
trigger should not be linked to the

[[Page 61949]]

average price component of the final stage rule, and it rejects 
proposals by commenters to delink the spectrum reserve trigger from the 
cost component or both components of the final stage rule.
    157. The Commission also rejects recent arguments that tying the 
spectrum reserve trigger to the cost component of the final stage rule 
increases the risk of foreclosure pricing. Commenters contend that, 
because the cost component must be satisfied before the reserve is 
triggered, high clearing costs under a high clearing target could allow 
non-reserve eligible bidders to intentionally increase prices to 
foreclosure levels in key markets in the early rounds of bidding, 
forcing reserve-eligible bidders to reduce demand prior to the split 
and thereby reducing the amount of reserved spectrum. Moreover, they 
argue, because the auction system does not reset prices if the auction 
drops to the next lower clearing target, the impact of any such 
foreclosure bidding would be carried forward to these later stages, 
even if clearing costs drop. To address these possibilities, T-Mobile 
proposes a ``safety valve'' of retaining the $1.25 price per MHz-pop 
trigger in the top 40 PEAs, but amending the other component of the 
trigger to be either (1) an average of $2 per MHz-pop in the top 40 
PEAs; or (2) the cost component of the final stage rule, whichever is 
met first. Other parties propose a single spectrum reserve trigger of 
$2 per MHz-pop for the top 40 markets, either generally or limited to 
spectrum clearing targets of more than 84 megahertz. Verizon and AT&T 
oppose T-Mobile's ``safety valve'' proposal, arguing that triggering 
the reserve before the cost component is met will result in lower 
auction revenue and threaten the success of the auction.
    158. The Commission affirms its decision to tie the spectrum 
reserve trigger to the cost component of the final stage rule as well 
as the average price component and decline to adopts T-Mobile's 
``safety valve'' or another alternative trigger. The foreclosure 
scenarios that T-Mobile and other competitive carriers fear are 
extremely unlikely. The clock auction format, as well as the bidding 
procedures the Commission adopts, including the no-excess supply rule 
and the limitation on the use of an extended round, will limit the 
ability of certain bidders to strategically bid up prices in order to 
disadvantage others, and impose on any such bidders the risk of being 
forced to purchase unwanted spectrum at high prices. Further, T-
Mobile's ``hangover effect'' scenario is premised on an assumption--
that clearing costs will steeply decline in subsequent auction stages--
that is not founded in the record. On the other hand, the Commission 
previously found that tying the spectrum reserve trigger to both 
components of the final stage rule--the cost component as well as the 
average price component--is necessary to ensure that the reserve does 
not cause a reduction in the spectrum clearing target and to ensure 
that reserve-eligible bidders contribute a fair share of the costs of 
meeting the auction's revenue requirements. The Commission is not 
persuaded that the benefits of tying the spectrum reserve trigger to 
both components of the final stage rule are outweighed by the risk of 
foreclosure that T-Mobile and others have identified. Untying the 
reserve trigger from the cost component also would place the onus on 
the Commission to accurately predict clearing costs--which is difficult 
to do, as T-Mobile has argued in its initial advocacy to untie the 
reserve trigger from the average price component of the final stage 
rule--rather than allowing the market to determine when the reserve is 
triggered. Accordingly, the Commission affirms its judgment to tie the 
spectrum reserve trigger to the cost component of the final stage rule. 
In so affirming, the Commission considered information that T-Mobile 
and Sprint filed in support of their arguments along with a request for 
confidential treatment. In light of the Commission's decision, it 
dismisses as moot Verizon's requests that the Commission strike this 
information from the record without consideration or, alternatively, 
reject the request for confidential treatment and make the information 
public, and the Commission declines to address the merits of Verizon's 
arguments in support of these requests.
    159. The Commission emphasizes, however, that it takes very 
seriously its duty to ensure the integrity of its auctions. To this 
end, all auctions are monitored carefully, and appropriate actions will 
be taken if undesirable strategic behavior is discovered. The 
Commission also adopts additional measures to help it meet this 
objective. For instance, the Commission adopts a smaller minimum clock 
price increment than it proposed in the Auction 1000 Comment PN and 
authorizes clock price increments to be changed on a PEA-by-PEA basis. 
This allows a smaller increment to be used in specific PEAs should 
clock prices rise too fast in some markets relative to others. Its 
auction procedures typically provide for this tool, which has been 
available in past Commission auctions and implemented to maintain a 
balance of price increases across geographic license areas.
    160. The Commission also rejects arguments against tying the 
spectrum reserve trigger to the average price benchmark of $1.25 in the 
top 40 PEAs proposed in the Auction 1000 Comment PN. T-Mobile contends 
that the benchmark price should be set as low as possible and no more 
than $1.25 in the top 25 PEAs, while Sprint proposes that the spectrum 
reserve be set at the beginning of the clock phase, subject to a 
condition subsequent of spectrum being de-reserved if reserve-eligible 
bidders do not, in aggregate, demand quantities equivalent to the 
supply. They argue that tying the spectrum reserve trigger to the 
average price benchmark of $1.25 in the top 40 PEAs will allow 
strategic bidding by the two largest providers to foreclose their major 
competitors, both on a nationwide and market-specific basis. CCA states 
that there should not be a price per MHz-pop reserve trigger; however, 
if the Commission chooses to move forward with a price per MHz-pop 
reserve trigger, then it should be set at no more than $1.25 per MHz-
pop in the largest 40 PEAs, based on gross bids, which is what the 
Commission proposed in the Auction 1000 Comment PN. By contrast, AT&T 
and Verizon argue that $1.25 is too low a trigger, and will result in 
too much spectrum being allocated to the spectrum reserve and a 
windfall for reserve-eligible bidders. They contend that $1.25 is not 
an appropriate ``market price'' to ensure that reserve-eligible bidders 
pay their fair share, noting that this price is only approximately half 
of prices paid in the AWS-3 auction and significantly less than prices 
paid in the 700 MHz auction.
    161. The Commission rejects the various arguments that the price 
benchmark should be increased or decreased for purposes of triggering 
the spectrum reserve. Contrary to arguments by AT&T and Verizon, 
ensuring that reserve-eligible bidders pay a ``fair share'' does not 
require that the Commission determine the ``true competitive market 
value of the 600 MHz spectrum'' and set the spectrum reserve trigger 
price ``as close as possible'' to that value, or that the Commission 
determine and set a price that represents the exact point at which 
foreclosure of reserve-eligible bidders could occur. The Commission 
previously concluded that satisfaction of both components of the final 
stage rule would ensure, among other things, that reserve-eligible 
bidders pay significant prices for spectrum, and that they are paying 
the same price as other bidders at the time that the final stage

[[Page 61950]]

rule is met. Consistent with that conclusion, the Commission affirms 
that tying the spectrum reserve trigger to satisfaction of the cost 
component of the final stage rule and an average price component of 
$1.25 is sufficient to achieve its goal of ensuring that reserve-
eligible bidders bear a fair share of the costs of the forward auction.
    162. Likewise, the Commission rejects arguments that $1.25 is too 
high to achieve its pro-competitive goals. The Commission is not 
persuaded that a fair distribution of the costs of the incentive 
auction would occur if the price for reserved spectrum is determined 
solely by competition among reserve-eligible bidders for reserved 
spectrum instead of being tied to satisfaction of the final stage rule. 
Moreover, the Commission is not convinced that its approach of tying 
the spectrum reserve trigger to the final stage rule creates a 
significant risk of undesirable strategic behavior by non-reserve-
eligible bidders, including at the $1.25 average price component that 
it determine herein represents a portion of the value of the spectrum. 
In addition, the maximum amount of spectrum in the reserve is tied to 
bidders' demands in order to balance the underlying goals of the 
spectrum reserve. If reserve-eligible bidders' demand is insufficient, 
then the Commission finds that it is appropriate to set aside less than 
the maximum in order to balance the Commission's objectives. The 
Commission also rejects T-Mobile's alternate proposal to tie the 
spectrum reserve to a $1.25 benchmark across only the top 25 PEAs, 
rather than the top 40 PEAs.
(iii) Determination of Maximum Spectrum Reserve for a New Stage
    163. As the Commission set out in the Mobile Spectrum Holdings R&O, 
the maximum amount of reserve established based on the initial spectrum 
clearing target will not be reduced in any later stages of the 
incentive auction based on lower clearing targets, although it will be 
subject to demand by reserve-eligible bidders. The Commission concluded 
in the Mobile Spectrum Holdings R&O that the maximum amount of licensed 
spectrum that will be reserved in each market will be identified at the 
initial stage. In the Auction 1000 Comment PN, the Commission 
reiterated that the maximum reserve will be set according to the 
initial clearing target.
    164. Accordingly, AT&T's claim is incorrect that its prior decision 
established that the maximum spectrum reserve amount would be tied to 
the spectrum clearing target in each stage, not just the initial stage. 
The Commission finds that this procedure is consistent with its goals 
for the spectrum reserve: basing the maximum reserve amount on the 
initial spectrum clearing target will ensure the efficacy of the 
reserve and will protect its competitive goals by preventing the 
reserve from being reduced if the final stage rule is not satisfied in 
the initial stage and reserve-eligible bidders continue to demand the 
maximum level. By contrast, reducing the maximum reserve amount based 
on later clearing targets, regardless of demand by reserve-eligible 
bidders, would likely create incentives for non-reserve-eligible 
bidders to suppress demand at the initial stage in order to reduce the 
amount of the spectrum reserve.
    165. Contrary to AT&T's assertions, this procedure is consistent 
with its observation that every bidder will have the opportunity to bid 
for and win at least half of the 600 MHz Band spectrum in each PEA. 
Generally, if non-reserve-eligible bidders bid actively on spectrum in 
the initial stage, the bidding either will meet the final stage rule, 
or due to insufficient demand by reserve-eligible bidders, the bidding 
will not meet the final stage rule (thus reducing the spectrum reserve 
for the next stage). In either case, the market-based spectrum reserve 
rule would not have prevented non-reserve-eligible bidders from winning 
at least half of the 600 MHz Band spectrum in each PEA.
(iv) Attribution for Purposes of Qualifying to Bid on Reserved Spectrum
    166. For purposes of qualifying to bid on reserved spectrum as a 
non-nationwide provider, the Commission clarifies that an entity is 
subject to the attribution criteria set forth in 47 CFR 20.22(b). For 
example, all interests of ten percent or more by a nationwide provider 
in a non-nationwide provider will eliminate that non-nationwide 
provider from being considered reserve-eligible as a non-nationwide 
provider, though that provider still could qualify based on low-band 
holdings of less than 45 megahertz. An entity can qualify to bid on 
reserved spectrum by either: (1) Holding an attributable interest in 
less than 45 megahertz, on a population-weighted basis, of below-1-GHz 
spectrum in a given PEA; or (2) being a non-nationwide provider. 
Attributable holdings include, for example, controlling interests, non-
controlling interests of 10 percent or more, and long-term de facto 
transfer leasing arrangements and long-term spectrum manager leasing 
arrangements that enable commercial use. In the Mobile Spectrum 
Holdings R&O, the Commission adopted criteria to attribute partial 
ownership and other interests in spectrum holdings for purposes of 
applying a mobile spectrum holding limit to the licensing of spectrum 
through competitive bidding (as well as applying the initial spectrum 
screen to secondary market transactions).
    167. The Mobile Spectrum Holdings R&O stated that ``non-nationwide 
providers'' include any provider other than Verizon Wireless, AT&T, 
Sprint, and T-Mobile, but that Order also included attribution rules 
``for purposes of . . . applying a mobile spectrum holding limit'' in 
the auction. Those attribution rules were intended to ensure the 
integrity of its underlying rule, by permitting eligibility for the 
reserved spectrum only when appropriate to enhance competitive choices 
beyond nationwide providers and when eligibility would present a lesser 
risk of anti-competitive behaviors due to ``relative lack of 
resources.'' Accordingly, the Commission clarifies that the attribution 
criteria set forth in 47 CFR 20.22 govern the application of all 
aspects of the mobile spectrum holding limit in the incentive auction, 
regardless of whether an entity is attempting to qualify to bid on the 
spectrum reserve as a holder of less than 45 megahertz of low-band 
spectrum in the relevant market or as a non-nationwide provider.
    168. CCA has expressed concern about the potential impact that 
attribution of long-term leases of spectrum from nationwide providers 
to otherwise non-nationwide providers may have on the eligibility of 
those non-nationwide providers to bid on reserve spectrum. To address 
this concern, although the Commission will attribute long-term transfer 
leasing arrangements set forth in 47 CFR 20.22(b)(vii) for purposes of 
qualification based on low-band spectrum holdings, the Commission will 
not attribute such leasing arrangements to lessees and sublessees for 
purposes of qualifying as a non-nationwide provider. Attributing long-
term leasing arrangements in individual PEAs for purpose of 
qualification based on low-band spectrum holdings is consistent with 
the Commission's intent that entities lacking significant low band 
spectrum resources in those PEAs should have an opportunity to bid on 
reserved spectrum, and such attribution is consistent with the 
Commission's methodology for competitive review of spectrum 
acquisition. However, attributing long-term leasing arrangements to 
lessees from nationwide providers for purposes of qualifying as a non-
nationwide provider--which would have the effect of disqualifying 
providers ``with

[[Page 61951]]

networks that are limited to regional and local areas'' from bidding on 
reserved spectrum as a non-nationwide provider--would be inconsistent 
with its intent to ``permit bidding on 600 MHz reserve spectrum by 
regional and local service providers in all PEAs, including those where 
such a provider holds more spectrum than its 45 megahertz holding 
threshold of the available low-band spectrum.'' As the Commission 
indicated in the Mobile Spectrum Holdings R&O, non-nationwide service 
providers enhance competitive choices for consumers in the mobile 
wireless marketplace, and help promote deployment in rural areas.
    169. CCA has similarly expressed concern that it would be 
inconsistent with the intent of the reserve, in certain unique 
circumstances involving limited equity interests, to apply an 
attribution rule that would prevent non-nationwide providers from 
bidding for reserved spectrum or participating in the auction entirely. 
CCA notes as examples various insignificant passive equity interests 
that nationwide providers have in certain long-standing rural 
partnerships and argues that the FCC should consider certain limiting 
factors so as not to foreclose those partnerships from bidding on 
reserve spectrum. The Commission agrees. In particular, where the 
nationwide provider is not the managing partner of the rural 
partnership, has not and will not provide funding for the purchase of 
the licenses in spectrum auctions by the rural partnership, including 
the incentive auction, the rural partnership is of long standing, the 
nationwide provider's interest in the rural partnership is non-
controlling and is less than 33 percent, and the partnership's retail 
service is not branded under the name of the nationwide provider, non-
attribution may enhance competitive choices for consumers by giving the 
partnerships an opportunity to gain access to low-band spectrum through 
the spectrum reserve, and without creating an undue risk of anti-
competitive behaviors due to the rural partnership's relative lack of 
resources. The Commission will specify in the Application Procedures PN 
how such rural partnerships can secure status as non-nationwide 
providers for purposes of qualifying to bid on the spectrum reserve.
(v) Applying the Spectrum Reserve in PEAs With Category 1 and Category 
2 Blocks
    170. The Commission adopts its proposal that, for a given PEA in 
which the Commission offers fewer Category 1 blocks than the nationwide 
clearing target, the maximum number of reserved blocks will be 
determined by the total number of Category 1 blocks and Category 2 
blocks (if any) offered in that PEA. This approach will help facilitate 
the availability of more reserved spectrum in the limited number of 
PEAs in which the Commission offers fewer Category 1 blocks than the 
nationwide clearing target, relative to an approach based solely on 
Category 1 blocks. The Commission notes that in a limited number of 
PEAs, it will offer fewer licenses (either Category 1 or Category 2) 
than the nationwide clearing target because blocks with greater than 50 
percent impairment will not be made available for acquisition. In these 
instances, the Commission's balancing of goals to facilitate post-
auction competition and to provide opportunities for all bidders to 
acquire 600 MHz spectrum does not support setting the maximum spectrum 
reserve based on the nationwide clearing target, rather than based on 
the total number of Category 1 and Category 2 licenses. Thus, if there 
are 50 megahertz of Category 1 blocks and 10 megahertz of Category 2 
blocks made available in a PEA at the initial stage, the available 
amount of spectrum offered in that PEA will be 60 megahertz, with a 
corresponding maximum reserve of 20 megahertz. That, in turn, will 
promote its competitive goals for the reserve by providing an 
opportunity for reserve-eligible bidders, who likely will be more 
reliant than non-reserve eligible bidders in particular PEAs on 600 MHz 
Band spectrum, to utilize the market-based reserve to expand coverage 
and enter new geographic areas. As the Commission has noted, this 
auction will be the last offering of a significant amount of nationwide 
``greenfield'' low-band spectrum for the foreseeable future and access 
to this spectrum by smaller bidders is particularly important to 
increasing competition and choice in the wireless marketplace. If a 
particular stage of the auction is not the final stage, the maximum 
amount of reserved spectrum in each PEA in subsequent stages will be 
the smaller of the maximum amount of reserved spectrum in the previous 
stage or the amount that the reserve-eligible bidders demanded at the 
end of the previous stage. Similarly, the Commission notes here that, 
in PEAs in which it offers fewer Category 1 blocks than the nationwide 
clearing target, the maximum amount of reserve established in the 
initial stage in a PEA will not be reduced in any subsequent stages of 
the incentive auction so long as there are a sufficient number of 
Category 1 blocks being offered in that PEA that are demanded by 
reserve-eligible bidders. For example, if there are 50 megahertz of 
Category 1 blocks and 10 megahertz of Category 2 blocks made available 
in a PEA at the initial stage, with a maximum reserve of 20 megahertz, 
the maximum reserve will remain 20 megahertz at each subsequent stage, 
provided that 20 megahertz of Category 1 blocks continue to be offered 
in that stage and reserve-eligible bidders demanded that amount in the 
prior stage.
    171. In addition, the Commission adopts its proposal that the 
spectrum reserve will include only Category 1 blocks. That is, in the 
limited number of PEAs in which there are both Category 1 and Category 
2 blocks, Category 1 blocks will be allocated to the spectrum reserve 
up to the maximum number of reserved spectrum blocks, assuming that 
reserve-eligible bidders demand up to that maximum. The Commission 
notes that any remaining Category 1 blocks, as well as all Category 2 
blocks, will be unreserved, and both reserve-eligible and non-reserve-
eligible bidders will be able to bid on these blocks. This also will 
help ensure the efficacy of the pro-competitive policies that the 
Commission adopted in the Mobile Spectrum Holdings R&O by ensuring that 
reserve-eligible bidders, who by definition currently hold little or no 
low-band spectrum, have access through the spectrum reserve to 
unimpaired or minimally-impaired spectrum blocks in areas with 
impairments. Limiting the spectrum reserve to Category 1 blocks also 
will simplify the forward auction for bidders by limiting the number of 
license categories that must be ``split'' at the time the spectrum 
reserve is triggered.
    172. The Commission declines to adopt AT&T's alternative proposal 
to fill the reserve first with Category 2 blocks in the PEA, followed 
by any Category 1 blocks necessary to meet the reserve allocation. AT&T 
and Verizon assert that the approach the Commission adopts will 
undermine its incentive auction goals by preventing them from acquiring 
the spectrum they need to effectively serve their customers, and will 
result in lower spectrum clearing targets and auction revenues. The 
Commission disagrees. First, the Commission notes that AT&T and Verizon 
themselves are eligible to acquire reserved 600 MHz spectrum in those 
PEAs where they have the most need, that is, in those PEAs where they 
hold less than one-third of currently suitable and available low-band 
spectrum. Indeed, AT&T and Verizon will be eligible to bid on reserved 
spectrum in PEAs that cover

[[Page 61952]]

approximately 40 percent of the total population of the United States. 
And, of course, they can bid on substantial amounts of non-reserved 
spectrum nationwide.
    173. According to the simulations conducted by staff, approximately 
84 to 88 percent of PEAs (and 88 to 93 percent of high-demand PEAs) 
will contain only Category 1 blocks, and even in PEAs with Category 2 
blocks the vast majority of blocks offered in the forward auction will 
fall into Category 1. And the record reflects that Category 2 blocks 
are of substantial value and will provide utility to wireless service 
providers for future advanced broadband deployment. Accordingly, the 
Commission is not persuaded that the approach it adopts to implementing 
the spectrum reserve will have a significant impact on either the 
amount of spectrum that is repurposed through the auction or on auction 
revenues. Moreover, as stated above, in the limited number of areas 
with Category 2 blocks for sale, its approach is critical to realizing 
the pro-competitive goals of the Mobile Spectrum Holdings R&O by 
ensuring that service providers that lack a sufficient mix of low-band 
and high-band spectrum to compete robustly have the opportunity to gain 
access to low-band spectrum.
    174. Likewise, the Commission rejects Mobile Future's argument that 
its approach will harm consumers by ``skew[ing]'' access to 600 MHz 
Band spectrum. Rather, its approach will benefit consumers by promoting 
competition and reducing the potential for competitive harm. Contrary 
to Mobile Future's suggestion, its decisions to allocate Category 1 
blocks to the reserve up to the maximum number (subject to demand by 
reserve-eligible bidders), while counting both Category 1 and Category 
2 blocks towards the maximum number, are not inconsistent. The two 
decisions involve separate issues. The Commission first needs to decide 
how much licensed spectrum is in the maximum spectrum reserve. In the 
Mobile Spectrum Holdings R&O, the Commission determined that the 
maximum spectrum reserve is to be based on the ``Licensed Spectrum in 
the Initial Clearing Target.'' Its decision here implements that 
determination: Both Category 1 and Category 2 licenses are going to be 
auctioned and are included in the initial clearing target. And placing 
only Category 1 blocks in the reserve makes sense to provide reserve-
eligible bidders with the best opportunity to increase competition and 
choice in the wireless marketplace.
    175. The Commission also rejects AT&T's claim that its approach to 
implementing the spectrum reserve in PEAs with impairments violates the 
Spectrum Act as an auction-specific restriction that would dramatically 
increase the barriers to AT&T's ``participation'' in this ``system of 
competitive bidding.'' AT&T has not demonstrated that its approach, 
which will apply in a limited number of markets and is necessary to 
carry out its goals in establishing the spectrum reserve, undermines 
its reasoning in the Mobile Spectrum Holdings R&O that the reservation 
of spectrum in the incentive auction is fully consistent with its 
authority under Title III and the Spectrum Act. More specifically, AT&T 
has not demonstrated that its approach transforms an otherwise 
permissible application of the spectrum reserve into an approach that 
is no longer a rule of ``general applicability'' or a provision that 
would ``prevent'' any entity ``from participating'' in a ``system of 
competitive bidding.''
    176. The Commission also rejects proposals from prospective 
reserve-eligible bidders to reserve the least impaired Category 2 
blocks in any PEAs with fewer Category 1 blocks than the maximum 
spectrum reserve. As the Commission explained in the Auction 1000 
Comment PN, to implement separate reserved categories for both Category 
1 and Category 2 blocks in individual PEAs where they exist would 
significantly complicate the design of the auction by necessitating an 
additional bidding category, potentially extending the length of the 
auction and requiring additional procedures for dividing bidder demands 
at the time the spectrum reserve is triggered. Reserving only Category 
1 blocks will simplify the auction design and promote its goal of a 
successful auction. Indeed, T-Mobile recognizes that dividing both 
Category 1 and Category 2 blocks into reserved and unreserved 
categories would create significant complications of managing four 
simultaneous auction clocks--two in the reserved and two in the non-
reserved blocks--across the large number of licenses expected to be 
offered in the incentive auction. The Commission also concludes that 
filling out the reserve with Category 2 blocks would create an 
imbalance between its pro-competitive goals and ensuring that all 
bidders, including non-reserve-eligible bidders, have an opportunity to 
acquire a significant amount of 600 MHz Band spectrum in the incentive 
auction.
    177. Finally, the Commission adopts its proposal that the actual 
number of reserved blocks will be based on demand for Category 1 blocks 
by reserve-eligible bidders at the time the forward auction reaches the 
spectrum reserve trigger, i.e., when the final stage rule is satisfied. 
The Commission rejects arguments that the actual number should be based 
on reserve-eligible bidders' demand for Category 1 and Category 2 
blocks. Given its decision to limit reserve blocks to Category 1 
blocks, the most logical measure for determining demand at the reserve 
trigger are the Category 1 blocks.
(vi) Other Proposals Related to Bidding by Reserve-Eligible Entities
    178. As the Commission indicated in the Mobile Spectrum Holdings 
R&O, and after opportunity for comment in the Auction 1000 Comment PN, 
in order to balance the needs of all bidders and to promote competition 
within the forward auction, the Commission adopts its proposal to limit 
the maximum amount of reserved spectrum in a PEA to 20 megahertz if 
there is only one reserve-eligible bidder demanding Category 1 blocks 
when the spectrum reserve trigger is reached. The Commission notes that 
DISH supports this proposal; no commenter has opposed it. The 
Commission does not believe the public interest benefits of a maximum 
of 30 megahertz of reserved spectrum would be realized without more 
than one reserve-eligible bidder in a PEA.
    179. CCA, T-Mobile, and U.S. Cellular argue that, regardless of the 
number of reserve-eligible bidders in a PEA, no reserve-eligible bidder 
should be permitted to purchase more than 20 megahertz of reserved 
spectrum in any PEA in order to protect license diversity among 
reserve-eligible bidders. The Commission finds that giving more than 
one reserve-eligible bidder an opportunity to acquire reserve spectrum 
in smaller, more rural PEAs where 30 megahertz of reserve spectrum is 
available will further its goal of facilitating post-auction 
competition in those areas. Competition in these areas is generally 
less robust than in larger, more urban areas. As the Commission has 
observed, ``92 percent of non-rural consumers, but only 37 percent of 
rural consumers are covered by at least four 3G or 4G mobile wireless 
providers' networks and more than 1.3 million people in rural areas 
have no mobile broadband access.'' The Commission has frequently 
stressed the importance of competition and consumer choice in rural as 
well as in urban areas. The policies in the Mobile Spectrum Holdings 
R&O were intended to ``ensure that all Americans, regardless of whether 
they live in an urban, suburban, or rural area, can enjoy the benefits 
that competition provides.'' The Commission found there that regional

[[Page 61953]]

and local service providers enhance competitive choices for consumers 
in the mobile wireless marketplace, and are ``important sources of 
competition in rural areas, where multiple nationwide service providers 
may have less incentive to offer high quality services.'' Accordingly, 
the Commission adopts a cap of 20 megahertz for smaller PEAs where 30 
megahertz of reserve spectrum is available. The Commission defines 
smaller PEAs as those with a population of 500,000 or less, which 
corresponds to PEAs 118-416, excluding PEA 412 (Puerto Rico). The 
population density of PEAs with population of 500,000 or less 
correlates more closely with that of rural areas as previously defined 
by the Commission. The average population density of PEAs with a 
population greater than 500,000 is 333 pops/square mile, whereas the 
average population density for the smaller PEAs is 76 pops/square mile. 
The Commission observes that 76 pops/square mile roughly corresponds 
with the 100 pops/square mile approach it takes in defining rural 
areas. Geographic area and population data can be found on the 
Commission's Web site. In addition, the Commission notes that this 
threshold provides an objective and easily administrable delineation 
between larger urban and smaller rural PEAs and one that provides 
consistency with the definition it already will be applying in this 
auction for other purposes. This threshold also identifies ``where 
rural service providers are most likely to offer service''. By adopting 
the cap of 20 megahertz on reserve spectrum in the smaller PEAs, the 
Commission promotes the dissemination of licenses among a wide variety 
of applicants, and avoid the excessive concentration of licenses. In 
addition, the cap prevents any single reserve-eligible bidder from 
foreclosing other reserve-eligible bidders from obtaining reserve 
spectrum in the significant number of smaller PEAs where this is a 
potential risk. Thus, the Commission finds that the cap of 20 megahertz 
on reserve spectrum will help ensure that multiple service providers 
have access to low-band spectrum, and promote ``the rapid deployment of 
new wireless broadband technologies to all Americans, including those 
residing in rural areas.''
    180. In response to concerns raised by AT&T and DISH that adopting 
a cap could decrease competition in the bidding for reserved spectrum, 
the Commission first notes that it is adopting a cap of 20 megahertz in 
the smaller PEAs only, and thus, to the extent those concerns are 
valid, there will be no decrease in competition in the bidding for 
reserved spectrum in the larger, more urban PEAs. The Commission finds 
that in smaller PEAs, any such concerns are outweighed by the benefits 
to post-auction competition of facilitating access by multiple bidders 
to reserved spectrum. In balancing the competing factors identified in 
Section 309(j), the Commission believes it is important to take account 
of concerns about the degree of competitive mobile voice and broadband 
service in rural areas, as well as the important contributions that 
rural service providers can offer in promoting such competitive service 
and incentives for increased deployment in these more rural areas. In 
addition, the Commission disagrees with DISH's assertion that 
restricting reserve-eligible bidders to acquiring a maximum of 20 
megahertz of spectrum within a single PEA could unnecessarily limit the 
network and business strategies of reserve-eligible participants. While 
the Commission caps the amount of reserved spectrum that any entity can 
acquire in order to extend the benefits of the reserve to multiple 
providers in smaller PEAs, a reserve-eligible bidder has an opportunity 
to acquire more than 20 megahertz of 600 MHz spectrum by bidding on 
unreserved licenses. Accordingly, the Commission adopts a 20 megahertz 
cap in the smaller PEAs nationwide on the amount of reserved spectrum 
that an individual bidder can win in the forward auction in those PEAs 
where the spectrum reserve is set at 30 megahertz when the final stage 
rule is satisfied.
    181. The Commission also declines to adopt U.S. Cellular's proposal 
of a special round after the spectrum reserve trigger is met that would 
provide reserve-eligible bidders prior notice and the opportunity to 
shift their demand for reserved blocks to compensate for any difference 
between actual demand on the maximum spectrum reserve. U.S. Cellular 
has not demonstrated how this special round could be implemented 
without undercutting its auction design goals by adding undue 
complexity and reducing the speed of the auction. In addition, the 
Commission is making significantly more information available to 
forward auction bidders, including information indicating how close 
forward auction revenues are to satisfying the final stage rule.
    182. Finally, the Commission rejects AT&T's contention that a 
change to its bidding procedures is necessary to avoid strategic 
behavior by reserve-eligible bidders. In particular, AT&T contends 
that, once the spectrum reserve is triggered, reserve-eligible bidders' 
demand for spectrum in a given PEA should be assigned to the lowest-
price spectrum available between the reserved and unreserved 
categories. The Commission disagrees with AT&T's assertion that 
implementation of this proposed change is necessary to avoid an 
opportunity for manipulative bidding by reserve-eligible bidders 
because those bidders could bid for unreserved blocks instead of 
reserved blocks even when the reserved price is lower. In rejecting 
claims by certain bidders that AT&T could engage in strategic bidding 
behavior, the Commission adopts procedures that will not allow bidders 
to switch demand away from a category in a PEA except when there is 
excess demand and the price is rising. These procedures limit the 
ability of reserve-eligible bidders to shift from reserved to 
unreserved blocks in a given PEA and thereby narrow the circumstances 
under which the bidding strategies suggested by AT&T would be possible. 
They also discourage these strategies by limiting the ability of a 
reserve-eligible bidder to return to reserved blocks without driving up 
the prices of those blocks. Moreover, AT&T's approach could reduce 
competition for non-reserved spectrum by reserve-eligible bidders, 
contrary to its goal of encouraging competitive bidding for non-
reserved blocks as well as reserved blocks. The Commission is not 
persuaded that additional safeguards are necessary to prevent strategic 
behavior by reserve-eligible bidders once the spectrum reserve is 
triggered.
3. Acceptable Bid Amounts
a. Opening Bids
    183. The Commission will set minimum opening bids at $5,000 per 
bidding unit for all spectrum blocks offered in the forward auction, 
regardless of category. At the beginning of the clock phase of the 
forward auction in the initial stage, a bidder will indicate how many 
blocks in a generic license category in a PEA it demands at the minimum 
opening bid price. The Application Procedures PN will set forth the 
minimum opening bid amount for the 5+5 megahertz generic blocks for 
each PEA in the forward auction, calculated according to these 
procedures.
    184. The Commission finds there is no need to discount minimum 
opening bids for blocks in Category 2. Because its minimum opening bids 
serve primarily as a starting point for bidding, not as estimates of 
final prices, there is no need to base them upon the extent to which a 
spectrum block may be impaired (i.e., which category a block

[[Page 61954]]

falls into--Category 1 or 2). Further, winning bidders will receive an 
impairment-based discount off the final clock phase price for licenses 
that are subject to impairments, regardless of whether they are 
Category 1 or Category 2 licenses.
    185. A minimum opening bid amount of $5,000 per bidding unit 
should, as intended, help to accelerate the competitive bidding 
process. Basing minimum opening prices on the number of bidding units 
associated with blocks in a particular PEA serves to incorporate past 
pricing information into the calculation of minimum opening prices. By 
setting higher minimum opening prices in markets that have historically 
commanded relatively higher prices, the Commission expects to reduce 
the number of rounds it will take for demand to equal supply in those 
markets. Moreover, incorporating the results from Auction 97 will 
ensure that minimum opening prices reflect relative value differences 
that bidders have placed on different geographic areas most recently. 
Its experience in past spectrum license auctions indicates that this 
will be an effective tool for accelerating the competitive bidding 
process, a particularly important goal for the incentive auction given 
the interdependency between the reverse and forward auctions.
    186. Its approach is consistent with Section 309(j) of the 
Communications Act, as amended, which calls for prescribed methods of 
establishing minimum opening bid amounts when FCC licenses are subject 
to auction, unless the Commission determines that a minimum opening bid 
amount is not in the public interest. This approach is also consistent 
with the precedent of its AWS-3 auction procedures, where the 
Commission set the minimum opening bid amount at twice the upfront 
payment for each license.
b. Clock Increments
    187. The Commission adopts its proposal to set clock prices for a 
subsequent bidding round by adding a fixed percentage to the previous 
round's price, but modify the range to be broader than the range of 
five to 15 percent the Commission proposed. The Commission will use an 
increment of between one percent and 15 percent to provide additional 
flexibility to offer appropriate prices to bidders. Further, the 
Commission sets the initial increment at five percent. This initial 
increment is consistent with AT&T's suggestion to use increments at the 
bottom of the proposed increment range. While the Commission 
anticipates applying the same percentage increment to all categories in 
all PEAs, increments may be changed during the auction on a PEA-by-PEA 
or category-by-category basis as stages and rounds continue. This 
discretion provides a tool to ensure that price increases over a broad 
range of markets remain relatively balanced. The Commission finds that 
setting the increment in a round in the range of one to 15 percent, 
beginning with five percent, will allow the auction system to manage 
the auction at a reasonable pace, offering appropriate price choices to 
bidders.
    188. After each round, the system will announce a clock price for 
the next round, which will be the highest price to which a bidder can 
respond during the round. In this clock auction, a bidder will be 
required to confirm its demands in every round, although it will not 
need to bid at a higher price. Unlike in an SMR auction, there are no 
provisional winners in the forward auction. For each category in each 
PEA, the clock price will be higher than the previous round's price by 
the fixed percentage increment. For example, if the price for the first 
round is $10, and the price increment is 20 percent, the clock price 
for second round will be $12. As long as total demand for blocks in a 
category exceeds the supply of blocks, the percentage increment will be 
added to the clock price from the prior round. If demand drops to equal 
supply in a round, then the clock price for the next round will be set 
by adding the percentage increment to the price (potentially an intra-
round bid price) at which demand became equal to supply. If demand is 
equal to or less than supply at the minimum opening price, the 
increment will be added to the minimum opening price. Further, if at 
the beginning of a round supply exceeds demand and during the round 
demand increases to equal supply, then the increment will be added to 
the beginning of round price, which may be the minimum opening price.
c. Intra-Round Bids
    189. The Commission adopts its proposed procedures to permit a 
bidder to make intra-round bids by indicating a point between the 
previous round's price and the new clock price at which its demand for 
blocks in a category changes. The previous round's price may be the 
clock price for the previous round or, if there was not excess demand, 
the minimum opening bid or the price at which demand equaled supply. In 
placing an intra-round bid, a bidder will indicate a specific price, 
and a quantity of blocks it demands if the price for blocks in the 
category should increase beyond that price. The auction system will not 
permit a bidder to place inconsistent bids for blocks in a category in 
a PEA during a round. For example, a bidder cannot indicate that it 
wishes to decrease its demand at a low intra-round price and then, in 
the same round, indicate that it wishes to increase its demand for 
blocks in the same category in a PEA at a higher intra-round price.
    190. Intra-round bids will be optional; a bidder may choose to 
express its demands only at the clock prices. The decision to permit 
intra-round bidding will allow the auction system to use relatively 
large clock increments, thereby speeding the forward auction, without 
running the risk that a jump in the clock price will overshoot the 
market clearing price--the point at which demand for blocks equals the 
available supply. The more complicated bid processing in the reverse 
auction, involving multiple bidding options and feasibility checking, 
means that allowing intra-round bidding would unduly slow the progress 
of the reverse auction, as well as making participation more 
complicated for reverse auction bidders.
4. Reducing Demand, Bid Types, and Bid Processing
    191. A forward auction participant will bid by indicating a 
quantity of blocks in a PEA it demands at a price, indicating that it 
is willing to pay that price for the specified quantity. A bidder 
cannot demand more blocks in a category than the supply of available 
blocks. A bidder can express its demands at the clock price or at an 
intra-round price, and bid quantities can represent an increase or a 
decrease over the bidder's previous demands for blocks in a category. 
Under the procedures the Commission adopts, the auction system will 
treat bids as requests; the bid processing procedures it adopts, 
however, will ensure that a bidder will never win a block at a price 
higher than it indicates it is willing to pay. Bids generally must be 
consistent with rules on bidding eligibility. Accordingly, bids to 
increase demand will be applied subject to the bidder having sufficient 
bidding eligibility as measured by the number of bidding units 
associated with the blocks a bidder demands. If a bid would reduce the 
quantity of blocks a bidder demands in a category in a PEA, the auction 
system will apply the reduction only if the reduction will not result 
in aggregate demand falling below the available supply of licenses. 
This restriction ensures that the final stage rule, once met, will 
continue to be satisfied. Absent such a restriction, blocks with

[[Page 61955]]

bids that were counted toward meeting the reserve price could later 
become unsold, leaving revenue below the necessary minimum. For this 
reason, and because the Commission agrees with T-Mobile that the 
restriction provides ``a meaningful safeguard against anticompetitive 
or predatory auction behavior,'' the Commission finds that the benefits 
of the restriction outweigh concerns, expressed by AT&T, about a 
potential exposure risk to bidders. Moreover, the Commission agrees 
with T-Mobile that AT&T overstates the significance of an exposure 
problem. Further in this regard, the Commission declines AT&T's 
recommendation to allow bidders a limited number of withdrawals to 
mitigate an exposure problem.
    192. The Commission also adopts its proposal to process bids in 
order of price point after a round ends, where the price point 
represents the percentage of the bidding interval for the round. For 
example, if the price for the previous round is $5,000 and the new 
clock price is $6,000, a price of $5,100 will correspond to the 10 
percent price point, since it is 10 percent of the bidding interval 
between $5,000 and $6,000. Considering bids in increasing order of 
price point allows the auction system to determine an ascending 
processing order when prices in different PEAs may be at very different 
absolute levels. Once a round ends, the auction system will process 
bids in ascending order of price point, considering first intra-round 
bids in order of price point and then bids at the clock price. The 
system will consider bids at the lowest price point for all categories 
in all PEAs, then look at bids at the next price point in all areas, 
and so on. Importantly, for a given category in a given PEA, the 
uniform price for all of the blocks in the category will stop 
increasing when aggregate demand no longer exceeds the available 
supply. If no further bids are placed, the final clock phase price for 
the category will be the stopped price.
    193. In order to give bidders more flexibility in managing their 
demands in certain situations, the Commission adopts its proposal to 
allow bidders to make two additional types of bids in addition to the 
``simple'' bids mentioned below: ``all-or-nothing'' bids and ``switch'' 
bids. These additional bid types will enable bidders to indicate that 
they want a bid to be implemented fully or not at all or that they wish 
to switch demand from one license category to another at a certain 
price. In a given round, a bidder may place at most one of the three 
bid types for a given category in a PEA. Because all-or-nothing and 
switch bids are optional, a bidder can choose not to submit such bids. 
The Commission finds that the bid types and associated processing 
procedures it adopts will provide bidders with the flexibility they 
need to modify their demands as the bidding progresses while ensuring 
that the reserve price conditions, once satisfied, will continue to be 
satisfied.
a. Simple Bids
    194. A simple bid indicates a desired quantity of a product at a 
price. If it is not possible for the auction system to apply the simple 
bid in its entirety, a simple bid may be applied partially. A simple 
bid requesting a reduction in demand will be applied in full if there 
is sufficient excess demand for blocks in the category. That is, the 
auction system will apply the reduction provided that there is 
sufficient aggregate demand at the bid price to allow the reduction to 
be applied without the total demands of all bidders falling below 
available supply in the category. If there is some excess demand, but 
not enough to grant the full requested reduction, the auction system 
will partially apply the reduction, thereby reducing the bidder's 
demand by fewer than the requested number of blocks. A simple bid 
requesting an increase in demand will be applied in full as long as the 
bidder has sufficient bidding eligibility, measured by the total number 
of bidding units associated with the blocks the bidder demands in that 
round, at the time the bid is processed. If the bidder does not have 
sufficient eligibility, the auction system will apply the increase to 
the extent possible given the bidder's available bidding eligibility.
    195. Formally, to the auction system, a simple bid to reduce demand 
at an intra-round price indicates that a bidder is willing to pay up to 
the intra-round bid price for a quantity of blocks that is unchanged 
from its previously demanded quantity. At the intra-round bid price, 
the bidder is willing to accept the unchanged quantity, the changed 
quantity, or any quantity in-between. At a price above the intra-round 
bid up to the clock price for the round, the bidder is willing to 
accept the changed quantity indicated by the intra-round bid.
    196. Because the auction system will process bids in increasing 
order of price point and the uniform price for blocks in a category 
stops increasing when demand falls to equal supply, a bidder placing a 
simple bid for a reduction that is partially applied will not pay a 
price above its bid price for its unreduced quantity. If a requested 
reduction cannot be applied at all, it must be the case that demand 
fell to equal supply at a previous, lower price. Alternatively, demand 
could fall to equal supply at the same price point, in the case of 
ties, which are broken pseudo-randomly. Further, in the case where 
fewer blocks are demanded than are available at the minimum opening bid 
price, the price will remain at the minimum opening bid. In that case, 
the bidder that placed the simple bid will still demand its unreduced 
quantity at a price it indicated it would accept. In sum, a simple bid 
requesting a reduction will either be fully applied, partially applied 
with the price stopping at the bid price, or not applied but with the 
stopped price below the bid price.
    197. In the event that a bid is not applied, or not fully applied, 
the auction system will maintain the unapplied demands in a queue, 
prioritized by price point, should subsequent changes in aggregate 
demand or a bidder's eligibility later make it possible to apply the 
bid. Bids are only held in the queue during the processing of bids for 
a single round. For example, if a bidder's reduction request is only 
partially applied because aggregate demand is insufficient, but another 
bidder requests an increase in demand at a higher price point, it may 
then be possible to fully apply the bid reduction request that was only 
partially applied earlier in the bid processing for the round and held 
in the queue. And if a bidder's request to increase demand is not 
applied or not fully applied because the bidder has insufficient 
bidding eligibility at that price point, and its request to reduce 
demand in another category is later applied at a higher price point, 
freeing bidding eligibility, the system may then be able to fully apply 
the increase.
b. All-or-Nothing Bids
    198. An all-or-nothing bid also indicates a desired quantity of 
blocks at a price but differs from a simple bid in that it will not be 
applied partially. Hence, an all-or-nothing bid is useful if the bidder 
wants the bid to be implemented fully or not at all. An all-or-nothing 
bid requesting a reduction in demand will be applied only if there is 
sufficient excess demand at that price point to apply the full 
reduction. If not, the auction system will not apply the bid, and will 
move on to consider bids at higher price points. The uniform price for 
the category may continue to increase as long as there is excess 
demand. The bidder will still demand its unreduced quantity, at a price 
which may increase up to the round's clock price. This is in contrast 
to a simple bid that may be partially applied, and

[[Page 61956]]

which, hence, stops the price from increasing if it cannot be fully 
applied. Thus, in making an all-or-nothing bid that requests a 
reduction, the bidder affirmatively indicates that it will accept the 
round's clock price for its unreduced demand if the bid cannot be fully 
applied at the bid price.
    199. A bidder making an all-or-nothing bid that requests a 
reduction may add a ``backstop'' to the bid that would allow the bid to 
be applied partially at a higher price, as long as the bidder makes 
only a single all-or-nothing bid for the category in the PEA in the 
round. The auction system will allow a backstop bid only if a bidder 
submits a single all-or-nothing bid for the category because bid 
processing could become excessively complex if bidders submit multiple 
all-or-nothing bids with backstops. The backstop will ensure that the 
price for the category cannot go higher than the specified higher price 
if the all-or-nothing bid is not applied. The backstop is essentially a 
simple bid that may be applied partially, thereby stopping the price 
from increasing further.
    200. An all-or-nothing bid that requests an increase in demand will 
be applied only if the bidder has sufficient bidding eligibility for 
the full increase at the price point of the bid. If an all-or-nothing 
bid requesting an increase or decrease in demand is not applied, it 
will be held in the processing queue in case it should later become 
possible to apply it.
c. Switch Bids
    201. To place a switch bid, the bidder will indicate a desired 
quantity of blocks in the category in which it wishes to reduce its 
demand at a given price point, and will identify another category in 
the same PEA that it wishes to switch into at the price point. While 
processing the bid, the auction system will apply as much of the 
requested reduction as possible considering excess demand, and then 
will apply an increase in the bidder's demand in the other category by 
the same number of blocks. Because all blocks in a PEA, regardless of 
category, will have the same number of associated bidding units, the 
eligibility freed up by the reduction portion of a switch bid will 
always cover the corresponding increase in demand. The unapplied 
portion of a switch bid will be held in the processing queue in case it 
can be applied later in the round's bid processing.
5. No Bidding Aggregation
    202. The Commission will not incorporate package bidding procedures 
into the forward auction because of the additional complexity such 
procedures would introduce into the auction. Further, consistent with 
its proposal in the Auction 1000 Comment PN, the Commission declines to 
adopt an alternative to package bidding under which it would create an 
aggregation of the largest PEAs in advance of the auction. The 
Commission is not persuaded that creating a bidding aggregation will 
serve its goal of encouraging entry by a broad range of potential 
wireless service providers. In particular, several commenters share its 
concern that the alternative aggregation approach the Commission sought 
comment on would discourage small or regional entities with an interest 
in only a subset of the PEAs in the aggregation from participating in 
the forward auction. Further, larger carriers may have interests in 
only some of the largest PEAs, or may wish to acquire a different 
number of licenses in different large PEAs, thus making an FCC defined 
bidding aggregation undesirable for them, also. Therefore, the 
Commission declines to adopt a bidding aggregation and will instead 
permit bidders to bid for blocks in any or all of the individual PEAs.
6. Bidding Eligibility and Activity Rule
    203. In order to ensure that the auction moves quickly and to 
promote a sound price discovery process, bidders will be required to 
maintain a minimum, high level of activity in each round of the auction 
in order to maintain bidding eligibility. The Commission will use 
upfront payments to determine initial (maximum) eligibility, the 
maximum number of blocks as measured by their associated bidding units 
a bidder demands at the start of the auction. Bidding eligibility will 
be reduced as the auction progresses if a bidder does not meet the 
activity requirement.
    204. Specifically, bidders must be active on at least 95 percent of 
their bidding eligibility in all regular clock rounds to maintain their 
bidding eligibility. An activity rule requires bidders to bid actively 
throughout the auction to maintain bidding eligibility, rather than 
wait until late in the auction before participating. In the forward 
auction, the activity rule will provide an incentive for bidders to 
participate in each round of the auction. However, the activity 
requirement may be further altered (by, for example, establishing a 98 
or 100 percent threshold) before and/or during the auction as 
circumstances warrant. Any changes to the activity requirement will be 
announced via the auction system.
    205. The activity rule will be satisfied when a bidder has bidding 
activity on blocks with bidding units that total at least 95 percent of 
its current eligibility in the round. If the activity rule is met, then 
the bidder's eligibility will not change in the next round. Failure to 
maintain the requisite activity level will result in a reduction in the 
bidder's eligibility, possibly curtailing or eliminating the bidder's 
ability to place additional bids in the auction. A bidder's activity 
level will reflect its demands as applied by the auction system during 
bid processing. Thus, if a bidder requests a reduction in the quantity 
of blocks it demands in a category, but the auction system does not 
apply the requested reduction because demand for the category would 
fall below the available supply, the bidder's activity will reflect its 
unreduced demand.
    206. While the record supports an activity rule that requires 
significant bidder participation, some commenters argue that the 
proposed 92-98 percent threshold is too aggressive, will disadvantage 
smaller carriers, and may limit a bidder's ability to move its bids 
between markets. Commenters propose setting the threshold at 80 percent 
and only increasing it during later stages of the auction. The 
Commission finds that the 95 percent threshold it adopts is appropriate 
for the clock phase of the forward auction. Although the Commission has 
sometimes used an 80 percent activity requirement in simultaneous 
multiple round (SMR) auctions, having an activity requirement 
significantly below 100 percent in the clock phase of the forward 
auction would create uncertainty with respect to the exact level of 
bidder demand, interfering with the basic clock price-setting and 
winner determination mechanism, providing less helpful price-discovery 
information to bidders, and unduly prolonging the bidding process. As 
bidders plan their bidding strategies, they need accurate information 
about relative prices and the level of excess demand in different 
markets, and if significant bidding eligibility is held back, the 
available price and demand information will be less reliable. At the 
same time, the Commission recognizes that some flexibility will be 
helpful for bidders choosing between two categories of generic licenses 
across as many as 416 PEAs. The Commission finds that the 95 percent 
threshold it adopts will satisfy the requirements of the clock auction 
format and ensure that accurate price discovery information is 
available for bidders, while also providing bidders

[[Page 61957]]

with adequate flexibility. Further, based on its experience with prior 
spectrum license auctions, the Commission expects that the activity 
rule it adopts will foster an appropriate bidding pace and ensure that 
each stage of the forward auction closes within a reasonable period of 
time.
    207. For these same reasons, the Commission does not provide for 
activity rule waivers to preserve a bidder's eligibility in the forward 
auction. In previous FCC SMR auctions, when a bidder's eligibility in 
the current round was below a required minimum level, the bidder was 
able to preserve its current level of eligibility with a limited number 
of activity rule waivers. Several commenters support the use of such 
waivers in the forward auction. Allowing such waivers, however, would 
cause the same problems that the Commission is concerned about with 
respect to the activity requirement. Thus, the auction system will 
require bidders to reconfirm their bids in every round and will not 
provide bidders with activity rule waivers.
    208. While acknowledging that a clock auction format weighs against 
activity rule waivers, U.S. Cellular is concerned that, in their 
absence, bidders will need more time to adjust their bidding strategies 
in order to maintain their bidding eligibility before the first round 
following an increase to the activity requirement and after that round, 
if bidding surges ensue. CTIA is concerned that bidders may never have 
time to establish a comfort level with the auction system, and asks the 
Commission to ensure bidders are comfortable before moving to higher 
activity levels. As is typical in its spectrum license auctions, these 
concerns will be considered in setting the bidding schedule and 
determining whether to move to higher activity levels as the clock 
phase portion of the forward auction progresses.
7. Final Stage Rule
    209. The Commission adopts procedures to implement the final stage 
rule, which establishes reserve price conditions that, when met, will 
determine that bidding in the incentive auction will end with the 
current stage and clearing target. The Commission recently reaffirmed 
the adoption of the first component as a part of the final stage rule. 
Accordingly, to the extent commenters repeat prior challenges to that 
component, those arguments have been answered. To the extent they seek 
reconsideration of the rule's adoption on other grounds, those 
arguments should have been made in a petition for reconsideration and 
need not be addressed in the Auction 1000 BIA Procedures Public Notice. 
The Commission addressed elsewhere challenges to the use of the final 
stage rule in connection with establishing the spectrum reserve. 
Specifically, the Commission adopts the proposed $1.25 average price 
and 70 megahertz licensed spectrum clearing benchmarks, as well as the 
proposed method to evaluate whether the final stage rule criteria have 
been satisfied. The Commission adopts a modified version of the 
procedures it proposed for triggering an extended round in order to 
limit the size of the shortfall that an extended round will attempt to 
close.
a. First Component
    210. The Commission adopts a $1.25 average price and 70 megahertz 
licensed spectrum benchmark, as well as its proposed procedures for 
evaluating whether the first component of the final stage rule has been 
satisfied. The forward auction spectrum benchmark of 70 megahertz of 
licenses corresponds to a spectrum clearing target of 84 megahertz. 
Hence, the first component, which aims to ensure that winning bids for 
forward auction licenses reflect competitive prices, will be satisfied 
if, for a given stage of the auction: (1) The clearing target is at or 
below 70 megahertz and the benchmark average price per MHz-pop for 
Category 1 blocks in high-demand PEAs in the forward auction is at 
least $1.25 per MHz-pop; or (2) The clearing target is above 70 
megahertz and the total proceeds associated with all licenses in the 
forward auction exceed the product of the price benchmark of $1.25 per 
MHz-pop, the forward auction spectrum benchmark of 70 megahertz, and 
the total number of pops associated with the Category 1 blocks in high-
demand PEAs.
    211. Based on its review of the record and past auction experience, 
the Commission finds that the proposed $1.25 average per MHz-pop 
benchmark price balances the statutory objective of seeking to recover 
``a portion'' of the value of the spectrum for the public with the goal 
of a successful incentive auction that allows market forces to 
determine the highest and best use of spectrum. A number of commenters 
supported a benchmark price of $1.25. The Commission disagrees with 
commenters who argue that $1.25 is either too low or too high. While 
recent auction results may suggest that final forward auction prices 
ultimately will be higher, the benchmark price is not a predictor of 
final auction prices, but rather a reserve price or ``floor,'' 
consistent with the Commission's obligation to protect the public 
interest in its spectrum resources. Although final prices from Auction 
97 (AWS-3) were not yet available at the time the Auction 1000 Comment 
PN was released, the general price level in that auction was already 
apparent and the Commission considered it in proposing the $1.25 
benchmark.
    212. The auction system will determine whether the price benchmark 
is satisfied based on the average prices for Category 1 spectrum blocks 
in the 40 high-demand markets. The high-demand markets include PEAs 1-
40. PEAs are numbered in decreasing order of population, except that 
PEAs in the states are ranked before those in the territories and 
protectorates. Accordingly, PEAs 1-40 are the 40 most populous PEAs 
within the 50 states. Had territories not been ranked after the states, 
Puerto Rico would have been included in the most populous group. 
Commenters agree that it is unnecessary to evaluate the final stage 
rule based on all of the PEAs, although some commenters propose 
focusing instead on the top 25 largest markets. Since the purpose of 
the average price benchmark is to establish a reserve price that 
appropriately balances the Commission's goals, not to predict ultimate 
spectrum values, it declined to broaden its focus to all markets 
because that would fail to promote a faster auction. While reducing the 
number of markets evaluated for purposes of the final stage rule might 
``promote an even faster auction,'' the Commission is not persuaded 
that the clock prices for the top 25 largest markets would ``serve as a 
`good leading indicator of final auction revenues' to the same extent 
as the prices in the top 40 PEAs.'' In addition, limiting consideration 
of bids to Category 1 blocks will be more consistent with the price 
benchmark derived from past auctions, which did not include licenses 
impaired in a manner comparable to Category 2 licenses. Moreover, in 
evaluating whether the price benchmark is satisfied, the auction system 
will rely on gross bids, rather than bids net of individual bidders' 
bidding credits or any adjustments for impairments.
    213. The 70 megahertz licensed spectrum benchmark the Commission 
adopts corresponds with the spectrum recovery scenario in which an 84 
megahertz clearing target is selected and licenses for 70 megahertz of 
spectrum are offered in the forward auction. Incorporating a spectrum 
benchmark into the final stage rule's first component ``recognizes that 
if the incentive auction repurposes a relatively large amount of 
spectrum for flexible uses, per-unit market prices

[[Page 61958]]

may be expected to decline consistent with the increase in available 
supply.'' In proposing this threshold for the spectrum benchmark, the 
Commission explained that a 70 megahertz spectrum benchmark would 
repurpose the UHF spectrum between television channel 37 and the 700 
MHz Band and would enable multiple bidders to obtain low-band spectrum, 
thereby promoting its competitive goals for the incentive auction. No 
commenters disagreed with its proposal. The Commission is adopting the 
70 MHz benchmark for the specific purpose of establishing the final 
stage rule. It should not be construed as a target or projection for 
the amount of spectrum the Commission anticipates clearing in the 
incentive auction.
    214. For clearing targets higher than 84 megahertz, the auction 
system will consider current auction proceeds for all licenses in 
evaluating whether the first component of the final stage rule is 
satisfied. Accordingly, for forward auction stages in which more than 
70 megahertz of licensed spectrum is available in the forward auction, 
the first component will be satisfied if current auction proceeds for 
all blocks--Category 1 and Category 2, in all PEAs--exceed the proceeds 
generated by the Category 1 blocks in the 40 high-demand PEAs at the 
benchmark price of $1.25 per MHz-pop and benchmark clearing target of 
70 megahertz. On balance, when the clearing target is relatively high, 
the Commission finds that the simplicity of comparing total auction 
proceeds for all blocks to the benchmark proceeds, which is based only 
on the high-demand PEAs, outweighs any concern for consistency in 
including only some markets in both sides of this metric. Total auction 
proceeds information will be available to the public after each round, 
and the proceeds benchmark is a fixed number for each clearing target, 
making it very easy to evaluate whether this component of the final 
stage rule is satisfied. Moreover, in stages with higher clearing 
targets, the $1.25 benchmark price is relaxed as long as overall 
revenues are sufficient; hence the tie to the high-demand PEAs is less 
important in this context.
b. Second Component--Cost Elements
    215. The Commission adopts its proposed procedures for implementing 
the second component of the final stage rule. Bidding in the reverse 
auction will determine the first cost element--winning bidder payments 
required for broadcasters. With respect to the second element, the 
Commission's relevant administrative costs, it estimates these costs at 
$226 million. The Commission intends to update these costs no later 
than the commencement of bidding in the clock phase of the forward 
auction. For the third element, the Commission proposed that 
broadcaster relocation costs be estimated at $1.75 billion, the maximum 
amount that the Spectrum Act permits it to deposit in the TV 
Broadcaster Relocation Fund. To be prudent, the Commission will use 
that estimate when calculating expenses for the purposes of evaluating 
the costs component of the final stage rule. The actual amount that 
will be needed to reimburse broadcasters from the TV Broadcaster 
Relocation Fund will not be known until sometime after the auction. The 
Spectrum Act provides that the forward auction must generate proceeds 
sufficient to meet the Commission's estimate of the total expenses, as 
opposed to the actual amount. While the Commission concluded in the 
Incentive Auction R&O that the forward auction proceeds also must cover 
any Public Safety Trust Fund amounts still needed to provide the funds 
for FirstNet specified in the Spectrum Act, proceeds from the recent H 
Block and AWS-3 spectrum auctions are sufficient to fully fund the $7 
billion provided to FirstNet. Therefore, the procedures the Commission 
adopts need not include any amounts to cover FirstNet expenses.
    216. The Commission adopts its proposed approach to bidding credits 
and other discounts from clock phase prices for purposes of applying 
the second component of the final stage rule. The auction system will 
consider current total proceeds (for all PEAs and both categories of 
blocks), net of any discounts based on impairments and small business 
bidding credits claimed by particular bidders on their short-form 
applications for Auction 1002. The auction system will presume that the 
bidder with the largest bidding credit will win the quantity of blocks 
on which it is bidding and then proceed to the bidder with the next 
largest bidding credit and so on, until there are no more blocks left. 
Moreover, since bidders will be bidding on generic blocks rather than 
specific licenses at the time the final stage rule is evaluated, the 
auction system will presume that bidders with larger bidding credits 
will win blocks that are less impaired and thus, subject to less 
adjustment based on the extent of impairment. If the supply of blocks 
in a category exceeds the aggregate demand in that category, the system 
will presume that any unsold blocks will be those that are least 
impaired. While this approach will likely underestimate net proceeds, 
it will not be possible to know more exact amounts at the time of the 
evaluation, and the Commission finds that it is appropriate to adopt a 
conservative approach when ensuring that statutory requirements are 
met.
    217. The Commission will not make adjustments for any Tribal lands 
bidding credits in evaluating the second component of the final stage 
rule. Instead, consistent with previous spectrum auctions, any 
subsequent Tribal lands awards will be limited to available funds that 
exceed the relevant reserve price. This rule is applicable in, among 
others, ``any auction with reserve price(s) in which the Commission 
specifies that the provision shall apply.''
c. Evaluation Each Round
    218. As long as the final stage rule has not yet been met, the 
auction system will evaluate after each round of forward auction 
bidding whether forward auction proceeds are sufficient to satisfy the 
two components of the final stage rule. In a new stage, the final stage 
rule will be evaluated after bidding in the first clock round of the 
forward auction is complete. The auction system will make the needed 
calculations as part of the round results processing in order to 
establish as soon as possible whether the incentive auction will 
conclude after forward auction bidding ends at the current clearing 
target. Data indicating the progress of the auction in meeting the 
various components of the final stage rule will be made public after 
each round of the forward auction.
d. Allocating Demand for Purposes of the Spectrum Reserve
    219. The Commission adopts its proposed procedure to allocate 
demand in order to initiate bidding for the spectrum reserve. At the 
time the final stage rule is met, Category 1 blocks in each PEA will be 
split into separate reserved and unreserved categories, with a separate 
price clock for each new category. In the first round following the 
round in which the final stage rule is met, the clock price will be the 
same for reserved and unreserved Category 1 blocks, but prices for the 
two categories may diverge in later rounds depending upon the extent of 
excess demand in the separate categories going forward. To allocate the 
pre-``split'' demands of bidders for Category 1 blocks into the 
reserved and unreserved categories, the auction system first will 
assign all demand by non-reserve-eligible bidders to the unreserved 
category, and then will assign demand by reserve-eligible bidders to 
the reserved category up to the point where demand for reserved blocks 
is equal to supply.

[[Page 61959]]

    220. Specifically, the auction system will first allocate demand 
for one block to the reserved category for each reserve-eligible bidder 
in turn, then demand for a second block, and so on until the total 
demands allocated to the reserved category equal the supply of reserved 
blocks. The order of reserve-eligible bidders will be chosen pseudo-
randomly. Thus, any excess demand will be for unreserved Category 1 
blocks. The auction system will apply the remaining demand of reserve-
eligible bidders to unreserved Category 1. The Commission adopts this 
approach because allocating demands in this way--as opposed to 
assigning all demand by reserve-eligible bidders to the reserved 
category--avoids the possibility of excess supply of unreserved 
Category 1 blocks after the split, which could result in unsold 
licenses and lower revenues than when the final stage rule was deemed 
to have been met. As noted in the Auction 1000 Comment PN, this could 
occur if the demands for Category 1 prior to the split came 
disproportionately from reserve-eligible bidders. If all those demands 
were transferred to the reserved category after the split, demand for 
unreserved Category 1 blocks could be less than the supply, even if 
demand exceeds supply in the pre-split Category 1. Excess supply cannot 
occur in the reserved category because the actual number of blocks that 
will be reserved in a PEA will not be greater than the number of 
Category 1 licenses demanded by reserve-eligible bidders at the time 
the auction reaches the spectrum reserve trigger. Avoiding such an 
outcome is an important principle in designing the forward auction. In 
the bidding rounds that follow the implementation of the spectrum 
reserve, bidders will be able to switch their bids between the separate 
categories of reserved Category 1, unreserved Category 1, and Category 
2 blocks, consistent with its adopted bidding procedures. In this 
regard, contrary to AT&T's suggestion, the procedure the Commission 
adopts for allocating demand at the time of the split will not prevent 
reserved spectrum prices from rising. In rounds after the split, 
reserve-eligible bidders may switch to bidding for reserved blocks if 
the price for unreserved blocks is rising more quickly than the price 
of reserved blocks. The bidding procedures the Commission adopts for 
the forward auction will mitigate the risk that reserve-eligible 
bidders can engage in strategic bidding for non-reserved blocks.
    221. The Commission clarifies that no bidder's demand for blocks in 
a category will be allowed to exceed the total available supply in the 
category in the PEA after the split. This is consistent with the 
general rule that no bidder's demand for blocks in a category may 
exceed the total available supply in a category. Thus, if the pre-split 
demand of a non-reserve-eligible bidder exceeds the supply of blocks in 
the unreserved category, the bidder's demand for the unreserved blocks 
will be reduced to the available supply. If, after the system allocates 
the reserve-eligible bidders' demands to the reserved category, a 
reserve-eligible bidder's remaining pre-split demand exceeds the total 
number of blocks available in the unreserved category, the bidder's 
demand for the unreserved blocks will be reduced to the available 
supply. Non-reserve-eligible and reserve-eligible bidders will maintain 
the bidding eligibility associated with any demand that cannot be 
assigned to a category, and will be able to use such bidding 
eligibility in other PEAs or in other categories in the next round. For 
example, assume the supply of Category 1 blocks in a PEA is seven. 
Prior to the split, reserve-eligible bidder 1 (RE1) and non-reserve-
eligible bidder 1 (NRE1) each demand seven blocks, and two other 
reserve-eligible bidders each demand one Category 1 block. At the 
split, three Category 1 blocks are reserved, leaving four unreserved 
blocks. NRE1's demand for Category 1 blocks in the PEA will be reduced 
to four, and NRE1 will have three blocks' worth of excess eligibility 
to use in another PEA. Pursuant to the allocation method the Commission 
adopts, one block worth of RE1's demand will be assigned to one 
reserved block, and the other two reserve-eligible bidders' demand will 
be assigned to the other two reserved blocks, so that demand in the 
reserved category equals supply. Four blocks' worth of RE1's remaining 
six blocks of demand will be assigned to the unreserved category, and 
RE1 will have two blocks' worth of excess eligibility to use in another 
PEA. A reserve-eligible bidder that has its demands reduced can use the 
eligibility to bid in the reserved category, if it wishes.
8. Extended Round Procedures
a. Triggering an Extended Round
    222. The Commission adopts the procedures it proposed for 
triggering an extended round, with one modification. An extended round 
will be implemented if the final stage rule is not satisfied but 
bidding activity has stopped--that is, if demand does not exceed the 
available supply--for Category 1 blocks in the 40 high-demand markets. 
High-demand markets are PEAs 1-40. Since bidding in these markets 
generally serves as a leading indicator of final auction proceeds, the 
Commission finds that basing the trigger on bidding for Category 1 
blocks in the high-demand markets will be a reliable predictor of 
whether the final stage rule can be satisfied in the current stage. The 
auction system will not implement an extended round, however, if 
bidding activity has stopped for Category 1 blocks in the high-demand 
markets but the gap between current forward auction proceeds (from all 
blocks in all PEAs) and the amount needed to meet the final stage rule 
exceeds 20 percent of current auction proceeds. Information on progress 
toward meeting the final stage rule, including the shortfall, will be 
made public during the auction. Instead, the auction will move to a new 
stage without an extended round. This modification of its proposed 
procedures addresses concerns that bidding dynamics and price discovery 
may be distorted if the auction system attempts to raise a large 
portion of auction proceeds in a single round on only a subset of the 
available blocks.
    223. The Commission decline to accept AT&T's suggestion that an 
extended round not be triggered until bidding has ended in all or 
almost all of the PEAs. AT&T's suggested approach would undercut the 
purpose of the extended round, which is to avoid running what may be a 
very large number of bidding rounds before ascertaining that the final 
stage rule cannot be met in the current stage.
b. Extended Round Bidding Procedures
    224. The Commission adopts its proposed extended round bidding and 
bid processing procedures, which are described in detail in Appendix G 
of the Auction 1000 Comment PN. Under these procedures, extended round 
bidding will be conducted only for Category 1 blocks in high-demand 
markets, the same set of licenses considered in triggering the extended 
round and applying the first component of the final stage rule. Because 
bidding will have stopped on these blocks, the currently winning 
bidders are very likely to become the winning bidders when the clock 
phase ends and, hence, they will have a strong incentive to try to 
ensure that the final stage rule can be met. Bidders in less settled 
markets may be less inclined to accept their allocated share of an 
extended round increment, which may in turn reduce the chances that the 
extended round will meet the final stage rule. Moreover, asking 
participants that are bidding for the most valuable licenses to accept 
an

[[Page 61960]]

extended round increment will not pose an unreasonable burden, since 
proceeds for comparable licenses typically account for a very large 
fraction of revenues in other spectrum auctions. This is especially so 
given the Commission's decision to limit the circumstances in which the 
extended round will be implemented to ensure that the shortfall in 
proceeds is not too large. Therefore, the Commission declines to adopt 
AT&T's suggestion to include all available licenses in the extended 
round bidding.
    225. Under the procedures the Commission adopts, the auction system 
will set an extended round clock price increment for Category 1 blocks 
in each high-demand PEA that is 33 percent larger than the increment 
required to satisfy the final stage rule. The same percentage increment 
will be applied to Category 1 blocks in each high-demand PEA, such that 
the additional proceeds over all the areas would equal 133 percent of 
the amount needed to meet the shortfall. High-demand PEAs where there 
is excess supply will not be included in extended round bidding. This 
required amount will be the amount needed to meet the first or second 
components of the rule, whichever is greater. Setting the clock price 
33 percent higher than the minimum amount necessary to meet the reserve 
price will enable the extended round to satisfy the rule even if a 
market clearing price in some PEAs is less than proportional to the 
full gap in proceeds, by permitting bidders in markets with higher 
market clearing prices to make up for the difference in needed 
proceeds.
    226. A bidder in the extended round will be permitted to accept the 
clock price for the blocks it demands or to submit an intra-round bid 
that requests a reduction of one block at a price lower than the clock 
price. Only bidders that demanded blocks in the previous round in the 
category may bid in the extended round. A bidder will not be able to 
request an increase in demand in the extended round. The auction system 
will consider bids in all PEAs for which there is extended round 
bidding in increasing order of price point (and random number in the 
case of ties). A quasi-random number will be associated with each bid 
as it is submitted. At the lowest price point at which the auction 
system encounters an intra-round bid in a given PEA, the uniform price 
applying to Category 1 blocks in that PEA will stop increasing. The 
auction system will stop processing bids if it reaches a point where 
the total additional proceeds associated with the extended round prices 
in the high-demand PEAs together are sufficient to meet the final stage 
rule. This point may not necessarily correspond to a price-point at 
which an intra-round bid is submitted. Hence, prices in high-demand 
PEAs where there is an intra-round bid will stop increasing when bid 
processing reaches the price point of the first requested reduction if 
the final stage rule has not yet been met. In high-demand PEAs without 
a reduction request, prices will stop at the price point at which the 
final stage rule is met.
    227. If the final stage rule is met in the extended round, the 
uniform price applying to all Category 1 blocks in each high-demand 
market will increase only as much as needed to meet the final stage 
rule. Regular clock rounds will resume with the spectrum reserve in 
place, and clock rounds will continue as long as there is excess demand 
in any category in any PEA. In PEAs where there was extended round 
bidding, clock prices for Category 1 blocks in the first new clock 
round will be based on the extended round stopped price. Where there 
was no extended round bidding--that is, for Category 2 blocks and 
Category 1 blocks in non-high-demand PEAs--clock prices in the next 
clock round will be based on prices from the last regular clock round. 
However, even if in the extended round the price stopped in a PEA at an 
intra-round price point at which a bidder requested a reduction, the 
reduction will not be applied to the bidder's demands, since applying 
the reduction would result in excess supply. The bidder will still 
demand the quantity it demanded going into the extended round, but at 
the stopped price.
    228. If the final stage rule cannot be met in the extended round, 
the current stage of the auction will end and a new stage will begin. 
In PEAs where there was extended round bidding, clock prices for the 
first round of the forward auction in a new stage will be based on the 
extended round stopped price in PEAs where a reduction was requested, 
and on the extended round clock price if no reduction was requested. If 
there was no extended round bidding, i.e., for Category 2 blocks and 
Category 1 blocks in non-high-demand PEAs, clock prices in the new 
stage will be based on the last regular clock round. In contrast to the 
case where the final stage rule is met, if a bidder requested a 
reduction that stopped the price in the extended round, the auction 
system will apply that reduction to the bidder's demands going into the 
next stage. Since a bidder can request a reduction of at most one block 
in the extended round, and the stage transition procedures the 
Commission adopts generally will reduce the supply of blocks in a PEA 
by one block, the Commission finds that allowing a single extended 
round reduction to be applied will not unduly risk creating unsold 
licenses.
9. Stopping Procedures
    229. The auction system will employ a simultaneous stopping rule 
for the clock phase of the forward auction in the final stage. 
Specifically, if the final stage rule has been met (with or without an 
extended round), the clock phase of bidding will end for all categories 
of licenses following the first round in which there is no excess 
demand in any category in any PEA. Forward auction bidders that are 
still expressing demand for a category of a PEA at the time the 
stopping rule is met will become the winning bidders, and will be 
assigned specific frequencies in the assignment phase.

B. Assignment Phase

    230. The assignment phase will determine which frequency-specific 
licenses will be won by the winning bidders of generic blocks during 
the clock phase. In the assignment phase, winning bidders will have the 
opportunity to bid for preferred combinations of frequency-specific 
licenses. A bidder can assign a price using a sealed bid to one or more 
possible frequency assignments for which it wishes to express a 
preference, consistent with its winning bids for generic blocks in the 
clock phase. For instance, if a bidder won two Category 1 blocks and 
one Category 2 block in the clock phase, then it will only be offered 
the option of bidding for frequency assignments with exactly two 
Category 1 licenses and one Category 2 license. The bid prices will 
represent a maximum payment that the bidder is willing to pay for the 
frequency-specific license assignment, in addition to the final price 
established in the clock phase for the generic blocks, which may be 
subject to an impairment discount. The procedures the Commission 
establishes will determine the optimal assignment of licenses within 
each PEA by first considering a series of spectral contiguity 
objectives and then, if there are multiple arrangements that meet the 
contiguity objectives, determine assignments based on bid amount in the 
assignment phase. As a simple example, assume four identical blocks are 
available in a PEA, and two bidders won two blocks each in the clock 
phase, and each was presented with bidding options for contiguous 
blocks AB and CD. One bidder bid 10 for AB and 0 for CD, the other 
bidder bid 12 for AB and

[[Page 61961]]

0 for CD in the assignment phase. The auction system will assign AB to 
the second bidder, and CD to the first bidder.
    231. The Commission generally adopts the assignment round 
procedures proposed in the Auction 1000 Comment PN, except that in 
response to concerns expressed by commenters the Commission will not 
group PEAs when any of the licenses are at all impaired. This modified 
approach to grouping PEAs will ensure that bidders can express 
divergent frequency preferences for impaired licenses across geographic 
areas.
1. Availability of Auction-Related Information to Bidders
    232. Prior to commencement of bidding in the assignment phase, the 
auction system will inform all winning bidders from the clock phase of 
the extent to which contiguous blocks feasibly may be assigned in every 
PEA. This applies to all blocks in the PEA irrespective of whether they 
are in Category 1 or Category 2, reserved or unreserved, or are 
impaired to varying extents. More specifically, the auction system will 
provide information with respect to each PEA on whether, consistent 
with the contiguity objectives: (1) It is possible to assign contiguous 
blocks to all winning bidders in the clock phase, or, if not, (2a) that 
it is possible to assign at least two contiguous blocks to all winning 
bidders of two or more blocks in the clock phase, or (2b) that it is 
not possible to assign at least two contiguous blocks to all winning 
bidders of two or more blocks in the clock phase. The auction system 
will determine the potential for contiguous frequency assignments, as 
well as the assignment phase bidding options provided to each bidder, 
based on the availability of frequency-specific licenses corresponding 
to Category 1 and Category 2 blocks in the PEA (or group of PEAs), and 
the contiguity objectives that are possible given the particular mix of 
bidders and the categories of their clock phase winning. This 
information will enable a bidder to assess the likelihood of being 
assigned contiguous blocks, and the extent to which contiguity may be 
possible across PEAs. Providing such information about all PEAs to all 
winning bidders, rather than only to winners in each specific PEA, 
averts the risk that winning bidders in a large number of PEAs will 
gain an undue advantage over others.
    233. In addition to the foregoing information, the auction system 
will provide to each assignment phase bidder a menu of bidding options 
consisting of possible configurations of frequency-specific licenses on 
which it can bid in each PEA in which it holds winning clock phase 
bids, as U.S. Cellular proposed. These bidding options will be 
consistent with the bidder's clock phase winnings and information. The 
auction system may, in some cases, offer a bidder assignment bidding 
options that include combinations that are not possible for the bidder 
to win, given the winnings of other bidders, in order to avoid 
disclosing too much information about the winning bids of other 
bidders. In other cases, if there is only one possible assignment in a 
PEA given a bidder's winnings (for example, if a bidder won the only 
available Category 2 block and no Category 1 blocks), the bidder may 
not be offered a bidding option but will be assigned to that option by 
the auction system. Providing such information will facilitate 
participation in the assignment phase, particularly for smaller bidders 
with fewer resources to expend on analysis, by limiting the number of 
frequency configurations on which they need to consider for the 
assignment phase.
    234. The auction system will provide clock phase winning bidders 
with the information as soon as possible and announce a schedule of 
assignment phase rounds that will commence beginning no less than five 
business days later. While CTIA advocates at least 10 days between the 
provision of detailed information and the commencement of the 
assignment phase, the Commission finds that five days will be 
sufficient for bidders to prepare given the information that will be 
made available to facilitate bidding in the assignment phase.
    235. When an assignment round concludes, the auction system also 
will advise the bidders in each PEA of their own payments and 
assignments.
2. Structure of the Assignment Phase
a. Grouping of PEAs
    236. The Commission adopts its proposed requirements for grouping 
PEAs for assignment phase bidding purposes, with an additional 
requirement in response to concerns expressed by commenters regarding 
bidding for licenses with impairments. Specifically, the auction system 
will group together PEAs in a single assignment round only if all of 
the following three conditions are met: (1) The PEAs are one of the 
following: (a) All high-demand (PEAs 1-40), regardless of Regional 
Economic Area Grouping (REAG); (b) All in the same REAG and not subject 
to the small market bidding credit cap (i.e., those PEAs with a 
population of 500,000 or less, which corresponds to PEAs 118-416, 
excluding PEA 412); or (c) All in the same REAG and are subject to the 
small market bidding credit cap; (2) Each PEA in the group has the 
exact same number of blocks, all of which are Category 1 blocks and are 
zero percent impaired; and (3) Each PEA in the group has the same mix 
of clock phase winners and winnings. For example, in all PEAs in the 
group there are five Category 1 blocks with zero percent impairment. 
Bidder A won one block in each of the PEAs in the group. Bidder B won 
one block in each of the PEAs, and Bidder C won three blocks in each of 
the PEAs
    237. These requirements will assure that in any grouping, 
assignment round bidders will be presented with a set of PEAs with 
blocks with the same characteristics, which should reduce uncertainty 
and simplify bidding for all bidders. No PEAs will be grouped in the 
assignment phase if any of the blocks are considered impaired. That is, 
all blocks will be considered 0 percent impaired. The Commission's 
modified approach addresses concerns raised by commenters, including 
Sprint, U.S. Cellular, and others, that the approach the Commission 
proposed might not give bidders sufficient flexibility to express 
preferences for assignments in cases where PEAs with licenses in the 
same category are impaired differently but are grouped together for 
bidding.
b. Intra-PEA Contiguity Objectives
    238. The auction system will use an optimization process to 
determine for each PEA or PEA group various possible configurations of 
frequency-specific licenses consistent with the pattern of winning 
bidders and block categories from the clock phase. More specifically, 
the auction system will apply the following contiguity objectives, 
taking into account both Category 1 and Category 2 blocks: (1) For 
bidders that win multiple blocks, maximize the number of bidders that 
are assigned at least two contiguous blocks; (2) for bidders that win 
multiple blocks, minimize the number of blocks that are non-contiguous 
to any of the bidder's other blocks; (3) maximize the number of bidders 
that are assigned only contiguous blocks; and (4) maximize the number 
of pairs of unsold blocks that are contiguous as long as the impairment 
of blocks to winning bidders does not increase. These objectives are 
consistent with comments indicating that carriers place significant 
value on spectrally contiguous spectrum, as well as some commenters'

[[Page 61962]]

arguments that prioritizing inter-PEA contiguity, as opposed to 
contiguity within PEAs, could disadvantage certain carriers and create 
opportunities for discriminatory conduct.
    239. The contiguity objectives will be applied in the order 
specified, so that the second objective will only be applied to 
possible assignments that fully satisfy the first objective, the third 
objective will only apply to assignments that fully satisfy the first 
two objectives, and so on. As a result, the fourth objective regarding 
unsold blocks will not adversely affect the assignment of contiguous 
blocks as determined by the first three objectives. The Commission 
adopts the fourth objective, in addition to the three objectives it 
proposed in the Auction 1000 Comment PN, in order to ensure that, if 
the auction system must choose between an assignment in which any 
unsold blocks are contiguous or separated, the system will choose the 
contiguous assignment, thus maximizing the value of blocks retained by 
the FCC.
    240. The Commission declines to adopt CCA's proposal for the 
auction system to assign the winning bidder of a single license in a 
PEA the least impaired license block before assigning any others. The 
Commission disagrees with the premise of CCA's proposal that the first 
three objectives uniformly favor multi-license or multi-market winning 
bidders and harm carriers that purchase only one license in a PEA. The 
contiguity objectives will be applied without regard to the level of 
impairment and therefore will not favor any bidder or type of bidder. 
The Commission also declines to adopt U.S. Cellular's proposal for an 
additional objective which minimizes the difference in the average 
level of impairment of the same-category license(s) assigned to any two 
bidders. Since bidders may value impairments differently, the 
Commission prefers to allow bidders to indicate their own frequency 
preferences through their bidding in the assignment phase.
c. Sequencing of Assignment Phase Bidding
    241. The Commission adopts its proposal to sequence bidding on PEAs 
or PEA groups in the assignment phase based on total weighted-pops, 
beginning with the high-demand PEAs and then moving to non-high- demand 
PEAs by REAG. For assignment phase bidding, assignment rounds for the 
PEAs in the six smaller REAGs will be sequenced with one of the six 
continental REAGs. Under this approach, clock phase winning bidders of 
blocks in the high-demand PEAs will first bid on the PEA or PEA group 
with the greatest number of weighted-pops. Bidding will continue in 
descending order of weighted-pops until specific frequencies have been 
assigned in all the high-demand PEAs. Once frequencies have been 
assigned for the high-demand PEAs, the auction system will conduct a 
series of assignment rounds for the non-high-demand PEAs within each of 
the six REAGs, again in descending order of weighted-pops. The 
Commission expect that the auction system will run the assignment 
rounds for non-high-demand PEAs associated with different REAGs in 
parallel. However, an alternative schedule for the REAG rounds, of 
which bidders will be given ample notice, may be necessary in the event 
that running multiple rounds in parallel is deemed too complicated for 
bidders, the auction managers, or the auction system. Within each REAG, 
the assignment rounds would be conducted one PEA or PEA group at a 
time, sequentially.
    242. The Commission is not persuaded by arguments that larger 
bidders would derive a significant advantage from being able to 
participate in assignment rounds that are sequenced earlier in the 
assignment phase process, and hence, the Commission declines to adopt 
the commenters' proposal to randomly sequence the assignment rounds to 
avoid any timing advantage. The Commission finds that the information 
it will provide--on bidders' own bidding options and on the potential 
for contiguous assignments in each PEA--will minimize any ``early 
mover'' informational advantage. In addition, the second-pricing 
procedures will simplify bidding strategy for bidders, mitigating any 
potential advantage from bidding ``experience'' in the assignment 
phase.
    243. The Commission also rejects the assumption that earlier 
bidding for frequency assignments in the high-demand markets will 
enable winners of blocks in those markets to establish consistent 
frequency ``footprints'' that they will later pay a premium to extend, 
thereby disadvantaging bidders with fewer resources to spend in the 
assignment phase. The intra-area contiguity objectives will limit 
bidders' abilities to establish consistent frequency footprints across 
PEAs. Because the auction system will only allow bids for license 
combinations that satisfy those contiguity objectives, it is unlikely 
that a single bidder will have the opportunity to bid for and win a 
consistent footprint in all areas in which it won blocks. Consequently, 
the Commission is not persuaded that the sequencing procedures it 
adopts will lead to a lack of interoperability as a result of larger 
carriers establishing consistent footprints in one section of the 600 
MHz Band, leading equipment manufacturers to tailor equipment only to 
those frequencies, and note moreover that its rules require 
interoperability throughout the 600 MHz Band. The Incentive Auction R&O 
adopted a strong interoperability rule that requires that any user 
equipment certified to operate in any portion of the 600 MHz Band must 
be capable of operating, using the same technology that the licensee 
has elected to use, throughout the entire 600 MHz Band.
d. Bidding and Bid Processing
    244. Once bids have been submitted, the auction system will perform 
an optimization to select as the winning license assignment that 
configuration, consistent with the continuity objectives and the 
options provided to bidders in advance, for which bidders indicate the 
greatest willingness to pay. Ties, if any, will be broken by including 
pseudo-random numbers in the optimization. Bidding in an assignment 
round is voluntary. If a bidder chooses not to bid in an assignment 
round, the auction system will assign a zero bid to each of the 
bidder's available options, or to any option for which the bidder does 
not submit a bid. Bidders that choose not to bid in an assignment round 
will be assigned licenses consistent with their winnings in the clock 
phase of the auction and the contiguity objectives. The Commission 
declines to implement the suggestion that the auction system process 
assignment round bids by looking separately at the high bids on various 
licenses, since bids will be used to select a single configuration of 
license assignments and the licenses with the highest bids may not be 
in the same configuration.
    245. Under the assignment phase bidding procedures the Commission 
adopts, winners of either reserved or unreserved Category 1 blocks will 
be able to bid for the available frequencies in Category 1, and the 
auction system will assign specific frequencies without regard to the 
reserve-eligible status of the bidder. In other words, the auction 
system will not differentiate in the assignment rounds between reserved 
and unreserved spectrum blocks. Subsequent to making frequency 
assignments in the assignment phase, in order to determine final 
license prices, the auction system will determine which license or 
licenses are deemed as reserved, if a bidder wins both reserved and 
unreserved Category 1 blocks in a single PEA or PEA group. Consistent

[[Page 61963]]

with the record, the procedures the Commission adopts will prioritize 
the assignment of contiguous blocks within PEAs in order to promote 
efficient utilization of the 600 MHz Band. Differentiating between 
reserved and unreserved blocks would undermine this objective by making 
it more difficult to assign frequency-contiguous spectrum blocks to 
winners of blocks in an area, particularly if a bidder wins both 
reserved and unreserved blocks. Further, the Commission is not 
persuaded that differentiating is necessary to ensure fulfillment of 
its competitive goals for the auction, especially since all reserved 
blocks will be Category 1, and therefore relatively substitutable. 
Accordingly, the Commission declines to assign reserved and non-
reserved licenses separately during the assignment rounds.
    246. The Commission declines to adopt an assignment approach that 
would rely on random or quasi-random distribution of licenses, or other 
non-monetary bidding for frequency preferences, as some commenters 
suggest. The Commission also declines to adopt the alternative approach 
advocated by U.S. Cellular and others, under which the auction system 
would take into account preferences for contiguous blocks within an 
area and then randomly determine the remaining frequency assignment. 
The Commission determined in the Incentive Auction R&O that the use of 
competitive bidding procedures would promote the efficiency of the 
assignment process, and allow more confident bidding for generic 
licenses in the clock phase of the forward auction, by facilitating the 
assignment of specific frequencies to the highest-valuing users. 
Accordingly, the Commission rejected an administrative, random or 
quasi-random process. Nevertheless, these commenters assert that using 
competitive bidding will give an advantage to nationwide carriers in 
obtaining the least impaired blocks in a category, leaving less 
desirable blocks for the smaller and regional carriers. They argue 
further that bidding in the assignment phase is likely to depress 
revenue in the clock phase. The Commission reaffirms that giving 
bidders the opportunity to bid monetary amounts for specific frequency 
preferences in the assignment phase, which they will not be able to 
express in the bidding for generic blocks in the clock phase, will 
allow the auction system to take bidder interests into account in 
assigning frequency-specific licenses. Moreover, the Commission agrees 
that a monetary bidding-based assignment round will allow bidders to 
express the intensity of preferences for particular licenses, which the 
points-based approaches generally do not. This will lead to potentially 
more effective use of the spectrum than would a random assignment 
mechanism.
    247. In addition, the Commission finds that competitive bidding 
will provide a greater incentive for sincere bidding--since real 
resources will be at stake--than would a system of ``draft pick'' 
preferences or points based bidding, as also suggested by commenters. 
The Commission further rejects arguments that the competitive bidding-
based approach it adopts to the assignment phase will depress revenues 
in the clock phase, potentially causing the auction to move to a lower 
clearing target because the final stage rule cannot be met. In other 
spectrum auctions around the world in which similar assignment phase 
designs have been used, the revenues in the assignment phase have 
averaged less than 0.5 percent of the total auction revenues. For 
example, assignment phase revenues were 1.15 percent of total auction 
revenues in the 2013 UK 4G Auction. In the 2013 Australian Digital 
Dividend Auction, while the auction data was not released in full, an 
upper bound of 0.19 percent can be calculated using available public 
data for assignment phase revenues as a percentage of total auction 
revenues. Assignment phase revenues were less than 0.01 percent of 
total auction revenues in the Canadian 700 MHz Auction. On the 
contrary, bidders may bid more aggressively in the clock phase because 
they know that they will later have an opportunity to bid for a 
strongly-held frequency preference in the assignment phase. In 
addition, given its projections that the initial clearing target 
procedure will result in a very high proportion of Category 1 blocks 
with minimal or no impairment, and its decision to make detailed 
impairment information available to bidders prior to the commencement 
of bidding in the clock phase of the forward auction, bidders generally 
are unlikely to hold back their clock phase bids in order to be able to 
secure the least impaired licenses in the assignment phase. In most 
PEAs, the Commission expects that there will be insufficient impairment 
or variety in the degree to which licenses are impaired to warrant such 
action. The discount on clock phase prices for any license impairments 
also will help account for variation in value due to impairment, 
minimizing the incentive to limit clock phase bids to the value of the 
most impaired generic block in a category. Accordingly, the Commission 
is not persuaded that clock phase revenues will be significantly 
suppressed by the use of competitive bidding procedures in the 
assignment phase.
    248. The Commission also disagrees with arguments that a 
competitive bidding-based approach to the assignment phase will 
disadvantage smaller carriers. First, the assignment phase structure 
will level the competitive playing field: The auction system will 
prioritize assigning contiguous frequency blocks within each PEA before 
taking bids, without regard to whether potential bidders (the winning 
bidders in the clock phase) are nationwide carriers or regional 
entities, reserve-eligible or not, and without taking into account the 
extent of impairment within a bidding category. By prioritizing intra-
area contiguity of licenses, the assignment phase structure will 
protect all bidders equally from discontiguous frequency assignments, 
even if a bidder does not submit an assignment round bid. Second, 
smaller carriers are as likely as larger ones to be able to benefit 
from expressing assignment phase preferences. Indeed, because the 
networks of smaller carriers may be less flexible than those of the 
nationwide carriers, the ability to bid for frequency-specific 
preferences may be all the more important for smaller carriers. 
Moreover, because the contiguity objectives will seek to assign two 
contiguous blocks to each winner before trying to assign any winner 
three or more contiguous blocks, they are likely to benefit carriers 
that win fewer than three blocks within a PEA over carriers that win 
more. Third, designated entity bidding credits will apply to assignment 
phase payments, giving smaller carriers that qualify as designated 
entities a price advantage over larger carriers in assignment phase 
bidding.
    249. Moreover, under the competitive bidding-based procedure the 
Commission adopts, bidding strategies will be easier than more complex 
and unfamiliar procedures advocated by some commenters. For example, 
the ``serial priority-assessment algorithm'' approach advocated by T-
Mobile and U.S. Cellular would require a bidder to understand a new 
bidding mechanism in which the optimal bidding strategy is not clear 
and depends on what strategy it expects others to play. Choosing 
selection order randomly and enforcing rotations among bidders, as 
advocated by T-Mobile and U.S. Cellular, would result in a less 
efficient assignment than if bidders can express preferences using 
monetary bids, which also allow for varying intensity of preferences. 
In

[[Page 61964]]

combination with the ``second-pricing'' approach, the procedures the 
Commission adopts will allow bidders to follow a clear and familiar 
strategy: Bid the incremental value of a specific assignment option, 
knowing that the payment will be equal to or less than that bid amount. 
For example, assume a bidder's three possible assignments are AB, BC, 
and CD. All that the bidder needs to do is determine a valuation for 
AB, BC, and CD. Assume these valuations are $120 million, $110 million, 
and $100 million, respectively, and the final clock phase price for A, 
B, and C was $100 million. The bidder would assign a value of $0 to its 
lowest priority assignment, CD, and submit a bid of $10 million for BC 
and $20 million for AB. The bidder's valuation would not depend on 
guesses about others' bids.
e. Assignment Phase Payment Calculations
    250. The Commission adopts the procedures it proposed to calculate 
the assignment phase payment (above the discounted final clock phase 
price) a bidder will pay for a frequency-specific license using a 
generalized ``second price'' approach. The final clock phase price of 
an impaired license will be discounted by an amount proportional to the 
extent of impairment. Under this approach, the auction system will 
calculate a payment amount that, if the winning bidder had bid that 
amount, would have been just sufficient to result in the bidder 
receiving the same winning frequency-specific license assignment. This 
pricing approach is a version of a Vickrey-Clarke-Groves mechanism. 
This payment will be less than or equal to the amount the bidder 
indicates in its bid that it is willing to pay for the assignment. The 
Commission find that this approach will simplify bidding strategies for 
bidders by giving them an incentive to bid what they consider to be 
full value for the assignment: If the assignment is selected, they will 
pay no more than would have been necessary to ensure that the 
assignment won. While U.S. Cellular indicates that inexperience with a 
second-pricing approach may still lead bidders to ``overbid,'' the 
Commission is confident that as bidders consider seriously their 
bidding strategies, this incentive will become apparent to them. 
Appendix H from the Auction 1000 Comment PN includes a detailed 
explanation of the procedures the Commission will use to determine the 
assignment round payment.

C. Final Winning Bid Amounts

    251. The Commission adopts the procedures proposed in the Auction 
1000 Comment PN for determining final forward auction prices, on which 
it received no feedback from commenters. The final price that a winning 
bidder must pay for a license it wins in the assignment phase will be 
the final clock phase price for the category of license it won within a 
given PEA, adjusted by the percentage of any impairment to the 
frequency block, plus any assignment phase payment, all reduced by any 
designated entity bidding credit.
    252. The Commission clarifies that, in the event a bidder wins both 
Category 1 reserved and unreserved blocks in the same PEA in the clock 
phase, in determining final payments, the auction system will deem as 
reserved that block or blocks that will yield the bidder the lowest 
price, taking into account the final clock phase price for the category 
and the impairment discount. The blocks that are deemed reserved will 
carry the restrictions on transferability, consistent with the 
conditions on reserved spectrum established in the Mobile Spectrum 
Holdings R&O. This approach will maximize the impairment discount. For 
example, assume that in the clock phase a bidder won one unreserved 
Category 1 block and one reserved Category 1 block in a PEA. The 
assignment phase procedures determined that the bidder would be 
assigned blocks E and F, where block E is two percent impaired and 
block F is zero percent impaired. The assignment phase payment is 
determined to be $100. If the final clock phase prices were $1,000 for 
reserved blocks and $1,200 for unreserved blocks, then the E block 
would be deemed unreserved and the F block would be deemed reserved. 
Conversely, if the final clock phase prices were $1,200 for reserved 
blocks and $1,000 for unreserved blocks, then the E block would be 
deemed reserved and the F block would be deemed unreserved. In either 
event, the bidder's final payment amount for blocks EF, assuming it has 
no designated entity bidding credit, will be calculated as follows: 
{1,000 + 1,200*0.98{time}  + {100{time}  = $2,276. If, for example, the 
bidder is eligible for a designated entity bidding credit, its total 
payment will be reduced by the amount of the bidding credit, subject to 
any cap. In the event that the reserved and unreserved blocks have the 
same final clock phase prices or the blocks are equally impaired, 
blocks will be designated as reserved in descending order of frequency. 
While ties in FCC auctions are traditionally broken pseudo-randomly, 
the Commission finds that this rule is clear and simple to implement, 
and will result in assigning contiguous reserved licenses in cases 
where a bidder wins multiple reserved blocks as well as unreserved 
blocks, which a random assignment mechanism will not necessarily do.

VII. Transition, if Necessary, to Any Subsequent Stage

    253. If a stage of the auction ends without satisfying the final 
stage rule, the auction system will begin a new stage of the auction 
using a lower clearing target. The reverse auction will be conducted 
for the applicable clearing target followed by the forward auction. The 
auction system will announce the new clearing target to bidders, as 
well as a bidding schedule for the reverse auction. A new stage of the 
reverse auction will begin not sooner than five business days after the 
conclusion of the prior stage of the forward auction. CTIA requests 
that the Commission allow at least two weeks between auction stages. 
The Commission concludes that five business days will provide the 
auction system with adequate time to conduct a clearing target 
optimization and provide forward auction bidders with impairment 
information for the new stage of the auction. While forward auction 
bidders need time to analyze new impairment data, the Commission notes 
that such bidders will have that information for the entirety of the 
stage of the reverse auction. Additionally, at a lower clearing target, 
there generally will be fewer impairing stations for forward auction 
bidders to consider. The Commission concludes that bidders will have 
sufficient time to process new impairment information and commenters 
have not provided it with a compelling reason to delay the start of a 
subsequent stage of the reverse auction by an additional week. Reverse 
and forward auction bidding in subsequent stages will carry-over from 
the prior stage--the prices will continue to descend in the reverse 
auction and continue to rise in the forward.

A. Selecting a New Clearing Target

    254. The clearing target for any subsequent stage of the auction 
generally will be the next lowest clearing target in the 600 MHz Band 
Plan. As with the initial clearing target, prior to bidding in a new 
stage, the auction system will make public the new clearing target. In 
the Auction 1000 Comment PN, the Commission also sought comment on the 
alternative of skipping clearing targets when moving to a new stage. 
CTIA and EOBC both argue against skipping any clearing targets as the 
auction advances to

[[Page 61965]]

subsequent stages. CTIA is concerned that if the Commission skips a 
clearing target it could unknowingly bypass an opportunity to clear 
additional spectrum. The Commission generally agrees. Therefore, in any 
subsequent stage, the clearing target determination procedure will be 
applied for the next lowest clearing target. It may be necessary to 
skip the 108 MHz clearing target to better harmonize our band plan with 
Canada or Mexico. Under this procedure, the current assignment of 
participating stations to relinquishment options from the reverse 
auction will not change. The optimization tool will determine a new 
provisional television assignment plan for the UHF band using the same 
objectives as in the initial clearing target optimization, taking into 
account the additional channel in the TV band and any participating 
stations that have dropped out of the auction in the previous stage. As 
part of this process, the optimization procedure may modify the 
provisional assignment of stations to the 600 MHz Band from the prior 
stage in order to minimize impaired weighted-pops and carry out the 
other objectives the Commission adopts. Prior to the start of the 
reverse auction in a new stage, the auction system will provide forward 
auction bidders with the same impairment and other information as will 
be provided to bidders in the initial stage. Based on the new 
provisional television channel assignment plan, the nationwide impaired 
weighted-pops will be calculated on a 2x2 cell level. The one-block-
equivalent nationwide standard for impairments will then be applied. In 
the event that the new plan does not meet the standard, the process 
will be repeated at the next lowest clearing target until a plan is 
identified that meets the one-block-equivalent impairment standard. The 
Commission anticipates that only in rare situations would the process 
result in moving down more than one clearing target.
    255. In Attachment A to the Auction 1000 Bidding Procedures Public 
Notice, the Commission provides a description of how its computer model 
will apply the between-stages clearing target determination procedure 
the Commission adopts on a step-by-step basis. An updated version of 
Appendix C to the Auction 1000 Comment PN setting forth the technical 
details and formulas associated with this procedure will be included 
with the appendices to the Application Procedures PN.

B. Reverse Auction Bidding

    256. The Commission adopts its proposals for resuming bidding and 
setting clock prices in the reverse auction in any subsequent stages. 
In the beginning of a new stage, the auction system will re-evaluate 
the bidding status of each station that was ``frozen--provisionally 
winning'' in the prior stage of the reverse auction in light of the 
reduced clearing target, notifying every such station of its new 
status, and resetting the base clock price.
    257. The auction system will reset the base clock price to the 
highest ``catch up point'' of all newly-active stations. Active 
stations are all participating stations that have not exited or become 
provisional winners. At the start of the new stage, each provisional 
winner from the prior stage will have its status reevaluated to take 
account of the new clearing target. In a subsequent stage, the auction 
system will inform newly-active stations that they will be returned to 
the active status of ``bidding in current round,'' ``frozen--currently 
infeasible,'' or ``frozen--pending catch up,'' whichever the case may 
be, at the beginning of the reverse auction in the new stage. For each 
newly-active station, its catch up point will be the base clock price 
at the time that the station became provisionally winning in a previous 
stage. In the first round of the new stage, the newly-active station(s) 
with the highest catch up point will become either ``bidding in the 
current round'' (applicable to UHF or VHF stations) or ``frozen--
currently infeasible'' (applicable only to VHF stations), while all 
newly-active stations with lower catch up points will become ``frozen--
pending catch up.'' The auction system will inform reverse auction 
bidders of their bidding status after each round of the auction and at 
the start of a new stage. Bidders that have a station that is 
``frozen--pending catch up'' or ``frozen--currently infeasible'' may 
place proxy bid instructions, if they so choose, in accordance with the 
reverse auction bidding procedures.
    258. The base clock price will descend from the reset price (i.e., 
the highest catch up point of newly-active stations). The auction 
system will calculate new price offers for bidding stations using the 
descending clock pricing procedures. Bidders with a newly-active 
station that is ``frozen--pending catch up'' will not resume bidding in 
the current round until the base clock price falls below the station's 
catch up point and its status changes. In order to avoid rounds in 
which no bidders are able to submit bids, if in any round there would 
be no stations that have the status ``bidding in the current round'' 
but there are stations that remain ``frozen--pending catch up,'' the 
auction system will temporarily adjust the price decrement. 
Specifically, the auction system will increase the price decrement only 
for the next round so as to meet the highest catch up point of a 
station that is pending catch up. This change will be announced to 
bidders immediately prior to adjusting the decrement. Once the base 
clock price descends to that point, such bidders will see their 
station's bidding status change to ``bidding in the current round'' if 
the station has a feasible channel assignment, or ``frozen--currently 
infeasible'' if the station is a VHF station and does not currently 
have a feasible channel assignment. Bidders who are asked to bid in a 
new stage will be able to bid using the bidding procedures including 
requesting to switch to another bid option if their station is eligible 
to do so. Any stations that exited in a prior stage will retain that 
status and will not resume bidding.

C. Forward Auction Bidding

1. License Inventory by Category and PEA
    259. In the forward auction in a subsequent stage, the number of 
spectrum blocks available in each PEA will generally be reduced by one. 
The number of Category 1 and Category 2 licenses available in a given 
PEA may increase or decrease, however, because the clearing target 
determination procedure between stages may change the assignment of 
television stations to the 600 MHz Band, altering the extent and 
location of impairments in the available blocks. Prior to the start of 
the forward auction in a new stage, the auction system will inform 
forward auction bidders of the new band plan, including the number of 
blocks that will be available in each category in each PEA, and the 
same types of impairment information provided prior to the initial 
stage of the auction. The auction system will not evaluate whether the 
final stage rule has been satisfied until after bidding in the first 
clock round of the forward auction in a subsequent stage is complete.
a. Bidder Demands and Bidding Eligibility
    260. The auction system will initiate bidding in the forward 
auction in any subsequent stage based on bidder demands and bidder 
eligibility from the end of the previous stage. If a new stage does not 
follow an extended round because the shortfall to meet the final stage 
rule was too large, bidder demands and eligibility at the start of the 
first round of the forward auction in the new stage will be equal to 
those accepted by the auction system at the end of the last

[[Page 61966]]

regular clock round in the previous stage.
    261. If the forward auction in a new stage follows an extended 
round in which the final stage rule was not met, bidder demands will be 
based on bidding in the extended round for license categories in PEAs 
that participated in the extended round, and on demands from the last 
regular clock round for license categories and PEAs that did not 
participate. More specifically, for categories of blocks for which all 
bidders indicate that they are willing to accept the full extended 
round price increment, bidder demands will carry over from the extended 
round. For categories for which a reduction was accepted, bidder 
demands from the start of the extended round will carry over to the new 
stage for all but the bidder whose requested reduction was accepted. 
Under the procedures the Commission adopts for processing extended 
round bids when the final stage rule is not met, the auction system 
will process a demand reduction of up to one block per ``high-demand'' 
PEA. In some cases the supply of Category 1 blocks in a PEA may not 
decrease in a subsequent stage in spite of the lower clearing target 
because the clearing target selection procedure could reduce 
impairments to licenses in a PEA sufficiently that one or more blocks 
previously considered Category 2 will be considered Category 1 in the 
new stage, so that even with a lower total number of blocks, the number 
of Category 1 blocks will not decrease. The Commission anticipates 
that, in such cases, bidders previously demanding a Category 2 block, 
the supply of which will be reduced disproportionately, are likely to 
shift to bid on the Category 1 blocks, so that demand for the Category 
1 blocks will at least equal supply. That bidder's demand will reflect 
the reduction, consistent with its extended round bid processing 
procedures. For blocks that are not included in bidding in the extended 
round, bidder demands that were accepted at the end of the last regular 
clock round of the previous stage will carry over to the beginning of 
the next stage. If supply exceeds demand in a category because a bidder 
on a Category 2 block chose to reduce its demand, taking advantage of 
the exception to the rule that reductions will not be applied if 
aggregate demand will fall below supply, the clock price for the second 
round of the new stage will be also based on the price from the last 
round in the previous stage (when supply did not exceed demand).
    262. In recognition that bidder demand for Category 2 blocks in a 
PEA may be reduced based on changes to the extent of impairments, the 
auction system will accept requests to reduce demand for Category 2 
blocks in the first round of the forward auction in a subsequent stage, 
even if the reduction will result in demand falling below supply for 
that category. Bidder eligibility in a subsequent stage will be based 
on the bidder's bidding activity at the end of the previous stage. A 
bidder will begin the first round of the forward auction in the new 
stage with its eligibility reset based on bidding in the extended round 
for licenses for which there was bidding in the extended round, and for 
other licenses on bidding in the last regular clock round.
b. Clock Price
    263. The auction system will initiate forward auction bidding in 
any subsequent stage based on prices from the end of the previous 
stage. The price increment in the first round of the forward auction in 
the next stage will be added to the last clock price from the previous 
stage, or to the intra-round price at which a reduction that brought 
demand down to equal supply was processed. If an extended round was 
held, for blocks not subject to extended round bidding (i.e., Category 
2 blocks and blocks in non-high-demand PEAs) clock prices for the first 
round in the new stage will be based on prices from the round preceding 
the extended round. For categories subject to extended round bidding, 
the increment will be added to the extended round clock price if no 
reduction was requested in the category, or the lowest price at which a 
reduction was requested. If the new stage is triggered without an 
extended round because the shortfall in proceeds was sufficiently 
large, these procedures are equivalent to setting clock prices for the 
first round of the new stage as if it were a new round in the previous 
stage.
    264. The Commission disagrees with T-Mobile's assertion that 
forward auction clock prices in a subsequent stage should reflect the 
reduction in payments to provisionally winning reverse auction bidders 
and relocation expenses resulting from a lower clearing target. Nor is 
the Commission persuaded to set clock prices in a new stage that are 
just sufficient to satisfy the final stage rule for the reduced 
spectrum clearing target. The Commission agrees with AT&T that rolling 
back prices between stages may provide an incentive for undesirable 
bidding behavior because bidders may hold back on bidding, knowing 
``that prices could be lower in the next round if they allow the 
auction to fail at the current clearing targets,'' which would reduce 
the amount of spectrum cleared in the incentive auction. Moreover, the 
procedures the Commission adopts to prevent an extended round if the 
needed shortfall to satisfy the final stage rule is too large will 
limit the extent to which clock prices can increase from stage to 
stage, mitigating T-Mobile's concern that a failed extended round will 
set ``an artificially inflated price floor for subsequent stages'' of 
the auction, potentially leading to reduced bidder demands and fewer 
blocks in the spectrum reserve. The pricing procedures the Commission 
adopts will provide a smooth transition between stages and sound 
incentives for straightforward bidding in the forward auction in any 
subsequent stages.

VIII. Final Television Channel Assignment Plan Selection Procedure

    265. Once the forward auction satisfies the final stage rule, no 
additional stages will be required: At that time it will be possible to 
finalize the provisional television channel assignment plan for the 
remaining television bands using the optimization procedures. The 
satisfaction of the final stage rule will be publicly announced. The 
final television channel assignment plan will not be released until 
after the close of the forward auction. The mathematical formulas for 
implementing the final television channel assignment selection 
procedure will be set forth in an appendix to the Application 
Procedures PN. The results of the final television channel assignment 
plan selection procedure will be announced by the Media and Wireless 
Telecommunications Bureaus in the Channel Reassignment Public Notice 
after the completion of the reverse and forward auctions.
    266. The final television channel assignment plan will include a 
channel assignment for each eligible full power and Class A television 
station that will remain on the air post-auction; i.e., those that did 
not participate in the reverse auction, those that participated but 
exited the bidding, and those that successfully bid to voluntarily 
relocate to a different TV band. With the exception of any stations 
that were assigned to channels in the 600 MHz Band in the final stage 
of the auction, all provisional television channel assignments will be 
subject to change in the final television channel assignment plan. The 
channel assignments of stations provisionally assigned to the 600 MHz 
Band in the final stage of the auction will not change in the final 
television channel assignment plan. This approach provides needed 
certainty for the auction outcome by

[[Page 61967]]

ensuring that impairments to forward auction licenses will not change 
as a result of the final television channel assignment optimization 
procedure. Every final channel assignment will be required to satisfy 
the constraints adopted in the Incentive Auction R&O to fulfill the 
statutory mandate that the Commission make all reasonable efforts to 
preserve each station's coverage area and population served.
    267. The auction system will use optimization techniques to 
determine a final television channel assignment plan. In addition to 
satisfying the constraints adopted in the Incentive Auction R&O, the 
final television channel assignment plan selection procedure will take 
into account the following objectives, listed in order of priority: (1) 
Maximizing the number of channel ``stays,'' or stations assigned to 
their pre-auction channels instead of being assigned to new channels; 
(2) minimizing the maximum aggregate new interference experienced by 
any station; (3) avoiding reassignment of stations with high 
anticipated relocation costs; and (4) prioritizing assignments to 
channel 5 in the Low-VHF band and off of channel 14 in the UHF band. 
The procedure will first optimize for the first objective. It will then 
optimize for the second objective, which will be constrained by the 
results of the optimization for the first objective. The procedure will 
then optimize for the third objective, which will be constrained by the 
results for the first and second objectives. Finally, the procedure 
will optimize for the fourth objective, which will be constrained by 
the results for the first three objectives. The procedure will select a 
final television channel assignment plan that satisfies the constraints 
adopted in the Incentive Auction R&O and best fulfills the objectives. 
The final television channel assignment plan will be subject to 
international coordination with Canada and Mexico.
    268. The first objective of maximizing the number of stations 
assigned to their pre-auction channels will promote a number of 
important goals. First, it will help to reduce the total cost of 
reimbursing broadcasters and others for the reasonable costs associated 
with repacking. Several commenters have expressed concerns regarding 
the sufficiency of the $1.75 billion in the TV Broadcaster Relocation 
Fund that Congress made available for reimbursing the reasonable 
relocation expenses of broadcasters and MVPDs. By minimizing the number 
of stations that will be required to move off their pre-auction 
channels and, therefore, minimizing the number of stations that incur 
relocation expenses eligible for reimbursement from the Fund, the first 
objective will help to ensure the Fund's sufficiency. Additionally, by 
reducing the number of stations that must change channels, the first 
objective will speed the post-auction transition process for other 
stations and minimize disruption for stations and viewers alike. 
Finally, the first objective will avoid terrain losses (and potentially 
viewer losses) that could result from channel changes due to signal 
propagation differences on different frequencies, consistent with its 
statutory mandate to make all reasonable efforts to preserve the 
coverage area and population served of eligible broadcast television 
licensees.
    269. The first objective will constrain the additional objectives; 
however, the Commission adopts its proposal to allow the optimization 
procedure to choose a final television channel assignment plan in which 
the number of stations that are assigned to their pre-auction channels 
is within 95 percent of the number found in the first objective. The 
Commission adopts this percentage in order to allow some flexibility to 
achieve greater benefit in the second and third objectives while still 
capturing the benefits of the first objective by mostly restricting the 
assignments to maintain the maximum number of stays. However, the 
fourth objective will constrain the number of stations that are 
assigned to their pre-auction channel to be at least as many as found 
in the third optimization.
    270. The second objective of minimizing the maximum aggregate new 
interference that any station will incur furthers its statutory 
obligation to make all reasonable efforts to preserve eligible 
stations' population served, and fulfills its commitment in the ISIX 
Order, 79 FR 76903, December 23, 2014, to take aggregate new 
interference into account when establishing the final channel 
assignments. In the Incentive Auction R&O, the Commission determined 
that it would permit channel assignments that would not increase 
pairwise interference--interference from any one station to another 
station--by more than 0.5 percent. In response to concerns that this 
approach could result in stations experiencing new interference of more 
than 0.5 percent on an aggregate basis, in the ISIX Order the 
Commission explained that, based on staff analysis, few stations were 
likely to experience new interference above one percent and that any 
such interference was unlikely to exceed two percent. In order to 
address the exceptional cases, the Commission stated that it would 
include an optimization objective in the final television channel 
assignment plan optimization that would seek to minimize this issue.
    271. In order to implement the second objective, the final 
television channel assignment plan selection procedure will minimize 
the maximum amount of aggregate new interference that any single 
station could receive. In the Auction 1000 Comment PN the Commission 
proposed the alternative of minimizing the number of stations that 
receive aggregate new interference above one percent; however, using 
that procedure could possibly result in significantly higher 
interference levels for some stations with minimal benefit. In order to 
minimize the maximum amount of aggregate new interference that any 
single station could receive, the procedure will determine each 
station's predicted aggregate new interference. The optimization 
procedure will use pairwise constraints to calculate aggregate new 
interference, which will result in some double counting of 
interference. This provides a conservative approach to calculating 
aggregate new interference, making it possible that the amount of 
interference will be less than predicted. It will then determine an 
assignment plan that minimizes the maximum aggregate new interference 
that any station will receive. This approach to minimizing aggregate 
new interference will help to ensure that no station will receive a 
disproportionately high amount of new interference. To the extent that 
any stations are predicted to receive new interference greater than one 
percent in the final TV channel assignment plan despite the application 
of the secondary objective, the Commission noted in the ISIX Order that 
stations may seek a remedy through the post-auction facilities 
modification processes. The Commission received only one comment 
directly addressing this objective, and it concluded that the approach 
it adopts to implementing it will best meet its commitment to minimize 
aggregate new interference while being the most fair to stations 
overall.
    272. The third objective of avoiding reassignment of stations with 
high anticipated relocation costs will further its efforts to minimize 
total relocation costs. This objective is consistent with its goals of 
ensuring the sufficiency of the $1.75 billion TV Broadcaster Relocation 
Fund and disbursing the Fund as fairly and efficiently as possible.
    273. In determining how to estimate relocation costs for purposes 
of applying the third objective, the Commission adopts a categorical 
approach, rather

[[Page 61968]]

than a station-by-station approach. Such an approach better serves the 
public interest by simplifying the determination and minimizing 
administration burdens. In the Auction 1000 Comment PN, the Commission 
proposed to determine costs for purposes of applying this objective by 
using publicly available data, such as the data compiled for the Media 
Bureau by Widelity, Inc. or the data provided by broadcasters in the 
Form 381 Pre-Auction Technical Certification. More specifically, the 
Commission adopts an approach under which each station will be assigned 
a weight based on a number of characteristics that generally make a 
station more costly to relocate to a different channel. A higher number 
will indicate that a station's channel change is more difficult to 
implement, and therefore, generally more costly. Also, generally, these 
more difficult and costly moves will take the greatest amount of time. 
Minimizing them will help speed the post-auction transition process, 
thus further minimizing the potential for service disruptions. The 
optimization software will use the categorical weights to choose a 
final television channel assignment plan that minimizes relocation 
costs by avoiding highly-weighted reassignments.
    274. A channel change for a full power station will generally be 
more costly than for a Class A station, and channel changes for 
stations in the top 30 DMAs will generally be more costly than stations 
in the remaining DMAs. Accordingly, the Commission will use the 
following categorical or ``base'' weights: a weight of five for full 
power stations in the top 30 DMAs; a weight of three for full power 
stations in all other DMAs; and a weight of one for Class A stations. 
The Commission used the Widelity Report Case Studies as a basis for 
these relative values. The Commission used Case Study 1 for Full Power 
Top 30 DMAs: cost is approximately $2.5 million, Case Study 2 for Full 
Power not Top 30: cost is approximately $1.5 million, Case Study 3 for 
Class A stations: cost is approximately $0.5 million. In order to take 
account of considerations that will likely add significant costs to 
relocation, the Commission will also add one to a station's base weight 
for each of the following factors: (1) An antenna on a tower taller 
than 1000 feet, because work on such a tower requires a specialized 
crew; (2) a tower in areas with significant ice and wind threat, 
because such towers may need improvements to satisfy ``Rev. G'' 
structural standards; (3) collocation on a tower with four or more 
other television or radio entities; and (4) a station will encounter 
known extraordinary circumstances if they need to change channels. 
Examples of some of the more complicated station sites are described in 
the Widelity report. These weights are meant to reflect relative 
difficulty when comparing two stations and are not intended to capture 
all of the unique circumstances potentially encountered by each 
station; however, they provide a simple and non-burdensome means of 
estimating relocation costs accurately enough to avoid the most costly 
and difficult relocations. Should Commission staff determine based on 
additional information that consideration of additional factors could 
result in cost savings in keeping with its overall goals of minimizing 
the expense and disruption to broadcasters during the repacking 
process, the Commission delegates authority to the Media Bureau to 
modify the approach it adopts to take into account such factors and 
direct the Media Bureau to publicly announce the final approach that 
will be used by the final television channel assignment optimization 
procedure to minimize relocation expenses.
    275. Finally, the fourth objective will seek to assign as many 
stations as possible that voluntarily move to the Low-VHF band--or that 
must be reassigned to new channels in that band to accommodate such 
moves--to channel 5. The Commission adopts this objective in response 
to the suggestions of several commenters that interest in bidding to 
move to the Low-VHF band would be increased if winning bidders could be 
assigned to as high a channel in that band as possible. These 
commenters assert that the technical characteristics of higher VHF 
channels are generally better than those of lower VHF channels. The 
Commission concluded that their suggestion has merit. Additionally, the 
fourth objective will seek to assign stations in the UHF band to a 
channel other than channel 14 in order to avoid coordination challenges 
with private land mobile radio systems (PLMRS). Because the Commission 
concludes that this objective should not be applied at the expense of 
the objectives, the fourth objective will be constrained by the second 
and third objectives and fully constrain the number of stations 
assigned to their pre-auction band to be at least as many as found 
after the third objective.

IX. Supplemental Final Regulatory Flexibility Act Analysis

    276. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Supplemental Final 
Regulatory Flexibility Analysis (SFRFA) of the possible significant 
economic impact on small entities by the procedures and policies 
contained in the Auction 1000 Bidding Procedures Public Notice and the 
SFRFA.

A. Need for, and Objectives of, Public Notice

    277. The Auction 1000 Bidding Procedures Public Notice determines 
procedures necessary to carry out the broadcast television spectrum 
incentive auction and resolves issues raised in the Auction 1000 
Comment PN released December 17, 2014. In the Auction 1000 Comment PN, 
the Commission sought comment on the proposals for conducting the 
broadcast television incentive auction, including proposed procedures 
for the forward auction, the reverse auction, and integration of the 
reverse and forward auctions, that would implement rules previously 
proposed in the Incentive Auction Notice of Proposed Rulemaking 
(Incentive Auction NPRM), 77 FR 69933, November 21, 2012, and adopted 
in the Incentive Auction R&O. In part, the Auction 1000 Bidding 
Procedures Public Notice also resolves pending petitions for 
reconsideration of the Mobile Spectrum Holdings R&O.
    278. Previously, as required by the RFA, the Commission prepared an 
Initial Regulatory Flexibility Analysis (IRFA) in connection with the 
Incentive Auction NPRM and a Final Regulatory Flexibility Analysis 
(FRFA) in connection with the Incentive Auction R&O. Likewise, the 
Commission's Mobile Spectrum Holdings NPRM, 77 FR 61330, October 9, 
2012, included an Initial Regulatory Flexibility Analysis (MSH IRFA) 
and its Mobile Spectrum Holdings R&O included a Final Regulatory 
Flexibility Analysis (MSH FRFA).
    279. Following the release of the Auction 1000 Comment PN, a 
Supplemental Public Notice, 80 FR 4816, Jan. 29, 2015, sought comment 
on how the proposals in the Auction 1000 Comment PN could affect either 
the IRFA or the FRFA. This SFRFA, addresses the effect, to the extent 
there is any, of the Auction 1000 Bidding Procedures Public Notice 
determinations have on the IRFA and FRFA.
    280. As noted in the Supplemental Public Notice, the proposals in 
the Auction 1000 Comment PN did not change any of the matters described 
in the IRFA or FRFA. More specifically, the IRFA and FRFA set forth the 
need for and objective of the Commission's rules for the broadcast 
spectrum

[[Page 61969]]

incentive auction; the legal basis for those rules; a description and 
estimate of the number of small entities to which the rules apply; a 
description of the projected reporting, recordkeeping, and other 
compliance requirements with small entities and significant alternative 
considered; and a statement that there are no federal rules that may 
duplicate, overlap, or conflict with the rules. As further noted in the 
Supplemental Public Notice, the request for comment focused on how the 
proposals in the Auction 1000 Comment PN might affect ether the IRFA or 
the FRFA.
    281. One comment responded specifically to the Supplemental Public 
Notice, filed by the Competitive Carriers Association (CCA). CCA does 
not assert that any of the matters already described in the IRFA or the 
FRFA need to be changed in light of the proposals in the Auction 1000 
Comment PN. Accordingly, the descriptions provided in the IRFA and the 
FRFA are incorporated herein without change. To the extent there is any 
variance and it is necessary due to the use of the average price 
component of the final stage rule as part of the trigger for the 
spectrum reserve, the MSH IRFA and MSH FRFA likewise are incorporated 
herein without change.
    282. CCA contends, however, that three of its proposals require a 
``more fulsome factual, policy, and legal analysis [than was provided 
in the FRFA] for these proposals for the agency to meet its 
requirements under the Regulatory Flexibility Act.'' The three 
proposals to which CCA refers are ``(1) the price per MHz-pop benchmark 
for determining whether the final stage rule has been satisfied; (2) 
the upfront payment amounts for the [forward] auction; and (3) the 
minimum opening bid amounts for the [forward] auction.''
    283. As a preliminary matter, the factual, policy and legal 
analyses supporting these proposals, as well as its related decisions, 
have been the subject of discussion in the Incentive Auction NPRM and 
the Incentive Auction R&O. These topics also have been discussed in the 
Auction 1000 Comment PN. Finally, after CCA filed its comment in 
response to the Supplemental Public Notice, the Commission also 
addressed the reasons for the final stage rule proposal and decision in 
the Second Order on Reconsideration and for all three subjects in the 
Auction 1000 Bidding Procedures Public Notice. More than once, these 
discussions have addressed comments by CCA, often making the same 
substantive points that CCA makes in response to the Supplemental 
Public Notice.
    284. Nonetheless, in response to CCA's submission of its arguments 
in response to the Supplemental Public Notice, this SFRFA summarizes 
those reasons to assure that the Commission has accounted properly for 
any particular impact on small businesses of those decisions.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the Supplemental Notice

    285. The Average Price Component of the Final Stage Rule. CCA 
contends that the average price component of the final stage rule is 
``unnecessary, contrary to the Commission's stated purpose of the 
spectrum reserve, and will negatively affect smaller auction 
participants.'' Reversing the order in which the two components are 
presented and discussed by the Commission, CCA refers to the component 
of the final stage rule that is based on license prices in the forward 
auction as the second component of the final stage. The Commission 
maintains consistency with its prior discussions and refers to this 
instead as the first component. CCA argues that this component is 
unnecessary because the cost component of the final stage rule is 
sufficient to assure that forward auction bidders will pay competitive 
prices, that it is contrary to the Commission's purpose because it 
creates a risk that the auction will not close, that it is contrary to 
the purpose of the spectrum reserve because it may result in a lower 
spectrum amount of reserve spectrum, and that it harms small businesses 
because they are unable to influence whether it is met.
    286. Bidding Units Based on Price Weighted Population To Determine 
Forward Auction Upfront Payment Amounts and Minimum Opening Bids. 
Although CCA describes the Commission's proposal to use population of 
license areas weighted by past auction prices as ``an elegant means of 
accounting for the historical differences in prices between markets,'' 
CCA ``remains concerned, however, by certain outliers . . . resulting 
from the Commission's methodology.'' CCA asks for additional 
information regarding the creation of the price index, specifically 
``how results from past auctions for spectrum licensed in Economic 
Areas and Cellular Market Areas were adapted for use with licenses to 
be offered based on PEAs.'' Finally, ``CCA objects to the Commission's 
proposal to incorporate the final results from Auction 97 into the 
price index for determining bidding units (and, therefore, upfront 
payments and minimum opening bids), because this exercise could 
prejudice smaller bidders.'' The Commission finds the arguments raised 
by CCA to be without merit.

C. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    287. The Average Price Component of the Final Stage Rule. The 
Commission adopted the average price component of the final stage rule 
in order to assure that forward auction bidders pay competitive prices 
for licenses, in compliance with the Commission's statutory mandate to 
recover for the public a portion of the value of the public spectrum 
resource. The cost component of the final stage rule does not fulfill 
this mandate because the costs covered are not set in relation to the 
value of the public spectrum resource. Rather, the cost of paying 
existing licensees to relinquish spectrum usage rights based on 
existing broadcasting licenses to make spectrum available for new 
flexible use licenses, is determined by other factors, such as the 
value of the existing usage rights. Moreover, there is not a one-to-one 
relationship between the spectrum subject to the relinquished rights 
and the spectrum covered by new licenses, either on an individual 
license basis or collectively. Accordingly, despite CCA's contrary 
contention, the average price component serves a significant purpose 
not satisfied by the cost component. The effects of the average price 
component accordingly must be assessed against the public interest in 
achieving that purpose.
    288. The average price component furthers the public interest in 
recovering a portion of the value of the public spectrum resource. The 
attendant risk that the average price component might preclude 
achieving a given spectrum clearing target is consistent with serving 
the public interest. All participants in the forward auction, 
regardless of size, bear that risk. Alternatives that would grant new 
licenses without recovering the value pursuant to the Commission's 
decision would be contrary to this purpose.
    289. The link between the average price component of the final 
stage rule and the establishment of the spectrum reserve is similar. 
Satisfying the final stage rule before establishing the reserve ensures 
that reserve-eligible bidders pay significant prices for spectrum, that 
they are paying the same price as other bidders at the time that the 
final stage rule is met, and that the final stage rule is met before 
the spectrum reserve is implemented. Fundamentally, linking the reserve 
with satisfaction of the final

[[Page 61970]]

stage rule ensures that reserve-eligible bidders contribute ``a fair 
share'' of the final stage rule requirements, including ``a portion'' 
of the value of the spectrum for the public, given the average price 
component. Any alternative to using the final stage rule as a trigger 
for the reserve would conflict with these goals.
    290. The Commission's use of the average price in the top 40 by 
population Partial Economic Areas (PEAs) is supported by the stated 
purpose of the procedure, specifically to facilitate a speedy auction 
by focusing on PEAs more likely to sooner reach their final prices. An 
alternative that would consider the average price in more areas would 
risk slowing down the auction and would require assessing an average 
price over areas for which past price data may not be as reliable as 
data in the top 40 PEAs. CCA contends that smaller bidders may be less 
likely to bid in the top 40 PEAs, and therefore less likely to directly 
influence whether the average price component is met. Presuming, for 
the sake of argument, that this is true, that also means that such 
bidders may win licenses despite lower average prices in other PEAs. 
Smaller bidders that may have relatively less influence over whether 
the average price component is met therefore benefit from the use of 
the top 40 PEAs to the extent it enables them to win licenses with 
lower average prices.
    291. At clearing targets that license more than 70 megahertz in the 
600 MHz, the gross bids of all licenses will be considered in 
determining whether the average price component is met, rather than the 
average price in the top 40 PEAs. In that case, bidders for areas other 
than the top 40 PEAs will influence whether the average price component 
is satisfied. Moreover, the effective average price of licenses in such 
circumstances will be lower than that set for the top 40 PEAs, thereby 
retaining the benefit of meeting lower average prices in areas outside 
the top 40 PEAs.
    292. Bidding Units Based on Price Weighted Population To Determine 
Forward Auction Upfront Payment Amounts and Minimum Opening Bids. The 
Commission uses bidding units to determine forward auction upfront 
payment amounts and minimum opening bids for each PEA. More 
specifically, the upfront payments and the minimum opening bids are set 
on a dollar per bidding unit basis. The bidding units reflect the 
population of the respective PEA, weighted by a price index set based 
on data from prior spectrum license auctions. The procedure for 
determining the bidding units, i.e., for weighting the relevant 
population based on price data from past auctions, is detailed in the 
Auction 1000 Bidding Procedures Public Notice.
    293. The price index attempts to capture the information about 
relative demand and value reflected in those prices. Any change in the 
relative index for particular PEAs is the intended effect. Using price 
data from recently completed Auction 97 furthers the Commission's 
purpose of weighting population based on the demand from bidders for 
licenses in past auctions. There is no basis for an alternative that 
would be consistent with this purpose. ``Outliers'' in the data or 
differences in relative prices in different auctions, whether Auction 
97 or any other auction, are reasons to incorporate the data, not 
reasons to selectively rejects some of it.
    294. Using population weighted by a price index to set upfront 
payments and minimum opening bids establishes the relative amounts 
involved without determining the final amounts. CCA does not offer any 
support for its contention that the amounts set by the Commission's 
decision are too high. Furthermore, contrary to CCA's suggestion that 
upfront payments must be made without knowledge of the amount of 
spectrum to be offered in the forward auction, the Commission's 
decision provides that forward auction bidders will make upfront 
payments only after the determination of the initial clearing target.

D. Response to Comments by the Chief Counsel for Advocacy of the Small 
Business Administration

    295. Pursuant to the Small Business Jobs Act of 2010, the 
Commission is required to respond to any comments filed by the Chief 
Counsel for Advocacy of the Small Business Administration (SBA), and to 
provide a detailed statement of any change made to the proposed rules 
as a result of those comments. The Chief Counsel did not file any 
comments in response to the Auction 1000 Comment PN released December 
17, 2014.

List of Subjects in 47 CFR Part 20

    Commercial mobile services.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 20 as follows:

PART 20--COMMERCIAL MOBILE SERVICES

0
1. The authority citation for part 20 continues to read as follows:

    Authority: 47 U.S.C. 151, 152(a), 154(i), 157, 160, 201, 214, 
222, 251(e), 301, 302, 303, 303(b), 303(r), 307, 307(a), 309, 
309(j)(3), 316, 316(a), 332, 615, 615a, 615b, 615c.


0
2. Section 20.22 is amended by removing paragraph (b)(4)(vii) and 
adding paragraph (b)(5) to read as follows:


Sec.  20.22  Rules governing mobile spectrum holdings.

* * * * *
    (b) * * *
    (5) The following interests shall be attributable to holders, 
except to lessees and sublessees for the purpose of qualifying to bid 
on reserved licenses offered in the Incentive Auction, discussed in 
paragraph (c) of this section, on the basis of status as a non-
nationwide provider:
    (i) Long-term de facto transfer leasing arrangements as defined in 
Sec.  1.9003 of this chapter and long-term spectrum manager leasing 
arrangements as identified in Sec.  1.9020(e)(1)(ii) that enable 
commercial use shall be attributable to lessees, lessors, sublessees, 
and sublessors for purposes of this section.
    (ii) [Reserved]
* * * * *
[FR Doc. 2015-25579 Filed 10-13-15; 8:45 am]
 BILLING CODE 6712-01-P