In the Matter of 
Federal Communications Commission 
Before the 
FEDERAL COMMUNICATIONS COMMISSION 
Washington, D.C. 20554 
Implementation of Section 3090) 
of the Communications Act -
Competitive Bidding 
) 
) 
) 
) 
) 
PP Docket No. 93-253 
TENTH REPORT AND ORDER 
FCC 96-447 
Adopted: November 15, 1996 Released: November 21, 1996 
By the Commission: 
TABLE OF CONTENTS 
Paraeraph 
I. Introduction and Executive Summary • • . • . • • • • • . • • • • • • • • • • • • . . • • • 1-5 
II. Rules Affecting Designated Entities 
A. Meeting the Constitutional Standards • • • • • • • • • • • • • • • • • • • • • • . • 6-12 
B. Special Provisions for Designated Entities 
1. Small Business Defmition • • • • • • • • • • • • • • • • • • • • • • • • • • • . 13-16 
2. Bidding Credits • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 17-18 
III. Upfront Payments • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 19-20 
IV. Other Issues • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 21 
V. Procedural Matten and Ordering Clauses • • • • • • • • • • • • • • • • • . • • . • . 22-26 
APPENDIX A Final Rules 
APPENDIXB Final Regulatory Flexibility Analysis 
APPENDIX C List of Parties Filing Comments and Reply Comments 
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Federal Communications Commission FCC 96-447 
I. Introduction and Executive Summary 
1. In this Tenth Report and Order, we modify our competitive bidding rules for the 
upcoming auction of Interactive Video and Data Service (IVDS) licenses. 1 Specifically, we 
amend certain provisions concerning the treatment of small businesses, businesses owned by 
members of minority groups and women, and rural telephone companies (collectively, "designated 
entities"), in order to address the legal requirements of the Supreme Court's decisions in Adarand 
Constructors, Inc. v. Pena (Adaranc/)2 and United States v. Virginia (VMl).3 We also increase 
the upfront payment amounts for bidding on IVDS licenses in order to encourage sincere bidding. 
By implementing these modifications, we reiterate that the Commission is committed to fulfilling 
its statutory obligation to ensure that designated entities are afforded opportunities to participate 
in the provision of spectrum-based services.4 
2. As we explained in the Sixth Memorandum Opinion and Order and Further Notice 
of Proposed Rule Making (Further Notice)/' we were prompted to reexamine our race- and 
gender-based IVDS auction rules by the Supreme Court's decisions in Adarand and VMI. 6 We 
initially adopted these race- and gender-based rules in the Fourth Report and Order in this docket 
in order to fulfill our mandate under Section 309G) of the Communications Act of 1934, as 
amended ("Communications Act"), to provide opportunities for businesses owned by members 
of minority groups and women to participate in the provision of spectrum-based services. 7 After 
we adopted these rules, however, the Supreme Court held in Adaran<i that any federal program 
that makes distinctions on the basis of race must satisfy the strict scrutiny standard of judicial 
IVDS is a point-to-multipoint, muitipoint-to-point, short distance communications service. IVDS licensees 
may provide information, products, or services to individual subscribers located within a service area and subscribers 
may provide responses. 47 C.F.R. § 95.803(a). 
2 
4 
_U.S._, l lS S. Ct. 2097, 132 L.Ed.2d 158 (1995). 
_U.S. _, 116 S. Ct 2264, 135 L.Ed.2d 735 (1996). 
47 u.s.c. § 309(jX4)(D). 
Implementation of Section 309(j) of the Communications Act - Competitive Bidding, Sixth Memorandum 
Opinion and Order and Further Notice of Proposed Rule Making, PP Docket No. 93-253, FCC 96-330, 61 Fed. Reg. 
49103 (September 18, 1996). In response to this Further Notice, 4 comments and 1 reply comment were filed. A 
list of commenters is attached as Appendix C. 
Further Notice at ft 53-60. 
Implementation of Section 309(j) of the Communications Act - Competitive Bidding, Fourth Report and 
Order, PP Docket No. 93-253, 9 FCC Red 2330, 2336-40 ,, 34-54 (1994) (Fourth Report and Order). 
19975 
Federal Communications Commission FCC 96-447 
review.8 More recently, the Supreme Court held in VMJ that a state program that makes 
distinctions on the basis of gender must be supported by an "exceedingly persuasive justification" 
in order to withstand constitutional scrutiny. 9 Based on our analysis of VMJ in conjunction with 
Adarand, we conclude that any gender-based preference maintained in the IVDS auction rules 
must meet the VMI intermediate scrutiny standard of judicial review. 
3. Based upon our review of the comments submitted in response to the Further Notice, 
we also conclude that the present record is insufficient to support either our race-based IVDS 
auction rules under the strict scrutiny standard or our gender-based rules under the "exceedingly 
persuasive justification" standard of intermediate scrutiny. We have considered the need to award 
the remaining IVDS licenses expeditiously and to promote the rapid deployment of new services 
to the public without judicial delays, 10 as well as the statutory objective of disseminating licenses 
among a wide variety of applicants, including designated entities. 11 Bearing these factors in mind, 
we conclude that in order to avoid uncertainty and delay that would likely result from legal 
challenges to the special provisions for minority- and women-owned businesses in our current 
IVDS rules, it is appropriate to make our IVDS rules race- and gender-neutral. 12 We believe that 
our action here is consistent with our obligations under Section 3090)(3).13 
4. As explained in the Further Notice, our experience in conducting the initial IVDS 
auction also led us to examine other aspects of our rules and we have determined that we should 
take certain steps to minimize the possibility of insincere bidding and bidder default. 14 To 
achieve these goals, we amend Section 95.816(c)(3) of the Commission's Rules to raise the initial 
upfront payment for participation in the IVDS auction to $9,000 per Metropolitan Statistical Area 
Adarand, 115 S. Ct. at 2113. Adarand explicitly overruled the intermediate scrutiny standard for racial 
classifications set by the Supreme Court in Metro Broadcasting Inc. v. FCC, 497 U.S. 547, 564-65 (1990), which 
was the standard of review at the time our IVDS rules were adopted. See Further Notice at, 54; Fourth Report and 
Order, 9 FCC Red at 2338 n.73. 
9 VMI, 116 S. Ct at 2274-76. 
10 47 u.s.c. § 309(jX3XA). 
11 Id § 309(jX3)(B). 
12 See Amendment of Parts 20 and 24 of the Commission's Rules, Report and Order, WT Docket No. 96-59, 
11 FCC Red 7824 (1996) (DEF Report and Order), which modified the designated entity provisions of the broadband 
Personal Communications Services (PCS) F block rules to make them race- and gender-neutral; Implementation of 
Section 3090) of the Communications Act - Competitive Bidding, Sixth Report and Order, PP Docket No. 93-253, 
11 FCC Red 136 (1995), aff'd sub nom. Omnipoint Corp. v. FCC, 78 F.3d 620 (D.C. Cir. 1996), which modified 
the designated entity provisions of the broadband PCS C block rules to make them race- and gender-neutral. 
13 47 u.s.c. § 309GX3). 
14 Further Notice at,, 76-77. 
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Federal Communications Commission FCC 96-447 
(MSA) license and $2,500 per license for Rural Service Area (RSA) markets, for the maximum 
number of licenses on which the applicant wishes to bid. 
5. Finally, a number of the comments addressed other issues which are not within the 
scope of this proceeding. We defer decisions on those matters until they can be addressed in the 
appropriate context. 
II. Rules Affecting Designated Entities 
A. Meeting the Constitutional Standards 
6. Background. In the Further Notice, we explained the history of our race-and gender­
based IVDS rules, the statutory objectives they were designed to promote, and the impact of the 
Supreme Court's decisions in Adarand and VMJ. As discussed, an intermediate scrutiny standard 
of review was applied to federal race- and gender-based programs at the time our IVDS rules 
were adopted. 
7. In Adarand, the Supreme Court held that all racial classifications, whether imposed 
at the federal, state or local government level, must be analyzed by a reviewing court under a 
strict scrutiny standard of review. This standard requires such classifications to be narrowly 
tailored to further a compelling governmental interest. 15 In VMI, the Supreme Court reviewed 
a state program containing gender classification and held it was unconstitutional under an 
intermediate scrutiny standard of review. This standard requires that "[p ]arties who seek to 
defend gender-based government action must demonstrate an 'exceedingly persuasive justification' 
for that action." 16 Under this test, the government must show "at least that the [challenged] 
classification serves 'important governmental objectives and that the discriminatory means 
employed' are 'substantially related to the achievement of those objectives. "' 17 While the 
Supreme Court has not directly addressed constitutional challenges to federal gender-based 
programs since Adarand and VMI, 11 our review of the relevant broad language in VMI indicates 
IS Adarand, 11 s s. Ct. at 2113. 
16 VMJ, 116 S. Ct. at 2274 (citing J.E.B. v. Alabama ex rel. T. B., 511 U.S. 127, 136-37 & n.6 (1994) and 
Mississippi Univ. for Women v. Hogan, 458 U.S. 718, 724 (1982)). 
17 Id at 2275 (quoting Mississippi Univ. for Women, 458 U.S. at 724 (quoting Wengler v. Druggists Mutual 
Ins. Co., 446 U.S. 142, 150 (1980))). 
11 But see Lamprecht v. FCC, 958 F.2d 382, 391, 393 n.3 (D.C. Cir. 1992), a pre-Adarand/VMI decision in 
which Justice Thomas (a member of the D.C. Circuit panel to which the case was presented) invokes the 
"exceedingly persuasive justification" standard in striking down a federal gender-preference policy. As the dissent 
in Lamprecht confirmed, Justice Thomas applied "the more exacting scrutiny of Justice O'Connor's dissent [in Metro, 
497 U.S. at 602-31]," id at 404 (Mikva, CJ., dissenting), which formed the core of Justice O'Connor's majority 
opinion in Adarand. 
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Federal Communications Commission FCC 96-447 
that the Court does not differentiate between federal and state official actions in its equal 
protection analysis.19 Similarly, the Adarand decision definitively eliminated any distinction 
between federal and state race-based programs in setting its strict scrutiny standard of judicial 
review. 20 Therefore, we conclude that any gender-based preference maintained in the IVDS 
auction rules would need to meet the VMJ intermediate scrutiny standard of review. 
8. In the Further Notice, we noted that judicial precedent indicates that only a record 
of discrimination against a particular racial group would support remedial measures designed to 
benefit that group and that generalized assertions of discriminations are inadequate.21 We 
tentatively concluded that, although we have some general evidence of discrimination against 
certain racial groups, the evidence in the record to date does not appear adequate to satisfy the 
strict scrutiny standard of review. We requested comment on this tentative conclusion. We also 
requested comment on a number of questions related to this analysis, including whether 
compensating for discrimination in lending practices in the communications industry constitutes 
a compelling government interest. We also asked interested parties to comment on other 
objectives that could be furthered by our minority-based provisions and whether they could be 
considered compelling governmental interests, such as increased diversity in ownership and 
employment in the communications industry or increased industry competition. We asked 
commenters to submit statistical data, personal accounts, studies, or any other data relevant to the 
entry of specific racial groups into the field of telecommunications, and whether our race-based 
pr~visions are narrowly tailored to serve the interests that commenters assert to be compelling 
governmental interests.22 In the Further Notice, we also tentatively concluded that the present 
record in support of our gender-based IVDS rules may be insufficient to satisfy the intermediate 
scrutiny standard and asked commenters to submit evidence relating to the entry of women into 
the field of telecommunications. We asked interested parties to comment on whether there are 
any other goals that would satisfy the "important government objective" requirement of the 
intermediate scrutiny standard, such as increased participation of women in the FCC-licensing 
19 
"Since [Reedv. Reed, 404 U.S. 71 (1971)), the Court has repeatedly recognized that neither federal nor state 
government acts compatibly with the equal protection principle when a law or official policy denies . . . equal 
opportunity .... " YMI, 116 S. Ct at 2275 (emphasis added); "To summarize the Court's current directions for cases 
of official classification based on gender: ... the reviewing court must determine whether the proffered justification 
is 'exceedingly persuasive.'" Id (emphasis added). See also Heclcler v. Mathews, 465 U.S. 728, 744-45 (1984) 
(reviewing a federal statute containing gender classification under the same standard the Court used to review the 
state statute in Mississippi Univ. for Women); Califano v. Westcott, 443 U.S. 76, 85 (1979) (same). 
20 Adarand, 115 S. Ct. at 2113. 
21 Further Notice at 157 (citing Richmond v. J.A. Croson Co., 488 U.S. 469, 498 (1989) (quoting Wygant v. 
Jackson Bd of Educ., 476 U.S. 267, 275 (1986))). 
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Federal Communications Commission FCC 96-447 
process for auction spectrum, and whether our gender-based IVDS rules are "substantially related" 
to the achievement of such objectives. 23 
9. In the Further Notice, we also tentatively concluded that we should not delay the 
IVDS auction for the amount of time it would take to adduce sufficient evidence to support our 
race- and gender-based IVDS provisions. We also concluded that proceeding with the IVDS 
auction with these rules intact would not serve the public interest because it might result in 
litigation that ultimately would further delay the award of the IVDS licenses and postpone the 
introduction of new competition to the marketplace.24 We tentatively conciuded that in order to 
meet our Congressional mandate and expeditiously proceed to auction the remaining IVDS 
licenses, we should adopt race- and gender-neutral IVDS auction provisions, but continue to 
maintain the provisions for small businesses which we believe adequately benefit most of the 
businesses owned by minorities and/or women. 25 
10. Discussion. Upon review of the record before us, we revise our IVDS rules to make 
them race- and gender-neutral, particularly since most of the comm.enters support this action. 26 
The other commenters failed to provide any specific anecdotal or statistical evidence to 
supplement our record supporting race-based or gender-based IVDS auction rules. IAC takes the 
position that, because there is a lack of available equipment for constructing IVDS systems, the 
Commission is moving too quickly in eliminating minority- and gender-based preferences. 27 IAC 
proposes that the Commission allow parties additional time to establish a full record upon which 
to decide whether the race- and gender-based preferences should be eliminated.28 However, IAC 
does not present any support for the proposition that a record could be developed in this 
proceeding if more time was available, nor do any of the other comm.enters. Accordingly, we 
conclude that making our IVDS auction rules race- and gender-neutral will serve the public 
interest by enabling us to expeditiously auction the remaining IVDS licenses. Other commenters 
also requested that the Commission delay the IVDS auction, but not for the purpose of 
establishing a record to support race- and gender-based rules. Specifically, IVDS Licensees 
request that the Commission delay the auction until certain technical, regulatory, and 
23 Id at 164. 
24 Id at ft 66-67. We observe that the D.C. Circuit Court of Appeals stayed the C block auction under an 
intermediate scrutiny standard on the basis of race- and gender-based provisions similar to those adopted in the IVDS 
rules. Telephone Electronics Corp. v. FCC, No. 95-1015 (D.C. Cir. Mar. 15, 1995) (order granting stay). 
25 Further Notice at 4( 67. 
26 See, e.g., Progressive Communications, Inc. (Progressive) Comments at 1; ITV, Inc. and IVDS 
Affiliates, LLC (ITV /IALC) Comments at 4. 
27 Interactive America Corporation, Inc. (IAC) Comments at 5-7. 
21 Id; IAC Reply Comments at 1-2. 
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Federal Communications Commission FCC 96-447 
administrative issues are resolved. 29 ITV /IALC request that the auction not be held until 
resolution of all auction default issues and action has been taken on the petitions for 
reconsideration of the Commission's IVDS mobility rulemaking. 30 We deny these requests to 
delay the auction, and note that applicants should factor the obligations and uncertainties attendant 
to the auction process into their decision to participate and the amount to bid. 31 
11. While we eliminate the race- and gender-based provisions of the IVDS auction rules, 
we will retain provisions for small businesses, as agreed to by all commenters. 32 We conclude 
that nothing in the Adarand or VMI decisions calls our small business provisions into question. 
Moreover, by retaining small business preferences, we believe we Will continue to fulfill our 
mandate under Section 3090) to provide increased opportunities for minority- and women-owned 
businesses, 33 because many minority- and women-owned entities are small businesses who 
therefore will qualify for the same special provisions that would have applied to them under the 
previous rules. 34 
12. We also have initiated a comprehensive rule making proceeding to gather evidence 
regarding market barriers to entry faced by minority- and women-owned firms as well as small 
businesses. 35 If a sufficient record is adduced that will support race- and gender-based provisions 
that will satisfy judicial scrutiny, we will consider race- and gender-based provisions for future 
29 Loli, Inc., Trans Pacific Interactive, Wireless Interactive Return Path, L.L.C., and IVDS On-Line Partnership 
(collectively, "IVDS Licensees") Comments at 4-6. 
30 ITV/IALC Comments at 7-9 (citing Amendment of Part 95 of the Commission's Rules to Allow Interactive 
Video and Data Service Licensees to Provide Mobile Service to Subscribers, Report and Order, WT Docket No. 95· 
47, 11 FCC Red 6610 (1996), recon. pending). See also IAC Reply Comments at 4-5 (agreeing with IVDS 
Licensees and ITV/IALC on these points). 
31 See Requests for Waivers in the First Auction of Interactive Video and Data Service (IVDS) Licenses, 
Memorandum Opinion and Order, 11 FCC Red 8211, 8213, S (1996). 
32 IVDS Licensees Comments at 2 (in light of the elimination of race- and gender-based provisions, the small 
business preferences provide "one of the few avenues remaining for minority- and women:.Owned businesses to enter 
the communications industry"); IAC Comments at 8 ·(preferences for small businesses should be retained to fulfill 
the Commission's statutory obligations under Section 3090)); ITV/IALC Comments at 4 (preferences should be basCd 
on a party's lack of economic strength); Progressive Comments at 1 (small business provisions will give "equal status 
to all small business enterprises"). 
33 47 u.s.c. § 309QX3). 
3
• See generally 1992 Survey of Minority-Owned Business Enterprises, Agriculture and Financial Statistics 
Division, Bureau of the Census, U.S. Department of Commerce (December 11, 1995); 1992 Survey of Women-Owned 
Businesses, Agriculture and Financial Statistics Division, Bureau of the Census, U.S. Department of Commerce 
(January 29, 1996). 
35 See Section 257 Proceeding to Identify and Eliminate Market Entry Barriers for Small Businesses, 
Notice of Inquiry, GN Docket No. 96-113, 11 FCC Red 6280 (1996). See also 41 U.S.C. § 257. 
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Federal Communications Commission FCC 96-447 
auctions. Toward this end, we will continue to request bidder information on the IVDS short­
form filings as to minority and/or women-owned status. In our analysis of the applicant pool and 
the auction results, we will monitor whether we have accomplished substantial participation by 
minorities and women through the broad provisions available to small businesses. This will also 
assist us in preparing our report to Congress on the success of designated entities in auctions. 36 
B. Special Provisions for Designated Entities 
1. Small Business Defmition 
13. Background. In our current IVDS rules, we adopted a definition of "small business," 
that requires an entity to demonstrate that, together with its affiliates, its net worth is not more 
than $6 million, and its annual profits are not more than $2 million for the previous two years. 37 
In the Further Notice, we stated our belief that the gross revenues of the applicant and its 
affiliates is a more accurate indicator of its size than is its net worth or annual profits, and we 
proposed to revise the IVDS definition of small business to match the three-year gross revenues 
test that we have used to define "small business" for other auctions.38 We further stated that, 
because we expect that the capital requirements for IVDS will be relatively low (as compared to, 
for example, broadband PCS), IVDS may attract greater participation by smaller businesses who 
lack access to capital. The PQtential in IVDS for greater participation by smaller businesses also 
justifies special provisions based on the size of the bidding entity, such as a tiered bidding 
credits. 39 Therefore, we proposed to redefine a "small business" as an entity with average gross 
revenues not to exceed $15 million for each of the preceding three years. We also proposed to 
add a second tier of small businesses, referred to as "very small businesses," and defined as 
entities with average gross revenues of not more than $3 million for each of the preceding three 
years. We requested comment on these revised definitions. 40 We also requested comment on 
whether to implement a five percent attribution threshold for purposes of determining an entity's 
eiigibility as a small business.41 Alternatively, we sought comment on whether we should only 
count the gross revenues of the controlling principals in the applicant and its affiliates for 
36 See 47 u.s.c. § 309QX12)(D). 
37 Further Notice at , 68. 
31 Id at, 69 (citing 47 C.F.R. §§ 24.320, 24.720, 90.912(b), 90.814(b)(l)). See also Implementation of 
Section 309(j) of the Communications Act - Competitive Bidding, Second Order on Reconsideration and Seventh 
Report and Order, PR Docket No. 89-553, PP Docket No. 93-253, GN Docket No. 93-252, 11 FCC Red 2639, 2700-
0 l , 154 & n.320 ( 1995) (900 SMR Auction Report and Order). 
39 Further Notice at , 73. 
40 Id at, 69. 
Id at, 70. 
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Federal Communications Commission FCC 96-447 
purposes of determining small business status.42 Finally, we sought comment on our tentative 
conclusion to use a multiplier similar to the one adopted in the CMRS Third Report and Order 
for the spectrum aggregation cap to determine attribution when IVDS licensees are held indirectly 
through intervening corporate entities. 43 
14. Discussion. Based upon our experience with spectrum auctions, we believe that gross 
revenues-based definitions are a more accurate indicator of an entity's size than the net 
worth/annual profit definition which was previously used. Therefore, we will redefine a "small 
business" as an entity with average gross revenues not exceeding $15 million for each of the 
preceding three years, and a "very small business" as an entity with average gross revenues not 
exceeding $3 million for each of the preceding three years. IVDS Licensees and ITV /IALC 
support small business definitions based upon gross revenues, 44 and only Progressive takes the 
position that we should retain our previous small business definition. 4s We further note that the 
creation of a subcategory of very small businesses enables us to tailor our benefits to better meet 
the needs of the smaller business entities likely to participate in the IVDS auction. As discussed 
below, we find that our goals can best be served by offering varying bidding credits tailored to 
the applicant's size. We also believe that the $15 million/$3 million gross revenue financial 
thresholds are appropriate and are consistent with the carefully-analyzed approach we took in the 
auction of 900 MHz Specialized Mobile Radio (SMR) licenses.46 Indeed, in this auction, we 
expect participation by a comparable group of smaller businesses that participated in the 900 MHz 
SMR auction. Because we believe these are appropriate thresholds, we decline to adopt the 
higher thresholds proposed by ITV /IALC. 47 
15. In determining whether an entity qualifies as a small business at either threshold, we 
will consider the gross revenues of the small business applicant, its affiliates, and certain investors 
in the applicant. Specifically, we will attribute the gross revenues of all controlling principals 
42 ·[d 
43 Id (citing Implementation of Sections 3(n) and 332 of the Communications Act - Regulatory Treannent 
of Mobile Services, Third Report and Order, GN Docket No. 93-252, PR Docket No. 93-144, PR Docket No. 89-
553, 9 FCC Red 7988, 8114-lS 1277 (1994) (CMRS Third Report and Order)). 
44 See. e.g., IVDS Licensees Comments at 1-2; 11V/IALC Comments at 4-5. 
45 Progressive Comments at 1 (contending that differing categories of small businesses will create problems 
for the Commission in the future). 
46 900 SMR Auction Report and Order, 11 FCC Red at 2700, 153. 
47
. 11V /IALC Comments at 4-5 (proposing small business average gross revenues eligibility threshold of $18 
million and very small business average gross revenues eligibility threshold of $5 million because IVDS licensees 
will more likely be financing their systems from equity sources rather than debt). 
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Federal Communications Commission FCC 96-447 
in the small business applicant as well as the gross revenues of affiliates of the applicant. 48 At 
ITV /IALC' s request, 49 we clarify that personal net worth is not included in the determination of 
eligibility for bidding as a small business. so In addition, we will use the multiplier adopted in 
the CMRS Third Report and Order for the spectrum aggregation cap to determine when IVDS 
licensees are indirectly held through intervening corporate entities.st IVDS Licensees supports 
this proposal.s2 We thus choose not to impose specific equity requirements on the controlling 
principals that meet our small business definition.s3 However, we will still require that, in order 
for an applicant to qualify as a small business, qualifying small business principals must maintain 
"control" of the applicant. The term "control" would include both de jure and de facto control 
of the applicant. s4 While we are not imposing specific equity requirements on the small business 
principals, the absence of significant equity could raise questions about whether the applicant 
qualifies as a bona fide small business. 
16. On a related matter, ITV/IALC seeks clarification in its comments that once an entity 
qualifies as a small business, it would not lose its status through financial growth in subsequent 
years, ss and thereby lose its ability to make installment payments as a small business under 4 7 
C.F.R. § 95.816(d)(2). We addressed this concern in our broadband PCS rules. There we 
emphasized our strong interest in seeing small businesses grow and succeed in the wireless 
marketplace and stated that growth of the licensee's gross revenues and. assets, or growth as a 
result of a licensee acquiring additional licenses, generally would not jeopardize continued 
41 Both commenters addressing this issue supported the use of gross revenues of controlling principals as the 
detenninant of small business status. See IVDS Licensees Comments at 2; 11V /IALC Comments at S n.S. 
49 11V/IALC Comments at S n.S. 
so See, e.g., Implementation of Section 3090) of the Communications Act - Competitive Bidding, Fifth 
Memorandum Opinion and Order, PP Docket No. 93-253, 10 FCC Red 403, 421 , 30 (1994) (Competitive Bidding 
Fifth Memorandum Opinion and Order). 
SI CMRS Third Report and Order, 9 FCC Red at 8114-1 S , 277. 
S2 IVDS Licensees Comments at 2. 
53 IVDS Licensees alternatively proposes a twenty-five percent equity exception similar to that adopted in our 
broadband PCS rules. 47 C.F.R. § 24.709(b}(3}. IVDS Licensees Comments at 2. 
5
" Typically, dejure control is evidenced by ownership of 50.1 percent of an entity's voting stock. De facto 
control is determined on a case-by-case basis. An entity must demonstrate at least the following indicia of control 
to establish that it retains def acto control of the applicant: ( 1) the entity constitutes or appoints more than 50 percent 
of the board of directors or partnership management committee; (2) the entity has authority to appoint, promote, 
demote and fire senior executives that control the day-to-day activities of the licensees; and (3) the entity plays an 
integral role in all major management decisions. See Competitive Bidding Fifth Memorandum Opinion and Order, 
10 FCC Red at 447, 80. 
SS ITV/IALC Comments at S n.4. 
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Federal Communications Commission FCC 96-447 
eligibility for designated entity preferences. 56 We believe this policy equally should apply to 
IVDS licensees and, therefore, incorporate this concept into our IVDS rules. 57 
2. Bidding Credits 
17. Background. Under our current IVDS rules, businesses owned by members of 
minority groups or women are granted a 25 percent bidding credit. In the Further Notice, we 
proposed to eliminate race- and gender-based bidding credits in our IVDS ruies and sought 
comment on whether we should extend a single bidding credit to all small businesses and, if so, 
the magnitude of that credit. 58 We asked whether we should offer tiered bidding credits for small 
businesses of different sizes, e.g., a 15 percent bidding credit for very small businesses and a 10 
percent bidding credit for small businesses. We tentatively concluded that given the relatively 
low bids that IVDS garnered in the July 1994 auction, IVDS may attract smaller businesses, thus 
justifying tiered bidding credits. 
18. Discussion. We will maintain bidding credits for small businesses and will adopt a 
tiered bidding credit approach, as supported by several commenters. 59 We agree with IVDS 
Licensees that preservation of the bidding credit is consistent with our obligations under Section 
3090) to "promote economic opportunity for a wide variety of applicants, including small 
businesses and businesses owned by minorities and women. "60 Furthermore, we believe that a 
tiered approach, which enhances the discounting effect of bidding credits because not all entities 
receive the same benefit, will encourage smaller businesses to participate in the provision of 
IVDS services.61 We also believe that the 15 percent bidding credit for very small businesses 
and a 10 percent bidding credit for small businesses are appropriate and consistent with the 
thresholds used in the 900 :MHz SMR auctions. 62 As noted above, we expect auction participation 
by a group of smaller businesses comparable to those that participated in the 900 :MHz S:MR 
56 Competitive Bidding Fifth Memorandum Opinion and Order, 10 FCC Red at 420, 27. See also 41 C.F.R. 
§ 24.71 l(cX2) ("A licensee (or other attributable entity's) increased gross revenues or increased total assets due to 
nonattributable equity investments . . . , debt financing, revenue from operations or other investments, business 
development or expanded service shall not be considered to result in the licensee losing eligibility for installment 
payments."). 
57 47 C.F.R. § 9S.816(eX2) (as revised in Appendix A). 
51 Further Notice at , 72. 
59 See IVDS Licensees Comments at 2-3; ITV/IALC Comments at 6. 
60 See IVDS Licensees Comments at 3 (quoting 47 U.S.C. § 309G)(4XCXii)). 
61 See id (quoting DEF Report and Order, 11 FCC Red at 78491 53). 
62 900 SMR Auction Report and Order, 11 FCC Red at 2700, 153. 
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Federal Communications Commission FCC 96-447 
auction. Moreover, we do not believe a greater bidding credit is justified here as it was for 
certain highly capital intensive services, like broadband PCS. Therefore, we decline to adopt the 
higher bidding credits proposed by IVDS Licensees and ITV /IALC. 63 The two tiered approach 
and the magnitude of the bidding credits we adopt here are reasonable and equitable and meet 
the concerns of the commenters. These credits are narrowly tailored to the varying abilities of 
businesses to access capital and also take into account that different small businesses will pursue 
different strategies. 
m. Upfront Payments 
19. Background. We recognized in the Further Notice that in order to deter insincere, 
speculative bidding and guard against the substantial number of defaults that occurred after the 
July 1994 auction, we need to obtain a higher upfront payment from IVDS bidders than the 
upfront payment currently required by our rules (i.e., $2,500 for every five licenses a bidder 
desires to win). 64 In response to several ex parte filings from IVDS bidders supporting increased 
upfront payments, we proposed to increase the initial upfront payment to $9,000 per MSA license 
and $2,500 per RSA license, for the maximum number of licenses on which the applicant wishes 
to bid.65 
20. Discussion. Based upon the record regarding IVDS upfront payment amounts,66 we 
adopt the proposed upfront payment amounts and will amend Section 95.816(c)(3) of the 
Commission's Rules. Specifically, we raise the initial upfront payments for participation in the 
IVDS auction to $9,000 per MSA license and $2,500 per RSA license, for the maximum number 
of licenses on which an entity wishes to bid. We believe that this action is consistent with the 
underlying purpose for upfront payments -- to deter insincere and speculative bidding and to 
ensure that bidders have the financial capability to build out their systems. 67 We also believe that 
the revised upfront payments will continue to attract as many qualified bidders, while providing 
63 IVDS Licensees Comments at 3; ITV/IALC Comments at 6 (suggesting a 25 percent bidding credit for 
very small businesses and a IS percent credit for small businesses). 
64 Further Notice at ft 76-77. 
65 Id at, 77. 
66 IVDS Licensees Comments at 3; IAC Comments at 9; ITV/IALC Comments at 6-7; Further Notice at n.140 
(list of ex parte filings supponing increased upfront payments). 
67 See, e.g., DEF Report and Order, 11 FCC Red at 7860, 78. 
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Federal Communications Commission FCC 96-447 
an adequate deterrent against frivolous bidding. Thus, we decline to adjust the upfront payment 
amounts as proposed by ITV/IALC.68 
IV. Other Issues 
21. Several commenters raise issues beyond the scope of the Further Notice. For 
example, Progressive and IAC request that we revise the length of the IVDS license terms from 
5 to I 0 years. 69 This proposal requires formal rule making procedures and is beyond the scope 
of this proceeding. 70 · Similarly, ITV /IALC seeks an exception to the cross-ownership rule. 71 
Again, this type of relief falls outside the scope of this proceeding. Finally, a number of policy 
questions were raised in the comments regarding default issues. 72 We note that the Commission 
will be addressing default issues in a future proceeding regarding the general competitive bidding 
rules. 
V. Procedural Matters and Ordering Clauses 
22. As required by the Regulatory Flexibility Act of 1980, Pub. L. No. 96-354, 94 Stat. 
1164, as amended by the Contract with America Advancement Act of 1996, Pub. L. No. 104-121, 
110 Stat. 847, 5 U.S.C. § 601 et seq., the Commission has prepared a Final Regulatory Flexibility 
Analysis of the expected impact of the rule changes in this document on small entities. The Final 
Regulatory Flexibility Analysis is set forth in Appendix B. 
61 11V /IALC Comments at 6-7 (proposing that the MSA payment be an even multiple of the RSA payment, 
e.g., per-market payments of $7,500.00 for MSA's and $2,500.00 for RSA's, to reduce computational complexity 
in figuring bidding eligibility as the auction proceeds and to avoid "stranding" MSA upfront payments with no ability 
to apply the entire amount to an RSA license). 
69 Progressive Comments at 1; IAC Reply Comments at 4. 
10 On September 4, 1996, Euphemia Banas, Trans Pacific Interactive, Inc., Wireless Interactive Return Path, 
L.L.C., New Wave Communications, L.L.C., Loli, Inc., Multimedia Computer Communication, Inc., Southeast 
Equities, Inc., Robert H. Steele, MAR Partnership, IVDS On-Linc Partnership, A.B.R. Communications Inc., 
IVIDCO, L.L.C., Vision 1V, Dunbar 1V Corp., and Legacy TV, Inc. collectively filed a fonnal Petition for 
Rulemaking requesting that the Commission amend its rules to extend license terms for IVDS providers from five 
to ten years. 
71 ITV/IALC Comments at 3-5. 
72 IAC Comments at 7-8 (request not to reauction defaulted licenses before the defaulting party's administrative 
and judicial remedies arc exhausted); id at 9 (request the Commission clarify how it evaluates requests for waiver 
of payment deadlines and other IVDS auction-related rules); 11V/IALC Comments at 2 (request that defaulting 
parties should not be eligible for future IVDS auctions); lAC Reply Comments at 2-4 (opposition to 11V/IALC's 
· request). 
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Federal Communications Commission FCC 96-447 
23. Authority for issuance of this Tenth Report and Order is contained in Sections 4(i), 
303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 303(r) 
and 309(j). 
24. Accordingly, IT IS ORDERED that, pursuant to the authority of Sections 4(i), 303(r), 
and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 303(r), and 
309(j), this Tenth Report and Order is adopted, and Part 95 of the Commission's Rules IS 
AMENDED as set forth below. 
25. IT IS FURTHER ORDERED that the rule changes made herein WILL BECOME 
EFFECTIVE 30 days after their publication in the Federal Register. 
26. For further information concerning this proceeding, contact Howard Griboff or 
Christina Eads Clearwater at (202) 418-0660 (Auctions Division, Wireless Telecommunications 
Bureau). 
FEDERAL CO:MMUNICATIONS COMMISSION 
William F. Caton 
Acting Secretary 
19987 
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Federal Communications Commission FCC 96-447 
APPENDIX A 
Part 95 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows: 
Part 95 - Personal Radio Services 
Section 95.816 is amended by revising paragraphs (c)(3) and (d)(l), adding new paragraph (d)(4), 
redesignating paragraph ( e) as paragraph ( e )( 1 ), and revising it, and adding new paragraph ( e )(2) 
to read as follows: 
§ 95.816 Competitive bidding proceedings. 
• • • • * 
(c) • * • 
(3) Upfront payments. Each eligible bidder in the IVDS auction will be required to submit 
an upfront payment of $9,000 per MSA license and $2,500 per RSA lic.ense for the maximum 
number of licenses on which it intends to bid pursuant to § 1.2106 of this chapter and procedures 
specified by Public Notice. 
* • • * • 
(d) • • • 
(1) Bidding credits. 
(i) A winning bidder that qualifies as a small business (as defmed in 95.816(d)(4)(i) of 
this section) may use a bidding credit of 10 percent to lower the cost of its winning bid. 
(ii) A winning bidder that qualifies as a very ·small business (as defined in 
95.816(d)(4)(ii) of this section) may use a bidding credit of 15 percent to lower the cost of its 
winning bid. 
• * • • • 
( 4) Definitions. 
(i) Small business. A small business is an entity that, together with its affiliates and 
persons or entities that hold interests in such entity and their affiliates, has average annual gross 
revenues that are not more than $15 million for the preceding three years. 
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Federal Communications Commission FCC 96-447 
(ii) Very small business. A very small business is an entity that, together with its 
affiliates and persons or entities that hold interests in such entity and their affiliates, has average 
annual gross revenues that are not more than $3 million for the preceding three years. 
(iii) Gross revenues. Gross revenues shall mean all income received by an entity, 
whether earned or passive, before any deductions are made for costs of doing business (e.g., cost 
of goods sold), as evidenced by audited financial statements for the relevant number of most 
recently completed calendar years, or, if audited financial statements were not prepared on a 
calendar-year basis, for the most recently completed fiscal years preceding the filing of the 
applicant's short-form application (Form 175). If an entity was not in existence for all or part 
of the relevant period, gross revenues shall be evidenced by the audited financial statements of 
the entity's predecessor-in-interest or, if there is no identifiable predecessor-in-interest, unaudited 
financial statements certified by the applicant as accurate. When an applicant does not otherwise 
use audited financial statements, its gross revenues may be certified by its chief financial officer 
or its equivalent. 
(iv) Controlling interest shall be attributable. Controlling interest means majority voting 
equity ownership, any general partnership interest, or any means of actual working control 
(including negative control) over the operation of the licensee, in whatever manner exercised. 
(v) Multiplier. Ownership interests that are held indirectly by any party through one or 
more intervening corporations will be determined by successive multiplication of the ownership 
percentages for each link in the vertical ownership chain and application of the relevant 
attribution benchmark to the resulting product, except that if the ownership percentage for an 
interest in any link in the chain exceeds 50 percent or represents actual control, it shall be treated 
as if it were a 100 percent interest. 
( e) Unjust enrichment. 
(1) Any business owned by minorities and/or women that has obtained a IVDS license in the 
IVDS auction held in July 1994 through the benefit of tax certificates shall not assign or transfer 
control of its license within one year of its license grant date. If the assignee or transferee is a 
business owned by minorities and/or women, this paragraph shall not apply; provided, however, 
that the assignee or transferee shall not assign or transfer control of the license within one year 
of the grant date of the assignment or transfer. 
(2) A licensee's (or other attributable entity's) increased gross revenues due to nonattributable 
equity investments (i.e., from sources whose gross revenues are not considered under 
95.816(d)(4)(iv) of this section), debt financing, revenue from operations or other investments, 
business development or expanded service shall not be considered to result in the licensee losing 
eligibility for preferences as a small business or very small business under this section. 
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Federal Communications Commission FCC 96-447 
APPENDIX B: 
Final Regulatory Flexibility Analysis 
Tenth Report and Order 
As required by the Regulatory Flexibility Act of 1980 (RF A), 5 U.S.C. § 603, an Initial 
Regulatory Flexibility Analysis (IRF A) was incorporated in the Sixth Memorandum Opinion and 
Order and Further Notice of Proposed Rule Making in the FCC' s Competitive Bidding docket, 
PP Docket No. 93-253, FCC 96-330 (rel. September 10, 1996) (Further Notice). The 
Commission sought written public comments on the expected impact of the rule changes proposed 
in the Further Notice on small entities, including on the IRF A. The Commission's Final 
Regulatory Flexibility Analysis (FRF A) in this Tenth Report and Order conforms to the RF A, 
5 U.S.C. § 604, as amended by the Contract with America Advancement Act of 1996 (CW AAA}, 
Pub. L. No. 104-121, 110 Stat. 847 (1996).1 
A. Need for and Objective of the Rules 
This Tenth Report and Order adopts rule changes regarding the Commission's auction of 
Interactive Video and Data Service (IVDS) licenses. The rule changes are appropriate because 
laws have changed since the rules were originally adopted. The Supreme Court's decisions in 
Adarand Constructors, Inc. v. Pena, 115 S. Ct 2097 (1995) and United States v. Virginia, 116 
S. Ct. 2264 ( 1996) raised questions about the level of legal scrutiny that must be met by some 
of the designated entity provisions in our rules which take race and gender into account. The 
objective of the rule changes in the Tenth Report and Order primarily is to ensure that the 
competitive bidding rules comply with the appropriate legal standards by making the rules race 
and gender-neutral, while at the same time instituting further rule changes that continue to 
promote participation of small businesses in auctions for licenses to provide spectrum services. 
Further, a secondary objective of some of the rule changes, such as the small business definition, 
availability of bidding credits, and increased upfront payments, is to apply the benefit of our 
experience from the first IVDS auction to subsequent IVDS auctions, and to increase the 
flexibility and opportunities available to small businesses to participate in the provision of the 
services. 
B. Summary of Issues Raised by Public Comment on the 
Initial Regulatory Flexibility Analysis 
There were no petitions or comments which solely discussed or addressed the Initial 
Regulatory Flexibility Analysis. However, a number of commenters raised and discussed issues 
Subtitle II of the CW AAA is "The Small Business Regulatory Enforcement Fairness Act of 1996" 
(SBREFA), codified at 5 U.S.C. § 601, et seq. 
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Federal Communications Commission FCC 96-447 
effecting small businesses in their comments on the Tenth Report and Order. Those comments 
are addressed and discussed, where applicable, in the detailed sections below. 
C. Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Rules 
The small businesses which choose to participate in these services will be required to 
demonstrate that they meet the criteria set forth to qualify as small businesses (or very small 
businesses), just as was required by the prior rules. The changed rules will include more 
businesses in the category of small businesses, which will be eligible for designated entity 
preferences such as bidding credits. Any small business applicant wishing to avail itself of those 
provisions will need to make the general financial disclosures, as well as applicant and affiliate 
disclosures, necessary to establish that the small business is in fact small (or very small). The 
changed rules have eliminated the requirements that small businesses owned by women or 
minorities demonstrate that their owners are women or minorities. However, we request 
voluntary reporting of minority and women ownership to comply with our mandate to report our 
efforts to Congress. Accordingly, there are no additional reporting or record.keeping requirements 
being imposed by these rules. 
D. Description and Estimate of Small Entities Subject to the Rules 
The Commission is directed by the Communications Act of 1934, 47 U.S.C. § 3090), 
to make provisions to ensure that smaller businesses, and other designated entities, have an 
opportunity to participate in the auction process. To fulfill this statutory mandate and comply 
with the current legal standards, these rule changes are designed to ensure compliance with the 
new legal standards while promoting participation by small entities, including minorities, women, 
and rural telephone companies. The small businesses who will be subject to the rules would be 
those which choose to operate IVDS, a class of wireless communications services with a wide 
variety of uses. The services will generally be offered to consumers who wish to subscribe to 
those services. 
IVDS is a· communications-based service subject to regulation as a wireless provider of 
pay television services under Standard Industrial Classification 4841 (SIC 4841 ), which covers 
subscription television services.2 The U.S. Small Business Administration (SBA) defines small 
businesses in SIC 4841 as businesses with annual gross revenues of $11 million or less. 13 
C.F.R § 121.201. In this Tenth Report and Order, we extend special provisions to small 
businesses with annual gross revenues of $15 million or less and additional benefits to very small 
businesses with annual gross revenues of $3 million or less. We observe that this rule change 
is consistent with our approach in other wireless services, see e.g., the 900 MHz specialized 
2 Generally, IVDS services will be subscriber-based services providing video communications which could 
be described as a form of subscription television service. 
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Federal Communications Commission FCC 96-447 
mobile radio service, and is narrowly tailored to address the lower capital requirements for IVDS. 
SBA approval for the small business definitions is pending for this and other auctionable services. 
The Com.mission's estimate of the number of small business entities subject to the rules 
begins with the Bureau of Census report on businesses listed under SIC 4841, subscription 
television services. The total number of entities under this category is l, 788. 3 There are 1,463 
companies in the 1992 Census Bureau report which are categorized as small bus~esses providing 
cable and pay TV services. 4 We know that many of these businesses are cable and television 
service businesses, rather than IVDS licensees. Therefore, the number of small entities currently 
in this business which will be subject to the rules will be less than 1,463. 
The first IVDS auction resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by entities qualifying as a 
small business. For that auction, we defined a small business as an entity, together with its 
affiliates, that has no more than a $6 million net worth and, after federal income taxes (excluding 
any carry over losses), has no more than $2 million in annual profits each year for the previous 
two years. 5 In the upcoming IVDS re-auction of approximately 100 licenses in MSA markets 
and auction of 856 licenses in Rural Service Area (RSA) markets (two licenses in each of 428 
markets), while we make our rules race and gender-neutral, we also modify our definition of 
small business to include a second tier of very small businesses, adopt tiered bidding credits, and 
continue to include provisions for installment payments in our rules to encourage participation 
by small and very small businesses. We cannot estimate, however, the number of licenses that 
will be won by entities qualifying as small or very small businesses under our rules. Given the 
success of small businesses in past IVDS auctions, and that small businesses comprise over 80 
percent of firms in the subscription television services industry, we assume for purposes of this 
FRF A that all of the licenses may be awarded to small businesses, which would be affected by 
the rule changes we have made. Some companies may win more than one license, as was the 
situation in the earlier IVDS auction. 
Applicants seeking to participate in the auction also will be subject to these rule changes. 
It is impossible to accurately predict how many small businesses will apply to participate in the 
auction. In the last IVDS auction, there were 289 qualified applicants. We do not anticipate that 
U.S. Small Business Administration 1992 Economic Census Industry and Enterprise Report, Table 20, SIC 
Code 4841 (Bureau of the Census data adapted by the Office of Advocacy of the U.S. Small Business 
Administration). 
4 The Census table divides those companies by the amount of annual receipts. There is a dividing point at 
companies with annual receipts of $10 million. The next increment is annual receipts of $17 millio~ a category that 
greatly exceeds the SBA definition of small businesses that provide subscription television services. However, there 
are 17 finns in this category, with revenues between $10-$17 million. Approximately 1,480 SIC 4841 category finns 
have annual gross receipts of $1 S million or less. Only a small fraction of those 1,480 firms provide IVDS. 
Implementation of Section 3090) of the Communications Act - Competitive Bidding, Fourth Report and 
Order, PP Docket No. 93-253, 9 FCC Red 2330, 2336, 36 {1994). 
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Federal Communications Commission FCC 96-447 
there will be significantly more participants in the subsequent IVDS auction. However, because 
of the lower capital requirements for IVDS in general, there may be a greater number of very 
small businesses participating. 
E. Steps Taken to Minimize the Burdens on Small Entities 
The changes made in the Tenth Report and Order are designed to ensure compliance with 
the current legal standards applicable to federal programs implemented to benefit minority and 
women-owned businesses, while minimizing burdens on small businesses and promoting 
partidpation of small businesses in spectrum auctions. The extension of a two-tiered definition 
for small businesses, as well as the provision for tiered bidding credits will assist businesses 
owned by women and minorities. Based upon experience to date, most of the businesses owned 
by women and minorities which have participated in the Commission's auctions are small 
businesses or very small businesses which, in the end, will benefit from these rule changes. As 
discussed below, the Commission considered and rejected alternatives, such as providing parties 
additional time to supplement the record or to afford the industry more time to develop 
technology and equipment, because there is no evidence tha~ given additional time, the record 
will be sufficiently supplemented or the industry will develop the technology any faster. While 
some may argue that the increase in upfront payments may raise some entry barriers, such 
concerns are outweighed by the need to maintain the integrity of the auction process to ensure 
sincere bidders and, thus, create increased opportunities for sincere small business bidders. 
Furthermore, the rule change increasing the upfront payment amounts will ultimately benefit the 
entities participating in the IVDS auctions, by ensuring that the participants have the financial 
ability to pay for the licenses for which they bid. 
F. Significant Alternatives Considered and Rejected 
Eliminating the Race and Gender-Based Provisions 
In the Tenth Report and Order, the Commission concludes that the possibility of legal 
challenges to the rules due to the race and gender-based provisions could cause lengthy delays 
in issuing licenses in this service and, therefore, revises those provisions in its competitive 
bidding rules to make them race and gender-neutral. The Commission has not been able to 
consider other alternatives to the rule changes given that no alternatives were proposed by any 
of the commenters, and the record was not supplemented during this proceeding with any 
additional evidence of market entry barriers, anecdotal or statistical evidence or any other factors 
which directly adversely effect small businesses owned by minorities and/or women. Although 
one commenter requested that the Commission provide parties with additional time to supplement 
the record, and another requested that the Commission delay any rule making determinations to 
afford the industry additional time to develop equipment artd technology for implementing IVDS, 
the Commission rejected these requests, because there is no evidence the record will be 
sufficiently supplemented or the industry will develop the technology any faster. We note that 
the Commission .is currently gathering evidence, through a Notice of Inquiry proceeding pursuant 
to the Telecommunications Act of 1996, on barriers to market entry for small businesses, 
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Federal Communications Commission FCC 96-447 
including those owned by women and minorities. 6 The Com.mission believes that the rule 
changes discussed below (for example, offering bidding credits based upon an entity's size) will 
more than adequately benefit small businesses that are owned by minorities or women. 
Adoption of Two-Tiered Definition for Small Businesses 
The Tenth Report and Order adopts a two-tiered definition to define small businesses: (I) 
a small business is a business with average gross revenues for each of the preceding three years 
that do not exceed $15 million, and (2) a very small business is one which has less than an 
average of $3 million in gross revenues in each of the last three years. See supra, 14. We 
adopt this two-tiered definition because our ongoing experience with spectrum auctions has 
affirmed our belief that gross revenues-based definitions are a more accurate indicator of size than 
a net worth/annual profit definition. Also, this definition is consistent with the carefully-analyzed 
approach used in other auctionable mobile radio services such as 900 :MHz specialized mobile 
radio services. 7 Although one commenter suggested altering the financial thresholds for 
determining whether an entity is a "small business" or "very small business" under the proposed 
definition, we believe that the adopted two-tiered definition is appropriate given the likely 
participants in this auction and the Commission's desire to maintain consistency between auctions. 
In determining whether an entity qualifies as a small business under either tier, we will attribute 
the gross revenues of all controlling principals, as well as the gross revenues of affiliates of the 
applicant. Also, we will use the multiplier adopted in the CMRS Third Report and Order for the 
spectrum aggregation cap to determine when IVDS licensees are indirectly held through corporate 
entities. While we chose not to impose specific equity requirements on the controlling principals 
of qualifying small businesses, we will still require that qualifying small businesses are actually 
"controlled" by their principals. See supra, 15. 
Adoption of Tiered Bidding Credits 
We adopted tiered small business bidding credits for the upcoming IVDS auction as 
follows: (1) 10 percent bidding credits for small businesses and (2) 15 percent for very small 
businesses. See supra , 18. Although a few commenters proposed higher percentages for each 
tier of bidding credits offered (for example, 15 percent for small businesses and 25 percent for 
very small businesses), we decline to adopt their proposals because we do not believe a greater 
bidding credit is justified here as it was for certain highly capital intensive services, like 
broadband PCS. We believe the extent, magnitude and range of the bidding credits adopted meet 
the varying needs of small and very small businesses who will participate in the IVDS auctions. 
6 Section 257 Proceeding to Identify and Eliminate Market Entry Barriers for Small Businesses, Notice of 
Inquiry, GN Docket No. 96-113, 11 FCC Red 6280 (1996); Pub. L. No. 104-104, 110 Stat. 56, 77 (1996). 
7 See Implementation of Section 3090) of the Communications Act - Competitive Bidding, Second Order 
on Reconsideration and Seventh Report and Order, PR Docket No. 89-553, PP Docket No. 93-253, GN Docket No. 
93-252. 11 FCC Red 2639. 2700, 153 (1995). 
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Federal Communications Commission FCC 96-447 
Increase in Upfront Payment Amounts 
The Tenth Report and Order adopts increased upfront payment amounts of $9,000 per 
MSA license and $2,500 per RSA license for businesses participating in IVDS auctions. See 
supra~ 20. These increased amounts are designed to maintain the integrity of the auction by 
minimizing the adverse impact of participation by speculators and other frivolous bidders in the 
IVDS auction. Commenters agree that the previous upfront payment was too low, and no other 
alternatives were suggested to deter speculative or frivolous bidders who do not meet the 
commitments they make in bidding in IVDS auctions. Based upon the record regarding IVDS 
upfront payment values, we believe that the revised upfront payment values are set at appropriate 
levels and provide an adequate deterrent against frivolous bidding, and therefore, we declined to 
adopt the approach of one commenter who suggested we modify the multiplier for the MSA 
payment to an even multiplier of the RSA payment. Moreover, the impact that increased upfront 
payments may have on designated entities will be offset by the fact that eligible entities may elect 
to make payments for their licenses via installment payments, which eligibility shall not be 
jeopardized due to normal projected growth of gross revenues and assets. See supra~ 16. 
G. Commission's Outreach Efforts to Learn of and Respond to 
the Views of Small Entities Punuant to 5 U.S.C. § 609 
The Commission sought specific comments regarding the views of small entities with 
respect to the changes being made through solicitation of comments and reply comments to its 
Further Notice, and the IRFA. that was contained therein. Although there were no comments on 
the IRF A, there were a number of comments received in connection with the Further Notice as 
noted herein. Further, the Commission's Office of Communications and Business Opportunities 
has undertaken additional outreach efforts through newsletters and other mailings to learn of the 
views of, and respond to, small entities. 
H. Report to Congress 
The Commission shall send a copy of this Final Regulatory Flexibility Analysis, along 
with this Tenth Report and Order, in a report to Congress pursuant to the SBREF A, S U .S.C. § 
80l(a)(l)(A). A copy of this Final Regulatory Flexibility Analysis will also be published in the 
Federal Register. 
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Federal Communications Commission FCC 96-447 
APPENDIX C 
Comments 
1. ITV, Inc. and IVDS Affiliates, LLC (ITV /IALC) 
2. Interactive America Corporation, Inc. (IAC) 
3. Loli, Inc., Trans Pacific Interactive, Wireless Interactive Return Path, L.L.C., and 
IVDS On-Line Partnership (collectively, "IVDS Licensees") 
4. Progressive Communications, Inc. (Progressive) 
Reply Comments 
I. IAC 
19996