Before the
               FEDERAL COMMUNICATIONS COMMISSION
                     Washington, D.C.  20554                                         
                                                  
                    
In the Matter of                   )
                              )
Request for Waiver of Section           )
1.2104(g) of the Commission's Rules     ) 
filed by Grand Connectivity L.L.C.      )

                              ORDER

Adopted:  August 27, 1999                    Released:  August 27, 1999

By the Chief, Auctions and Industry Analysis Division:


     1.  On June 14, 1999, Grand Connectivity L.L.C. ("Grand Connectivity") filed a request
with the Wireless Telecommunications Bureau, seeking a waiver of Section 1.2104(g) of the
Commission's Rules, which governs its default payment obligations with respect to Local
Multipoint Distribution Service ("LMDS") licenses won in Auction No. 23.  Grand Connectivity
also requested that the Commission return its upfront payment.  In a letter dated and transmitted
by facsimile on June 18, 1999, Grand Connectivity, without conceding that it would ultimately
owe a default payment, requests a refund of a portion of its upfront payment, rather than the
entire amount.  For the reasons stated below, we deny Grand Connectivity's waiver request,
assess an initial default payment, and return the remaining portion of Grand Connectivity's upfront
payment. 

     2.  Background.  On May 12, 1999, the Commission completed Auction No. 23, its
auction of 161 LMDS licenses.  On May 14, 1999, the Commission announced, by Public Notice,
that a down payment of 20 percent of net winning bids was due from all winning bidders on or
before May 28, 1999.  At the conclusion of the auction, Grand Connectivity was the high bidder
on seven licenses with total net bids of $2,674,650.  To comply with the Commission's down
payment requirement, Grand Connectivity was obligated to supplement its $150,000 upfront
payment with an additional deposit of $384,930.  Grand did not submit its down payment,
thereby defaulting and triggering the default payment provisions of Section 1.2104(g).  

     3.  Discussion.  Section 1.925 of the Commission's Rules provides that a waiver of Part
1.2104(g) of the Commission's Rules is appropriate when a petitioner demonstrates that

     (i) The underlying purpose of the rule(s) would not be served or would be
     frustrated by application to the instant case, and that a grant of the requested
     waiver would be in the public interest;  or

     (ii) In view of unique or unusual factual circumstances of the instant case,
     application of the rule(s) would be inequitable, unduly burdensome or contrary to
     the public interest, or the applicant has no reasonable alternative. 

Because Grand Connectivity fails to make either showing, we deny its waiver request.  

     4.  Under the Commission's Rules, if a winning bidder fails to timely remit the required
down payment, it will be deemed to have defaulted on its auction payment obligations. 
Defaulters are subject to a default payment comprised of two components that are added together
to calculate the full default payment.  The first component of the default payment is the
difference between the gross defaulted bid and the gross subsequent winning bid, or the difference
between the net defaulted bid and the net subsequent winning bid, whichever is less.  In the
event that the difference between either the gross bids or the net bids, as calculated above, is less
than or equal to zero, the first component of the payment will be set to zero.  The second
component of the payment is computed by taking three percent of the subsequent winning bid or
the defaulted bid, whichever is less.  Where a bidding credit applies to the winning bid from either
the original or the subsequent auction, the calculation of the three percent payment is based on the
smaller of the two gross bids or smaller of the two net bids, whichever basis (gross or net) was
used to figure the first component.  Thus, if the difference between the gross bids is less than the
difference between the net bids, the three percent payment will be computed on the lower of the
gross bids.  If the difference between the net bids is less than or equal to the difference between
the gross bids, the three percent payment will be computed on the lower of the net bids. 
However, if the differences between both the gross bids and the net bids are less than or equal to
zero, three percent payment will be computed on the lower of the net bids.

     5.  The purpose of the default payment provisions, Section 1.2104(g)(2) of the
Commission's rules, is to assure that the winning bidder is obligated to pay the full amount of its
winning bid (less any mitigation of damages arising from a subsequent auction of the spectrum)
even if the winning bidder defaults or is determined to be disqualified and is never granted a
license.  The winning bidder's contractual obligation to pay the winning bid thus becomes fixed
and established at the close of the auction, and the winning bidder, not the Commission or the
taxpayer, bears the risk of change in the market between the acceptance of the winning bid and
the grant of the license.  A winning bidder that chooses to default, rather than comply with the
payment obligation, will, therefore, still be obligated to make the Commission whole for the
amount of the winning bid, subject to any mitigation of damages as a result of a subsequent
auction of a license for the same spectrum.


     6.  The default payment amount is deducted from any upfront payments or down
payments that the defaulting bidder has deposited with the Commission.  In the event that the
default payment cannot be determined (i.e., because a license has not yet been won in a
subsequent auction), the Commission has stated that it will assess an initial default deposit of
between three (3) and twenty (20) percent of the defaulted bid price until the full amount of the
default payment can be determined.  Prior to the release of a Bureau Order assessing a default
payment, Grand Connectivity filed its waiver request, requesting that the Commission waive the
default payment required by the rules and return its entire upfront payment.

     7.  Grand Connectivity's request states that its original plan was to bid on several Michigan
licenses in Auction No. 23.  On April 30, 1999, after the seventh round of the auction, Grand
Connectivity alleges that it was contacted by Centennial Cellular Corp. ("Centennial") about
entering a contract in which Grand Connectivity would instead acquire the San Juan, Puerto Rico
A block license.  By Grand Connectivity's account, business discussions with Centennial ceased
on May 6, without a finalized contract, when Centennial withdrew its offer.  During the
negotiations 15 rounds passed in which Grand Connectivity claims that it continued to bid on the
Michigan licenses in order to preserve its eligibility for the San Juan license, even though the
bidding had exceeded Grand Connectivity's projected budget.  Grand Connectivity claims to
have stopped bidding after Centennial withdrew its offer on May 6.  After the conclusion of the
auction, Grand Connectivity was the standing high bidder for seven licenses.  It then attempted,
unsuccessfully, to seek additional financing.  Grand Connectivity posits that the Commission
designed the default rules to "deter bidders from bidding beyond their means rather than as a
punishment to bidders who lost their financing during the course of an auction."  Grand
Connectivity argues that it was a responsible bidder that "mistakenly relied on its agreement with
Centennial." 

     8.  Commission rules provide that a bidder that withdraws a high bid during the course of
an auction is subject to a bid withdrawal payment equal to the difference between the amount
withdrawn and the amount of the subsequent winning bid.  If a high bid is withdrawn on a license
that remains unsold at the close of the auction, this bidder will be required to make an interim
payment equal to three (3) percent of the net amount of the withdrawn bid.  Grand Connectivity
asserts that withdrawing its high bids "was not an option" because of "the vast difference in bids
between auctions [i.e., Auction Nos. 17 and 23], and the uncertainty of whether the second
highest bidder would choose to obtain these BTAs. . . ."  We disagree with this analysis and
conclude that Grand Connectivity's best option was to withdraw its bids.  By withdrawing during
the auction, Grand Connectivity would have eliminated the possibility that it would owe default
payments.  In addition, the licenses could have been bid on by other bidders, thereby allowing
service to get to the public more quickly.  These are precisely the reasons why we allow, and
encourage, bid withdrawal during an auction, rather than default after the close of the auction. 
Further, the Commission has made clear that it is not responsible for the private business
arrangements that an applicant has made to finance its successful bid, nor can it "police the
private business activities of each bidder."  We find particularly troubling the fact that Grand
Connectivity continued to bid "when bids began exceeding its projected budget" because the
Commission has identified this sort of bidding as inappropriate in the past.  Accordingly, we find
that application of the default payment rule in this case would serve its underlying purpose and
that Grand Connectivity has not shown unique or unusual circumstances or lack of a reasonable
alternative.  Grand Connectivity's waiver request is, therefore, denied.  
     
     9.  Grand Connectivity seeks a refund of the amount of its upfront payment that exceeds
its default payment obligations.  Section 1.2106(d) of the Commission's rules permits refunds of
upfront payments when the upfront payment amount exceeds the required down payment amount
and any bid withdrawal payments owed.  Grand Connectivity has submitted an upfront payment
of $150,000.  This amount on deposit is sufficient to satisfy Grand Connectivity's initial default
payment obligation of $80,241.  Therefore, we will refund to Grand Connectivity its remaining
amount on deposit after the three percent default payment is computed and assessed.  In order to
process your refund request, the FCC must receive wire transfer instructions.  If an additional
payment is required following the next LMDS auction, a second Order will assess the amount
due.      

     10.  Accordingly, Grand Connectivity is assessed an initial default payment on the licenses
for B390A (Saginaw, MI), B039B (Benton Harbor, MI), B169B (Grand Rapids, MI), B209B
(Jackson, MI), B241B (Lansing, MI), B307B (Mt. Pleasant), and B310B (Muskegon, MI), and its
application with respect to these seven licenses is dismissed.  In addition, Grand Connectivity will
be subject to the balance of the payment specified in Section 1.2104(g) once the aforementioned
licenses are auctioned and the actual default payment for each license is determined. 
     
     11.  Accordingly, IT IS ORDERED that the Request for Waiver filed by Grand
Connectivity on June 14, 1999, IS DENIED.
     12.  Accordingly, Grand Connectivity's initial default payment is satisfied and any
remaining amount after the three percent default payment is assessed will be refunded to Grand
Connectivity.    

                    FEDERAL COMMUNICATIONS COMMISSION



                    Amy J. Zoslov
                    Chief, Auctions and Industry Analysis Division
                    Wireless Telecommunications Bureau