Sec. 24.720  Definitions.

    (a) Scope. The definitions in this section apply to Secs. 24.709 
through 24.717, unless otherwise specified in those sections.
    (b) Small business; very small business; consortia. (1) A small 
business is an entity that, together with its affiliates and persons or 
entities that hold interest in such entity and their affiliates, has 
average annual gross revenues that are not more than $40 million for the 
preceding three years.
    (2) 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 $15 million for the preceding three years.
    (3) For purposes of determining whether an entity meets the $40 
million average annual gross revenues size standard set forth in 
paragraph (b)(1) of this section or the $15 million average annual gross 
revenues size standard set forth in paragraph (b)(2) of this section, 
the gross revenues of the entity, its affiliates, persons or entities 
holding interests in the entity and their affiliates shall be considered 
on a cumulative basis and aggregated subject to the exceptions set forth 
in Sec. 24.709(b).
    (4) A small business consortium is a conglomerate organization 
formed as a joint venture between or among mutually independent business 
firms, each of which individually satisfies the definition of a small 
business in paragraphs (b)(1) and (b)(3) of this section.
    (5) A very small business consortium is a conglomerate organization 
formed as a joint venture between or among mutually independent business 
firms, each of which individually satisfies the definition of a very 
small business in paragraphs (b)(2) and (b)(3) of this section.
    (c) Business Owned by Members of Minority Groups and/or Women. A 
business owned by members of minority groups and/or women is an entity:
    (1) In which the qualifying investor members of an applicant's 
control group are members of minority groups and/or women who are United 
States citizens; and
    (2) That complies with the requirements of Sec. 24.709 (b)(3) and 
(b)(5) or Sec. 24.709 (b)(4) and (b)(6).
    (d) Small Business Owned by Members of Minority Groups and/or Women: 
Consortium of Small Businesses Owned by Members of Minority and/or 
Women. A Small business owned by members of minority groups and/or women 
is an entity that meets the definitions in both paragraphs (b) and (c) 
of this section. A consortium of small businesses owned by members of 
minority groups and/or women is a conglomerate organization formed as a 
joint venture between mutually-independent business firms, each of which 
individually satisfies the definitions in paragraphs (b) and (c) of this 
section.
    (e) Rural Telephone Company. A rural telephone company is a local 
exchange carrier operating entity to the extent that such entity:
    (1) Provides common carrier service to any local exchange carrier 
study area that does not include either;
    (i) Any incorporated place of 10,000 inhabitants or more, or any 
part thereof, based on the most recently available population statistics 
of the Bureau of the Census; or

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    (ii) Any territory, incorporated or unincorporated, included in an 
urbanized area, as defined by the Bureau of the Census as of August 10, 
1993;
    (2) Provides telephone exchange service, including exchange access, 
to fewer than 50,000 access lines;
    (3) Provides telephone exchange service to any local exchange 
carrier study area with fewer than 100,000 access lines; or
    (4) Has less than 15 percent of its access lines in communities of 
more than 50,000 on the date of enactment of the Telecommunications Act 
of 1996.
    (f) 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.
    (g) Total Assets. Total assets shall mean the book value (except 
where generally accepted accounting principles (GAAP) require market 
valuation) of all property owned by an entity, whether real or personal, 
tangible or intangible, as evidenced by the most recent audited 
financial statements or certified by the applicant's chief financial 
officer or its equivalent if the applicant does not otherwise use 
audited financial statements.
    (h) Institutional Investor. An institutional investor is an 
insurance company, a bank holding stock in trust accounts through its 
trust department, or an investment company as defined in 15 U.S.C. 80a-
3(a), including within such definition any entity that would otherwise 
meet the definition of investment company under 15 U.S.C. 80a-3(a) but 
is excluded by the exemptions set forth in 15 U.S.C. 80a-3 (b) and (c), 
without regard to whether such entity is an issuer of securities; 
provided that, if such investment company is owned, in whole or in part, 
by other entities, such investment company, such other entities and the 
affiliates of such other entities, taken as a whole, must be primarily 
engaged in the business of investing, reinvesting or trading in 
securities or in distributing or providing investment management 
services for securities.
    (i) Members of Minority Groups. Members of minority groups includes 
Blacks, Hispanics, American Indians, Alaskan Natives, Asians, and 
Pacific Islanders.
    (j) Nonattributable Equity. (1) Nonattributable equity shall mean:
    (i) For corporations, voting stock or non-voting stock that includes 
no more than twenty-five percent of the total voting equity, including 
the right to vote such stock through a voting trust or other 
arrangement;
    (ii) For partnerships, joint ventures and other non-corporate 
entities, limited partnership interests and similar interests that do 
not afford the power to exercise control of the entity.
    (2) For purposes of assessing compliance with the equity limits in 
Sec. 24.709 (b)(3)(i) and (b)(4)(i), where such interests are not held 
directly in the applicant, the total equity held by a person or entity 
shall be determined by successive multiplication of the ownership 
percentages for each link in the vertical ownership chain.
    (k) Control Group. A control group is an entity, or a group of 
individuals or entities, that possesses de jure control and de facto 
control of an applicant or licensee, and as to which the applicant's or 
licensee's charters, bylaws, agreements and any other relevant documents 
(and amendments thereto) provide:
    (1) That the entity and/or its members own unconditionally at least 
50.1 percent of the total voting interests of a corporation;
    (2) That the entity and/or its members receive at least 50.1 percent 
of the annual distribution or any dividends

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paid on the voting stock of a corporation;
    (3) That, in the event of dissolution or liquidation of a 
corporation, the entity and/or or its members are entitled to receive 
100 percent of the value of each share of stock in its possession and a 
percentage of the retained earnings of the concern that is equivalent to 
the amount of equity held in the corporation; and
    (4) That, for other types of businesses, the entity and/or its 
members have the right to receive dividends, profits and regular and 
liquidating distributions from the business in proportion to the amount 
of equity held in the business.

    Note to paragraph (k): Voting control does not always assure de 
facto control, such as for example, when the voting stock of the control 
group is widely dispersed (see e.g., Sec. 24.720(1)(2)(iii).

    (l) Affiliate. (1) Basis for Affiliation. An individual or entity is 
an affiliate of an applicant or of a person holding an attributable 
interest in an applicant (both referred to herein as ``the applicant'') 
if such individual or entity:
    (i) Directly or indirectly controls or has the power to control the 
applicant, or
    (ii) Is directly or indirectly controlled by the applicant, or
    (iii) Is directly or indirectly controlled by a third party or 
parties that also controls or has the power to control the applicant, or
    (iv) Has an ``identity of interest'' with the applicant.
    (2) Nature of control in determining affiliation.
    (i) Every business concern is considered to have one or more parties 
who directly or indirectly control or have the power to control it. 
Control may be affirmative or negative and it is immaterial whether it 
is exercised so long as the power to control exists.

    Example for paragraph (l)(2)(i). An applicant owning 50 percent of 
the voting stock of another concern would have negative power to control 
such concern since such party can block any action of the other 
stockholders. Also, the bylaws of a corporation may permit a stockholder 
with less than 50 percent of the voting to block any actions taken by 
the other stockholders in the other entity. Affiliation exists when the 
applicant has the power to control a concern while at the same time 
another person, or persons, are in control of the concern at the will of 
the party or parties with the power of control.

    (ii) Control can arise through stock ownership; occupancy of 
director, officer or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the concern, 
has a critical influence in or substantive control over the operations 
or management of the concern.
    (iii) Control can arise through management positions where a 
concern's voting stock is so widely distributed that no effective 
control can be established.

    Example for paragraph (l)(2)(iii). In a corporation where the 
officers and directors own various size blocks of stock totaling 40 
percent of the corporation's voting stock, but no officer or director 
has a block sufficient to give him or her control or the power to 
control and the remaining 60 percent is widely distributed with no 
individual stockholder having a stock interest greater than 10 percent, 
management has the power to control. If persons with such management 
control of the other entity are persons with attributable interests in 
the applicant, the other entity will be deemed an affiliate of the 
applicant.

    (3) Identity of interest between and among persons. Affiliation can 
arise between or among two or more persons with an identity of interest, 
such as members of the same family or persons with common investments. 
In determining if the applicant controls or is controlled by a concern, 
persons with an identity of interest will be treated as though they were 
one person.

    Example 1.  Two shareholders in Corporation Y each have attributable 
interests in the same PCS application. While neither shareholder has 
enough shares to individually control Corporation Y, together they have 
the power to control Corporation Y. The two shareholders with these 
common investments (or identity of interest) are treated as though they 
are one person and Corporation Y would be deemed an affiliate of the 
applicant.
    Example 2. One shareholder in Corporation Y, shareholder A, has an 
attributable interest in a PCS application. Another shareholder in 
Corporation Y, shareholder B, has a nonattributable interest in the same 
PCS application. While neither shareholder has

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enough shares to individually control Corporation Y, together they have 
the power to control Corporation Y. Through the common investment of 
shareholders A and B in the PCS application, Corporation Y would still 
be deemed an affiliate of the applicant.

    (i) Spousal Affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States.
    (ii) Kinship Affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family member'' means father, mother, husband, wife, son, 
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father, or -mother, step-
brother, or -sister, step-son, or -daughter, half brother or sister. 
This presumption may be rebutted by showing that
    (A) The family members are estranged,
    (B) The family ties are remote, or
    (C) The family members are not closely involved with each other in 
business matters.

    Example for paragraph (l)(3)(ii). A owns a controlling interest in 
Corporation X. A's sister-in-law, B, has an attributable interest in a 
PCS application. Because A and B have a presumptive kinship affiliation, 
A's interest in Corporation X is attributable to B, and thus to the 
applicant, unless B rebuts the presumption with the necessary showing.

    (4) Affiliation through stock ownership.
    (i) An applicant is presumed to control or have the power to control 
a concern if he or she owns or controls or has the power to control 50 
percent or more of its voting stock.
    (ii) An applicant is presumed to control or have the power to 
control a concern even though he or she owns, controls or has the power 
to control less than 50 percent of the concern's voting stock, if the 
block of stock he or she owns, controls or has the power to control is 
large as compared with any other outstanding block of stock.
    (iii) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any other 
stock holding, the presumption arises that each one of these persons 
individually controls or has the power to control the concern; however, 
such presumption may be rebutted by a showing that such control or power 
to control, in fact, does not exist.
    (5) Affiliation arising under stock options, convertible debentures, 
and agreements to merge. Stock options, convertible debentures, and 
agreements to merge (including agreements in principle) are generally 
considered to have a present effect on the power to control the concern. 
Therefore, in making a size determination, such options, debentures, and 
agreements will generally be treated as though the rights held 
thereunder had been exercised. However, neither an affiliate nor an 
applicant can use such options and debentures to appear to terminate its 
control over another concern before it actually does so.

    Example 1 for paragraph (l)(5). If company B holds an option to 
purchase a controlling interest in company A, who holds an attributable 
interest in a PCS application, the situation is treated as though 
company B had exercised its rights and had become owner of a controlling 
interest in company A. The gross revenues of company B must be taken 
into account in determining the size of the applicant.
    Example 2 for paragraph (l)(5). If a large company, BigCo, holds 70% 
(70 of 100 outstanding shares) of the voting stock of company A, who 
holds an attributable interest in a PCS application, and gives a third 
party, SmallCo, an option to purchase 50 of the 70 shares owned by 
BigCo, BigCo will be deemed to be an affiliate of company A, and thus 
the applicant, until SmallCo actually exercises its options to purchase 
such shares. In order to prevent BigCo from circumventing the intent of 
the rule which requires such options to be considered on a fully diluted 
basis, the option is not considered to have present effect in this case.
    Example 3 for paragraph (l)(5). If company A has entered into an 
agreement to merge with company B in the future, the situation is 
treated as though the merger has taken place.

    (6) Affiliation under voting trusts. (i) Stock interests held in 
trust shall be

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deemed controlled by any person who holds or shares the power to vote 
such stock, to any person who has the sole power to sell such stock, and 
to any person who has the right to revoke the trust at will or to 
replace the trustee at will.
    (ii) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests held 
in trust will be deemed controlled by the grantor or beneficiary, as 
appropriate.
    (iii) If the primary purpose of a voting trust, or similar 
agreement, is to separate voting power from beneficial ownership of 
voting stock for the purpose of shifting control of or the power to 
control a concern in order that such concern or another concern may meet 
the Commission's size standards, such voting trust shall not be 
considered valid for this purpose regardless of whether it is or is not 
recognized within the appropriate jurisdiction.
    (7) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the majority 
or otherwise as the controlling element of the board of directors and/or 
the management of another entity.
    (8) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the other 
concern.
    (9) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern for 
contracts and business to such a degree that one concern has control, or 
potential control, of the other concern.
    (10) Affiliation under joint venture arrangements. (i) A joint 
venture for size determination purposes is an association of concerns 
and/or individuals, with interests in any degree or proportion, formed 
by contract, express or implied, to engage in and carry out a single, 
specific business venture for joint profit for which purpose they 
combine their efforts, property, money, skill and knowledge, but not on 
a continuing or permanent basis for conducting business generally. The 
determination whether an entity is a joint venture is based upon the 
facts of the business operation, regardless of how the business 
operation may be designated by the parties involved. An agreement to 
share profits/losses proportionate to each party's contribution to the 
business operation is a significant factor in determining whether the 
business operation is a joint venture.
    (ii) The parties to a joint venture are considered to be affiliated 
with each other
    (11) For purposes of Sec. 24.709(a)(2) and paragraphs (b)(2) and (d) 
of this section, Indian tribes or Alaska Regional or Village 
Corporations organized pursuant to the Alaska Native Claims Settlement 
Act (43 U.S.C. 1601 et seq.), or entities owned and controlled by such 
tribes or corporations, are not considered affiliates of an applicant 
(or licensee) that is owned and controlled by such tribes, corporations 
or entities, and that otherwise complies with the requirements of 
Sec. 24.709 (b)(3) and (b)(5) or Sec. 24.709 (b)(4) and (b)(6), except 
that gross revenues derived from gaming activities conducted by 
affiliated entities pursuant to the Indian Gaming Regulatory Act (25 
U.S.C. 2701 et seq.) will be counted in determining such applicant's (or 
licensee's) compliance with the financial requirements of Sec. 24.709(a) 
and paragraphs (b) and (d) of this section, unless such applicant 
establishes that it will not receive a substantial unfair competitive 
advantage because significant legal constraints restrict the applicant's 
ability to access such gross revenues.
    (m) Publicly Traded Corporation with Widely Dispersed Voting Power. 
A publicly traded corporation with widely dispersed voting power is a 
business entity organized under the laws of the United States:
    (1) Whose shares, debt, or other ownership interests are traded on 
an organized securities exchange within the United States;
    (2) In which no person
    (i) Owns more than 15 percent of the equity; or

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    (ii) Possesses, directly or indirectly, through the ownership of 
voting securities, by contract or otherwise, the power to control the 
election of more than 15 percent of the members of the board of 
directors or other governing body of such publicly traded corporation; 
and
    (3) Over which no person other than the management and members of 
the board of directors or other governing body of such publicly traded 
corporation, in their capacities as such, has de facto control.
    (4) The term person shall be defined as in section 13(d) of the 
Securities and Exchange Act of 1934, as amended (15 U.S.C. 78(m)), and 
shall also include investors that are commonly controlled under the 
indicia of control set forth in the definition of affiliate in 
paragraphs (1)(2) through (1) of this section.
    (n) Qualifying Investor; Qualifying Minority and/or Woman Investor.
    (1) A qualifying investor is a person who is (or holds an interest 
in) a member of the applicant's (or licensee's) control group and whose 
gross revenues and total assets, when aggregated with those of all other 
attributable investors and affiliates, do not exceed the gross revenues 
and total assets limits specified in Sec. 24.709(a), or, in the case of 
an applicant (or licensee) that is a small business, do not exceed the 
gross revenues limit specified in paragraph (b) of this section.
    (2) A qualifying minority and/or woman investor is a person who is a 
qualifying investor under paragraph (n)(1), who is (or holds an interest 
in) a member of the applicant's (or licensee's) control group and who is 
a member of a minority group or a woman and a United States citizen.
    (3) For purposes of assessing compliance with the minimum equity 
requirements of Sec. 24.709(b) (5) and (6), where such equity interests 
are not held directly in the applicant, interests held by qualifying 
investors or qualifying minority and/or woman investors shall be 
determined by successive multiplication of the ownership percentages for 
each link in the vertical ownership chain.
    (4) For purposes of Sec. 24.709 (b)(5)(i)(C) and (b)(6)(i)(C), a 
qualifying investor is a person who is (or holds an interest in) a 
member of the applicant's (or licensee's) control group and whose gross 
revenues and total assets do not exceed the gross revenues and total 
assets limits specified in Sec. 24.709(a).
    (o) Preexisting entity; Existing investor. A preexisting entity is 
an entity that was operating and earning revenues for at least two years 
prior to December 31, 1994. An existing investor is a person or entity 
that was an owner of record of a preexisting entity's equity as of 
November 10, 1994, and any person or entity acquiring de minimus equity 
holdings in a preexisting entity after that date.

    Note:  In applying the term existing investor to de minimus 
interests in preexisting entities obtained or increased after November 
10, 1994, the Commission will scrutinize any significant restructuring 
of the preexisting entity that occurs after that date and will presume 
that any change of equity that is five percent or less of the 
preexisting entity's total equity is de minimis. The burden is on the 
applicant (or licensee) to demonstrate that changes that exceed five 
percent are not significant.

[ 59 FR 63236 , Dec. 7, 1994;  60 FR 5335 , Jan 27, 1995;  60 FR 8571 , 8572, 
Feb. 15, 1995, as amended at  60 FR 37800 , July 21, 1995;  61 FR 33869 , 
July 1, 1996;  61 FR 51234 , Oct. 1, 1996]

  Subpart I--Interim Application, Licensing, and Processing Rules for 
                              Broadband PCS

    Source:   59 FR 37610 , July 22, 1994, unless otherwise noted.

Secs. 24.801--24.802  [Reserved]