[Federal Register Volume 63, Number 245 (Tuesday, December 22, 1998)]
[Proposed Rules]
[Pages 70727-70735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33775]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 20 and 22
[WT Docket Nos. 98-205, 96-59, GN Docket No. 93-252; FCC 98-308]
1998 Biennial Regulatory Review--Spectrum Aggregation Limits for
Wireless Telecommunications Carriers
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this Notice of Proposed Rulemaking the Commission
undertakes a comprehensive review of the 45 MHz Commercial Mobile Radio
Services (CMRS) spectrum cap as part of our biennial review of the
Commission's regulations. The Commission seeks comment on whether it
should repeal,
[[Page 70728]]
modify or retain the 45 MHz spectrum cap. In addition, the Commission
seeks comment on a petition, submitted by the Cellular
Telecommunications Industry Association (CTIA), to forbear from
enforcement of the CMRS spectrum cap pursuant to section 10 of the
Communications Act of 1934, as amended. We also seek comment on whether
we should retain, modify, or repeal the cellular cross-ownership rule.
DATES: Comments are due on or before January 25, 1999. Reply comments
are due on or before February 10, 1999.
ADDRESSES: All filings must be sent to the Commission's Secretary,
Magalie Roman Salas, Office of the Secretary, Federal Communications
Commission, 445 Twelfth Street, S.W.; TW-A325; Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: David Krech or Pieter van Leeuwen,
Commercial Wireless Division, Wireless Telecommunications Bureau, (202)
418-0620.
SUPPLEMENTARY INFORMATION: This Notice of Proposed Rulemaking in WT
Docket Nos. 98-205, 96-59, GN Docket No. 93-252, adopted November 19,
1998, and released December 10, 1998, is available for inspection and
copying during normal business hours in the FCC Reference Center, Room
230, 1919 M Street N.W., Washington D.C. The complete text may be
purchased from the Commission's copy contractor, International
Transcription Service, Inc., 1231 20th Street, N.W., Washington D.C.
20036 (202) 857-3800.
Synopsis of the Notice of Proposed Rulemaking:
I. Background
A. History of the CMRS Spectrum Cap
1. The CMRS spectrum cap, 47 CFR 20.6, governs the amount of CMRS
spectrum that can be licensed to a single entity within a particular
geographic area. Pursuant to Sec. 20.6, a single entity may acquire
attributable interests in the licenses of broadband Personal
Communications Service (PCS), cellular, and Specialized Mobile Radio
(SMR) services that cumulatively do not exceed 45 MHz of spectrum
within the same geographic area.
2. The CMRS spectrum cap was established in Implementation of
Sections 3(n) and 332 of the Communications Act, GN Docket No. 93-252,
Third Report and Order, 59 FR 59945 (November 21, 1994) (CMRS Third
Report and Order). The Commission found that if licensees were to
aggregate sufficient amounts of spectrum, it would be possible for
them, unilaterally or in combination, to exclude efficient competitors,
to reduce the quantity or quality of services provided, or to increase
prices to the detriment of consumers. The Commission found that
creating a cap on broadband PCS, SMR, and cellular licenses would
prevent licensees from artificially withholding capacity from the
market. The Commission found that a 45 MHz cap provided a minimally
intrusive means for ensuring that the mobile communications marketplace
remained competitive and preserved incentives for efficiency and
innovation.
3. To perform a spectrum cap analysis, a threshold determination
must first be made regarding whether the CMRS offerings under
consideration are serving markets that substantially overlap. The
Commission adopted a simple formula for this assessment: a
determination of whether the overlap between geographic service areas
or licensed contours contains 10 percent or more of the market's
population. Assuming a 10 percent population overlap, the rule next
requires a determination of whether there is common attributable
ownership. For purposes of the spectrum cap, equity ownership of 20
percent or more was deemed attributable. The Commission also stated
that in determining when cellular, broadband PCS and SMR licenses are
held indirectly through intervening corporate entities, a multiplier
would be used to determine attributable ownership levels, consistent
with application of the broadcast attribution rules.
4. In Implementation of Sections 3(n) and 332 of the Communications
Act, GN Docket No. 93-252, Fourth Report and Order, 59 FR 61828
(December 2, 1994) (CMRS Fourth Report and Order) the Commission
further clarified that certain business relationships could give rise
to attributable ownership interests for purposes of the CMRS spectrum
cap. First, the Commission held that resale agreements will not be
considered attributable interests because resellers can neither
exercise control over the spectrum on which they provide service nor
reduce the amount of service provided over that spectrum. Second, the
Commission found that management agreements that authorize managers of
cellular, broadband PCS or SMR systems to engage in practices or
activities that determine or significantly influence the nature and
types of services offered, the terms on which services are offered, or
the prices charged for such services, give the managers an attributable
interest in that licensee. Finally, the Commission also concluded that
joint marketing agreements that affect pricing or service offerings
will be attributable.
5. In Amendment of parts 20 and 24 of the Commission's Rules--
Broadband PCS Competitive Bidding and the Commercial Mobile Radio
Service Spectrum Cap; Amendment of the Commission's Cellular/PCS Cross-
Ownership Rule, WT Docket No. 96-59, GN Docket No. 90-314, Report and
Order, 61 FR 33859 (July 1, 1996) (CMRS Spectrum Cap Report and Order)
appeal pending sub nom. Cincinnati Bell Tel Co. v. FCC, No. 96-3756
(6th Cir), recon. (BellSouth MO&O) appeal pending sub nom. BellSouth
Corporation v. FCC, No. 97-1630 (D.C. Cir), the Commission reaffirmed
the basic tenets of the CMRS spectrum cap and provided additional
economic rationale for its use. Specifically, the Commission provided
an analysis of the potential market concentrations using the
Herfindahl-Hirschman Index (HHI), and found that a 45 MHz spectrum cap
was necessary to prevent CMRS markets from becoming highly
concentrated. The Commission found that such a spectrum cap was needed
to ensure competition, and that it would adequately address concerns
about anticompetitive behavior in the CMRS market.
6. In addition to reviewing the general structure of the CMRS
spectrum cap, the Commission also reconsidered the ownership and
geographic attribution provisions of Sec. 20.6. In the CMRS Spectrum
Cap Report and Order, the Commission revisited the use of a 20 percent
attribution standard and found it appropriate for use in the CMRS
spectrum cap. Although the Commission did not alter the 20 percent
ownership attribution standard in the CMRS Spectrum Cap Report and
Order, it did adopt a rule under which it would review requests for
waiver of the attribution standard. See 47 CFR 20.6 Note 3. The
Commission also eliminated the 40 percent attribution threshold for
ownership interests held by minorities and women, but maintained it for
small businesses and rural telephone companies. In considering changes
to the geographic attribution standard, the Commission declined to
alter the 10 percent overlap definition because it found that an
overlap of 10 percent of the population is sufficiently small that the
potential for exercise of undue market power by the cellular operator
is slight. In addition, the Commission expanded the divestiture
provisions by allowing parties with non-controlling, attributable
interests in CMRS licenses to have an attributable or controlling
interest in another CMRS application that would exceed the 45 MHz
spectrum cap so long as they followed our post-
[[Page 70729]]
licensing divestiture procedures. In the BellSouth MO&O, Commission
held that the CMRS spectrum cap is not limited to real time, two-way
switched phone service, but covers a variety of services within the
definition of CMRS.
B. Pending Proceedings Regarding the CMRS Spectrum Cap
7. There are several proceedings pending before the Commission
which deal with different aspects of the CMRS spectrum cap. Because the
Commission intends for this proceeding to be a comprehensive re-
evaluation of the CMRS spectrum cap, it plans to consolidate these
outstanding issues in this proceeding. The Commission therefore
incorporates into this proceeding the record of the following pending
proceedings on the CMRS spectrum cap: (1) Petitions for Reconsideration
of CMRS Third Report and Order; (2) Petitions for Reconsideration of
CMRS Fourth Report and Order; (3) Petitions for Reconsideration of CMRS
Spectrum Cap Report and Order; and, (4) Implementation of Sections 3(n)
and 332 of the Communications Act--Regulatory Treatment of Mobile
Services, GN Docket No. 93-252, Third Further Notice of Proposed
Rulemaking, 60 FR 26861 (May 19, 1995). In that proceeding the
Commission examined whether the CMRS spectrum cap should be extended to
all cellular, SMR, and broadband PCS providers regardless of whether
they are classified as Private Mobile Radio Services (PMRS) or CMRS
providers.
II. Notice of Proposed Rulemaking
A. Overview
8. The Commission last reviewed the CMRS spectrum aggregation
limits in 1996 in the CMRS Spectrum Cap Report and Order. Section 11 of
the Communications Act requires that the Commission review regulations
``that apply to the operation or activities of any provider of
telecommunications service'' and ``determine whether any such
regulation is no longer necessary in the public interest as the result
of meaningful economic competition between providers of such service.''
47 U.S.C. 161. In light of the mandate in section 11 and the
developments in the marketplace since 1996, the Commission seeks
comment in this Notice on whether to retain, modify, or repeal the CMRS
spectrum cap.
B. Reassessment of the CMRS Spectrum Cap
9. Generally, the Commission believes that the spectrum cap has
been useful in promoting competition in mobile voice services, given
that these services were largely available from only two cellular
companies in each locality prior to our broadband PCS auctions. The 45
MHz limit was originally devised as the Commission prepared for its
auction of broadband PCS spectrum, in response to concerns that
incumbent cellular providers had incentives to impede the development
of competing networks to preserve their competitive position. Under
constraints imposed by the CMRS spectrum cap, the Commission awarded
broadband PCS licenses that are now, or will soon be, competing
directly with these cellular providers. In many localities, significant
new entry into mobile voice services has already occurred. Moreover,
the Commission expects that competition will develop further as
remaining broadband PCS licensees complete the initial phases of their
network buildouts. The Commission believes that the aggregation limit
helped to promote the likely emergence of at least three new
competitors in each market. In at least several markets, mobile voice
services are now being offered by seven or more competitors. The
competitive evolution of these markets may be traced directly to
decisions to auction additional spectrum well-suited to the provision
of mobile communications, and to impose limits on the extent to which
firms were permitted to aggregate spectrum in these auctions. The
Commission seeks comment on this assessment that the existing spectrum
aggregation limit to date may have promoted competition in mobile voice
markets. The Commission seeks comment on how evidence of emerging
competition should be factored into the assessment of whether the
current cap should be eliminated, relaxed or redefined. In particular,
what weight should these factors be given relative to HHI calculations
or similar measures of concentration of ownership or control? Parties
should provide discussion or analysis supporting their views. The
Commission seeks comment on the following issues and how they relate to
the question of whether to retain, modify, or repeal the spectrum cap:
(1) what are the relevant product markets?; (2) what are the relevant
geographic markets?; and, (3) what are the relevant measures of market
capacity (assigned spectrum, operational spectrum, subscribers,
revenues, traffic/minutes of use, etc.)?
10. The extent to which services are presently available in
individual markets varies considerably. In no market have all of the
licensed broadband PCS providers begun offering service, and in a
number of localities, service is not yet available from any new
entrant. For purposes of assessing the competitive nature of individual
markets and calculating market shares, the Department of Justice's
Merger Guidelines limit market participants to firms that currently
produce or sell the relevant product and those described as
``uncommitted entrants.'' Hence, for purposes of conducting an analysis
of competition in wireless markets, the Commission seeks comment on
whether to limit the assessment of market participants to only current
suppliers and any other firms that have announced intentions to
commence operations, declared their intentions to offer the relevant
product, and will imminently begin soliciting business. Particularly in
smaller towns and rural markets, cellular incumbents continue to hold
competitive advantages vis-a-vis market entrants that are not very
different from those existing when the cap was originally conceived and
implemented. Spectrum aggregation limits may well continue to be useful
to promote competition in at least certain areas. The Commission
invites comment on these assessments. The Commission also solicits
comment on whether to apply the CMRS spectrum cap on a market-by-market
basis.
11. The Commission also believes that with respect to mobile
wireless services, the spectrum cap has served the purpose of
constraining undesirable erosion of existing competition through
mergers or acquisitions in major markets, where competition among
multiple carriers is most advanced. For cellular and SMR incumbents
especially, and perhaps for the early A- and B-Block broadband PCS
entrants as well, incentives exist for operational carriers to explore
in-market merger options. Hence, it appears likely that the spectrum
aggregation limit has been of some value in inhibiting competition-
eroding spectrum consolidation. The Commission invites comment on these
assessments and on the potential for consolidation of CMRS markets if
the spectrum cap were relaxed or eliminated, and whether such
consolidation would harm or benefit consumers. Commenters should
provide empirical evidence on the harms or benefits of consolidation in
CMRS markets.
12. The Commission also invites comment on whether there are
existing disciplinary factors in the marketplace that may independently
minimize the likelihood that any single entity would achieve an
anticompetitive level of ownership of CMRS spectrum in a particular
geographic area. For example,
[[Page 70730]]
are there dis-economies of scale that will limit the size to which
firms will grow, and thus tend to ensure that the CMRS sector will
assume a competitive structure even in the absence of a spectrum cap?
Is it possible that capital markets will not finance attempts by
individual firms to acquire spectrum in amounts or construct systems of
sizes that would threaten competition? Commenters arguing that such
factors lessen or eliminate the need for our current spectrum cap
should, where possible, provide specific quantifiable examples of dis-
economies, or of points at which various types of costs or risks
associated with owning or controlling additional wireless spectrum
outweigh potential benefits.
13. The Commission seeks comment on whether the convergence and
substitutability of other telecommunications networks, including
wireline, cable, private wireless, and satellite networks among others,
should affect the application or public interest considerations
underlying the spectrum cap. It is important that commenters addressing
this issue supply detailed analysis, identify all underlying
assumptions, and provide factual support for any projections.
14. The Commission has scheduled an auction for March 1999, that
will include licenses for operation on C and F block frequencies. There
are certain restrictions on the sale of entrepreneur block licenses (C
and F blocks). The Commission invites comment on whether these rules
are sufficient to prevent undesirable spectrum consolidation.
Commenters should also provide their views on any relationship between
this proceeding, including the timing of our final decision, and the
successful completion of the upcoming C block auction.
15. The Commission also seeks comment on whether issues regarding
economies of scope may provide a rationale for relaxing the spectrum
aggregation limit. The Commission invites comment generally on the
concepts of economies of scope and scale and their relationship to
spectrum aggregation limits.
16. In re-assessing the CMRS spectrum cap, the Commission also
seeks comment on whether there are other efficiency benefits or
progress toward other public interest goals that would flow from
changes in the cap that might counterbalance concerns about possible
anticompetitive effects resulting from increased geographic
concentration of ownership. For example, might a relaxed cap allow
efficient deployment of third-generation wireless services that would
be prevented under the present cap? Or, might a relaxed cap facilitate
provision of fixed wireless services by CMRS firms, perhaps as
universal service providers? What, if any, impact would altering the
cap have on the provision of wireless services to under-served areas?
Would an enforceable commitment to provide such service in high-cost or
low-income areas override anticompetitive concerns?
17. Service in rural areas. The Commission seeks comment on whether
the relative lack of competition in certain rural and other markets
suggests that there is a continuing need for the CMRS spectrum cap in
those areas. Commenters should address whether the cap should be
retained, at least in those areas until increased competition begins to
emerge. On the other hand, the cap may affect the ability of a CMRS
provider to attain certain economies of scale and scope. Spectrum may
be made newly available for commercial use through partitioning
agreements, but the economics of offering service to these lower-
density populations may nevertheless limit the extent of competitive,
facilities-based entry. The Commission seeks comment on whether the
existing spectrum cap may impede delivery of potentially lower-cost
service to rural customers as economies of scope go unrealized. In
particular, should more concentration of spectrum in rural markets be
permitted, perhaps allowing for leveraging of existing facilities? The
Commission seeks comment on the extent to which the current 45 MHz
aggregation limit may be thwarting the realization of potential
economies, and solicit evidence on the magnitude of any such savings or
efficiencies in particular market settings.
18. Advancement of competition in local markets. The Commission
seeks comment on how the spectrum cap affects wireless providers'
ability to enter into and compete in markets other than mobile voice
service. The Commission seeks comment on the extent to which existing
networks are capable of economically supporting the delivery of
wireless services other than fixed or mobile voice and paging/
messaging. In particular, we invite comment on the technical and
economic feasibility of offering dispatch, high-speed Internet, and
other two-way data services over existing cellular, broadband PCS, and
SMR network platforms. We also invite views on the extent to which any
limitations on currently installed networks may be eased in the
foreseeable future as newly available technologies are adopted. The
Commission is especially interested in views on whether the current
spectrum cap is enhancing or impeding the provision of wireless
services as a competitive alternative to wireline services.
19. Development and deployment of new technologies and services.
The Commission seeks comment on whether the spectrum cap serves as a
barrier to firms that wish to offer additional services or to adopt
advanced network technologies. Specifically, the Commission seeks
comment on whether the current aggregation limit poses an obstacle to
the introduction of more advanced network technologies. The Commission
also seeks comment on whether the existing spectrum limit constitutes a
significant constraint on firms' abilities to offer wireless local loop
or high-speed mobile data services, either on a stand-alone basis or
bundled with mobile voice services. In particular, we invite comment on
the extent to which companies are able to acquire and use spectrum
outside of CMRS bands to achieve these goals. The Commission also
invites comment on the possible use of our waiver process to consider
petitions for supplemental spectrum that may be needed to launch new
wireless services.
C. Modifications and Alternatives to Existing CMRS Spectrum Cap
i. Modification of Significant Overlap Threshold
20.The CMRS spectrum cap prohibits a licensee from having more than
45 MHz of spectrum in broadband PCS, cellular or SMR services with
significant overlap in a geographic area. A ``significant overlap''
occurs when at least ten percent of the population of the PCS licensed
service area is within the cellular geographic service area and/or SMR
service area(s). 47 CFR 20.6(c). Therefore, a carrier's spectrum counts
toward the spectrum cap if the carrier is licensed to serve 10 percent
or more of the population of the designated service area.
21. The Commission seeks comment on the effect of recent changes in
CMRS markets, particularly concerning the emergence of broadband PCS
carriers as competitors to cellular operators, on the rationale for a
10 percent overlap threshold. The Commission also seek comment on the
public interest benefits of increasing the threshold and whether those
benefits outweigh any potential for anticompetitive concentration of
ownership or control of CMRS licenses.
22. The Commission seeks comment on whether a geographic overlap
standard of greater than a 10 percent
[[Page 70731]]
overlap should be adopted. If so, what would be a more appropriate
standard of geographic overlap and why. The Commission seeks comment on
whether a greater overlap may facilitate anticompetitive behavior. The
Commission also seeks comment on what degree of a permissible
geographic overlap could promote anticompetitive conduct. In addition,
the Commission seeks comment on whether we should permit carriers in
high-cost and under-served markets to have a greater than 10 percent
population overlap, and how we should define high-cost and under-served
markets for purpose of the significant overlap threshold. The
Commission also seeks comment on whether there is a need to allow a
greater overlap in high-cost and under-served areas if we adopt our
proposal to allow for a higher cap in rural areas. In addition, the
Commission seeks comment on whether a separate geographic overlap
standard for rural areas may be in the public interest by possibly
encouraging a greater number of service options and better service
quality. In the alternative, comment is requested on whether there is a
mechanism for triggering the application of a spectrum cap in given
geographic areas that might be superior to our current significant
overlap standard.
ii. Modification of 45 MHz Limitation
23. The CMRS spectrum cap allows a single entity to control up to
45 MHz of broadband PCS, cellular, and SMR spectrum in a geographic
area. The Commission seeks comment on whether a 45 MHz CMRS spectrum
limitation is appropriate given increased competition in the CMRS
marketplace. For instance, the vast majority of the broadband PCS
licenses have been assigned and there are broadband PCS licensees
providing service in competition with cellular carriers and each other
in many markets. In particular, we seek comment on what would be an
appropriate spectrum aggregation limitation in light of current and
future prospects for competition in CMRS markets. Commenters should
provide analytical support for any limitation that they propose.
24. Another option would be to raise the 45 MHz limitation when
competition in relevant markets reaches a particular level. For
example, one possible option would permit licensees to exceed the 45
MHz limit as long as a certain number of competitors would remain in a
market after the assignment. The Commission seeks comment on such an
option. How many competitors in a market would be sufficient to allow a
licensee to exceed the 45 MHz limitation? Would the same number of
competitors be required for wireless services other than mobile voice?
How would the Commission identify qualifying competitors? Should
facilities-based competitors be considered? Should other factors be
considered in addition to the number of facilities-based carriers in a
given market in determining when to lift the restriction? The
Commission seeks comment on whether there should be any restraints on
how much spectrum a licensee could obtain under such an option.
25. A similar option would be to allow the cap to be raised/
exceeded in rural or under-served areas. The Commission seeks comment
on the benefits that may be obtained by allowing licensees serving
rural, high-cost areas to hold more than 45 MHz of broadband CMRS
spectrum in those areas. The Commission also seeks comment on how to
define those areas. One possibility would be to use rural service
areas, or rural service areas (RSAs). Another option would be to use
high-cost areas as defined in our universal service proceeding. The
Commission seeks comment on these possible determinations of rural/
under-served areas. Commenters that suggest other definitions for rural
or under-served areas are requested to precisely set out their proposed
definition, and explain the type and number of areas that would come
within that definition.
26. The Commission also seeks comment whether the partnerships
anticipated under this option would result in meaningful convergence in
service quality and rates between urban and rural subscribers.
Furthermore, the Commission solicits views on whether any claimed
efficiencies of scope are likely to be commercially significant in
magnitude for operators in rural markets. The Commission also invites
comments on whether this option would discourage broadband PCS carriers
from extending their digital network buildouts beyond urban and
suburban centers.
iii. Modification of Ownership Attribution Thresholds
27. Under the CMRS spectrum cap, ownership interests of 20 percent
or more (40 percent if held by a small business or rural telephone
company), including general and limited partnership interests, voting
and non-voting stock interests or any other equity interest are
considered attributable. 47 CFR 20.6(d)(2). Officers and directors are
attributed with their company's holdings, as are persons who manage
certain operations of licensees, and licensees that enter into certain
joint marketing arrangements with other licensees. 47 CFR 20.6(d)(7).
Stock interests held in trust are attributable only to those who have
or share the power to vote or sell the stock. 47 CFR 20.6(d)(3). Debt
does not constitute an attributable interest, nor are securities
affording potential future equity interests (such as warrants, options,
or convertible debentures) considered attributable until they are
converted or exercised. 47 CFR 20.6(d)(5). The Commission seeks comment
generally on whether we should modify any or all of these attribution
criteria. Commenters should provide reasoning and factual support for
their positions.
28. The Commission seeks comment on whether we should modify the 20
percent ownership benchmark. Specifically, the Commission seeks comment
on the effect that a 20 percent attribution standard has on the ability
of CMRS providers to obtain capital, and on the public interest
benefits of increasing the 20 percent attribution standard. The
Commission also seeks comment on what level to set an attribution
standard. Commenters proposing a different standard should provide
analytical support for their proposals. The Commission seeks comment on
whether we should increase the benchmark as it applies to the amount of
non-voting equity interest, or interest held by a limited partner. The
Commission also seeks comment on whether to continue to have a separate
40 percent attribution standard for licenses that are held by small
businesses or rural telephone companies or whether this standard should
also be modified.
29. The Commission also seeks comment on whether any of the other
provisions in our ownership attribution criteria should be modified.
Are there any situations where an entity can acquire effective control
over another entity that is not adequately contemplated under our
attribution standards? Alternatively, are there situations proscribed
by our attribution rules that are inhibiting competition? Commenters
should be as specific as possible in identifying which, if any,
attribution standards should be changed and in explaining the rationale
and public interest benefits that might accompany such a change in our
rules. The Commission also seeks comment on the waiver test for
attribution, 47 CFR 20.6 note 3, and whether the waiver test should be
retained if the 20 percent attribution standard is modified.
[[Page 70732]]
iv. Forbearance From Enforcing the CMRS Spectrum Cap
30. On September 30, 1998, CTIA petitioned the Commission to
forbear from enforcing the spectrum cap pursuant to our authority under
section 10 of the Act, 47 U.S.C. 160. The Commission must forbear from
applying any regulation or provision of the Act to a telecommunications
carrier or service, or class of telecommunications carriers or
services, in any or some of its geographic markets, if a three-pronged
test is met. Specifically, section 10 requires forbearance,
notwithstanding 47 U.S.C. 332(c)(1)(A), if the Commission determines
that: (1) enforcement of such regulation or provision is not necessary
to ensure that the charges, practices, classifications, or regulations
by, for, or in connection with that telecommunications carrier or
telecommunications service are just and reasonable and are not unjustly
or unreasonably discriminatory; (2) enforcement of such regulation or
provision is not necessary for the protection of consumers; and (3)
forbearance from applying such provision or regulation is consistent
with the public interest.
31. To satisfy the first prong of section 10, CTIA relies on
statements that the CMRS market is competitive. CTIA also argues that
principles of antitrust law and economics provide adequate protection
against the possibility of excessive concentration that the spectrum
cap was designed to safeguard against. Addressing the second prong,
CTIA contends that the Commission's section 310(d) authority is an
appropriate vehicle for the Commission to effectuate the ``ideal
approach [which] is to judge spectrum combinations on a case-by-case
basis taking into account all of the relevant variables bearing upon
competition and efficiency, including the service area overlap, the
populations in the respective service areas, and the quantity of
spectrum currently allocated to and * * * sought to be acquired by the
licensee.'' CTIA argues that the third prong is met because the public
interest is better served by a case-by-case determination of
permissible ownership structures. According to CTIA, rigid ownership
limitations endangers innovation and efficiency and outweighs the
administrative burden associated with reliance upon a case-by-case
approach to market concentration issues.
32. The Commission seeks comment on the CTIA Forbearance Petition,
particularly whether CTIA's arguments meet the standards of section 10
for forbearance from the spectrum cap. In regard to the third prong of
the test and in connection with the above questions regarding the re-
assessment of the rule under section 11, it would be useful for
commenting parties to consider and comment upon: (i) the original
purpose of the particular rule in question; (ii) the means by which the
rule was meant to further that purpose; (iii) the state of competition
in relevant markets at the time the rule was promulgated; (iv) the
current state of competition as compared to that which existed at the
time of the rule's adoption; (v) how any changes in competitive market
conditions between the time the rule was promulgated and the present
might obviate, remedy, or otherwise eliminate the concerns that
originally motivated the adoption of the rule; and (vi) the ultimate
effect forbearance may have on consumers.
33. If the Commission, upon review of the record, finds that the
requirements set out in section 10 have been satisfied, and thus the
Commission has authority to forbear from the CMRS spectrum cap, we seek
comment on the advantages or disadvantages of forbearing from the cap
rather than modifying, sunsetting, or eliminating it.
34. If the Commission forbears from enforcing the CMRS spectrum
cap, what step the Commission should take next regarding the cap?
Should the Commission, subsequently, in this or another proceeding,
develop a factual record on what happened to CMRS markets without the
spectrum cap to confirm that our conclusions about the need for the cap
were correct?
v. Sunset CMRS Spectrum Cap
35. The Commission seeks comment on the public interest benefits of
establishing a sunset date for the CMRS spectrum aggregation limit in
all or some markets. In particular, what market conditions that should
be present before sunsetting the cap. The Commission also seeks comment
on when these market conditions are likely to be generally present. The
Commission also seeks comment on whether a date certain should be set
for elimination of the spectrum aggregation limit, or if instead, the
Commission should review the continuing need for such a restriction at
a pre-set date, e.g., as part of the next biennial review process.
36. One alternative to a uniform date for sunsetting the CMRS
spectrum aggregation limit in all or some markets, would be to sunset
the cap in selected markets based on the competitive concerns in the
particular markets in question. The Commission seeks comment on whether
it would be in the public interest to sunset the CMRS spectrum cap on a
market-by-market basis, and if so, what criteria should be considered
in determining whether to sunset the cap in a particular market. One
approach may be to sunset the cap when a certain number of competitors
are present in a market. The Commission seeks comment on this approach
and what level of competition should exist before we sunset the cap in
a particular market.
37. Another option would be to review certain types of proposed
transactions involving the aggregation of CMRS spectrum under our
section 310(d). Under this approach, any transfers in connection with a
merger or acquisition where both parties have directly competing
operational wireless services in the same geographic market, would no
longer be prohibited under the spectrum cap. Instead, parties to these
transactions involving a combination of more than 45 MHz would be
obligated to affirmatively demonstrate that the transaction is in the
public interest. This would generally include a competitive analysis to
evaluate whether the interests of consumers in relevant markets are
threatened. All other transactions, including those involving
overlapping licenses but where build-out is not complete and service is
not operational, would continue to be subject to compliance with the
CMRS spectrum cap. The Commission seeks comment on this approach.
vi. Eliminate CMRS Spectrum Cap
38. The Commission seeks comment on whether elimination of the CMRS
spectrum cap, and reliance on case-by-case determinations of ownership
issues pursuant to section 310(d) of the Communications Act, 47 U.S.C.
310(d), would serve the public interest. Commenters should provide
facts and detailed analysis supporting their position. The Commission
also seeks comment on the likelihood that anticompetitive behavior
would result from elimination of the cap, and request that commenters
identify what type of anticompetitive behavior is likely and establish
causality between elimination of the cap and that behavior.
39. The Commission seeks comment, including empirical evidence,
whether CMRS markets are sufficiently competitive to allow for removal
of the CMRS spectrum cap. Commenters should address any significant
changes in CMRS markets and telecommunications markets in general that
would directly support elimination of the CMRS spectrum cap. The
[[Page 70733]]
Commission also seeks comment regarding the administrative burden that
would presumably be placed on the Commission's limited resources by
reviewing ownership issues on a case-by-case basis.
40. The Commission invites comment on the extent to which other
Federal and state authorities, given their resources and broad
responsibilities, would be able to effectively monitor the competitive
effects of smaller mergers and corporate acquisitions. The Commission
also seeks comment on the ability that Federal and state authorities
have under antitrust laws to protect competition in cases where
competition may not yet be adequately developed.
D. Cellular Cross-Interest Rule
41. Section 22.942 of the Commission's rules prohibits any person
from having a direct or indirect ownership interest in licenses for
both cellular channel block in overlapping cellular geographic service
areas (CGSAs). 47 CFR 22.942. Given the changes in mobile voice
markets, and the fact that many markets no longer comprise primarily
cellular duopolies, as in 1991 when the rule was adopted, the
Commission seeks comment on whether to retain, modify, or repeal
Sec. 22.942.
42. The Commission seeks comment on whether the CMRS spectrum cap
provides sufficient protection from anticompetitive behavior by
cellular licenses in the same market. Commenters should also address
whether we should eliminate the cellular cross-ownership rule if we
decide to eliminate the CMRS spectrum cap.
43. Where the structure of these markets has not changed
significantly, the Commission seeks comment on whether the original
purpose of the rule may still be served by its application. Namely,
where cellular licensees are still the predominant providers of mobile
voice services, is the cellular cross-interest rule may still be
necessary to guarantee the competitive nature of the cellular industry
and to foster the development of competing systems? The Commission
seeks comment on whether to modify the cellular cross-ownership rule so
that it does not apply in certain circumstances. One possibility would
be to have the rule apply only in markets where there are a limited
number of competitors to the cellular providers. The Commission seeks
comment on what would be an appropriate threshold for determining in
which markets the rule would not apply. The Commission seeks comment on
the potential effects of such an application of the cellular cross-
ownership rule.
44. The Commission also seeks comment on whether we should relax
the current attribution rules related to this rule. For example, should
an entity that controls the cellular A block be allowed to have some
interest in the cellular B block in the same market? Further, should
the current limit on what a non-controlling interest holder may have in
each cellular license in a given market be relaxed? Commenters are
asked to address the competitive and public interest implications of
their proposals.
III. Conclusion
45. In this Notice of Proposed Rulemaking, the Commission seeks
comment on whether the present CMRS spectrum cap furthers the public
interest and encourages competition, consistent with spirit of the
Communications Act. The Commission also seeks comment on whether to
retain, forbear from, eliminate, or modify the present cap. In
particular, the Commission seeks comment on the petition filed by CTIA
requesting forbearance from applying the CMRS spectrum cap. The
Commission also seeks comment on whether we should retain, modify, or
repeal the cellular cross-interest rule.
IV. Procedural Matters and Ordering Clauses
A. Regulatory Flexibility Analysis
46. As required by the Regulatory Flexibility Act (RFA), see 5
U.S.C. 603, the Commission has prepared this Initial Regulatory
Flexibility Analysis (IRFA) of the possible impact on small entities of
the rules proposed in the Notice of Proposed Rulemaking (Notice) in WT
Docket No. 98-205. Written public comments are requested on the IRFA.
Comments on the IRFA must have a separate and distinct heading
designating them as responses to the IRFA and must be filed by the
deadlines for comments on the Notice. The Commission will send a copy
of the Notice, including this IRFA, to the Chief Counsel for Advocacy
of the Small Business Administration. In addition, the Notice and IRFA
(or summaries thereof) will be published in the Federal Register.
i. Need for, and objectives of, the proposed rules:
47. As part of its biennial regulatory review, pursuant to section
11 of the Communications Act, 47 U.S.C. 161, the Commission solicits
comment on whether we should retain, modify, or eliminate the
commercial mobile radio service (CMRS) spectrum cap, 47 CFR 20.6. In
this Notice of Proposed Rulemaking (Notice), the Commission also seeks
comment on the petition to forbear from enforcement of the CMRS
spectrum cap filed by the Cellular Telecommunications Industry
Association on September 30, 1998. The discussion in the Notice is
focused on whether to retain, modify, eliminate or forbear from
enforcing the spectrum cap by looking at the competitive changes in the
CMRS market, reexamining the goals that the spectrum cap was initially
designed to achieve, and seeking comment on whether there are less
restrictive measures, or additional public interest goals we should
consider in determining whether to eliminate or modify the spectrum
aggregation limits. Additionally, the Commission seeks comment on how
our analysis may differ in the context of markets with many wireless
competitors, as opposed to markets, for example, in rural or high-cost
areas, where few or no broadband Personal Communications Service (PCS)
providers may have initiated service, and whether we should consider
the rule on a market-by-market basis. The Notice sets forth several
different possible modifications or alterations to the cap and seeks
comments on them, as well as other options that commenters may suggest.
Specific issues raised for comment include: (1) expanding the allowable
amount of geographic overlap between a licensee's various broadband
CMRS holdings; (2) increasing the amount of spectrum that a single
entity may hold beyond 45 MHz; (3) altering the ownership attribution
rules associated with the spectrum cap; (4) forbearing from enforcement
of the CMRS spectrum cap pursuant to our authority under section 10 of
the Communications Act, 47 U.S.C. 160; (5) establishment of a sunset
for the CMRS spectrum cap; and, (6) elimination the CMRS spectrum cap
and reliance on a case-by-case analysis of the potential competitive
effects of a proposed spectrum holding pursuant to section 310(d) of
the Communications Act, 47 U.S.C. 310(d). The Commission also solicits
comment on whether we should retain, modify, or repeal the cellular
cross-ownership rule, 47 CFR 22.942.
ii. Legal basis:
48. The proposed action is authorized under sections 1, 4(i), 10,
11, 303(g), and 303(r) of the Communications Act of 1934, as amended,
47 U.S.C. 151, 154(i), 160, 161, 303(g) and 303(r).
iii. Description and estimate of the number of small entities to
which rules will apply:
[[Page 70734]]
49. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that will be
affected by our rules. 5 U.S.C. 603(b)(3), 604(a)(3). The RFA generally
defines the term ``small entity'' as having the same meaning as the
terms ``small business,'' ``small organization,'' and ``small
governmental jurisdiction.'' 5 U.S.C. 601(6). A small organization is
generally ``any not-for-profit enterprise which is independently owned
and operated and is not dominant in its field.'' 5 U.S.C. 601(4).
Nationwide, there are 275,801 small organizations. ``Small governmental
jurisdiction'' generally means ``governments of cities, counties,
towns, townships, villages, school districts, or special districts,
with a population of less than 50,000.'' 5 U.S.C. 601(5). As of 1992,
there were 85,006 such jurisdictions in the United States.
50. In addition, the term ``small business'' has the same meaning
as the term ``small business concern'' under Section 3 of the Small
Business Act. 5 U.S.C. 601(3). Under the Small Business Act, a ``small
business concern'' is one which: (1) is independently owned and
operated; (2) is not dominant in its field of operation; and (3) meets
any additional criteria established by the Small Business
Administration (SBA). 15 U.S.C. 632.
51. The Notice could result in rule changes that, if adopted, would
affect all small businesses that currently are or may become licensees
of the broadband PCS, cellular and/or specialized mobile radio (SMR)
services. To assist the Commission in analyzing the total number of
affected small entities, commenters are requested to provide estimates
of the number of small entities that may be affected by any rule
changes resulting from the Notice. The Commission estimates the
following number of small entities may be affected by the proposed rule
changes:
52. Cellular Radiotelephone Service. The Commission has not
developed a definition of small entities applicable to cellular
licensees. Therefore, the applicable definition of small entity is the
definition under the SBA rules applicable to radiotelephone companies.
This definition provides that a small entity is a radiotelephone
company employing no more than 1,500 persons. 13 CFR 121.20. The size
data provided by the SBA does not enable us to make a meaningful
estimate of the number of cellular providers which are small entities
because it combines all radiotelephone companies with 1000 or more
employees. The 1992 Census of Transportation, Communications, and
Utilities, conducted by the Bureau of the Census, is the most recent
information available. This document shows that only twelve
radiotelephone firms out of a total of 1,178 such firms which operated
during 1992 had 1,000 or more employees. Therefore, even if all twelve
of these firms were cellular telephone companies, nearly all cellular
carriers were small businesses under the SBA's definition. The
Commission assumes, for purposes this IRFA, that all of the current
cellular licensees are small entities, as that term is defined by the
SBA. In addition, the Commission notes that there are 1,758 cellular
licenses; however, a cellular licensee may own several licenses. The
most reliable source of information regarding the number of cellular
service providers nationwide appears to be data the Commission
publishes annually in its Telecommunications Industry Revenue report,
regarding the Telecommunications Relay Service (TRS). The report places
cellular licensees and Personal Communications Service (PCS) licensees
in one group. According to the data released in November 1997, there
are 804 companies reporting that they engage in cellular or PCS
service. It seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees;
however, the Commission is unable at this time to estimate with greater
precision the number of cellular service carriers qualifying as small
business concerns under the SBA's definition. For purposes of this
IRFA, the Commission estimates that there are fewer than 804 small
cellular service carriers.
53. Broadband PCS. The broadband PCS spectrum is divided into six
frequency blocks designated A through F. The Commission has defined
``small entity'' in the auctions for Blocks C and F as a firm that had
average gross revenues of less than $40 million in the three previous
calendar years. This definition of ``small entity'' in the context of
broadband PCS auctions has been approved by the SBA. The Commission has
auctioned broadband PCS licenses in blocks A through F. Of the
qualified bidders in the C and F block auctions, all were
entrepreneurs. Entrepreneurs was defined for these auctions as
entities, together with affiliates, having gross revenues of less than
$125 million and total assets of less than $500 million at the time the
FCC Form 175 application was filed. Ninety bidders, including C block
auction winners, won 493 C block licenses and 88 bidders won 491 F
block licenses. For purposes of this IRFA, the Commission assumes that
all of the 90 C block broadband PCS licensees and 88 F block broadband
PCS licensees, a total of 178 licensees, are small entities.
54. Specialized Mobile Radio (SMR). The Commission awards bidding
credits in auctions for geographic area 800 MHz and 900 MHz SMR
licenses to firms that had revenues of no more than $15 million in each
of the three previous calendar years. This regulation defining ``small
entity'' in the context of 800 MHz and 900 MHz SMR has been approved by
the SBA. The Commission does not know how many firms provide 800 MHz or
900 MHz geographic area SMR service pursuant to extended implementation
authorizations, nor how many of these providers have annual revenues of
no more than $15 million. One firm has over $15 million in revenues.
The Commission assumes for purposes of this IRFA that all of the
remaining existing extended implementation authorizations are held by
small entities, as that term is defined by the SBA. The Commission has
held auctions for geographic area licenses in the 900 MHz SMR band, and
recently completed an auction for geographic area 800 MHz SMR licenses.
There were 60 winning bidders who qualified as small entities in the
900 MHz auction. There were 10 winning bidders who qualified as small
entities in the 800 MHz auction.
iv. Description of reporting, record keeping and other compliance
requirements:
55. The Notice proposes no additional reporting, record keeping or
other compliance measures.
v. Steps taken to minimize the significant economic impact on small
entities, and significant alternatives considered:
56. The CMRS spectrum cap was established in 1994 in the CMRS Third
Report and Order, and was reaffirmed in the CMRS Spectrum Cap Report
and Order. Since that time, there have been several developments that
have significantly affected CMRS markets. Through this notice the
Commission, as part of the Commission's biennial regulatory review
pursuant to section 11 of the Act, seeks to develop a record regarding
whether the CMRS spectrum cap continues to make regulatory and economic
sense in the current and foreseeable wireless telecommunications
markets. Likewise, the Commission seeks comment on whether there
continue to be a need for the cellular cross-interest rule. We request
comment on whether retention, modification, elimination or forbearance
from enforcement of the CMRS
[[Page 70735]]
spectrum cap is appropriate with respect to small business that are
licensees of the broadband PCS, cellular and/or SMR services. We also
request comment on whether retention, modification or elimination of
the cellular cross-interest rule is appropriate with respect to small
businesses that are cellular licensees.
vi. Federal rules which overlap, duplicate, or conflict with these
proposed rules:
None.
B. Ex Parte Rules--Permit-But-Disclose Proceedings
58. This is a permit-but-disclose notice and comment rulemaking
proceeding. Ex parte presentations are permitted except during the
Sunshine Agenda period, provided they are disclosed as provided in the
Commission's rules. See generally 47 CFR 1.1201, 1203, and 1.1206(a).
C. Comment Dates
59. Pursuant to Sections 1.415 and 1.419 of the Commission's rules,
47 CFR 1.415, 1.419, interested parties may file comments on or before
January 25, 1999, and reply comments on or before February 10, 1999.
Comments and reply comments should be filed in WT Docket No. 98-205.
Comments may be filed using the Commission's Electronic Comment Filing
System (ECFS) or by filing paper copies. See Electronic Filing of
Documents in Rulemaking Proceedings, 63 FR 24,121 (1998).
60. Comments filed through the ECFS can be sent as an electronic
file via the Internet to http://www.fcc.gov/e-file/ecfs.html>.
Generally, only one copy of an electronic submission must be filed.
Comments and reply comments should be filed in WT Docket No. 98-205. In
completing the transmittal screen, commenters should include their full
name, Postal Service mailing address, and the applicable docket or
rulemaking number. Parties may also submit an electronic comment by
Internet e-mail. To get filing instructions for e-mail comments,
commenters should send an e-mail to ecfs@fcc.gov, and should include
the following words in the body of the message, ``get form 