E8-10764. Competitive Networks, Multiunit Premises

AGENCY:

Federal Communications Commission.

ACTION:

Final rule.

SUMMARY:

The Commission adopts rules prohibiting telecommunications carriers from entering into contracts that would make them the exclusive provider of telecommunications services in residential multiple tenant environments (MTEs), e.g., apartment buildings, condominiums, and cooperatives. The rules also prohibit telecommunications carriers from enforcing existing exclusivity contracts.

DATES:

Effective July 14, 2008.

FOR FURTHER INFORMATION CONTACT:

Jon Reel, Wireline Competition Bureau, [phone].

SUPPLEMENTARY INFORMATION:

In this Order, the Commission removes impediments to facilities-based competition to provide voice, video, and data services as intended by the Communications Act of 1934, as amended (the Act) and Commission precedent. As it did with video service providers (see Exclusive Service Contracts for Provision of Video Services in Multiple Dwelling Units and Other Real Estate Developments, MB Docket No. 07-51, 72 FR 61129-01, 22 FCC Rcd 20235 (2007) (Video Nonexclusivity Order)), the Commission finds that the harm to competition from exclusivity agreements outweighs any benefit, and that such contracts are inherently unjust and unreasonable. The rule establishes regulatory parity between telecommunications carriers and cable television operators, which are already banned from entering into or enforcing arrangements to be the sole provider of video services in residential MTEs. By removing impediments to competition, and by establishing regulatory parity among likely competitors, this action should bring the benefits of competition, including competition to provide broadband Internet access services, to residents of MTEs.

The Commission will send a copy of this Report and Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

Final Paperwork Reduction Act of 1995 Analysis

This document does not contain new or modified information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Synopsis of Report and Order

1. On October 25, 2000, the Commission issued the Promotion of Competitive Networks in Local Telecommunications Markets, First Report and Order and Further Notice of Proposed Rulemaking, WT Docket No. 99-217, 66 FR 2322-01, 15 FCC Rcd 22983 (2000) (Competitive Networks Order and Further NPRM) to foster local competition pursuant to the 1996 Act, and adopted several measures to ensure that competing telecommunications providers are able to provide services in MTEs. Most notably for the purposes of this proceeding, that order prohibited carriers from entering into contracts that restrict or effectively restrict owners and managers of commercial MTEs from permitting access by competing carriers. The Commission also sought comment in several areas, including whether the prohibition on exclusive access contracts in commercial MTEs should be extended to residential settings, and whether carriers should be prohibited from enforcing exclusive access provisions in existing contracts in either commercial or residential MTEs.

2. On March 28, 2007, the Wireline Competition Bureau released a public notice inviting interested parties to update the record pertaining to issues raised in the Commission's Competitive Networks proceeding in light of marketplace and industry developments. (Parties Asked to Refresh Record Regarding Promotion of Competitive Networks in Local Telecommunications Markets, WT Docket No. 99-217, CC Docket No. 96-98, public notice, 22 FCC Rcd 5632 (2007)). Specifically, the notice sought updates on the progress of the real estate industry's voluntary commitments aimed at improving tenants' access to alternative telecommunications carriers, and on intervening industry developments such as service bundling and integration.

3. The Commission concludes that exclusive agreements to provide telecommunications services to residential customers in MTEs harm competition and consumers without evidence of countervailing benefits, and the Commission thus prohibits carriers from entering into or enforcing such provisions. This conclusion comports with the Commission's decision in the Video Nonexclusivity Order to prohibit cable operators and others subject to the relevant statutory provisions from executing or enforcing existing video exclusivity provisions in contracts to serve residential multiunit premises. In an environment of increasingly competitive bundled service offerings, the importance of regulatory parity is particularly compelling in the Commission's determination to remove this impediment to fair competition. Moreover, nothing in the record indicates that the competitive benefits that commercial customers enjoy by virtue of the Commission's prior prohibition of such contracts in the commercial context should not also be extended to residential users.

4. Scope of Residential MTEs. In the Competitive Networks Order and Further NPRM, the Commission prohibited exclusivity provisions with respect to the provision of telecommunications services in commercial MTEs. As it observed in that order, however, “some premises are used for both commercial and residential purposes.” That Commission stated that in situations “where a single access agreement covers the entire premises, the Commission finds it most consistent with the purposes of this rule to determine its status as residential or commercial by predominant use.” The Commission has continued that approach in subsequent decisions, for example granting certain section 251(c) unbundling relief for fiber deployed to “predominantly residential” multiunit premises relying on the distinctions drawn in the Competitive Networks Order and Further NPRM. Consistent with that precedent, the protections against telecommunications exclusivity provisions here extend to the tenants in residential MTEs as determined by the MTE's predominant use.

5. As the Commission held in the Competitive Networks Order and Further NPRM, the guests of hotels or similar establishments are not “tenants” covered by the exclusivity ban within the meaning of the Commission's rules. Similar to the Commission's decision in the video context in the Video Nonexclusivity Order, and consistent with prior decisions in the telecommunications context, the Commission likewise does not find the prohibition adopted here necessary to protect guests in “hotels, or similar establishments,” since such guests tend to be transient users, for whom such a prohibition likely would not bring the same competitive benefits. For purposes of protecting consumers in residential MTEs, the prohibition on exclusive arrangements for the provision of telecommunications services does not extend to guests in hotels or similar establishments, as described in the Video Nonexclusivity Order at para. 7.

6. Prohibition on Entering Into and Enforcing Exclusivity. The Commission finds that the record leaves no doubt of the existence of exclusive arrangements for the provision of telecommunications services. These arrangements have the same harmful effects on the provision of triple play services and broadband deployment as discussed in the Video Nonexclusivity Order, and pose just as much of a barrier to competition where they are attached to the provision of telecommunications services as they are to the provision of video services. Such provisions can “prohibit or economically discourage consumers from seeking alternative service providers” for telecommunications services, thereby limiting consumer choice and competition. This not only could adversely affect consumers' rates, but also quality, innovation, and network redundancy.

7. Developments in the markets for telecommunications, video, and broadband services over the last several years support the conclusion to extend the ban on exclusivity to residential MTEs. At the time the Commission issued the Competitive Networks Order and Further NPRM, the Commission distinguished between residential and commercial tenants because of an inconclusive record about the likely competitive effects in residential MTEs, and cited commenter concerns that “in the residential context, potential revenue streams from any one building are typically not enough to attract competitive entry without exclusive contracts.” As the Commission has discussed at length in the Video Nonexclusivity Order and in other recent orders, the dramatic growth of service combinations and the “triple play” reduces the concern that a sole telecommunications service revenue stream is insufficient to generate additional competitive entry, even in the residential context. The shift from competition between stand alone services to that between service bundles, as well as the integration of service providers, supports the removal of obstacles to facilities-based entry. Given that the same facilities used to provide video and data services often can readily be used to provide telephone service, as well, denying such providers the right to do so only serves to reduce the entry incentives of competing providers, and thus competition, for each of those services.

8. In addition, section 706 of the Telecommunications Act of 1996 (1996 Act) and the goal of regulatory parity support this decision. When the Commission last addressed this issue in 2000, the Commission indicated its hope that the growth of facilities-based competition would increase the availability of advanced services. While providers have deployed broadband facilities to a tremendous degree since then, the Commission believes that its actions here will further promote that goal. Because allowing the imposition of restrictions on competitive offerings to residents in a multiunit premise would deter competitors from offering broadband service in combination with video, voice, or other telecommunications services, the Commission also finds that prohibiting carriers from entering into exclusivity contracts for the provision of telecommunications services furthers section 706's mandate to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans” as a basis for expanding the prohibition on contractual exclusivity.

9. The Commission is not persuaded by arguments that the Commission should refrain from taking any action with regard to residential MTEs. In response to the issues raised in the Competitive Networks proceeding, the real estate industry made a commitment to the Commission to develop model contracts and “best practices” to facilitate negotiations for building access, which include a firm policy not to enter into exclusive contracts. While this approach is commendable and pro competitive, the Commission does not find on this record that the effects of this voluntary commitment are not widespread, nor does it find such an unenforceable commitment sufficient to ensure the necessary competitive access.

10. The Commission previously found no evidence of benefits to competition or consumer welfare from the use of exclusive contracts in commercial settings, and the record in residential settings similarly lacks such evidence. Although the data cited in the comments recently refreshing the Competitive Networks proceeding are not detailed, that does not render the anticompetitive impact of exclusivity provisions inconsequential. Qwest reports that it is increasingly encountering residential buildings where it is prohibited to sell its voice services. Indeed, no party disputes that carriers and MTE representatives continue to enter into these contracts, and even in arguing against a prohibition, RAA introduces a survey of property owners and managers showing that two percent of the respondents admit to having at least one exclusive agreement for building access. The Commission is mindful of the concerns of some that “community-based arrangements” allow competitive providers some assurance of a steady revenue stream to justify their initial development, but, for the reasons described above, the Commission is not persuaded by such concerns in the present marketplace environment. Thus, the Commission concludes that the perpetuation of exclusivity contracts is not in the public interest. Just as the Commission concluded in the context of video programming services, the Commission finds that the benefits do not outweigh the harms, and it acts accordingly for telecommunications services. The exclusive provision of telecommunications services in residential MTEs bars competitive and new entry in the telecommunications services market and triple play market, and discourages the deployment of broadband facilities to the American public. This in turn results in higher prices and fewer competitive choices for consumers. Such limitations are inconsistent with the pro-competitive goals of the 1996 Act, and therefore such contracts are unjust and unreasonable practices.

11. The Commission finds that immediately prohibiting the enforcement of such provisions is more appropriate than phasing them out or waiting until contracts expire and are replaced by contracts without exclusivity provisions. The Commission agrees with commenters that such approaches would only serve to further delay the entry of competition to customers in the buildings at issue. To leave existing exclusivity contracts in effect would allow the competitive harms identified to continue for some time, even years, and the Commission believes it is in the public interest to prohibit such contracts from being enforced. Further, to the extent that exclusivity provisions prevent incumbent local exchange carriers (LECs) from serving a building, they could be at odds with applicable carrier of last resort obligations. In addition, nothing in the record suggests that small carriers are particularly disadvantaged by exclusivity prohibitions, or that the cost/benefit analysis for consumers differs when small carriers are involved. Finally, the Commission notes that the validity of exclusivity provisions in contracts for the provision of telecommunications services to residential MTEs has been subject to question for some time. In the Competitive Networks Order and Further NPRM, the Commission found such provisions unreasonable in the context of commercial MTEs, and sought comment on the propriety of a similar prohibition for residential MTEs, including the prohibition on enforcement of existing exclusivity provisions. Thus, carriers have been on notice for more than seven years that the Commission might prohibit both their entering, and enforcement of, such provisions.

12. As the Commission found in the Competitive Networks Order and Further NPRM, it has ample authority to prohibit exclusivity provisions in agreements for the provision of telecommunications service to residential MTEs. There, the Commission specifically found that “exclusive contracts for telecommunications service in commercial settings impede the pro-competitive purposes of the 1996 Act and appear to confer no substantial countervailing public benefits,” and thus “a carrier's agreement to such a contract is an unreasonable practice” under section 201(b) of the Communications Act of 1934, as amended (Act).

13. The same conclusion is applicable here because just as in the commercial MTE context, the prohibition of exclusive contracts in the provision of telecommunications services to residential MTEs furthers the same policy goals—facilitating competitive entry, lower prices, and more broadband deployment. Thus, the Commission finds that a carrier's execution or enforcement of such an exclusive access provision is an unreasonable practice and implicates the Commission's authority under section 201(b) of the Act to prohibit unreasonable practices. As with video contracts, the Commission does not limit this prohibition to future exclusivity contracts for the provision of telecommunications services, but also prohibits the enforcement of such existing contracts. In the Competitive Networks Order and Further NPRM, the Commission sought comment on whether to prohibit carriers from enforcing exclusive access provisions in existing contracts in either commercial or residential multiunit premises, including the extent of the Commission's authority to do so. The Commission concludes that it has such authority, and that it is in the public interest to prohibit the enforcement of exclusive contracts for the provision of telecommunications services to residential MTEs.

14. The Commission has authority to “modify * * * provisions of private contracts when necessary to serve the public interest.” See, e.g., Expanded Interconnection with Local Telephone Company Facilities, CC Docket No. 91-141, Memorandum Opinion and Order, 9 FCC Rcd 5154, 5207-10, paras. 197-208 (1994). The Commission has exercised this authority previously when private contracts violate sections 201 through 205 of the Act. As the Commission found in the Competitive Networks Order and Further NPRM, the exclusive access provisions at issue here “perpetuate the very `barriers to facilities-based competition' that the 1996 Act was designed to eliminate,” and appear to confer no substantial countervailing public benefits. Having for the same reasons found such exclusive contracts violate section 201 of the Act, and given the adverse competitive effects of such contracts, the Commission finds it necessary in the public interest to prohibit enforcement of such existing contracts.

15. In addition, the Commission concludes that its prohibition on the enforcement of telecommunications exclusivity contracts here does not violate the Fifth Amendment for the same reasons discussed in the Video Nonexclusivity Order in the context of video exclusivity provisions. In particular, such action is not a per se taking, nor does it represent a regulatory taking under the Supreme Court's framework. As is true in the video context, the prohibition on exclusivity arrangements does not prevent telecommunications carriers from utilizing the facilities they own to provide services to MTEs, nor does it prohibit other types of arrangements such as exclusive marketing arrangements. Exclusive telecommunications contracts have been under scrutiny for years, and have been prohibited by the Commission and states in certain contexts. To the extent that carriers have used exclusivity to obstruct competition, any underlying investment-backed expectations are not sufficiently longstanding or pro-competitive in nature to warrant immunity from regulation. In addition, the prohibition on enforcement of the exclusivity provisions at issue substantially advances the government interest in preventing unreasonable practices reflected in section 201(b) of the Act, and is based on weighing of the relative costs and benefits of such provisions. Moreover, the Commission notes that this action applies only to carriers seeking to enter or enforce telecommunications exclusivity contracts—the Commission is not hereby mandating access to residential or other MTEs. Thus, it finds that it has ample authority to regulate telecommunications carriers' contractual conduct even though it may have a tangential effect on MTE owners.

16. In sum, the Commission concludes that it has both a sufficient policy basis and legal authority to prohibit carriers from entering or enforcing exclusivity provisions on contracts to provide telecommunications services to residential MTEs. By adopting such a prohibition here, it furthers the competitive goals of the 1996 Act, and continues efforts to ensure that consumers in MTEs enjoy the benefits of increased competition in both telephone and video service offerings.

Final Regulatory Flexibility Analysis, WC Docket No. 99-217 (Competitive Networks)

17. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Further Notice of Proposed Rulemaking (Further NPRM) to this proceeding. The Commission sought written public comment on the proposals in the Further NPRM, including comment on the IRFA. The Commission received one comment on the IRFA, from the Real Access Alliance. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

A. Need for, and Objectives of, the Report and Order

18. This Report and Order adopts rules and provides guidance to implement sections 1, 2(a), 4(i), 4(j), 201, 202, 205, and 405 of the Communications Act of 1934, as amended (the Act) and section 706 of the Telecommunications Act of 1996. Those sections of the Act authorize the Commission to prohibit any telecommunications carrier from enforcing or executing contracts with premises owners for provision of telecommunications service alone or in combination with other services in predominantly residential multiple tenant environments (MTEs). The Commission has found that existing and future exclusive contracts constitute an unreasonable barrier to entry for competitive entrants that would impede competition and accelerated broadband deployment, and that they constitute an unfair method of competition. The measures adopted in this Report and Order ensure that, in furtherance of the Telecommunications Act of 1996, certain contractual exclusivity provisions no longer serve as an obstacle to competitive access in the telecommunications market.

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

19. Only one commenter, RAA, submitted a comment that specifically responded to the IRFA. RAA asserts that the IRFA was defective because it did not address the effects of possible outcomes on apartment building owners.

20. We disagree with RAA's assertion. In fact, the IRFA discussed apartment building owners specifically in paragraph 15. Moreover, an IRFA need only address the concerns of entities directly regulated by the Commission. The Commission does not directly regulate apartment building operators. Accordingly, even if the IRFA had not addressed the concerns of apartment building owners, it would not be defective. When an agency finds that there is no direct impact on a substantial number of small entities that are subject to the requirements of the rule, then no discussion of alternatives, less costly than the proposed rule, is required.

C. Description and Estimate of the Number of Small Entities To Which the Rules Will Apply

21. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the rules adopted herein. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” 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) satisfies any additional criteria established by the SBA.

22. The rules and guidance adopted by this Report and Order will ease the entry of providers of telecommunications services, including those providing the “triple play” of voice, video, and broadband Internet access service. The Commission has determined that the group of small entities directly affected by the rules adopted herein consists of wireline and wireless telecommunications carriers. Therefore, in the Report and Order, the Commission considers the impact of the rules on carriers. A description of such small entities, as well as an estimate of the number of such small entities, is provided below.

23. Small Businesses. Nationwide, there are a total of approximately 22.4 million small businesses according to SBA data.

24. Small Organizations. Nationwide, there are approximately 1.6 million small organizations. Small Governmental Jurisdictions. The term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2002 indicate that there were 87,525 local governmental jurisdictions in the United States. The Commission estimates that, of this total, 84,377 entities were “small governmental jurisdictions.” Thus, the Commission estimates that most governmental jurisdictions are small.

1. Wireline Carriers and Service Providers

25. The Commission has included small incumbent local exchange carriers (LECs) in this present RFA analysis. As noted above, a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees) and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent LECs are not dominant in their field of operation because any such dominance is not “national” in scope. The Commission has therefore included small incumbent LECs in this RFA analysis, although the Commission emphasizes that this RFA action has no effect on Commission analyses and determinations in other, non-RFA contexts.

26. Incumbent LECs. Neither the Commission nor the SBA has developed a small business size standard specifically for incumbent LECs. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,303 carriers have reported that they are engaged in the provision of incumbent local exchange services. Of these 1,303 carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by the Commission's action.

27. Competitive LECs, Competitive Access Providers (CAPs), “Shared-Tenant Service Providers,” and “Other Local Service Providers.” Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 859 carriers have reported that they are engaged in the provision of either competitive access provider services or competitive LEC services. Of these 859 carriers, an estimated 741 have 1,500 or fewer employees and 118 have more than 1,500 employees. In addition, 16 carriers have reported that they are “Shared-Tenant Service Providers,” and all 16 are estimated to have 1,500 or fewer employees. In addition, 44 carriers have reported that they are “Other Local Service Providers.” Of the 44, an estimated 43 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, “Shared-Tenant Service Providers,” and “Other Local Service Providers” are small entities.

28. Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a small business size standard specifically for providers of interexchange services. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 330 carriers have reported that they are engaged in the provision of interexchange service. Of these, an estimated 309 have 1,500 or fewer employees and 21 have more than 1,500 employees. Consequently, the Commission estimates that the majority of IXCs are small entities that may be affected by the Commission's action.

2. Wireless Telecommunications Service Providers

29. Below, for those services subject to auctions, the Commission notes that, as a general matter, the number of winning bidders that qualify as small businesses at the close of an auction does not necessarily represent the number of small businesses currently in service. Also, the Commission does not generally track subsequent business size unless, in the context of assignments or transfers, unjust enrichment issues are implicated.

30. Wireless Service Providers. The SBA has developed a small business size standard for wireless firms within the two broad economic census categories of “Paging” and “Cellular and Other Wireless Telecommunications.” Under both SBA categories, a wireless business is small if it has 1,500 or fewer employees. For the census category of Paging, Census Bureau data for 2002 show that there were 807 firms in this category that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. Thus, under this category and associated small business size standard, the majority of firms can be considered small. For the census category of Cellular and Other Wireless Telecommunications, Census Bureau data for 2002 show that there were 1,397 firms in this category that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, under this second category and size standard, the majority of firms can, again, be considered small.

31. Cellular Licensees. The SBA has developed a small business size standard for wireless firms within the broad economic census category “Cellular and Other Wireless Telecommunications.” Under this SBA category, a wireless business is small if it has 1,500 or fewer employees. For the census category of Cellular and Other Wireless Telecommunications, Census Bureau data for 2002 show that there were 1,397 firms in this category that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, under this category and size standard, the majority of firms can be considered small. Also, according to Commission data, 437 carriers reported that they were engaged in the provision of cellular service, Personal Communications Service (PCS), or Specialized Mobile Radio (SMR) Telephony services, which are placed together in the data. The Commission has estimated that 260 of these are small under the SBA small business size standard.

32. Paging. The SBA has developed a small business size standard for the broad economic census category of “Paging.” Under this category, the SBA deems a wireless business to be small if it has 1,500 or fewer employees. Census Bureau data for 2002 show that there were 807 firms in this category that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. In addition, according to Commission data, 365 carriers have reported that they are engaged in the provision of “Paging and Messaging Service.” Of this total, the Commission estimates that 360 have 1,500 or fewer employees, and five have more than 1,500 employees. Thus, in this category the majority of firms can be considered small.

33. We also note that, in the Paging Second Report and Order, the Commission adopted a size standard for “small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. In this context, a small business is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. The SBA has approved this definition. An auction of Metropolitan Economic Area (MEA) licenses commenced on February 24, 2000, and closed on March 2, 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies claiming small business status won 440 licenses. An auction of MEA and Economic Area (EA) licenses commenced on October 30, 2001, and closed on December 5, 2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-two companies claiming small business status purchased 3,724 licenses. A third auction, consisting of 8,874 licenses in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs commenced on May 13, 2003, and closed on May 28, 2003. Seventy-seven bidders claiming small or very small business status won 2,093 licenses. The Commission also notes that, currently, there are approximately 74,000 Common Carrier Paging licenses.

34. Wireless Communications Services. This service can be used for fixed, mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission established small business size standards for the wireless communications services (WCS) auction. A “small business” is an entity with average gross revenues of $40 million or less for each of the three preceding years, and a “very small business” is an entity with average gross revenues of $15 million or less for each of the three preceding years. The SBA has approved these small business size standards. The Commission auctioned geographic area licenses in the WCS service. In the auction, there were seven winning bidders that qualified as “very small business” entities, and one that qualified as a “small business” entity.

35. Wireless Telephony. Wireless telephony includes cellular, personal communications services (PCS), and specialized mobile radio (SMR) telephony carriers. As noted earlier, the SBA has developed a small business size standard for “Cellular and Other Wireless Telecommunications” services. Under that SBA small business size standard, a business is small if it has 1,500 or fewer employees. According to Commission data, 432 carriers reported that they were engaged in the provision of wireless telephony. The Commission has estimated that 221 of these are small under the SBA small business size standard.

36. Broadband Personal Communications Service. The broadband Personal Communications Service (PCS) spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission defined “small entity” for Blocks C and F as an entity that has average gross revenues of $40 million or less in the three previous calendar years. For Block F, an additional classification for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. These standards defining “small entity” in the context of broadband PCS auctions have been approved by the SBA. No small businesses, within the SBA-approved small business size standards bid successfully for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities in the Block C auctions. A total of 93 small and very small business bidders won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F. On March 23, 1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. There were 48 small business winning bidders. On January 26, 2001, the Commission completed the auction of 422 C and F Broadband PCS licenses in Auction No. 35. Of the 35 winning bidders in this auction, 29 qualified as “small” or “very small” businesses. Subsequent events, concerning Auction 35, including judicial and agency determinations, resulted in a total of 163 C and F Block licenses being available for grant.

37. Narrowband Personal Communications Services. The Commission held an auction for Narrowband PCS licenses that commenced on July 25, 1994, and closed on July 29, 1994. A second auction commenced on October 26, 1994 and closed on November 8, 1994. For purposes of the first two Narrowband PCS auctions, “small businesses” were entities with average gross revenues for the prior three calendar years of $40 million or less. Through these auctions, the Commission awarded a total of 41 licenses, 11 of which were obtained by four small businesses. To ensure meaningful participation by small business entities in future auctions, the Commission adopted a two-tiered small business size standard in the Narrowband PCS Second Report and Order. A “small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $40 million. A “very small business” is an entity that, together with affiliates and controlling interests, has average gross revenues for the three preceding years of not more than $15 million. The SBA has approved these small business size standards. A third auction commenced on October 3, 2001 and closed on October 16, 2001. Here, five bidders won 317 (Metropolitan Trading Areas and nationwide) licenses. Three of these claimed status as a small or very small entity and won 311 licenses.

38. 220 MHz Radio Service—Phase I Licensees. The 220 MHz service has both Phase I and Phase II licenses. Phase I licensing was conducted by lotteries in 1992 and 1993. There are approximately 1,515 such non-nationwide licensees and four nationwide licensees currently authorized to operate in the 220 MHz band. The Commission has not developed a small business size standard for small entities specifically applicable to such incumbent 220 MHz Phase I licensees. To estimate the number of such licensees that are small businesses, the Commission applies the small business size standard under the SBA rules applicable to “Cellular and Other Wireless Telecommunications” companies. This category provides that a small business is a wireless company employing no more than 1,500 persons. For the census category Cellular and Other Wireless Telecommunications, Census Bureau data for 1997 show that there were 977 firms in this category, total, that operated for the entire year. Of this total, 965 firms had employment of 999 or fewer employees, and an additional 12 firms had employment of 1,000 employees or more. Thus, under this second category and size standard, the majority of firms can, again, be considered small. Assuming this general ratio continues in the context of Phase I 220 MHz licensees, the Commission estimates that nearly all such licensees are small businesses under the SBA's small business size standard. In addition, limited preliminary census data for 2002 indicate that the total number of cellular and other wireless telecommunications carriers increased approximately 321 percent from 1997 to 2002.

39. 220 MHz Radio Service—Phase II Licensees. The 220 MHz service has both Phase I and Phase II licenses. The Phase II 220 MHz service is a new service and is subject to spectrum auctions. The 220 MHz Third Report and Order adopted a small business size standard for “small” and “very small” businesses for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. This small business size standard indicates that a “small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. A “very small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues that do not exceed $3 million for the preceding three years. The SBA has approved these small business size standards. Auctions of Phase II licenses commenced on September 15, 1998, and closed on October 22, 1998. In the first auction, 908 licenses were auctioned in three different-sized geographic areas: Three nationwide licenses, 30 Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908 licenses auctioned, 693 were sold. Thirty-nine small businesses won licenses in the first 220 MHz auction. The second auction included 225 licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies claiming small business status won 158 licenses.

40. 800 MHz and 900 MHz Specialized Mobile Radio Licenses. The Commission awards “small entity” and “very small entity” bidding credits in auctions for Specialized Mobile Radio (SMR) geographic area licenses in the 800 MHz and 900 MHz bands to firms that had revenues of no more than $15 million in each of the three previous calendar years, or that had revenues of no more than $3 million in each of the previous calendar years, respectively. These bidding credits apply to SMR providers in the 800 MHz and 900 MHz bands that either hold geographic area licenses or have obtained extended implementation authorizations. 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 here, 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 800 MHz and 900 MHz SMR bands. There were 60 winning bidders that qualified as small or very small entities in the 900 MHz SMR auctions. Of the 1,020 licenses won in the 900 MHz auction, bidders qualifying as small or very small entities won 263 licenses. In the 800 MHz auction, 38 of the 524 licenses won were won by small and very small entities.

41. 700 MHz Guard Band Licensees. The 700 MHz Guard Band Order adopted a small business size standard for “small businesses” and “very small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A “small business” as an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $3 million for the preceding three years. An auction of 52 Major Economic Area (MEA) licenses commenced on September 6, 2000, and closed on September 21, 2000. Of the 104 licenses auctioned, 96 licenses were sold to nine bidders. Five of these bidders were small businesses that won a total of 26 licenses. A second auction of 700 MHz Guard Band licenses commenced on February 13, 2001 and closed on February 21, 2001. All eight of the licenses auctioned were sold to three bidders. One of these bidders was a small business that won a total of two licenses.

42. 39 GHz Service. The Commission created a special small business size standard for 39 GHz licenses—an entity that has average gross revenues of $40 million or less in the three previous calendar years. An additional size standard for “very small business” is: an entity that, together with affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. The SBA has approved these small business size standards. The auction of the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are small entities that may be affected by the rules and policies adopted herein.

43. Wireless Cable Systems. Wireless cable systems use 2 GHz band frequencies of the Broadband Radio Service (“BRS”), formerly Multipoint Distribution Service (“MDS”), and the Educational Broadband Service (“EBS”), formerly Instructional Television Fixed Service (“ITFS”), to transmit video programming and provide broadband services to residential subscribers. These services were originally designed for the delivery of multichannel video programming, similar to that of traditional cable systems, but over the past several years licensees have focused their operations instead on providing two-way high-speed Internet access services. The Commission estimates that the number of wireless cable subscribers is approximately 100,000, as of March 2005. Local Multipoint Distribution Service (“LMDS”) is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. As described below, the SBA small business size standard for the broad census category of Cable and Other Program Distribution, which consists of such entities generating $13.5 million or less in annual receipts, appears applicable to MDS, ITFS and LMDS. Other standards also apply, as described.

44. The Commission has defined small MDS (now BRS) and LMDS entities in the context of Commission license auctions. In the 1996 MDS auction, the Commission defined a small business as an entity that had annual average gross revenues of less than $40 million in the previous three calendar years. This definition of a small entity in the context of MDS auctions has been approved by the SBA. In the MDS auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61 claimed status as a small business. At this time, the Commission estimates that of the 61 small business MDS auction winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, there are approximately 392 incumbent MDS licensees that have gross revenues that are not more than $40 million and are thus considered small entities. MDS licensees and wireless cable operators that did not receive their licenses as a result of the MDS auction fall under the SBA small business size standard for Cable and Other Program Distribution. Information available to us indicates that there are approximately 850 of these licensees and operators that do not generate revenue in excess of $13.5 million annually. Therefore, the Commission estimates that there are approximately 850 small entity MDS (or BRS) providers, as defined by the SBA and the Commission's auction rules.

45. Educational institutions are included in this analysis as small entities; however, the Commission has not created a specific small business size standard for ITFS (now EBS). The Commission estimates that there are currently 2,032 ITFS (or EBS) licensees, and all but 100 of the licenses are held by educational institutions. Thus, the Commission estimates that at least 1,932 ITFS licensees are small entities.

46. In the 1998 and 1999 LMDS auctions, the Commission defined a small business as an entity that has annual average gross revenues of less than $40 million in the previous three calendar years. Moreover, the Commission added an additional classification for a “very small business,” which was defined as an entity that had annual average gross revenues of less than $15 million in the previous three calendar years. These definitions of “small business” and “very small business” in the context of the LMDS auctions have been approved by the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of the 104 auction winners, 93 claimed status as small or very small businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based on this information, the Commission believes that the number of small LMDS licenses will include the 93 winning bidders in the first auction and the 40 winning bidders in the re-auction, for a total of 133 small entity LMDS providers as defined by the SBA and the Commission's auction rules.

47. Local Multipoint Distribution Service. Local Multipoint Distribution Service (LMDS) is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. The auction of the 1,030 LMDS licenses began on February 18, 1998 and closed on March 25, 1998. The Commission established a small business size standard for LMDS licensees as an entity that has average gross revenues of less than $40 million in the three previous calendar years. An additional small business size standard for “very small business” was added as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. The SBA has approved these small business size standards in the context of LMDS auctions. There were 93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very small business bidders won approximately 277 A Block licenses and 387 B Block licenses. On March 27, 1999, the Commission re-auctioned 161 licenses; there were 40 winning bidders. Based on this information, the Commission concludes that the number of small LMDS licenses consists of the 93 winning bidders in the first auction and the 40 winning bidders in the re-auction, for a total of 133 small entity LMDS providers.

48. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 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, the small business size standard was an entity that, together with its affiliates, has no more than a $6 million net worth and, after federal income taxes (excluding any carryover losses), has no more than $2 million in annual profits each year for the previous two years. The 218-219 MHz Report and Order and Memorandum Opinion and Order established a small business size standard for a “small business” as an entity that, together with its affiliates and persons or entities that hold interests in such an entity and their affiliates, has average annual gross revenues not to exceed $15 million for the preceding three years. A “very small business” is defined as an entity that, together with its affiliates and persons or entities that hold interests in such an entity and its affiliates, has average annual gross revenues not to exceed $3 million for the preceding three years. The Commission cannot estimate, however, the number of licenses that will be won by entities qualifying as small or very small businesses under the rules in future auctions of 218-219 MHz spectrum.

49. 24 GHz—Incumbent Licensees. This analysis may affect incumbent licensees who were relocated to the 24 GHz band from the 18 GHz band and applicants who wish to provide services in the 24 GHz band. The applicable SBA small business size standard is that of “Cellular and Other Wireless Telecommunications” companies. This category provides that such a company is small if it employs no more than 1,500 persons. According to Census Bureau data for 1997, there were 977 firms in this category, total, that operated for the entire year. Of this total, 965 firms had employment of 999 or fewer employees, and an additional 12 firms had employment of 1,000 employees or more. Thus, under this size standard, the great majority of firms can be considered small. These broader census data notwithstanding, the Commission believes that there are only two licensees in the 24 GHz band that were relocated from the 18 GHz band, Teligent and TRW, Inc. It is the Commission's understanding that Teligent and its related companies have less than 1,500 employees, though this may change in the future. TRW is not a small entity. Thus, only one incumbent licensee in the 24 GHz band is a small business entity.

50. 24 GHz—Future Licensees. With respect to new applicants in the 24 GHz band, the small business size standard for “small business” is an entity that, together with controlling interests and affiliates, has average annual gross revenues for the three preceding years not in excess of $15 million. “Very small business” in the 24 GHz band is an entity that, together with controlling interests and affiliates, has average gross revenues not exceeding $3 million for the preceding three years. The SBA has approved these small business size standards. These size standards will apply to the future auction, if held.

D. Description of Projected Reporting, Record Keeping and Other Compliance Requirements

51. The rule adopted in the Report and Order will require no additional reporting, record keeping, and other compliance requirements.

E. Steps Taken To Minimize Significant Impact on Small Entities, and Significant Alternatives Considered

52. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

53. Because the Report and Order imposes no compliance or reporting requirements on any entity, only the last of the foregoing alternatives is material. The Report and Order takes note in paragraph 13 above that nothing in the record suggests that small carriers are particularly disadvantaged by exclusivity prohibitions, or that the cost/benefit analysis for consumers differs when small carriers are involved.

F. Report to Congress

54. The Commission will send a copy of the Order, including this FRFA, in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act. A copy of the Order and FRFA (or summaries thereof) will also be published in the Federal Register.

Final Paperwork Reduction Act of 1995 Analysis

This document does not contain new or modified information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Congressional Review Act

The Commission will send a copy of this Report and Order and Order on Remand in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

Ordering Clauses

55. Accordingly, It is ordered, pursuant to sections 1, 2(a), 4(j), 4(i), 201, 202, 205, and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 154(j), 201, 202, 205, and 405, and pursuant to section 706 of the Telecommunications Act of 1996, 47 U.S.C. 157 nt., that the Report and Order in WT Docket No. 99-217 is adopted, and that Part 64 of the Commission's Rules, 47 CFR part 64, is amended as set forth in Appendix B of the order. It is the Commission's intention in adopting these rule changes that, if any provision of the rules is held invalid by any court of competent jurisdiction, the remaining provisions shall remain in effect to the fullest extent permitted by law.

56. It is further ordered that the rules and the requirements of this Report and Order shall become effective July 14, 2008.

57. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 64

• Communications common carriers, telecommunications, telephone

Federal Communications Commission.

Marlene H. Dortch,

Secretary.

Final Rules

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 64 as follows:

PART 64—MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

1. The authority citation for part 64 continues to read as follows:

Authority: 47 U.S.C. 151, 152(a), 154(i), 154(j), 201, 202, 205, 405, and 157 nt.

2. Section 64.2500 is revised to read as follows:

§ 64.2500

Prohibited agreements.

(a) No common carrier shall enter into any contract, written or oral, that would in any way restrict the right of any commercial multiunit premises owner, or any agent or representative thereof, to permit any other common carrier to access and serve commercial tenants on that premises.

(b) No common carrier shall enter into or enforce any contract, written or oral, that would in any way restrict the right of any residential multiunit premises owner, or any agent or representative thereof, to permit any other common carrier to access and serve residential tenants on that premises.

2. Section 64.2501 is revised to read as follows:

§ 64.2501

Scope of limitation.

For the purposes of this subpart, a multiunit premises is any contiguous area under common ownership or control that contains two or more distinct units. A commercial multiunit premises is any multiunit premises that is predominantly used for non-residential purposes, including for-profit, non-profit, and governmental uses. A residential multiunit premises is any multiunit premises that is predominantly used for residential purposes.