[Federal Register Volume 62, Number 147 (Thursday, July 31, 1997)]
[Rules and Regulations]
[Pages 41225-41238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19914]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 90
[PR Docket No. 93-144; GN Docket No. 93-252; PP Docket No. 93-253; FCC
97-224]
Facilitate Future Development of SMR Systems in the 800 MHz
Frequency Band
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In the First Report and Order and Eighth Report and Order in
PR Docket No. 93-144, GN Docket No. 93-252, and PP Docket No. 93-253,
the Commission adopted final service and competitive bidding rules for
the upper 200 channels of the 800 MHz Specialized Mobile Radio (SMR)
band. In the Second Further Notice of Proposed Rulemaking, the
Commission sought comment on additional service and competitive bidding
rules for the remaining 800 MHz SMR spectrum and the General Category
channels. After carefully reviewing the comments and petitions the
Commission received following the issuance of the Further Notice of
Proposed Rulemaking, the Commission addresses the Petitions for
Reconsideration in this order.
EFFECTIVE DATE: September 29, 1997.
FOR FURTHER INFORMATION CONTACT: Shaun Maher or Michael Hamra, Policy
and Rules Branch, Commercial Wireless Division, Wireless
Telecommunications Bureau at (202) 418-0620 or Alice Elder, Auctions
and Industry Analysis Division, Wireless Telecommunications Bureau at
(202) 418-0660.
SUPPLEMENTARY INFORMATION: This Memorandum Opinion and Order on
Reconsideration in PR Docket No. 93-144, GN Docket No. 93-252, and PP
Docket No. 93-253, adopted June 23, 1997, and released July 10, 1997,
is available for inspection and copying during normal business hours in
the FCC Dockets Branch, Room 230, 1919 M Street, NW., Washington, DC.
The complete text may be purchased from the Commission's copy
contractor, International Transcription Service, Inc., 2100 M Street,
NW., Suite 140, Washington, DC 20037 (telephone (202) 857-3800).
I. Background
1. In the 800 MHz Report and Order, 61 FR 6138 (February 16, 1996),
the Commission restructured the licensing framework that governs the
800 MHz SMR service. For the upper 200 channels, the Commission
replaced site-and frequency-specific licensing with a geography-based
system similar to those used in other Commercial Mobile Radio Services
(``CMRS''). The Commission designated the upper 200 channels of 800 MHz
SMR spectrum for geographic licensing, and created 120-, 60- and 20-
channel blocks within the U.S. Department of Commerce Bureau of
Economic Analysis Economic Areas (``EAs''). The Commission concluded
that mutually exclusive applications for these licenses would be
awarded through competitive bidding. Additionally, the Commission
granted EA licensees the right to relocate incumbent licensees out of
the upper 200 channels to comparable facilities. The Commission
reallocated the 150 contiguous 800 MHz General Category channels for
exclusive SMR use.
2. The Commission also established competitive bidding rules for
the upper 200 channels of 800 MHz SMR spectrum. Specifically, the order
provided for the award of 525 EA licenses in the upper 200 channel
block through a simultaneous multiple round auction. Incumbents and new
entrants may bid for all EA licenses, subject to the CMRS spectrum cap
in Sec. 20.6 of the Commission's rules. The Commission also adopted a
``tiered'' approach to installment payments for small businesses in the
upper 200 channel block, and allowed partitioning for rural telephone
companies.
A. Geographic Licensing in the 800 MHz SMR Band
1. Geographic Licensing in Contiguous Spectrum Blocks
3. In the CMRS Third Report and Order, 59 FR 59945 (November 21,
1996), the Commission found that licensing 800 MHz SMR spectrum in
contiguous blocks would make SMR systems more competitive with other
CMRS systems by maximizing technical flexibility so that, for example,
it would be possible for SMR licensees to deploy spread spectrum and
other broadband technologies. In the 800 MHz Report and Order the
Commission concluded that the entire upper 200 channel block should be
licensed on a contiguous basis throughout a geographic area because the
SMR geographic license would then be equivalent in size to the smallest
block of spectrum now authorized for broadband PCS.
4. Commenters argue that the Commission has not justified its
decision to group the upper 200 channels of 800 MHz SMR spectrum into
geographically licensed contiguous blocks or adequately explained how
the need for contiguous spectrum justifies disruption of established
SMR operators and that the Commission's rules impermissibly fail to
mandate that contiguous blocks of spectrum be used to offer innovative
or competitive services. They also argue that the Commission's decision
should be reversed if it is based on reducing its administrative
burden. It argues that scarcity of Commission resources cannot justify
any changes in its rules and that geographic licensing will in fact
increase the Commission's administrative burden. One commenter asserts
that most incumbent licensees span all three EA frequency blocks. Thus,
relocating most incumbents will require that at least four applications
be filed, placed on public notice and processed by the Commission. It
also claims that these burdens will be exacerbated by the burdens of
site-specific licensing because the Commission has not eliminated
current site-specific licenses.
5. Discussion: The Commission rejects the contention that it has
failed to justify the need for licensing the upper 200 channels in
contiguous blocks. In the CMRS Third Report and Order, the Commission
determined that, where feasible, assigning contiguous spectrum is
likely to enhance the competitive potential of CMRS geographic
providers. In the 800 MHz Report and Order the Commission determined
that geographic licensing and contiguous spectrum are essential to the
competitive viability of SMR service because they will permit use of
spread spectrum and other broadband technologies and eliminate delays
and transaction costs associated with site-by-site licensing.
6. The Commission disagrees with Commenters claim that geographic
licensing will have a negative impact on existing SMR operators. The
Commission's rules continue to protect incumbent operators from
interference. In the upper 200 channels, the Commission requires EA
licensees to comply with existing rules that require minimum separation
from incumbents' facilities. Thus, an EA licensee must either locate
its station at least 113 km (70 miles) from any incumbent's facility,
or if it seeks to operate stations less than 113 km from an incumbent's
facility, it must comply with the Commission's short-spacing rule,
unless it negotiates a shorter distance with the incumbent.
Additionally, incumbent SMRs on the
[[Page 41226]]
upper 200 channels also have the operational flexibility to add
transmitters in their existing coverage area, without prior
notification to the Commission, so long as their 22 dBu interference
contours are not exceeded. The Commission cannot agree with the
contention that competition and innovation will be increased by
allocation of spectrum resources via a blanket regulatory prescription
rather than through individual market participants' decisions. In the
800 MHz Report and Order, the Commission stated that its goal was to
provide regulatory symmetry and operational flexibility that will allow
SMR providers to use new technologies and compete with other CMRS
providers. By giving licensees flexibility to use spectrum on either a
contiguous or non-contiguous basis, the Commission gives SMR operators
more ways to provide service and more ways to compete with other CMRS
providers.
7. The Commission also rejects the claim that geographic licensing
will increase its administrative burden. Under the Commission's site-
specific licensing rules, it has received and processed approximately
6,000 applications for individual SMR licenses and modifications a
year, and in some years, as many as 20,000 applications. By contrast,
geographic licensing of the upper 200 channels will be accomplished by
issuing 525 EA licenses, and virtually eliminating the need for
subsequent modifications of any license unless it is transferred or
partitioned. Moreover, licensees will no longer be required to file an
application for each base station; geographic licensees will be able to
construct base-stations in pre-defined areas without the Commission's
prior approval. These changes represent dramatic reductions in
administrative burden for both licensees and the Commission. In this
connection, the Commission rejects commenter's claim that reducing its
administrative costs is an invalid basis for adopting new rules. While
the Commission's rule changes are driven by numerous considerations
other than administrative cost, e.g., promoting more efficient spectrum
use and creating a regulatory framework that will allow 800 MHz SMR
operators to compete more effectively with other CMRS providers, the
Commission considers improving its efficiency and reducing its cost to
be valid public interest considerations.
2. Size of EA Spectrum Blocks
8. Background. In the 800 MHz Report and Order, the Commission
concluded that dividing the upper 200 channels into various-sized
channel blocks would create opportunities for SMR providers with
differing spectrum needs. The Commission rejected proposals to assign
the upper 200 channels in five- and/or ten-channel blocks, concluding
instead that allocating one 120-channel block, one 60-channel block,
and one 20-channel block for licensing on an EA basis would equitably
balance the interests of all potential and existing licensees.
9. Commenters argue that the record does not support the
Commission's decision to group currently allocated channels into
contiguous blocks. They contend that the aggregation of 20, 60, and 120
contiguous channels restricts the number of small business entities
that can compete effectively at auction because relocation channels
will either be unavailable or impracticably costly and that the cost of
relocating 20 or more channels will be prohibitive for small business.
10. Commenters claim that smaller channel blocks would require an
EA applicant desiring adjacent channels to bid more aggressively, and
thus the public would receive more value for the spectrum. They also
argue that 5-channel geographic licenses would facilitate bidding for
designated entities such as small businesses.
11. Discussion. The Commission rejects commenters' argument that
the public interest would be better served by five-channel spectrum
blocks. The Commission stated in the 800 MHz Report and Order, that the
use of such small spectrum blocks make it more difficult to obtain
sufficient spectrum to establish a viable and competitive wide-area
system, and to use broadband technologies such as CDMA and GSM. The
Commission also rejects the claim that the aggregation of 20, 60, and
120 channels will reduce opportunities for small businesses. Under
Commission rules, small businesses may form coalitions to raise needed
capital and finance any desired relocations. The Commission has adopted
provisions in its auction rules enabling small businesses to receive
bidding credits.
12. The Commission also rejects Commenter's claim that five-channel
blocks would increase spectrum valuation. The Commission's geographic
licensing system is designed to enhance the competitive potential of
the 800 MHz SMR operators. To accomplish this, the Commission has
tailored the channel blocks to the needs of various users by creating
large, medium and small channel blocks and by placing these blocks to
accommodate the spectrum needs of different-sized SMR providers. As the
Commission recognized in the 800 MHz Report and Order, placing the 120-
channel block closest to the cellular spectrum allocation will assist
operators in providing wide-area service by facilitating dual-mode
operation. Placing the 20-channel block in the portion of spectrum
nearest to the lower 80 SMR channels will allow small to medium-sized
operators to expand capacity while minimizing costs and disruption to
existing customers. Similarly, the Commission expects that in many EA's
medium-sized SMR operators or consortia of smaller SMR operators may
find the 60-channel block suitable to their needs.
13. The Commission similarly is not persuaded by the claim that
allocating spectrum in five-channel blocks will reduce the burdens of,
and number of entities involved in, relocation negotiations. To the
contrary, the Commission's relocation mechanism provided for cost
sharing and collective negotiations so that relocation can efficiently
occur. Additionally, the Commission notes that in the lower 80
channels, where the current five-channel blocks are non-contiguous and
interleaved with blocks of non-SMR channels, it is adopting the
proposal to license in five-channel blocks.
3. 800 MHz SMR Spectrum Aggregation Limit
14. Background. In the CMRS Third Report and Order, the Commission
adopted a 45 MHz limit on aggregation of broadband PCS, cellular, and
SMR spectrum. It concluded that in light of the broadband CMRS spectrum
cap, no separate limitation was necessary on aggregation of spectrum in
the upper 200 channel block. In the 800 MHz Report and Order, the
Commission reasoned that the 800 MHz SMR service is one of many
competitive services within the CMRS marketplace, and that allowing
unrestricted aggregation of SMR spectrum would not impede CMRS
competition so long as 800 MHz SMR licensees were subject to the 45 MHz
CMRS spectrum aggregation limit.
15. Petitions. Commenters argue that the Commission has failed to
consider that its actions will increase the current state of
concentration in the SMR industry. Accordingly, the Commission must
limit EA licensees to something less than the entire 200 channels to
ensure a wide variety of applicants. One commenter suggests that the
Commission prohibit any EA licensee from acquiring more than one third
of the Upper 200 channels in any EA, thus, providing adequate
opportunities for designated entities while avoiding excessive
concentration of licenses.
[[Page 41227]]
Commenters also argue that unlimited spectrum aggregation is critical
to regulatory parity because an SMR operator aggregating all 200
channels in a market would still operate on only 10 MHz of spectrum, as
compared to the 25 MHz for cellular and 30 MHz for A, B and C block PCS
licensees.
16. Discussion. The Commission sees no need to adopt a spectrum
aggregation limit for the upper 200 channels beyond the CMRS spectrum
aggregation limit set forth in 47 CFR 20.6. Market forces--not
regulation--should shape the developing CMRS marketplace, and the
Commission is unpersuaded that further constraints on SMR providers'
ability to acquire spectrum are necessary. In fact, the proposed
restriction could handicap all SMR providers--including small
businesses, rural telephone companies and women-owned and minority-
owned businesses--by limiting their ability to compete with cellular
and broadband PCS. The Commission has determined that the relevant
market for examining concentration of SMR licenses is the CMRS market
as a whole, not SMR only. Thus, even if one licensee were to acquire
all 10 MHz of spectrum in an EA, this would not be sufficient to have
an anti-competitive effect on the relevant market.
4. Licensing in Mexican and Canadian Border Areas
17. Background: In the 800 MHz Report and Order, the Commission
determined that EA licenses would be made available without
distinguishing border from non-border areas. Thus, the Commission
determined that EA licensees can use available border area channels
within their spectrum blocks, subject to international assignment and
coordination. Although, reduced channel availability and operating
restrictions may reduce values of border area EA licenses, the
Commission concluded that EA applicants would consider such factors
when bidding on such licenses. The Commission also noted that EA
licensees could privately negotiate with other licensees to acquire
additional SMR spectrum in border areas.
18. Petitions. Petitioners seek clarification of the Commission's
border area licensing plan. They note that in border areas some of the
upper 200 channels are assigned to non-SMR categories. They seek
clarification that these channels are not subject to EA licensing and
that incumbent licensees are not subject to mandatory relocation.
Petitioners note that in many EAs adjacent to either the Canadian or
Mexican borders, no frequencies are available for SMR use in the 120-
channel, and 60-channel blocks, and few are available in the 20-channel
block and are concerned that bidders will be unaware of this and may
overvalue the spectrum.
19. Discussion. The Commission clarifies that non-SMR channels in
the border area are not subject to EA licensing and thus are unaffected
by this rulemaking. The Commission further clarifies that non-SMR
channels that have been allocated to SMR eligibles in border areas, but
to non-SMR eligibles elsewhere in the country, have been allocated to
the upper 200 channel EA licensees on a pro rata basis. Prospective
bidders should be aware that these channels, which are not available to
them anywhere else except in the border regions, will be assigned for
their use in the Canadian and Mexican border regions. Most importantly,
EA licensees must afford full interference protection to non-SMR
licensees operating in adjacent areas on these channels.
20. The Commission notes that its rules already specify which
channels are available for EA licensing in the border regions. The
Commission believes that license applicants are best situated to decide
whether reduced channel availability in border areas affects the value
of particular licenses. Nonetheless, to help alleviate ITA's concern
about applicant awareness, the Commission will also provide information
regarding channel availability border area in the auction bidders
package.
B. Rights and Obligations of EA Licensees
1. Spectrum Management Rights
21. Background. In the 800 MHz Report and Order, the Commission
determined that if an SMR incumbent fails to construct, discontinues
operations, or otherwise has its license terminated by the Commission,
the licensed spectrum automatically reverts to the EA licensee. The
Commission thus eliminated all waiting lists for SMR category channels
within the upper 200 channel block and terminated its finder's
preference program for the 800 MHz SMR service. Finally, the Commission
created a presumption that permanent transfers and assignments between
an EA licensee and incumbents operating within its spectrum block would
serve the public interest. The Commission reasoned that this would give
EA licensees more flexibility to manage their spectrum, be more
consistent with their cellular and PCS rules, and reduce regulatory
burdens on both licensees and the Commission.
22. Petitions. Petitioner claims that the Commission's approach to
spectrum management violates Congressional intent and its goal of
regulatory symmetry by disadvantaging non-EA winning SMR licensees vis-
a-vis EA licensees. They argue, that incumbents are disadvantaged
because they will be restricted from expanding on wide-area blocks and
that the Commission's construction requirements favor EA licensees over
incumbents. One petitioner claims that the Commission violated section
553(b) of the Administrative Procedure Act by failing to give notice of
the elimination of the finder's preference program. It also argues that
the Commission should temporarily retain the finder's preference
program so that all persons knowing of unconstructed or discontinued
facilities can request a finder's preference, take the channels, and
provide balance among those applying for the wide-area SMR frequency
blocks.
23. Discussion. The Commission rejects the claim that it has
violated Congressional intent by conferring spectrum management rights
on EA licensees, including the right to recover spectrum lost by
incumbents who cease operations or violate its rules. The contention
that these rules discriminate against incumbent licensees is without
merit. Incumbents retain all of the rights to operate that they held
under their pre-existing licenses. Thus, incumbents who operate in
compliance with the Commission's rules are not affected by the spectrum
recovery rule, while incumbents who cease operations or violate the
Commission's rules would lose their spectrum rights under either the
old rules or the new rules. The only difference in the Commission's new
rules is that they have provided for unused spectrum to revert to the
EA licensee rather than to be relicensed by the Commission. This
procedure does not discriminate against incumbents: any incumbent who
seeks the ``superior'' spectrum management rights of an EA license has
the same opportunity to obtain it as any other applicant: by bidding
for the EA license through the auction process.
24. The Commission also rejects the claim that it gives no notice
of the possible elimination of the finder's preference program. Such
notice was inherent in the Commission's proposal that rights to
unconstructed or non-operational channels would automatically revert to
the EA licensee. The elimination of the Commission's finder's
preference program was thus both necessarily implicit in and a
[[Page 41228]]
logical outgrowth of, the Commission's proposals.
25. Finally, the Commission declines to retain the finders
preference program, even on a temporary basis. The Commission's move to
geographic licensing makes the finder's preference program unnecessary
because EA licensees will have incentive to identify and make use of
unused spectrum within their blocks. Additionally, the finder's
preference program is inconsistent with the Commission's objective of
assigning spectrum through geographic licensing because it would
perpetuate site-by-site licensing.
2. Treatment of Incumbent Systems
a. Mandatory Relocation of Incumbents From the Upper 200 Channels
26. Background. In the 800 MHz Report and Order, the Commission
adopted a mandatory relocation mechanism for incumbents on the upper
200 channels. In order to minimize the impact on existing licensees,
the Commission adopted two key provisions: (1) If an EA licensee is
unable or unwilling to provide an incumbent licensee with ``comparable
facilities,'' such an incumbent would not be subject to mandatory
relocation; and (2) any incumbent that is relocated from the upper 200
channels, either voluntarily or involuntarily, will not be required to
relocate again if the Commission adopts its geographic area licensing
proposal for the lower 80 and General Category channels.
27. Petitions. Several petitioners challenge the Commission's
decision to authorize mandatory relocation of incumbent SMR licensees.
They argue that the Commission's licensing framework does not require
mandatory relocation, and that relocations should occur through private
negotiations between EA licensees and incumbents. Other petitioners
object that there are no alternative channels on which to relocate
incumbents. Still, other commenters are concerned that mandatory
relocation will reduce the amount of competitive service offered to the
public and thus be harmful to end users and subscribers. These
petitioners argue that requiring relocation of an incumbent's entire
system effectively excludes most bidders from the auction, including
small businesses. Another petitioner adds that the public interest is
not served by displacing existing SMRs so other SMRs can provide the
same service. And, another argues that the Commission has behaved
inconsistently with respect to 800 MHz and paging services, two
comparably encumbered frequency bands, because they have concluded that
``alternative'' spectrum for relocation exists in the 800 MHz band but
does not exist in the paging bands.
28. Discussion. In the 800 MHz Report and Order, the Commission
concluded that while voluntary negotiations are important and to be
encouraged, mandatory relocation is necessary to achieve the transition
to geographic area licensing and to enhance the flexibility of EA
licensees on the upper 200 channels. The Commission rejects
petitioners' contention that the Commission could accomplish these
goals by relying on voluntary negotiations alone. While the Commission
expects most relocation to occur through voluntary negotiations, it is
concerned that EA licensees will be unable to realize the potential of
their spectrum without some mandatory mechanism in the event voluntary
negotiations prove unsuccessful. The Commission reaffirms its
conclusion that a narrowly tailored mandatory relocation mechanism is
necessary to the achievement of the goals of this proceeding.
29. The Commission also rejects the argument that relocation should
not be required because EA licensees will provide the same service as
incumbents who are relocated. The Commission expects that EA licensees
will use their spectrum to provide a wide variety of services. While
some of these services may be of the same type provided by incumbents
who are relocated, the ability to clear contiguous spectrum will give
EA licensees operational flexibility to provide new and innovative
services that were far more difficult to develop under site-by-site,
channel-by-channel licensing rules. Thus, relocation will not merely
replace one SMR licensee with an identical licensee, but will allow
both parties to move towards more efficient use of the spectrum.
30. Many petitioners who challenge the Commission's adoption of
mandatory relocation argue it will harm incumbent licensees,
particularly small system operators. The Commission disagrees with this
view. The Commission's rules do not require any incumbent to relocate
unless the EA licensee provides comparable facilities and a seamless
transition. Moreover, the rules the Commission is adopting for the
lower 80 and General Category channels provide positive incentives for
small businesses who relocate, including bidding credits. Bidding
credits assist small business in obtaining licenses and thus, provide
small business with an incentive to relocate to the lower channels. In
addition, because the Commission is allowing incumbents on the lower
channels to operate within their 18 dBu contours, incumbents on these
channels (including incumbents who relocate from the upper 200
channels) will have greater operational flexibility and protection from
interference than incumbents on the upper 200 channels.
31. Some petitioners argue that the Commission's mandatory
relocation rules make relocation impractical for all but a few large
SMR operators who have spectrum on the lower 80 and General Category
channels that can be used for relocation. Even if this is so, the
Commission does not agree with petitioners that this is an argument
against mandatory relocation: the Commission considers it preferable to
allow relocation where it is feasible rather than to prohibit it
because it is not feasible in every instance. Moreover, the Commission
disagrees with the premise that small businesses will be discouraged
from participating in the upper 200 channel auction because of the
practical difficulty of relocating incumbents. Many of those small
businesses may themselves be incumbents who choose to bid (individually
or in combination with other small incumbents) for the upper 200
channel blocks rather than relocate. In addition, small businesses may
develop business strategies that do not depend on relocation, e.g.,
entering into partitioning agreements with incumbents or providing
niche services on available channels. The Commission believes that
market forces should be relied upon for these types of decisions.
32. Finally, the Commission rejects the claim that its decision
conflicts with its decision not to adopt mandatory relocation in the
Commission's recently completed paging rulemaking. The Commission's
adoption of geographic licensing rules in paging did not require
relocation because paging channels are technically identical to one
another and paging technology is generally consistent and compatible
regardless of the channel used. Thus, there is no advantage in spectrum
efficiency to be gained from encouraging paging incumbents in a
particular band to migrate to another band. In contrast, the 800 MHz
SMR allocation is a mixture of contiguous and non-contiguous channels,
which has led to the development of sometimes incompatible
technologies. Relocation is therefore beneficial because it creates
incentives for SMR providers to operate on the spectrum most suitable
for their particular technologies.
[[Page 41229]]
b. Mandatory Relocation Implementation Issues
i. Pre-Auction Negotiations
33. Background: In the CMRS Third Report and Order, the Commission
suspended acceptance of new 800 MHz applications pending adoption of
new 800 MHz service and auction rules. On October 4, 1995, the Wireless
Bureau imposed a similar freeze on new applications for the General
Category channels. Under both of these freezes, assignment and transfer
of control applications continued to be processed if the location of
the licensed facilities remained unchanged.
34. In the 800 MHz Report and Order, the Commission partially
lifted the freeze on new applications for SMR and General Category
channel licenses. Specifically, the Commission allowed filing of new
applications to permit assignments and transfers of control involving
modifications to licensed facilities that were intended to accommodate
market-driven, voluntary relocation arrangements between incumbents and
potential EA applicants; and (1) would not change the 22 dBu service
contour of the facilities relocated, (2) the assignment or transfers
would relocate a licensee out of the upper 200 channels block, and (3)
the potential EA applicant and relocating incumbent(s) were
unaffiliated. The Commission took these actions to begin the relocation
process and thus ease the transition to a wide-area licensing scheme
for the upper 200 channels.
35. Petitions. Petitioner requests two modifications of the
Commission's partial lifting of the application freeze. First, it asks
that the Commission ``clarify'' that only incumbent 800 MHz SMR
licensees be treated as ``potential EA applicants.'' It argues that
absent this restriction, anyone could negotiate with an incumbent and
avoid the licensing freeze--regardless of eligibility or intent to bid
in the auctions. Petitioner believes that the ability to participate in
pre-auction settlements should ``travel with the license.'' Second, the
petitioner requests that prior to the auction the Commission accept
only those applications that facilitate relocation of incumbents off
the upper 200 channels, as opposed to moves from one upper 200 channel
to another. Petitioner argues that allowing incumbents to move within
the upper 200 channels could be used by potential EA applicants for
anti-competitive purposes. Such a limitation on pre-auction settlements
would prejudice incumbent licensees without lower band channels to
trade and may reduce the number of auction participants for certain
channels and satisfy Congressional intent that the Commission use
negotiations to avoid mutual exclusivity in application and licensing
procedures.
36. Discussion. The Commission goal in partially lifting the freeze
was to facilitate the voluntary relocation of incumbents off of the
upper 200 channels. In order to facilitate this goal, the Commission
believes that anyone who intends to bid in the upper 200 auction should
be able to use this procedure to obtain spectrum that could be used for
relocation of incumbents. While the Commission anticipates that most
bidders for EA licenses will themselves be incumbents, it is possible
that non-incumbents will bid as well. Therefore, the Commission
declines to limit the filing of new applications to incumbent 800 MHz
SMR licensees as requested. The Commission is concerned that such a
restriction could arbitrarily limit the flexibility of participants in
pre-auction negotiations.
37. The Commission agrees that new applications should only be
accepted if they facilitate relocation of incumbents off of the upper
200 channels. In order for the auction of the upper 200 channels to
occur, bidders must have certainty regarding the channels that are
currently licensed to incumbents. Continuing to accept applications for
new authorizations on the upper 200 channels would deprive bidders of
such certainty and delay the auction process. In addition, the
Commission sees no relocation benefit to allowing licensees to acquire
new spectrum on the upper 200 channels prior to the auction. Therefore,
pre-auction applications will be accepted for relocation purposes only
on the lower 230 channels, and only if they meet the conditions
specified in the 800 MHz Report and Order. The Commission notes,
however, that this policy only applies to initial applications for new
spectrum, not to transfers and assignments of existing authorizations,
which have never been subject to the 800 MHz licensing freeze.
Therefore, incumbents may continue to transfer and assign existing
authorizations on either the upper 200 channels or the lower 230
channels.
ii. Relocation Negotiations
38. Background. To encourage negotiation between EA licensees and
incumbents the Commission adopted a multi-phase, post-auction
relocation mechanism in the 800 MHz Report and Order. In the initial
one-year voluntary period, the EA licensee and incumbents may negotiate
any mutually agreeable relocation agreement. If no agreement is
reached, the EA licensee may initiate a two-year mandatory negotiation
period, during which the parties are required to negotiate in ``good
faith.'' If the parties still fail to reach an agreement, the EA
licensee may then initiate involuntary relocation of the incumbent's
system. However, such relocation must be to comparable facilities and
must be seamless, i.e., without any significant disruption in the
incumbent's operations.
39. Petitions. Several commenters argue that the Commission's
phased negotiation plan does not serve the public interest and object
to the one-year voluntary period and two year mandatory period. They
argue that the Commission recently recognized the advantages of a two-
year voluntary period and have no compelling reason to deviate from
this precedent and that a two-year voluntary period gives incumbents
the flexibility in timing their relocation and minimizes the adverse
impact of relocation on existing SMR service subscribers.
40. Some commenters argue that the Commission should reduce the
mandatory negotiation period to one year, because the 800 MHz
relocation process will be less complex than that faced by PCS
licensees and 2 GHz microwave incumbents. Others support the adopted
relocation process of one-year voluntary and two-year mandatory
negotiation periods, although they want relocation safeguards to apply
to all incumbents, including non-SMR licensees.
41. Commenters complain that the Commission's rules do not require
EA licensees to begin negotiations at any particular time and do not
require an EA licensee to relocate incumbents during the initial year.
It is argued that EA licensees should be required to notify the
incumbent that mandatory negotiations have begun, lest an EA licensee
wait out the voluntary period and then declare later that mandatory
negotiations have begun, leaving incumbents unprepared. Another argues
that the EA licensee must show that it has made a bona fide attempt to
negotiate during the voluntary period.
42. Commenters also complain that the Commission has not explained
how disputes over whether negotiations have been conducted in ``good
faith'' are to be adjudicated. They also argue that since the
Communications Act authorizes the Commission neither to reject nor
delegate its authority to resolve licensing disputes, the Commission
must either (1) expeditiously resolve these disputes or (2) reject
mandatory frequency relocation and let the market determine whether
frequency relocation
[[Page 41230]]
will occur. They also ask that the Commission allow incumbents to
decide who will retune end-user equipment. They note that hundreds of
thousands of mobile units and control stations are included in
incumbent SMR systems. Thus, it is concerned that the Commission's
requirement that EA licensees build and test the new [relocated] system
could be read to permit or require that EA licensees intervene in
relations between an incumbent and its customers.
43. Discussion: The Commission agrees with commenters that the
mandatory negotiations period be limited to one year. The Commission
agrees that such a reduction will serve the public interest by
facilitating the clearing of incumbents from the EA blocks so that the
EA licensees can implement their wide-area systems. Moreover, this
reduction will minimize the period during which incumbents will
experience uncertainty concerning relocation. Finally, the Commission
notes that this approach is consistent with its recent decision in PCS
to adopt a one-year voluntary period and a one-year mandatory period
for the C, D, E, and F blocks.
44. The Commission rejects the proposal that we extend voluntary
negotiations to two years. A one-year voluntary period and a one-year
mandatory period balances the desirability of giving parties
flexibility to negotiate voluntarily with the need to ensure that
relocation, where feasible, occurs expeditiously. The Commission sees
no need to extend the voluntary period for an additional year. The
Commission finds that petitioners have not supported their claims that
another year of voluntary negotiations would ``minimize the adverse
impact'' of relocation. In fact, although the voluntary period has not
yet commenced, incumbents and potential EA licensees can begin
voluntary negotiations at any time, thus affording themselves more than
a year to reach a voluntary agreement. The Commission finds that it
would not serve the public interest to delay for another year. Finally,
the Commission notes that in recent decisions they have reduced
voluntary negotiation periods to one year.
45. In response to the argument that the Commission has not
explained how disputes over good faith will be resolved, the Commission
notes that in this case as in all others, licensees may bring
infractions of the Commission's rules to its attention. Nevertheless,
the Commission strongly encourage parties to use expedited alternative
dispute resolution procedures, such as binding arbitration, mediation
or other alternative dispute techniques. Further, since relocation
agreements are pursuant to private contracts, the Commission
anticipates that parties will pursue common law contract remedies in
the court of competent jurisdiction if alternative dispute resolution
is not successful.
46. Finally, the Commission clarifies that its relocation rules are
not intended to require the mandatory disclosure of incumbents'
proprietary information or customer lists. Incumbents must cooperate
with the EA licensees and facilitate the testing of their relocated
equipment, but incumbents need not disclose competitively sensitive
information.
iii. Notice
47. Background. In the 800 MHz Report and Order, the Commission
recognized that incumbents need prompt information about the EA
licensees' relocation plans. As such, the Commission required EA
licensees within 90 days of the release of the Public Notice commencing
the voluntary negotiation period to notify incumbents operating in
their spectrum block of their intent to relocate such incumbents.
Moreover, if an incumbent does not receive timely notice of the EA
licensees intent to relocate, the EA licensee can no longer require
that incumbent to relocate.
48. Because such notice affects an EA licensee's relocation rights,
the Commission decided that the EA licensee must file a copy of the
relocation notice and proof of the incumbent's receipt of the notice
within ten days of such receipt, or the Commission will presume that
the incumbent was not notified of the intended relocation. An incumbent
licensee notified of intended relocation will be able to require joint
negotiations with all notifying EA licensees. These requirements should
ensure that possible relocation will be properly noticed and
coordinated.
49. Petitions. Commenters ask the Commission to amend its notice
rule to recognize proof of an attempt to notify at the address in the
Commission's database as proper notice and that the Commission clarify
that any EA licensees relocation notice informs the incumbent that it
could be relocated out of any EA license block on which its SMR system
is operating--even those not licensed to the EA licensee providing
notice. Otherwise any EA licensee's failure to provide notice could
provide the incumbent a defense to the relocation of part of its system
(and, thus, the entire system).
50. Discussion. The Commission's rules already require licensees to
update its data base with their current address. The Commission thus
agrees that proof of an attempt to notify at the address in its
database constitutes sufficient evidence of notice. The Commission also
agrees that notice by an EA licensee shall constitute notice with
respect to the incumbent's entire system, including portions of the
system outside the EA licensees' own spectrum block.
c. Incumbent Operational Flexibility
51. Background. In the 800 MHz Report and Order the Commission
declined to allow non-EA licensees to expand their systems at will
after geographic licensing has occurred because such expansion would
devalue geographic licenses by creating continuing uncertainty about
the amount of spectrum available under the EA license. The Commission
recognized, however, that incumbents should be allowed to make minor
alterations to their service areas to preserve the viability of their
systems. Thus, in the 800 MHz Report and Order, the Commission
concluded that incumbent licensees on the upper 200 channels should be
allowed to make modifications within their current 22 dBu interference
contour without prior notice to the Commission. The Commission reasoned
that this would increase incumbents' operational flexibility without
significantly affecting the EA licensee's wide-area system in the same
market. The Commission stated, however, that incumbents must still
comply with its short-spacing criteria even if the modifications do not
extend their 22 dBu interference contours. Finally, the Commission also
decided to allow 800 MHz SMR incumbents who are not relocated to
convert their current site-by-site licenses to a single license
authorizing operations throughout the contiguous and overlapping
service area contours of the incumbent's constructed multiple sites.
52. Petitions. Commenters asked that the Commission clarify that
the rule allowing incumbents to modify their systems within existing 22
dBu contours does not apply to aggregate 22 dBu contours but must be
applied on a channel-specific basis. For example, if an incumbent is
operating on more than one station within a geographic area, petitioner
contends that the incumbent should not be allowed to use a channel
licensed at one station at a site inside the 22 dBu contour of another
station if that channel is not licensed at both sites. Thus, an
incumbent would be allowed to re-use a channel throughout
[[Page 41231]]
the composite 22 dBu contour only of those stations on which that
channel is licensed.
53. One commenter supports the Commission's decision to permit
incumbent licensees to convert their current site-by-site licenses to a
single license, but argues that incumbent licensees might abuse the
procedure by filing spurious requests that would enable unaffiliated
systems to obtain a single geographic license. Commenter proposed that
the Commission allow affected EA licensees to oppose such requests.
54. Discussion. The Commission clarifies that the rule allowing
incumbents to modify their systems within their existing 22 dBu
contours will be applied on a channel-specific basis. The Commission is
concerned that by allowing incumbents to unilaterally redeploy channels
to sites where they were not previously authorized would create
continuous uncertainty for EA licensees as to which channels they could
use at particular locations. Thus, an incumbent may use a channel
within the 22 dBu contour of all facilities authorized on that channel,
but may not redeploy the channel to another facility (or within the 22
dBu contour of such a facility) where that channel is not previously
authorized, unless the EA licensee agrees to the change. The Commission
emphasizes, however, that incumbents and EA licensees may negotiate
alternative arrangements with respect to the deployment of channels for
their respective systems.
55. The Commission rejects the request to allow EA licensees to
formally oppose incumbent requests to convert multiple site-by site
licenses to a single geographic license. The Commission does not
believe this process will be susceptible to abuse by incumbents, as
Nextel contends. Converting site-by-site licenses to a geographic
license will not in any way expand the spectrum rights of incumbents;
it is simply an administrative vehicle for simplifying the licensing
process. In addition, the Commission is requiring incumbents seeking
geographic licenses to show that their facilities are constructed and
operational, and that no other licensee would be able to use the
channels within the designated geographic area.
3. Co-Channel Interference Protection
a. Incumbent SMR Systems
56. Background. In the CMRS Third Report and Order, the Commission
retained most of its existing co-channel protection rules for CMRS
licensees, including its existing station-specific interference
criteria for 800 MHz SMR co-channel stations.
57. In the 800 MHz Report and Order, the Commission concludes that
EA licensees on the upper 200 channels must afford interference
protection to incumbent SMR systems as provided in Sec. 90.621 of the
Commission's rules. As a result, an EA licensee must either (1) locate
its stations at least 113 km (70 miles) from any incumbent's
facilities; (2) comply with the Commission's short-spacing rule; or (3)
negotiate with the incumbent licensee if it wishes to operate closer
than these rules allow. The Commission concluded that these
requirements will adequately protect incumbents while EA licensees to
build stations in their authorized service areas. The Commission
believes that the short-spacing rule provides flexibility to EA
licensees, allows incumbents to fill in ``dead spots,'' and protects
incumbent licensees from actual interference.
58. Petitions. Commenters argue that the Commission's decision
improperly gives geographic licensees more rights than incumbent
licensees. They believe that the Commission's proposal will preclude
affected parties from equitably balancing one operator's desire to
expand against another operator's desire to obtain full value for an
existing investment. Another commenter requests that the Commission
require EA licensees to file an application for each proposed station
and serve a copy on any incumbent within 70 miles of the proposed
station. It claims that some authorized wide-area licensees have
violated the Commission's rules when selecting co-channel station
locations. Additionally, it argues that the Commission should not
proceed until it reviews its database of currently authorized wide-area
stations, confirm those authorizations comply with the Commission's
interference protection rules, and cancel any wide-area authorizations
which were erroneously granted.
59. Consumers also request clarifications of certain aspects of the
interference protection rules. Consumers asks the Commission to clarify
that the full primary co-channel protection standards of Sec. 90.621(b)
must be afforded by non-border area EA auction winners to co-channel I/
LT category licensees. They also ask that the Commission clarify that
EA licensees operating in California and the Pacific Northwest must
comply with the unique co-channel interference protection rules
applicable to certain transmitter sites in mountainous areas of
California and Washington state.
60. Discussion. The Commission disagrees that it must give
incumbent and EA licensees identical co-channel protection rights. In
other auctions, incumbents obtained the benefits of being geographic
area providers by obtaining geographic area licenses. To protect
incumbents who do not want to provide service in a predetermined
geographic area, the Commission has maintained the technical co-channel
interference standards under which such incumbents were originally
licensed. These measures give incumbents the flexibility provided in
their original license. The Commission also permits them to freely add
sites within their existing 22 dBu interference contour.
61. The Commission also declines to adopt the suggestion that it
require EA licensees to file applications on a per-site basis. Such a
procedure is counterproductive to the Commission's goal of providing EA
licensees additional operational flexibility, and would reintroduce
some of the administrative burdens associated with site-by-site
licensing.
62. Finally, as requested by commenters, the Commission clarifies
that (1) full primary co-channel protection pursuant to the standards
of Sec. 90.621(b) must be afforded to co-channel I/LT category
licensees by non-border area EA licensees and (2) the EA licensees must
comply with co-channel separation rules in Sec. 90.621(b) for
designated transmitter sites in California and Washington.
b. Adjacent EA Licensees
63. Background. In the CMRS Third Report and Order, the Commission
concluded that the co-channel interference protection between
geographic area licensees would be similar to those in the cellular and
PCS services, which impose interference protection criteria for border
areas in Commission-defined service areas. In the 800 MHz Report and
Order, the Commission determined that 40 dBuV/m is an appropriate
measure for the desired signal level at the service border area. Thus,
the Commission prohibited EA licensees from exceeding a signal level of
40 dBuV/m at their service area boundaries, unless the bordering EA
licensee(s) agree to a higher field strength.
64. Petitions. One commenter claims that the Commission should
replace the 40 dBuV/m signal level standard with a 22 dBu standard as
proposed. It also claims that the Commission should adopt a stricter
protection standard because entities operating at a signal level of 40
dBuv/m at the same
[[Page 41232]]
geographic boundary will interfere with one another. It further argues
that under the proposal, resulting ``dead spots'' at borders could be
resolved by negotiations between operators.
65. Discussion. The Commission rejects the suggestion that it
replace the 40 dBuV/m signal level standard with a 22 dBu standard. The
Commission's approach here is consistent with its approach in setting
signal strength thresholds in PCS and cellular services. In all three
instances, the Commission has used a threshold that allows the
geographic area licensee to deliver a reliable signal throughout its
licensing area. While the commenter is correct that this could lead to
interference between adjacent licensees operating at full power at a
common service area border, the Commission's experience has shown that
actual interference is uncommon because not all licensees extend
coverage to their licensing area borders. Moreover, the Commission has
found that in those instances where actual interference does occur,
adjacent licensees can and do resolve these situations by mutual
agreement. If the Commission were to use the 22 dBu standard, on the
other hand, an EA licensee seeking to provide reliable coverage at the
border of its licensing area would require the consent of the adjacent
EA licensee even if the adjacent licensee was not operating close
enough to the border to suffer actual interference. The Commission
believes such a requirement would be unnecessarily restrictive.
4. Emission Masks
66. Background. In the CMRS Third Report and Order, the Commission
affirmed its out-of-band emission rules for CMRS services and decided
that out-of-band emission rules should apply only if emissions could
potentially affect other licensees operations. Moreover, the Commission
decided to apply out-of-band emission rules to licensees having
exclusive use of a block of contiguous channels only if needed to
protect operations outside of the licensee's authorized spectrum. In
the 800 MHz Report and Order, the Commission decided to apply out-of-
band emission rules only to the ``outer'' channels included in an EA
license and to spectrum adjacent to interior channels used by
incumbents. The Commission also adopted and modified a proposed
emission mask rule to maintain the existing level of adjacent channel
interference protection.
67. Petitions. Commenters supports the emission mask rule described
in Sec. 90.691, but believes that it should also apply to any non-EA
800 MHz part 90 CMRS system. They propose to amend Sec. 90.210 of the
Commission's rules by adding the following sentence to footnote 3:
``Equipment used in this band by non-EA systems shall comply with this
section or the emission mask provisions of Section 90.691.''
68. Discussion. The Commission agrees with petitioners that its
Sec. 90.691 emission mask rules should also apply to non-EA 800 MHz
part 90 CMRS systems, and thus it will adopt the proposed change to
Sec. 90.210 of the Commission's rules. By making this change, the
Commission will provide incumbent licensees who do not submit a winning
bid in the auction process the opportunity to use the more flexible
emission mask that it has adopted for EA licensees. Moreover, it will
aid CMRS operators who are operating on non-SMR pool channels to have
the same capabilities as those operating in the SMR category. Thus, the
Commission amends Sec. 90.210 by adding the suggested sentence to
footnote 3.
C. Construction Requirements
1. EA Licensees
69. Background. In the 800 MHz Report and Order, the Commission
adopted a five-year construction requirement for EA-based licensees
beginning when the license issues and applying to all of the licensee's
stations within the EA spectrum block, including any stations
previously subject to an earlier construction deadline. The Commission
recognized that it had adopted a ten-year period adopted for PCS
systems, but concluded that the already-substantial construction of 800
MHz systems made a five-year period sufficient. Moreover, the
Commission recognized that geographic-area licensees that have invested
in existing systems or that have incurred bidding costs must construct
facilities and provide service promptly, to recover these costs.
70. Petitions. A petitioner argues that EA licensees should not be
able to obtain an additional five years to construct facilities
previously subject to earlier construction deadlines and that the
Commission's approach rewards spectrum warehousing and is inconsistent
with regulatory symmetry because prior construction deadlines were
issued on a site-specific basis. Other petitioners believe that the
Commission's construction requirements discriminate between EA
licensees and non-EA licensees and that the Commission's rationale for
a five-year construction period is flawed because it rested, in part,
on an order finding that a two-year construction period was sufficient
for existing SMRs.
71. Finally, the petitioner argues that 50 percent minimum channel
use should be required at more than a single location within the EA or
otherwise, a licensee could meet this requirement by building a multi-
channel facility in a rural portion of an EA and avoid serving a
metropolitan area. They contend that this would enable EA licensees to
avoid constructing true wide-area systems and to warehouse spectrum.
72. Discussion. The Commission declines to reconsider its five-year
construction deadline. The Commission is unpersuaded by the unsupported
assertion that a five-year construction period for EA licensees does
not serve the public interest and that its EA construction requirements
will allow those who warehouse to be unjustly enriched at auction. To
the contrary, the auctions process requires licensees to purchase the
rights to, and thereby compensate the American taxpayer for, the
spectrum that they use. Thus, the Commission's auction rules discourage
speculation and spectrum warehousing. Moreover, the Commission does not
agree that its five-year construction requirement will result in or
reward spectrum warehousing. The five-year requirement assures that
geographic licensees promptly build out and provide service.
73. The Commission also rejects claims that it has acted
discriminatorily by adopting a two year construction requirement for
site-by-site licenses and a five-year build out for EA licensees.
Further, the Commission rejects the claim that its rationale for
granting EA licensees a five-year build out period, while limiting
existing site licensees to an additional two years, is flawed. The
Commission imposes a two-year build out period on site licensees
because, by definition, they are seeking authority to build and operate
a particular site. EA licensees, in contrast, will be building multiple
sites throughout their licenses entire geographical area and thus
require a longer build out period. Moreover, the competitive bidding
process provides incentives for EA licensees to build out quickly, and
thus reduces the likelihood that a longer construction period would
lead to spectrum warehousing.
74. Finally, the Commission rejects the proposed expansion of the
50 percent channel use requirement because it finds that its concerns
are too speculative, and its suggested approach too rigid. It would be
economically irrational for a licensee to construct multiple channels
in areas where there is limited demand while leaving areas
[[Page 41233]]
where demand is greatest covered by only a single channel. Moreover,
licensees should have the flexibility to determine how best to provide
services in response to consumer demand. The Commission does not
believe that it should micromanage how the EA licensee chooses to
provide service.
2. Extended Implementation Authority
a. Dismissal of Pending Extended Implementation Requests
75. Background. In the 800 MHz Report and Order, the Commission
stopped accepting requests for extended implementation authority,
accelerated the termination date of pending extended implementation
periods, and dismissed pending requests for extended implementation
authority. The Commission reasoned that retaining extended
implementation authority for up to five years would impede EA licensees
construction efforts, and that parties still wanting extended
implementation could apply for EA licenses under the Commission's new
rules.
76. Petitions. A Commenter seeks reconsideration of the
Commission's dismissal of pending requests for extended implementation
and its decision to reduce previously granted construction periods from
five to two years. They argue that eliminating existing extended
implementation periods unfairly harms incumbent SMR providers. They
also argue that eliminating extended implementation authority is an
unlawful deprivation of the property interest which it contends it has
in its FCC licenses and the continuation of those licenses, and argues
that to deny or revoke such a license without cause violates the
licensee's due process rights.
77. The commenter also claims that eliminating extended
implementation periods will harm the public and the CMRS industry by
excluding small and mid-sized SMR providers from the CMRS marketplace.
They argue that small SMR providers may lack the resources to acquire
spectrum for their current markets at auction. It asserts that
eliminating extended implementation compounds this problem by stranding
investment in SMR systems whose construction periods will be cut short.
78. Finally, another commenter argues that the Commission has
recognized that public safety agencies need extended implementation
because complex government funding mechanisms impede rapid deployment
of public safety systems. It argues that extended implementation should
be available to public safety systems in the General Category. Still,
another commenter argues that extended implementation should be
available for all private radio licensees in the General Category,
because problems such as budgetary constraints affect the I/LT and
Business users as much as Public Safety licensees.
79. Discussion. The Commission rejects the claim that eliminating
extended implementation interferes with legitimate business
expectations. First, these licensees have already been given
significant time to complete construction. Second, upon adequate
rejustification, licensees will have up to two years to complete build
out of their systems. Far from being a ``drastic change'' that will
strand investment, as contended, this is an equitable transition to a
more efficient method of providing service and using spectrum. Finally,
one commenter's reliance on the public interest analysis in the OVS
NPRM, 61 FR 10496 (March 14, 1996), is also misplaced. While, the OVS
proceeding did acknowledge a strong public interest in establishing a
level of certainty in business plans, the Commission did not suggest
that a licensees' business expectations were entitled to absolute
protection, nor did the Commission imply that these expectations would
always dictate the course of future regulation.
80. The claim of a property interest in its license is also without
merit. Both section 301 of the Communications Act and relevant case law
establish that licensees have no ownership interest in their FCC
licenses. Moreover, the Commission does not agree that ending extended
implementation will decrease competition. To the contrary, competitive
bidding, which allocates resources to those who value them most, is a
more efficient and competitive method than the Commission's prior rules
for licensing spectrum on an extended basis. The Commission also
disagrees that terminating extended implementation will limit small
business participation. To the contrary, the Commission has adopted
special provisions, such as bidding credits, in order to assist small
businesses at auction.
Finally, the Commission notes that it only curtailed extended
implementation for SMR licensees. Thus, non-SMR licensees with existing
extended implementation grants are not affected by this proceeding. In
addition, non-SMR licensees on 800 MHz channels that are not subject to
EA licensing (i.e. Business, I/LT and Public Safety channels may still
obtain extended implementation authority under Sec. 90.629).
b. Rejustification of Extended Implementation Authority
82. Background. In the 800 MHz Report and Order, the Commission
required incumbent 800 MHz licensees with extended implementation
grants to submit showings rejustifying the need for extended time to
construct their facilities. The Commission provided that if the Bureau
approved a licensee's showing, the licensee would receive a
construction period of two years or the remainder of its current
extended implementation period, whichever was shorter. Licensees making
an insufficient or incomplete showing would have six months to
construct the remaining facilities covered under their implementation
plans.
83. Petitions: Several petitioners seek reconsideration or
clarification of the extended implementation rejustification procedures
adopted in the 800 MHz Report and Order. One petitioner argues that
wide-area systems that received extended implementation via waiver
should not be required to submit rejustification showings because their
waivers were predicated on the existence of underlying constructed
analog facilities. Another asks that the Commission delineate the
evidence that a licensee must provide to rejustify its extended
implementation grant. Petitioners also ask that the Commission clarify
whether licensees who received license grants in the processing of the
800 MHz SMR backlog in October 1995 are eligible for extended
implementation.
84. Discussion. In the 800 MHz Report and Order, the Commission
specified that all licensees with extended implementation grants would
be required to file rejustification showings, regardless of whether
they sought extended implementation under Sec. 90.629 to construct new
systems or had obtained waivers to reconfigure existing high-power
analog systems into low-power digital systems within the existing
analog footprint. One petitioner argues that licensees who are
converting their systems should be exempt from the rejustification
requirement because they are not seeking to occupy previously
unlicensed spectrum. The Commission disagrees. The waivers that were
granted to licensees to convert existing analog facilities gave them
considerable latitude to redeploy channels throughout the aggregate
footprint of their systems, in effect allowing them to obtain new
spectrum (i.e., spectrum on additional channels) within their existing
footprints. In order to provide EA licensees with reasonable certainty
regarding what spectrum is available to
[[Page 41234]]
them, the Commission believes it is necessary that these licensees be
subject to the same timetable for constructing their systems and
returning unconstructed channels as licensees who received extended
implementation grants to build entirely new systems. Therefore, the
Commission denies the request for reconsideration.
85. Since the filing of the petitions for reconsideration, the
Wireless Bureau has solicited and received rejustification showings
from 37 licensees, and has acted on the showings in a recent order. The
Commission also notes that prior to the filing of these showings, the
Bureau issued a Public Notice describing the information to be provided
in the rejustifications and clarifying that licensees who obtained
license grants in the October 31, 1995 Bureau Public Notice, and who
had extended implementation requests associated with such applications,
could treat such requests as granted for purposes of the
rejustification filing requirement. Therefore, the Commission dismisses
two petitioners' reconsideration requests as moot.
D. EA License Initial Eligibility
86. Background. In the 800 MHz Report and Order, the Commission
concluded that restrictions on EA licensee eligibility were not
warranted, except for foreign ownership restrictions required by
section 310(b) of the Communications Act.
87. Petitions. A petitioner argues that the Commission's relocation
requirements have created a de facto eligibility limitation. According
to the petitioner, if EA licensees must relocate incumbent licensees
onto ``comparable facilities,'' then only entities having sufficient
``comparable spectrum'' to offer to incumbents can become EA licensees,
and it contends that this relocation requirement will reduce the number
and quality of auction participants and the amount of revenue raised.
It therefore argues that the Commission should limit eligibility for
wide-area licenses on the upper 200 channels to applicants who do not
currently hold any wide-area SMR authorizations. It argues that this
eligibility restriction will create more competition for EA
authorizations and will increase the number of wide-area CMRS service
providers.
88. Discussion. The Commission rejects the suggested eligibility
limitation because it confuses protecting individual competitors with
promoting competition. In many instances, the proposal would preclude
entities from bidding to obtain geographic area licenses that encompass
spectrum they are already using. Such a restriction would be
inefficient and contrary to the goals of this proceeding. By contrast,
open eligibility for EA licensees is pro-competitive because it enables
the market, not regulation, to determine who values the spectrum the
most.
E. Redesignation of Other 800 MHz Spectrum--General Category Channels
and Inter-Category Sharing
1. General Category Channels
89. Background. In the Commission's 800 MHz Report and Order, the
Commission redesignated the General Category channels exclusively for
SMR use. The Commission's licensing records showed that there are three
times as many SMR licensees in the General Category as any other type
of part 90 licensee. The Commission concluded that SMR providers'
demand for additional spectrum significantly exceeds the demand of non-
SMR services. Moreover, the Commission anticipated that SMR providers'
demand for this spectrum would be increased by geographic area
licensing of the upper 200 channels and its mandatory relocation
policy.
90. Petitions. A number of petitioners challenge the Commission's
decision to reclassify the General Category based on its finding that
SMR licensees outnumber non-SMR licensees on these channels. Some
commenters argue that many of these licensees are speculators who have
not constructed and are not using the spectrum. Others contend that the
SMR licensing freeze and the elimination of intercategory sharing have
artificially increased SMR demand for General Category channels and
argue that the Commission has arbitrarily reversed its prior treatment
of the General Category without adequate explanation. They note that in
the Competitive Bidding Second Report and Order, 59 FR 26741 (May 24,
1994), the Commission declined to subject the General Category to
competitive bidding, whereas it has now determined that the General
Category should be reclassified and subject to auction. It contend that
the pattern of licensing on the General Category channels has not
changed dramatically since the Competitive Bidding Second Report and
Order was adopted, and that the Commission therefore has no basis for
treating it differently now.
91. Some petitioners also argue that reclassifying the General
Category will harm non-SMR operations on General Category channels by
stranding existing investment in internal communications systems. They
contend that it will have to re-engineer its nationwide network if the
General Category is redesignated. Another adds that the Commission's
decision will make American industry less competitive internationally
by limiting its flexibility and that denying public safety operators
access to General Category channels will jeopardize police and
ambulance communications systems. It adds that redesignating the
General Category channels will harm non-SMR licensees whose needs
cannot be met by commercial carriers and that redesignation of the
General Category channels will not facilitate relocation from the upper
200 channels, because it will make it more difficult to accommodate the
relocation of non-SMR incumbents currently operating on those channels.
One petitioner argues that a reallocation of the General Category
channels is ill-advised unless the Commission identifies additional
spectrum to accommodate private systems.
92. Discussion. In the 800 MHz Report and Order, the Commission
concluded based on comments in the proceeding and on its licensing
records that the primary demand for General Category channels came from
SMR operators. Petitioners' arguments do not persuade the Commission
that this conclusion was incorrect. Petitioners concede that SMR
licensees far outnumber non-SMR licensees on these channels. Moreover,
at the time the Commission froze General Category licensing in 1995, it
noted that the number of SMR applications for these channels had risen
markedly. Even if some of this increased licensing activity was
attributable to speculation, as petitioners contend, the Commission
believes that such activity is itself an indication that demand for the
spectrum exists. The Commission also anticipates that with the advent
of geographic area licensing on the upper 200 channels, there will be
substantial demand for General Category channels among legitimate small
SMR operators, including incumbents who relocate from the upper 200
channels. Based on these factors, and on the fuller record relating to
800 MHz developed in this proceeding, the Commission believes that it
was fully justified in reaching a different conclusion with respect to
the General Category from that reached in the earlier Competitive
Bidding Second Report and Order.
93. The Commission believes, however, that petitioners have raised
valid concerns with respect to the interests of non-SMR licensees
operating on the General Category channels. As several petitioners
note, the Commission's decision in the 800 MHz Report and Order, to
reclassify the
[[Page 41235]]
General Category as SMR-only would preclude non-SMRs from seeking
additional authorizations on these channels to expand their systems. On
reconsideration, the Commission sees no reason why non-SMRs should not
continue to be eligible for licensing in the General Category. By
allowing non-SMRs to obtain spectrum in this band, the Commission gives
non-SMRs more options and greater flexibility for continued growth of
their systems.
94. While the Commission concludes that non-SMRs should continue to
be eligible for General Category licensing, the Commission emphasizes
that this in no way affects its decision to license General Category
channels geographically, with competing applications resolved through
competitive bidding. The Commission has not altered its conclusion in
the 800 MHz Report and Order, that General Category channels are used
primarily for subscriber-based services, and thus are subject to
competitive bidding under section 309(j). Moreover, competitive bidding
will further the public interest by encouraging efficient spectrum use,
promoting competition, recovering portions of the value of the spectrum
for the public and promote the rapid deployment of service. The
Commission rejects petitioners' view that this approach will harm the
interests of non-commercial licensees by requiring them to compete for
spectrum with commercial systems. To the contrary, there are several
ways in which non-SMRs can benefit from the Commission's geographic
licensing rules. For example, non-commercial operators may not only
apply individually for geographic area licenses, but may also
participate in joint ventures (with other non-commercial operators or
with commercial service providers) or obtain spectrum through
partitioning and disaggregation to meet their spectrum needs. The
Commission also expects that geographic area licensing of SMR and
General Category spectrum will free up non-SMR spectrum in the 800 MHz
band, providing more options for non-commercial operators where
availability of General Category spectrum is limited. Finally, the
Commission is continuing with its initiatives to provide sufficient
spectrum for non-commercial operations through its Refarming proceeding
and its participation in the Public Safety Wireless Activity Committee.
2. Inter-Category Sharing
95. Background. Prior to the 800 MHz Report and Order, the Wireless
Bureau imposed a freeze on applications for intercategory sharing among
800 MHz Industrial/Land Transportation (I/LT), Business, and Public
Safety channels (collectively, ``Pool Channels''). This freeze was
intended to stem the increase in intercategory applications for Public
Safety channels by I/LT and Business licenses whose own channels were
subject to increased demand from SMR applicants. In the 800 MHz Report
and Order, the Commission eliminated intercategory sharing by SMR
licensees on all of the Pool Channels. The Commission also concluded
that non-SMR licensees would no longer be eligible for intercategory
sharing on SMR channels.
96. Petitions. Petitioners representing I/LT and Business Radio
operators oppose the elimination of intercategory sharing to the extent
that it prevents them from obtaining spectrum where channels in their
own pools are unavailable. They argue that the intercategory sharing
freeze has harmed the wireless industry by prohibiting licensees from
expanding in areas lacking I/LT or Business channels and that utilities
and pipelines need intercategory sharing to expand their radio systems
to meet current communications requirements. They add that commercial
demand for 800 MHz spectrum has made it virtually impossible for
private system operators to obtain channels in their own pools.
97. In contrast, one commenter defends the current freeze on
intercategory sharing with respect to Public Safety channels and
opposes any effort to reopen these channels to non-Public Safety
applicants. It argues that because of the limited availability of
Business and I/LT channels and the Commission's proposals for
geographic licensing of the General Category, a lifting of the
intercategory freeze would cause more Business and I/LT entities to
seek Public Safety channels as a ``safe harbor.'' It argues therefore,
that a permanent bar on non-public safety applications in the Public
Safety pool is needed to ensure that such channels will be available
for current and future public safety use.
98. Discussion. The Commission will retain the current prohibitions
on intercategory sharing between SMR and non-SMR channels. By
prohibiting SMRs from applying for Pool Channels, the Commission
preserves the availability of those channels for non-commercial and
public safety uses. Similarly, eliminating intercategory sharing for
SMR-only channels ensures that they will be available exclusively for
licensing to SMR operators. In addition, the Commission believes that
the concerns of ITA and others regarding the availability of spectrum
for I/LT and Business systems are sufficiently addressed by its
decision to restore non-SMR eligibility for General Category channels.
F. Auctionability
99. Background. In the 800 MHz Report and Order, the Commission
reiterated its conclusion that competitive bidding is an appropriate
licensing mechanism for the 800 MHz SMR service. The Commission
concluded that the 800 MHz SMR service satisfies the criteria set forth
by Congress for determining when competitive bidding should be used. It
noted that competitive bidding will further the public interest
requirements of the Communications Act by promoting rapid deployment of
services, fostering competition, recovering a portion of the value of
the spectrum for the public, and encouraging efficient spectrum use.
The Commission further noted that where competitive bidding is used, a
diverse group of applicants including incumbent licensees and potential
new entrants into this service will be able to participate in the
auction process because it has decided not to restrict eligibility for
EA licenses. Finally, the Commission adopted special provisions for
small businesses seeking EA licenses.
100. Petitions. Several petitioners once again request that the
Commission use procedures other than competitive bidding to license 800
MHz SMR. In essence, petitioners contend that this band does not fit
within the congressional criteria for auctions because (i) Congress did
not intend for the 800 MHz SMR band to be auctioned; (ii) the
competitive bidding design for the upper 10 MHz channels of the 800 MHz
SMR band does not promote the objectives contained in section 309(j) of
the Communications Act; and (iii) the Commission has failed to consider
alternative licensing mechanisms which avoid mutually exclusive
applications.
101. Discussion. The Commission reaffirms its conclusion that
competitive bidding is an appropriate tool to resolve mutually
exclusive license applications for the upper 10 MHz channels of the 800
MHz SMR service. Moreover, the criteria for auctionability set forth in
section 309(j) of the Communications Act are met. The Commission has
fully considered the issues raised here by petitioners both in the 800
MHz Report and Order and the Competitive Bidding Second Report and
Order. The Commission continues to believe that competitive bidding is
appropriate for the upper 10 MHz of the 800 MHz SMR spectrum and that
employing this
[[Page 41236]]
procedure strikes a reasonable balance in protecting the public
interest in the use of the spectrum while promoting the objectives
specified in the Communications Act.
102. The Commission disagrees with petitioners' contention that
Congress did not intend that the upper 10 MHz of the 800 MHz SMR
spectrum be auctioned. Those petitioners contend that Congress intended
auctions to be used for the licensing of new services and not for
currently allocated services, such as the upper 10 MHz of the 800 MHz
SMR. The Commission disagrees with this position because section 309(j)
of the Communications Act does not distinguish between new services and
existing services in terms of whether initial licenses in a given
service should be subject to competitive bidding. Furthermore, there is
nothing in the legislative history to indicate that Congress intended
to limit the applicability of auctions to new services. As the
Commission noted in the Competitive Bidding Second Report and Order,
the principal use of 800 MHz SMR is to provide service to eligible
subscribers for compensation. The Commission concludes that the use of
competitive bidding in the upper 10 MHz block is fully consistent with
section 309(j) of the Communications Act and its legislative history.
103. In the Competitive Bidding Second Report and Order, the
Commission concluded that its auction designs are calculated to meet
the policy objective of introducing new technologies to the public.
Several petitioners contend that the competitive bidding procedures for
the upper 10 MHz of the 800 MHz SMR do not promote the section 309(j)
objectives. One petitioner contends that the Commission's auctioning
policies do not ensure that winning bidders will employ advanced
technologies to serve the public. However, no commenter raises any new
arguments that persuade the Commission to change its conclusion that
making the 800 MHz SMR spectrum available for public use through
auctioning will lead, most efficiently and effectively, to the
deployment of new technologies and services to the public. As the
Commission noted in the Competitive Bidding Eight Report and Order, it
believes that competitive bidding furthers the public interest by
promoting rapid development of service, fostering competition,
recovering a portion of the value of the spectrum for the public and
encouraging efficient spectrum use.
104. The Commission does not agree with the contention of some
petitioners that the administrative procedures associated with
licensing through auctions are not as efficient as site-specific
licensing. The Commission previously addressed the advantages to both
the Commission and licensees of geographic area licensing. Petitioners
do not raise any new arguments that would persuade the Commission to
reconsider the adoption of EA licensing for the 800 MHz SMR service.
The Commission again emphasizes that geographic area licensing offers a
flexible licensing scheme that eliminates the need for many of the
complicated and burdensome licensing procedures that hampered SMR
development in the past.
105. In response to requests by petitioners, the Commission
considers yet again whether auctioning allows for the dissemination of
licenses among a wide variety of entities in the 800 MHz SMR spectrum.
Several petitioners, for example, believe that auctioning will lead to
the concentration of licenses in the hands of a few operators in each
market to the detriment of small businesses. The Commission disagrees
with the contention that small businesses will not be able to
participate in these auctions. The auction rules for the upper 800 MHz
SMR include small business provisions such as bidding credits and other
measures that are intended to meet the statutory objective of providing
opportunities for small businesses in the upper 10 MHz channels of the
800 MHz SMR service. The results of prior auctions demonstrate that
these provisions have ensured small businesses participation in other
auctionable services. The Commission further notes that because the 800
MHz SMR service falls within the definition of the Commercial Mobile
Radio Services (CMRS), it is subject to the 45 MHz aggregate spectrum
cap on CMRS. The spectrum cap has been placed on CMRS licensees in
order to promote and preserve competition in the CMRS marketplace by
limiting the number of licenses any one entity can acquire.
106. The Commission has further considered various alternative
licensing procedures for the 800 MHz SMR band as requested by several
petitioners. These petitioners contend that section 309(j)(6)(E) of the
Communications Act prohibits the Commission from conducting an auction
unless it first attempts alternative licensing mechanisms to avoid
mutual exclusivity. In the course of this proceeding, the Commission
has evaluated the appropriateness of other licensing mechanisms for the
upper 800 MHz SMR, but concluded those methods are not in the public
interest. The Commission has found that ``first-come, first-served''
licensing in the 800 MHz service leads to processing delays. For the
upper channels of the 800 MHz SMR frequency band, the use of
competitive bidding is the most appropriate licensing procedure because
the Commission anticipates a considerable number of applications for
these licenses and competitive bidding will allow the most expeditious
access to the spectrum if any of these applications is mutually
exclusive. Therefore, the Commission rejects once again other licensing
procedures for the upper 800 MHz SMR spectrum. In doing so, the
Commission must emphasize that it has made every effort to include the
SMR industry in the decision-making process to make certain that the
concerns of the industry and, particularly, incumbents are addressed by
the Commission.
G. Bidding Issues
1. Bid Increment
107. Background. In the 800 MHz Report and Order for the upper 10
MHz block, the Commission adopted the same procedures for bid
increments as those used in auctions for MTA-based PCS licenses. The
Commission also indicated that it would retain the discretion to set
and, by announcement before or during the auction, vary the minimum bid
increments for individual licenses or groups of licenses over the
course of the auction.
108. Petitions. One petitioner supports a minimum bid increment but
believes that tying the minimum bid to the absolute minimum bid
establishes an artificial value for each license rather than allowing
the marketplace to determine the value of the licenses. Instead,
petitioner supports a five percent minimum bid increment because it
will ensure active participation by bidders without requiring a
disparate increase from one round to the next.
109. Discussion. After considering the record, the Commission
modified its rules to delegate authority to the Bureau to set
appropriate bid increments. The Commission's experience with other
auctions indicates that flexibility is necessary to set appropriate
bidding levels to account for the pace of the auction, the needs of the
bidders, and the value of the spectrum. While the Commission believes
that a bid increment of $0.02 MHz-pop is appropriate here, it will
delegate authority to the Bureau to vary the minimum bid increment over
the course of the auction as it deems necessary.
[[Page 41237]]
The Bureau will announce by Public Notice prior to the auction the
general guidelines for bid increments.
2. Upfront Payment
110. Background. In the 800 MHz Report and Order, the Commission
determined that the upfront payment for the upper 800 MHz SMR service
should be $0.02 per MHz-pop, with a minimum payment of $2500. The
Commission indicated that in the initial Public Notice, it would
announce population information and upfront payments corresponding to
each EA license. Further, the Commission notes that population coverage
for each channel block in each EA will be based on a formula that takes
into account the presence of incumbent licenses.
111. Petitions. Petitioners request the Commission to set a lower
upfront payment contending that $0.02 per MHz-pop is too high given the
value of these licenses and that the Commission reconsider its decision
to use upfront payments that take into account the presence of
incumbent licenses because of the uncertainty that results from ongoing
channel relocation by incumbents. Petitioner believes that prospective
bidders would be better served by being advised that the band in
heavily encumbered, by being provided with either a list of those
incumbents or information as to how that information may be obtained.
112. Discussion. The Commission reaffirms its upfront payment
formula of $0.02 MHz-pop and uniform discounting for incumbency. The
Commission also reaffirms a minimum upfront payment of $2500 and
believes that it is necessary to set an adequate upfront payment to
ensure participation by qualified bidders. However, as commenters
suggest, the Commission recognizes that for purposes of these
particular licenses the standard upfront payment formula may yield
higher payment as compared to the values of the license. The Commission
will modify its rules to delegate authority to the Bureau to vary the
minimum upfront payment when it determines that the standard $0.02 per
MHz-pop formula would result in an unreasonably high upfront payment.
In determining an appropriate upfront payment, the Bureau may take into
account such factors as the population and the approximate amount of
usable spectrum in each EA. The Bureau will announce any such
modification by Public Notice.
3. Activity Rules
113. Background. In the 800 MHz Report and Order, the Commission
adopted the three-stage Milgrom-Wilson activity rule in conjunction
with the simultaneous stopping rule. The Commission noted that an
activity rule ensures that an auction will close within a reasonable
period of time by requiring a bidder to remain active throughout the
auction. The Commission further noted that under the Milgrom-Wilson
approach, bidders are required to declare their maximum eligibility in
terms of MHz-pops, and to make an upfront payment equal to $0.02 per
MHz-pop. The Commission also notes that the population calculation in
each EA will be discounted to take into consideration the presence of
incumbent licensees.
114. Petitions. Petitioner requests the Commission to reconsider
the decision to adjust the bidding unit of an EA based on the
occupation of channel blocks by incumbents unless the incumbent has
constructed facilities. It contends that the allowance of a downward
adjustment irrespective of whether facilities have been constructed
unjustly enriches those entities holding unconstructed authorizations.
115. Discussion. The Commission affirms its decision to use a
three-stage Milgrom-Wilson activity rule for the upper 10 MHz channels
of the 800 MHz SMR service. The Commission also reaffirms the use of a
uniform discount on the upfront payment to take into consideration the
presence of incumbent licenses. The Commission disagrees with the
recommendation that a downward adjustment should be made for
constructed facilities only. This proposal would require the Commission
to make an unsupported assumption that none of the entities holding
unconstructed authorizations ever intend to build out their systems.
H. Treatment of Designated Entities
1. Bidding Credits
116. Background. In the 800 MHz Report and Order, the Commission
does not adopt bidding credits for designated entities participating in
the auctions for the upper 10 MHz channels of the 800 SMR service.
Bidding credits initially had been proposed for businesses owned by
women and minorities. As a result of the Supreme Court's decision in
Adarand, in the 800 MHz Report and Order the Commission concluded there
was an insufficient record to support the adoption of special
provisions solely benefitting minority-and women-owned business
(regardless of size) for the upper 10 MHz block auction.
117. Petitions. Petitioners request that the Commission provide
bidding credits to small businesses in order to provide these entities
with a meaningful opportunity to obtain licenses in the 800 MHz SMR
service auction.
118. Discussion. In this instance, the Commission grants
petitioners' request and will provide bidding credits to small
businesses. The Commission notes that in the 800 MHz Report and Order,
it concluded that special provisions for small businesses are
appropriate for the 800 MHz SMR service. The Commission also recognizes
that smaller businesses have more difficulty accessing capital and thus
may need a higher bidding credit. Accordingly, the Commission will
adopt tiered bidding credits that are narrowly tailored to the varying
abilities of businesses to access capital. Tiering also takes into
account that different small businesses will pursue different
strategies. In determining eligibility for these bidding credits, the
Commission will employ the same tiered definitions of small businesses
as used in the 800 MHz Report and Order to determine eligibility for
installment payments in the upper 10 MHz, with an adjustment to reflect
the unavailability of installment payment plans for the 800 MHz SMR
services. Accordingly, a small business with average gross revenues
that do not exceed $15 million will be eligible for a bidding credit of
25 percent. A small business having revenues that do not exceed $3
million will be eligible for a bidding credit of 35 percent. Revenues
will be defined as average gross revenues for the last three years
including affiliates. These are the same levels of bidding credits used
in the WCS auction.
2. Installment Payments
119. Background. In the 800 MHz Report and Order, the Commission
adopted rules which provided small businesses participating in this
auction with tiered installment payment plans. The Commission noted
that it adopts the same tiered installment payment approach as in the
900 MHz SMR auction.
120. Petitions. Petitioner requests that the Commission eliminate
all installment payment plans for the upper 200 channels on the basis
of its belief that in prior auctions, the availability of installment
payments has encouraged speculation and warehousing. Another petitioner
disagrees, stating that installment payments are the only means by
which independent, incumbent SMR operators will be able to participate
in the auctions. One petitioner believes that the tiered approach to
installment payments is insufficient to ensure meaningful participation
by small businesses, and
[[Page 41238]]
as an alternative asks for 50 percent bidding credits.
121. Discussion. As petitioned, the Commission will not adopt
installment payments for the upper 200 channels. While the Commission
disagrees with the petitioner's contention that installment payments
encourage speculation and warehousing of spectrum, its experience with
the installment payment program leads the Commission to conclude that
installment payments may not always serve the public interest. The
Commission has found, for example, that obligating licensees to pay for
their licenses as a condition of receipt requires greater financial
accountability from applicants. Currently, in several proceedings the
Commission is reviewing a number of issues related to administration of
installment payment programs. Nonetheless, given that applications for
new 800 MHz SMR licenses have not been accepted since 1994, the
Commission's priority is to facilitate the licensing of the upper 200
channels without further delay. Therefore, the Commission believes that
the public interest is best served by going forward with the auction
for the upper 200 channels without extending installment payments to
small businesses while it considers installment payment issues
generally.
122. The Commission disagrees with petitioner's contention that
installment payments are the only means by which small SMR operators
will be able to participate in auctions. The Commission notes that in
other auctions in which installment payments were not available, small
businesses were the high bidders on a significant number of licenses.
Further, section 309(j)(4) requires the Commission to consider
alternative methods to allow for dissemination of licenses among a wide
variety of applicants, including small businesses. To encourage small
business participation, the Commission has raised the bidding credits
available to small businesses and very small businesses to 25 percent
and 35 percent respectively. The Commission believes that higher
bidding credits will both fulfill the mandate of section 309(j)(4)(D)
to provide small business with the opportunity to participate in
auctions and ensure that new services are offered to the public without
delay.
123. In view of the Commission's decision here, all winning bidders
will be required to supplement their upfront payments with down
payments sufficient to bring their total deposits to 20 percent of
their winning bid(s). Consistent with the Commission's determination in
the Second Report and Order, it will allow bidders up to ten days
following the close of the auction to make their down payments.
3. Attribution of Gross Revenues of Investors and Affiliates
124. Background. In the 800 MHz Report and Order, the Commission
adopts a definition of small business which included attributing the
gross revenues of investors owning 20 percent or more in the applicant.
In light of the pending petitions for reconsideration, the Commission,
on its own motion, retains jurisdiction to reconsider the attribution
rule.
125. Discussion. In determining eligibility for small business
provisions, the Commission will modify its attribution rule to
substitute the ``controlling principal'' concept for the attribution
model as it recently did for auctions involving other services.
Specifically, the Commission will eliminate the rule attributing the
revenues of certain investors. The Commission will only attribute the
gross revenues of all controlling principals in the small business
applicant as well as the gross revenues of the affiliates of the
applicant. The Commission will require that in order for an applicant
to qualify as a small business, qualifying small business principals
must maintain both de jure and de facto control of the applicant.
Typically, de jure control is evidenced by ownership of 50.1 percent of
an entity's voting stock. De facto control is determined on a case-by-
case basis. An entity must demonstrate at least the following indicia
of control to establish that it retains de facto control of the
applicant: (1) The entity constitutes or appoints more than 50 percent
of the board of directors or partnership management committee; (2) the
entity has authority to appoint, promote, demote and fire senior
executives that control the day-to-day activities of the licensee; and
(3) the entity plays an integral role in all major management
decisions. This simplified procedure was adopted for auctions involving
other services. The Commission believes this modification of its
attribution rule will enhance the opportunity for a wide variety of
applicants to obtain licenses. Specifically, the Commission will follow
the attribution rules discussed in the Lower 80 and General Category
licenses section of the Second Report and Order in section 2(a), Small
Business Definition.
II. Ordering Clauses
126. It is ordered that, pursuant to the authority of sections
4(i), 302, 303(r), and 332(a)(2) of the Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 302, 303(r), and 332(a), the rule changes
specified in the related final rule (FCC 97-223) published elsewhere in
this issue of the Federal Register are adopted.
127. It is further ordered that the rule changes set forth in FCC
97-223 will become effective September 29, 1997.
128. It is further ordered that the referenced Petitions for
Reconsideration are granted to the extent discussed herein, and are
otherwise denied.
List of Subjects in 47 CFR Part 90
Radio, Specialized mobile radio services.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-19914 Filed 7-30-97; 8:45 am]
BILLING CODE 6712-01-P
