STATEMENT OF MORGAN E. O'BRIEN

**BEFORE THE FEDERAL COMMUNICATIONS COMMISSION -- FORUM ON SECONDARY
MARKETS IN RADIO SPECTRUM**

# MAY 31, 2000

## Introduction

Good morning. My name is Morgan O'Brien. I am the co-founder and Vice
Chairman of Nextel Communications, a company founded in the late 1980s
as a licensee in the Specialized Mobile Radio ("SMR") service -- then a
private mobile radio service. By acquiring literally thousands of 800
MHz SMR licenses from individual licensees on a
transaction-by-transaction basis, almost exclusively through the
secondary spectrum marketplace, Nextel created a nationwide spectrum
footprint with which it offers today a suite of wireless
telecommunications services, including cellular telephone service,
paging and dispatch services, all in a single handset. In addition, we
have just introduced Nextel Online (sm), adding wireless Internet access
to Nextel's combination of wireless services. Thus, Nextel has grown,
through secondary marketplace transactions, to become in the early 1990s
the first serious competitor to the cellular duopoly, and today one of
the leading nationwide providers of advanced digital mobile
communications services, providing service to more than five million
customers in over 400 cities throughout the U.S.

As a pioneer in the use of secondary markets to create a wireless
telecommunications system that responds to the needs of individual
consumers and businesses, Nextel is uniquely qualified to address the
issues you raise today \-- the usefulness of secondary markets to
satisfy the demand for additional spectrum to provide the public with
competitive communications services.

Before addressing the important policy issues before the Commission
today, I would like to share a personal insight. No matter how
lighthanded it may be, any misguided regulatory touch can impede the
development and growth of spectrum markets. As our economy becomes
increasingly networked and mobile, access to spectrum and the freedom to
deploy it on a non-interfering basis may become the critical determinant
of whether these markets grow robustly. In other words, the Commission
must take care not to undercut the competitive market structure that
exists today for wireless services -- a market structure that has
developed, in large part, as a result of the Commission's regulatory
foresight over the past decade.

The Commission's interest in fostering secondary spectrum markets
appears to derive from three basic sources. First, the Commission is
actively exploring avenues to better manage spectrum use and to allow
market forces -- rather than complex regulatory proceedings -- to manage
spectrum assignments and use when appropriate. Nextel's experience
demonstrates the fundamental wisdom of that approach. Nextel's
tremendous growth and success offers a compelling example of how the
markets harness the energies of private parties \-- efficiently matching
spectrum capacity with demand to promote competition and meet the needs
of consumers.

Second, the Commission is exploring secondary market activity as a means
of expediting the early relocation of incumbent UHF television licensees
from channels 60 --69 to their digital television channel assignments to
speed the deployment of advanced services by both commercial
communications providers and public safety licensees in the 700 MHz
band. Fulfillment of the Congressional mandate to make 700 MHz spectrum
available for wireless services through competitive bidding would be
advanced by a secondary market mechanism to clear UHF incumbents prior
to the currently anticipated 2006 requirement. Without these incentives,
the value of this spectrum, and its usefulness in meeting the growing
demands of consumers, is greatly diminished.

Third, the Commission asked whether the packaging of broadband wireline
capacity on a commodity basis \-- enabling the buying and selling of
capacity for both short and long-duration usage -- is a model that can
be replicated in the wireless industry. Such repackaging -- which will
be discussed in detail on the next panel -- may evolve into an efficient
means for fulfilling both short-term and long-term needs of wireline
service providers as well as their customers. We should all keep abreast
of these encouraging developments, but recognize that the high volume
sales and readily available capacity of that industry may not translate
well to the spectrum-constrained world of wireless.

The existence and success of Nextel, its near-nationwide footprint and
its five million subscribers demonstrate that secondary markets are
particularly effective in matching spectrum needs with spectrum
availability \-- without the added costs, delays and complexities
inherent in spectrum reallocations accomplished through rulemaking
proceedings. There are other examples of secondary markets enhancing
spectrum usefulness and advancing the deployment of new services. They
include:

-   cellular consolidation from MSAs and RSAs to nationwide and regional
    operating footprints, within which carriers can more effectively
    serve their customer base. The nationwide network of AT&T Wireless
    was created, to a large extent, by the secondary market transactions
    of its predecessor, McCaw Cellular;

-   Nextel's ongoing relocation of incumbent SMR providers in the Upper
    200 SMR channels after the Commission's auction of geographic area
    licenses on an Economic Area basis; and

-   PCS licensees' relocation of microwave licensees out of the 1.9 GHz
    band to clear the spectrum for the provision of CMRS services.

Nextel has actively participated in secondary spectrum markets and in
the competitive wireless marketplace to aggregate sufficient quantities
of spectrum to compete effectively; raise capital to build out new
wireless infrastructure; and provide innovative new services and
pricing. Nextel believes in a spectrum management regime that fosters
carriers' ability to develop sound business plans around known spectrum
needs, raise capital, and compete vigorously. Equally as important,
however, you should promote these ends by adopting minor changes to
existing spectrum use rules that impede more efficient or higher value
use of spectrum.

As an experienced participant in the secondary market for radio
spectrum, Nextel submits today that the Commission can easily and
expeditiously enhance the usefulness of the secondary marketplace and,
as Chairman Kennard recently stated, allow spectrum to "flow\[\] as
freely in the marketplace as any other commodity."[^1] Today, spectrum
is not flowing freely in the secondary market -- despite the existence
of willing buyers and sellers of spectrum -- because Commission rules
restrict the free alienation of spectrum licenses. These restrictions,
in many cases, no longer serve the public interest objectives for which
they were crafted, and, in fact, prohibit efficient assignment and
allocation of spectrum through the secondary marketplace.

Although the subject of Panel 3 today, it is important to highlight here
that there are FCC rules and regulations that inhibit the proper
functioning of the secondary spectrum market. The most telling instance
of rules at odds with the Commission's secondary market initiatives are
those that prevent private land mobile radio licensees from realizing
the full value of their spectrum -- whether a Business license,
Industrial/Land Transportation license or even a Public Safety license
-- by selling the spectrum to commercial providers for commercial use or
entering into other business arrangements (*e.g.*, channel swaps) in the
best economic interests of both parties. The Commission, in this
particular case, need not take any specific action to facilitate
secondary market transactions; ***the buyers and sellers are there**.*
All the Commission need do is [eliminate]{.underline} barriers that
preclude the transactions.

The traditional notions of "private" versus "commercial" spectrum use
are an anachronism in today's dynamic wireless telecommunications
marketplace. All Commission licensees should have the flexibility to
pursue any economic transaction that best suits their communications
needs -- whether by venturing with a commercial provider in the
provision of commercial and private telecommunications services,
contributing spectrum to a commercial provider in exchange for services
from that provider or simply selling spectrum in exchange for cash.
These transactions can not only fulfill the spectrum and communications
needs of the transaction's participants, but also resolve ongoing system
interference problems caused by outdated spectrum allocations that have
resulted in a sub-optimal mix of old analog and new digital technology
networks in adjacent spectrum assignments. To create a truly effective
secondary marketplace that promotes the highest and best use of
spectrum, the Commission must ensure that its rules do not operate to
prevent willing buyers and willing sellers from voluntarily entering
into business arrangements that fulfill their own economic and business
objectives, as well as their communications needs.

Eliminating Outdated Spectrum Use Restrictions Promotes the Commission's
Secondary Spectrum Market Goals

The FCC currently is considering amendments to its rules governing the
assignment and use of Business and Industrial/Land Transportation
("B/ILT") spectrum pursuant to Congressional mandate in the Balanced
Budget Act of 1997 ("BBA '97"). This proceeding offers the Commission an
opportunity to advance its secondary spectrum market goals while also
eliminating outdated spectrum use restrictions that are no longer in the
public interest. Placing artificial restrictions on spectrum use in an
age when \-- as the Commission put it \-- "explosive growth in wireless
communications has created tremendous demand for scarce spectrum
resources," deprives consumers of additional, higher quality services
and interferes with the proper functioning of the marketplace.

Today, private land mobile radio licensees on B/ILT channels (as well as
certain Public Safety channels) are operating on spectrum very similar
to that commercial operators acquire at auction. If a private user is
seeking additional private spectrum for its internal operations, it is
free to approach other private licensees and acquire their licenses,
assuming both parties reach a suitable business arrangement. However,
private licensees cannot conclude similar transactions with commercial
licensees -- even though a commercial provider, in today's marketplace,
is likely to deploy spectrally-efficient digital technologies that
enhance spectrum efficiency for everyone's benefit -- because the
commercial provider is restricted in its use of so-called "private"
spectrum in its commercial network. This restriction is a prime example
of the Commission's rules blocking the functioning of the secondary
marketplace without any consideration for the underlying economic and
public interest benefits that would be achieved via such transactions.

Prohibiting a willing buyer and a willing seller from voluntarily
entering into a secondary market business transaction that would lead to
more efficient spectrum use, while also meeting the communications and
business needs of both parties, expressly contradicts the Commission's
public interest objectives and the goals of this panel. Voluntary,
arms-length business transactions are at the very heart of the secondary
marketplace for radio spectrum. The Commission's first order of
business, therefore, should be elimination of spectrum use restrictions
-- such as those restricting the commercial use of B/ILT spectrum in the
800 and 900 MHz bands -- that operate to prohibit business transactions
intended to enhance spectrum efficiencies to meet the increasing public
demand for spectrum-based services.

Secondary Markets As a Spectrum Rationalization Tool and a Solution to
Harmful Interference

Among the numerous public interest benefits that may result from an
efficient secondary spectrum marketplace is market-driven spectrum
rationalization. Throughout its history, the Commission has allocated
spectrum among various uses to ensure that spectrum is used in a manner
that is complementary with users on adjacent channels. Although many of
these allocations were in the public interest at the time they were
adopted, the dynamic nature of today's marketplace -- including drastic
changes in technologies and spectrum usage -- has resulted in unintended
interference among adjacent spectrum users.

Today, the Commission's rules require that various users attempt to
co-exist in spectrum bands that are no longer adequate from the
standpoint of capacity and compatibility to support these varying uses.
For example, private users, operating on 800 MHz channels, find
themselves with little to no additional spectrum in major metropolitan
areas. Much of this is the result of an increased need for commercial
spectrum on which to provide competitive CMRS services to the public. If
the Commission were to allow private users to use their private spectrum
assignments flexibly, the marketplace could re-allocate this spectrum
band in a manner consistent with today's spectrum needs and marketplace
demands.

For example, if provided the flexibility to sell, swap or acquire any
800 MHz channels, a group of private licensees currently operating on
800 MHz B/ILT channels could enter into an agreement with a commercial
provider to offer private and/or commercial telecommunications services
in another band (e.g., 900 MHz, 700 MHz Guard Band). Similarly, private
licensees may conclude that continuing to operate in the 800 MHz band,
surrounded by potentially technologically incompatible users that may
value the spectrum more highly than the private user, is no longer in
their best interests. These private licensees could, among other things,
sell their 800 MHz spectrum to commercial licensees or swap it for
spectrum in another band, and then construct and operate a new private
communications system that would not operate near incompatible users or
uses. Such marketplace transactions would reallocate and rationalize
spectrum use, ensuring that spectrum is used for its most valuable
purposes in areas where it is in greatest demand.

A more telling example of incompatible use is the continued operation of
public safety and commercial licensees in the 800 MHz band. There, the
Commission allocated "slivers" of spectrum for Public Safety use that
are interleaved with channels specifically allocated for commercial and
private use. While this may have worked satisfactorily in the past,
changes in the marketplace and, particularly, advances in technology,
have resulted in harmful interference to some Public Safety agencies
despite the fact that both operators are complying in good faith with
the Commission's rules. Commercial operators in recent years have
implemented systems that enhance spectrum efficiency and customer
capacity by deploying multiple, low-power cell sites within a geographic
area that permit call hand-off and channel re-use within the system.
Public Safety users have continued to operate single high-power sites
that do not utilize channel re-use. For a number of technical reasons,
these two system architectures, which were never intended to co-exist,
can under certain circumstances interfere with each other. Remedying
this interference with technical solutions imposes limits on operating
parameters and operating flexibility that reduce system capacity,
essentially requiring sub-optimal spectrum use by all involved parties.

Although existing licensees are attempting to find technical solutions
to these interference issues, Nextel suggests that the secondary
marketplace can function not only as an additional avenue for resolving
interference issues, but also the most efficient solution. At the same
time, the secondary marketplace would provide long-term solutions to
these and other potential interference issues by rationalizing spectrum
use. If permitted to use their spectrum flexibly, including the ability
to choose to transfer or assign it to commercial or non-Public Safety
private users, Public Safety licensees may find they have greater
marketplace opportunities to implement state-of-the-art Public Safety
telecommunications systems.

The value of Public Safety spectrum, particularly in the major markets,
increases exponentially when it is available for use by non-Public
Safety operators. Commercial providers, in particular, may place a very
high value on this spectrum where it is interleaved with their own.
Given the opportunity to negotiate with Public Safety licensees for
access to this spectrum, commercial and Public Safety licensees may very
well arrive at creative marketplace solutions to not only address
current demand for spectrum to meet consumer demands, but also the
current demand for state-of-the-art interoperable Public Safety systems.
Once Public Safety licensees are permitted to realize the market value
of their spectrum assets, their negotiating leverage is increased and
their overall communications options are enhanced exponentially.

Other Tools for Enhancing Secondary Markets for Radio Spectrum

It was brought to my attention that other mechanisms are being
considered by the Commission to enhance the usefulness of the secondary
spectrum marketplace. I wholeheartedly support these efforts as buying
and selling spectrum under more flexible spectrum policies are not the
only mechanisms that can be used effectively to facilitate a secondary
marketplace for spectrum. The Commission's current rules on management
agreements, for example, are too restrictive to permit parties to pursue
flexible business arrangements that would fulfill their particular
spectrum needs. I strongly encourage the Commission to liberalize these
and other rules to provide businesses and other users with a broad array
of options to address their specific needs.

Conclusion

Thank you for your time and this opportunity to address these very
important issues. I look forward to the outcome of the Commission's
deliberations on these matters.

[^1]: Speech of William E. Kennard, "Wire Less Is More\" at the Cellular
    Telecommunications Industry Association, New Orleans, Louisiana,
    February 28, 2000.