# Presentation: 549173

## PRESENTATION OF MICHELE C. FARQUHARPARTNER HOGAN & HARTSON L.L.P.

- Federal Communications Commission
- Public Forum on
- Secondary Markets in Radio Spectrum
- May 31, 2000
- Michele C. Farquhar
- Hogan & Hartson L.L.P.
- 555 13th Street, N.W.
- Washington, D.C.  20004
- (202) 637-5600

## Timing is excellent to launch a secondary market initiative:

- Evolution of wireline “spot” market
- Emerging experience and successes  with secondary spectrum markets
- Upcoming guard band auction will provide further practical experience
- Fostering secondary markets on a broader scale will enable the FCC to identify  underlying marketplace or regulatory barriers

## Background

- FCC has auctioned more than 5,000 MHz of spectrum since 1994
- Two surprising results:
- 	- Shortages of mobile radio spectrum
- 		- commercial -  urban areas, 3G, data networks
- 		- private radio users
- 	- Unused spectrum blocks and capacity
- 		- little build-out in rural areas
- 		- lack of deployment/equipment for many 			   spectrum bands

## Secondary Market Experience

- Wireline “spot” markets
- Wireless resale experience  (general; AirCell)
- ITFS lease agreements
- Satellite transponder capacity
- Affiliation agreements to build nationwide footprints
- Wholesalers of microwave spectrum capacity
- Upcoming -- Guard band leases,  ancillary use of DTV spectrum

## Potential Barriers to Secondary Markets

- Transfer of Control Issues
- Flexible Build-out Requirements
- Increasing spectrum values, fear of encumbering spectrum prematurely
- Lack of excess mobile spectrum capacity in urban markets
- Regulatory uncertainty, including FCC concerns regarding enforcement authority, interference

## Transfer of Control Issues

- FCC Guidance on Cellular Transfers of Control (1986), citing _Intermountain _criteria
- Does the licensee have unfettered use of all facilities and equipment?
- Who controls daily operations?
- Who determines and carries out the policy decisions, including preparing and filing applications with the Commission?
- Who  is in charge of employment, supervision and dismissal of personnel?
- Who is in charge of the payment of financing obligations, including expenses arising out of operations?
- Who receives monies and profits derived from the operation of the facilities?

## Potential Contract Issues

- Leverage of licensee, pricing
- Lessee’s comfort with indefinite rights, status
- Licensee’s responsibility for lessee
- Interference, technical, operating parameters
- Length of contract term
- Indemnification issues -- outages, damages
- Breach of contract provisions, reversion rights
- Renewal and extension rights

## FCC Role  -- Problem Areas

- FCC as spectrum clearinghouse
- Broad regulatory authority over lessees
- Review contracts
- Arbitration of contracts
- Draft model/sample contracts
- Limited licensee or lessee flexibility

## FCC Role

- Urge establishment of private sector secondary markets - - minimal FCC role
- Provide strong FCC support and endorsement for secondary markets
- Adopt a general framework that clarifies  licensee control, lessee role, technical issues; maintain flexibility
- _Past FCC guidance_ on contractual issues --         ITFS lease agreements, guard band managers, microwave relocation

## Potential Incentives

- Target incentives to encourage licensees to participate -- tax credits, build-out credits, creative use of regulatory fees
- Encourage “pooling” of potential buyers, especially public safety and non-profits
- Facilitate deployment of equipment -- such as software defined radio -- that will bridge the gap between spectrum demand and capacity
- Monitor the implementation of ongoing efforts   for successful models and problem areas