Before the
                FEDERAL COMMUNICATIONS COMMISSION
                     Washington, D.C.  20554

In the Matter of

Amendment of the Commission's Rules with
Regard to the 3650-3700 MHz Government RM-9411
Transfer Band

ET Docket No. 98-237
RM-9411

The 4.9 GHz Band Transferred from
Federal Government Use
     
WT Docket No. 00-32

     Comments of the Office of Advocacy, U.S. Small Business
                         Administration
                                
     The Office of Advocacy of the United States Small Business

Administration ("Advocacy") (1)respectfully submits these

Comments to the Second Notice of Proposed Rulemaking ("Second

NPRM") published in relation to the above-captioned

proceeding.(2) The Federal Communications Commission

("Commission") proposes rules to govern the 3650-3700  MHz

spectrum band, which was transferred from Federal government to

private sector use.  The Commission proposes auctioning spectrum

licenses in this band on a geographic basis, and requests input

on the size of area it should use.   Advocacy recommends that the

Commission use small geographic areas, such as Metropolitan

Statistical Areas ("MSAs") and Rural Service Areas ("RSAs"),

which would encourage small business participation in the

spectrum auction and would speed service to rural areas.  The

Commission should avoid larger areas, such as Economic Areas

("EAs"), which are too large for most small businesses to bid for

or serve.  Also, the Commission should not rely on geographic

partitioning or spectrum disaggregation as a means to encourage

small business participation in this spectrum auction.  For this

purpose, partitioning and disaggregation are inadequate.

     The Commission also proposes to grant bidding credits to

small businesses, and proposes three different tiers of credit,

based on different business sizes.  To the extent that this would

establish small business sizes for 3650-3700 MHz services that

differ from those set by the U.S. Small Business Administration

("SBA"), Advocacy urges the Commission to seek permission from

the SBA prior to issuing final rules.

1.   The Commission should license 3650-3700 MHz spectrum by RSA

and MSA.

     Advocacy recommends that the Commission auction 3650-3700

MHz spectrum licenses based on MSAs and RSAs, in order to

encourage small business participation in the auction and assure

provision of services to rural areas.  This will permit

dissemination of licenses among a wide variety of applicants and

will ensure provision of service to rural areas.

     By offering licenses on an MSA/RSA basis, the Commission

would encourage small businesses to seek to provide services in

the 3650-3700 MHz spectrum band.  A small business interested in

serving only a single rural or urban locale could bid on the RSA

or MSA containing that area.  Any business, small or large,

interested in serving a particular town or city, could bid on

that city.  By separating rural areas from metropolitan areas,

those companies that wish to serve a rural area, but not the

neighboring city, could gain affordable access to the desired

community.  The price of the RSA license would be measured by

bidding competition and not be affected by the value of nearby

metropolitan areas.  Thus, licensing smaller areas would tend to

increase participation by small and rural businesses, including

businesses owned by women and minorities.

     By contrast, organizing the licenses by EAs, which include

both rural and urban areas, would cause the relatively high value

of urban areas to influence bidding levels for relatively less

valuable rural areas.  Bidding levels might simply become too

high for small businesses, despite the use of bidding credits.

Small businesses would face the prospect of bidding on larger

areas than they wish to serve, at prices that would be elevated

by the presence of urban areas, and in competition with larger

businesses.  Including rural areas in the same EA with

metropolitan areas runs the risk that a large business,

interested in serving only the city, might not serve surrounding

rural areas.  And local companies wanting to provide wireless

services to the rural areas of an EA might be unwilling to bid on

the entire EA or unable to bid against large companies.  Thus the

company that would obtain the rural license might have no use for

it and the company that wants to serve the rural community would

be denied that opportunity.

2.   The Commission should not rely on partitioning to create
small business licenses.
     
     The Commission tentatively concludes that partitioning and

disaggregation would provide "economic opportunity" for small

businesses and "overcome entry barriers" that these businesses

face.(3) The Commission acknowledges that the smaller licenses

require less capital, which will facilitate entry by small

business.(4) But by relying on post-auction partitioning to

overcome these barriers and lower capital costs for small

business, the Commission would miss an opportunity to encourage

small business participation in the auction itself.

     Rather, the Commission should create smaller areas

themselves, so that small businesses may compete at auction.  As

Commissioner Susan Ness has pointed out in another proceeding,

"Auction of larger service areas limits the ability of smaller

providers with rural strategies to obtain spectrum."(5)

Commissioner Harold Furchtgott-Roth and Commissioner Gloria

Tristani also appear open to the idea of smaller geographic

licensing areas.(6)

     Partitioning does not work.  The small business may have to

pay considerably more to partition a rural area than if it had

been auctioned as a discreet license area.  The price of the

rural area would reflect the value of the EA's urban areas.  Or

the EA licensee, a potential competitor to the smaller business,

might try to exact a higher price.  The EA licensee also might

prefer to sit on the spectrum and not partition its EA, even

areas it does not plan to serve, just in case it later decides to

expand its service.  As a result of any of these factors, large

rural areas of an EA could remain unserved indefinitely.

Auctioning by RSA and MSA would avoid these problems and permit

speedy service to rural communities.  Commissioner Furchtgott-

Roth calls the record on partitioning and disaggregation "mixed"

and notes that these practices "appear to create substantial

transaction costs."(7) Commissioner Ness sees the problem as

well:  "While the theory behind our partitioning and

disaggregation rules would suggest that rural carriers could

obtain access to spectrum, there is evidence that in practice

this has not happened."(8) Commissioner Tristani agrees that

"this policy has produced mixed results at best."(9)

3.   The Commission should seek SBA permission for new size

standards.

     Advocacy also notes that the Commission proposes three tiers

of small business for purposes of awarding bidding credits in

this auction.  The definitions of small business the Commission

proposes here, while consistent with those used in other

auctions, differ from the size standards determined by the U.S.

Small Business Administration ("SBA"), and appear to be new

definitions for services at 3650-3700 MHz.  As such, Advocacy

urges the Commission, if it has not done so already, to seek the

approval of SBA prior to establishing new definitions for small

business.

4.   Conclusion.

     Small businesses will have a greater opportunity to obtain

3650-3700 MHz spectrum licenses for the areas they wish to serve

if they can compete for these licenses at the auction stage.  The

Commission should encourage small business auction participation,

and therefore small business provision of 3650-3700 MHz services,

by offering the licenses according to RSAs and MSAs.  The

Commission should avoid licensing according to EAs, as these

areas are too large for small businesses, and partitioning will

not assure small businesses have an opportunity to provide 3650-

3700 MHz services.

Respectfully submitted,

Jere W. Glover
Chief Counsel for Advocacy

R. Bradley Koerner
Assistant Chief Counsel for Telecommunications

December 14, 2000
ENDNOTES

1.  Congress established Advocacy in 1976 by Pub. L. No. 94-305
to represent the views and interests of small business within the
Federal government.  (Codified as amended at 15 U.S.C.  634 a-
g, 637.)  Advocacy serves as a focal point for concerns regarding
the government's policies as they affect small business, develops
proposals for changes in Federal agencies' policies, and
communicates these proposals to the agencies.  (See 15 U.S.C.
634c(1)-(4).)  Advocacy also monitors agency compliance with the
RFA and reports this to Congress.
2.  Amendment of the Commission's Rules with Regard to the 3650-
3700 MHz Government Transfer Band, Second Notice of Proposed
Rulemaking, ET Docket No. 98-237, FCC 00-363, released October
24, 2000.
3.  See Second NPRM, paragraph 75, pp 33-34.  The Commission
states, "We tentatively conclude that geographic partitioning and
spectrum disaggregation can result in efficient spectrum use and
economic opportunity for a wide variety of applicants, including
small business, rural telephone, minority-owned, and women-owned
applicants, as required by Section 309(j)(4)(C) of the
Communications Act.  We also tentatively conclude that our
proposed approach will provide a means to overcome entry barriers
through the creation of smaller licenses that require less
capital, thereby facilitating greater participation by rural
telephone companies and other smaller entities, many of which are
owned by minorities and women." [Citations omitted.]   Id.
4.  Id.
5.  Amendments to Parts 1, 2 and 101 of the Commission's Rules to
License Fixed Services at 24 GHz, Report and Order ("24 GHz
Report and Order"), Separate Statement of Commissioner Susan
Ness, WT Docket No. 99-327, FCC No. 00-272, released August 1,
2000 .
6.  See 24 GHz Report and Order, Concurring Statement of
Commissioner Harold Furchtgott-Roth and Concurring Statement of
Commissioner Gloria Tristani.
7.  24 GHz Report and Order, Concurring Statement of Commissioner
Harold Furchtgott-Roth.
8.  24 GHz Report and Order, Separate Statement of Commissioner
Susan Ness.  [Citations omitted.]
9.  24 GHz Report and Order, Concurring Statement of Commissioner
Gloria Tristani.