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 Federal  Communications  Commission  FCC  03-  222 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 

 In  the  Matter  of 
 Facilitating  the  Provision  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting 
 Opportunities  for  Rural  Telephone  Companies  To  Provide  Spectrum-  Based  Services 

 2000  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits 
 For  Commercial  Mobile  Radio  Services 
 Increasing  Flexibility  To  Promote  Access  to  and  the  Efficient  and  Intensive  Use  of  Spectrum  and 
 the  Widespread  Deployment  of  Wireless  Services,  and  To  Facilitate  Capital  Formation 

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 WT  Docket  No.  02-  381 
 WT  Docket  No.  01-  14 
 WT  Docket  No.  03-  202 

 NOTICE  OF  PROPOSED  RULEMAKING 
 Adopted:  September  10,  2003  Released:  October  6,  2003 
 Comment  Date:  45  days  from  publication  in  the  Federal  Register  Reply  Comment  Date:  75  days  from  publication  in  the  Federal  Register 

 By  the  Commission:  Chairman  Powell;  Commissioners  Abernathy,  Copps,  Martin  and  Adelstein  issuing  separate  statements. 
 TABLE  OF  CONTENTS 
 Heading  Paragraph  # 
 I.  INTRODUCTION  AND  OVERVIEW..................................................................................................  1  II.  NOTICE  OF  PROPOSED  RULEMAKING  ON  INCREASING  FLEXIBILITY  AND  THE 
 DEPLOYMENT  OF  SPECTRUM-  BASED  SERVICES  IN  RURAL  AREAS...................................  10  A.  Definition  of  Rural  .....................................................................................................................  10 
 B.  Improved  Access  to  Unused  Spectrum  ..........................................................................................  13  1.  Background  .............................................................................................................................  13 
 2.  Discussion  ...............................................................................................................................  19  a.  What  Constitutes  Use  of  Spectrum................................................................................  19 
 b.  Re-  licensing  vs.  Market-  Based  Mechanisms  ....................................................................  24  C.  Performance  Requirements  ............................................................................................................  31 
 1.  Substantial  Service  Construction  Benchmarks........................................................................  34  a.  Background.......................................................................................................................  34 
 b.  Discussion.........................................................................................................................  35  2.  Renewal  License  Terms  ..........................................................................................................  43 
 a.  Background.......................................................................................................................  43  b.  Discussion.........................................................................................................................  44 
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 D.  Relaxed  Power  Limits....................................................................................................................  47  1.  Background  .............................................................................................................................  47 
 2.  Discussion  ...............................................................................................................................  48  a.  Part  15  Unlicensed  Devices  and  Systems  .........................................................................  48 
 b.  Licensed  Services  .............................................................................................................  51  E.  Appropriate  Size  of  Geographic  Service  Areas  .............................................................................  59 
 1.  Background.  ............................................................................................................................  59  2.  Discussion  ...............................................................................................................................  63 
 F.  Facilitating  Access  to  Capital  ........................................................................................................  72  1.  Rural  Utilities  Service  .............................................................................................................  73 
 a.  Rural  Loan  Programs  ........................................................................................................  73  (i)  Background  ................................................................................................................  73 
 (ii)  Discussion  ..................................................................................................................  77  b.  Security  Interests...............................................................................................................  79 
 (i)  Background  ................................................................................................................  79  (ii)  Discussion  ..................................................................................................................  80 
 2.  Cellular  Cross-  Interests  in  Rural  Service  Areas  ......................................................................  90  a.  Background.......................................................................................................................  91 
 b.  Discussion.........................................................................................................................  95  G.  Infrastructure  Sharing  ..................................................................................................................  100 
 1.  Background  ...........................................................................................................................  100  2.  Discussion  .............................................................................................................................  104 
 H.  Rural  Radiotelephone  Service  and  Basic  Exchange  Telecommunications  Radio  Service  ..........  109  1.  Background  ...........................................................................................................................  109 
 2.  Discussion  .............................................................................................................................  111  III.  PROCEDURAL  MATTERS..............................................................................................................  117 
 A.  Ex  Parte  Rules    Permit-  But-  Disclose  Proceeding  ......................................................................  117  B.  Initial  Regulatory  Flexibility  Analysis.........................................................................................  118 
 C.  Initial  Paperwork  Reduction  Act  of  1995  Analysis  .....................................................................  119  D.  Comment  Dates............................................................................................................................  120 
 IV.  ORDERING  CLAUSES.....................................................................................................................  126 
 APPENDICES: 
 Appendix  A    Initial  Regulatory  Flexibility  Analysis  Appendix  B    Proposed  Rule  Changes 

 I.  INTRODUCTION  AND  OVERVIEW 
 1.  In  this  Notice  of  Proposed  Rulemaking  (NPRM),  we  continue  to  examine  ways  to  promote  the  rapid  and  efficient  deployment  of  quality  spectrum-  based  services  in  rural  areas.  1  We  build 

 1  The  NPRM  addresses  regulations  and  policies  pertaining  to  the  provision  of  commercial  and  private  terrestrial 
 wireless  services  and,  in  certain  respects,  unlicensed  systems  and  devices.  In  addition,  pursuant  to  Section  11  of  the  Communications  Act,  the  NPRM  examines  whether  our  cellular  cross-  interest  rule  continues  to  be  necessary 

 in  the  public  interest,  in  light  of  meaningful  economic  competition.  See  47  U.  S.  C.    161(  a)(  1),  (2).  While  the  policies  and  proposals  discussed  herein  are  targeted  at  promoting  wireless  services  to  consumers  in  rural  areas, 
 certain  of  our  proposals  have  broader  application  to  non-  rural  areas  as  well.  While  satellite-  based  services  present  another  viable  means  to  serve  rural  and  underserved  areas,  we  do  not  propose  any  rule  changes  to  our  policies  or 

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 upon  the  record  developed  in  response  to  our  Notice  of  Inquiry,  in  which  we  sought  comment  on  how  we  could  modify  our  policies  to  further  encourage  the  provision  of  wireless  services  in  rural  areas.  2  We  also 
 draw  upon  the  findings  and  recommendations  of  the  Spectrum  Policy  Task  Force,  which  identified  and  evaluated  potential  changes  in  our  spectrum  policy  that  would  increase  public  benefits  from  spectrum-based 
 services.  3 
 2.  In  this  proceeding,  the  Commission  continues  its  efforts  in  the  spectrum  policy  arena  to  facilitate  the  provision  of  wireless  services  to  all  Americans,  including  those  residing  in  or  traveling 

 through  rural  areas.  The  continued  development  and  operation  of  quality  wireless  facilities,  systems  and  devices  using  licensed  and  unlicensed  spectrum  in  rural  areas  is  critical.  In  our  highly  mobile  and 
 increasingly  untethered  world,  consumers  value  wireless  services  that  offer  ubiquitous  and  seamless  coverage  in  a  reliable  manner.  The  Commissions  primary  mission  is  the  promotion  of  communication 
 by  wire  and  radio  so  as  to  make  available,  so  far  as  possible,  to  all  the  people  of  the  United  States,  without  discrimination  on  the  basis  of  race,  color,  religion,  national  origin,  or  sex,  a  rapid,  efficient, 
 Nation-  wide,  and  world-  wide  wire  and  radio  communication  service.  4  Furthermore,  for  auctionable  services,  the  Commission  is  required  to  promote  various  objectives  in  designing  a  system  of  competitive 
 bidding,  including  the  development  and  rapid  deployment  of  new  technologies,  products,  and  services  for  the  benefit  of  the  public,  including  those  residing  in  rural  areas,  and  the  efficient  and  intensive  use  of 
 spectrum.  5  Under  Section  706  of  the  Communications  Act,  the  Commission  is  also  directed  to  encourage  the  provision  of  new  technologies  and  services  to  the  public.  6  Consistent  with  these 
 statutory  mandates,  the  Commissions  spectrum  policy  goals  generally  have  been  to  facilitate  efficient  use,  competition,  and  rapid,  widespread  service  consistent  with  the  goals  of  the  Communications  Act.  7 

 3.  On  a  national  scale,  the  deployment  of  wireless  mobile  services  has  been  a  huge  success, 

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 regulations  governing  satellite-  based  services  at  this  time,  nor  do  we  address  regulations  governing  the  provision  of  broadcast,  wireline  telecommunications  or  information  services.  We  note  that,  in  the  broadcasting  context,  we 

 have  recently  issued  an  NPRM  regarding  extending  digital  television  opportunities  to  rural  areas.  See  Amendment  of  Parts  73  and  74  of  Commissions  Rules  To  Establish  Rules  for  Digital  Low  Power  Television,  Television 
 Translator,  and  Television  Booster  Stations,  and  To  Amend  Rules  for  Digital  Class  A  Television  Stations,  Notice  of  Proposed  Rulemaking,  FCC  03-  198,  2003  WL  22023945  (rel.  Aug.  29,  2003). 

 2  Facilitating  the  Provision  of  Spectrum-  Based  Service  to  Rural  Areas  and  Promoting  Opportunities  for  Rural 
 Telephone  Companies  to  Provide  Spectrum-  Based  Services,  Notice  of  Inquiry,  17  FCC  Rcd  25554  (2002)  (Rural  NOI). 

 3  See  Federal  Communications  Commission,  Spectrum  Policy  Task  Force  Report,  ET  Docket  No.  02-  135 
 (released  Nov.  2002)  (SPTF  Report).  This  report  and  other  materials  can  be  found  at  <http://  www.  fcc.  gov/  sptf>.  See  also  Commission  Seeks  Public  Comment  on  Spectrum  Policy  Task  Force  Report,  Public  Notice,  17  FCC 

 Rcd  24316  (2002). 
 4  47  U.  S.  C.    151. 

 5  47  U.  S.  C.    309(  j). 
 6  47  U.  S.  C.    157. 
 7  47  U.  S.  C.    151,  309(  j). 
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 resulting  in  increased  competition  and  services  overall.  8  We  believe  that  a  number  of  measures  that  the  Commission  has  already  adopted  have  contributed  to  this  successful  deployment  of  wireless  service.  For 
 example,  we  have  adopted  mechanisms  such  as  small  business  bidding  credits,  9  partitioning  and  disaggregation,  10  and  the  designation  of  various  sizes  of  geographic  service  areas  for  spectrum  licenses  in 
 order  to  encourage  participation  in  spectrum  auctions  and  facilitate  deployment  of  wireless  services  generally.  11  Existing  data  indicates  that  wireless  service  providers  have  taken  advantage  of  these 
 regulatory  mechanisms.  As  of  July  2003,  the  Commission  has  completed  35  auctions  for  terrestrial  wireless  licenses.  76  percent  of  the  winning  bidders  in  these  auctions  claimed  eligibility  status  as  a  small 
 business  and  were  the  winning  bidders  for  52  percent  of  the  licenses  sold.  12  Furthermore,  within  the  35  completed  auctions,  12  percent  of  the  winning  bidders  self-  certified  as  being  rural  telephone  companies 

 8  See  Implementation  of  Section  6002(  b)  of  the  Omnibus  Budget  Reconciliation  Act  of  1993,  Annual  Report  and 
 Analysis  of  Competitive  Market  Conditions  with  Respect  to  Commercial  Mobile  Services,  Eighth  Report,  18  FCC  Rcd  14783  (2003)  (Eighth  Competition  Report). 

 9  See  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  Second  Report  and 
 Order,  9  FCC  Rcd  2348,  2350    6  (1994)  (Competitive  Bidding  Second  Report  and  Order).  See  also  Extending  Wireless  Telecommunications  Services  to  Tribal  Lands,  Report  and  Order  and  Further  Notice  of  Proposed 

 Rulemaking,  15  FCC  Rcd  11794  (2000). 
 10  Partitioning  and  disaggregation  is  now  permitted  in  the  218-  219  MHz  Service  (47  C.  F.  R.    95.823),  220  MHz 
 Service  (47  C.  F.  R.    90.1019),  800  MHz  (47  C.  F.  R.    90.911)  and  900  MHz  (47  C.  F.  R.    90.813)  Specialized  Mobile  Service  (SMR),  24  GHz  Service  (47  C.  F.  R.    101.535),  39  GHz  Service  (47  C.  F.  R.    101.56),  Local 

 Multipoint  Distribution  Service  (LMDS)  (47  C.  F.  R.  101.1111),  Location  and  Monitoring  Service  (LMS)  (47  C.  F.  R.    90.365),  Multiple  Address  Systems  (MAS)  (47  C.  F.  R.  101.1323),  Multipoint  Distribution  Service 
 (MDS)  (47  C.  F.  R.    21.931),  Maritime  Services  (47  C.  F.  R.    80.60),  Paging  and  Radiotelephone  Service  (47  C.  F.  R.    22.513),  Cellular  Radiotelephone  Service  (47  C.  F.  R.    22.948),  broadband  Personal  Communications 
 Services  (PCS)  (47  C.  F.  R.    24.714),  narrowband  PCS  (47  C.  F.  R.    27.104),  and  all  Part  27  services  (47  C.  F.  R.    27.15,  27.605). 

 11  The  smallest  of  these  geographic  service  areas  are  Rural  Service  Areas  (RSAs)  and  Metropolitan  Statistical 
 Areas  (MSAs),  of  which  there  are  734  licenses  comprising  the  United  States  and  its  territories.  The  Commission  has  also  licensed  spectrum  according  to  Economic  Area  Groupings  (EAGs),  which  make  up  six  licensing  areas  for 

 the  entire  country.  Some  terrestrial  wireless  services,  such  as  narrowband  Personal  Communications  Services  (PCS)  and  1670-  1675  MHz,  have  geographic  service  areas  that  have  nationwide  coverage.  Narrowband  PCS  is 
 also  licensed  on  a  regional  basis.  See  47  C.  F.  R.    24.102.  Other  geographic  service  areas  fall  along  a  range  of  intermediate  sizes  between  RSAs  and  nationwide  service  areas,  e.  g.,  Major  Trading  Areas  (MTAs),  Basic  Trading 
 Areas  (BTAs),  Economic  Areas  (EAs),  and  Major  Economic  Areas  (MEAs).  See  Summary  of  Completed  Auctions,  available  at  <http://  wireless.  fcc.  gov/  auctions/>  (denoting  geographic  service  areas  for  each  auction  that 
 has  been  conducted  pursuant  to  47  U.  S.  C.    309(  j)).  We  note  that  Rand  McNally  &  Company  owns  the  copyright  to  the  MTA  and  BTA  listings.  See  Rand  McNally,  1992  Commercial  Atlas  and  Marketing  Guide  at  36-  39  (123rd 
 ed.  1992). 
 12  For  the  purposes  of  this  analysis,  small  business  includes  all  winning  bidders  that  claimed  eligibility  status  as 
 a  small  or  very  small  business  for  the  purposes  of  qualifying  for  bidding  credits.  The  data  for  this  analysis  was  obtained  from  publicly  available  information  from  the  Commission's  Auctions  website.  See 

 <http://  wireless.  fcc.  gov/  auctions>. 
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 (rural  telcos),  as  that  term  is  defined  by  the  Communications  Act.  13  Moreover,  the  Commissions  analysis  of  applications  for  geographic  partitioning  and  spectrum  disaggregation  reveals  that  13.5  percent  of  all 
 assignees  have  voluntarily  identified  themselves  as  rural  telcos.  14  In  addition  to  these  regulatory  mechanisms,  the  Commission  has  also  adopted  flexible  regulations  for  unlicensed  systems  under  Part  15 
 and  is  in  the  process  of  examining  targeted  issues  raised  by  wireless  Internet  service  providers  (WISPs)  with  respect  to  unlicensed  spectrum  in  rural  areas.  15  Recently,  the  Commission  took  steps  to  facilitate 
 spectrum  leasing  in  secondary  markets,  building  upon  existing,  flexible,  market-  based  policy  efforts  to  encourage  more  efficient  use  of  spectrum.  16  The  Commission  did  so  with  the  belief  that  secondary 
 markets  would  also  facilitate  investment  in  rural  areas.  We  will  be  monitoring  investment  to  see  whether  secondary  markets  have  contributed  to  the  growth  of  wireless  services  in  rural  areas. 

 4.  We  recognize  that  the  inherent  economic  challenges  of  providing  telecommunications  services  in  sparsely  populated,  expansive  rural  areas  are  of  significant  importance  to  any  carrier  that 
 serves  or  is  considering  serving  these  areas.  We  note  that  the  Federal-  State  Joint  Board  has  solicited  comment  on  issues  relating  to  the  eligibility  of  wireless  carriers  to  receive  universal  service  support.  17 
 Further,  the  Wireless  Telecommunications  Bureau  and  the  U.  S.  Department  of  Agricultures  Rural  Utilities  Service  (RUS)  have  recently  initiated  a  Federal  Rural  Wireless  Outreach  Initiative  that  seeks  to 
 harmonize  the  agencies  policies  regarding  rural  wireless  deployment  and  highlight  the  RUS  loan  programs  available  to  wireless  companies  that  serve  rural  communities.  18  We  will  continue  to  monitor 
 developments  in  those  arenas  and  will  consider  the  impact  that  these  policy  issues  may  have  on  the  delivery  of  spectrum-  based  services  in  rural  areas. 

 5.  At  present,  a  number  of  explicit  programs  are  available  to  support  the  provision  of  spectrum-  based  services  in  rural  areas.  For  example,  wireless  telecommunications  carriers  may  seek 
 Universal  Service  Fund  support  for  service  in  high  cost  areas  and  can  also  apply  for  RUS  funds  in  the  deployment  of  broadband  services.  From  the  beginning  of  fiscal  year  2000  through  June  24,  2003, 

 13  See  47  U.  S.  C.    153(  37)  (defining  rural  telecommunications  carrier).  We  note  that  the  list  of  entities  self-certifying 
 as  rural  telcos  and  the  list  of  entities  that  claimed  eligibility  as  small  businesses  are  not  mutually  exclusive. 

 14  Rural  NOI  at  25559    8. 
 15  Additional  Spectrum  for  Unlicensed  Devices  below  900  MHz  and  3  GHz  Band,  Notice  of  Inquiry,  17  FCC  Rcd 
 25632  (2002);  see  also  SPTF  Report. 
 16  See  FCC  Adopts  Spectrum  Leasing  Rules  and  Streamlined  Processing  for  License  Transfer  and  Assignment 
 Applications,  and  Proposes  Further  Steps  To  Increase  Access  to  Spectrum  through  Secondary  Markets,  News  Release,  2003  WL  21088542  (rel.  May  15,  2003)  (Secondary  Markets  News  Release).  This  new  policy  will 

 facilitate  the  development  of  secondary  markets  in  spectrum  by  allowing  licensees  to  engage  in  certain  types  of  spectrum  leases  with  minimal  regulatory  involvement. 

 17  See  Federal-  State  Joint  Board  on  Universal  Service  Seeks  Comment  on  Certain  of  the  Commissions  Rules 
 Relating  to  High-  Cost  Universal  Service  Support  and  the  ETC  Designation  Process,  Public  Notice,  FCC  03J-  1  (rel.  February  7,  2003).  Although  we  received  substantial  input  into  Universal  Service  issues  in  response  to  the 

 Rural  NOI,  we  do  not  address  direct  subsidy  programs  further  in  this  proceeding,  but  acknowledge  their  importance  to  promoting  the  availability  of  rural  service  and  will  address  them  in  separate  proceedings. 

 18  See  FCC  and  USDA  Hold  Kick-  Off  Meeting  of  the  Federal  Rural  Wireless  Outreach  Initiative,  News 
 Release,  2003  WL  21511807  (rel.  July  2,  2003)  (Federal  Rural  Wireless  Outreach  Initiative  News  Release). 
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 18  companies  received  infrastructure  and  pilot  broadband  loans  totaling  almost  $158  million  from  RUS  to  provide  wireless  service.  19  The  Universal  Service  Administrative  Company  (USAC)  projects  that  102 
 competitive  Eligible  Telecommunications  Carriers  (ETCs)  will  receive  portable  high-  cost  support  in  the  third  quarter  of  2003.  20  In  addition,  USAC  projects  that,  in  the  third  quarter  of  2003,  competitive  ETCs 
 will  receive  approximately  $32  million  or  3.7  percent  of  all  federal  high-  cost  support.  21 
 6.  We  believe  that  rural  as  well  as  urban  consumers  and  businesses  have  benefited  from  our  market-  oriented  policies  that  promote  facilities-  based  competition  for  telecommunications  services.  The 

 Commission  recently  found  that  there  is  effective  competition  in  the  CMRS  marketplace  as  a  whole,  including  in  rural  areas.  22  The  Commissions  policy  to  let  market  forces  determine  the  number  of  firms 
 operating  in  a  given  geographic  area,  subject  to  limits  on  spectrum  availability  and  aggregation,  recognizes  this  fact,  and  allows  firms  to  operate  at  a  competitive  and  efficient  scale  of  operation.  The 
 providers  are  then  able  to  pass  along  to  consumers  the  cost  savings  from  efficient  operation.  In  contrast,  if  there  were  more  than  an  efficient  number  of  providers  in  a  market,  absent  other  support  such  as 
 subsidies,  in  the  long  run  some  of  these  providers  would  go  out  of  business,  causing  a  loss  of  service  and  other  inconvenience  to  consumers. 

 7.  The  Commission  recognizes  that,  as  a  result  of  varying  technical  and  demographic  characteristics,  the  economics  of  providing  service  can  be  significantly  different  in  rural  areas  as 
 compared  to  urban  areas.  Our  proposals  attempt  to  acknowledge  that  market  characteristics,  especially  demographics,  will  affect  the  optimal  market  structure.  For  example,  because  of  economies  of  scale  in 
 wireless  networks  and  lower  population  densities  in  rural  areas,  the  economically  efficient  number  of  providers  likely  will  be  fewer.  On  the  other  hand,  fewer  competitors  in  rural  areas  may  indicate  a  market 
 failure.  Any  small,  new  entrant  attempting  to  serve  a  niche  market  might  face  barriers  to  entry  arising  from  its  inability  to  exploit  economies  of  scale,  and  will  inevitably  have  less  bargaining  power  to  secure 
 equipment,  supplies,  or  negotiate  agreements.  This  may  be  the  case  in  some  rural  markets,  and  raises  the  question  of  the  effect  on  consumer  welfare  of  inducing  additional  providers  to  serve  rural  areas.  Our 
 proposals  attempt  to  account  for  these  market  realities  and  to  promote  rural  service  in  a  manner  consistent  with  our  statutory  obligations. 

 8.  Furthermore,  there  may  well  be  a  public  interest  in  policies  that  encourage  potential  users  to  become  mobile  subscribers  due  to  the  network  externalities  that  would  result.  In  short,  network 
 externalities  occur  when  adding  a  user  to  a  communications  network  increases  the  value  of  the  network  for  existing  users  who  wish  to  communicate  with  that  new  user.  23  For  this  reason,  it  is  an  especially 

 19  Information  provided  by  correspondence  from  Ken  Ackerman,  Assistant  Administrator    Program  Accounting 
 and  Regulatory  Analysis,  RUS,  to  Cindi  Scheiber,  Analyst,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications  Bureau,  on  June  24,  2003. 

 20  See  Federal  Universal  Service  Support  Mechanism  Fund  Size  Projections  for  the  Third  Quarter  2003,  at  HC-  1, 
 available  at  <http://  www.  universalservice.  org/  filings>  (filed  May  2,  2003).  Most  competitive  ETCs  are  wireless  providers. 

 21  Id. 
 22  Eighth  Competition  Report  at  14792    12,  13. 
 23  See  M.  L.  Katz  and  C.  Shapiro,  Systems  Competition  and  Network  Effects,  Journal  of  Economic  Perspectives 
 8:  93-  115  (1994);  M.  L.  Katz  and  C.  Shapiro,  Technology  Adoption  in  the  Presence  of  Network  Externalities,  Journal  of  Political  Economy  94:  822-  841  (1986);  M.  L.  Katz  and  C.  Shapiro,  Network  Externalities, 

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 important  Commission  goal  to  facilitate  access  to  service  broadly,  not  just  in  urban  markets  but  also  in  rural  areas,  to  enable  Americans  who  travel,  reside  or  conduct  business  throughout  the  country  to 
 communicate  effectively  for  the  benefit  of  the  general  public  interest. 
 9.  As  a  complement  to  the  measures  the  Commission  has  already  taken,  we  seek  to  minimize  regulatory  costs  and  eliminate  unnecessary  regulatory  barriers  to  the  deployment  of  spectrum-based 

 services  in  rural  areas.  At  the  same  time,  however,  regulatory  initiatives  may  be  appropriate  to  encourage  and  promote  the  rapid  deployment  of  new  technologies,  products,  and  services  for  the  benefit 
 of  those  residing  in  rural  areas  consistent  with  our  statutory  obligation.  As  reflected  in  the  proposals  set  forth  in  the  following  NPRM,  we  believe  there  are  additional  spectrum  policy  initiatives  the  Commission 
 can  adopt  to  reduce  the  overall  cost  of  regulation  and  increase  flexibility  in  a  manner  that  will  facilitate  spectrum  access,  capital  formation,  build  out  and  coverage  in  rural  areas.  Specifically,  we  focus  upon  the 
 following  issues:  (1)  determining  an  appropriate  definition  of  what  constitutes  a  rural  area  for  purposes  of  our  policies  and  requirements;  (2)  creating  mechanisms  for  access  to  unused  spectrum;  (3)  relaxing 
 performance  requirements  to  remove  disincentives  to  serve  rural  areas  and  to  allow  all  geographic  area  licensees  to  satisfy  construction  requirements  by  providing  substantial  service  in  their  initial  license 
 term;  (4)  determining  whether  geographic  area  licensees  should  be  required  to  provide  coverage  to  increased  portions  of  their  licensed  areas  after  their  initial  license  term;  (5)  amending  our  regulations  to 
 permit  increased  power  limits  in  rural  areas  for  both  licensed  services  and  unlicensed  services;  (6)  evaluating  the  appropriate  size  of  licensing  areas  for  geographic  area  licenses;  (7)  determining  what,  if 
 any,  regulatory  or  policy  changes  should  be  made  to  complement  the  RUS  program  for  low  interest  loans  for  deployment  of  broadband  services;  (8)  considering  whether  we  could  enhance  access  to  capital  by 
 permitting  the  grant  of  conditional  security  interests  in  spectrum  licenses  to  RUS;  (9)  considering  whether  we  should  modify  application  of  the  cellular  cross-  interest  rule  in  Rural  Service  Areas  (  RSAs)  with 
 greater  than  three  competitors;  (10)  establishing  a  clear,  predictable  policy  on  infrastructure  sharing;  and  (11)  updating  and  refining  our  rules  governing  the  Rural  Radiotelephone  Service  (  RRS)  and  Basic 
 Exchange  Telephone  Radio  Systems  (  BETRS). 
 II.  NOTICE  OF  PROPOSED  RULEMAKING  ON  INCREASING  FLEXIBILITY  AND  THE  DEPLOYMENT  OF  SPECTRUM-  BASED  SERVICES  IN  RURAL  AREAS 

 A.  Definition  of  Rural 
 10.  As  an  initial  matter,  we  seek  comment  on  an  appropriate  definition  of  a  rural  area  for  use  in  conjunction  with  each  of  the  policies  addressed  in  this  proceeding.  24  We  seek  comment  on  whether 

 a  uniform  definition  of  rural  area  is  appropriate  to  the  proposals  discussed  in  this  item,  or  whether  the  definition  of  rural  area  should  differ  depending  upon  the  particular  regulatory  initiative  at  issue. 
 Furthermore,  given  the  various  definitions  of  rural  that  already  have  been  utilized  by  federal  agencies  generally  and  the  Commission  specifically,  we  believe  that  some  clarification  of  the  term  is  necessary  in 

 (Continued  from  previous  page) 
 Competition,  and  Compatibility,  American  Economic  Review  75:  424-  440  (1985);  Jeffrey  Rolfs,  A  Theory  of  Interdependent  Demand  for  a  Communications  Service,  Bell  Journal  of  Economics  and  Management  Science  5, 

 no.  1  (Spring  1974),  pp.  16-  37. 
 24  We  note  that  any  definition  of  rural  area  adopted  for  purposes  of  this  proceeding  would  not  affect  the 
 definition  of  rural  in  other  contexts,  such  as  the  Commissions  rules  related  to  universal  service  and  rural  areas,  or  designation  of  eligible  telecommunications  carriers. 
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 order  to  ensure  that  our  proposals  are  appropriately  tailored  to  promote  service  to  consumers  in  rural  areas  and  ensure  uniform  understanding  of  how  our  regulatory  proposals  will  be  implemented.  Although 
 Sections  309(  j)(  3)  and  309(  j)(  4)  of  the  Communications  Act  direct  the  Commission  to  promote  the  development  and  deployment  of  spectrum-  based  services  to  rural  areas,  the  Communications  Act  does 
 not  define  rural  areas,  nor  has  the  Commission  adopted  a  specific  definition  of  rural  areas  for  purposes  of  implementing  Section  309(  j).  25  In  the  Seventh  and  Eighth  Competition  Reports,  the 
 Commission  used  three  different  proxy  definitions  of  rural  for  purposes  of  analyzing  the  average  number  of  mobile  telephony  competitors  in  rural  versus  non-  rural  counties:  the  Commission  compared 
 the  number  of  competitors  in:  (1)  RSA  counties  versus  MSA  counties  26  ;  (2)  non-  nodal  Economic  Area  (EA)  counties  versus  nodal  EA  counties;  27  and  (3)  counties  with  population  densities  below  100  persons 
 per  square  mile  versus  those  with  population  densities  above  100  persons  per  square  mile.  28  In  connection  with  administering  universal  service  support  programs  for  schools,  libraries,  and  rural  health 
 care  providers,  the  Commission  defines  rural  area  as  any  county  outside  of  an  MSA  (with  some  exceptions).  29  Moreover,  the  federal  government  has  multiple  ways  of  defining  rural,  reflecting  the 
 multiple  purposes  for  which  the  definitions  are  used.  30  The  Commission  has  used  RSAs  as  a  proxy  for  rural  in  certain  instances.  31  In  administering  its  financial  assistance  program  for  broadband  access  to 
 rural  areas,  RUS  defines  rural  as  any  place  that  is  not  located  within  an  MSA  and  that  has  no  more  than  20,000  inhabitants  (based  upon  the  most  recently  available  Census  data).  32  The  Economic  Research 
 Service  of  the  USDA,  in  conjunction  with  others,  developed  a  definition  of  rural  based  on  a  set  of 

 25  We  note  that  rural  telephone  companies  are  defined  under  Section  3  of  the  Communications  Act.  See  47 
 U.  S.  C.    153(  37).  Because  the  regulatory  measures  discussed  in  the  NPRM  are  focused  upon  promoting  service  to  consumers  residing  within  rural  areas,  and  not  upon  whether  a  wireless  service  provider  itself  is  a  rural 

 company,  we  do  not  believe  this  particular  definition  is  appropriate  with  respect  to  the  proposals  discussed  herein. 
 26  See  Eighth  Competition  Report  at  14837,    113;  see  also  Implementation  of  Section  6002(  b)  of  the  Omnibus 
 Budget  Reconciliation  Act    Annual  Report  and  Analysis  of  Competitive  Market  Conditions  With  Respect  to  Commercial  Mobile  Services,  Seventh  Report,  17  FCC  Rcd  12985,  13022  (2002)  (Seventh  Competition  Report). 

 27  Each  EA  consists  of  one  or  more  counties  that  are  Economic  Nodes  and  the  surrounding  counties  that  are 
 economically  related  to  it.  An  EA  may  have  more  than  one  economic  node.  The  counties  that  are  economic  nodes  are  metropolitan  areas  or  similar  areas  that  serve  as  the  EAs  center(  s)  of  economic  activity.  As  a  proxy  for 

 urban  and  rural  geographic  areas,  we  looked  at  counties  that  make  up  economic  nodes,  i.  e.,  nodal  counties,  versus  those  counties  that  do  not  make  up  economic  nodes,  i.  e.,  non-  nodal  counties.  See  Eighth  Competition  Report  at 
 14836    112;  see  also  Seventh  Competition  Report  at  13022. 
 28  See  Eighth  Competition  Report  at  14837    114;  Seventh  Competition  Report  at  13023. 

 29  See  47  C.  F.  R.    54.5. 
 30  See  Eighth  Competition  Report  at  14835    108;  see  also  Seventh  Competition  Report  at  13022;  Rural  NOI  at 
 25563    15. 
 31  In  the  CMRS  spectrum  cap  proceeding,  the  Commission  designated  RSAs  as  rural  areas  and  stated,  [  o]  ther 
 market  designations  used  by  the  Commission  for  CMRS,  such  as  [EAs],  combine  urbanized  and  rural  areas,  while  MSAs  and  RSAs  are  defined  expressly  to  distinguish  between  rural  and  urban  areas.  Biennial  Regulatory 

 Review,  Spectrum  Aggregation  Limits  for  Wireless  Telecommunications  Carriers,  Report  and  Order,  15  FCC  Rcd  9219,  9256    84  n.  203  (1999). 

 32  See  7  C.  F.  R.    1738.2 
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 metrics  that  delineates  each  census  tract  as  being  either  rural  or  urban.  33  By  contrast,  the  Census  Bureau  established  a  different  metric  for  defining  rural  areas  during  its  2000  census.  34 
 11.  Although  there  are  many  definitions  of  rural  used  by  the  federal  government,  we  have  developed  a  record  in  response  to  our  Rural  NOI  proceeding  that  provides  some  guidance  with  respect  to 
 an  appropriate  definition  of  rural  area.  35  We  seek  to  further  expand  upon  that  record.  Several  commenters  support  the  adoption  of  the  definition  of  an  RSA  for  rural  area.  36  USCC  recommends 
 adoption  of  such  a  definition  because  it  is  widely  known,  used  and  accessible  in  the  industry  and  because  it  has  already  been  demonstrated  to  be  a  workable  proxy  for  analytical  purposes.  37  Other  commenters 
 suggest  factors  that  should  be  taken  into  account  when  determining  whether  an  area  is  rural,  such  as  commuting  patterns,  38  or  the  number  of  persons  per  square  mile.  39  On  the  other  hand,  at  least  with  respect 
 to  defining  rural  areas  for  purposes  of  CMRS,  Dobson  Communications  Corporation  states  that,  as  the  CMRS  industry  has  matured,  competition  in  rural  areas  has  developed  sufficiently  to  make  meaningless 
 any  competitive  distinction  between  urban  and  rural  areas.  40 
 12.  Based  upon  the  record  developed  in  the  Rural  NOI  proceeding,  as  well  as  certain  definitions  used  by  the  Commission  and  by  other  federal  agencies  as  proxies  for  rural,  we  have 

 identified  and  seek  comment  on  the  following  potential  definitions  of  rural  area,  or  some  combination  of  elements  combined  in  these  potential  definitions:  (1)  counties  with  a  population  density  of  100  persons 
 or  fewer  per  square  mile;  (2)  RSAs;  (3)  non-  nodal  counties  within  an  EA;  (4)  the  definition  for  rural  used  by  the  RUS  for  its  broadband  program;  (5)  the  definition  for  rural  area  used  by  the  Commission  in 

 33  See  <  http://  www.  ers.  usda.  gov/  briefing/  rural/  data/  desc.  htm>. 
 34  The  glossary  on  the  Census  website  (<  http://  factfinder.  census.  gov/  servlet/  BasicFactsServlet>)  defines  rural  as 
 Territory,  population  and  housing  units  not  classified  as  urban.  Rural  classification  cuts  across  other  hierarchies  and  can  be  in  metropolitan  or  non-  metropolitan  areas.  The  definition  of  urban  is  all  populations  in  Urbanized 

 Areas,  as  defined  by  the  Census,  and  populations  of  more  than  2,500  people  outside  of  urbanized  areas. 
 35  See  Rural  NOI  at  25563    15.  In  addition,  we  have  received  feedback  on  the  appropriate  definition  of  rural  as  a 
 result  of  the  public  forum  held  in  connection  with  the  Seventh  Competition  Report.  See  Seventh  Competition  Report  at  13020  n.  241  (For  access  to  forum  participants  presentations,  see  Commercial  Mobile  Radio  Services 

 (CMRS)  Competition  Report  Public  Forum,  <http://  wireless.  fcc.  gov/  cmrs-  crforum.  html>.  The  transcript  of  the  forum  can  be  found  at  Public  Hearing  for  7th  Annual  CMRS  Competition  Report:  Transcript  of  the  Days  Event, 
 <http://  wireless.  fcc.  gov/  services/  cmrs/  presentations/  020228.  pdf>). 
 36  See,  e.  g.,  Rural  NOI,  Comments  of  the  National  Telecommunications  Cooperative  Association  at  9  (NTCA 
 Comments);  Comments  of  United  States  Cellular  Corporation  at  5-  6  (USCC  Comments);  cf.  Comments  of  South  Dakota  Telecommunications  Association  at  5  (suggesting  that  [  b]  y  definition,  an  RSA  is  an  area  made  up  of  rural 

 territory,  and  that  [  t]  his  fact  would  allow  the  Commission  to  avoid  the  definitional  quandary  .  .  .  since  any  construction  within  the  RSA  would  be  service  to  a  rural  area). 

 37  Rural  NOI,  USCC  Comments  at  6.  USCC  noted  that,  in  the  Seventh  Competition  Report,  the  Commission 
 found  that  its  analysis  of  the  competitive  conditions  in  rural  areas  based  on  non-  nodal  [Economic  Areas],  population  density  and  RSAs  provided  .  .  .  remarkably  similar  estimates.    Id.  (internal  citations  omitted). 

 38  See  NTCA  Comments  at  2. 
 39  See  Rural  NOI,  Comments  of  Air  Networking  at  1. 
 40  See  Rural  NOI,  Comments  of  Dobson  Communications  Corporation  at  4. 
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 connection  with  universal  service  support  for  schools,  libraries,  and  rural  health  care  providers;  41  (6)  the  definition  of  rural  based  on  census  tracts  as  outlined  by  the  Economic  Research  Service  of  the  USDA; 
 (7)  the  Census  Bureau  definition  of  rural  counties;  and  (8)  any  census  tract  that  is  not  within  ten  miles  of  any  incorporated  or  census-  designated  place  containing  more  than  2,500  people,  and  is  not  within  a 
 county  or  county  equivalent  which  has  an  overall  population  density  of  more  than  500  persons  per  square  mile  of  land.  As  a  practical  matter,  we  note  that  definitions  based  upon  county  population  data  would  be 
 relatively  easy  for  the  Commission  to  administer:  county  boundaries  are  widely  known  and  rarely  change,  all  FCC-  defined  market  areas  are  comprised  of  counties,  and  a  considerable  amount  of  data  at  the  county 
 level  exists.  On  the  other  hand,  there  are  potential  drawbacks  to  a  county-  based  definition.  For  example,  a  population-  density  based  definition  of  rural  might  be  unsuitable  in  cases  where  a  county  might  have  a 
 very  dense  population  center  that  covers  only  a  small  portion  of  the  geographic  area  of  the  county,  such  that  the  county  might  be  considered  rural  when,  in  fact,  most  of  the  countys  population  is  not  rural.  In 
 the  event  that  commenters  disagree  with  these  potential  definitions,  we  ask  commenters  to  provide  alternative  definitions  of  rural.  Commenters  that  believe  that  none  of  these  potential  definitions  are 
 workable  or  feasible  should  identify  specific  factors  that  the  Commission  should  consider  when  determining  whether  an  area  is  a  rural  area,  such  as  population  density,  Census  rankings,  or  other 
 criteria.  Commenters  should  articulate  specific  reasons  and  provide  quantitative  data  supporting  the  use  of  their  proposed  definitions  of  rural  areas.  Finally,  we  recognize  that  one  definition  of  rural  may  not 
 be  universally  applied  to  all  situations.  Accordingly,  we  seek  comment  on  whether  we  should  adopt  different  definitions  of  what  constitutes  a  rural  area  depending  upon  the  policy  initiative  for  which  the 
 definition  is  used,  as  set  out  in  this  proceeding. 
 B.  Improved  Access  to  Unused  Spectrum 
 1.  Background 
 13.  The  Commission  has  promoted  access  to  and  efficient  use  of  spectrum  through  a  variety  of  means  that  may  foster  the  rapid  and  efficient  deployment  of  wireless  services  in  rural  areas.  Applied  to 

 licensed  spectrum,  these  approaches  may  be  viewed  as  existing  along  a  continuum,  with  voluntary,  market-  based  mechanisms  at  one  end,  regulatory  incentives  and  other  approaches  in  the  middle,  and 
 regulatory  mandates  and  enforcement  mechanisms  at  the  other  end.  More  specifically,  the  means  by  which  the  Commission  may  promote  access  to  and  use  of  spectrum  range  from  allowing  voluntary 
 arrangements  that  move  spectrum  and  licenses  between  users  to  establishing  regulatory  mechanisms  by  which  the  Commission  reclaims  and  re-  licenses  unused  spectrum. 

 14.  While  the  process  by  which  licensees  may  assign  or  transfer  control  of  spectrum  licenses    or  partition,  disaggregate,  or  aggregate  spectrum    is  well-  established,  42  the  Commissions  efforts  to 
 facilitate  voluntary  movement  of  spectrum  usage  rights  from  licensees  to  other  users  through  spectrum  leasing  is  more  recent.  43  In  the  1999  Policy  Statement  outlining  principles  for  spectrum  allocation,  the 
 Commission  stated  that  a  key  priority  was  making  additional  spectrum  available,  as  well  as  creating 

 41  As  we  noted  above,  any  definition  of  rural  area  that  is  adopted  for  purposes  of  this  proceeding  will  not  affect 
 the  definition  of  rural  in  other  contexts.  See  n.  24,  supra. 
 42  See  47  C.  F.  R.    1.948.  Assignments  and  transfers  of  control  are  regulated  under  47  U.  S.  C.    310(  d). 

 43  See  Secondary  Markets  News  Release. 
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 flexibility  in  its  use.  44  In  its  2002  Report,  the  Spectrum  Policy  Task  Force  recommended  that  the  Commission  promote  spectrum  leasing  that,  in  addition  to  partitioning,  could  make  more  spectrum 
 available  in  rural  areas.  45  A  rationale  for  the  Commissions  adopting  the  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking  in  the  Secondary  Markets  proceeding  was  the  facilitation  of  the 
 voluntary  exchange  of  spectrum  usage  rights  and  to  allow  licensees  to  provide  access  to  other  parties  when  those  parties  have  a  need  for  the  spectrum,  which,  in  turn,  could  increase  opportunities  for 
 construction  and  service  in  rural  areas.  46 
 15.  In  many  spectrum-  based  services,  the  Commission  has  established  rules  by  which  it  reclaims  unused  spectrum  and  makes  it  available  to  other  parties.  This  process  for  reclaiming  unused 

 licensed  spectrum  differs  across  services.  For  example,  with  site-  based  private  land  mobile  radio  services,  licensees  generally  are  given  one  year  to  construct  particular  sites.  47  A  licensee  with  an 
 unconstructed  site  after  one  year  loses  its  authorization  to  operate  at  that  site,  and  other  parties  subsequently  may  request  a  license  to  operate  in  that  unused  spectrum.  In  the  geographically-  based 
 cellular  service,  initial  licensees  are  given  five  years  to  construct  facilities  and  begin  providing  service  within  a  geographic  service  area.  48  At  the  end  of  the  initial  five-  year  period,  the  licensee  is  allowed  to 
 keep  those  portions  of  its  licensed  area  in  which  it  has  constructed,  while  the  unconstructed  portions  of  the  market  become  available  for  licensing  to  other  parties  via  the  cellular  unserved  area  licensing 
 process.  49  We  refer  to  this  standard  as  a  keep  what  you  use  approach.  Among  the  advantages  of  a  keep  what  you  use  approach  is  that  there  is  a  clear  relationship  between  the  provision  of  service  to  a 
 geographic  area  and  the  retention  of  the  licensees  right  to  serve  that  area,  with  spectrum  in  unserved  areas  made  available  to  other  users.  Among  the  disadvantages,  incumbent  licensees  often  engage  in 

 44  Principles  for  Reallocation  of  Spectrum  to  Encourage  the  Development  of  Telecommunications  Technologies 
 for  the  New  Millennium,  Policy  Statement,  14  FCC  Rcd  19868,  19870-  75    9-  18  (1999). 
 45  See  SPTF  Report  at  58-  60. 

 46  See  Secondary  Markets  News  Release,  Joint  Statement  of  Chairman  Michael  K.  Powell  and  Commissioner 
 Kevin  J.  Martin,  and  Separate  Statement  of  Commissioner  Jonathan  S.  Adelstein. 
 47  47  C.  F.  R.    90.155. 

 48  47  C.  F.  R.    22.947. 
 49  47  C.  F.  R.    22.949.  At  the  end  of  the  five-  year  build-  out  period,  the  licensee  provides  the  Wireless 
 Telecommunications  Bureau  a  map  of  all  constructed  facilities.  All  areas  within  the  market  that  are  not  covered  by  those  facilities  are  considered  unserved  areas  and  become  available  for  re-  licensing  on  a  site-  by-  site  basis. 

 The  incumbent  licensee,  neighboring  licensees,  or  new  entrants  may  then  apply  on  a  site-  by-  site  basis  to  serve  any  and  all  portions  of  the  unserved  area.  The  Commission  receives  approximately  40  cellular  unserved  area 
 applications  each  month.  Dobson  Communications  Corporation  (Dobson)  filed  a  Petition  for  Reconsideration  of  the  Commission's  decision  in  WT  Docket  No.  01-  108,  seeking  to  permit  cellular  carriers  to  extend  cellular  service 
 area  boundaries  into  unserved  areas  on  a  secondary  basis.  See  Dobson  Communications  Corporation  Petition  for  Limited  Reconsideration,  WT  Docket  No.  01-  108  (filed  Jan.  16,  2003)  (Dobson  Petition).  We  will  address  the 
 Dobson  Petition  in  the  context  of  that  proceeding.  See  Year  2000  Biennial  Regulatory  Review    Amendment  of  Part  22  of  the  Commissions  Rules  to  Modify  or  Eliminate  Outdated  Rules  Affecting  the  Cellular  Radiotelephone 
 Service  and  other  Commercial  Mobile  Radio  Services,  WT  Docket  No.  01-  108,  Report  and  Order,  17  FCC  Rcd  18401  (2002). 
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 contentious  battles  with  other  parties  that  wish  to  access  unused  spectrum  or  service  areas.  50 
 16.  Other  geographically  licensed  services,  in  contrast,  face  notably  different  construction  benchmarks  and  means  by  which  unused  spectrum  may  be  reclaimed  and  re-  licensed  by  the  Commission. 

 For  example,  PCS  licensees  must  meet  five-  and  ten-  year  benchmarks  that  mandate  coverage  of  a  certain  percentage  of  the  population  of  their  licensed  areas,  or  where  applicable,  make  a  showing  of  substantial 
 service.  Failure  to  meet  these  benchmarks  results  in  automatic  cancellation  or  non-  renewal  of  the  entire  license,  including  the  rights  to  operate  from  any  facilities  already  constructed  under  the  authorization.  51 
 Moreover,  for  many  services,  if  the  licensee  loses  its  authorization  for  failing  to  meet  the  coverage  requirements,  it  is  often  ineligible  to  reapply  for  that  authorization.  52  However,  once  these  benchmarks 
 are  achieved,  licensees  are  generally  afforded  exclusive  rights  and  a  renewal  expectancy  for  the  entire  area  and  band  under  the  license  regardless  of  whether  service  is  being  provided  in  all  parts  of  the  area  or 
 over  all  of  the  spectrum.  Because  licensees  that  fail  to  comply  with  this  coverage  requirement  lose  their  entire  license,  we  refer  to  this  standard  of  termination  or  forfeiture  as  the  complete  forfeiture  approach. 
 Among  the  advantages  of  this  model,  since  licensees  subject  to  this  standard  do  not  have  to  cover  their  entire  geographic  license  areas  or  use  all  of  their  licensed  spectrum  capacity,  there  is  a  greater  incentive 
 during  their  initial  license  term  for  licensees  to  build  out  those  areas  that  will  ensure  their  economic  viability  as  providers.  Among  the  disadvantages  of  this  model,  and  of  particular  relevance  for  this 
 proceeding,  is  the  potentially  lower  likelihood  that  rural  and  less-  populous  areas  will  be  served  by  the  licensee,  at  least  during  its  initial  license  term,  because  there  may  be  an  incentive  for  construction  to  focus 
 first  on  populous  areas  and  there  may  be  little  corresponding  incentive  for  licensees  to  construct  in  rural  areas. 

 17.  In  addition,  there  are  other  approaches  the  Commission  may  use  to  transition  spectrum  to  higher-  valued  uses.  For  example,  as  the  Spectrum  Policy  Task  Force  observed,  the  Commission  could 
 create  expanded  overlay  rights  to  licensed  spectrum,  whereby  usage  rights  are  given  to  new  licensees.  53  To  address  issues  related  to  the  incumbent  licensees  in  these  bands,  the  Commission  could  adopt  various 
 policies,  including  mandatory  relocation  of  incumbents  to  other  bands,  grandfathering  incumbents  in  the  existing  band,  or  providing  incentives  for  band-  clearing.  Overlays  with  relocation  of  incumbents  were 
 used  in  broadband  PCS,  while  grandfathering  of  incumbents  was  used  in  services  such  as  paging  and  SMR.  54  Among  the  advantages  of  this  approach,  in  comparison  to  other  mechanisms  such  as  keep  what 
 you  use  and  complete  forfeiture,  overlays  may  be  more  flexible  and,  in  some  cases,  less  burdensome  on  incumbents.  55  Among  the  disadvantages  of  this  approach  are  potential  incumbent  hold-  out  problems, 

 50  See  Wireless  Telecommunications  Bureau  Approves  Settlement  Agreement  between  WWC  License  L.  L.  C. 
 and  WWC  Holding  Co.,  Inc.  and  N.  E.  Colorado  Cellular  Inc.,  Public  Notice,  17  FCC  Rcd  26148  (rel.  December  23,  2002). 

 51  47  C.  F.  R.    24.203. 
 52  See,  e.  g.,  47  C.  F.  R.    24.103(  h)  (narrowband  PCS),  24.203(  a)  and  (b)  (broadband  PCS),  101.1011  (LMDS); 
 101.1325  (MAS). 
 53  See  SPTF  Report  at  48-  49. 

 54  Id. 
 55  In  order  to  achieve  these  benefits,  flexible  build  out  rules  may  be  necessary. 
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 lengthy  periods  for  incumbent  relocation,  and  the  expense  of  additional  auctions.  56 
 18.  Because  the  keep  what  you  use,  complete  forfeiture,  and  other  approaches  such  as  overlays  may  not  be  effective  tools  to  ensure  prompt  delivery  of  service  to  rural  and  underserved  areas,  57 

 we  explore  below  alternative  methods  to  facilitate  access  to  and  use  of  spectrum  in  these  markets.  58  In  the  discussion  that  follows,  we  consider  what  constitutes  use  of  spectrum  by  a  licensee  and,  therefore, 
 what  spectrum  should  be  subject  to  the  Commissions  rules  and  policies  that  govern  its  use  or  failure  to  use.  We  then  discuss  different  re-  licensing  mechanisms  and  compare  these  approaches  to  more  market-based 
 spectrum  leasing  mechanisms.  We  seek  comment  on  whether  we  should  advance  certain  re-licensing  mechanisms,  such  as  keep  what  you  use,  so  as  to  further  the  goal  of  promoting  service  in  rural 
 areas. 
 2.  Discussion 
 a.  What  Constitutes  Use  of  Spectrum 
 19.  As  the  Commission  attempts  to  increase  efficient  access  to  and  use  of  spectrum,  and  as  it  subsequently  establishes  policies  for  access  to  unused  spectrum,  we  must  provide  a  clear  definition  of 

 use  for  all  parties  affected  by  these  rules.  That  is,  licensees  that  construct  or  lease  their  spectrum  must  understand  how  this  use  is  construed  in  terms  of  construction  requirements,  re-  licensing,  and  other 
 policies  that  may  affect  them  so  that  they  will  know  what  rights  licensees  will  retain  in  the  event  they  do  not  use  their  spectrum,  however  we  define  it.  We  seek  comment  on  how  to  define  use  in  order  to 
 effectively  promote  access  to  and  use  of  spectrum  in  rural  areas.  We  also  inquire  how  to  define  this  term  in  a  flexible  manner  so  as  to  recognize  the  many  ways  in  which  licensees  provide  service,  or  allow  other 
 parties  to  provide  service,  with  their  licensed  spectrum.  Under  our  current  rules  for  many  service  bands,  use  is  defined  to  reflect  construction  and  operation  of  specified  facilities  by  the  licensee.  We  seek 
 comment  on  whether  this  is  the  appropriate  baseline  standard  for  determining  use  and,  if  not,  what  this  standard  or  other  performance  criteria  should  be. 

 20.  We  recognize  that  leasing  via  secondary  markets  may  require  viewing  the  concept  of  use  from  a  different  perspective.  That  is,  under  a  negotiated  spectrum  leasing  arrangement,  a  licensee  assigns 
 a  usage  right  to  a  third  party.  Depending  on  the  nature  of  the  lease,  this  third  party  may  then  construct,  operate,  or  otherwise  use  the  spectrum  of  the  licensee.  We  propose  that  spectrum  in  rural  areas  that  is 
 leased  by  a  licensee,  and  for  which  the  lessee  meets  the  performance  requirements  that  are  applicable  to  the  licensee,  should  be  construed  as  used  for  the  purposes  of  this  proceeding  and  any  other  performance 
 criteria  we  adopt.  We  expect  that  this  approach  would  further  enhance  leasing  in  rural  areas.  We  note  that  merely  leasing  spectrum,  where  the  lessee  does  not  fully  meet  the  lessors  performance  requirements, 
 would  not  be  considered  use  under  this  proposal.  We  seek  comment  on  this  approach  and  other  ways  we  could  better  tailor  or  expand  the  concept  of  use  to  encourage  service  by  licensees  or  lessees  in  rural 
 and  underserved  areas.  Finally,  should  our  definition  of  use  be  in  any  way  limited  as  it  applies  to 

 56  To  the  extent  overlays  result  in  mutually  exclusive  applications  for  spectrum  usage  rights,  competitive  bidding 
 is  required.  See  47  C.  F.  R.    309(  j). 
 57  47  C.  F.  R.    309(  j)(  4)(  B). 

 58  We  retain  current  benchmarks  for  geographic-  area  licensees  but,  as  discussed  in  Section  II.  C.  1,  below,  we  will 
 add  a  substantial  service  option  to  provide  such  licensees  with  greater  flexibility  in  meeting  their  construction  requirements. 
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 leasing?  How  would  such  limits  be  consistent  with  our  attempts  to  create  incentives  for  licensees  to  move  their  spectrum  to  higher  valued  uses? 
 21.  Under  one  approach  to  defining  construction,  the  Commission  would  rely  on  the  filings  of  wireless  providers,  perhaps  with  certain  reporting  criteria.  This  approach  is  based  on  the  presumption 
 that  wireless  providers  are  in  the  best  position  to  determine  the  meaning  of  built  for  their  particular  technology  and  application.  Moreover,  such  an  approach  is  consistent  with  recent  Commission  precedent 
 and  trends.  With  broadband  PCS  licensees,  for  example,  the  Commission  did  not  attempt  to  specify  a  particular  signal  level,  but  instead  required  licensees  to  provide  a  signal  level  sufficient  to  provide 
 adequate  service  to  one-  third  of  the  population  in  the  market  within  five  years,  and  to  two-  thirds  within  ten  years.  59  The  rules  require  licensees  to  provide  notification  to  the  Commission  in  the  form  of  maps  and 
 other  supporting  documents  showing  areas  where  they  provide  a  signal  level  sufficient  to  provide  adequate  service  60  and  otherwise  demonstrating  compliance  with  the  respective  construction 
 requirements.  The  Wireless  Telecommunications  Bureau  has  received  over  1,800  such  notifications.  The  vast  majority  (approximately  93  percent)  defined  their  coverage  in  terms  of  a  signal  strength  between  -92 
 and  -104  dBm.  In  other  words,  there  was  some  variance  from  system  to  system,  but  most  were  in  a  certain  range.  In  applying  this  approach  to  measuring  construction,  the  Commission  could  provide 
 guidance  regarding  what  type  of  range  would  be  acceptable  and  how  this  might  vary  from  service  to  service.  Alternatively,  under  this  approach,  we  could  decline  to  provide  direction  and  simply  monitor  the 
 various  means  by  which  licensees  report  their  construction. 
 22.  We  recognize  that  the  approach  described  above,  however,  may  present  certain  risks,  particularly  in  the  event  that  a  licensee  claims  that  it  is  satisfying  the  more  flexible  substantial  service 

 standard,  instead  of  satisfying  a  concrete  coverage  benchmark.  The  Commission  may  not  have  sufficient  resources  to  verify  that  the  many  different  uses  of  rural  spectrum  likely  to  emerge  will  actually  serve  the 
 goals  of  our  build  out  requirements.  We  are  concerned  that  companies  could  assert  that  a  build  out  scenario  was  sufficient  to  meet  our  substantial  service  requirements  without  some  baseline  established  by 
 the  Commission.  Additionally,  we  note  that  this  approach  might  present  some  risk  for  the  licensee.  For  example,  were  it  able  to  do  so,  the  Commission  could  determine,  upon  receiving  an  assertion  of 
 compliance  by  a  licensee,  that  the  indicated  build  out  is  insufficient  and  that  the  licensee  must  do  more  in  order  to  satisfy  its  construction  requirements.  This  would  require  additional  construction  and  investments 
 not  planned  for  by  the  licensee,  which  ultimately  could  prove  more  expensive  to  comply  with  than  if  they  had  been  planned  for  and  completed  with  the  original  build  out.  We  therefore  seek  comment  regarding 
 whether  the  Commission  should  establish  a  baseline  above  which  a  licensee  must  reach  in  order  to  minimally  comply  with  our  substantial  service  requirements.  We  seek  comment  on  whether  this  baseline 
 should  be  determined  in  terms  of  signal  strength  or  using  some  other  metric. 
 23.  We  also  seek  comment  on  two  other  approaches  for  determining  whether  spectrum  is  being  used  in  accordance  with  construction  requirements  or  for  purposes  of  finding  available  spectrum  in 

 rural  areas.  First,  the  Commission  has  developed  rules  defining  protected  service  areas  for  site-  based  incumbents,  such  as  220  MHz,  800  MHz  SMR,  and  paging  licensees.  For  example,  with  the  220  MHz 
 Band  licensees,  we  measure  the  service  area  that  is  protected  under  our  rules  as  that  within  a  38  dbu  service  contour,  61  while  for  800  MHz  SMR  licensees  we  measure  this  same  area  as  that  within  a  40  dbu 

 59  47  C.  F.  R.    24.203. 
 60  47  C.  F.  R.    24.203. 
 61  47  C.  F.  R.    90.763(  b)(  1)(  i)(  A).  Note  that  38  dbu  is  equivalent  to  -84  dbm,  assuming  an  antenna  gain  of  0  dbd. 
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 service  contour.  62  For  paging  licensees,  the  estimate  of  the  service  contour  uses  a  formula  based  on  antenna  height  (HAAT)  and  ERP  (watts).  63  We  seek  comment  on  how  we  should  address  these  and  other 
 differences  in  estimating  coverage  in  rural  areas.  In  light  of  the  fact  that  our  rules  defining  protected  service  areas  vary  by  service,  we  ask  commenters  whether  we  should  harmonize  these  regulations  across 
 services  and  establish  a  data  base  of  available  white  space  in  rural  areas.  Second,  we  seek  comment  on  expanding  the  use  of  spectrum  audits  and  on  exploring  the  means  and  methodologies  for  making  in  situ 
 measurements  of  signal  strength  in  selected  rural  areas  to  maintain  an  inventory  of  available  spectrum  resources.  The  Wireless  Bureau  has  recently  begun  a  process  of  conducting  spectrum  audits,  and  we 
 inquire  as  to  whether  expanded  use  of  such  audits  would  help  identify  unused  spectrum  in  rural  areas  so  as  to  ultimately  make  more  spectrum,  and  thus  more  service,  available  in  these  markets.  We  also  inquire 
 as  to  what  may  be  an  appropriate  way  to  test  whether  a  spectrum  inventory  is  feasible.  Should  we  limit  such  an  inventory  to  the  most  rural  or  underserved  areas?  If  so,  where  should  we  focus  our  efforts?  We 
 believe  markets  in  Alaska,  Appalachia,  and  the  Mississippi  Delta  may  be  particularly  appropriate,  and  we  inquire  as  to  whether  commenters  recommend  these  or  other  areas.  64 

 b.  Re-  licensing  vs.  Market-  Based  Mechanisms 
 24.  As  described  above,  the  Commission  practices  re-  licensing  in  several  different  forms,  both  in  terms  of  the  conditions  under  which  licensed  spectrum  is  returned  to  the  Commission,  and  in 

 terms  of  how  that  spectrum  subsequently  is  made  available  to  other  users.  Generally,  licensed  spectrum  may  return  to  the  Commission  due  to  non-  use  under  a  complete  forfeiture  standard,  as  applied  to  PCS 
 licensees,  or  under  a  keep  what  you  use  standard,  as  applied  to  cellular  licensees.  Once  this  spectrum  is  reclaimed,  the  Commission  may  then  re-  license  via  competitive  bidding,  as  with  PCS  licenses,  or  it  may 
 use  a  non-  auction  mechanism  such  as  the  cellular  unserved  area  re-  licensing  rule.  65 
 25.  We  seek  comment  on  when,  and  under  what  circumstances,  the  Commission  should  use  re-  licensing  as  a  means  to  increase  access  to  spectrum,  and  thus  service,  especially  in  rural  areas.  We  do 

 not  propose  to  change  the  current  re-  licensing  rules  for  any  current  wireless  service.  Rather,  we  inquire  as  to  whether  we  should  apply  one  of  the  current  rules,  or  some  other  rule,  to  future  spectrum  allocations. 
 We  also  inquire  as  to  whether  we  should  apply  a  new  standard  to  spectrum  that  has  been  returned,  under  the  current  rules,  to  the  Commission  for  re-  licensing  at  the  end  of  a  licensees  second  term. 

 26.  In  the  event  of  spectrum  re-  licensing,  we  seek  comment  on  whether  there  are  particular  construction  standards,  such  as  complete  forfeiture  or  keep  what  you  use,  that  are  most  effective  in 
 62  47  C.  F.  R.    90.693(  b),  90.683,  90.621.  Note  that  40  dbu  is  equivalent  to  -93  dbm,  assuming  an  antenna  gain 
 of  0  dbd. 
 63  47  C.  F.  R.    101.527,  101.17. 

 64  The  Consumer  &  Governmental  Affairs  Bureau  (CGB)  recently  announced  significant  new  outreach  initiatives 
 in  these  defined  regions  in  light  of  the  disproportionate  number  of  households  without  basic  telephone  service  compared  to  the  Nation  overall.  See  FCC  Commences  Lands  of  Opportunity  Initiative  for  Rural  America: 

 Access  to  Affordable  and  Quality  Telecommunications  Services  in  Rural  America,  News  Release,  2003  WL  21804679  (rel.  Aug.  6,  2003).  CGBs  efforts  are  designed  to  educate  consumers  and  other  stakeholders,  including 
 industry  participants,  about  federal  programs  and  policies  intended  to  ensure  that  all  Americans  have  access  to  quality,  affordable  telecommunications  services. 

 65  If  there  are  mutually  exclusive  applications  to  a  cellular  unserved  area,  then  the  Commission  auctions  the  usage 
 rights  to  that  area.  See  Section  II.  B.  1,  supra,  for  more  details  on  these  re-  licensing  approaches. 
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 promoting  access  and  service,  especially  in  rural  areas.  What  are  the  costs  and  benefits  associated  with  each  of  these  approaches?  In  particular,  we  seek  comment  on  whether  a  keep  what  you  use  standard 
 based  on  the  cellular  unserved  area  model  is  most  appropriate  to  advance  our  goal  of  promoting  rural  service,  should  we  decide  to  extend  this  approach  to  additional  services.  Further,  how  might  the  keep 
 what  you  use  approach  work  in  tandem  with  the  substantial  service  safe  harbor  that  we  propose  in  section  II.  C,  below?  For  example,  could  we  use  the  substantial  service  safe  harbor,  as  explained  below, 
 as  a  way  of  defining  use  for  purposes  of  keep  what  you  use?  Or,  do  commenters  believe  that  the  concepts  of  having  a  substantial  service  safe  harbor  and  a  keep  what  you  use  approach  are  mutually 
 exclusive?  We  encourage  commenters  to  be  specific  in  their  discussion  of  the  advantages  and  disadvantages  of  these  and  alternative  models. 

 27.  As  described  above,  in  the  cellular  service,  after  the  initial  five-  year  period,  there  is  an  unserved  area  licensing  process  whereby  unconstructed  portions  of  a  market  become  available  to  other 
 parties.  In  a  Petition  for  Reconsideration  filed  in  WT  Docket  01-  108,  Dobson  proposed  that  licensees  should  be  permitted  to  extend  into  unserved  areas  of  less  than  50  square  miles  operating  on  a  secondary 
 non-  interference  basis  to  any  licensee  that  might  be  authorized  to  cover  the  area  in  the  future.  66  While  we  intend  to  address  Dobsons  petition  in  the  context  of  that  proceeding,  we  seek  comment  on  whether  there 
 are  other  changes  to  the  cellular  unserved  area  rules  that  could  promote  service  in  rural  areas. 
 28.  We  also  seek  comment  on  whether,  for  purposes  of  defining  use,  the  most  appropriate  approach  would  be  based  on  the  PCS  model  (i.  e.,  allowing  providers  to  define  construction  based  on  their 

 particular  technology  and  application).  We  note  that  the  approach  with  the  PCS  model  is  technology  neutral,  yet  it  requires  a  sufficiently  strong  signal  to  produce  a  reasonable  level  of  service.  What 
 advantages  would  be  associated  with  alternative  measures,  particularly  those  that  employ  a  specific  approach  or  that  mandate  the  services  or  technologies  to  be  used?  How  could  such  alternative  measures 
 be  applied  equitably  across  this  wider  variety  of  services? 
 29.  In  addition,  we  seek  comment  on  the  relative  merits  of  re-  licensing  as  compared  to  secondary  markets.  Are  there  particular  circumstances  or  factors  that  we  should  consider  in  deciding  to 

 use  one  approach  or  the  other?  We  recognize  that  re-  licensing  is  a  more  regulatory  approach,  and  we  therefore  inquire  as  to  whether  we  should  limit  its  application.  If  so,  for  what  services,  or  in  what 
 markets?  What  market  conditions  or  other  measures  should  we  consider  in  determining  whether  to  apply  re-  licensing  to  a  particular  service  or  in  a  particular  market?  Is  this  approach  more  appropriate  for  rural 
 markets,  and  if  so,  why? 
 30.  Finally,  we  note  that  while  the  Spectrum  Policy  Task  Force  recommended  that  the  Commission,  in  the  first  instance,  focus  on  secondary  markets  as  the  primary  means  to  increase  access  to 

 spectrum,  it  also  recommended  that,  after  there  has  been  sufficient  time  to  consider  the  effectiveness  of  this  approach,  the  Commission  also  consider  alternative  mechanisms  such  as  government-  defined 
 easements.  67  We  seek  comment  on  whether  now  is  an  appropriate  time  to  consider  the  use  of  spectrum  easements  for  new  licenses.  We  recognize  that,  using  easements,  software-  defined  radios  and  other 
 frequency-  agile  devices  may  provide  third  parties  with  the  ability  to  take  advantage  of  unused  portions  of 
 66  Dobson  Petition  at  3. 
 67  SPTF  Report  at  58.  As  used  in  the  SPTF  Report,  and  for  purposes  of  this  proceeding,  the  term  easements 
 refers  to  government-  defined  access  rights  to  licensed  spectrum  that  would  not  require  the  easement  user  to  obtain  the  prior  consent  of  the  licensee  so  long  as  the  user  complied  with  the  easement  conditions,  e.  g.,  non-  interference 

 with  the  licensees  use  of  the  spectrum.  Id.  at  55. 
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 licensed  spectrum.  68  At  the  same  time,  we  also  recognize  that  the  Commissions  efforts  to  expand  the  use  of  secondary  markets  through  spectrum  leasing  are  recent,  and  that  there  has  been  little  time  to  evaluate 
 the  effectiveness  of  this  approach. 
 C.  Performance  Requirements 
 31.  Subsequent  to  the  enactment  of  Section  309(  j),  the  Commission  initiated  the  Competitive  Bidding  proceeding,  which,  among  other  things,  addressed  how  the  Commission  intended  to  implement 

 the  statutory  mandate  for  performance  requirements  for  licenses  awarded  through  competitive  bidding.  69  Initially,  the  Commission  focused  primarily  on  the  need  for  performance  requirements  to 
 prevent  spectrum  warehousing  and  provided  little  or  no  discussion  of  the  other  performance  goals  in  Section  309(  j),  i.  e.,  service  to  rural  areas  and  promotion  of  new  technologies  and  services.  70  Later,  when 
 adopting  specific  service  rules,  particularly  for  PCS,  the  Commission  more  specifically  addressed  the  issue  of  service  to  rural  areas.  For  example,  the  Commission  stated  that  one  of  its  goals  in  adopting 
 requirements  for  PCS  was  to  ensure  that  PCS  service  was  available  in  rural  and  remote  areas,  but  offset  this  goal  with  the  notion  that  it  did  not  want  to  adopt  requirements  that  may  lead  to  coverage  where 
 service  was  not  needed  and  therefore  economically  unjustified.  71  The  Commission  concluded  that  the  appropriate  balance  would  be  met  by  adopting  minimum  coverage  requirements. 

 32.  In  implementing  competitive  bidding,  the  Commission  moved  away  from  site-  by-  site  licensing  and  instead  awarded  licenses  based  upon  geographic  areas.  Furthermore,  in  transitioning 
 towards  licensing  by  geographic  areas,  the  Commission  has  shifted  away  from  what  effectively  has  been  an  all  or  nothing  construction  requirement.  A  site-  specific  licensee  is  required  to  construct  and  begin 
 operation  on  all  its  authorized  frequencies  at  each  particular  site    essentially  providing  100  percent  coverage  with  100  percent  capacity.  In  most  cases,  areas  and/  or  frequencies  that  were  unconstructed  at 
 the  end  of  the  period  reverted  back  to  the  Commission  to  be  re-  licensed.  72  With  geographic  area  licenses,  however,  licensees  are  not  required  to  construct  their  entire  geographic  area  in  order  to  retain  their 
 authorizations  because  the  areas  encompassed  by  these  licenses  are  very  large  compared  to  site-  based  licenses,  and  because  the  Commission  sought  to  provide  flexibility  for  licensees  to  provide  a  variety  of 
 services  with  their  spectrum,  some  of  which  do  not  require  ubiquitous  geographic  coverage.  Depending  upon  the  service,  the  Commissions  construction  benchmarks  may  require  coverage  of  a  certain 
 percentage  of  the  licensed  areas  population  or  coverage  of  a  certain  percentage  of  the  licensed  areas  geographic  area.  For  many,  but  not  all  services,  73  the  Commission  adopted  a  flexible  substantial 

 68  SPTF  Report  at  13-  14. 
 69  See  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  Notice  of  Proposed 
 Rulemaking,  8  FCC  Rcd  7635  (1993). 
 70  Id.  at  7650    90-  92. 

 71  See,  e.  g.,  Amendment  of  the  Commissions  Rules  to  Establish  New  Personal  Communications  Services, 
 Memorandum  Opinion  and  Order,  9  FCC  Rcd  4957    155  (1994)  (PCS  MO&  O). 
 72  In  some  cases,  frequencies  for  which  an  applicant  was  granted  exclusivity  subject  to  a  loading  condition  reverted 
 to  being  available  for  shared  use  if  the  first  licensee  failed  to  load  fully. 
 73  At  present,  the  following  geographic  area  licensees  are  subject  to  construction  requirements  and  do  not  have  a 
 substantial  service  construction  option:  30  MHz  broadband  PCS  licensees,  800  MHz  SMR  (blocks  A,  B,  and  C 
 (continued.) 
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 service  construction  standard  that  allows  licensees  that  are  providing  a  beneficial  use  of  the  spectrum  to  retain  their  authorizations.  74  The  substantial  service  approach  was  intended  to  provide  flexibility  for 
 services  with  a  variety  of  uses  for  the  spectrum  (i.  e.,  fixed  or  mobile,  voice  or  data)  or  with  a  high  level  of  incumbency  that  would  prevent  a  new  geographic-  based  licensee  from  meeting  the  coverage 
 requirements.  While  the  definition  of  substantial  service  is  generally  consistent  among  wireless  services,  the  factors  that  the  Commission  will  consider  when  determining  if  a  licensee  has  met  the 
 standard  vary  among  services.  75  Substantial  service  generally  means  service  that  is  sound,  favorable,  and  substantially  above  a  level  of  mediocre  service  that  would  barely  warrant  renewal.  76 

 33.  In  the  following  paragraphs,  we  propose  modifications  to  our  construction  requirements  to  promote  licensee  flexibility  and  to  spur  build-  out  in  rural  areas.  First,  we  seek  to  increase  flexibility  by 
 harmonizing  construction  requirements  for  wireless  geographic  area  licensees  so  that  all  such  licensees  have  the  opportunity  to  provide  substantial  service  as  a  means  of  complying  with  their  construction 
 requirements.  As  we  discuss  below,  many  geographic  area  licensees  already  have  the  flexibility  to  provide  substantial  service,  but  some  geographic  area  licensees  do  not.  While  we  intend  to  retain  current 
 benchmarks  for  individual  services,  we  believe  that  providing  all  geographic  area  licensees  with  the  additional  option  of  satisfying  a  substantial  service  benchmark  will  provide  all  such  licensees  with 
 parallel  flexibility.  We  also  ask  whether  requiring  compliance  with  additional  construction  requirements  in  license  terms  following  initial  renewal  of  the  license  might  be  likely  to  increase  build-  out  in  rural  areas. 

 1.  Substantial  Service  Construction  Benchmarks 
 a.  Background 
 34.  As  we  have  explained  throughout  this  item,  the  Commission  has  taken  a  market-  oriented  approach  to  spectrum  policy  that,  where  possible,  has  allowed  economic  forces  to  determine  build-  out  of 

 wireless  facilities  and  the  provision  of  wireless  services.  The  Commission  has  shifted  towards  providing  licensees  increased  flexibility  to  tailor  use  of  their  spectrum  to  unique  business  plans  and  needs.  This 
 increased  flexibility  is  evident  in  our  adoption  of  the  substantial  service  benchmark  for  many  of  our  services.  In  more  recently  adopted  rules  for  wireless  services,  such  as  our  Part  27  rules  for  private 

 (Continued  from  previous  page) 
 only),  220  MHz  licensees  providing  services  other  than  fixed  services  and  who  do  not  have  at  least  one  incumbent  licensee  in  their  markets,  LMS  licensees,  and  MDS/  ITFS  licensees. 

 74  For  some  services,  such  as  LMDS  and  39  GHz,  the  Commission  has  adopted  only  a  substantial  service 
 construction  requirement.  See  47  C.  F.  R.    101.1011(  a)  (LMDS),  101.17(  a)  (39  GHz). 
 75  For  example,  in  some  wireless  services,  the  Commission  indicated  that  licensees  providing  niche,  specialized, 
 or  technologically  sophisticated  services  may  be  considered  to  be  providing  substantial  service.  See,  e.  g.,  Amendment  to  Parts  2  and  90  of  the  Commissions  Rules  to  Provide  for  the  Use  of  200  Channels  Outside  the 

 Designated  Filing  Areas  in  the  896-  901  MHz  and  the  935-  940  MHz  Bands  Allotted  to  the  Specialized  Mobile  Radio  Pool,  Second  Report  and  Order,  10  FCC  Rcd  6884    41  (1995).  In  other  services,  the  Commission  has 
 indicated  that  licensees  providing  an  offering  that  does  not  cover  large  geographic  areas  or  population  (e.  g.,  point-to-  point  fixed  service),  but  nonetheless  provides  a  benefit  to  consumers,  also  may  meet  the  standard.  See,  e.  g., 
 Amendment  of  Part  90  of  the  Commissions  Rules  to  Provide  for  the  Use  of  the  220-  222  MHz  Band  by  the  Private  Land  Mobile  Radio  Service,  12  FCC  Rcd  10943    158  (1998). 

 76  See,  e.  g.,  47  C.  F.  R.    22.503(  k)(  3),  27.14;  90.685(  b),  95.831,  101.527(  a),  101.1011(  a). 
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 services,  Lower  and  Upper  700  MHz,  39  GHz,  and  24  GHz,  the  Commission  established  the  substantial  service  standard  as  the  only  construction  requirement.  The  Commission  declined  to  prescribe  more 
 specific  coverage  benchmarks  because  the  main  use  of  the  spectrum  was  still  in  question.  Especially  in  services  where  the  Commission  envisioned  fixed  services  being  deployed,  the  substantial  service  standard 
 permits  a  licensee  to  make  a  showing  based  on  criteria  other  than  population  or  geography  covered.  In  these  situations,  the  Commission  determined  that  the  substantial  service  demonstration  within  ten  years  of 
 license  grant  (i.  e.,  coincident  with  the  first  renewal  deadline)  would  satisfy  the  dictates  of  Section  309(  j)(  4)(  B).  In  addition,  for  licensees  subject  only  to  the  substantial  service  requirement,  the 
 Commission  often  has  included  safe  harbors,  i.  e.,  examples  of  how  a  licensee  would  meet  the  substantial  service  standard. 

 b.  Discussion 
 35.  As  a  general  matter,  we  believe  that  our  current  performance  requirements,  in  combination  with  economic  incentives  and  the  licensing  of  multiple  competitors,  have  served  to  promote 

 significant  build  out  and  have  resulted  in  the  provision  of  service  to  the  vast  majority  of  the  population,  including  national  population  centers,  at  least  during  the  initial  license  term.  Nevertheless,  we  believe 
 that  current  geographic  area  licensees  without  a  substantial  service  option  or  a  rural-  specific  construction  requirement  may  be  unduly  constrained  and  may  lack  sufficiently  flexibility  to  provide 
 service  to  rural  areas  or  to  offer  niche  services.  Moreover,  given  the  unique  characteristics  and  considerations  inherent  in  constructing  within  rural  areas,  we  believe  that  applying  an  inflexible 
 construction  standard  that  is  based  upon  coverage  of  a  requisite  percentage  of  an  areas  population  may  be  an  inappropriate  measure  of  levels  of  rural  construction.  Accordingly,  while  we  intend  to  keep  our 
 current  construction  requirements,  as  they  are  set  forth  in  our  service-  specific  rule  sections,  we  propose  to  adopt  a  substantial  service  alternative  for  all  wireless  services  that  are  licensed  on  a  geographic  area 
 basis  and  that  are  subject  to  construction  requirements.  77  This  proposal  therefore  would  affect  the  following  licensees:  30  MHz  broadband  PCS  licensees;  800  MHz  SMR  licensees  (blocks  A,  B,  and  C 
 only);  certain  220  MHz  licensees;  78  LMS  licensees;  MDS/  ITFS  licensees;  and  700  MHz  public  safety  licensees.  79  If  we  adopt  our  proposed  modification  of  our  build-  out  rules,  these  licensees  would  have  the 

 77  Our  proposal  includes  only  those  types  of  geographic  licenses  where  our  rules  require  that  only  a  portion  of  the 
 area  be  constructed.  A  substantial  service  option  is  one  way  to  provide  these  licensees  flexibility  in  determining  which  areas  within  their  geographic  license  to  build  based  on  demand,  market  conditions,  and  their  business  plans. 

 We  do  not  propose  to  extend  this  concept  to  site-  based  licenses  that  have  applied  for  and  received  licenses  to  construct  stations  at  specific  sites  of  their  choosing  based  on  specific  technical  parameters.  For  these  site-  based 
 services,  the  licensee  (not  the  Commission)  dictates  the  specific  location  of  station  facilities  and  therefore  no  further  flexibility  in  our  construction  requirements  is  necessary. 

 78  This  proposal  would  not  include  Phase  II  EA  and  regional  220  MHz  licensees  offering  fixed  services  or  who 
 have  at  least  one  incumbent,  co-  channel  Phase  I  licensee  in  their  markets.  These  licensees  already  may  satisfy  their  construction  requirement  through  the  provision  of  substantial  service.  See  47  C.  F.  R.    90.767(  b).  Similarly, 

 Phase  II  nationwide  220  MHz  licensees  offering  fixed  services  already  have  a  substantial  service  option  and  therefore  are  excluded  from  the  scope  of  this  proposal.  See  47  C.  F.  R.    90.769(  b). 

 79  We  note  that  we  already  have  initiated  a  proceeding  that  seeks  comment  with  respect  to  providing  MDS/  ITFS 
 licensees  with  a  substantial  service  construction  benchmark.  See  Amendment  of  Parts  1,  21,  73,  74  and  101  of  the  Commission's  Rules  to  Facilitate  the  Provision  of  Fixed  and  Mobile  Broadband  Access,  Educational  and  Other 

 Advanced  Services  in  the  2150  -  2162  and  2500  -  2690  MHz  Bands;  Part  1  of  the  Commissions  Rules  -  Further  Competitive  Bidding  Procedures;  Amendment  of  Parts  21  and  74  to  Enable  Multipoint  Distribution  Service  and 
 the  Instructional  Television  Fixed  Service  Amendment  of  Parts  21  and  74  to  Engage  in  Fixed  Two-  Way 
 (continued.) 
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 flexibility  to  comply  with  existing  service-  specific  benchmarks  or  to  satisfy  the  substantial  service  benchmark,  at  their  option.  While  we  have  some  concerns  regarding  firm  population-  and  geographic-based 
 coverage  requirements,  as  discussed  below,  we  recognize  that  geographic-  area  benchmarks  nevertheless  might  be  useful  in  providing  licensees  with  a  means  of  complying  with  our  construction 
 requirements  without  building  out  population  centers.  We  therefore  seek  comment  on  whether  we  should  adopt  a  geographic-  based  construction  requirement,  as  an  alternative  for  licensees  with  population-  based 
 requirements,  as  a  means  of  providing  licensees  with  yet  another  option  for  compliance  with  our  construction  requirements. 

 36.  We  are  concerned  that  current  population-  or  geographic  area-  specific  benchmarks  may  impinge  upon  licensees  abilities  to  serve  niche  or  less  populated  areas,  and  may  unintentionally 
 discourage  construction  in  rural  areas.  80  Particularly  in  the  case  of  a  population-  based  construction  requirement,  a  licensee  has  both  an  economic  and  practical  incentive  to  achieve  compliance  with  the 
 requirement  by  providing  service  only  to  the  urban  areas  of  its  licensed  area.  For  example,  in  response  to  the  Rural  NOI,  NRTC  states  that  [  t]  he  Commissions  decision  to  use  milestones  based  on  geographic  or 
 population  statistics  is  counterproductive  to  consumers  residing  in  truly  rural  areas.  Once  licensees  have  built  out  the  urbanized  portions  of  their  licensing  areas,  only  the  more  densely  populated  rural  areas  are 
 targeted  for  further  buildout.  81  NRTC  contends  that  because  the  Commission  only  specifies  a  population  or  geographic  coverage  benchmark,  without  specifying  which  population  or  which  areas  must  be  built, 
 there  is  no  incentive    economic,  regulatory  or  otherwise    to  build  out  rural  areas  and  that,  [  i]  n  practical  terms,  this  means  licensees  will  naturally  tend  to  build  out  more  densely  populated  (i.  e.  non-rural) 
 areas  to  satisfy  Commission[-]  established  construction  milestones.  82  In  reference  to  the  population-  based  build-  out  requirement  for  broadband  PCS,  Corr  Wireless  states  that  [  t]  he  natural 
 consequence  of  this  rule  is  that  licensees  concentrate  their  build-  out  activities  where  population  density  is  highest.  83  In  addition,  because  each  licensee  must  satisfy  the  same  population-  based  benchmark,  we  are 
 concerned  that,  as  multiple  licensees  enter  a  market,  they  likely  will  construct  systems  in  the  same  populous  areas,  thereby  duplicating  coverage.  Consequently,  within  any  given  market,  urban  areas  are 
 likely  to  have  multiple  wireless  competitors  providing  service,  whereas  rural  areas  may  have  fewer  options. 

 (Continued  from  previous  page) 
 Transmissions;  Amendment  of  Parts  21  and  74  of  the  Commissions  Rules  with  Regard  to  Licensing  in  the  Multipoint  Distribution  Service  and  in  the  Instructional  Television  Fixed  Service  for  the  Gulf  of  Mexico,  Notice  of 

 Proposed  Rule  Making  and  Memorandum  Opinion  and  Order,  18  FCC  Rcd  6722  (2003)  (MDS/  ITFS  NPRM).  We  will  review  the  record  submitted  in  response  to  the  MDS/  ITFS  NPRM  and  will  incorporate  comments  to  the  extent 
 they  pertain  to  the  issue  of  substantial  service  for  MDS/  ITFS  licensees.  We  note  that  our  current  construction  requirements  require  700  MHz  public  safety  licensees  to  provide  substantial  service,  but  this  requirement  is 
 premised  upon  the  provision  of  substantial  service  to  a  certain  percentage  of  their  licensed  population  at  five  and  ten  years.  See  47  C.  F.  R.    90.529(  b).  Because  this  substantial  service  requirement  is  not  a  flexible  benchmark, 
 we  include  700  MHz  public  safety  spectrum  within  the  scope  of  this  proceeding. 
 80  Based  upon  the  construction  notifications  we  have  received  to  date,  when  licensees  are  given  a  choice  of 
 satisfying  either  geographic-  or  population-  based  benchmarks,  they  consistently  elect  compliance  with  the  latter. 
 81  Rural  NOI,  NRTC  Comments  at  10. 

 82  Id.  at  7. 
 83  Rural  NOI,  Comments  of  Corr  Wireless  Communications,  LLC  at  11. 
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 37.  We  believe  that  providing  all  geographic  area  wireless  licensees  with  a  substantial  service  option  will  address  concerns  that  construction  requirements  based  on  population  or  geographic  coverage 
 may  discourage  the  build-  out  of  rural  areas.  84  As  we  have  explained  in  past  proceedings,  the  substantial  service  option  provides  licensees  with  greater  flexibility  and  therefore  may  result  in  the  more  efficient  use 
 of  spectrum  and  the  provision  of  service  to  rural,  remote,  and  insular  areas.  85  For  example,  in  the  Chasetel  Order,  the  Wireless  Telecommunications  Bureau  determined  that  the  licensee  was  providing 
 substantial  service  to  the  Middlesboro-  Harlan,  KY  BTA  (Middlesboro  BTA)  because  it  was  providing  service  to  an  educational  campus  in  a  relatively  remote  portion  of  a  rural  and  sparsely  populated  market.  86 
 Providing  all  wireless  licensees  with  a  substantial  service  construction  alternative  may  create  more  opportunities  for  CMRS  licensees  to  focus  their  build-  out  efforts  on  previously  untargeted  niche  or  rural 
 areas,  as  in  the  Chasetel  Order,  rather  than  having  to  duplicate  existing  services  and  thereby  tapping  into  an  otherwise  unserved  market.  Furthermore,  in  light  of  the  fact  that  we  have  been  moving  towards  a  more 
 flexible  approach  to  coverage  requirements,  offering  all  geographic  area  wireless  licensees  a  substantial  service  option  will  increase  regulatory  parity.  We  also  note  that,  by  providing  terrestrial  wireless 
 licensees  with  greater  flexibility  in  satisfying  their  construction  requirements  and  by  alleviating  the  pressure  of  satisfying  minimum  population-  based  benchmarks,  licenses  that  are  comprised  largely  of  rural 
 areas  might  be  more  likely  to  appeal  to  a  wider  range  of  potential  bidders  at  auction.  We  think  increasing  flexibility  will  make  these  licenses  more  attractive  because  wireless  providers  will  have  a  wider  range  of 
 options  in  terms  of  developing  a  business  plan  that  is  cost-  effective,  tailored  to  their  individual  needs,  and  satisfies  the  Commissions  construction  requirements. 

 38.  We  intend  to  retain  our  current  construction  benchmarks  and  propose  adopting  the  substantial  service  benchmark  as  an  additional  means  of  satisfying  our  construction  requirements.  Our 
 proposal  effectively  would  harmonize  construction  benchmarks  across  all  wireless  services  licensed  on  a  geographic-  basis  (and  that  are  subject  to  construction  requirements)  so  that  all  geographic  area  licensees 
 have  the  increased  flexibility  of  a  substantial  service  option.  Licensees  may  elect  to  satisfy  either  the 
 84  We  note  that  comments  received  in  response  to  the  Rural  NOI  do  not  universally  support  adoption  of  a  substantial 
 service  requirement.  See,  e.  g.,  Rural  NOI,  Joint  Comments  of  the  Organization  for  the  Promotion  and  Advancement  of  Small  Telecommunications  Companies/  Rural  Telecommunications  Group  at  12-  13  (  The  Commission  should 

 refrain  from  repeating  its  recent  use  of  the  vague  and  nearly  unenforceable  substantial  service  standard.  A  substantial  service  requirement  will  not  speed  the  delivery  of  new,  spectrum-  based  services  to  rural  areas.); 
 NTCA  Comments  at  11  (  The  Commission  has  a  substantial  service  requirement  as  its  construction  requirement.  Under  this  approach  licensees  need  merely  show  that  they  provide  substantial  service  to  either  a  geographic 
 service  area  or  to  the  population  within  the  geographic  service  area  within  a  specific  period  of  time.  Therefore,  a  licensee  may  get  its  license  renewed  by  serving  just  a  portion  of  the  urban  area  within  its  licensed  territory.  It  thus 
 provides  service  to  a  substantial  portion  of  the  population,  while  completely  ignoring  and  providing  no  service  to  the  vast  majority  of  the  license  territory,  i.  e.,  the  rural  territory.). 

 85  See,  e.  g.,  Amendment  of  the  Commissions  Rules  to  Establish  Part  27,  the  Wireless  Communications  Service 
 (  WCS),  Report  and  Order,  12  FCC  Rcd  10785,  10843    111-  112  (1997)  (WCS  Report  and  Order);  PCS  MO&  O  at  5018-  5020    154-  158. 

 86  See  Chasetel  Licensee  Corp.,  Request  for  Extension  of  Broadband  Construction  Requirements  and  Construction 
 Notification  for  Call  Sign  KNLF468  in  Middlesboro-  Harlan,  KY  BTA,  File  Nos.  0000594507,  0000603542,  Order,  17  FCC  Rcd  9351,  9356,    11  (WTB  CWD  2002)  (Chasetel  Order).  In  addition  to  the  fact  that  the 

 Middlesboro  BTA  itself  was  sparsely  populated  and  rural,  the  licensee  was  providing  service  to  an  area  within  the  Middlesboro  BTA  where  the  mountainous  terrain  inhibited  coverage  from  neighboring  towns,  such  that  the 
 residents  of  the  educational  community  may  have  been  less  likely  to  receive  adequate  service  by  multiple  PCS  providers  in  a  competitive  environment.  Id.  at  9355    10. 
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 construction  benchmark  options  already  available  to  them  today  or  the  substantial  service  benchmark,  according  to  their  preference.  In  the  past,  in  evaluating  substantial  service  showings,  we  have  considered 
 factors  such  as  whether  the  licensee  is  offering  a  specialized  or  technologically  sophisticated  service  that  does  not  require  a  high  level  of  coverage  to  be  of  benefit  to  customers,  and  whether  the  licensees 
 operations  serve  niche  markets.  87  In  the  context  of  providing  substantial  service  to  rural  areas,  we  are  particularly  interested  in  the  following  factors:  (1)  coverage  of  counties  or  geographic  areas  where 
 population  density  is  less  than  or  equal  to  100  persons  per  square  mile;  (2)  significant  geographic  coverage;  (3)  coverage  of  unique  or  isolated  communities  or  business  parks;  and  (4)  expanding  the 
 provision  of  E911  services  into  areas  that  have  limited  or  no  access  to  such  services.  We  intend  to  limit  this  proposal  to  wireless  services  that  are  currently  licensed  on  a  geographic  area  basis.  In  the  event  we 
 adopt  geographic  areas  for  new  wireless  services  at  a  future  date,  we  will  examine  the  appropriateness  of  adopting  a  substantial  service  or  alternative  construction  requirement  for  the  new  service  at  that  time. 

 39.  We  seek  comment  on  our  proposal  to  adopt  a  substantial  service  benchmark  for  all  wireless  services  that  are  licensed  by  geographic  area  and  are  subject  to  build-  out  requirements,  but 
 currently  do  not  have  a  substantial  service  option.  We  also  seek  comment  on  whether  any  services  should  be  excluded  from  our  proposal.  For  example,  are  there  certain  radio  services  where  it  makes  sense  not  to 
 have  a  substantial  service  requirement  in  order  to  satisfy  other,  competing  policy  objectives?  Furthermore,  is  the  substantial  service  requirement  likely  to  promote  build-  out  in  rural  areas  for  some 
 services  currently  licensed  on  a  geographic  area  basis,  but  not  for  others?  In  what  circumstances,  and  for  what  services,  is  an  alternative  construction  benchmark,  other  than  the  substantial  service  standard,  likely 
 to  be  more  effective  in  promoting  rural  build-  out?  In  the  event  that  commenters  believe  that  a  substantial  service  standard  is  inappropriate  for  certain  services,  we  ask  commenters  to  suggest  alternative 
 benchmarks  that  might  promote  the  deployment  of  service  within  rural  areas.  In  the  event  that  commenters  believe  that  we  should  exclude  particular  services,  such  as  public  safety  services, 
 commenters  should  provide  us  with  a  detailed  explanation  for  why  excluding  such  services  would  serve  the  public  interest.  We  ask  commenters  whether  the  adoption  of  a  substantial  service  requirement  is 
 likely  to  increase  deployment  of  wireless  services  in  rural  areas.  Finally,  because  this  proposed  modification  of  our  rules  will  apply  generally  to  all  geographic  area  licensees,  and  not  just  those  licensees 
 serving  rural  areas,  we  ask  how  the  adoption  of  a  substantial  service  requirement  might  affect  the  deployment  of  wireless  services  in  non-  rural  areas. 

 40.  We  also  seek  comment  on  whether  we  should  adopt  geographic-  based  construction  requirements  for  those  private  and  commercial  terrestrial  wireless  services  that  are  licensed  on  a 

 87  For  example,  with  respect  to  the  218-  219  MHz  service,  we  have  stated  that  we  will  consider  the  following  safe 
 harbor  examples  in  determining  whether  a  218-  219  MHz  service  licensee  has  provided  substantial  service:  (a)  a  demonstration  of  coverage  to  twenty  percent  of  the  population  or  land  area  of  the  licensed  service  area;  or  (b)  a 

 demonstration  of  specialized  or  technologically  sophisticated  service  that  does  not  require  a  high  level  of  coverage  to  be  of  benefit  to  customers;  or  (c)  a  demonstration  of  service  to  niche  markets  or  a  focus  on  serving  populations 
 outside  of  areas  currently  serviced  by  other  licensees.  See  Amendment  of  Part  95  of  the  Commissions  Rules  to  Provide  Regulatory  Flexibility  in  the  218-  219  MHz  Service,  Report  and  Order  and  Memorandum  Opinion  and 
 Order,  15  FCC  Rcd  1497,  1538    70  (1999)  (218-  219  MHz  Report  and  Order).  See  also  Amendment  of  the  Commissions  Rules  To  Establish  New  Personal  Communications  Services,  Narrowband  PCS,  Second  Report  and 
 Order  and  Second  Further  Notice  of  Proposed  Rule  Making,  15  FCC  Rcd  10456    28  (2000);  WCS  Report  and  Order,  12  FCC  Rcd  at  10843-  44    111-  13;  Revision  of  Part  22  and  Part  90  of  the  Commissions  Rules  To 
 Facilitate  Future  Development  of  Paging  Systems,  Implementation  of  Section  309(  j)  of  the  Communications  Act  -  Competitive  Bidding,  Memorandum  Opinion  and  Order  on  Reconsideration  and  Third  Report  and  Order,  14  FCC 
 Rcd  10030,  10072-  73    70  (1999). 
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 geographic  area  basis  and  that  currently  do  not  have  a  geographic  area  coverage  option.  Narrowband  PCS  (NBPCS)  licensees,  for  example,  have  a  choice  of  meeting  a  population-  based  benchmark,  a 
 geographic-  based  benchmark,  or  making  a  showing  of  substantial  service.  88  The  five-  year  geographic  benchmark  for  NBPCS  licensees  varies  based  on  market  size,  i.  e.,  nationwide  licensees  must  provide 
 coverage  to  750,000  square  kilometers,  regional  licensees  must  provide  coverage  to  150,000  square  kilometers,  while  MTA  licensees  must  provide  coverage  to  75,000  square  kilometers  or  25  percent  of  the 
 geographic  area  in  the  MTA.  A  geographic  benchmark  would  provide  an  alternative  for  licensees  who  do  not  intend  to  focus  construction  efforts  on  population  centers.  Further,  like  population-  based 
 benchmarks,  geographic  benchmarks  would  provide  increased  certainty  for  licensees,  in  comparison  to  the  more  flexible  substantial  service  standard.  Commenters  supporting  geographic-  based  construction 
 requirements  should  identify  the  applicable  radio  service(  s)  and  recommend  benchmark  levels,  or  percentages,  for  the  relevant  market  sizes.  We  seek  comment  on  whether  the  benchmark  levels  may  be 
 reduced  where  the  geographic  areas  in  question  are  rural  areas.  In  this  connection,  we  seek  comment  on  how  we  should  define  rural  for  purposes  of  implementing  geographic  benchmarks  for  these  services. 

 41.  In  addition  to  proposing  the  adoption  of  a  substantial  service  benchmark  for  all  wireless  services  that  are  licensed  by  geographic  area,  we  propose  the  adoption  of  a  substantial  service  safe 
 harbor  based  on  provision  of  rural  service.  We  propose  two  different  rural  safe  harbors,  depending  on  whether  a  licensee  is  providing  mobile  or  fixed  wireless  service.  With  respect  to  mobile  wireless 
 services,  we  propose  that  a  licensee  will  be  deemed  to  have  met  the  substantial  service  requirement  if  it  provides  coverage,  through  construction  or  lease,  to  at  least  75  percent  of  the  geographic  area  of  at  least 
 20  percent  of  the  rural  counties  within  its  licensed  area.  We  propose  that  rural  counties  be  defined  as  those  counties  with  a  population  density  less  than  or  equal  to  100  persons  per  square  mile.  89  For  example, 
 if  a  licensees  market  contains  five  counties  (all  having  a  population  density  of  100  persons  per  square  mile  or  fewer),  the  licensee  could  meet  the  safe  harbor  by  providing  coverage  to  75  percent  of  the 
 geography  in  one  of  those  five  counties.  With  respect  to  fixed  wireless  services,  we  propose  to  define  the  substantial  service  requirement  as  met  if  a  licensee,  through  construction  or  lease,  constructs  at  least  one 
 end  of  a  permanent  link  in  at  least  20  percent  of  the  rural  counties  within  its  licensed  area  (using  the  same  rural  county  definition).  For  example,  if  a  licensees  market  contains  five  counties  (all  having  a 
 population  density  of  100  persons  per  square  mile  or  fewer),  the  licensee  could  meet  the  safe  harbor  by  constructing  one  end  of  a  permanent  link  in  one  of  those  five  counties.  Our  proposal  to  base  the  safe 
 harbor  on  a  population  density  of  100  persons  per  square  mile  or  fewer  is  derived  from  our  finding  in  the  Eighth  Competition  Report,  which  indicates  that  counties  with  population  densities  of  100  persons  per 
 square  mile  or  less  have  an  average  of  3.3  mobile  competitors,  while  the  more  densely  populated  counties  have  an  average  of  5.6  competitors.  90  We  note  that  these  proposed  safe  harbors  are  intended 

 88  See  47  C.  F.  R.    24.103.  Phase  II  220  MHz  nationwide  licensees  also  have  a  choice  of  meeting  a  population-based 
 benchmark  or  geographic  benchmark.  See  47  C.  F.  R.    90.769. 
 89  There  are  approximately  2300  counties  within  the  United  States  that  would  satisfy  this  definition  of  rural, 
 constituting  roughly  71  percent  of  all  U.  S.  counties.  These  counties  comprise  about  21  percent  of  the  total  U.  S.  population.  Of  the  51  MTAs,  three  do  not  contain  any  counties  with  population  densities  of  100  persons  per 

 square  mile  or  less.  Of  the  remaining  48  MTAs,  all  have  at  least  3  counties  with  population  densities  of  100  persons  per  square  mile  or  less  and  42  of  the  MTAs  have  at  least  10  counties  with  population  densities  below  100 
 persons  per  square  mile  or  less.  Of  the  734  Cellular  Market  Areas  (CMAs),  212  do  not  contain  any  counties  with  population  densities  of  100  persons  per  square  mile  or  less.  Of  the  remaining  522  CMAs,  40  contain  only  one 
 county  and  the  county  has  a  population  density  of  100  persons  per  square  mile  or  less.  Furthermore,  276  CMAs  contain  2  or  more  counties  where  all  counties  have  population  densities  of  100  persons  per  square  mile  or  less. 

 90  Eighth  Competition  Report  at  14837    114. 
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 to  provide  licensees  with  a  measure  of  certainty  in  determining  whether  they  are  providing  substantial  service,  but  are  not  intended  to  be  the  only  means  of  demonstrating  substantial  service.  Accordingly,  a 
 licensee  may  still  satisfy  a  substantial  service  standard  without  complying  with  one  of  the  safe  harbors;  while  we  intend  to  provide  licensees  with  regulatory  certainty  through  the  establishment  of  safe  harbors, 
 we  also  seek  to  optimize  licensees  flexibility  to  pursue  individualized  business  plans. 
 42.  We  seek  comment  on  whether  we  should  adopt  rural  safe  harbors  and,  if  so,  whether  it  is  advisable  to  adopt  the  specific  safe  harbors  described  above.  We  note  that  although  the  analyses  of 

 competition  in  counties  with  population  densities  of  100  persons  per  square  mile  or  fewer  were  based  upon  data  pertaining  to  the  mobile  telephony  industry  (dominated  by  cellular,  broadband  PCS,  and  digital 
 SMR  providers),  we  believe  that  100  persons  per  square  mile  nevertheless  provides  a  usable  and  reasonable  proxy  for  rural  for  the  purpose  of  establishing  a  rural  substantial  service  safe  harbor.  We 
 seek  comment  on  this  proposed  population-  density  based  standard.  In  particular,  we  seek  comment  on  whether  this  safe  harbor  is  suitably  flexible  to  accommodate  variances  in  service  areas.  For  example,  will 
 this  safe  harbor  accommodate  service  areas  with  relatively  few  rural  counties  (using  our  rural  county  definition  described  above),  as  well  as  service  areas  with  many  rural  counties?  While  it  may  be  easier  for 
 wireless  providers  serving  areas  with  relatively  few  rural  counties  to  satisfy  the  rural  safe  harbors,  we  think  that  profit  incentives  and  market  pressures  will  encourage  construction  of  more  populous  areas. 
 Conversely,  we  recognize  that  our  proposed  safe  harbors  may  prove  burdensome  for  wireless  providers  serving  large  or  nationwide  areas  with  many  rural  counties;  accordingly,  we  seek  comment  on  how  we 
 might  modify  our  safe  harbors  to  accommodate  various  geographic  service  areas  and  uneven  population  distributions.  In  the  event  commenters  disagree  with  our  proposed  safe  harbors,  we  ask  that  commenters 
 suggest  examples  of  alternative  rural  safe  harbors,  in  light  of  their  practical  experience  and  based  upon  their  own  service-  specific  demands  and  requirements.  Should  we  adopt  a  rural  safe  harbor  that  applies  to 
 all  services,  or  are  services  sufficiently  specialized  that  we  should  adopt  service-  specific  safe  harbors? 
 2.  Renewal  License  Terms 
 a.  Background 
 43.  At  present,  we  require  compliance  with  our  construction  requirements  during  the  initial  license  term.  Depending  upon  the  particular  service,  we  require  licensees  to  satisfy  minimum  coverage 

 benchmarks  at  an  interim  period  prior  to  the  end  of  the  initial  license  term,  and/  or  at  the  conclusion  of  the  initial  license  term.  91  Licensees  obtain  authorizations  to  use  designated  spectrum  for  a  specific  period  of 
 time  (typically  a  term  of  ten  years),  and  may  request  renewal  of  their  authorizations  prior  to  the  expiration  of  their  license  terms.  92  Once  a  licensee  renews  its  license,  however,  no  additional  performance 
 requirements  are  imposed  in  subsequent  license  terms.  93 
 b.  Discussion 

 91  See  47  C.  F.  R.    24.203(  a),(  b)  (five-  year  and  ten-  year  construction  requirements  for  broadband  PCS), 
 90.655(  c)  (three-  year  and  five-  year  requirements  for  900  MHz  SMR),  101.1011(  a)  (ten-  year  requirement  for  MDS). 

 92  See  47  C.  F.  R.    1.949. 
 93  See  id.  Licensees  must  file  applications  for  renewal  of  their  authorizations  and  must  comply  with  any  additional 
 renewal  requirements  set  forth  in  the  applicable  service-  specific  subsections  of  our  rules. 
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 44.  We  seek  comment  on  whether  we  should  require  geographic  area  licensees  to  satisfy  performance  requirements  during  their  renewal  license  terms  (for  ease  of  reference,  we  will  refer  to 
 license  terms  subsequent  to  the  initial  license  term  as  renewal  terms).  This  question  of  whether  licensees  should  satisfy  additional  performance  requirements  during  renewal  terms  is  particularly  relevant 
 as  licensees  approach  the  end  of  their  initial  license  terms  or  enter  into  their  renewal  terms.  In  the  next  few  years,  a  number  of  our  auctioned  licenses  will  be  subject  to  renewal.  For  example,  in  2005,  357 
 broadband  PCS  licenses  and  152  of  our  218-  219  MHz  licenses  will  be  subject  to  renewal;  in  2006,  732  of  our  900  MHz  SMR  licenses  will  be  subject  to  renewal.  We  ask  whether  additional  performance 
 requirements  are  likely  to  increase  the  provision  of  wireless  services  to  rural  areas. 
 45.  With  respect  to  commercial  mobile  wireless  services,  we  have  seen  the  prompt  use  of  at  least  a  portion  of  the  spectrum  and  provision  of  at  least  a  minimum  level  of  service.  As  we  noted  in  the 

 Eighth  Competition  Report,  270  million  people,  or  95  percent  of  the  total  U.  S.  population,  live  in  counties  with  access  to  three  or  more  different  operators  (cellular,  broadband  PCS,  and/  or  digital  SMR  providers) 
 offering  mobile  telephone  service,  and  more  than  236  million  people,  or  83  percent  of  the  U.  S.  population,  live  in  counties  with  five  or  more  mobile  telephone  operators  competing  to  offer  service.  94 
 While  this  data  appears  to  suggest  that  our  construction  requirements  have  facilitated  competition  and  have  promoted  the  deployment  of  wireless  services,  it  is  nevertheless  difficult  to  identify  whether  wireless 
 deployment  is  the  result  of  our  minimum  coverage  requirements  or  the  operation  of  market  forces.  We  ask  commenters  whether  market  forces,  and  not  build  out  requirements,  should  govern  any  additional 
 construction  during  renewal  terms.  Will  the  imposition  of  additional  performance  requirements  during  renewal  terms  likely  result  in  uneconomic  construction?  We  note  that,  at  least  with  respect  to  certain 
 commercial  services  such  as  broadband  PCS,  demand  for  these  services  is  high  and,  particularly  with  the  advent  of  secondary  markets,  the  opportunity  cost  of  the  spectrum  is  fairly  clear.  In  light  of  these 
 circumstances,  additional  performance  requirements  may  be  unnecessary  because  existing  and  emerging  market  incentives  may  be  sufficient  to  ensure  deployment  in  areas  where  such  investment  makes  sound 
 economic  sense.  To  the  extent  possible,  we  are  inclined  to  allow  market  forces  to  operate  without  the  imposition  of  regulatory  restrictions  or  requirements.  On  the  other  hand,  we  recognize  that  market  forces 
 may  not  always  be  sufficient  to  accomplish  our  statutory  objective  of  promoting  the  widespread  and  rapid  deployment  of  wireless  services  to  consumers,  including  consumers  in  rural  areas.  We  seek  comment  on 
 how  we  can  achieve  the  right  balance,  in  light  of  these  concerns. 
 46.  In  the  event  that  commenters  believe  additional  construction  requirements  are  appropriate  and  necessary  to  promote  the  continued  deployment  of  wireless  services  to  consumers  in  rural  areas,  we 

 ask  what  form  these  construction  requirements  should  take.  For  example,  should  we  adopt  a  population-  or  geography-  based  benchmark?  Should  we  adopt  a  modified  version  of  substantial  service  and  require 
 the  provision  of  additional  coverage  beyond  what  is  sufficient  to  satisfy  substantial  service  during  the  initial  license  term  (in  effect,  a  substantial  service  plus  requirement)?  Should  we  require  compliance 
 with  these  benchmarks  at  the  expiration  of  the  renewal  term,  or  at  some  interim  period  prior  to  the  end  of  the  renewal  term?  Furthermore,  given  our  objective  of  promoting  service  to  rural  consumers,  we  ask 
 whether  renewal  term  construction  requirements  should  be  specifically  targeted  towards  construction  in  rural  areas  or  otherwise  include  a  rural  component.  For  example,  should  we  require  that  licensees  provide 
 service  to  some  percentage  of  the  rural  population  of  their  licensed  areas  during  their  renewal  terms?  What  effects  might  the  adoption  of  such  performance  requirements  have  beyond  promoting  the 
 deployment  of  service  in  rural  areas? 

 94  Eighth  Competition  Report  at  14794-  95    18. 
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 D.  Relaxed  Power  Limits 
 1.  Background 
 47.  In  the  following  sections,  we  propose  modifications  to  our  regulations  governing  power  limits  and  technical  specifications  for  operations  in  rural  areas.  In  its  report,  the  Spectrum  Policy  Task 

 Force  recommended  that  in  less  congested  areas  (i.  e.,  rural  areas)  spectrum  users  should  be  permitted  to  operate  at  higher  power  levels  so  long  as  they  do  not  cause  interference  and  do  not  receive  additional 
 interference  protection.  95  Similarly,  in  the  Rural  NOI  we  observed  that  technical  and  operational  rules  throughout  the  spectrum-  based  services  are  necessary  to  facilitate  efficient  use  of  the  radio  spectrum 
 while  minimizing  the  potential  for  interference  among  licensees.  96  We  sought  comment  on  the  degree  of  flexibility  that  these  regulations  afford  to  providers  of  spectrum-  based  services  in  rural  areas  and  asked 
 whether  there  are  aspects  of  these  rules  that  could  be  modified  or  made  more  flexible  to  encourage  expanded  service  to  rural  areas  while  ensuring  that  services  remain  free  of  interference.  97 

 2.  Discussion 
 a.  Part  15  Unlicensed  Devices  and  Systems 
 48.  Unlicensed  devices  are  permitted  to  operate  under  Part  15  of  our  rules  at  very  low  power  levels.  98  The  popularity  of  these  devices  has  grown  steadily  over  the  past  few  years.  99  Today,  a  growing 

 number  of  service  providers  are  using  unlicensed  devices  within  wireless  networks  to  serve  the  varied  needs  of  industry,  government,  and  general  consumers  alike.  One  of  the  more  significant  developments 
 in  the  use  of  unlicensed  devices  is  the  emergence  of  wireless  Internet  service  providers  or  WISPs.  Using  unlicensed  devices,  WISPs  around  the  country  are  beginning  to  provide  an  alternative  high-  speed 
 connection  to  cable  or  DSL  services.  100  In  addition  to  providing  competition  to  cable  and  DSL,  we  note  that  the  record  reflects  that  WISPs  have  taken  root  in  many  rural  areas  where  these  services  have  been 

 95  See  SPTF  Report  at  59. 
 96  See,  e.  g.,  47  C.  F.  R.    22.301-  22.383  and  22.901-  22.925  (Cellular  Radiotelephone  Service);  47  C.  F.  R.   
 24.50-  24.55  and  24.229-  24.238  (broadband  PCS);  47  C.  F.  R.    90.201-  90.219,  90.401-  90.469,  90.476-  90.483,  and  90.635-  90.658  (Specialized  Mobile  Radio  Service);  47  C.  F.  R.    101.101-  101.151  (technical  standards  for 

 fixed  microwave  services);  and  47  C.  F.  R.    101.201-  101.217  (operational  standards  for  fixed  microwave  services). 

 97  Rural  NOI  at  25569,    27. 
 98  47  C.  F.  R.  Part  15. 
 99  One  example  of  the  popular  use  of  such  devices  is  the  development  of  Wireless  Internet  or  Wi-  Fi.  Many 
 consumers  are  now  able  to  access  the  Internet  wirelessly  through  the  use  of  unlicensed  devices.  The  Commission  has  even  installed  several  points  within  its  headquarters  (called  HotSpots)  providing  limited  wireless  Internet 

 access  for  any  visitors  who  have  a  Wi-  Fi  (802.11(  a)  or  802.11(  b))  compliant  network  card  installed  on  their  portable  devices. 

 100  For  example,  see  www.  part-  15.  org.  Part-  15.  org  is  a  trade  organization  formed  in  2002.  The  organization  acts 
 as  an  educational  and  support  resource  for  emerging  and  established  WISPs.  The  organization  offers  certification  courses  for  WISP  professionals  designed  to  provide  technical  background  and  hands-  on  experience. 
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 slow  to  arrive.  101 
 49.  In  response  to  the  Rural  NOI,  a  number  of  WISPs  filed  comments  asking  the  Commission  to  permit  transmission  by  Part  15  devices  at  greater  power  levels  in  rural  areas.  According  to  these 

 parties,  using  greater  power  may,  in  some  cases,  allow  them  to  use  unlicensed  devices  to  cover  the  extended  ranges  needed  to  serve  rural  communities.  102  Other  parties,  including  certain  other  Part  15 
 device  manufacturers  and  wireless  carriers,  raise  objections,  arguing  that  higher  power  levels  for  certain  Part  15  devices  in  rural  areas  would  cause  unacceptable  levels  of  interference  and  that  it  would  be 
 difficult,  if  not  impossible,  to  ensure  that  such  higher  power  levels  were  used  only  in  those  areas.  103 
 50.  We  remain  committed  to  exploring  more  flexible  spectrum  policies  for  rural  areas  to  help  foster,  where  possible,  a  viable  last  mile  solution  for  delivering  Internet  services,  other  data  applications, 

 or  even  video  and  voice  services  to  underserved  or  isolated  communities.  104  The  record  in  the  Rural  NOI  identifies  legitimate  issues  under  our  Part  15  policies,  such  as  interference  with  other  Part  15  devices  and 
 how  to  design  a  framework  that  reasonably  ensures  that  Part  15  devices  operate  using  different  parameters  in  different  locations  or  under  differing  RF  conditions.  105  Cognitive  radio  technologies,  which 
 permit  radio  systems  to  modify  their  performance  in  response  to  such  external  information,  would  appear  to  hold  great  promise  in  resolving  such  issues.  106  In  this  connection,  we  plan  to  initiate  a  proceeding 
 shortly  to  consider  how  to  leverage  these  technologies  to  permit  more  intensive  use  of  spectrum  in  a  number  of  situations,  including  possible  rule  changes  that  would  permit  greater  use  of  spectrum  in  rural 
 areas.  107  In  this  proceeding,  we  plan  to  invite  comment  on  any  specific  factors  that  may  need  to  be 

 101  See,  e.  g.,  Rural  NOI,  Nextweb  Comments  at  1,  Rodney  W.  Applegate  Comments  at  1,  and  Waverider 
 Communications  at  4. 
 102  See,  e.  g.,  Rural  NOI,  Airzip  Internet  Inc.  Comments  at  1,  Patti  Jones  Comments  at  1,  and  Waverider 
 Communications  at  4. 
 103  See,  e.  g.,  Rural  NOI,  Dobson  Comments  at  12,  Itron  Comments  at  1-  2,  WaveRider  Comments  at  4,  and  AT&  T 
 Wireless  Reply  at  15. 
 104  The  Commission  is  addressing  the  need  for  additional  unlicensed  spectrum  in  two  ongoing  proceedings.  See 
 Additional  Spectrum  for  Unlicensed  Devices  Below  900  MHz  and  in  the  3  GHz  Band,  Notice  of  Inquiry,  17  FCC  Rcd  25632  (2002);  Revision  of  Parts  2  and  15  of  the  Commissions  Rules  to  Permit  Unlicensed  National 

 Information  Infrastructure  (U-  NII)  Devices  in  the  5  GHz  Band,  Notice  of  Proposed  Rule  Making,  18  FCC  Rcd  11581  (2003). 

 105  See,  e.  g.,  Rural  NOI,  Dobson  Communications  Comments  at  12,  Itron  Comments  at  1-  2,  NTCH  Comments  at 
 5-  6  and  Reply  at  8-  9,  South  Dakota  Telecommunications  Association  Comments  at  17-  19,  UT  Starcom  Reply  at  3,  WaveRider  Communications  Comments  at  4,  AT&  T  Wireless  Reply  at  15.  In  addition,  the  Commission 

 is  initiating  a  proceeding  that  will  explore  rule  changes  to  enable  the  use  of  advanced  antenna  technologies  to  increase  spectrum  efficiency  for  unlicensed  devices.  See  FCC  Proposes  Changes  in  Technical  Regulations  for 
 Unlicensed  Devices  To  Facilitate  Deployment  of  Advanced  Technologies  and  To  Streamline  Regulations  To  Increase  Flexibility,  News  Release,  ET  Docket  No.  03-  201  (rel.  Sept.  10,  2003). 

 106  See  SPTF  Report  at  67;  The  Office  of  Engineering  and  Technology  hosting  Workshop  on  Cognitive  Radio 
 Technologies  May  19,  2003  ET  Docket  No.  03-  108,  News  Release  at  1  (rel.  May  16,  2003)  (Cognitive  Radio  Workshop  News  Release). 

 107  See  Cognitive  Radio  Workshop  News  Release  at  1. 
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 considered  to  allow  cognitive  radios  to  operate  with  higher  power  in  rural  America.  This  impending  proceeding  also  will  address  power  limits  for  the  operation  of  dumb  or  non-  cognitive  radio 
 unlicensed  devices  in  rural  areas. 
 b.  Licensed  Services 
 51.  Two  commenters  responding  to  the  Rural  NOI  address  the  issue  of  whether  we  should  modify  our  regulations  to  permit  increased  power  levels  in  the  context  of  mobile  voice  systems.  108  South 

 Dakota  Telecommunications  Association  (SDTA)  points  out  that  higher  power  levels  could  reduce  the  number  of  transmitters  required  to  connect  stretches  of  roadways  between  small  rural  towns  and  to  serve 
 ranches  and  farms  beyond  the  highways.  109  SDTA  cautions  that,  while  it  may  be  feasible  to  increase  power  and  still  safeguard  urban  and  suburban  operations,  such  safeguards  must  include  clear-  cut 
 interference  definitions  and  protections.  110  CTIA,  however,  argues  that  an  increase  in  base  station  power  levels  would  not  improve  matters  unless  mobile  station  (i.  e.,  handset)  power  levels  are  increased  as 
 well.  111  CTIA  contends  that  it  is  unlikely  that  handset  manufacturers  would  make  special  high  power  handsets  for  rural  areas  due  to  the  relatively  small  size  of  the  areas  where  such  handsets  would  be  useful 
 and  the  potential  interference  problems  that  such  handsets  may  generate.  112  Specifically,  CTIA  notes  that  increased  handset  power  levels  could  pose  problems  when  roaming  (e.  g.,  when  a  high  power  handset 
 roams  outside  of  rural  areas.)  113 
 52.  Increasing  the  range  of  radio  systems  is  one  means  of  making  it  more  economical  to  provide  spectrum-  based  radio  services  in  rural  areas  by  potentially  lowering  infrastructure  costs.  One 

 way  to  increase  the  range  of  radio  systems  is  by  increasing  power  levels.  114  While  there  may  be 

 108  Rural  NOI,  Space  Data  Corporation  (Space  Data)  commented  and  raised  a  related  issue,  asking  the 
 Commission  to  consider  adding  flexibility  in  its  licensing  and  service  rules  to  permit  implementation  of  stratospheric  platform  systems.  In  this  vein,  Space  Data  argued  that  increasing  antenna  height  may  eliminate  the 

 need  to  increase  handset  power  by  eliminating  the  path  loss  effects  (deep  fading  and  clutter  losses)  present  when  a  signal  path  is  over  land.  Space  Data  asks  the  Commission  to  explore  granting  wide  area  licenses  and  allocating 
 frequency  usage  based  on  an  Interference  Temperature  Limit.  Although  the  Spectrum  Policy  Task  Force  raised  the  idea  of  an  Interference  Temperature  Limit  in  its  report,  the  Commission  has  not  yet  explored  this  idea. 
 Therefore,  we  will  not  address  Space  Datas  request  here.  See  SPTF  Report  at  27.  See  also  Petition  for  a  Declaratory  Ruling,  a  Clarification  or,  in  the  Alternative,  a  Waiver  of  Certain  Narrowband  Personal 
 Communications  Services  (PCS)  Rules  as  they  Apply  to  a  High-  Altitude  Balloon-  Based  Communications  System,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  16421  (WTB  2001). 

 109  Rural  NOI,  SDTA  Comments  at  17. 
 110  Id. 
 111  Rural  NOI,  CTIA  Comments  at  9. 
 112  Id. 
 113  Id. 
 114  The  Commission  took  this  approach  for  the  Cellular  Radiotelephone  Service  in  1986  when  it  increased  the 
 maximum  power  level  for  rural  base  stations  from  100  Watts  to  500  Watts,  and  again  in  1988  when  it  extended  this  flexibility  to  all  cellular  base  stations,  subject  to  a  coordination  zone  along  market  boundaries.  See 

 Amendment  of  the  Commissions  Rules  for  Rural  Cellular  Service,  First  Report  and  Order,  60  Rad.  Reg.  2d  (P&  F)  1029    29  (1986);  Amendment  of  Parts  2  and  22  of  the  Commissions  Rules  to  Permit  Liberalization  of 

 (continued.) 
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 challenges  in  implementing  increased  power  levels  for  cellular-  like  mobile  systems,  we  would  like  to  further  investigate  whether  power  increases  may  be  beneficial  for  other  mobile  or  fixed  services.  In  doing 
 so,  we  must  consider  increasing  power  levels  in  rural  areas  in  the  context  of  base/  mobile  systems,  point-to-  point  systems,  and  point-  to-  multipoint  systems.  Base/  mobile  systems  (e.  g.,  cellular,  PCS,  SMR, 
 private  land  mobile)  consist  of  a  base  station  antenna  intended  to  provide  coverage  over  a  specific  area,  and  the  mobile  units  that  communicate  with  the  base  station.  The  base  station  operates  at  a  sufficient 
 power  level  to  cover  the  desired  area,  while  the  battery-  powered  mobile  units  operate  at  relatively  low  power.  The  ability  of  the  base  station  to  reach  a  mobile  unit  is  limited  by,  among  other  things,  transmitter 
 power,  the  propagation  characteristics  of  the  frequency  band,  antenna  directionality  (gain),  antenna  height,  terrain,  clutter,  man-  made  obstructions,  and  the  sensitivity  of  the  mobile  unit  receiver.  As  stated 
 above,  there  are  challenges  related  to  increasing  power  levels.  First,  increasing  the  base  station  power  may  cause  unacceptable  levels  of  interference  to  nearby  systems.  Second,  simply  guaranteeing  that  a 
 mobile  unit  can  hear  the  base  station,  however,  is  not  sufficient  for  two-  way  communications.  The  low  power  mobile  unit,  which  is  likely  located  close  to  ground  level,  must  also  be  able  to  return  a  signal  to  the 
 base  station  antenna,  i.  e.,  the  base  station  must  be  able  to  hear  the  mobile  unit.  One  can  observe  that,  at  the  fringe  of  the  base  station  coverage  area,  the  most  significant  limiting  factors  to  two-  way  transmissions 
 are  the  power  level  and  the  location  of  the  mobile  unit.  Thus,  merely  increasing  the  base  station  power  level  may  not  improve  the  communications  range  unless  the  mobile  unit  is  capable  of  returning  a  signal  to 
 the  base  station  antenna. 
 53.  It  is  instructive  to  provide  examples  of  the  likely  results  of  increasing  base  station  power  for  specific  types  of  base/  mobile  systems.  Because  received  signal  levels  decrease  exponentially  as  the 

 receiver  moves  farther  from  the  transmitter,  we  would  expect  that  relatively  large  increases  in  power  would  yield  only  small  increases  in  communications  range.  In  the  case  of  a  rural  800  MHz  cellular 
 system,  we  found  that  increasing  the  base  station  power  by  10  percent  (500  W  ERP  to  550  W  ERP)  and  20  percent  (500  W  ERP  to  600  W  ERP)  increased  the  base  station  range  by  1.5  km  (0.93  mi)  and  3  km 
 (1.86  mi)  respectively.  115  We  note,  however,  that  our  calculations  show  that  a  typical  0.5  W  ERP  mobile  unit  would  not  have  sufficient  range  to  reach  the  base  station  from  the  edge  of  the  base  station  coverage 
 area  regardless  of  whether  the  base  station  power  is  500  (maximum  under  the  rules  today),  550,  or  600  W  ERP.  Similarly,  in  the  case  of  a  rural  1,900  MHz  PCS  system,  we  found  that  increasing  the  base  station 
 power  by  10  percent  (1,640  W  EIRP  to  1,804  W  EIRP)  and  20  percent  (1,640  W  EIRP  to  1,968  W  EIRP)  increased  the  base  station  range  by  1  km  (0.62  mi)  and  2  km  (1.24  mi)  respectively.  116  We  note,  however, 
 that  our  calculations  show  that  a  typical  0.8  W  EIRP  mobile  unit  would  not  have  sufficient  range  to  reach 

 (Continued  from  previous  page) 
 Technology  and  Auxiliary  Service  Offerings  in  the  Domestic  Public  Cellular  Radio  Telecommunications  Service,  Report  and  Order,  3  FCC  Rcd  7033,  7036-  37    17-  23  (1988). 

 115  We  based  this  example  on  licensed  operating  parameters  of  cell  sites  in  rural,  central  South  Dakota. 
 Specifically,  we  utilized  the  Okumura  Hata  propagation  model  assuming  an  800  MHz  cellular  base  transmitter,  flat  terrain,  average  height  AMSL  of  250  m,  open  clutter,  omni-  directional  antennas  (9dBd  gain),  antenna 

 centerlines  (multiple  cells)  from  41  to  90  m  AGL,  mobile  height  of  3  m,  received  signal  level  of  -102  dBm,  and  mobile  power  of  0.5  W  ERP. 

 116  We  based  this  example  on  a  theoretical  system  placed  in  rural,  western  Kansas.  Specifically,  we  utilized  the 
 Okumura  Hata  propagation  model  assuming  a  1,900  MHz  PCS  base  transmitter,  flat  terrain,  average  height  AMSL  of  230  m,  open  clutter,  omni-  directional  antennas  (9dBd  gain),  antenna  centerline  (all  sites)  of  60  m  AGL,  mobile 

 height  of  3  m,  received  signal  level  of  -102  dBm,  and  mobile  power  of  0.8  W  EIRP. 
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 the  base  station  from  the  edge  of  the  base  station  coverage  area  regardless  of  whether  the  base  station  power  is  1,640  (maximum  under  the  rules  today),  1,806,  or  1,968  W  EIRP. 
 54.  Microwave  point-  to-  point  systems  generally  consist  of  a  highly  directional,  high  gain  transmitting  antenna  and  a  highly  directional,  high  gain  receive  antenna  separated  by  some  distance  along 
 a  path.  System  performance  is  impacted  by,  among  other  things,  transmitter  power,  117  propagation  characteristics  of  the  frequency  band,  antenna  directionality  (gain),  height  of  transmit  and  receive 
 antennas,  terrain  between  the  antennas,  interference,  clutter,  man-  made  obstructions,  weather,  type  of  modulation,  and  sensitivity  of  the  receiver.  Unlike  a  base/  mobile  system,  however,  the  system  designer 
 can  increase  the  distance  of  the  path  by  increasing  transmitter  power  or  using  a  higher  gain  antenna  as  well  as  elevating  the  receive  antenna.  Point-  to-  multipoint  microwave  systems  share  many  of  the 
 characteristics  of  point-  to-  point  microwave  systems,  except  that  there  are  multiple  receive  antennas  situated  in  an  area  of  desired  service  and  the  transmitting  antenna  may  not  be  as  highly  directional.  In 
 either  case,  as  with  base/  mobile  systems,  increasing  the  transmitter  power  may  cause  unacceptable  levels  of  interference  to  neighboring  paths,  or  limit  the  number  of  paths  in  a  particular  area. 

 55.  For  example,  in  the  theoretical  case  of  a  typical  rural  microwave  path  in  the  6.8  GHz  band,  a  45  percent  increase  in  transmitter  output  power  yields  only  a  one  km  (0.62  mi)  increase  in  path 
 length.  We  seek  comment  on  whether  the  benefits  of  such  a  modest  increase  in  path  length  outweigh  the  potential  for  unacceptable  levels  of  interference  to  neighboring  paths,  or  siting  limitations  on  new  paths  in 
 the  same  area.  118 
 56.  We  seek  comment  on  whether  it  is  beneficial,  feasible,  and  advisable  to  increase  the  current  power  limits  for  stations  located  in  rural  areas  licensed  under  Parts  22,  24,  27,  80,  87,  90,  and 

 101.  119  A  licensee  can  increase  power  by  increasing  transmitter  output  power  and/  or  by  using  a  directional  antenna  that  focuses  energy  on  the  specific  area  to  be  covered  and  reduces  energy  in  other 
 directions,  serving  to  limit  interference  potential,  and  potentially  improving  reception  of  signals  from  mobile  units.  Commenters  should  indicate  which  radio  service(  s)  and  power  level(  s)  should  be  increased, 
 specify  a  particular  amount  of  additional  power  (either  transmitter  output  power,  EIRP,  or  both),  specify  directional  antenna  parameters  if  applicable  (e.  g.,  front  to  back  ratio  or  beamwidth),  and  quantify  the 

 117  The  maximum  power  and  antenna  limitations  found  in  our  rules  were  adopted  in  the  1970s  in  order  to  provide 
 satisfactory  performance  while  at  the  same  time  precluding  diffraction  or  troposcatter  propagation  modes.  See  Amendment  of  the  Commissions  Rules  To  Establish  a  Private  Operational-  Fixed  Microwave  Radio  Service  (Part 

 94),  Docket  No.  19869,  FCC  73-  1162,  1973  WL  20973  (FCC)  (rel.  Nov.  26,  1973). 
 118  In  this  example  we  assumed  a  6.  8  GHz  band  microwave  path,  dry  climate,  reliability  of  99.999  percent,  flat 
 terrain,  and  receive  threshold  of  -75  dBm.  An  increase  from  316  kW  EIRP  to  459  kW  EIRP  (approximately  45  percent)  increases  the  path  length  from  12.94  km  (8.04  mi)  to  13.94  km  (8.66  mi).  The  calculations  in  this 

 example  were  based  on  the  Vigants  multipath  fading  model. 
 119  Because  the  Commission  recently  addressed  this  matter  with  respect  to  MVDDS  stations  licensed  under  Part 
 101,  we  exclude  those  stations  from  our  inquiry.  Specifically,  the  Commission  opted  to  slightly  increase  power  levels  for  all  MVDDS  stations,  rather  than  increase  power  levels  for  certain  stations  in  remote  and  less-  populated 

 areas.  See  Amendment  of  Parts  2  and  25  of  the  Commission's  Rules  to  Permit  Operation  of  NGSO  FSS  Systems  Co-  Frequency  with  GSO  and  Terrestrial  Systems  in  the  Ku-  Band  Frequency  Range;  Amendment  of  the 
 Commissions  Rules  to  Authorize  Subsidiary  Terrestrial  Use  of  the  12.2  -  12.7  GHz  Band  by  Direct  Broadcast  Satellite  Licensees  and  Their  Affiliates;  and  Applications  of  Broadwave  USA,  PDC  Broadband  Corporation,  and 
 Satellite  Receivers,  Ltd.  To  Provide  a  Fixed  Service  in  the  12.2  -  12.7  GHz  Band,  Fourth  Memorandum  Opinion  and  Order,  18  FCC  Rcd  8428  (2003). 
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 benefits  that  one  could  expect  from  the  power  increase.  In  particular,  we  are  interested  in  how  such  increases  may  increase  the  potential  for  unacceptable  levels  of  interference  to  other  stations,  increase 
 exposure  to  electromagnetic  radiation  for  workers  and  consumers,  120  or  limit  future  use  of  the  spectrum  in  such  areas. 

 57.  We  also  seek  comment  on  how  best  to  define  the  term  rural  for  purposes  of  permitting  increased  power  levels.  In  the  case  of  base/  mobile  systems,  would  both  the  base  stations  and  mobile 
 stations  need  to  be  located  in  a  rural  area?  For  example,  for  base/  mobile  systems  that  utilize  frequency  or  code  re-  use  schemes  (e.  g.,  TDMA,  GSM,  CDMA),  it  may  not  be  desirable  to  use  increased  base  station 
 power  levels  or  increased  antenna  heights  for  cells  that  are  not  sufficiently  distant  from  urban  areas.  Such  cell  sites  located  just  outside  of  urban  areas  could  cause  unacceptable  levels  of  interference  to  urban  cells 
 by  virtue  of  increased  power  or  antenna  height.  For  point-  to-  point  and  point-  to-  multipoint  systems,  would  both  ends  of  the  transmission  path  need  to  be  in  a  rural  area?  Rather  than  defining  certain 
 geographic  areas  as  rural  for  these  purposes,  would  some  other  measure  (e.  g.,  taking  into  account  a  combination  of  terrain  and  nearby  spectrum  usage)  be  more  appropriate? 

 58.  We  also  seek  comment  on  other  measures  that  licensees  may  be  using  to  minimize  the  costs  associated  with  serving  rural  areas,  and  whether  our  rules  and  policies  are  sufficiently  flexible  to 
 facilitate  and  encourage  such  innovations.  For  example,  cellular  and  PCS  licensees  in  rural  areas  may  be  using  tower  top  amplifiers  in  order  to  boost  incoming  mobile  signals,  thus  increasing  the  two-  way 
 communications  range  of  cell  sites.  121  In  fact,  Nortel  Networks  has  developed  a  CDMA  cell  that  uses  a  high  power  amplifier  for  forward  link  and  a  tower  top  amplifier  for  improved  sensitivity  in  the  reverse 
 link.  When  installed  on  a  hill  or  other  high  terrain,  Nortel  claims  that  this  approach  has  demonstrated  coverage  of  up  to  240  km  over  water  and  130  km  over  land  without  requiring  higher  powered  handsets.  122 
 Similarly,  licensees  may  deploy  smart  antenna  systems  capable  of  increasing  base  station  range  and  suppressing  interference  from  unwanted  sources.  123  Commenters  should  identify  specific  rules  or  policies 
 that  may  hinder  the  development  and  deployment  of  these  and  other  technologies  that  could  benefit  persons  in  rural  areas. 

 E.  Appropriate  Size  of  Geographic  Service  Areas 
 1.  Background. 
 59.  Over  the  past  decade,  the  Commission  has  moved  from  the  use  of  site-  based  licenses  to 

 120  We  note  that  some  cellular  handsets  available  today  already  approach  the  specific  absorption  rate  limits 
 specified  in  our  rules.  See  47  C.  F.  R.    1.1310,  2.1091,  and  2.1093.  Therefore,  commenters  who  advocate  higher  power  level  for  cellular  handsets  may  wish  to  consider  whether  other  design  considerations  can  compensate  for 

 increased  power  levels  so  that  such  handsets  do  not  violate  our  electromagnetic  radiation  exposure  rules. 
 121  Tower  top  amplifiers  improve  system  sensitivity  by  filtering  and  amplifying  signals  received  at  the  base  station 
 antenna.  While  the  gain  delivered  by  a  tower  top  amplifier  may  improve  talkback  signals  from  mobiles  and  portables  greatly,  its  use  must  be  limited  to  the  extent  it  increases  the  system  noise  floor  to  undesirable  or 

 intolerable  levels.  See,  e.  g.,  <http://  www.  top-  cape.  com/  TTA.  htm>. 
 122  See  <http://  www.  nortelnetworks.  com/  products/  01/  cdma_  radio/  rural/>. 

 123  See,  e.  g.,  Smart  Antenna  Systems,  <http://  www.  iec.  org/  online/  tutorials/  smart_  ant/  index.  html>. 
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 the  use  of  geographic  areas  for  licensing  commercial  wireless  services.  124  In  selecting  the  initial  size  of  geographic  service  areas  for  licenses  with  mutually  exclusive  applications  (and  thus  competitive  bidding), 
 Section  309(  j)(  4)(  C)  directs  the  Commission  to  promote  certain  goals.  Specifically,  Section  309(  j)(  4)(  C)  requires  the  Commission  to,  consistent  with  other  objectives,  prescribe  service  areas  that  promote  (i)  an 
 equitable  distribution  of  licenses  and  services  among  geographic  areas,  (ii)  economic  opportunity  for  a  wide  variety  of  applications,  including  small  businesses,  rural  telephone  companies,  and  businesses 
 owned  by  members  of  minority  groups  and  women,  and  (iii)  investment  in  and  rapid  deployment  of  new  technologies  and  services.  125 

 60.  The  Commissions  assignment  of  cellular  licenses  employed  geographic  service  areas,  despite  the  fact  that  this  process  preceded  competitive  bidding  and  the  policy  objectives  found  in  Section 
 309(  j)(  4)(  C).  The  Commission  decided  that,  for  cellular  licenses,  geographic  service  areas  would  be  based  on  Metropolitan  Statistical  Areas  (MSAs)  and  Rural  Service  Areas  (RSAs),  collectively  designated 
 Cellular  Market  Areas  (CMAs),  of  which  there  are  734  for  the  United  States  as  a  whole.  126 
 61.  For  broadband  PCS  licenses,  in  1993  the  Commission  decided  that,  pursuant  to  Section  309(  j)(  4)(  C),  geographic  service  areas  would  be  based  on  493  Basic  Trading  Areas  (BTAs)  and  51  Major 

 Trading  Areas  (MTAs).  127  The  Commission  initially  designated  four  licenses  for  each  of  the  smaller  BTAs  and  two  licenses  for  each  of  the  larger  MTAs.  In  making  this  determination  for  PCS  licenses,  the 
 Commission  concluded  that  smaller  service  areas,  such  as  CMAs,  were  not  necessary,  because  such  smaller  areas  already  had  been  made  available  with  cellular  licenses,  and  that  larger  areas,  such  as  BTAs 
 and  MTAs,  currently  were  demanded  by  potential  providers.  128  The  Commission  determined  that,  in  many  cases,  cellular  licenses  were  aggregated  by  providers  so  as  to  create  larger,  even  nationwide  service 
 areas  and  provide  economies  of  scale.  129 
 62.  For  WCS  licenses,  in  1997  the  Commission  decided  to  license  the  geographic  areas  for  this  service  based  on  12  Regional  Economic  Area  Groupings  (REAGs)  and  52  Major  Economic  Areas 

 (MEAs).  130  The  Commission  designated  two  licenses  for  each  REAG  and  two  for  each  MEA.  In  considering  the  different  options  for  WCS  geographic  service  areas,  the  Commission  noted  that 
 commenters  requested  a  variety  of  sizes,  ranging  from  nationwide  licenses  to  CMAs.  The  Commission 

 124  Many  commercial  wireless  licenses  have  site-  based  incumbents,  including  the  220  MHz,  800  MHz  SMR,  and 
 paging  services. 
 125  47  U.  S.  C.    309(  j)(  4)(  C). 

 126  47  C.  F.  R.    22.909.  There  are  306  MSAs  and  428  RSAs. 
 127  47  C.  F.  R.    24.202.  MTAs  comprise  aggregations  of  BTAs.  MTAs  and  BTAs  originally  were  developed  by 
 Rand  McNally  and  modified,  with  permission,  by  the  Commission  in  issuing  broadband  PCS  licenses. 
 128  Amendment  of  the  Commissions  Rules  To  Establish  New  Personal  Communications  Services,  Notice  of 
 Proposed  Rulemaking  and  Tentative  Decision,  7  FCC  Rcd  5676,  5699-  701    56-  62,  and  Amendment  of  the  Commissions  Rules  to  Establish  New  Personal  Communications  Services,  Second  Report  and  Order,  8  FCC  Rcd 

 7700,  7732-  33    73-  75. 
 129  Id. 

 130  Amendment  of  the  Commissions  Rules  to  Establish  Part  27,  the  Wireless  Communications  Service  (WCS), 
 Report  and  Order,  12  FCC  Rcd  10785,  10814-  15    55-  57  (1997). 
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 decided  that  the  larger  REAs  would  accommodate  those  parties  needing  large  areas  to  achieve  economies  of  scale,  facilitate  interoperability,  or  provide  innovative  services,  while  the  smaller  MEAs  would  provide 
 an  opportunity  for  smaller  providers  to  participate  in  the  competitive  bidding  for  WCS  licenses.  131 
 2.  Discussion 
 63.  We  believe  that  the  Commissions  choice  for  the  initial  size  of  geographic  service  areas  plays  an  important  role  in  promoting  a  number  of  policy  goals,  including  efficiency  of  spectrum  use, 

 competition  among  providers,  and  advancing  service  to  rural  areas.  If  geographic  service  area  licenses  are  assigned  with  an  initial  size  that  does  not  represent  the  needs  of  service  providers,  then  transaction 
 costs  are  incurred,  as  carriers  seek  to  acquire  rights  to  spectrum  in  areas  they  wish  to  serve  and  divest  their  interest  in  areas  they  do  not  wish  to  serve.  For  example,  if  the  initial  size  of  geographic  service  areas 
 is  too  small,  then  providers  demanding  large  areas  must  aggregate,  either  during  the  auction  or  afterwards.  If  the  initial  size  of  geographic  service  areas  is  too  large,  then  providers  demanding  small  areas  must 
 disaggregate  post-  auction.  In  contrast,  if  the  size  of  geographic  service  areas  represents  the  needs  of  providers,  substantial  costs  may  be  saved.  For  example,  smaller  license  areas  make  it  easier  for  small, 
 regional,  and/  or  rural  providers  to  acquire  needed  spectrum  without  having  to  negotiate  through  secondary  markets.  While  we  hope  that  the  Commissions  recent  efforts  to  facilitate  the  development  of 
 secondary  markets  will  make  these  transaction  costs  less  burdensome,  we  recognize  that  some  costs  to  moving  spectrum  to  its  highest  valued  use  will  remain. 

 64.  Since  it  is  costly  to  aggregate  or  disaggregate  spectrum,  it  is  important  that  the  Commission  select  initial  license  sizes  and  boundaries  that  are  appropriate  for  the  likely  users  and 
 services  to  be  provided.  We  recognize  that  there  are  tradeoffs  between  the  use  of  large  service  areas  and  small  service  areas.  132  Large  service  areas  provide  economies  of  scale  and  reduce  coordination  costs. 
 Economies  of  scale  may  be  realized  in  manufacturing  of  equipment  and  in  providing  service  with  certain  technologies,  such  as  satellites,  which  have  high  fixed  costs  but  low  marginal  costs  to  serve  large 
 geographic  areas.  Large  service  areas  are  likely  to  reduce  several  types  of  coordination  costs,  including  standard  setting,  providing  seamless  roaming,  and  avoiding  co-  channel  interference.  On  the  other  hand, 
 smaller  service  areas  allow  local,  independent  operators  to  better  tailor  their  services  to  local  conditions  and  provide  greater  financial  incentives  to  local  licensees  than  if  they  were  managers  in  very  large 
 enterprises.  Adopting  small  license  areas  also  may  allow  smaller  enterprises  with  limited  financing  to  acquire  spectrum  licenses.  In  addition,  license  boundaries,  as  well  as  license  size,  are  a  concern  of  the 
 Commission,  which  has  attempted  to  choose  boundaries  that  combine  people  and  firms  who  are  part  of  the  same  community  and  who  are  likely  to  communicate  with  each  other.  The  Commission  also  has 
 attempted  to  avoid  setting  boundaries  that  would  preclude  incumbents  from  bidding  on  licenses  because  of  cross-  ownership  rules.  For  example,  in  setting  license  areas  for  broadband  PCS,  the  Commission 
 attempted  to  create  licenses  whose  boundaries  were  contiguous  with  cellular  service  areas. 
 65.  We  recognize  that  carriers  are  divided  on  the  issue  of  the  appropriate  size  of  geographic  service  areas.  In  various  Commission  proceedings,  representatives  of  small,  regional,  and  rural  providers 

 131  Id. 
 132  Many  of  these  tradeoffs  between  large  service  areas  and  small  service  areas  are  those  between  centralization 
 and  decentralization.  See  McAfee,  R.  Preston,  Competitive  Solutions:  A  Strategists  Toolkit,  Princeton  University  Press  (2003). 
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 have  argued  that  CMAs  are  the  most  appropriate  size.  133  These  parties  contend  that  if  the  geographic  service  areas  are  too  large,  then  they  will  be  unable  to  compete  against  large  carriers  in  the  auction.  134 
 Smaller  carriers  further  argue  that  when  licenses  for  large  geographic  areas  are  auctioned  and  acquired  by  large,  nationwide  carriers,  it  is  costly  and  often  impossible  for  small,  regional,  and  rural  carriers  to 
 negotiate  partitioning  and  disaggregation  agreements.  135  In  contrast,  representatives  of  large  regional  and  nationwide  CMRS  providers  and  other  parties  have  argued  that  service  areas  that  are  too  small  may  be 
 inefficient.  136  These  parties  contend  that  small  areas  may  make  it  more  difficult  for  providers  to  achieve  economies  of  scale  or  otherwise  impede  their  ability  to  provide  cost-  effective  service.  Still  other  parties 
 have  argued  that  the  size  of  service  areas  should  be  tailored  to  the  wireless  service  in  question.  137 
 66.  We  seek  comment  on  the  costs  of  partitioning  post-  auction  as  compared  to  the  costs  of  aggregating  spectrum  during  or  after  the  auction  process.  We  observe  that  spectrum  aggregation  within 

 auctions  is  fairly  common.  While  we  recognize  the  concerns  of  small  carriers  regarding  their  access  to  spectrum  in  rural  markets,  especially  when  large  geographic  areas  are  used,  we  note  that  partitioning  also 
 is  relatively  common.  Some  carriers  appear  to  be  partitioning  their  licenses,  indicating  there  is  a  market  for  partitioned  spectrum.  138  Most  partitioning  occurs  along  county  boundaries,  but  there  have  been 
 instances  of  partitioning  along  undefined  areas.  139  There  have  been  approximately  780  geographic-  area 

 133  See  e.  g.,  Rural  NOI,  Dobson  Communications  Corporation  Reply  Comments  at  1-  2;  Comments  of  NTCA  at  9- 
 10;  OPASTCO/  RTG  Joint  Comments  at  8-  10;  Comments  of  U.  S.  Cellular  at  7-  8;  Comments  of  Rural  Cellular  Association  at  3.  See  also  Amendments  to  Part  1,  2,  27  and  90  of  the  Rules  To  License  Services  in  the  216- 

 220  MHz,  1390-  1395  MHz,  1427-  1429  MHz,  1429-  1432  MHz,  1432-  1435  MHz,  1670-  1675  MHz,  and  2385-  2390  MHz  Government  Transfer  Bands,  Report  &  Order,  17  FCC  Rcd  9980,  9990  16  (2002)  (citing  Rural 
 Telecommunications  Group  Comments  at  2,  Office  of  Advocacy,  U.  S.  Small  Business  Administration,  Reply  Comments  at  3-  4)  (27  MHz  Report  and  Order);  Service  Rules  for  the  746-  764  and  776-  794  MHz  Bands,  and 
 Revisions  to  Part  27  of  the  Commissions  Rules,  First  Report  &  Order,  15  FCC  Rcd  476,  499  55  (2000)  (citing  Comments  of  Rural  Telecommunications  Group  at  3)  (Upper  700  MHz  Band  Report  and  Order);  Reallocation  and 
 Service  Rules  for  the  698-  746  MHz  Spectrum  Band  (Television  Channels  52-  59),  Report  and  Order,  17  FCC  Rcd  1022,  1058    88  (2001)  (citing  Comments  of  Cellular  South  at  6,  Comments  of  CROW  at  7-  8,  Reply  Comments  of 
 Leap  at  4,  Comments  of  NTCA  at  2,  Comments  of  SDN  at  5-  6)  (Lower  700  MHz  Band  Report  and  Order). 
 134  See,  e.  g.,  Rural  NOI,  NTCA  Ex  Parte  (filed  Jan.  27,  2003),  OPASTCO/  RTG  Joint  Comments  at  8-  10. 

 135  Id. 
 136  See,  e.  g.,  Rural  NOI,  Reply  Comments  of  Space  Data  Corporation  at  11-  12.  See  also  27  MHz  Report  and 
 Order  at  9990  16  (citing  Comments  of  AMTA  at  6);  Upper  700  MHz  Band  Report  and  Order  at  499  55  (citing  Comments  of  AirTouch  at  19-  20,  Comments  of  US  West  at  3);  Lower  700  MHz  Band  Report  and  Order  at  1058 

   87  (citing  Comments  of  Qwest  at  7,  ArrayComm  Ex  Parte  at  5). 
 137  See  Rural  NOI,  Comments  of  AT&  T  Wireless  Services,  Inc.  at  8-  9,  Comments  of  Western  Wireless  at  31-  32. 

 138  The  statistics  reported  in  this  paragraph  reflect  analysis  performed  by  Commission  staff  using  publicly  available 
 data  from  the  Commission's  Universal  Licensing  System  and  population  figures  based  on  the  2000  Census. 
 139  Undefined  areas  are  considered  geographic  areas  that  cannot  be  expressed  by  county  boundaries.  An  example 
 of  undefined  area  partitioning  includes  the  Des  Moines    Quad  Cities  Major  Trading  Area  (MTA032),  where  one  carrier  has  partitioned  its  license  over  100  times  to  various  small  carriers. 
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 licenses  partitioned  at  least  once.  140  Approximately  90  percent  of  all  partitioned  licenses  are  broadband  PCS  or  800  MHz  SMR,  which  are  spectrum  bands  used  primarily  for  the  provision  of  mobile  telephony 
 service.  We  note  that  over  60  percent  of  all  counties  in  the  broadband  PCS  service  have  been  partitioned  at  least  once.  141  Partitioning  appears  to  be  occurring  across  all  regions  of  the  country  and  includes  many 
 counties  that  fall  within  the  various  definitions  of  rural  that  are  proposed  in  Section  II.  A,  above.  For  example,  of  the  partitioned  broadband  PCS  counties,  72  percent  are  counties  with  a  population  density  of 
 100  persons  per  square  mile  or  less.  In  addition,  77  percent  of  the  partitioned  broadband  PCS  counties  are  contained  within  RSAs.  Furthermore,  71  percent  of  the  partitioned  broadband  PCS  counties  are  non-nodal 
 EA  counties.  In  addition,  we  observe  that  partitioning  sometimes  occurs  to  different  degrees  in  different  services,  even  when  the  same  size  of  geographic  service  areas  is  used.  For  example,  both  900 
 MHz  SMR  licenses  and  broadband  PCS  A  and  B  Block  licenses  are  licensed  across  MTAs,  yet  we  see  significant  partitioning  with  broadband  PCS  licenses  and  very  little  with  900  MHz  SMR  licenses. 

 67.  We  seek  comment  on  the  lessons  we  should  draw  from  the  Commissions  experience  in  choosing  initial  service  area  sizes.  Is  there  evidence  of  net  aggregation  towards  nationwide  service  areas 
 for  certain  services  such  as  cellular  and  PCS?  Is  there  evidence  of  net  partitioning  for  other  services?  To  the  extent  partitioning  is  more  common  in  some  services  and  less  so  in  others,  is  this  trend  indicative  of 
 some  miscalculation  by  the  Commission  in  choosing  the  initial  size  of  service  areas?  Alternatively,  could  this  activity  reflect  changes  in  the  demand  for  services  that  could  be  provided  in  this  band,  or  changes  in 
 technologies  or  other  factors  that  affect  what  services  could  be  supplied  in  this  band?  We  also  seek  comment  as  to  whether  the  difference  in  the  level  of  partitioning  across  services  could  reflect  the 
 application  of  different  Commission  rules,  such  as  build-  out  requirements.  Finally,  we  note  that  there  are  certain  transaction  costs  associated  with  any  partitioning.  Should  we  expect  that  licenses  for  highly 
 valued  spectrum,  in  highly  valued  services,  will  be  more  likely  to  be  partitioned,  given  the  greater  likelihood  that  the  value  created  by  this  trade  will  exceed  the  transaction  costs?  Similarly,  as  secondary 
 markets  develop  and  transaction  costs  decline,  should  we  expect  that  partitioning  through  leasing  arrangements  will  become  more  feasible  in  more  services?  To  what  extent  might  such  partitioning  be 
 limited  by  a  hold-  out  problem?  That  is,  might  licensees  with  large  geographic  areas  refuse  to  make  spectrum  available  to  small  providers  that  want  to  serve  small  or  niche  markets,  which  tend  to  be  in  rural 
 areas? 
 68.  We  tentatively  conclude  that  it  is  in  the  public  interest  for  the  Commission  to  balance  the  needs  of  different  providers,  including  the  larger  carriers  need  for  economies  of  scale  and  the  smaller 

 carriers  need  for  license  areas  that  more  closely  resemble  their  service  areas.  We  recognize  that,  since  users  of  spectrum  have  a  variety  of  needs,  one  size  of  service  area  does  not  fit  all.  We  intend  to  continue 
 establishing  geographic  areas  on  a  service-  by-  service  basis,  and  we  seek  comment  on  steps  we  can  take  to  effectively  balance  the  competing  needs  of  different  users  as  we  make  these  service  area  decisions. 
 Would  such  an  approach  produce  economically  efficient  results?  Is  such  an  approach  necessary,  given  our  expectation  that  secondary  markets  will  become  more  prevalent  in  the  future?  We  especially 
 encourage  commenters  to  use  empirical  evidence  to  support  their  assessment  of  partitioning  costs, 
 140  This  total  includes  applications  currently  pending  before  the  Commission  and  granted  applications.  The  total 
 number  of  licenses  is  represented  by  counting  a  license  as  being  partitioned  each  time  a  license  is  listed  on  a  partitioning  application.  Therefore,  certain  licenses  may  be  counted  more  than  once  for  the  purposes  of  this 

 analysis.  A  license  can  involve  the  partitioning  of  many  counties  or  undefined  areas. 
 141  Those  counties  that  make  up  this  60  percent  estimate  do  not  include  counties  where  only  a  portion  of  the 
 county  has  been  partitioned  (i.  e.,  undefined  areas).  Because,  as  described  above,  partitioning  also  occurs  along  undefined  areas,  we  conclude  that  the  actual  number  of  partitioned  counties  is  greater  than  60  percent. 
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 aggregation  costs,  and  the  efficiency  of  any  approach  they  recommend. 
 69.  In  addition,  while  the  largest  geographic  service  area  the  Commission  may  adopt  would  be  a  nationwide  area,  there  is  some  question  as  to  what  would  be  the  smallest  size  that  would  still  be 

 functional.  That  is,  at  what  point  is  it  more  appropriate  for  the  Commission  to  use  site-  based  licenses  instead  of  very  small  geographic  area  licenses?  Also,  to  the  extent  we  believe  small  license  areas  are 
 appropriate  for  specific  bands,  what  size  is  most  appropriate    CMAs,  EAs,  or  some  other  measure?  Are  there  particular  frequencies  that  are  better  suited  for  allocations  to  small  license  areas?  We  also  inquire  as 
 to  whether  it  is  possible  that  use  of  relatively  small  geographic  areas  would  introduce  an  unreasonable  risk  of  another  type  of  hold-  out  problem.  In  particular,  might  such  an  approach  result  in  many  small 
 incumbent  licensees  who  could  then  frustrate  post-  auction  attempts  to  aggregate  licenses  efficiently  by  refusing  to  sell  except  at  excessive  prices? 

 70.  At  the  same  time  we  seek  comment  on  whether  to  use  smaller  service  areas,  we  also  seek  ways  to  make  it  easier  for  providers  in  need  of  larger  areas  to  acquire  them  with  minimal  transaction 
 costs.  One  way  to  achieve  this  objective  may  be  to  adopt  bidding  design  mechanisms  that  permit  the  aggregation  of  geographic  areas  or  spectrum  blocks  during  an  auction.  Typically,  the  Bureau  uses  a 
 simultaneous  multiple-  round  auction  design,  which  facilitates  aggregation  by  making  all  licenses  in  the  auction  available  at  the  same  time.  Under  this  approach,  bidders  may  observe  bidding  activity  on  all 
 licenses  and  make  aggregation  decisions  based  on  such  observations  of  relative  prices.  Recently,  the  Bureau  selected  a  package  bidding  design  for  two  auctions.  142  This  relatively  new  approach  to  auctions 
 allows  bidders  to  submit  all-  or-  nothing  bids  on  combinations  of  geographic  areas  or  spectrum  blocks  in  addition  to  bids  on  individual  licenses  or  authorizations.  We  believe  that,  in  instances  in  which  the 
 Commission  has  determined  that  smaller  size  license  areas  are  appropriate,  a  package  bidding  format  may  be  helpful  to  bidders  seeking  to  acquire  larger  geographic  areas  or  spectrum  blocks.  We  recognize, 
 however,  that  in  such  circumstances,  the  use  of  package  bidding  may  introduce  significant  computational  complexities. 

 71.  We  also  observe  that  choosing  a  geographic  service  area  that  represents  a  middle  solution  may  be  an  inefficient  approach.  For  example,  if  nationwide  providers  need  large  or  nationwide 
 service  areas  and  regional  or  rural  providers  need  very  small  areas,  then  the  use  of  service  areas  that  are  medium  sized  in  an  attempt  to  find  a  middle  solution  may  impose  unnecessary  transaction  costs.  In 
 such  cases,  the  likely  users  would  have  to  either  aggregate  or  partition  in  order  to  meet  their  spectrum  needs.  We  note  that,  as  an  alternative  to  such  a  middle  solution  in  which  service  area  size  represents  a 
 compromise  that  may  not  be  ideal  for  either  small  or  large  service  providers,  there  may  be  situations  in  which  it  is  possible  to  create  geographic  service  areas  of  mixed  sizes.  In  particular,  if  there  is  sufficient 
 bandwidth  available,  both  large  regional  (or  even  national)  and  small  local  license  areas  can  be  created.  We  inquire  as  to  whether  such  a  mixed  plan  may  reduce  the  aggregation/  disaggregation  transaction  costs 
 inherent  in  a  single  size  geographic  licensing  scheme,  and  we  seek  comment  on  what  other  costs,  as  well  as  benefits,  may  be  associated  with  such  an  approach.  We  recognize  that,  while  a  mixed  approach  may  be 
 useful  in  some  bands  with  spectrum  users  that  have  very  different  needs,  it  may  not  be  appropriate  in  other  bands,  and  we  conclude  that  our  approach  must  be  tailored  to  the  needs  of  each  band  or  service  in 

 142  Auction  of  Regional  Narrowband  PCS  Licenses  Scheduled  for  September  24,  2003,  Notice  and  Filing 
 Requirements,  Minimum  Opening  Bids,  Upfront  Payments,  Package  Bidding  and  Other  Auction  Procedures,  Public  Notice,  DA  03-  1994  (rel.  June  18,  2003);  Auction  of  Licenses  in  the  747-  762  And  777-  792  MHz  Bands 

 Scheduled  for  June  19,  2002,  Further  Modification  of  Package  Bidding  Procedures  And  Other  Procedures  For  Auction  No.  31,  Public  Notice,  17  FCC  Rcd  7049  (2002). 
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 question. 
 F.  Facilitating  Access  to  Capital 
 72.  In  this  section  we  explore  ways  that  we  may  facilitate  increased  access  to  capital  to  fund  the  build  out  and  provision  of  spectrum-  based  facilities  and  services  in  rural  and  underserved  areas.  First, 

 we  seek  comment  on  what,  if  any,  further  regulatory  or  policy  changes  should  be  made  to  complement  the  U.  S.  Department  of  Agricultures  RUS  program,  under  which  qualified  wireless  providers  can  obtain  low 
 interest  loans  for  deployment  of  broadband  facilities,  and  any  other  method  of  securing  financing  for  rural  build  out  and  operations.  We  also  seek  comment  regarding  whether  we  should  permit  RUS  to  obtain 
 security  interests  in  spectrum  licenses,  whether  we  have  the  statutory  authority  to  do  so,  and  whether  allowing  RUS  to  take  security  interests  in  licenses  is  likely  to  provide  licensees  serving  rural  and  other 
 areas  with  greater  opportunities  to  leverage  the  value  of  their  licenses  and  the  rights  thereunder,  thereby  increasing  their  access  to  capital.  Finally,  we  seek  comment  on  discontinuing  application  of  the  cellular 
 cross-  interest  rule  in  RSAs  with  more  than  three  competitors  to  avoid  impeding  opportunities  for  financing  and  investment  in  rural  areas  and  shift  to  standard  case-  by-  case  review  process  for  RSA  cellular 
 license  transactions  to  safeguard  competition  in  these  markets. 
 1.  Rural  Utilities  Service 
 a.  Rural  Loan  Programs 
 (i)  Background 
 73.  The  U.  S.  Department  of  Agricultures  RUS  Telecommunications  Program  assists  the  private  sector  in  developing,  planning,  and  financing  the  construction  of  telecommunications 

 infrastructure  in  rural  America.  Programs  administered  by  RUS  include:  (1)  infrastructure  loans;  (2)  broadband  loans  and  grants;  (3)  distance  learning  and  telemedicine  loans  and  grants;  (4)  weather  radio 
 grants;  (5)  local  TV  loan  guarantees;  and  (6)  digital  translator  grants.  The  largest  of  these  programs  are  the  infrastructure  loan  program  and  the  broadband  loan  program. 

 74.  The  infrastructure  loan  program  is  technology  neutral,  requires  broadband-  capable  facilities,  and  provides  financing  for  infrastructure  (e.  g.,  building  and  equipment),  but  not  financing  for 
 the  costs  of  operating  the  business.  Within  the  infrastructure  loan  program,  there  are  four  types  of  financing:  (1)  hardship  loans;  (2)  cost-  of-  money  loans;  (3)  rural  telephone  bank  loans;  and  (4)  federal 
 financing  bank  loans.  143  For  fiscal  year  2003,  the  total  authorized  loan  level  for  these  four  programs  is  $670  million.  144 

 75.  The  broadband  loan  program  is  technology  neutral;  requires  provision  of  high-  quality  data  transmission  service  and  may  provide  voice,  graphics,  and  video;  and  must  enable  a  subscriber  to 
 transmit  and  receive  at  a  rate  of  no  less  than  200  kilobits  per  second.  145  Similar  to  the  infrastructure  loan 
 143  7  C.  F.  R.    1735.30    1735.33. 
 144  See  Slides  of  Roberta  D.  Purcell,  Assistant  Administrator,  Telecommunications  Program,  Rural  Utilities 
 Service,  Kick  Off  Meeting  of  the  Federal  Rural  Wireless  Outreach  Initiative,  July  2,  2003,  available  at  <http://  wireless.  fcc.  gov/  outreach/  presentations/  JointFCC-  RUSPresentation_  1.  pdf>  (Purcell  Slides).  See  also 

 <http://  wireless.  fcc.  gov/  outreach/  ruralinitiative/  event20030702.  html>. 
 145  7  C.  F.  R.    1738. 
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 program,  the  broadband  loan  program  finances  the  construction  or  acquisition  of  new  facilities  and  facility  improvements.  146  RUS  makes  broadband  loans  available  to  any  legally  organized  entity  that  has 
 sufficient  authority  to  enter  into  a  contract  with  RUS  and  carry  out  the  purposes  of  the  loan,  so  long  as  the  entity  is  providing  or  proposes  to  provide  service  to  an  area  that  meets  the  following  criteria:  (1)  there  are 
 no  more  than  20,000  inhabitants,  and  (2)  the  service  area  does  not  fall  within  a  standard  metropolitan  statistical  area..  147  For  fiscal  year  2003,  RUS  has  $80  million  for  4  Percent  loans,  148  $80  million  for 
 Guaranteed  loans,  and  $1.3  billion  for  Treasury  Rate  loans.  149  In  fiscal  year  2004,  the  total  loan  level  is  anticipated  to  be  $418  million.  150 

 76.  The  Commissions  Wireless  Telecommunications  Bureau  (WTB)  has  partnered  with  RUS  to  sponsor  the  Federal  Rural  Wireless  Outreach  Initiative  (FCC/  RUS  Outreach  Partnership).  151 
 The  FCC/  RUS  Outreach  Partnership  is  designed  to  exchange  program  and  regulatory  information  about  rural  development  and  wireless  telecommunications  access  in  rural  areas.  The  four  key  goals  of  the 
 FCC/  RUS  Outreach  Partnership  are  to:  (1)  exchange  information  about  products  and  services  each  agency  offers  to  promote  the  expansion  of  wireless  telecommunications  services  in  rural  America; 
 (2)  harmonize  rules,  regulations  and  processes  whenever  possible  to  maximize  the  benefits  for  rural  America;  (3)  educate  partners  and  other  agencies  about  Commission,  WTB  and  USDA/  RUS  offerings; 
 and  (4)  expand  the  FCC/  WTB  and  USDA/  RUS  partnership,  to  the  extent  that  it  is  mutually  beneficial,  to  other  agencies  and  partners. 

 (ii)  Discussion 
 77.  We  seek  methods  to  help  facilitate  access  to  capital  in  rural  areas  in  order  to  increase  the  ability  of  wireless  telecommunications  providers  to  offer  service  in  rural  areas.  An  important  part  of 

 accomplishing  this  goal  is  through  the  promotion  of  federal  government  financing  programs.  We  seek  comment  on  how  the  Commission  can  assist  in  making  the  RUS  loan  programs  more  effective.  We  seek 
 comment  on  whether  there  are  any  Commission  regulations  or  policies  that  should  be  reexamined  or  modified  to  facilitate  participation  in  the  RUS  programs  by  wireless  licensees  and  service  providers.  In 
 addition,  we  ask  for  comment  on  whether  the  FCC/  RUS  Outreach  Partnership  could  be  expanded  to 

 146  7  C.  F.  R.    1738.10(  a). 
 147  7  C.  F.  R.    1738.2,1738.16.  Individuals  or  partnerships  of  individuals  are  not  eligible  entities.  An  entity  is 
 not  eligible  if  it  serves  more  than  2  percent  of  the  telephone  subscriber  lines  installed  in  the  United  States.  A  State  or  local  government,  including  any  agency,  subdivision,  or  instrumentality  thereof  (including  consortia  thereof) 

 shall  be  eligible  for  a  broadband  loan  only  if,  not  later  than  April  30,  2002,  no  other  eligible  entity  is  already  offering  or  has  committed  to  offer  broadband  service  to  the  eligible  rural  community.  RUS  will  determine 
 whether  the  commitment  is  sufficient  for  purposes  of  this  paragraph.  7  C.  F.  R.    1738.16. 
 148  To  be  eligible  for  a  direct  loan  bearing  a  fixed  interest  rate  of  4  percent,  the  applicant  must  be  proposing  to  serve 
 a  community  of  2,500  people  or  less,  located  in  a  county  where  the  per  capita  income  is  55  percent  of  the  national  average,  with  a  population  density  is  no  more  than  10  people  per  square  mile,  and  where  there  is  not  currently 

 broadband  service  (as  defined  by  7  CFR    1738.11(  b)).  The  loans  are  capped  at  $5  million.  See  Purcell  Slides;  7  CFR    1738.30(  b). 

 149  7  C.  F.  R.    1738.30.  Some  loan  types  have  additional  eligibility  criteria.  Id. 
 150  See  Purcell  Slides. 
 151  See  Federal  Rural  Wireless  Outreach  Initiative  News  Release. 
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 include  other  federal,  state,  or  local  government  programs  and,  if  so,  which  programs  should  be  included  in  this  FCC/  RUS  Outreach  Partnership.  We  further  seek  comment  on  whether  there  is  a  role  for  non-governmental 
 entities  in  the  FCC/  RUS  Outreach  Partnership  and  how  such  entities  might  be  able  to  participate. 

 78.  We  also  ask  for  suggestions  regarding  effective  outreach  programs  and  the  groups  that  should  be  targeted.  For  example,  we  ask  service  providers;  federal,  state,  and  local  governments;  and 
 other  interested  parties  what  outreach  initiatives  they  have  found  most  effective  in  the  past.  In  addition,  we  ask  for  submission  of  lists  of  associations,  government  agencies,  or  other  interested  parties  that  would 
 want  to  join  in  this  FCC/  RUS  Outreach  Partnership  or  receive  future  information  regarding  this  program. 
 b.  Security  Interests 
 (i)  Background 
 79.  As  a  historical  matter,  the  Commission  has  not  permitted  third  parties  to  take  a  security  interest  in  spectrum  licenses.  At  the  same  time,  the  Commissions  legal  and  policy  bases  for  various 

 restrictions  on  transactions  involving  licenses  have  evolved  over  the  years.  For  instance,  at  one  time,  the  policy  of  prohibiting  the  sale  of  bare  licenses,  as  well  as  the  policies  against  security  and  reversionary 
 interests  in  licenses,  were  based  on  the  Commissions  interpretation  of  the  Communications  Act.  152  In  various  decisions,  the  Commission  modified  its  views  on  the  statutory  basis  for  these  policies  in  the 
 context  of  cellular  and  other  wireless  licenses.  153  In  1992,  the  Commission  examined  these  policies  in  connection  with  capital  formation  issues  facing  the  broadcasting  industry.  154  For  all  spectrum-  based 
 services,  the  Commission  has  expressly  permitted  licensees  to  grant  security  interests  in  the  stock  of  the  licensee,  in  the  physical  assets  used  in  connection  with  its  licensed  spectrum,  and  in  the  proceeds  from 
 operations  associated  with  the  licensed  spectrum.  155  The  Commission  and  the  courts  have  likewise 
 152  See  generally  Stephen  F.  Sewell,  Assignments  and  Transfers  of  Control  of  FCC  Authorizations  Under  Section 
 310(  d)  of  the  Communications  Act  of  1934,  43  Fed.  Comm.  L.  J.  277,  330-  31  (1991);  William  L.  Fishman,  Property  Rights,  Reliance,  and  Retroactivity  under  the  Communications  Act  of  1934,  50  Fed.  Comm.  L.  J.  1,  16-  20 

 (1997);  Nancy  R.  Selbst,  Unregulation  and  Broadcast  Financing:  New  Ways  for  the  Federal  Communications  Commission  to  Serve  the  Public  Interest,  58  U.  Chi.  L.  Rev.  1423,  1439  (1991). 

 153  See  Bill  Welch,  Memorandum  Opinion  and  Order,  3  FCC  Rcd  6502,  6503  (1988)  (approving  for-  profit  sale  of 
 a  permit  for  construction  of  a  cellular  telephone  facility  on  ground  that  relevant  provisions  of  the  Communications  Act  of  1934  do[  ]  not  bar  the  for-  profit  sale  to  a  private  party,  subject  to  prior  Commission  approval,  of  whatever 

 private  rights  a  permittee  has  in  its  license)  (footnotes  omitted);  Application  of  Walter  O  Cheskey,  Trustee-  in-Bankruptcy  for  N.  C.  P.  T.  Cellular,  Inc.  (Assignor)  and  Triad  Cellular  L.  P.  (Assignee),  Memorandum  Opinion  and 
 Order,  9  FCC  Rcd  986  (Mobile  Serv.  Div.,  Comm.  Car.  Bur.  1994),  application  for  review  denied,  13  FCC  Rcd  10656,  10660  (1998),  application  for  review  denied,  Amarillo  CellTelCo  v.  FCC,  1998  WL  796204  (D.  C.  Cir. 
 1998)  (Cheskey). 
 154  Review  of  the  Commissions  Regulations  and  Policies  Affecting  Investment  in  the  Broadcast  Industry,  Notice 
 of  Proposed  Rule  Making  and  Notice  of  Inquiry,  7  FCC  Rcd  2654  (1992)  (Broadcasting  Capital  Formation  Notice).  See  also  Petition  for  Declaratory  Ruling  filed  by  Hogan  &  Hartson  (Feb.  21,  1991),  available  at 

 <http://  gullfoss2.  fcc.  gov/  prod/  ecfs/  retrieve.  cgi?  native_  or_  pdf=  pdf&  id_  document=  1035940001>  and  <http://  gullfoss2.  fcc.  gov/  prod/  ecfs/  retrieve.  cgi?  native_  or_  pdf=  pdf&  id_  document=  1035940002>  (Hogan  & 
 Hartson  Petition). 
 155  See  Commission  Policy  Regarding  the  Advancement  of  Minority  Ownership  in  Broadcasting,  99  FCC  2d 
 1249,  1254  (1985). 
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 determined  that  security  interests  in  the  proceeds  of  the  sale  of  a  license  do  not  violate  Commission  policy.  156  In  connection  with  the  auction  installment  payment  program,  the  Commission  itself  has  taken 
 an  exclusive  security  interest  in  licenses  subject  to  installment  payments  and  a  senior  security  interest  in  the  proceeds  of  a  sale  of  an  auctioned  license.  In  such  circumstances,  the  Commission  has  allowed 
 licensees  to  provide  their  lenders  a  subordinated  security  interest  in  the  proceeds  of  a  license  sale.  157  Courts  and  commentators  have  been  closely  watching  these  policy  developments.  158  In  its  Secondary 
 Markets  Policy  Statement,  the  Commission  considered  ways  in  which  licensees  may  be  able  to  maximize  their  efficient  use  of  spectrum  by  leveraging  the  value  of  their  retained  spectrum  usage  rights  to  increase 
 access  to  capital.  159  Specifically,  the  Commission  said  we  plan  to  evaluate  our  policies  prohibiting  security  and  reversionary  interests  in  licenses.  160 

 (ii)  Discussion 
 80.  Pursuant  to  our  stated  intent  in  the  Secondary  Markets  Policy  Statement,  we  initiate  a  discussion  regarding  whether  we  should  permit  RUS  to  obtain  security  interests  in  the  spectrum  licenses 

 of  their  borrowers.  We  seek  comment  on  whether,  and  to  what  extent,  licensees  in  rural  areas  would  benefit  from  the  opportunity  to  pledge  their  licenses  to  RUS  as  collateral  as  a  means  of  overcoming  their 
 difficulties  in  raising  capital.  Would  modifying  our  current  policy  to  allow  RUS  to  take  limited  security  interests  in  wireless  licenses  be  likely  to  provide  licensees  seeking  to  build  out  and  serve  rural  and 
 underserved  areas  with  additional  assistance  in  capital  formation? 
 81.  As  an  initial  matter,  we  limit  the  scope  of  our  inquiry  to  commercial  and  private  terrestrial  wireless  services.  161  We  further  limit  our  inquiry  concerning  security  interests  to  licenses  and 

 licensees  in  rural  and  underserved  areas  that  are  seeking  federal  financial  assistance  through  RUS  loan  programs.  We  believe  that  such  licensees  will  benefit  most  in  light  of  their  apparently  greater  need  for 
 lower-  cost  capital  and  the  new  opportunities  presented  by  RUS  loans  discussed  below.  Also  with  regard 

 156  See  Cheskey,  13  FCC  Rcd  at  10659-  60    7. 
 157  47  C.  F.  R.    1.2110(  g)(  3). 
 158  See,  e.  g.,  FCC  v.  NextWave  Personal  Communications  Inc.,  123  S.  Ct.  832,  842  (2003);  MLQ  Investors,  L.  P.  v. 
 Pacific  Quadracasting,  Inc.,  146  F.  3d  746,  748  (9th  Cir.  1998)  (MLQ  Investors);  Beach  Television  Partners  v.  George  F.  Mills,  Jr.,  38  F.  3d  535,  537  (11th  Cir.  1994)  (Beach  Television  Partners);  In  re  PBR  Communications 

 Systems,  Inc.,  172  B.  R.  132,  135  (Bankr.  S.  D.  Fla.  1994);  Timothy  F.  Boyce,  Collateralizing  Nonassignable  Contracts,  Licenses,  And  Permits:  Half  a  Loaf  is  Better  Than  No  Loaf,  52  Bus.  Law.  559,  575  (1997);  William  L. 
 Fishman,  Property  Rights,  Reliance,  and  Retroactivity  Under  the  Communications  Act  of  1934,  50  Fed.  Comm.  L.  J.  1,  52  (1997);  Lorin  Brennan,  Financing  Intellectual  Property  Under  Revised  Article  9:  National  And 
 International  Conflicts,  23  Hastings  Comm.  &  Ent.  L.  J.  313,  455  (2001);  Edwin  E.  Smith,  Article  9  In  Revision:  A  Proposal  For  Permitting  Security  Interests  In  Nonassignable  Contracts  and  Permits,  28  Loy.  L.  A.  L.  Rev.  335, 
 349  (1994);  Thomas  Hutton,  Lenders  Seeking  to  Take  a  Security  Interest  in  FCC  Licenses  Obtain  Only  Limited  Protection  By  Structuring  Loans  Through  Subsidiaries  That  Will  Hold  The  Licenses,  20  Natl  L.  J.  B5,  col.  1  (Jan. 
 26,  1998). 
 159  Principles  for  Promoting  the  Efficient  Use  of  Spectrum  by  Encouraging  the  Development  of  Secondary 
 Markets,  Policy  Statement,  14  FCC  Rcd  24178,  24187    23  (2000)  (Secondary  Markets  Policy  Statement). 
 160  Id.  at  24187-  88. 

 161  See  n.  1,  supra. 
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 to  the  scope  of  our  inquiry,  we  note  that  we  do  not  intend  to  implement  any  policy  change  that  would,  in  the  case  of  a  licensee  operating  under  the  installment  payment  program,  compromise  the  Commissions 
 exclusive  or  senior  secured  position  with  respect  to  the  license  and  the  proceeds  of  the  sale  of  such  license.  Nevertheless,  we  seek  comment  on  whether  permitting  RUS  to  obtain  security  interests  in  the 
 spectrum  licenses  of  their  borrowers,  as  described  below,  could  have  unintended  effects  on  installment  licensees  and  the  Commissions  rights  under  these  arrangements. 

 82.  Our  primary  goal  is  to  determine  whether  further  relaxation  of  the  security  interest  restrictions    by  allowing  at  least  a  modified  form  of  collateralization  of  FCC  licenses  by  licensees 
 obtaining  RUS  funds    could  increase  opportunities  to  raise  capital  or  avoid  financial  collapse.  We  therefore  seek  comment  on  the  extent  to  which  a  licensees  ability  to  grant  RUS  a  security  interest 
 directly  in  an  FCC  license  would,  in  fact,  create  new  financing  opportunities  and  facilitate  the  construction,  deployment  and  continuity  of  new  and  existing  wireless  services  in  rural  and  underserved 
 areas.  We  also  ask  how  this  change  in  our  policy  would  affect  the  ability  of  small  businesses  to  obtain  much  needed  startup  capital. 

 83.  On  the  other  hand,  despite  these  potential  benefits,  we  recognize  that  a  licensees  current  ability  to  grant  security  interests  in  its  stock  and  in  the  proceeds  of  a  license  sale  may  already  provide  it 
 with  financing  opportunities  that  are  similar  to  those  we  seek  to  foster  by  our  proposal  below.  If  so,  it  would  appear  that  we  may  not  significantly  enhance  financing  opportunities.  We  ask  all  interested 
 parties,  including  licensees,  vendors,  RUS,  lenders  and  others  to  comment  on  these  potential  benefits  and  to  identify  any  other  specific  benefits  that  could  accrue  from  such  a  policy  change. 

 84.  We  further  note  that  any  security  interest  granted  to  RUS  would  be  expressly  conditioned,  in  writing  as  part  of  all  applicable  financing  documents,  on  the  Commissions  prior  approval 
 of  any  assignment  of  the  license  or  any  transfer  of  de  jure  or  de  facto  control  of  the  licensee  to  RUS.  We  discuss  below  the  reasons  for  this  limitation  and  seek  comment  on  some  specific  concerns. 

 85.  First,  in  addition  to  the  benefits  from  lower  costs  of  and  greater  access  to  capital,  we  seek  comment  on  whether  modifying  our  policy  to  permit  RUS  to  take  a  security  interest  in  FCC  licenses  is  a 
 natural  outgrowth  of  the  Commission  and  judicial  developments  discussed  above,  which  recognize  the  value  and  ability  of  a  lender  obtaining  a  security  interest  in  the  licensees  stock,  proceeds  and  other  assets 
 without  infringing  upon  the  Commissions  statutory  obligations.  162  For  instance,  in  MLQ  Investors,  the  U.  S.  Court  of  Appeals  for  the  Ninth  Circuit  determined  that  a  security  interest  in  the  proceeds  of  the  sale 
 of  a  broadcast  license  can  be  perfected  prior  to  the  sale  of  the  license,  and  that  [  g]  overnment  licenses,  as  a  general  rule,  are  considered  to  be  general  intangibles  under  the  Uniform  Commercial  Code,  i.  e., 
 personal  property  interests  in  which  security  interests  may  be  perfected.    163  The  Ninth  Circuit  identified  the  Commissions  primary  policy  concern  by  stating  that  [  t]  he  FCC  may  prohibit  security  interests  in 
 licenses  themselves  because  the  creation  of  such  an  interest  could  result  in  foreclosure  and  transfer  of  the  license  without  FCC  approval.  164  The  Ninth  Circuit  went  on  to  explain  that  the  Commissions  interest  in 
 regulating  spectrum  to  promote  the  public  interest  is  not  implicated  by  a  security  interest  in  the  proceeds  of  licenses,  which  does  not  grant  the  creditor  any  power  or  control  over  the  license.  165  We  also  note  that 

 162  See  Cheskey,  Beach  Television  Partners. 
 163  See  MLQ  Investors,  146  F.  3d  at  749. 
 164  Id.  at  748. 
 165  Id. 
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 application  of  state  laws  under  Article  9  of  the  Uniform  Commercial  Code  is  generally  limited  in  connection  with  the  treatment  of  security  interests  of  non-  assignable  personal  property  governed  by 
 federal  law.  166  We  seek  comment  on  how  cases  like  MLQ  Investors  and  the  application  of  the  UCC  provisions  have  affected  lending  practices  for  FCC  licensees  and  what,  if  any,  impact  the  grant  of  security 
 interests  in  spectrum  licenses  to  RUS  might  have  on  established  law  in  this  area,  including  the  appropriate  method  of  how  RUS  would  perfect  a  security  interest  in  FCC  licenses. 

 86.  Next,  we  address  the  concerns  that  have  led  us  to  propose  that  any  security  interest  granted  to  RUS  be  expressly  conditioned  on  the  Commissions  prior  approval  of  any  assignment  of  the 
 license  or  any  transfer  of  de  jure  or  de  facto  control.  We  ask  whether  it  may  be  feasible  for  a  licensee  to  grant  RUS  a  security  interest  in  an  FCC  license  without  compromising  our  obligation  to  maintain  control 
 of  spectrum  in  the  public  interest,  so  long  as  we  are  completely  able  to  fulfill  our  applicable  mandates  under  the  Communications  Act  of  1934,  as  amended.  167  For  example,  we  must  and  will  preserve  our 
 authority  under  Section  310(  d)  to  review  and  approve  license  assignments  and  transfers  of  control,  to  assess  and  confirm  the  basic  qualifications  of  assignees  and  transferees,  and,  more  generally,  to  exercise 
 our  statutory  responsibility  to  determine  whether  the  Section  310(  d)  transaction  in  question  will  serve  the  public  interest,  convenience  and  necessity.  168  The  Commission  has  historically  disallowed  granting 
 security  interests  in  FCC  licenses,  based  upon  its  concern  that  such  financing  arrangements  may  interfere  with  its  ability  to  regulate  the  assignment  of  licenses,  the  transfer  of  control  over  licenses,  and,  more 
 generally,  the  use  of  spectrum.  169  If,  however,  we  can  ensure  that  appropriate  prior  approval  of  assignments  and  transfers  is  obtained,  and  if  we  further  limit  any  grant  of  a  security  interest  to  RUS,  a 
 federal  loan  agency,  do  commenters  believe  that  our  policy  and  statutory  concerns  would  be  satisfactorily  addressed,  thus  enabling  us  to  promote  flexibility  and  financing  opportunities  for  licensees  serving  rural 
 and  underserved  areas?  In  this  regard,  we  note  that  we  have  seen  no  detectable  erosion  of  our  regulatory  authority  from  our  current  policy  of  permitting  licensees  to  engage  in  a  very  similar  type  of  financing 
 arrangement    that  is,  a  licensee  grant  of  a  third  party  security  interest  in  its  stock  and  the  proceeds  of  the  sale  of  the  license,  along  with  third  party  perfection  of  that  interest,  prior  to  the  sale  of  the  subject  license. 
 We  seek  comment  on  the  relative  impact  that  such  developments  may  have  on  our  ability  to  implement  and  enforce  our  statutory  obligations. 

 87.  We  recognize  that  permitting  RUS  to  obtain  security  interests  in  FCC  licenses  would 
 166  See  U.  C.  C.    9-  104(  a)(  1995);  U.  C.  C.  [Revised]    9-  109(  c)(  1)(  2000);  see  also  Brennan,  Financing  Intellectual 
 Property  Under  Revised  Article  9:  National  And  International  Conflicts,  23  Hastings  Comm.  &  Ent.  L.  J.  313  (2001)  (noting  that  the  UCC  drafting  committee  modeled  its  approach  on  the  well-  established  law  that  applies  to  FCC 

 licenses);  Weise,  The  Financing  of  Intellectual  Property  Under  Revised  Article  9,  74  Chi.-  Kent  L.  Rev.  1077,  1092-  93  (1999)  (noting  same). 

 167  See  47  U.  S.  C.    301,  304.  Section  301  of  the  Act  provides  that  the  government  can  authorize  the  use  but  not 
 the  ownership  of  the  spectrum  (  channels  of  radio  transmission).  Section  304  requires  that  any  license  applicant  waive  any  claim  to  the  use  of  the  spectrum  as  against  the  regulatory  power  of  the  United  States. 

 168  See  47  U.  S.  C.    310(  d);  see  also  47  U.  S.  C.    308,  309;  Hogan  &  Hartson  Petition,  supra  n.  154  at  25 
 (  Transfer  of  a  license  would  continue  to  be  subject  to  prior  Commission  approval.).  In  the  Secondary  Markets  proceeding,  we  ask  whether  we  should  forbear  from  requiring  prior  Commission  approval  for  certain  categories  of 

 transfers  of  control  and  license  assignments  that  do  not  raise  public  interest  issues  requiring  prior  Commission  review.  See  Secondary  Markets  News  Release. 

 169  See  Beach  Television  Partners  at  537;  Broadcasting  Capital  Formation  Notice  at    22-  23. 
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 provide  RUS  with  greater  rights  vis-  -  vis  the  license  and  licensee  than  it  currently  can  obtain.  We  therefore  ask  whether  our  proposed  condition  requiring  prior  FCC  approval  before  RUS  can  foreclose  on 
 the  license  would  satisfactorily  and  adequately  preserve  existing  regulatory  relationships.  The  type  of  security  interest  that  we  are  seeking  comment  on  would  be  a  right  between  the  licensee  and  RUS, 
 exercisable  only  upon  Commission  approval.  Would  such  a  right  be  fully  consistent  with  our  responsibilities  under  the  Communications  Act?  We  ask  whether  it  would  not  be  different  than  granting 
 RUS  an  option  to  purchase  a  license,  for  example.  We  note  that  we  would  review  and  require  our  approval  of  an  assignment  to  RUS  in  accordance  with  our  transfer  and  assignment  policies  before  RUS 
 could  assume  control  of  a  license.  Such  a  process  is  designed  to  ensure  that  the  federal  government  retains  appropriate  control  over  use  of  the  spectrum  consistent  with  Sections  301  and  304  of  the  Act,  and 
 that  the  perfection  of  a  security  interest  in  a  license  does  not  interfere  with  these  or  other  statutory  obligations  and  policy  prerogatives.  For  example,  would  a  security  interest  in  a  license  give  RUS  any 
 rights  that  might  conflict  with  the  Commissions  regulatory  oversight  (other  than  an  unapproved  foreclosure  or  assertion  of  control)  that  it  could  exercise  against  the  licensee?  Furthermore,  in  light  of  the 
 fact  that  RUS  is  a  federal  government  agency,  we  ask  whether  we  may  have  greater  statutory  latitude  to  grant  it  a  security  interest  while  still  ensuring  that  the  federal  government  retains  control  over  spectrum. 

 88.  Our  next  concern  relates  to  any  unintended  consequences  that  may  result  from  this  potential  policy  change,  especially  as  it  relates  to  existing  and  future  financial  and  regulatory  relationships 
 and  any  new  claims  or  conflicts  that  may  arise.  It  appears  that  one  of  the  main  conceptual  differences  between  the  current  limits  on  the  scope  of  permissible  security  interests  and  our  proposal  is  that  a  security 
 interest  in  a  license  itself  would  link  the  secured  party  more  directly  to  the  Commission.  It  is  our  understanding  that  under  current  financing  practices  involving  FCC  licensees,  the  secured  partys  rights 
 stem  from  its  relationship  as  a  lender  (and  possibly  an  equipment  vendor,  bondholder  or  stockholder)  to  the  licensee,  not  directly  to  the  Commission,  even  after  default  and  foreclosure  on  the  secured  assets.  We 
 seek  comment  on  whether  the  grant  by  a  licensee  of  a  contingent  interest  in  a  Commission  authorization  to  RUS    without  the  Commissions  permission  or  review    would  undermine  our  regulatory  authority 
 embodied  in  Sections  301  and  304.  We  also  ask  how  the  existence  of  RUS,  as  a  secured  creditor,  may  affect  the  ability  of  the  licensee  to  seek  financing  from  other  sources  in  this  situation?  In  sum,  we  seek 
 comment  on  what,  if  any,  difference  from  the  perspective  of  RUS,  a  third-  party  lender,  or  the  licensee,  would  there  be  on  a  relaxation  of  the  current  security  interest  policies  in  the  circumstances  described 
 above. 
 89.  Finally,  we  seek  comment  on  one  other  concern  that  had  been  raised  in  the  past  by  the  Commission  in  connection  with  prior  similar  proposals.  In  particular,  in  the  context  of  broadcast  licenses, 

 the  Commission  expressed  concern  about  the  independence  of  broadcast  stations  and  about  the  ability  of  creditors  to  have  substantial  influence  over  a  borrower  station.  170  We  seek  comment  on  whether  such 
 dangers  exist  in  the  connection  with  RUSs  attainment  of  security  interests  in  non-  broadcasting  wireless  licenses,  especially  as  it  relates  to  preserving  and  protecting  facilities-  based  competition  and  innovation 
 by  and  among  wireless  service  providers. 
 2.  Cellular  Cross-  Interests  in  Rural  Service  Areas 
 90.  We  seek  comment  regarding  whether  our  current  rule  against  cellular  cross-  interests  in  all  RSAs,  171  as  set  forth  in  Section  22.942  of  the  Commissions  rules,  172  remains  in  the  public  interest.  Given 

 170  Broadcast  Capital  Formation  Notice  at    23. 
 171  For  additional  background  regarding  the  adoption  of  RSAs,  see  our  discussion  at  n.  11  and    10-  11,  supra. 
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 the  importance  of  increasing  capital  formation  options  for  licensees,  we  request  comment  on  whether  continued  application  of  the  existing  cellular  cross-  interest  rule  in  all  RSAs  may  be  impeding  financing  to 
 and  investment  in  rural  areas.  We  seek  comment  below  on  a  range  of  options  for  modifying  or  eliminating  the  current  rule  in  a  way  that  balances  the  need  to  safeguard  competition  in  these  markets 
 with  our  efforts  to  remove  unnecessary  regulatory  barriers  to  financing,  constructing,  and  operating  wireless  systems  in  rural  areas.  Further,  as  discussed  below,  we  tentatively  conclude  to  retain  the  current 
 cellular  cross-  interest  rule  in  RSAs  with  three  or  fewer  CMRS  competitors,  and  we  seek  comment  on  removing  the  rule  as  it  applies  to  other  RSAs  and  to  non-  controlling  investments  in  all  RSA  licensees. 

 a.  Background 
 91.  Section  22.942  of  the  Commissions  rules  substantially  limits  the  ability  of  parties  to  have  interests  in  cellular  carriers  on  different  channel  blocks  in  the  same  rural  geographic  area.  173  To  the 

 extent  licensees  on  different  channel  blocks  have  any  degree  of  overlap  between  their  respective  cellular  geographic  service  areas  (CGSAs)  in  an  RSA,  174  Section  22.942  prohibits  any  entity  from  having  a  direct 
 or  indirect  ownership  interest  of  more  than  5  percent  in  one  such  licensee  when  it  has  an  attributable  interest  in  the  other  licensee.  175  An  attributable  interest  is  defined  generally  to  include  an  ownership 
 interest  of  20  percent  or  more  or  any  controlling  interest.  176  An  entity  may  have  a  non-  controlling  and  otherwise  non-  attributable  direct  or  indirect  ownership  interest  of  less  than  20  percent  in  licensees  for 
 different  channel  blocks  in  overlapping  CGSAs  within  an  RSA.  177 
 92.  The  Commission  initiated  a  comprehensive  review  of  the  cellular  cross-  interest  rule  in  January  2001  as  part  of  its  2000  biennial  regulatory  review  of  spectrum  aggregation  limits.  178  In  addition 

 (Continued  from  previous  page)  172 
 47  C.  F.  R.    22.942. 
 173  47  C.  F.  R    22.942.  The  original  cellular  cross-  interest  rule  was  adopted  in  1991.  See  Amendment  of  Part  22 
 of  the  Commissions  Rules  to  Provide  for  the  Filing  and  Processing  of  Applications  for  Unserved  Areas  in  the  Cellular  Service  and  to  Modify  Other  Cellular  Rules,  First  Report  and  Order  and  Memorandum  Opinion  and 

 Order  on  Reconsideration,  6  FCC  Rcd  6185,  6228-  29    103-  06. 
 174  Application  of  the  cellular  cross-  interest  rule  requires  comparison  of  the  CGSAs  of  cellular  licensees  operating 
 on  A  Block  frequencies  in  an  RSA  with  those  of  cellular  licensees  operating  on  B  Block  frequencies  in  the  same  RSA.  Because  cellular  licensees  are  authorized  on  frequencies  in  either  one  or  the  other  of  these  channel  blocks, 

 any  geographic  area  within  an  RSA  will  fall  within  the  CGSAs  of  no  more  than  two  cellular  licensees  (one  on  each  channel  block). 

 175  47  C.  F.  R.    22.942(  a). 
 176  47  C.  F.  R.    22.942(  d)(  1),  (2).  Other  rules  for  determining  attributable  interests  are  set  forth  elsewhere  in 
 Section  22.942(  d).  See  47  C.  F.  R.    22.942(  d)(  3)-(  9). 
 177  47  C.  F.  R.    22.942(  b). 

 178  See  2000  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits  for  Commercial  Mobile  Radio  Services, 
 Notice  of  Proposed  Rulemaking,  16  FCC  Rcd  2763  (2001)  (Spectrum  Cap  Sunset  NPRM).  Staff  had  recommended  that  the  Commission  consider  cellular  cross-  ownership  issues  as  part  of  the  2000  biennial 

 regulatory  review  proceeding  reviewing  the  need  for  the  CMRS  spectrum  cap,  47  C.  F.  R.    20.6.  See  Federal  Communications  Commission  Biennial  Regulatory  Review  2000,  CC  Docket  No.  00-  175,  Updated  Staff  Report, 
 app.  IV  at  34,  69  (rel.  Jan.  17,  2001). 
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 to  considering  to  what  extent  there  was  then  meaningful  economic  competition  in  CMRS  markets,  179  the  Commission  sought  comment  on  whether  spectrum  management  and  other  regulatory  considerations 
 justified  retaining,  modifying,  or  eliminating  prophylactic  spectrum  aggregation  limits.  180  In  December  2001,  pursuant  to  Section  11  of  the  Communications  Act,  181  the  Commission  released  its  Spectrum  Cap 
 Sunset  Order  182  and,  on  the  basis  of  the  state  of  competition  in  CMRS  markets,  sunset  the  CMRS  spectrum  cap  rule  in  all  markets  effective  January  1,  2003.  183  In  that  order,  the  Commission  also 
 determined  that  cellular  carriers  in  urban  areas  no  longer  enjoyed  first-  mover,  competitive  advantages,  and  it  therefore  eliminated  the  cellular  cross-  interest  rule  in  MSAs  on  that  basis,  also  pursuant  to  Section 
 11  of  the  Act.  184  While  the  Commission  left  the  cross-  interest  rule  in  place  in  RSAs,  it  indicated  that  it  would  consider  waiver  requests  and  reassess  the  need  for  the  rule  at  a  future  date.  185 

 93.  In  March  2002,  186  the  Commission  sought  comment  on  petitions  filed  by  Dobson  Communications  Corporation,  Western  Wireless  Corporation,  and  Rural  Cellular  Corporation 
 (Dobson/  Western/  RCC)  and  Cingular  Wireless  LLC  (Cingular)  seeking  reconsideration  of  the  decision  in  the  Spectrum  Cap  Sunset  Order  to  retain  the  cellular  cross-  interest  rule  in  RSAs.  187  Petitioners  and 
 commenting  parties  focused  on  the  sufficiency  of  the  competitive  market  analysis  underlying  the  decision  to  retain  the  cellular  cross-  interest  rule  in  RSAs,  as  well  as  the  consequences  of  relying  on  case-  by-  case 
 review  to  examine  cellular  competition  in  rural  areas.  188  Parties  also  asserted  that  the  waiver  process 

 179  See  Spectrum  Cap  Sunset  NPRM  at  2771-  77    13-  25. 
 180  For  example,  the  Commission  sought  comment  on  any  costs  that  prophylactic  limits  may  impose  on  the 
 development  of  advanced  wireless  services,  the  costs  and  benefits  of  bright-  line  standards,  and  whether  such  limits  promote  efficiency.  See  id.  at  2777-  83    26-  39. 

 181  Section  11  of  the  Communications  Act  requires  the  Commission,  every  two  years,  to  review  all  regulations  that 
 apply  to  the  operations  or  activities  of  any  provider  of  telecommunications  service  and  to  determine  whether  any  such  regulation  is  no  longer  necessary  in  the  public  interest  as  the  result  of  meaningful  economic  competition 

 between  providers  of  such  service.  47  U.  S.  C.    161(  a)(  1),  (2). 
 182  See  2000  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits  For  Commercial  Mobile  Radio  Services, 
 Report  and  Order,  16  FCC  Rcd  22668  (2001)  (Spectrum  Cap  Sunset  Order). 
 183  Id.  at  22669    1. 

 184  Id. 
 185  Id.  at  27708    88. 
 186  See  Petitions  for  Reconsideration  of  Action  in  Rulemaking  Proceeding,  Public  Notice,  Report  No.  2540 
 (Mar.  15,  2002). 
 187  Petition  for  Reconsideration  filed  by  Cingular,  WT  Docket  No.  01-  14  (Feb.  13,  2002)  (Cingular  Petition); 
 Petition  for  Reconsideration  filed  by  Dobson/  Western/  RCC,  WT  Docket  No.  01-  14  (Feb.  13,  2002)  (Dobson/  Western/  RCC  Petition). 

 188  See  generally  id.  Sprint  PCS  L.  P.  d/  b/  a  Sprint  PCS  (Sprint  PCS)  filed  comments  opposing  the  petitions.  See 
 generally  Sprint  PCS  Opposition  filed  by  Sprint  PCS,  WT  Docket  No.  01-  14  (Apr.  5,  2002)  (Sprint  PCS  Opposition).  The  Cellular  Telecommunications  &  Internet  Association  (CTIA)  and  Verizon  Wireless  filed 

 comments  supporting  the  petitions.  See  generally  Comments  of  the  Cellular  Telecommunications  &  Internet  Association  in  Support  of  Petitions  Seeking  Reconsideration  filed  by  CTIA,  WT  Docket  No.  01-  14  (Apr.  5,  2002) 

 (continued.) 
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 established  in  the  Spectrum  Cap  Sunset  Order  creates  regulatory  uncertainty  and  discourages  potential  transactions  and  financing  that  could  benefit  rural  consumers.  189  These  petitions  remain  pending  and  are 
 being  consolidated  into  the  instant  rulemaking.  190 
 94.  In  its  December  2002  Rural  NOI,  the  Commission  sought  comment  on  the  cellular  cross-interest  rule  as  it  reviewed  its  policies  to  encourage  the  provision  of  wireless  services  in  rural  areas.  The 

 Commission  explained  that  its  retention  in  2001  of  the  cellular  cross-  interest  rule  in  RSAs  was  designed  to  protect  against  the  cellular  incumbents  developing  cross  interests  that  might  create  the  incentive  and 
 ability  to  restrict  the  availability  of  spectrum-  based  services  in  those  areas  and  thereby  raise  prices.  191  It  then  solicited  comment  on  the  extent  to  which  retention  of  the  rule  actually  advances  the  provision  of 
 such  services  to  rural  areas,  192  including  whether  the  rule  should  be  changed  to  further  the  provision  of  wireless  services  to  rural  areas.  193  The  Commission  received  comments  supporting  either  modification  or 
 elimination  of  the  rule  so  as  to  facilitate  investment  and  financing  arrangements  for  rural  cellular  providers.  194 

 b.  Discussion 
 95.  Adequate  financing  is  a  vital  precondition  for  the  development  of  wireless  infrastructure  and  offering  of  services  in  both  urban  and  rural  CMRS  systems.  We  seek  comment  on  whether  the 

 continued  application  of  the  cellular  cross-  interest  rule  in  all  RSAs  may  impede  market  forces  that  drive  investment  and  economic  development  in  rural  areas.  The  recent  downturn  in  telecommunications 
 markets,  worsening  financial  condition  of  many  carriers,  and  the  ongoing  need  for  capital  investment  to 

 (Continued  from  previous  page) 
 (CTIA  Comments);  Reply  Comments  on  Petitions  for  Reconsideration  filed  by  Verizon  Wireless,  WT  Docket  No.  01-  14  (Apr.  15,  2002)  (Verizon  Wireless  Reply  Comments). 

 189  Cingular  Petition  at  5;  Dobson/  Western/  RCC  Petition  at  8-  10;  see  also  Reply  to  Opposition  to  Petition  for 
 Reconsideration  filed  by  Cingular,  WT  Docket  No.  01-  14,  6-  7  (Apr.  18,  2002)  (Cingular  Reply  to  Opposition);  Reply  to  Sprint  PCS  Opposition  filed  by  Dobson/  Western/  RCC,  WT  Docket  No.  01-  14,  4  (Apr.  18,  2002) 

 (Dobson/  Western/  RCC  Reply  to  Opposition);  CTIA  Comments  at  4. 
 190  In  addition  to  incorporating  submissions  from  these  parties  into  the  instant  proceeding,  pursuant  to  the 
 recommendation  of  staff,  see  Federal  Communications  Commission  2002  Biennial  Regulatory  Review,  WT  Docket  No.  02-  310,  GC  Docket  No.  02-  390,  Staff  Report  of  the  Wireless  Telecommunications  Bureau,  DA  03- 

 129,  app.  IV  at  56  (rel.  Mar.  14,  2003),  we  also  incorporate  the  comments  of  parties  seeking  elimination  of  the  cellular  cross-  interest  rule  in  the  context  of  our  2002  biennial  regulatory  review.  See  generally  2002  Biennial 
 Regulatory  Review,  Report,  18  FCC  Rcd  4726  (2003). 
 191  See  Rural  NOI,  17  FCC  Rcd  at  25561,    10. 

 192  See  id.  at  25568,    24. 
 193  Id. 
 194  See  United  States  Cellular  Corporation  Comments  at  12-  16  (supporting  an  increase  in  the  permissible 
 controlling  interest  threshold  from  5  to  20  percent  and  adoption  of  a  waiver  criteria  similar  to  that  found  in  former  Section  20.6,  note  3  of  the  Commissions  rules);  Dobson  Communications  Corporation  Comments  at  8-  9 

 (  Complete  repeal  of  the  cellular  cross-  interest  rule  will  help  rural  carriers  attract  capital  and  promote  the  deployment  of  wireless  services  in  rural  areas.). 
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 keep  up  with  technological  and  regulatory  changes,  has  made  it  more  difficult  for  wireless  carriers,  especially  those  serving  rural  areas,  to  obtain  financing.  In  light  of  the  foregoing,  we  seek  comment 
 regarding  whether  we  should  modify  the  cellular  cross-  interest  rule  to  promote  investment  while  protecting  against  potential  competitive  harms.  Specifically,  we  tentatively  conclude  to  retain  the  cellular 
 cross-  interest  rule  as  it  applies  only  in  RSAs  with  three  or  fewer  CMRS  competitors  and  we  seek  comment  on  removing  the  rule  as  it  applies  to  other  RSAs  and  to  non-  controlling  investments  in  all  RSA 
 licensees. 
 96.  In  the  Spectrum  Cap  Sunset  Order,  the  Commission  concluded  that  it  would  be  more  efficient  and  less  costly  to  the  Commission  to  maintain  a  prophylactic  cross-  interest  rule  applicable  to  all 

 RSAs  and  to  entertain  waiver  requests  for  the  small  subset  of  transactions  in  RSAs  where  competition  was  more  robust.  195  As  a  consequence  of  that  decision,  cellular  licensees  in  MSAs  are  free  to  procure 
 financing  that  involves  ownership  interests  that  fall  below  the  threshold  that  triggers  the  cross-  interest  rule,  196  while  cellular  licensees  in  all  RSAs  are  not.  While  the  Commission  attempted  to  address  this 
 barrier  to  investment  in  rural  areas  by  providing  a  specific  waiver  process,  197  the  transactions  costs  and  regulatory  uncertainty  surrounding  any  waiver  procedure  may  deter  some  beneficial  investment  in  these 
 areas.  198  For  example,  Dobson/  Western/  RCC  claim  that  the  cross-  interest  rule  interferes  with  investment  in  rural  areas  by  presumptively  prohibiting  certain  financing  in  the  RSA  portions  of  a  regional  market  but 
 not  in  the  MSA  portions.  199 
 97.  We  seek  comment  on  whether  changing  the  cellular  cross-  interest  rule  for  RSAs  that  enjoy  a  greater  degree  of  competition  will  spur  needed  investment  in  these  rural  areas  and  foster  even 

 more  competition  in  others.  As  an  initial  matter,  we  seek  comment  regarding  what  constitutes  a  competitor  for  purposes  of  this  rule.  For  example,  we  ask  whether  a  competitor  might  be  any  CMRS 
 provider  with  significant  geographic  overlap  with  the  cellular  licensee.  200  We  also  seek  comment  regarding  whether,  in  the  event  we  do  eliminate  the  cellular  cross-  interest  rule  for  RSAs  with  greater  than 
 three  competitors,  we  should  adopt  a  transition  period  after  which  time  the  rule  would  sunset  for  these  RSAs.  In  the  event  that  commenters  support  such  a  sunset  period,  we  seek  comment  regarding  the 
 appropriate  length  of  the  sunset  period. 
 98.  We  also  ask  commenters  for  additional  suggestions  regarding  how  we  may  modify  our  cellular  cross-  interest  rule  to  promote  investment  in  rural  areas  while  retaining  adequate  competitive 

 195  See  Spectrum  Cap  Sunset  Order  at  22696    56. 
 196  47  U.  S.  C.    310(  d). 
 197  See  Spectrum  Cap  Sunset  Order  at  22709    90. 
 198  Earlier  this  year,  the  Wireless  Telecommunications  Bureau  (Bureau)  did  grant  a  request  for  waiver  of  the 
 cellular  cross-  interest  rule  to  allow  CenturyTel  Wireless,  Inc.  to  acquire  a  14  percent  non-  controlling  limited  partnership  interest  in  Lafayette  MSA  LP.  See  CenturyTel  Wireless,  Inc.  and  Century  Tel,  Inc.,  Memorandum 

 Opinion  and  Order,  18  FCC  Rcd  1260  (WTB  2003).  The  Bureau  found  that  the  cellular  cross-  interests  in  the  RSA  overlap  area  did  not  involve  a  substantial  likelihood  of  significant  competitive  harm,  because  the  local 
 market  was  generally  competitive  with  six  providers  offering  service  at  similar  prices.  Id.  at  1266    19. 
 199  See  Dobson/  Western/  RCC  Petition  at  7-  10;  see  also  CTIA  Comments  at  4. 

 200  We  have  used  significant  overlap  in  the  context  of  applying  the  CMRS  spectrum  cap  rule  and  ask  whether  a 
 similar  concept  could  be  used  in  the  context  of  the  cellular  cross-  interest  rule.  See  47  C.  F.  R.    20.6(  c). 
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 safeguards.  For  example,  should  we  eliminate  the  cellular  cross-  interest  restriction  for  all  RSAs  where  the  ownership  interest  being  transferred,  assigned  or  acquired  is  not  a  controlling  interest  (i.  e.,  where  the 
 interest  is  a  non-  controlling  interest  and  where  the  transaction  otherwise  would  not  require  prior  FCC  approval)?  We  ask  parties  to  focus  their  comments  on  the  effect  of  the  cross-  interest  rule  on  licensees 
 acquisition  of  adequate  capital  in  these  areas.  Commenters  should  also  consider  whether  financing  arrangements  and  investment  deals  are  being  hindered  because  of  the  transaction  costs  or  the  uncertainty 
 of  the  existing  waiver  process.  Because  we  received  little  empirical  evidence  on  these  questions  and  issues  in  response  to  our  Rural  NOI  and  our  public  notice  seeking  comment  on  the  petitions  for 
 reconsideration  of  the  Spectrum  Cap  Sunset  Order,  we  stress  that  commenters  supporting  our  proposal  should  identify  and  discuss  specific  past  instances  in  which  they  have  had  difficulty  obtaining  financing 
 in  rural  areas  due  to  the  cellular  cross-  interest  rule.  In  answering  these  questions,  we  also  request  parties  to  provide  examples  of  the  extent  to  which  the  waiver  process  has  deterred  or  prevented  acquisition  of 
 capital  in  a  rural  market(  s).  Thus,  we  seek  specific  market  data  and  historical  examples  to  assist  our  public  interest  determination  of  the  extent  to  which  application  of  the  cellular  cross-  interest  rule  in  RSAs 
 impedes  market  forces  that  drive  development  in  these  rural  and  underserved  areas. 
 99.  We  also  seek  comment  on  whether  extension  of  the  case-  by-  case  review,  as  established  in  the  Spectrum  Cap  Sunset  Order,  will  promote  investment  and  is  sufficient  to  safeguard  competition  in 

 RSAs  with  more  than  three  competitors.  Although  we  recognize  the  role  that  the  cellular  cross-  interest  rule  has  provided  in  the  past  against  the  possibility  of  significant  additional  consolidation  of  cellular 
 providers  in  rural  areas,  we  ask  whether  the  public  interest  may  be  better  served  by  the  benefits  of  pure  case-  by-  case  review.  In  the  Spectrum  Cap  Sunset  Order,  the  Commission  concluded  that  case-  by-  case 
 review  under  Section  310(  d)  of  the  Act,  201  properly  performed  and  with  appropriate  enforcement  mechanisms,  allows  greater  regulatory  flexibility  and  greater  attention  to  the  actual  circumstances  of  a 
 particular  transaction,  thus  promoting  economic  efficiency  by  reducing  the  possibility  both  of  approving  secondary  market  transactions  that  are  not  in  the  public  interest  and  of  impeding  transactions  that  are 
 actually  in  the  public  interest.  202  In  the  markets  still  covered  by  the  cellular  cross-  interest  rule,  for  example,  the  rule  prevents  the  two  cellular  licensees  from  merging  regardless  of  the  competitive 
 circumstances  in  a  given  market,  but  does  not  prevent  one  cellular  licensee  from  merging  with  a  PCS  licensee,  even  though  the  competitive  effect  of  both  transactions  might  be  very  similar.  We  seek 
 comment  on  whether  this  inequity  may  distort  the  market  in  any  area  in  which  more  than  just  the  two  cellular  licensees  are  operating  and  whether  the  better  approach  to  safeguarding  competition  is  to  take 
 account  of  the  particular  circumstances  of  each  market  through  case-  by-  case  competitive  review.  While  case-  by-  case  review  does  place  greater  resource  demands  on  parties  and  the  Commission,  we  are  gaining 
 significant  experience  performing  case-  by-  case  review  with  regard  to  other  markets,  and  we  believe  that  we  can  utilize  this  tool  to  promote  competition  and  investment. 

 G.  Infrastructure  Sharing 
 1.  Background 
 100.  Both  in  the  United  States  (U.  S.)  and  the  European  Union  (EU),  commercial  wireless  providers  have  sought  to  minimize  their  capital  expenditures  and  maximize  their  coverage  by  engaging  in 

 joint  ventures  with  other  providers  to  share  infrastructure  costs.  Such  arrangements  are  generally  known 

 201  47  U.  S.  C.    310(  d). 
 202  See  Spectrum  Cap  Sunset  Order,  16  FCC  Rcd  at  22670,  22693-  94,  22695-  96,  22695-  96    4,  49-  50,  54. 
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 as  infrastructure  sharing,  and  they  can  take  place  at  various  levels.  At  the  most  basic  level  is  sharing  of  passive  elements  such  as  antennas  and  towers,  followed  by  sharing  of  active  or  intelligent  elements  of 
 the  networks  such  as  switches  and  nodes,  followed  by  sharing  of  spectrum. 
 101.  In  the  United  States,  several  infrastructure  sharing  arrangements  have  been  announced  in  the  past  two  years.  In  October  2001,  Cingular  Wireless  and  T-  Mobile  announced  a  joint  venture  to  share 

 their  existing  networks,  with  T-  Mobile  launching  service  using  Cingulars  infrastructure  in  California  and  Nevada,  and  Cingular  launching  service  using  T-  Mobiles  infrastructure  in  New  York.  203  In  January 
 2002,  Cingular  and  AT&  T  Wireless  announced  an  infrastructure  sharing  agreement  in  which  these  firms  would  cooperate  to  build  a  network  over  3,000  miles  of  highways  in  the  West  and  Midwest.  204  Recently, 
 in  January  2003,  AT&  T  Wireless  and  Sprint  PCS  announced  a  similar  arrangement  to  share  the  costs  of  building  and  maintaining  new  wireless  towers.  205  The  providers  claim  that  such  infrastructure  sharing 
 will  allow  them  to  cover  a  larger  geographic  area  at  lower  cost.  206  In  addition,  because  two  or  more  providers  share  the  infrastructure,  these  arrangements  may  allow  for  more  providers  to  serve  a  market 
 than  otherwise  would  be  possible.  Finally,  to  the  extent  that  these  arrangements  make  it  possible  for  providers  to  cover  a  larger  geographic  area,  and  thus  serve  a  greater  number  of  consumers,  they  may 
 provide  an  important  public  interest  benefit. 
 102.  Infrastructure  sharing  arrangements  that  do  not  involve  a  transfer  of  control,  as  defined  under  Section  310(  d),  207  do  not  require  Commission  review.  Infrastructure  sharing  arrangements  that  do 

 involve  a  transfer  of  control,  like  other  arrangements,  require  Commission  review.  Also,  while  previous  infrastructure  sharing  arrangements  have  not  required  Commission  review,  the  Commission  has  taken  no 
 regulatory  action  to  either  promote  or  create  incentives  for  parties  to  enter  into  such  arrangements. 
 103.  As  compared  to  the  U.  S.  market,  infrastructure  sharing  has  received  more  attention  from  regulators  in  the  EU  and  its  Member  States,  who  tend  to  allow  sharing  of  the  passive  elements  and,  to  a 

 certain  extent,  some  of  the  active  elements.  208  Within  the  past  year,  the  European  Commission  announced  a  preliminary  conclusion  to  favorably  view  two  agreements  for  the  provision  of  3G  services,  one  in  the 
 United  Kingdom  and  one  in  Germany.  209  The  European  Commission  noted  that  these  arrangements  should  allow  for  faster  rollout  of  service  and  greater  coverage,  especially  in  remote  and  rural  areas.  210 

 203  See  Seventh  Competition  Report  at  13001. 
 204  Id. 
 205  See  Eighth  Competition  Report  at  14809    46. 
 206  Id. 
 207  47  U.  S.  C.    310(  d). 
 208  A  summary  of  EU  Member  States  policies  on  infrastructure  sharing  is  available  at  the  European 
 Commissions  website,  at  <http://  europa.  eu.  int/  information_  society/  topics/  telecoms/  radiospec/  doc/  word/  nis_  moods_  20020823.  doc>. 

 209  Commission  intends  to  clear  3G  network  sharing  agreements  between  T-  Mobile  and  MM02  in  the  UK  and 
 Germany,  press  release,  European  Commission,  Brussels,  September  10,  2002,  IP/  02/  1277. 
 210  Id.  See  also,  Commission  approves  third-  generation  mobile  network  sharing  in  the  UK,  Europemedia.  net, 
 January  5,  2003,  available  at  <http://  www.  europemedia.  net/  shownews.  asp?  ArticleID=  16138&  Print=  true>. 
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 2.  Discussion 
 104.  As  noted  in  the  Introduction,  because  of  the  lower  population  density  and  smaller  customer  base  found  in  rural  areas,  the  economically  efficient  number  of  providers  for  these  markets  will 

 be  fewer  than  that  for  urban  markets.  With  fewer  customers  over  which  to  spread  their  costs,  there  will  be  fewer  providers.  Because  infrastructure  sharing  helps  lower  capital  costs  and  thus  extend  the  coverage 
 of  providers,  this  practice  may  be  particularly  important  in  rural  areas,  for  which  geographic  coverage  is  especially  important.  In  addition,  because  infrastructure  sharing  may  make  it  possible  for  more  providers 
 to  operate  in  a  given  area,  this  practice  again  is  important  for  rural  markets  that  tend  to  have  fewer  competitors. 

 105.  We  continue  to  believe  that,  under  certain  circumstances,  licensees  should  be  able  to  engage  in  infrastructure  sharing  in  order  to  further  promote  service  in  these  markets.  Thus,  for 
 infrastructure  sharing  in  rural  areas  that  involve  no  transfer  of  control,  as  defined  by  Section  310(  d),  211  there  are  no  requirements  for  Commission  pre-  clearance.  For  infrastructure  sharing  arrangements  in  rural 
 areas  that  involve  a  transfer  of  control,  we  will  maintain  Section  310(  d)  review.  212  We  note  that  in  the  Secondary  Markets  proceeding  we  have  significantly  streamlined  the  transfer  of  control  and  assignment 
 process,  213  and  we  inquire  as  to  whether  there  are  other  steps  we  should  consider  to  further  streamline  this  process. 

 106.  We  seek  comment  on  the  extent  to  which  infrastructure  sharing  may  promote  service  in  rural  markets.  Are  there  particular  types  of  infrastructure  sharing  arrangements  that  may  be  most 
 effective  in  promoting  this  goal?  Are  there  specific  policy  steps  we  should  take  as  a  regulatory  matter  to  promote  infrastructure  sharing  arrangements  that,  in  turn,  promote  service  in  rural  areas?  We  encourage 
 comments  from  providers  involved  in  infrastructure  sharing  in  the  U.  S.  and  EU  as  well  as  those  familiar  with  such  arrangements. 

 107.  We  also  seek  comment  on  the  potential  costs  and  benefits  of  this  proposed  policy.  With  regard  to  the  potential  benefits,  we  note  that  comments  by  European  Commission  regulators  in  support  of 
 such  arrangements  in  the  E.  U.  generally  focus  on  the  ability  of  carriers  to  lower  costs  and  increase  their  coverage  area,  especially  to  rural  markets.  214  Can  we  assume  similar  benefits  for  rural  areas  in  the  U.  S.? 
 We  recognize  that  the  Commission  has  stressed  the  value  of  facilities-  based  competition,  and  that  infrastructure  sharing  by  definition  limits  competition  between  two  potential  competitors.  215  We  note 
 that,  with  the  recent  infrastructure  sharing  arrangement  in  the  United  Kingdom,  an  EU  Competition  Commissioner  remarked  that  their  decision  to  allow  the  venture  strikes  the  right  balance  between 
 infrastructure  competition  in  3G  markets  and  the  immediate  consumer  benefit  of  having  faster  and  wider 

 211  47  U.  S.  C.    310(  d). 
 212  Id. 
 213  See  Secondary  Markets  News  Release. 
 214  Commission  approves  third-  generation  mobile  network  sharing  in  the  UK,  Europemedia.  net,  January  5, 
 2003,  available  at  <http://  www.  europemedia.  net/  shownews.  asp?  ArticleID=  16138&  Print=  true>. 
 215  The  Commission  has  discussed  the  value  of  facilities-  based  competition  in  various  proceedings.  See,  e.  g., 
 Eighth  Competition  Report  at  14786-  91    3-  8;  Spectrum  Cap  Sunset  Order  at  22679-  85    27-  34. 
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 rollout  of  advanced  3G  services.  216  We  seek  comment  on  the  factors  we  should  consider  in  evaluating  infrastructure  sharing  arrangements  that  require  Section  310  approval  so  as  to  effectively  balance 
 promoting  competition  among  providers  and  promoting  expanded  coverage  in  rural  areas. 
 108.  In  addition,  we  recognize  that,  as  in  the  case  of  secondary  market  spectrum  leasing,  infrastructure  sharing  may  require  reconsideration  of  our  regulatory  definitions  of  spectrum  use.  As 

 described  above,  we  propose  that  licensees  that  make  their  spectrum  in  rural  areas  available  to  other  parties  via  secondary  markets  are,  in  a  sense,  using  that  spectrum.  Should  we  similarly  consider  spectrum 
 involved  in  infrastructure  sharing  arrangements  to  be  used  and  thus  not  subject  to  re-  licensing  or  any  other  mechanism  to  make  the  spectrum  available  to  third  parties? 

 H.  Rural  Radiotelephone  Service  and  Basic  Exchange  Telecommunications  Radio  Service 
 1.  Background 
 109.  The  Rural  Radiotelephone  Service  (RRS)  was  established  to  permit  the  use  of  certain  VHF  and  UHF  spectrum  to  provide  radio  telecommunications  services,  in  particular,  basic  telephone 

 service,  to  subscribers  in  locations  generally  deemed  so  remote  that  traditional  wireline  service  or  service  by  other  means  is  not  feasible.  217  The  RRS  operates  in  the  paired  152/  158  MHz  and  454/  459  MHz  bands, 
 which  are  also  used  by  paging  services.  218  In  1987,  the  Commission  adopted  rules  that  authorized  the  establishment  of  the  Basic  Exchange  Telecommunications  Radio  Service  (BETRS)  within  the  RRS.  219 
 BETRS  is  authorized  in  the  same  paired  spectrum  bands  as  RRS  and  in  addition,  on  fifty  channel  pairs  in  the  816-  820/  861-  865  MHz  band.  220  BETRS,  which  is  essentially  a  type  of  technology  used  to  provide 
 RRS,  utilizes  a  digital  system  that  is  more  spectrally  efficient  than  traditional  analog  RRS,  provides  private  calling,  and  has  a  much  lower  call  blocking  rate  than  RRS.  Only  local  exchange  carriers  that  have 
 been  state  certified  to  provide  basic  exchange  telephone  service  (or  others  having  state  approval  to  provide  such  service)  in  the  pertinent  area  are  eligible  to  hold  authorizations  for  BETRS.  221 

 110.  The  BETRS  R&  O  provided  that  traditional  RRS  and  BETRS  would  be  co-  primary  with 
 216  Commission  approves  third-  generation  mobile  network  sharing  in  the  UK,  Europemedia.  net,  January  5, 
 2003,  available  at  http://  www.  europemedia.  net/  shownews.  asp?  ArticleID=  16138&  Print=  true,  quoting  EU  Competition  Commissioner  Marlo  Monti. 

 217  47  C.  F.  R.    22.99. 
 218  These  spectrum  bands  are  allocated  on  a  primary  basis  to  the  Paging  and  Radiotelephone  Service.  See  47 
 C.  F.  R.    22.561. 
 219  See  Basic  Exchange  Telecommunications  Radio  Service,  Report  and  Order,  3  FCC  Rcd  214  (1988)  (BETRS 
 R&  O). 
 220  The  Commission  recently  proposed  to  eliminate  the  assignment  of  800  MHz  frequencies  for  BETRS.  See 
 Amendment  of  Part  22  of  the  Commissions  Rules  To  Benefit  the  Consumers  of  Air-  ground  Telecommunications  Services  and  Biennial  Regulatory  Review    Amendment  of  Parts  1,  22,  and  90  of  the  Commissions  Rules,  Notice 

 of  Proposed  Rule  Making,  18  FCC  Rcd  8380,  8408    71  (2003).  This  spectrum  band  is  allocated  on  a  primary  basis  to  the  Specialized  Mobile  Radio  (SMR)  service.  See  47  C.  F.  R.    90.617(  d). 

 221  47  C.  F.  R.    22.702. 
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 other  services  that  were  authorized  to  use  the  same  spectrum.  Prior  to  the  establishment  of  BETRS,  RRS  was  licensed  on  a  secondary,  non-  interfering  basis.  In  1997,  the  Commission  established  rules  to  auction 
 the  152/  158  MHz  and  454/  459  MHz  bands  and  issue  paging  licenses  on  a  geographic  basis.  222  As  a  result,  existing  RRS  and  BETRS  licensees  authorized  for  these  spectrum  bands  were  afforded  protection 
 as  incumbent  licensees  and  could  continue  operating  on  a  primary  basis.  However,  we  indicated  that  subsequent  RRS  and  BETRS  licenses  in  these  bands  would  be  issued  on  a  secondary  basis  to  the 
 geographic  area  licensee.  Similarly,  in  1997,  the  Commission  established  rules  to  auction  the  816-  820/  861-  865  MHz  bands  and  issue  SMR  licenses  on  a  geographic  basis.  223  As  a  result,  existing  BETRS 
 licensees  authorized  in  the  800  MHz  band  were  afforded  protection  as  incumbent  licensees  and  could  continue  operating  on  a  primary  basis.  Again,  we  indicated  subsequent  BETRS  licenses  in  these  bands 
 would  be  issued  on  a  secondary  basis  to  the  geographic  area  licensee.  224  Today  new  RRS  and  BETRS  licenses  are  issued  on  a  secondary,  non-  interfering  basis. 

 2.  Discussion 
 111.  Although  RRS  and  BETRS  have  been  available  for  some  time  to  provide  basic  telecommunications  services  in  rural  areas  where  wireline  service  is  not  feasible  or  practical,  we  have 

 very  limited  information  about  their  effectiveness  in  addressing  the  telecommunications  needs  of  rural  consumers.  We  seek  to  establish  a  more  complete  record  regarding  these  services  in  order  to  allow  us  to 
 determine  if  certain  rules  and  policy  changes  are  needed  to  facilitate  the  use  of  RRS  and  BETRS.  As  discussed  below,  we  seek  comment  on  whether:  (1)  there  is  a  current  demand  for  RRS  and  BETRS; 
 (2)  other  wireless  services  have  supplanted  RRS  and  BETRS  as  alternatives  to  wireline  service;  (3)  access  to  spectrum  is  a  limiting  factor  for  RRS  and  BETRS  and  (4)  current  Commission  rules  and  polices  are 
 prohibiting/  limiting  the  effectiveness  of  RRS  and  BETRS  to  provide  service  in  rural  areas. 
 112.  As  an  initial  matter,  we  would  like  to  determine  the  level  of  demand  for  RRS  and  BETRS.  We  reviewed  licensing  data,  locations  where  basic  exchange  service  does  not  appear  to  be 

 available,  and  the  availability  of  equipment  for  RRS  and  BETRS.  Our  records  indicate  there  are  RRS  licenses  covering  a  total  of  520  locations  and  BETRS  licenses  covering  a  total  of  71  locations.  A 
 majority  of  the  locations  are  located  in  the  western  portions  of  the  U.  S.  and  in  Alaska.  In  the  last  three  years,  only  seven  RSS  licenses  and  three  BETRS  licenses  were  issued.  225  It  appears,  on  the  surface, 
 certain  areas  that  do  not  have  basic  telephone  service  might  benefit  from  RRS  or  BETRS.  For  example,  we  note  that  no  RUS  or  BETRS  facilities  are  licensed  in  Mississippi,  which  according  to  2000  Census 
 data,  has  the  lowest  household  telephone  penetration  rate  in  the  U.  S.  226  In  addition  to  the  relatively  low 
 222  See  Revision  of  Part  22  and  Part  90  of  the  Commissions  Rules  To  Facilitate  Future  Development  of  Paging 
 Systems  -  Implementation  of  Section  309(  j)  of  the  Communications  Act  -  Competitive  Bidding,  Second  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  12  FCC  Rcd  2732  (1997)  (Paging  Second  R&  O). 

 223  See  Part  90  of  the  Commissions  Rules  To  Facilitate  Future  Deployment  of  SMR  Systems  in  the  800  MHz 
 Frequency  Band,  Second  Report  and  Order,  12  FCC  Rcd  19079  (1997). 
 224  There  is  only  one  800  MHz  BETRS  license  and  the  licensee  received  a  waiver  to  provide  service  other  than 
 BETRS. 
 225  Two  of  the  BETRS  licenses  were  authorized  with  rule  waivers  that  allow  the  licensee  to  provide  services  other 
 than  BETRS. 
 226  U.  S.  Census  Bureau,  American  Fact  Finder,  Census  2000  Summary  File  3  (SF  3)    Sample  Data  (GCT-  H8. 
 Occupancy,  Equipment,  and  Utilization  of  Occupied  Housing  Units),  <http://  factfinder.  census.  gov/>. 
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 number  of  licenses  issued  for  these  services,  we  cannot  find  evidence  that  800  MHz  BETRS  equipment  has  ever  been  manufactured  and  made  available  in  the  U.  S.  Furthermore,  we  only  found  one  company 
 that  claimed  it  provided  new  RRS  and  BETRS  equipment.  227  We  are  very  interested  in  determining  if  RRS  and  BETRS  are  being  fully  used  as  a  tool  to  provide  basic  telecommunications  services  to  rural 
 America.  We  seek  comment  on  whether  there  is  still  a  demand  for  RRS  and  BETRS,  beyond  what  is  currently  offered,  and  whether  RRS  and  BETRS  are  viable  options  in  the  provision  of  basic 
 telecommunications  services.  If  there  is  a  demand  for  these  services,  are  there  ways  that  RRS  and  BETRS  could  be  used  more  efficiently  and/  or  effectively? 

 113.  If  there  is  a  demand  for  basic  communications  services,  other  than  wireline,  and  it  is  not  being  met  using  traditional  RRS  and  BETRS  spectrum,  we  are  interested  in  exploring  how  the  demand  is 
 being  met.  The  Commission  has  embraced  policies  that  provide  many  wireless  licensees  with  added  flexibility  in  providing  various  types  of  services  (i.  e.,  fixed  or  mobile/  voice  or  data).  For  example, 
 licensees  in  the  broadband  PCS  service  may  provide  any  mobile  services  on  their  assigned  spectrum  and  in  addition,  may  provide  fixed  services  on  a  co-  primary  basis  with  mobile  operations.  228  In  turn,  the 
 added  flexibility  gives  licensees  the  ability  to  provide  a  range  of  services  using  spectrum  that  was  previously  allocated,  for  example,  for  only  mobile  wireless  use  or  only  fixed  wireless  use.  It  is  now 
 possible  that  services  (i.  e.,  basic  exchange  service)  previously  offered  only  by  RRS  and  BETRS  licensees  could  be  offered  by  licensees  in  other  wireless  services,  using  other  spectrum  bands.  Furthermore,  it  is 
 possible  with  the  proliferation  of  mobile  telephony  throughout  the  country,  individuals  that  in  the  past  would  have  been  a  prime  candidate  to  receive  RRS  or  BETRS  may  now  have  access  to  a  mobile 
 telephone  that  is  the  sole  telephone  used  within  a  household.  We  are  not  able  to  determine  how  many  licensees  are  providing  basic  exchange  service  to  rural  areas  using  alternative  spectrum  or  how  many 
 licensees  are  providing  services  (i.  e.,  mobile  telephony)  and  therefore  could  negate  the  need  for  RRS  or  BETRS  in  particular  areas.  We  therefore  seek  comment  on  the  effectiveness  of  non-  RRS  and  BETRS 
 licensees  in  providing  the  same  services  or  alternative  services  in  lieu  of  RRS  and  BETRS.  Furthermore,  we  seek  comment  on  whether  additional  flexibility  is  necessary  in  order  to  fully  exploit  capabilities  of 
 licensees  in  this  context?  In  addition,  we  seek  comment  regarding  to  what,  if  any,  extent  unlicensed  spectrum  is  being  used  to  provide  services  that  have  traditionally  been  provided  by  RRS  and  BETRS 
 licensees. 
 114.  In  some  instances,  there  may  be  a  demand  for  a  service;  however,  access  to  the  spectrum  needed  to  provide  such  services  may  not  be  readily  available.  We  noted  in  the  Secondary  Markets 

 proceeding  that  facilitating  spectrum  leasing  arrangements  permits  additional  spectrum  users  to  gain  access  to  spectrum.  229  Furthermore,  several  commenters  in  the  Secondary  Markets  proceeding 
 specifically  indicated  that  facilitating  leasing  arrangements  would  increase  service  offerings  to  rural  customers  by  enabling  rural  telephone  companies  and  others  to  access  underutilized  spectrum.  230  We 

 227  The  Commission  found  three  companies  with  equipment  authorizations  for  RRS  and/  or  BETRS. 
 228  47  C.  F.  R.    24.3. 
 229  See  Secondary  Markets  News  Release. 
 230  See  Promoting  Efficient  Use  of  Spectrum  Through  Elimination  of  Barriers  to  the  Development  of  Secondary 
 Markets,  WT  Docket  No.  00-  230,  Blooston,  Mordkofsky,  Dickens,  Duffy  and  Prendergast  Comments  at  2-  3  (relaxation  of  policies  and  rules  that  stand  in  way  of  innovative  spectrum  use  arrangements  would  help  eliminate 

 unnecessary  inhibitions  on  secondary  markets  and  create  incentives  for  larger  carriers  to  lease  to  rural  telephone  cooperatives,  thereby  helping  to  spur  rapid  deployment  of  services  to  all  areas  of  the  country);  National  Telephone 
 Cooperative  Association  Comments  at  1-  4;  Rural  Telecommunications  Group  Comments  at  2  (spectrum  leasing 
 (continued.) 
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 seek  comment  on  whether  there  is  a  problem  for  potential  providers  of  RRS  or  BETRS  in  accessing  spectrum  and  if  so,  whether  parties  feel  secondary  markets  will  provide  the  appropriate  means  for  access 
 to  the  desired  spectrum. 
 115.  We  are  also  interested  in  determining  if  the  Commissions  current  rules  and  policies  for  RRS  and  BETRS  are  limiting  factors  towards  a  more  expansive  use  of  these  services.  We  note  that 

 currently  there  is  an  eligibility  restriction  for  BETRS  that  restricts  the  issuance  of  a  license  to  only  those  entities  that  receive  state  approval  to  provide  basic  exchange  telephone  service.  231  We  believe  that  this 
 rule  may  be  unnecessary  and  may  serve  as  a  potential  regulatory  hurdle  towards  a  more  rapid  and  efficient  use  of  the  BETRS  spectrum.  We  therefore  propose  to  remove  the  eligibility  restrictions 
 contained  within  Section  22.702  of  our  rules  regarding  state  approval  prior  to  the  issuance  of  a  BETRS  license.  Furthermore,  the  current  service  rules  for  RRS  and  BETRS  provides  that  new  licenses  are  issued 
 on  a  secondary,  non-  interfering  basis.  This  approach  ensures  that  RRS  and  BETRS  licensees  are  provided  access  to  spectrum  so  long  as  they  do  not  cause  harmful  interference  to  the  primary  licensee  and 
 must  give  up  their  facilities  if  the  primary  licensee  decides  to  construct  facilities  within  the  same  area.  In  a  Petition  for  Rulemaking  filed  by  several  parties,  which  eventually  lead  to  the  establishment  of  BETRS, 
 a  request  was  made  to  provide  2  MHz  of  dedicated  spectrum  for  the  use  of  BETRS.  At  the  time,  we  determined  that  the  demand  for  BETRS  was  not  clear  and  therefore  made  the  decision  not  to  provide 
 discrete  spectrum  for  the  use  of  BETRS.  However,  we  indicated  that  if  the  spectrum  that  was  made  available  for  BETRS  proved  to  be  insufficient  at  a  future  date,  we  would  revisit  the  problem  at  that 
 time.  232  We  note  that  in  the  Rural  NOI  we  sought  comment  on  how  we  might  revise  existing  RRS  and  BETRS  rules  to  further  facilitate  the  provision  of  wireless  services  to  rural  areas.  233  We  did  not  receive 
 any  comments  that  specifically  addressed  the  need  to  revise  RRS  or  BETRS  rules.  In  section  II.  D.,  above,  we  address  the  potential  for  increased  power  levels  in  rural  areas  and  seek  comment  on  whether  it 
 is  beneficial,  feasible,  and/  or  advisable  to  increase  the  current  power  limits  for  stations  located  in  rural  areas.  We  seek  comment  on  our  proposal  to  remove  the  eligibility  restrictions  in  Section  22.702  of  the 
 Commissions  rules  for  BETRS  licensees.  Based  on  the  current  RRS  and  BETRS  licensing  scheme,  we  seek  comment  on  whether  there  is  a  need  for  us  to  expand  the  secondary  status  for  RRS  and  BETRS  to 
 other  spectrum  bands  in  order  to  facilitate  and  encourage  construction  in  rural  areas.  For  example,  would  allowing  RRS  and  BETRS  operations  in  other  bands  on  a  secondary,  non-  interfering  basis  provide  a 
 viable  alternative  to  increase  the  level  of  RRS  and  BETRS  services?  If  so,  what  spectrum  bands  could  RRS  and  BETRS  be  expanded  to  include?  Although  we  are  not  convinced  that  providing  additional 
 spectrum  on  a  primary  basis  for  BETRS  is  needed  at  this  time,  especially  since  secondary  markets  has  not  had  a  chance  to  mature,  we  are,  however,  interested  in  seeking  comment  on  this  issue.  Specifically,  if 
 additional  spectrum  should  be  designated  on  a  primary  basis  for  BETRS,  what  band(  s)  would  be  viable?  How  much  spectrum  would  be  needed?  Is  there  existing  equipment  or  equipment  that  can  be 
 manufactured  and  made  readily  available  for  use  in  the  band(  s)? 

 (Continued  from  previous  page) 
 would  significantly  increase  the  use  of  already-  assigned  spectrum  bands  and  allow  companies  not  holding  licenses  to  offer  a  panoply  of  wireless  services  in  unserved  and  underserved  areas)). 

 231  47  C.  F.  R.    22.702. 
 232  See  BETRS  R&  O  at  216    25. 
 233  Rural  NOI  at  25569    28. 
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 116.  As  a  final  matter,  and  in  light  of  the  Commissions  policies  towards  a  more  flexible-  use,  market-  based  approach  to  spectrum  management,  we  believe  it  is  appropriate  at  this  time  to  determine  if 
 the  current  designation  of  RRS  and  BETRS  as  fixed  services  creates  disincentives  towards  a  more  expansive  use  of  the  spectrum.  Currently,  the  service  rules  for  RRS  and  BETRS  limit  the  use  of  the 
 spectrum  to  fixed  offerings,  which  are  intended  primarily  to  be  used  as  a  vehicle  to  provide  basic  communications  services  to  rural  areas  using  wireless  technologies.  We  seek  comment  on  whether 
 providing  additional  flexibility  to  allow  other  types  of  service  offerings  using  RRS  and  BETRS  spectrum  on  a  secondary  basis  would  provide  the  proper  incentives  for  these  spectrum  bands  to  be  more  fully 
 utilized  in  providing  telecommunications  services  to  rural  areas.  If  a  more  flexible  use  policy  were  created  for  RRS  and  BETRS,  what  considerations  must  the  Commission  consider  in  adopting  rules  and 
 policies  to  facilitate  such  flexible  use? 
 III.  PROCEDURAL  MATTERS 
 A.  Ex  Parte  Rules    Permit-  But-  Disclose  Proceeding 
 117.  This  is  a  permit-  but-  disclose  notice  and  comment  rulemaking  proceeding.  Ex  parte  presentations  are  permitted,  except  during  the  Sunshine  Agenda  period,  provided  they  are  disclosed  as 

 provided  in  Commission  rules.  See  generally  47  C.  F.  R.    1.1202,  1.1203,  and  1.1206. 
 B.  Initial  Regulatory  Flexibility  Analysis 
 118.  As  required  by  the  Regulatory  Flexibility  Act,  see  5  U.  S.  C.    603,  the  Commission  has  prepared  an  Initial  Regulatory  Flexibility  Analysis  (IRFA)  of  the  possible  impact  on  small  entities  of  the 

 proposals  in  the  Notice  of  Proposed  Rulemaking.  The  IRFA  is  set  forth  in  the  Appendix.  Written  public  comments  are  requested  on  the  IRFA.  These  comments  must  be  filed  in  accordance  with  the  same  filing 
 deadlines  for  comments  on  the  Notice  of  Proposed  Rulemaking,  and  they  must  have  a  separate  and  distinct  heading  designating  them  as  responses  to  the  Initial  Regulatory  Flexibility  Analysis.  The 
 Commissions  Consumer  Information  Bureau,  Reference  Information  Center,  will  send  a  copy  of  this  Notice  of  Proposed  Rulemaking,  including  the  Initial  Regulatory  Flexibility  Analysis,  to  the  Chief 
 Counsel  for  Advocacy  of  the  Small  Business  Administration,  in  accordance  with  the  Regulatory  Flexibility  Act.  See  5  U.  S.  C.    603(  a). 

 C.  Initial  Paperwork  Reduction  Act  of  1995  Analysis 
 119.  This  NPRM  seeks  comment  on  a  proposed  information  collection.  As  part  of  the  Commissions  continuing  effort  to  reduce  paperwork  burdens,  we  invite  the  general  public  and  the  Office 

 of  Management  and  Budget  (OMB)  to  take  this  opportunity  to  comment  on  the  information  collections  contained  in  this  NPRM,  as  required  by  the  Paperwork  Reduction  Act  of  1995,  Public  Law  104-  13. 
 Public  and  agency  comments  are  due  at  the  same  time  as  other  comments  on  this  NPRM  and  must  have  a  separate  heading  designating  them  as  responses  to  the  Initial  Paperwork  Reduction  Analysis  (IPRA). 
 OMB  comments  are  due  60  days  from  date  of  publication  of  this  NPRM  in  the  Federal  Register.  Comments  should  address:  (a)  whether  the  proposed  collection  of  information  is  necessary  for  the  proper 
 performance  of  the  functions  of  the  Commission,  including  whether  the  information  shall  have  practical  utility;  (b)  the  accuracy  of  the  Commissions  burden  estimates;  (c)  ways  to  enhance  the  quality,  utility, 
 and  clarity  of  the  information  collected;  and  (d)  ways  to  minimize  the  burden  of  the  collection  of  information  on  the  respondents,  including  the  use  of  automated  collection  techniques  or  other  forms  of 
 information  technology.  In  addition  to  filing  comments  with  the  Secretary,  a  copy  of  any  comments  on  the  information  collection(  s)  contained  herein  should  be  submitted  to  Judy  Boley,  Federal 
 Communications  Commission,  Room  1-  C804,  445  12th  Street,  S.  W.,  Washington,  D.  C.  20554,  or  via  the  Internet  to  <jboley@  fcc.  gov>  and  to  Edward  Springer,  OMB  Desk  Officer,  Room  10236  NEOB,  725 
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 17th  Street,  N.  W.,  Washington,  D.  C.  20503,  or  via  the  Internet  to  <edward.  springer@  omb.  eop.  gov>. 
 D.  Comment  Dates 
 120.  Pursuant  to  applicable  procedures  set  forth  in  Sections  1.415  and  1.419  of  the  Commissions  Rules,  234  interested  parties  may  file  comments  on  or  before  45  days  after  publication  in  the 

 Federal  Register  and  reply  comments  on  or  before  75  days  after  publication  in  the  Federal  Register.  Comments  and  reply  comments  should  be  filed  in  WT  Docket  No.  03-  202.  All  relevant  and  timely 
 comments  will  be  considered  by  the  Commission  before  final  action  is  taken  in  this  proceeding.  To  file  formally  in  this  proceeding,  interested  parties  must  file  an  original  and  four  copies  of  all  comments,  reply 
 comments,  and  supporting  comments.  If  interested  parties  want  each  Commissioner  to  receive  a  personal  copy  of  their  comments,  they  must  file  an  original  plus  nine  copies. 

 121.  Comments  also  may  be  filed  using  the  Commissions  Electronic  Comment  Filing  System  (ECFS).  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24,121  (1998). 
 Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  cgb/  ecfs>.  Generally,  only  one  copy  of  an  electronic  submission  must  be  filed. 
 Commenters  should  transmit  one  electronic  copy  of  the  comments  to  WT  Docket  No.  03-  202.  In  completing  the  transmittal  screen,  commenters  should  include  their  full  name,  Postal  Service  mailing 
 address,  and  the  applicable  docket  or  rulemaking  number.  Parties  may  also  submit  electronic  comments  by  Internet  e-  mail.  To  receive  filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-  mail 
 to  ecfs@  fcc.  gov,  and  should  include  the  following  words  in  the  body  of  the  message,  get  form  <your  e-mail  address>.  A  sample  form  and  directions  will  be  sent  in  reply. 

 122.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  Filings  can  be  sent  by  hand  or  messenger  delivery,  by  commercial  overnight  courier,  or  by  first-  class  or 
 overnight  U.  S.  Postal  Service  mail  (although  we  continue  to  experience  delays  in  receiving  U.  S.  Postal  Service  mail).  The  Commissions  contractor,  Natek,  Inc.,  will  receive  hand-  delivered  or  messenger-delivered 
 paper  filings  for  the  Commissions  Secretary  at  236  Massachusetts  Avenue,  NE,  Suite  110,  Washington,  DC  20002.  The  filing  hours  at  this  location  will  be  8:  00  a.  m.  to  7:  00  p.  m.  All  hand 
 deliveries  must  be  held  together  with  rubber  bands  or  fasteners.  Any  envelopes  must  be  disposed  of  before  entering  the  building.  In  addition,  parties  who  choose  to  file  by  paper  should  provide  a  courtesy 
 copy  of  each  filing  to  Nicole  McGinnis,  Attorney  Advisor,  Commercial  Wireless  Division,  Wireless  Telecommunications  Bureau,  445  12  th  Street,  SW,  Room  6223,  Washington,  DC  20554  or  by  email  to 
 Nicole  McGinnis  at  Nicole.  McGinnis@  fcc.  gov. 
 123.  Commercial  overnight  mail  (other  than  U.  S.  Postal  Service  Express  Mail  and  Priority  Mail)  must  be  sent  to  9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  U.  S.  Postal  Service  first-class 

 mail,  Express  Mail,  and  Priority  Mail  should  be  addressed  to  445  12th  Street,  SW,  Washington,  DC  20554.  All  filings  must  be  addressed  to  the  Commissions  Secretary,  Office  of  the  Secretary,  Federal 
 Communications  Commission. 
 If  you  are  sending  this  type  of  document  or  using  this  delivery  method  It  should  be  addressed  for  delivery  to 

 Hand-  delivered  or  messenger-  delivered  paper  filings  for  the  Commissions  Secretary  236  Massachusetts  Avenue,  NE,  Suite  110, 

 234  47  C.  F.  R.    1.415,  1.419. 
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 Washington,  DC  20002  (8:  00  to  7:  00  p.  m.)  Other  messenger-  delivered  documents, 
 including  documents  sent  by  overnight  mail  (other  than  United  States  Postal  Service 
 Express  Mail  and  Priority  Mail) 

 9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743 
 (8:  00  a.  m.  to  5:  30  p.  m.) 
 United  States  Postal  Service  first-  class  mail,  Express  Mail,  and  Priority  Mail  445  12  th  Street,  SW  Washington,  DC  20554 

 124.  Regardless  of  whether  parties  choose  to  file  electronically  or  by  paper,  parties  should  also  file  one  copy  of  any  documents  filed  in  this  docket  with  the  Commissions  copy  contractor,  Qualex 
 International,  Portals  II,  445  12th  Street,  SW,  CY-  B402,  Washington,  DC  20554  (see  alternative  addresses  above  for  delivery  by  hand  or  messenger)  (telephone  202-  863-  2893;  facsimile  202-  863-  2898) 
 or  via  e-  mail  at  qualexint@  aol.  com. 
 125.  The  full  text  of  this  document  is  available  for  public  inspection  and  copying  during  regular  business  hours  at  the  FCC  Reference  Information  Center,  Portals  II,  445  12  th  Street,  SW,  Room 

 CY-  A257,  Washington,  DC,  20554.  This  document  may  also  be  purchased  from  the  Commissions  duplicating  contractor,  Qualex  International,  Portals  II,  445  12  th  Street,  SW,  Room  CY-  B402, 
 Washington,  DC,  20554,  telephone  202-  863-  2893,  facsimile  202-  863-  2898,  or  via  e-  mail  qualexint@  aol.  com.  Alternative  formats  (computer  diskette,  large  print,  audio  cassette  and  Braille)  are 
 available  to  persons  with  disabilities  by  contacting  Brian  Millin  at  (202)  418-  7426,  TTY  (202)  418-  7365,  or  at  brian.  millin@  fcc.  gov. 

 IV.  ORDERING  CLAUSES 
 126.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in  Sections  4(  i),  11,  303(  r),  309(  j)  and  706  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  157, 

 161,  303(  r),  and  309(  j),  this  NOTICE  OF  PROPOSED  RULEMAKING  is  hereby  ADOPTED. 
 127.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  and  Governmental  Affairs  Bureau,  Reference  Information  Center,  SHALL  SEND  a  copy  of  the  Notice  of  Proposed 

 Rulemaking  and  Further  Notice  of  Inquiry,  including  the  Initial  Regulatory  Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration. 

 FEDERAL  COMMUNICATIONS  COMMISSION 
 Marlene  H.  Dortch  Secretary 
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 APPENDIX  A:  INITIAL  REGULATORY  FLEXIBILITY  ANALYSIS 
 As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended  (RFA),  235  the  Commission  has  prepared  this  present  Initial  Regulatory  Flexibility  Analysis  (IRFA)  of  the  possible  significant  economic 
 impact  on  a  substantial  number  of  small  entities  by  the  policies  and  rules  proposed  in  this  Notice  of  Proposed  Rulemaking  (NPRM).  Written  public  comments  are  requested  on  this  IRFA.  Comments  must 
 be  identified  as  responses  to  the  IRFA  and  must  be  filed  by  the  deadlines  for  comments  on  the  Notice  provided  in  paragraph  123  of  the  item.  The  Commission  will  send  a  copy  of  the  Notice,  including  this 
 IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration.  236  In  addition,  the  Notice  and  IRFA  (or  summaries  thereof)  will  be  published  in  the  Federal  Register.  237 

 A.  Need  for,  and  Objectives  of,  the  Proposed  Rules. 
 In  this  NPRM,  we  continue  to  examine  ways  of  amending  our  regulations  and  policies  governing  the  electromagnetic  spectrum  and  the  facilities-  based  commercial  and  private  wireless  services 
 that  rely  on  spectrum,  in  order  to  promote  the  rapid  and  efficient  deployment  of  these  services  in  rural  areas.  This  NPRM  builds  upon  the  work  of  our  Notice  of  Inquiry,  in  which  we  sought  comment  on  how 
 we  could  modify  our  policies  to  encourage  the  provision  of  wireless  services  in  rural  areas.  238  This  NPRM  also  draws  upon  the  efforts  and  recommendations  of  the  Spectrum  Policy  Task  Force,  which 
 identified  and  evaluated  potential  changes  in  our  spectrum  policy  that  would  increase  public  benefits  from  spectrum-  based  services.  239  This  NPRM  proposes  several  ways  in  which  the  Commission  can  modify  and 
 improve  its  regulations  and  policies  in  order  to  promote  such  wireless  service  within  rural  areas  while  simultaneously  removing  any  disincentives  or  other  barriers  to  construction  and  operation  in  rural  areas. 

 As  a  complement  to  the  measures  the  Commission  has  already  taken,  we  seek  to  minimize  regulatory  costs  and  eliminate  unnecessary  regulatory  barriers  to  the  deployment  of 
 spectrum-  based  services  in  rural  areas.  As  reflected  in  the  proposals  set  forth  in  this  NPRM,  we  believe  there  are  additional  spectrum  policy  initiatives  the  Commission  can  adopt  to  reduce  the 
 overall  cost  of  regulation  and  increase  flexibility  in  a  manner  that  will  facilitate  access,  capital  formation,  build-  out  and  coverage  in  rural  areas.  Specifically,  in  this  NPRM,  we  seek  comment 
 on  the  appropriate  definition  of  what  constitutes  a  rural  area  for  the  purposes  of  this  proceeding.  240  We  also  seek  comment  on  how  to  define  built  spectrum  and  we  inquire  as  to 

 235  See  5  U.  S.  C.    603.  The  RFA,  see  5  U.  S.  C.    601    612  has  been  amended  by  the  Small  Business  Regulatory 
 Enforcement  Fairness  Act  of  1996  (SBREFA),  Pub.  L.  No.  104-  121,  Title  II,  110  Stat.  857  (1996). 
 236  See  5  U.  S.  C.    603(  a). 

 237  See  5  U.  S.  C.    603(  a). 
 238  Facilitating  the  Provision  of  Spectrum-  Based  Service  to  Rural  Areas  and  Promoting  Opportunities  for  Rural 
 Telephone  Companies  to  Provide  Spectrum-  Based  Services,  Notice  of  Inquiry,  17  FCC  Rcd  25554  (2002)  (  Rural  NOI). 

 239  See  Federal  Communications  Commission,  Spectrum  Policy  Task  Force  Report,  ET  Docket  No.  02-  135 
 (released  Nov.  2002)  (  SPTF  Report).  This  report  can  be  found  at  www.  fcc.  gov/  sptf. 
 240  NPRM  at    10-  12,  supra. 
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 whether  the  most  efficient  approach  may  be  to  rely  on  providers  filings  of  their  construction  notifications,  an  approach  used  with  broadband  PCS.  Notably,  we  propose  that  spectrum  in  rural 
 areas  that  is  leased  by  a  licensee,  and  for  which  the  lessee  meets  the  performance  requirements  that  are  applicable  to  the  licensee,  should  be  construed  as  used  for  the  purposes  of  this 
 proceeding  and  any  performance  requirements  we  adopt.  Furthermore,  we  seek  comment  on  ways  the  Commission  could  modify  its  regulations  pertaining  to  unused  spectrum. 

 In  this  NPRM,  we  propose  the  adoption  of  a  substantial  service  construction  benchmark  during  the  initial  license  term  for  all  wireless  services  that  are  licensed  on  a  geographic  area  basis 
 and  that  are  subject  to  performance  requirements.  We  also  propose  a  substantial  service  safe  harbor  for  rural  areas.  We  also  seek  comment  on  whether  we  should  adopt  a  geography-  based 
 benchmark  for  wireless  services  that  are  licensed  on  a  geographic  area  basis  and  that  currently  do  not  have  a  geographic  area  coverage  option.  In  addition,  we  seek  comment  on  whether  we  should 
 impose  performance  requirements  in  subsequent  license  terms  after  initial  renewal.  We  also  seek  comment  on  measures  that  may  be  taken  to  increase  power  flexibility  for  licensed  services.  We 
 also  seek  comment  as  to  the  relative  effect  on  service  in  rural  areas  of  the  Commissions  use  of  small  versus  large  geographic  service  areas. 

 In  this  NPRM,  we  seek  comment  on  what,  if  any,  regulatory  or  policy  changes  should  be  made  to  complement  the  Rural  Utilities  Services  (RUS)  financing  programs.  We  also  ask 
 whether  we  should  allow  RUS  to  take  security  interests  in  spectrum  licenses,  provided  that  any  security  interest  is  expressly  conditioned  on  the  Commissions  prior  approval  of  any  assignment 
 of  the  license  from  the  licensee  to  the  secured  party.  We  also  seek  comment  on  whether  we  should  eliminate  the  cellular  cross-  interest  rule  in  Rural  Service  Areas  with  greater  than  three 
 competitors,  and  we  seek  comment  on  what  should  constitute  a  competitor.  In  addition,  we  seek  comment  on  whether  clarifying  the  Commissions  policy  on  infrastructure  sharing  may 
 promote  service  in  rural  areas.  Finally,  we  propose  ways  of  modifying  our  rules  governing  Rural  Radiotelephone  Service  (RRS)  and  Basic  Exchange  Telephone  Radio  Systems  (BETRS)  to 
 expand  the  use  of  these  services,  including  removing  eligibility  restrictions  on  the  use  of  BETRS  spectrum. 

 B.  Legal  Basis. 
 We  tentatively  conclude  that  we  have  authority  under  Sections  4(  i),  11,  303(  r),  309(  j)  and  706  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  157,  161,  303(  r),  and  309(  j),  to  adopt 
 the  proposals  set  forth  in  the  NPRM. 
 C.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  which  the  Rules  Will  Apply. 

 The  RFA  directs  agencies  to  provide  a  description  of,  and  where  feasible,  an  estimate  of  the  number  of  small  entities  that  may  be  affected  by  the  rules  adopted  herein.  241  The  RFA  generally  defines 
 the  term  small  entity  as  having  the  same  meaning  as  the  terms  small  business,  small  organization,  and  small  governmental  jurisdiction.  242  In  addition,  the  term  small  business  has  the  same  meaning  as 

 241  5  U.  S.  C.    604(  a)(  3). 
 242  5  U.  S.  C.    601(  6). 
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 the  term  small  business  concern  under  the  Small  Business  Act.  243  A  small  business  concern  is  one  which:  (1)  is  independently  owned  and  operated;  (2)  is  not  dominant  in  its  field  of  operation;  and  (3) 
 satisfies  any  additional  criteria  established  by  the  Small  Business  Administration  (SBA).  244 
 Cellular  Licensees.  The  SBA  has  developed  a  small  business  size  standard  for  small  businesses  in  the  category  Cellular  and  Other  Wireless  Telecommunications.  245  Under  that  SBA  category,  a  business  is 
 small  if  it  has  1,500  or  fewer  employees.  246  According  to  the  Bureau  of  the  Census,  only  twelve  firms  out  of  a  total  of  1,238  cellular  and  other  wireless  telecommunications  firms  operating  during  1997  had  1,000 
 or  more  employees.  247  Therefore,  even  if  all  twelve  of  these  firms  were  cellular  telephone  companies,  nearly  all  cellular  carriers  are  small  businesses  under  the  SBAs  definition. 

 220  MHz  Radio  Service    Phase  I  Licensees.  The  220  MHz  service  has  both  Phase  I  and  Phase  II  licenses.  Phase  I  licensing  was  conducted  by  lotteries  in  1992  and  1993.  There  are  approximately  1,515 
 such  non-  nationwide  licensees  and  four  nationwide  licensees  currently  authorized  to  operate  in  the  220  MHz  band.  The  Commission  has  not  developed  a  definition  of  small  entities  specifically  applicable  to 
 such  incumbent  220  MHz  Phase  I  licensees.  To  estimate  the  number  of  such  licensees  that  are  small  businesses,  we  apply  the  small  business  size  standard  under  the  SBA  rules  applicable  to  Cellular  and 
 Other  Wireless  Telecommunications  companies.  This  category  provides  that  a  small  business  is  a  wireless  company  employing  no  more  than  1,500  persons.  248  According  to  the  Census  Bureau  data  for 
 1997,  only  twelve  firms  out  of  a  total  of  1,238  such  firms  that  operated  for  the  entire  year,  had  1,000  or  more  employees.  249  If  this  general  ratio  continues  in  the  context  of  Phase  I  220  MHz  licensees,  the 
 Commission  estimates  that  nearly  all  such  licensees  are  small  businesses  under  the  SBAs  small  business  standard. 

 220  MHz  Radio  Service    Phase  II  Licensees.  The  220  MHz  service  has  both  Phase  I  and  Phase  II  licenses.  The  Phase  II  220  MHz  service  is  subject  to  spectrum  auctions.  In  the  220  MHz  Third  Report 
 and  Order,  we  adopted  a  small  business  size  standard  for  defining  small  and  very  small  businesses  for  purposes  of  determining  their  eligibility  for  special  provisions  such  as  bidding  credits  and  installment 

 243  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  small  business  concern  in  the  Small  Business 
 Act,  15  U.  S.  C.    632).  Pursuant  to  5  U.  S.  C.    601(  3),  the  statutory  definition  of  a  small  business  applies  unless  an  agency,  after  consultation  with  the  Office  of  Advocacy  of  the  Small  Business  Administration  and  after 

 opportunity  for  public  comment,  establishes  one  or  more  definitions  of  such  term  which  are  appropriate  to  the  activities  of  the  agency  and  publishes  such  definition(  s)  in  the  Federal  Register. 

 244  15  U.  S.  C.    632. 
 245  13  C.  F.  R.    121.201,  North  American  Industry  Classification  System  (NAICS)  code  517212. 
 246  Id. 
 247  U.  S.  Census  Bureau,  1997  Economic  Census,  Information    Subject  Series,  Establishment  and  Firm  Size, 
 Table  5  (Employment  Size  of  Firms  Subject  to  Federal  Income  Tax),  NAICS  code  517212  (2002). 
 248  13  C.  F.  R.    121.201,  NAICS  code  517212. 

 249  U.  S.  Census  Bureau,  1997  Economic  Census,  Subject  Series:  Information,  Establishment  and  Firm  Size 
 (Including  Legal  Form  Organization),  Table  5,  NAICS  code  517212  (2002). 
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 payments.  250  This  small  business  standard  indicates  that  a  small  business  is  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  not  exceeding  $15  million  for  the 
 preceding  three  years.  251  A  very  small  business  is  defined  as  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  that  do  not  exceed  $3  million  for  the  preceding 
 three  years.  252  The  SBA  has  approved  these  small  size  standards.  253  Auctions  of  Phase  II  licenses  commenced  on  September  15,  1998,  and  closed  on  October  22,  1998.  254  In  the  first  auction,  908  licenses 
 were  auctioned  in  three  different-  sized  geographic  areas:  three  nationwide  licenses,  30  Regional  Economic  Area  Group  (EAG)  Licenses,  and  875  Economic  Area  (EA)  Licenses.  Of  the  908  licenses 
 auctioned,  693  were  sold.  255  Thirty-  nine  small  businesses  won  373  licenses  in  the  first  220  MHz  auction.  A  second  auction  included  225  licenses:  216  EA  licenses  and  9  EAG  licenses.  Fourteen  companies 
 claiming  small  business  status  won  158  licenses.  256  A  third  auction  included  four  licenses:  2  BEA  licenses  and  2  EAG  licenses  in  the  220  MHz  Service.  No  small  or  very  small  business  won  any  of  these 
 licenses.  257 
 Lower  700  MHz  Band  Licenses.  We  adopted  criteria  for  defining  three  groups  of  small  businesses  for  purposes  of  determining  their  eligibility  for  special  provisions  such  as  bidding  credits.  258  We  have 

 defined  a  small  business  as  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  not  exceeding  $40  million  for  the  preceding  three  years.  259  A  very  small  business 
 is  defined  as  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  that  are  not  more  than  $15  million  for  the  preceding  three  years.  260  Additionally,  the  lower  700 
 MHz  Service  has  a  third  category  of  small  business  status  that  may  be  claimed  for  Metropolitan/  Rural  Service  Area  (MSA/  RSA)  licenses.  The  third  category  is  entrepreneur,  which  is  defined  as  an  entity  that, 
 together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  that  are  not  more  than  $3 

 250  Amendment  of  Part  90  of  the  Commissions  Rules  to  Provide  For  the  Use  of  the  220-  222  MHz  Band  by  the 
 Private  Land  Mobile  Radio  Service,  Third  Report  and  Order,  12  FCC  Rcd  10943,  11068-  70    291-  295  (1997). 
 251  Id.  at  11068    291. 

 252  Id. 
 253  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  January  6,  1998. 
 254  See  generally  220  MHz  Service  Auction  Closes,  Public  Notice,  14  FCC  Rcd  605  (WTB  1998). 

 255  See  FCC  Announces  It  is  Prepared  to  Grant  654  Phase  II  220  MHz  Licenses  After  Final  Payment  is  Made, 
 Public  Notice,  14  FCC  Rcd  1085  (WTB  1999). 
 256  See  Phase  II  220  MHz  Service  Spectrum  Auction  Closes,  Public  Notice,  14  FCC  Rcd  11218  (WTB  1999). 

 257  See  Multi-  Radio  Service  Auction  Closes,  Public  Notice,  17  FCC  Rcd  1446  (WTB  2002). 
 258  See  Reallocation  and  Service  Rules  for  the  698-  746  MHz  Spectrum  Band  (Television  Channels  52-  59),  Report 
 and  Order,  17  FCC  Rcd  1022  (2002). 
 259  Id.  at  1087-  88    172. 

 260  Id. 
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 million  for  the  preceding  three  years.  261  The  SBA  has  approved  these  small  size  standards.  262  An  auction  of  740  licenses  (one  license  in  each  of  the  734  MSAs/  RSAs  and  one  license  in  each  of  the  six  Economic 
 Area  Groupings  (EAGs))  commenced  on  August  27,  2002,  and  closed  on  September  18,  2002.  Of  the  740  licenses  available  for  auction,  484  licenses  were  sold  to  102  winning  bidders.  Seventy-  two  of  the 
 winning  bidders  claimed  small  business,  very  small  business  or  entrepreneur  status  and  won  a  total  of  329  licenses.  263  A  second  auction  commenced  on  May  28,  2003,  and  closed  on  June  13,  2003,  and  included 
 256  licenses:  5  EAG  licenses  and  476  CMA  licenses.  264  Seventeen  winning  bidders  claimed  small  or  very  small  business  status  and  won  sixty  licenses,  and  nine  winning  bidders  claimed  entrepreneur  status 
 and  won  154  licenses.  265 
 Upper  700  MHz  Band  Licenses.  The  Commission  released  a  Report  and  Order  authorizing  service  in  the  upper  700  MHz  band.  266  This  auction,  previously  scheduled  for  January  13,  2003,  has  been 

 postponed.  267 
 Paging.  In  the  Paging  Second  Report  and  Order,  we  adopted  a  size  standard  for  small  businesses  for  purposes  of  determining  their  eligibility  for  special  provisions  such  as  bidding  credits  and  installment 

 payments.  268  A  small  business  is  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  not  exceeding  $15  million  for  the  preceding  three  years.  269  The  SBA  has 
 approved  this  definition.  270  An  auction  of  Metropolitan  Economic  Area  (MEA)  licenses  commenced  on  February  24,  2000,  and  closed  on  March  2,  2000.  Of  the  2,499  licenses  auctioned,  985  were  sold.  271 

 261  Id.  at  1088    173. 
 262  See  Letter  to  Thomas  Sugrue,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  August  10,  1999. 
 263  See  Lower  700  MHz  Band  Auction  Closes,  Public  Notice,  17  FCC  Rcd  17272  (WTB  2002). 

 264  See  Lower  700  MHz  Band  Auction  Closes,  Public  Notice,  18  FCC  Rcd  11873  (WTB  2003). 
 265  Id. 
 266  Service  Rules  for  the  746-  764  and  776-  794  MHz  Bands,  and  Revisions  to  Part  27  of  the  Commissions  Rules, 
 Second  Memorandum  Opinion  and  Order,  16  FCC  Rcd  1239  (2001). 
 267  See  Auction  of  Licenses  for  747-  762  and  777-  792  MHz  Bands  (Auction  No.  31)  Is  Rescheduled,  Public 
 Notice,  16  FCC  Rcd  13079  (WTB  2003). 
 268  Revision  of  Part  22  and  Part  90  of  the  Commissions  Rules  to  Facilitate  Future  Development  of  Paging 
 Systems,  Second  Report  and  Order,  12  FCC  Rcd  2732,  2811-  2812    178-  181  (Paging  Second  Report  and  Order);  see  also  Revision  of  Part  22  and  Part  90  of  the  Commissions  Rules  to  Facilitate  Future  Development  of 

 Paging  Systems,  Memorandum  Opinion  and  Order  on  Reconsideration,  14  FCC  Rcd  10030,  10085-  10088    98-  107  (1999). 

 269  Paging  Second  Report  and  Order,  12  FCC  Rcd  at  2811    179. 
 270  See  Letter  to  Amy  Zoslov,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications 
 Bureau,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  December  2,  1998. 
 271  See  929  and  931  MHz  Paging  Auction  Closes,  Public  Notice,  15  FCC  Rcd  4858  (WTB  2000). 
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 Fifty-  seven  companies  claiming  small  business  status  won  440  licenses.  272  An  auction  of  Metropolitan  Economic  Area  (MEA)  and  Economic  Area  (EA)  licenses  commenced  on  October  30,  2001,  and  closed 
 on  December  5,  2001.  Of  the  15,514  licenses  auctioned,  5,323  were  sold.  273  132  companies  claiming  small  business  status  purchased  3,724  licenses.  A  third  auction,  consisting  of  8,874  licenses  in  each  of 
 175  EAs  and  1,328  licenses  in  all  but  three  of  the  51  MEAs  commenced  on  May  13,  2003,  and  closed  on  May  28,  2003.  Seventy-  seven  bidders  claiming  small  or  very  small  business  status  won  2,093  licenses.  274 
 Currently,  there  are  approximately  24,000  Private  Paging  site-  specific  licenses  and  74,000  Common  Carrier  Paging  licenses.  According  to  the  most  recent  Trends  in  Telephone  Service,  608  private  and 
 common  carriers  reported  that  they  were  engaged  in  the  provision  of  either  paging  or  other  mobile  services.  275  Of  these,  we  estimate  that  589  are  small,  under  the  SBA-  approved  small  business  size 
 standard.  276  We  estimate  that  the  majority  of  private  and  common  carrier  paging  providers  would  qualify  as  small  entities  under  the  SBA  definition. 

 Broadband  Personal  Communications  Service  (PCS).  The  broadband  PCS  spectrum  is  divided  into  six  frequency  blocks  designated  A  through  F,  and  the  Commission  has  held  auctions  for  each  block.  The 
 Commission  has  created  a  small  business  size  standard  for  Blocks  C  and  F  as  an  entity  that  has  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar  years.  277  For  Block  F,  an  additional 
 small  business  size  standard  for  very  small  business  was  added  and  is  defined  as  an  entity  that,  together  with  its  affiliates,  has  average  gross  revenues  of  not  more  than  $15  million  for  the  preceding  three 
 calendar  years.  278  These  small  business  size  standards,  in  the  context  of  broadband  PCS  auctions,  have  been  approved  by  the  SBA.  279  No  small  businesses  within  the  SBA-  approved  small  business  size 
 standards  bid  successfully  for  licenses  in  Blocks  A  and  B.  There  were  90  winning  bidders  that  qualified  as  small  entities  in  the  Block  C  auctions.  A  total  of  93  small  and  very  small  business  bidders  won 
 approximately  40  percent  of  the  1,479  licenses  for  Blocks  D,  E,  and  F.  280  On  March  23,  1999,  the  Commission  reauctioned  155  C,  D,  E,  and  F  Block  licenses;  there  were  113  small  business  winning 

 272  See  id. 
 273  See  Lower  and  Upper  Paging  Band  Auction  Closes,  Public  Notice,  16  FCC  Rcd  21821  (WTB  2002). 
 274  See  Lower  and  Upper  Paging  Bands  Auction  Closes,  Public  Notice,  18  FCC  Rcd  11154  (WTB  2003). 
 275  See  Trends  in  Telephone  Service,  Industry  Analysis  Division,  Wireline  Competition  Bureau,  Table  5.3 
 (Number  of  Telecommunications  Service  Providers  that  are  Small  Businesses)  (May  2002). 
 276  13  C.  F.  R.    121.201,  NAICS  code  517211. 

 277  See  Amendment  of  Parts  20  and  24  of  the  Commissions  Rules    Broadband  PCS  Competitive  Bidding  and  the 
 Commercial  Mobile  Radio  Service  Spectrum  Cap,  Report  and  Order,  11  FCC  Rcd  7824,  7850-  7852    57-  60  (1996);  see  also  47  C.  F.  R.    24.720(  b). 

 278  See  Amendment  of  Parts  20  and  24  of  the  Commissions  Rules    Broadband  PCS  Competitive  Bidding  and  the 
 Commercial  Mobile  Radio  Service  Spectrum  Cap,  Report  and  Order,  11  FCC  Rcd  7824,  7852    60. 
 279  See  Letter  to  Amy  Zoslov,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications 
 Bureau,  Federal  Communications  Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  December  2,  1998. 

 280  FCC  News,  Broadband  PCS,  D,  E  and  F  Block  Auction  Closes,  No.  71744  (rel.  January  14,  1997). 
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 bidders.  281 
 Narrowband  PCS.  The  Commission  held  an  auction  for  Narrowband  PCS  licenses  that  commenced  on  July  25,  1994,  and  closed  on  July  29,  1994.  A  second  commenced  on  October  26,  1994  and  closed  on 

 November  8,  1994.  For  purposes  of  the  first  two  Narrowband  PCS  auctions,  small  businesses  were  entities  with  average  gross  revenues  for  the  prior  three  calendar  years  of  $40  million  or  less.  282  Through 
 these  auctions,  the  Commission  awarded  a  total  of  forty-  one  licenses,  11  of  which  were  obtained  by  four  small  businesses.  283  To  ensure  meaningful  participation  by  small  business  entities  in  future  auctions,  the 
 Commission  adopted  a  two-  tiered  small  business  size  standard  in  the  Narrowband  PCS  Second  Report  and  Order.  284  A  small  business  is  an  entity  that,  together  with  affiliates  and  controlling  interests,  has 
 average  gross  revenues  for  the  three  preceding  years  of  not  more  than  $40  million.  285  A  very  small  business  is  an  entity  that,  together  with  affiliates  and  controlling  interests,  has  average  gross  revenues  for 
 the  three  preceding  years  of  not  more  than  $15  million.  286  The  SBA  has  approved  these  small  business  size  standards.  287  A  third  auction  commenced  on  October  3,  2001  and  closed  on  October  16,  2001.  Here, 
 five  bidders  won  317  (MTA  and  nationwide)  licenses.  288  Three  of  these  claimed  status  as  a  small  or  very  small  entity  and  won  311  licenses. 

 Specialized  Mobile  Radio  (SMR).  The  Commission  awards  small  entity  bidding  credits  in  auctions  for  Specialized  Mobile  Radio  (SMR)  geographic  area  licenses  in  the  800  MHz  and  900  MHz  bands  to 
 firms  that  had  revenues  of  no  more  than  $15  million  in  each  of  the  three  previous  calendar  years.  289  The  Commission  awards  very  small  entity  bidding  credits  to  firms  that  had  revenues  of  no  more  than  $3 
 million  in  each  of  the  three  previous  calendar  years.  290  The  SBA  has  approved  these  small  business  size 
 281  See  C,  D,  E,  and  F  Block  Broadband  PCS  Auction  Closes,  Public  Notice,  14  FCC  Rcd  6688  (WTB  1999). 
 282  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding  Narrowband  PCS,  Third 
 Memorandum  Opinion  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  10  FCC  Rcd  175,  196    46  (1994). 

 283  See  Announcing  the  High  Bidders  in  the  Auction  of  ten  Nationwide  Narrowband  PCS  Licenses,  Winning 
 Bids  Total  $617,006,674,  Public  Notice,  PNWL  94-  004  (rel.  Aug.  2,  1994);  Announcing  the  High  Bidders  in  the  Auction  of  30  Regional  Narrowband  PCS  Licenses;  Winning  Bids  Total  $490,901,787,  Public  Notice, 

 PNWL  94-  27  (rel.  Nov.  9,  1994). 
 284  Amendment  of  the  Commissions  Rules  to  Establish  New  Personal  Communications  Services,  Narrowband 
 PCS,  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rule  Making,  15  FCC  Rcd  10456,  10476    40  (2000). 

 285  Id. 
 286  Id. 
 287  See  Letter  to  Amy  Zoslov,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications 
 Bureau,  Federal  Communications  Commission  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  December  2,  1998. 

 288  See  Narrowband  PCS  Auction  Closes,  Public  Notice,  16  FCC  Rcd  18663  (WTB  2001). 
 289  47  C.  F.  R.    90.814(  b)(  1). 
 290  Id. 
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 standards  for  the  900  MHz  Service.  291  The  Commission  has  held  auctions  for  geographic  area  licenses  in  the  800  MHz  and  900  MHz  bands.  The  900  MHz  SMR  auction  began  on  December  5,  1995,  and  closed 
 on  April  15,  1996.  Sixty  bidders  claiming  that  they  qualified  as  small  businesses  under  the  $15  million  size  standard  won  263  geographic  area  licenses  in  the  900  MHz  SMR  band.  The  800  MHz  SMR  auction 
 for  the  upper  200  channels  began  on  October  28,  1997,  and  was  completed  on  December  8,  1997.  Ten  bidders  claiming  that  they  qualified  as  small  businesses  under  the  $15  million  size  standard  won  38 
 geographic  area  licenses  for  the  upper  200  channels  in  the  800  MHz  SMR  band.  292  A  second  auction  for  the  800  MHz  band  was  held  on  January  10,  2002  and  closed  on  January  17,  2002  and  included  23  BEA 
 licenses.  One  bidder  claiming  small  business  status  won  five  licenses.  293 
 The  auction  of  the  1,050  800  MHz  SMR  geographic  area  licenses  for  the  General  Category  channels  began  on  August  16,  2000,  and  was  completed  on  September  1,  2000.  Eleven  bidders  won  108 

 geographic  area  licenses  for  the  General  Category  channels  in  the  800  MHz  SMR  band  qualified  as  small  businesses  under  the  $15  million  size  standard.  In  an  auction  completed  on  December  5,  2000,  a  total  of 
 2,800  Economic  Area  licenses  in  the  lower  80  channels  of  the  800  MHz  SMR  service  were  sold.  Of  the  22  winning  bidders,  19  claimed  small  business  status  and  won  129  licenses.  Thus,  combining  all  three 
 auctions,  40  winning  bidders  for  geographic  licenses  in  the  800  MHz  SMR  band  claimed  status  as  small  business. 

 In  addition,  there  are  numerous  incumbent  site-  by-  site  SMR  licensees  and  licensees  with  extended  implementation  authorizations  in  the  800  and  900  MHz  bands.  We  do  not  know  how  many  firms  provide 
 800  MHz  or  900  MHz  geographic  area  SMR  pursuant  to  extended  implementation  authorizations,  nor  how  many  of  these  providers  have  annual  revenues  of  no  more  than  $15  million.  One  firm  has  over  $15 
 million  in  revenues.  We  assume,  for  purposes  of  this  analysis,  that  all  of  the  remaining  existing  extended  implementation  authorizations  are  held  by  small  entities,  as  that  small  business  size  standard  is 
 established  by  the  SBA. 
 Private  Land  Mobile  Radio  (PLMR).  PLMR  systems  serve  an  essential  role  in  a  range  of  industrial,  business,  land  transportation,  and  public  safety  activities.  These  radios  are  used  by  companies  of  all  sizes 

 operating  in  all  U.  S.  business  categories,  and  are  often  used  in  support  of  the  licensees  primary  (non-telecommunications)  business  operations.  For  the  purpose  of  determining  whether  a  licensee  of  a  PLMR 
 system  is  a  small  business  as  defined  by  the  SBA,  we  could  use  the  definition  for  Cellular  and  Other  Wireless  Telecommunications.  This  definition  provides  that  a  small  entity  is  any  such  entity  employing 
 no  more  than  1,500  persons.  294  The  Commission  does  not  require  PLMR  licensees  to  disclose  information  about  number  of  employees,  so  the  Commission  does  not  have  information  that  could  be  used 
 to  determine  how  many  PLMR  licensees  constitute  small  entities  under  this  definition.  Moreover,  because  PMLR  licensees  generally  are  not  in  the  business  of  providing  cellular  or  other  wireless 

 291  See  Letter  to  Thomas  Sugrue,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  August  10,  1999.  We  note  that,  although  a  request  was  also  sent  to  the  SBA  requesting  approval  for  the  small  business  size  standard  for  800 

 MHz,  approval  is  still  pending. 
 292  See  Correction  to  Public  Notice  DA  96-  586  FCC  Announces  Winning  Bidders  in  the  Auction  of  1020 
 Licenses  to  Provide  900  MHz  SMR  in  Major  Trading  Areas,    Public  Notice,  18  FCC  Rcd  18367  (WTB  1996). 
 293  See  Multi-  Radio  Service  Auction  Closes,  Public  Notice,  17  FCC  Rcd  1446  (WTB  2002). 

 294  See  13  C.  F.  R.    121.201,  NAICS  code  517212. 
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 telecommunications  services  but  instead  use  the  licensed  facilities  in  support  of  other  business  activities,  we  are  not  certain  that  the  Cellular  and  Other  Wireless  Telecommunications  category  is  appropriate  for 
 determining  how  many  PLMR  licensees  are  small  entities  for  this  analysis.  Rather,  it  may  be  more  appropriate  to  assess  PLMR  licensees  under  the  standards  applied  to  the  particular  industry  subsector  to 
 which  the  licensee  belongs.  295 
 The  Commissions  1994  Annual  Report  on  PLMRs  296  indicates  that  at  the  end  of  fiscal  year  1994,  there  were  1,087,267  licensees  operating  12,481,989  transmitters  in  the  PLMR  bands  below  512  MHz. 

 Because  any  entity  engaged  in  a  commercial  activity  is  eligible  to  hold  a  PLMR  license,  the  revised  rules  in  this  context  could  potentially  impact  every  small  business  in  the  United  States. 

 Fixed  Microwave  Services.  Fixed  microwave  services  include  common  carrier,  297  private-  operational  fixed,  298  and  broadcast  auxiliary  radio  services.  299  Currently,  there  are  approximately  22,015  common 
 carrier  fixed  licensees  and  61,670  private  operational-  fixed  licensees  and  broadcast  auxiliary  radio  licensees  in  the  microwave  services.  The  Commission  has  not  yet  defined  a  small  business  with  respect 
 to  microwave  services.  For  purposes  of  this  FRFA,  we  will  use  the  SBAs  definition  applicable  to  Cellular  and  Other  Wireless  Telecommunications  companies    that  is,  an  entity  with  no  more  than 
 1,500  persons.  300  The  Commission  does  not  have  data  specifying  the  number  of  these  licensees  that  have  more  than  1,500  employees,  and  thus  is  unable  at  this  time  to  estimate  with  greater  precision  the  number 
 of  fixed  microwave  service  licensees  that  would  qualify  as  small  business  concerns  under  the  SBAs  small  business  size  standard.  Consequently,  the  Commission  estimates  that  there  are  22,015  or  fewer 
 small  common  carrier  fixed  licensees  and  61,670  or  fewer  small  private  operational-  fixed  licensees  and  small  broadcast  auxiliary  radio  licensees  in  the  microwave  services  that  may  be  affected  by  the  rules  and 
 policies  adopted  herein.  The  Commission  notes,  however,  that  the  common  carrier  microwave  fixed  licensee  category  includes  some  large  entities. 

 Wireless  Communications  Services.  This  service  can  be  used  for  fixed,  mobile,  radiolocation,  and  digital  audio  broadcasting  satellite  uses.  The  Commission  defined  small  business  for  the  wireless 
 communications  services  (WCS)  auction  as  an  entity  with  average  gross  revenues  of  $40  million  for  each  of  the  three  preceding  years,  and  a  very  small  business  as  an  entity  with  average  gross  revenues  of  $15 

 295  See  generally  13  C.  F.  R.    121.201. 
 296  Federal  Communications  Commission,  60th  Annual  Report,  Fiscal  Year  1994,  at    116. 
 297  47  C.  F.  R.    101  et  seq.  (formerly,  part  21  of  the  Commissions  Rules). 
 298  Persons  eligible  under  parts  80  and  90  of  the  Commissions  rules  can  use  Private  Operational-  Fixed 
 Microwave  services.  See  generally  47  C.  F.  R.  parts  80  and  90.  Stations  in  this  service  are  called  operational-  fixed  to  distinguish  them  from  common  carrier  and  public  fixed  stations.  Only  the  licensee  may  use  the  operational-fixed 

 station,  and  only  for  communications  related  to  the  licensees  commercial,  industrial,  or  safety  operations. 
 299  Auxiliary  Microwave  Service  is  governed  by  part  74  of  Title  47  of  the  Commissions  Rules.  See  47  C.  F.  R. 
 Part  74.  Available  to  licensees  of  broadcast  stations  and  to  broadcast  and  cable  network  entities,  broadcast  auxiliary  microwave  stations  are  used  for  relaying  broadcast  television  signals  from  the  studio  to  the  transmitter, 

 or  between  two  points  such  as  a  main  studio  and  an  auxiliary  studio.  The  service  also  includes  mobile  TV  pickups,  which  relay  signals  from  a  remote  location  back  to  the  studio. 

 300  13  C.  F.  R.    121.201,  NAICS  code  517212. 
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 million  for  each  of  the  three  preceding  years.  301  The  SBA  has  approved  these  definitions.  302  The  FCC  auctioned  geographic  area  licenses  in  the  WCS  service.  In  the  auction,  which  commenced  on  April  15, 
 1997  and  closed  on  April  25,  1997,  there  were  seven  bidders  that  won  31  licenses  that  qualified  as  very  small  business  entities,  and  one  bidder  that  won  one  license  that  qualified  as  a  small  business  entity.  An 
 auction  for  one  license  in  the  1670-  1674  MHz  band  commenced  on  April  30,  2003  and  closed  the  same  day.  One  license  was  awarded.  The  winning  bidder  was  not  a  small  entity. 

 39  GHz  Service.  The  Commission  defines  small  entity  for  39  GHz  licenses  as  an  entity  that  has  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar  years.  303  Very  small 
 business  is  defined  as  an  entity  that,  together  with  its  affiliates,  has  average  gross  revenues  of  not  more  than  $15  million  for  the  preceding  three  calendar  years.  304  The  SBA  has  approved  these  definitions.  305 
 The  auction  of  the  2,173  39  GHz  licenses  began  on  April  12,  2000,  and  closed  on  May  8,  2000.  The  18  bidders  who  claimed  small  business  status  won  849  licenses. 

 Local  Multipoint  Distribution  Service.  An  auction  of  the  986  Local  Multipoint  Distribution  Service  (LMDS)  licenses  began  on  February  18,  1998,  and  closed  on  March  25,  1998.  The  Commission  defined 
 small  entity  for  LMDS  licenses  as  an  entity  that  has  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar  years.  306  An  additional  classification  for  very  small  business  was  added  and 
 is  defined  as  an  entity  that,  together  with  its  affiliates,  has  average  gross  revenues  of  not  more  than  $15  million  for  the  preceding  three  calendar  years.  307  These  regulations  defining  small  entity  in  the  context 
 of  LMDS  auctions  have  been  approved  by  the  SBA.  308  There  were  93  winning  bidders  that  qualified  as  small  entities  in  the  LMDS  auctions.  A  total  of  93  small  and  very  small  business  bidders  won 
 approximately  277  A  Block  licenses  and  387  B  Block  licenses.  On  March  27,  1999,  the  Commission  re-auctioned  161  licenses;  there  were  32  small  and  very  small  business  winning  bidders  that  won  119 

 301  Amendment  of  the  Commissions  Rules  to  Establish  Part  27,  the  Wireless  Communications  Service  (WCS), 
 Report  and  Order,  12  FCC  Rcd  10785,  10879    194  (1997). 
 302  See  Letter  to  Amy  Zoslov,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications 
 Bureau,  Federal  Communications  Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  December  2,  1998. 

 303  See  Amendment  of  the  Commissions  Rules  Regarding  the  37.0-  38.6  GHz  and  38.6-  40.0  GHz  Band,  Report 
 and  Order,  12  FCC  Rcd  18600  (1997). 
 304  Id. 

 305  See  Letter  to  Margaret  Wiener,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless  Telecommunications 
 Bureau,  Federal  Communications  Commission,  from  Hector  Barreto,  Administrator,  Small  Business  Administration,  dated  January  18,  2002. 

 306  See  Rulemaking  to  Amend  Parts  1,  2,  21,  25,  of  the  Commissions  Rules  to  Redesignate  the  27.5-  29.5  GHz 
 Frequency  Band,  Reallocate  the  29.5-  30.5  Frequency  Band,  to  Establish  Rules  and  Policies  for  Local  Multipoint  Distribution  Service  and  for  Fixed  Satellite  Services,  Second  Report  and  Order,  Order  on  Reconsideration,  and 

 Fifth  Notice  of  Proposed  Rule  Making,  12  FCC  Rcd  12545,  12689-  90    348  (1997). 
 307  Id. 

 308  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  January  6,  1998. 
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 licenses. 
 218-  219  MHz  Service.  The  first  auction  of  218-  219  MHz  (previously  referred  to  as  the  Interactive  and  Video  Data  Service  or  IVDS)  spectrum  resulted  in  178  entities  winning  licenses  for  594  Metropolitan 

 Statistical  Areas  (MSAs).  309  Of  the  594  licenses,  567  were  won  by  167  entities  qualifying  as  a  small  business.  For  that  auction,  we  defined  a  small  business  as  an  entity  that,  together  with  its  affiliates,  has  no 
 more  than  a  $6  million  net  worth  and,  after  federal  income  taxes  (excluding  any  carry  over  losses),  has  no  more  than  $2  million  in  annual  profits  each  year  for  the  previous  two  years.  310  In  the  218-  219  MHz 
 Report  and  Order  and  Memorandum  Opinion  and  Order,  we  defined  a  small  business  as  an  entity  that,  together  with  its  affiliates  and  persons  or  entities  that  hold  interests  in  such  an  entity  and  their  affiliates, 
 has  average  annual  gross  revenues  not  exceeding  $15  million  for  the  preceding  three  years.  311  A  very  small  business  is  defined  as  an  entity  that,  together  with  its  affiliates  and  persons  or  entities  that  hold 
 interests  in  such  an  entity  and  its  affiliates,  has  average  annual  gross  revenues  not  exceeding  $3  million  for  the  preceding  three  years.  312  The  SBA  has  approved  of  these  definitions.  313  At  this  time,  we  cannot 
 estimate  the  number  of  licenses  that  will  be  won  by  entities  qualifying  as  small  or  very  small  businesses  under  our  rules  in  future  auctions  of  218-  219  MHz  spectrum.  Given  the  success  of  small  businesses  in 
 the  previous  auction,  and  the  prevalence  of  small  businesses  in  the  subscription  television  services  and  message  communications  industries,  we  assume  for  purposes  of  this  FRFA  that  in  future  auctions,  many, 
 and  perhaps  all,  of  the  licenses  may  be  awarded  to  small  businesses. 
 Location  and  Monitoring  Service  (LMS).  Multilateration  LMS  systems  use  non-  voice  radio  techniques  to  determine  the  location  and  status  of  mobile  radio  units.  For  purposes  of  auctioning  LMS  licenses,  the 

 Commission  has  defined  small  business  as  an  entity  that,  together  with  controlling  interests  and  affiliates,  has  average  annual  gross  revenues  for  the  preceding  three  years  not  exceeding  $15  million.  314 
 A  very  small  business  is  defined  as  an  entity  that,  together  with  controlling  interests  and  affiliates,  has  average  annual  gross  revenues  for  the  preceding  three  years  not  exceeding  $3  million.  315  These 
 definitions  have  been  approved  by  the  SBA.  316  An  auction  for  LMS  licenses  commenced  on  February  23,  1999,  and  closed  on  March  5,  1999.  Of  the  528  licenses  auctioned,  289  licenses  were  sold  to  four  small 

 309  See  Interactive  Video  and  Data  Service  (IVDS)  Applications  Accepted  for  Filing,  Public  Notice,  9  FCC  Rcd 
 6227  (1994). 
 310  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  Fourth  Report  and 
 Order,  9  FCC  Rcd  2330  (1994). 
 311  Amendment  of  Part  95  of  the  Commissions  Rules  to  Provide  Regulatory  Flexibility  in  the  218-  219  MHz 
 Service,  Report  and  Order  and  Memorandum  Opinion  and  Order,  15  FCC  Rcd  1497  (1999). 
 312  Id. 

 313  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  January  6,  1998. 
 314  Amendment  of  Part  90  of  the  Commissions  Rules  to  Adopt  Regulations  for  Automatic  Vehicle  Monitoring 
 Systems,  Second  Report  and  Order,  13  FCC  Rcd  15182,  15192    20  (1998);  see  also  47  C.  F.  R.    90.1103. 
 315  Amendment  of  Part  90  of  the  Commissions  Rules  to  Adopt  Regulations  for  Automatic  Vehicle  Monitoring 
 Systems,  Second  Report  and  Order,  13  FCC  Rcd  at  15192    20;  see  also  47  C.  F.  R.    90.1103. 
 316  See  Letter  to  Thomas  Sugrue,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  February  22,  1999. 
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 businesses.  We  cannot  accurately  predict  the  number  of  remaining  licenses  that  could  be  awarded  to  small  entities  in  future  LMS  auctions. 
 Rural  Radiotelephone  Service.  We  use  the  SBA  definition  applicable  to  cellular  and  other  wireless  telecommunication  companies,  i.  e.,  an  entity  employing  no  more  than  1,500  persons.  317  There  are 
 approximately  1,000  licensees  in  the  Rural  Radiotelephone  Service,  and  the  Commission  estimates  that  there  are  1,000  or  fewer  small  entity  licensees  in  the  Rural  Radiotelephone  Service  that  may  be  affected 
 by  the  rules  and  policies  adopted  herein. 
 Air-  Ground  Radiotelephone  Service.  We  use  the  SBA  definition  applicable  to  cellular  and  other  wireless  telecommunication  companies,  i.  e.,  an  entity  employing  no  more  than  1,500  persons.  318  There 

 are  approximately  100  licensees  in  the  Air-  Ground  Radiotelephone  Service,  and  the  Commission  estimates  that  almost  all  of  them  qualify  as  small  entities  under  the  SBA  definition. 

 Offshore  Radiotelephone  Service.  This  service  operates  on  several  ultra  high  frequency  (UHF)  TV  broadcast  channels  that  are  not  used  for  TV  broadcasting  in  the  coastal  area  of  the  states  bordering  the 
 Gulf  of  Mexico.  At  present,  there  are  approximately  55  licensees  in  this  service.  We  use  the  SBA  definition  applicable  to  cellular  and  other  wireless  telecommunication  companies,  i.  e.,  an  entity 
 employing  no  more  than  1,500  persons.  319  The  Commission  is  unable  at  this  time  to  estimate  the  number  of  licensees  that  would  qualify  as  small  entities  under  the  SBA  definition.  The  Commission  assumes,  for 
 purposes  of  this  FRFA,  that  all  of  the  55  licensees  are  small  entities,  as  that  term  is  defined  by  the  SBA. 
 Multiple  Address  Systems  (MAS).  Entities  using  MAS  spectrum,  in  general,  fall  into  two  categories:  (1)  those  using  the  spectrum  for  profit-  based  uses,  and  (2)  those  using  the  spectrum  for  private  internal 

 uses.  With  respect  to  the  first  category,  the  Commission  defines  small  entity  for  MAS  licenses  as  an  entity  that  has  average  gross  revenues  of  less  than  $15  million  in  the  three  previous  calendar  years.  320 
 Very  small  business  is  defined  as  an  entity  that,  together  with  its  affiliates,  has  average  gross  revenues  of  not  more  than  $3  million  for  the  preceding  three  calendar  years.  321  The  SBA  has  approved  of  these 
 definitions.  322  The  majority  of  these  entities  will  most  likely  be  licensed  in  bands  where  the  Commission  has  implemented  a  geographic  area  licensing  approach  that  would  require  the  use  of  competitive  bidding 
 procedures  to  resolve  mutually  exclusive  applications.  The  Commissions  licensing  database  indicates  that,  as  of  January  20,  1999,  there  were  a  total  of  8,670  MAS  station  authorizations.  Of  these,  260 
 authorizations  were  associated  with  common  carrier  service.  In  addition,  an  auction  for  5,104  MAS  licenses  in  176  EAs  began  November  14,  2001,  and  closed  on  November  27,  2001.  323  Seven  winning 

 317  13  C.  F.  R.    121.201,  NAICS  code  517212. 
 318  Id. 
 319  Id. 
 320  See  Amendment  of  the  Commissions  Rules  Regarding  Multiple  Address  Systems,  Report  and  Order,  15  FCC 
 Rcd  11956,  12008    123  (2000). 
 321  Id. 

 322  See  Letter  to  Thomas  Sugrue,  Chief,  Wireless  Telecommunications  Bureau,  Federal  Communications 
 Commission,  from  Aida  Alvarez,  Administrator,  Small  Business  Administration,  dated  June  4,  1999. 
 323  See  Multiple  Address  Systems  Spectrum  Auction  Closes,  Public  Notice,  16  FCC  Rcd  21011  (2001). 
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 bidders  claimed  status  as  small  or  very  small  businesses  and  won  611  licenses. 
 With  respect  to  the  second  category,  which  consists  of  entities  that  use,  or  seek  to  use,  MAS  spectrum  to  accommodate  their  own  internal  communications  needs,  we  note  that  MAS  serves  an  essential  role  in  a 

 range  of  industrial,  safety,  business,  and  land  transportation  activities.  MAS  radios  are  used  by  companies  of  all  sizes,  operating  in  virtually  all  U.  S.  business  categories,  and  by  all  types  of  public  safety 
 entities.  For  the  majority  of  private  internal  users,  the  definitions  developed  by  the  SBA  would  be  more  appropriate.  The  applicable  definition  of  small  entity  in  this  instance  appears  to  be  the  Cellular  and 
 Other  Wireless  Telecommunications  definition  under  the  SBA  rules.  This  definition  provides  that  a  small  entity  is  any  entity  employing  no  more  than  1,500  persons.  324  The  Commissions  licensing  database 
 indicates  that,  as  of  January  20,  1999,  of  the  8,670  total  MAS  station  authorizations,  8,410  authorizations  were  for  private  radio  service,  and  of  these,  1,433  were  for  private  land  mobile  radio  service. 

 Incumbent  24  GHz  Licensees.  The  rules  that  we  adopt  could  affect  incumbent  licensees  who  were  relocated  to  the  24  GHz  band  from  the  18  GHz  band,  and  applicants  who  wish  to  provide  services  in  the 
 24  GHz  band.  The  Commission  did  not  develop  a  definition  of  small  entities  applicable  to  existing  licensees  in  the  24  GHz  band.  Therefore,  the  applicable  definition  of  small  entity  is  the  definition  under 
 the  SBA  rules  for  Cellular  and  Other  Wireless  Telecommunications.  This  definition  provides  that  a  small  entity  is  any  entity  employing  no  more  than  1,500  persons.  325  The  1992  Census  of  Transportation, 
 Communications  and  Utilities,  conducted  by  the  Bureau  of  the  Census,  which  is  the  most  recent  information  available,  shows  that  only  12  radiotelephone  (now  Wireless)  firms  out  of  a  total  of  1,178 
 such  firms  that  operated  during  1992  had  1,000  or  more  employees.  326  This  information  notwithstanding,  we  believe  that  there  are  only  two  licensees  in  the  24  GHz  band  that  were  relocated  from  the  18  GHz 
 band,  Teligent  327  and  TRW,  Inc.  It  is  our  understanding  that  Teligent  and  its  related  companies  have  less  than  1,500  employees,  though  this  may  change  in  the  future.  TRW  is  not  a  small  entity.  Thus,  only  one 
 incumbent  licensee  in  the  24  GHz  band  is  a  small  business  entity. 
 Future  24  GHz  Licensees.  With  respect  to  new  applicants  in  the  24  GHz  band,  we  have  defined  small  business  as  an  entity  that,  together  with  controlling  interests  and  affiliates,  has  average  annual  gross 

 revenues  for  the  three  preceding  years  not  exceeding  $15  million.  328  Very  small  business  in  the  24  GHz  band  is  defined  as  an  entity  that,  together  with  controlling  interests  and  affiliates,  has  average 
 gross  revenues  not  exceeding  $3  million  for  the  preceding  three  years.  329  The  SBA  has  approved  these 

 324  See  13  C.  F.  R.    121.201,  NAICS  code  517212. 
 325  See  id. 
 326  1992  Census,  Series  UC-  92-  S-  1  at  Firm  Size  1-  123. 
 327  Teligent  acquired  the  Digital  Electronic  Message  Service  (DEMS)  licenses  of  FirstMark,  the  only  licensee 
 other  than  TRW  in  the  24  GHz  band  whose  license  has  been  modified  to  require  relocation  to  the  24  GHz  band. 
 328  Amendments  to  Parts  1,  2,  87  and  101  of  the  Commissions  Rules  To  License  Fixed  Services  at  24  GHz, 
 Report  and  Order,  15  FCC  Rcd  16934,  16967    77  (2000)  (24  GHz  Report  and  Order);  see  also  47  C.  F.  R.    101.538(  a)(  2). 

 329  24  GHz  Report  and  Order,  15  FCC  Rcd  at  16967    77;  see  also  47  C.  F.  R.    101.538(  a)(  1). 
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 definitions.  330  The  Commission  will  not  know  how  many  licensees  will  be  small  or  very  small  businesses  until  the  auction,  if  required,  is  held. 
 700  MHz  Guard  Band  Licenses.  In  the  700  MHz  Guard  Band  Order,  we  adopted  a  small  business  size  standard  for  small  businesses  and  very  small  businesses  for  purposes  of  determining  their  eligibility 
 for  special  provisions  such  as  bidding  credits  and  installment  payments.  331  A  small  business  is  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  not  exceeding  $15 
 million  for  the  preceding  three  years.  Additionally,  a  very  small  business  is  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  that  are  not  more  than  $3  million  for 
 the  preceding  three  years.  An  auction  of  52  Major  Economic  Area  (MEA)  licenses  commenced  on  September  6,  2000,  and  closed  on  September  21,  2000.  Of  the  104  licenses  auctioned,  96  licenses  were 
 sold  to  nine  bidders.  Five  of  these  bidders  were  small  businesses  that  won  a  total  of  26  licenses.  A  second  auction  of  700  MHz  Guard  Band  licenses  commenced  on  February  13,  2001  and  closed  on 
 February  21,  2001.  All  eight  of  the  licenses  auctioned  were  sold  to  three  bidders.  One  of  these  bidders  was  a  small  business  that  won  a  total  of  two  licenses.  332 

 Multipoint  Distribution  Service,  Multichannel  Multipoint  Distribution  Service,  and  Instructional  Television  Fixed  Service.  Multichannel  Multipoint  Distribution  Service  (MMDS)  systems,  often 
 referred  to  as  wireless  cable,  transmit  video  programming  to  subscribers  using  the  microwave  frequencies  of  the  Multipoint  Distribution  Service  (MDS)  and  Instructional  Television  Fixed  Service 
 (ITFS).  333  In  connection  with  the  1996  MDS  auction,  the  Commission  defined  small  business  as  an  entity  that,  together  with  its  affiliates,  has  average  gross  annual  revenues  that  are  not  more  than  $40 
 million  for  the  preceding  three  calendar  years.  334  The  SBA  has  approved  of  this  standard.  335  The  MDS  auction  resulted  in  67  successful  bidders  obtaining  licensing  opportunities  for  493  Basic  Trading  Areas 
 (BTAs).  336  Of  the  67  auction  winners,  61  claimed  status  as  a  small  business.  At  this  time,  we  estimate  that  of  the  61  small  business  MDS  auction  winners,  48  remain  small  business  licensees.  In  addition  to  the 

 330  See  Letter  to  Margaret  Wiener,  Deputy  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless 
 Telecommunications  Bureau,  Federal  Communications  Commission,  from  Gary  Jackson,  Assistant  Administrator,  Small  Business  Administration,  dated  July  28,  2000. 

 331  See  Service  Rules  for  the  746-  764  MHz  Bands,  and  Revisions  to  part  27  of  the  Commissions  Rules,  WT 
 Docket  No.  99-  168,  Second  Report  and  Order,  15  FCC  Rcd  5299  (2000),  65  FR  17599  (Apr.  4,  2000). 
 332  Public  Notice,  700  MHz  Guard  Band  Auction  Closes,  DA  01-  478  (rel.  Feb.  22,  2001). 

 333  Amendment  of  Parts  21  and  74  of  the  Commissions  Rules  with  Regard  to  Filing  Procedures  in  the  Multipoint 
 Distribution  Service  and  in  the  Instructional  Television  Fixed  Service  and  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  Report  and  Order,  10  FCC  Rcd  9589,  9593    7  (1995)  (MDS 

 Auction  R&  O). 
 334  47  C.  F.  R.    21.961(  b)(  1). 

 335  See  Letter  to  Margaret  W.  Wiener,  Chief,  Auctions  and  Industry  Analysis  Division,  Wireless 
 Telecommunications  Bureau,  Federal  Communications  Bureau,  from  Gary  M.  Jackson,  Assistant  Administrator  for  Size  Standards,  Small  Business  Administration,  dated  March  20,  2003  (noting  approval  of  $40  million  size 

 standard  for  MDS  auction). 
 336  Basic  Trading  Areas  (BTAs)  were  designed  by  Rand  McNally  and  are  the  geographic  areas  by  which  MDS 
 was  auctioned  and  authorized.  See  MDS  Auction  R&  O,  10  FCC  Rcd  at  9608    34. 
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 48  small  businesses  that  hold  BTA  authorizations,  there  are  approximately  392  incumbent  MDS  licensees  that  have  gross  revenues  that  are  not  more  than  $40  million  and  are  thus  considered  small  entities.  337 
 After  adding  the  number  of  small  business  auction  licensees  to  the  number  of  incumbent  licensees  not  already  counted,  we  find  that  there  are  currently  approximately  440  MDS  licensees  that  are  defined  as 
 small  businesses  under  either  the  SBAs  or  the  Commissions  rules.  Some  of  those  440  small  business  licensees  may  be  affected  by  the  proposals  in  the  Further  Notice. 

 In  addition,  the  SBA  has  developed  a  small  business  size  standard  for  Cable  and  Other  Program  Distribution,  338  which  includes  all  such  companies  generating  $12.5  million  or  less  in  annual  receipts.  339 
 According  to  Census  Bureau  data  for  1997,  there  were  a  total  of  1,311  firms  in  this  category,  total,  that  had  operated  for  the  entire  year.  340  Of  this  total,  1,180  firms  had  annual  receipts  of  under  $10  million, 
 and  an  additional  52  firms  had  receipts  of  $10  million  or  more  but  less  than  $25  million.  341  Consequently,  we  estimate  that  the  majority  of  providers  in  this  service  category  are  small  businesses  that  may  be 
 affected  by  the  rules  and  policies  proposed  in  the  Further  Notice. 
 Finally,  while  SBA  approval  for  a  Commission-  defined  small  business  size  standard  applicable  to  ITFS  is  pending,  educational  institutions  are  included  in  this  analysis  as  small  entities.  342  There  are  currently 

 2,032  ITFS  licensees,  and  all  but  100  of  these  licenses  are  held  by  educational  institutions.  Thus,  we  tentatively  conclude  that  at  least  1,932  ITFS  licensees  are  small  businesses. 

 D.  Description  of  Projected  Reporting,  Recordkeeping,  and  Other  Compliance  Requirements. 

 The  NPRM  does  not  propose  any  specific  reporting,  recordkeeping  or  compliance  requirements.  However,  we  seek  comment  on  what,  if  any,  requirements  we  should  impose  if  we  adopt  the  proposals  set 
 forth  in  the  NPRM. 
 E.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities,  and  Significant  Alternatives  Considered. 

 337  47  U.  S.  C.    309(  j).  Hundreds  of  stations  were  licensed  to  incumbent  MDS  licensees  prior  to  implementation 
 of  Section  309(  j)  of  the  Communications  Act  of  1934,  47  U.  S.  C.    309(  j).  For  these  pre-  auction  licenses,  the  applicable  standard  is  SBAs  small  business  size  standard  for  other  telecommunications  (annual  receipts  of 

 $12.5  million  or  less).  See  13  C.  F.  R.    121.201,  NAICS  code  517910. 
 338  13  C.  F.  R.    121.201,  NAICS  code  517510. 

 339  Id. 
 340  U.  S.  Census  Bureau,  1997  Economic  Census,  Subject  Series:  Information,  Establishment  and  Firm  Size 
 (Including  Legal  Form  of  Organization),  Table  4  (issued  October  2000). 
 341  Id. 

 342  In  addition,  the  term  small  entity  under  SBREFA  applies  to  small  organizations  (nonprofits)  and  to  small 
 governmental  jurisdictions  (cities,  counties,  towns,  townships,  villages,  school  districts,  and  special  districts  with  populations  of  less  than  50,000).  5  U.  S.  C.    601(  4)-(  6).  We  do  not  collect  annual  revenue  data  on  ITFS 

 licensees. 
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 The  RFA  requires  an  agency  to  describe  any  significant,  specifically  small  business,  alternatives  that  it  has  considered  in  developing  its  approach,  which  may  include  the  following  four  alternatives 
 (among  others):  (1)  the  establishment  of  differing  compliance  or  reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification,  consolidation,  or 
 simplification  of  compliance  or  reporting  requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from  coverage  of  the  rule,  or  any  part 
 thereof,  for  small  Entities.  343 
 As  stated  earlier,  we  seek  to  minimize  regulatory  costs  and  eliminate  unnecessary  regulatory  burdens  to  the  deployment  of  spectrum-  based  services  in  rural  areas.  Therefore,  we  believe  that 
 modifying  or  eliminating  certain  rules  should  decrease  the  costs  associated  with  regulatory  compliance  for  licensees  and  increase  flexibility  in  a  manner  that  will  facilitate  access,  capital  formation,  build-  out 
 and  coverage  in  rural  areas.  We  therefore  anticipate  that,  although  it  seems  likely  that  there  will  be  a  significant  economic  impact  on  a  substantial  number  of  small  entities,  there  will  be  no  adverse  economic 
 impact  on  small  entities.  In  fact,  certain  of  the  proposed  rules  may  particularly  benefit  small  entities. 
 For  example,  the  NPRM  proposes  that  spectrum  in  rural  areas  that  is  leased  by  a  licensee,  and  for  which  the  lessee  meets  the  performance  requirements  that  are  applicable  to  the  licensee,  should  be 
 construed  as  used  for  the  purposes  of  this  proceeding  and  any  performance  requirements  we  adopt.  344  Although  adoption  of  this  proposal  would  benefit  both  small  and  large  entities  in  the  radio  services  where 
 leasing  is  allowed,  the  majority  of  businesses  in  these  radio  services  are  small  entities. 
 The  NPRM  further  proposes  a  substantial  service  construction  benchmark  for  all  wireless  services  licensed  on  a  geographic  basis.  345  We  believe  this  proposal,  if  adopted,  will  affect  small  and 
 large  entities  alike  by  providing  increased  flexibility,  particularly  in  rural  areas,  for  licensees  to  meet  their  performance  requirements. 

 In  addition,  the  NPRM  proposes  to  modify  the  eligibility  restrictions  on  the  use  of  spectrum  within  the  Basic  Exchange  Telephone  Radio  Systems  (BETRS)  to  allow  more  flexible  use  of  the 
 spectrum.  346  We  believe  this  proposal,  if  adopted,  will  provide  a  particular  benefit  to  small  entities  by  providing  current  BETRS  licensees,  of  which  a  majority  are  small  entities,  with  increased  flexibility  to 
 use  BETRS  spectrum. 

 343  5  U.  S.  C.    603  (c). 
 344  NPRM  at    20,  supra. 
 345  NPRM  at    35,  supra. 
 346  NPRM  at    115,  supra. 
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 In  the  NPRM,  then,  the  Commission  has  set  forth  various  options  it  is  considering  for  each  rule,  from  modifying  them  to  eliminating  them  all  together.  We  seek  comment  on  any  additional  appropriate 
 alternatives  and  especially  alternatives  that  may  further  reduce  economic  impacts  on  small  entities. 
 F.  Federal  Rules  that  May  Duplicate,  Overlap  or  Conflict  with  the  Proposed  Rules 
 None. 
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 APPENDIX  B:  PROPOSED  RULE  CHANGES 
 Part  22  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 1.  The  authority  citation  for  Part  22  continues  to  read  as  follows: 
 AUTHORITY:  47  U.  S.  C.  154,  222,  303,  309  and  332. 
 2.  Section  22.702  is  amended  to  read  as  follows: 
   22.702  Eligibility. 
 Existing  and  proposed  communications  common  carriers  are  eligible  to  hold  authorizations  to  operate  conventional  central  office,  interoffice  and  rural  stations  in  the  Rural  Radiotelephone  Service. 
 Subscribers  are  also  eligible  to  hold  authorizations  to  operate  rural  subscriber  stations  in  the  Rural  Radiotelephone  Service. 

 Part  24  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 1.  The  authority  citation  for  Part  24  continues  to  read  as  follows: 
 AUTHORITY:  47  U.  S.  C.  154,  301,  302,  303,  309  and  332. 
 2.  Section  24.203(  a)  is  amended  to  read  as  follows: 
   24.203  Construction  requirements. 
 (a)  Licensees  of  30  MHz  blocks  must  serve  with  a  signal  level  sufficient  to  provide  adequate  service  to  at  least  one-  third  of  the  population  in  their  licensed  area  within  five  years  of  being  licensed  and 
 two-  thirds  of  the  population  in  their  licensed  area  within  ten  years  of  being  licensed.  Alternatively,  licensees  may  provide  substantial  service  to  their  licensed  area  within  ten  years.  Licensees  may  choose 
 to  define  population  using  the  1990  census  or  the  2000  census.  Failure  by  any  licensee  to  meet  these  requirements  will  result  in  forfeiture  or  non-  renewal  of  the  license  and  the  licensee  will  be  ineligible  to 
 regain  it. 
 Part  90  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 1.  The  authority  citation  for  Part  90  continues  to  read  as  follows: 
 AUTHORITY:  Sections  4(  i),  11,  303(  g),  303(  r),  and  332(  c)(  7)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.  154(  i),  161,  303(  g),  303(  r),  332(  c)(  7). 

 2.  Section  90.155(  d)  is  amended  to  read  as  follows: 
   90.155  Time  in  which  station  must  be  placed  in  operation. 
 ***** 
 (d)  Multilateration  LMS  EA-  licensees,  authorized  in  accordance  with    90.353  of  this  part,  must 
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 construct  and  place  in  operation  a  sufficient  number  of  base  stations  that  utilize  multilateration  technology  (see  paragraph  (e)  of  this  section)  to  provide  multilateration  location  service  to  one-  third  of 
 the  EA's  population  within  five  years  of  initial  license  grant,  and  two-  thirds  of  the  population  within  ten  years.  Alternatively,  licensees  may  provide  substantial  service  to  their  licensed  area  within  ten  years.  In 
 demonstrating  compliance  with  the  construction  and  coverage  requirements,  the  Commission  will  allow  licensees  to  individually  determine  an  appropriate  field  strength  for  reliable  service,  taking  into  account 
 the  technologies  employed  in  their  system  design  and  other  relevant  technical  factors.  At  the  five  and  ten  year  benchmarks,  licensees  will  be  required  to  file  a  map  and  FCC  Form  601  showing  compliance  with 
 the  coverage  requirements  (see    1.946). 
 ***** 
 3.  Section  90.685(  b)  is  amended  to  read  as  follows: 
   90.685  Authorization,  construction  and  implementation  of  EA  licenses. 
 ***** 
 (b)  EA  licensees  in  the  806-  821/  851-  866  MHz  band  must,  within  three  years  of  the  grant  of  their  initial  license,  construct  and  place  into  operation  a  sufficient  number  of  base  stations  to  provide  coverage 
 to  at  least  one-  third  of  the  population  of  its  EA-  based  service  area.  Further,  each  EA  licensee  must  provide  coverage  to  at  least  two-  thirds  of  the  population  of  the  EA-  based  service  area  within  five  years  of 
 the  grant  of  their  initial  license.  Alternatively,  EA-  based  licensees  may  provide  substantial  service  to  their  markets  within  five  years  of  the  grant  of  their  initial  license.  Substantial  service  shall  be  defined  as: 
 Service  which  is  sound,  favorable,  and  substantially  above  a  level  of  mediocre  service. 
 ***** 
 4.  Section  90.767  is  amended  to  read  as  follows: 
   90.767  Construction  and  implementation  of  EA  and  Regional  licenses. 
 (a)  An  EA  or  Regional  licensee  must  construct  a  sufficient  number  of  base  stations  (i.  e.,  base  stations  for  land  mobile  and/  or  paging  operations)  to  provide  coverage  to  at  least  one-  third  of  the 
 population  of  its  EA  or  REAG  within  five  years  of  the  issuance  of  its  initial  license  and  at  least  two-  thirds  of  the  population  of  its  EA  or  REAG  within  ten  years  of  the  issuance  of  its  initial  license.  Alternatively, 
 licensees  may  provide  substantial  service  to  their  licensed  area  at  their  five-  and  ten-  year  benchmarks. 
 (b)  Licensees  must  notify  the  Commission  in  accordance  with    1.946  of  this  chapter  of  compliance  with  the  Construction  requirements  of  paragraph  (a)  of  this  section. 

 (c)  Failure  by  an  EA  or  Regional  licensee  to  meet  the  construction  requirements  of  paragraph  (a)  of  this  section,  as  applicable,  will  result  in  automatic  cancellation  of  its  entire  EA  or  Regional  license.  In 
 such  instances,  EA  or  Regional  licenses  will  not  be  converted  to  individual,  site-  by-  site  authorizations  for  already  constructed  stations. 

 (d)  EA  and  Regional  licensees  will  not  be  permitted  to  count  the  resale  of  the  services  of  other  providers  in  their  EA  or  REAG,  e.  g.,  incumbent,  Phase  I  licensees,  to  meet  the  construction  requirement 
 of  paragraph  (a)  or  (b)  of  this  section,  as  applicable. 
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 (e)  EA  and  Regional  licensees  will  not  be  required  to  construct  and  place  in  operation,  or  commence  service  on,  all  of  their  authorized  channels  at  all  of  their  base  stations  or  fixed  stations. 
 5.  Section  90.769  is  amended  to  read  as  follows: 
   90.769  Construction  and  implementation  of  Phase  II  nationwide  licenses. 
 (a)  A  nationwide  licensee  must  construct  a  sufficient  number  of  base  stations  (i.  e.,  base  stations  for  land  mobile  and/  or  paging  operations)  to  provide  coverage  to  a  composite  area  of  at  least  750,000 
 square  kilometers  or  37.5  percent  of  the  United  States  population  within  five  years  of  the  issuance  of  its  initial  license  and  a  composite  area  of  at  least  1,500,000  square  kilometers  or  75  percent  of  the  United 
 States  population  within  ten  years  of  the  issuance  of  its  initial  license.  Alternatively,  licensees  may  provide  substantial  service  to  their  licensed  area  at  their  five-  and  ten-  year  benchmarks. 

 (b)  Licensees  must  notify  the  Commission  in  accordance  with    1.946  of  this  chapter  of  compliance  with  the  Construction  requirements  of  paragraph  (a)  of  this  section. 
 (c)  Failure  by  a  nationwide  licensee  to  meet  the  construction  requirements  of  paragraph  (a)  of  this  section,  as  applicable,  will  result  in  automatic  cancellation  of  its  entire  nationwide  license.  In  such 
 instances,  nationwide  licenses  will  not  be  converted  to  individual,  site-  by-  site  authorizations  for  already  constructed  stations. 

 (d)  Nationwide  licensees  will  not  be  required  to  construct  and  place  in  operation,  or  commence  service  on,  all  of  their  authorized  channels  at  all  of  their  base  stations  or  fixed  stations. 
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 SEPARATE  STATEMENT  OF  CHAIRMAN  MICHAEL  K.  POWELL 

 Re:  Facilitating  the  Provision  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting  Opportunities  for  Rural  Telephone  Companies  To  Provide  Spectrum-Based 
 Services 
 Wireless  facilities-  based  providers  are  delivering  remarkable  competition  and  innovation  in  rural  markets.  However,  just  because  the  Commissions  policies  work, 
 does  not  mean  they  cannot  work  better. 
 Our  actions  over  the  past  few  months  dramatically  illustrate  our  resolve  to  bring  competitive,  quality,  spectrum-  based  services  to  rural  America.  Last  month  alone,  we 
 supported  a  series  of  items  that:  advanced  digital  TV  deployment  in  rural  America,  expanded  outreach  to  underserved  communities,  reported  on  the  state  of  rural  broadband 
 deployment,  reported  on  our  partnership  with  RUS,  and  announced  the  Rural  Wireless  Internet  Service  Provider  Forum  for  September  18.  And  today,  three  items  on  the  agenda 
   including  this  one    have  elements  aimed  at  advancing  the  Commissions  rural-  service  vision. 

 The  Notice  we  adopt  today  includes  initiatives  and  policies  aimed  directly  at  facilitating  access  to  capital  and  lowering  regulatory  and  market  barriers  to  spectrum  and 
 infrastructure  in  rural  areas.  This  Notice  also  seeks  comment  on  how  we  can  clarify  rules,  minimize  regulatory  costs,  and  provide  other  incentives  to  promote  service  to  rural 
 markets.  While  a  number  of  past  Commission  measures  have  been  intended  to  foster  the  deployment  of  wireless  services  throughout  the  country,  the  Notice  we  adopt  today  for 
 the  first  time  expands  upon  these  measures  and  will  help  ensure  that  rural  Americans  can  experience  the  breadth  of  wireless  service  offerings  currently  available  and  further  fulfill 
 the  Commissions  statutory  mandate  to  make  available,  in  a  rapid  and  efficient  manner,  communications  services  to  all  Americans. 
78
 Federal  Communications  Commission  FCC  03-  222 
 SEPARATE  STATEMENT  OF  COMMISSIONER  KATHLEEN  Q.  ABERNATHY 

 Re:  Facilitating  the  Provisions  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting  Opportunities  for  Rural  Telephone  Companies  to  Provide  Spectrum-  Based  Services,  Notice  of 
 Proposed  Rulemaking  (WT  Docket  No.  03-  202) 
 This  NPRM  is  the  next  step  in  our  examination  of  how  the  FCC  can  amend  its  spectrum  regulations  and  policies  in  order  to  promote  the  rapid  and  efficient  deployment  of  spectrum-  based 
 services  in  rural  areas.  It  follows  many  actions  that  we  have  taken  in  this  area,  including  the  recent  adoption  of  an  order  creating  a  secondary  market  for  spectrum  and  increasing  the  amount  of 
 spectrum  available  for  use  for  unlicensed  services,  such  as  wi-  fi. 
 Given  the  high  value  consumers  place  on  the  ability  to  communicate  anywhere,  anytime  the  Commission  wants  to  ensure  that  we  are  promoting  and  encouraging  the  efficient  utilization  of 
 spectrum  in  rural  areas.  Wireless  services  have  become  pervasive  in  many  of  our  day-  to-  day  lives  as  we  rely  on  them  for  personal,  business  and  safety  reasons.  Rural  America  has  the  same  needs 
 and  the  same  demand  for  better,  smarter,  faster  communications  capabilities. 
 I  am  looking  forward  to  reviewing  the  record  in  this  proceeding  to  understand  commenters  views  on  whether  the  proposals  promote  the  deployment  of  efficient  spectrum-  based  services  to  rural 
 areas. 
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 Federal  Communications  Commission  FCC  03-  222 
 SEPARATE  STATEMENT  OF  COMMISSIONER  MICHAEL  J.  COPPS 

 RE:  Facilitating  the  Provision  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting  Opportunities  for  Rural  Telephone  Companies  To  Provide  Spectrum-Based 
 Services;  2000  Biennial  Review  Spectrum  Aggregation  Limits  for  Commercial  Mobile  Radio  Services;  and  Increasing  Flexibility  To  Promote 
 Access  to  and  the  Efficient  and  Intensive  Use  of  Spectrum  and  the  Widespread  Deployment  of  Wireless  Services,  and  To  Facilitate  Capital  Formation. 

 I  would  like  to  thank  the  Chairman  for  continuing  to  move  forward  with  this  important  proceeding.  Over  the  past  several  years  I  have  noted  in  statements,  along  with  my  colleagues, 
 that  we  need  to  redouble  our  efforts  to  promote  wireless  service  in  rural  areas.  The  Commission  has  specific  and  significant  statutory  obligations  to  ensure  that  we  manage  the  spectrum  to  the 
 benefit  of  rural  Americans.  In  response,  the  Chairman  agreed  to  initiate  last-  years  NOI  in  this  proceeding,  which  has  now  yielded  this  important  NPRM.  So,  Id  like  to  thank  him. 

 I  support  this  NPRM,  whole-  heartedly  in  some  places,  with  reservations  in  others.  We  seek  comment  on  how  to  determine  what  areas  are  truly  rural.  We  propose  to  allow  higher  power 
 limits  in  areas  where  this  will  not  unduly  increase  interference,  in  order  to  give  rural  carriers  more  coverage.  We  discuss  the  benefits  of  auctioning  spectrum  on  an  RSA  basis,  and  ask  where  we 
 ought  to  do  so.  And  we  ask  how  we  can  work  with  RUS  in  a  more  constructive  way.  All  this  goes  down  the  right  track. 

 I  have  reservations  about  other  parts  of  this  NPRM.  For  example,  we  seek  comment  on  whether  we  should  eliminate  the  cellular  cross  ownership  rule  in  some  rural  areas.  I  am 
 concerned  that  it  may  be  a  mistake  to  eliminate  this  rule  and  rely  on  an  unpredictable  case-  by-case  review  process  that  it  not  guided  by  any  written  Commission  standards.  I  am  pleased  that 
 we  tentatively  conclude  to  keep  the  rule  in  markets  where  there  are  three  or  fewer  carriers.  Remember  that  while  many  cities  boast  six  competitors,  consumers  in  more  than  25%  of  U.  S. 
 counties  have  three  or  fewer  wireless  carriers  to  choose  from.  So  because  we  tentatively  conclude  to  maintain  the  rule  for  the  most  vulnerable  markets,  and  because  we  make  no  proposal 
 on  whether  to  eliminate  the  rule  elsewhere,  I  can  support  this  section  of  the  item. 
 I  am  most  concerned  that  the  NPRM  considers  allowing  companies  to  use  their  FCC  licenses  as  collateral  when  seeking  loans  with  the  RUS.  Spectrum  and  FCC  licenses  are  not 
 property.  They  should  not  be  property.  Congress  is  clear  on  this  matter.  If  we  allow  companies  to  grant  security  interests  in  licenses  we  will  be  taking  a  big  step  toward  spectrum  propertization. 
 This  NPRM  limits  it  questions  to  where  the  RUS,  a  part  of  the  federal  government,  is  the  holder  of  the  security  interest.  Because  of  this  limitation,  and  because  we  do  not  make  any  proposal  or 
 tentative  conclusion  on  the  matter,  I  will  support  the  item.  But  my  deep  concerns  with  granting  authority  to  use  FCC  licenses  as  collateral  remain.  In  fact,  they  grow  every  day.  This  policy 
 could  well  violate  the  Communications  Act.  I  do  not  see  how  we  can  allow  companies  to  use  licenses  as  collateral  without  violating  the  intent  of  Congress  to  keep  control  and  ownership  of 
 spectrum  and  licenses  in  the  hands  of  American  citizens  rather  than  private  interests. 
 From  the  time  I  first  called  for  a  proceeding  on  promoting  rural  wireless  up  to  today,  I  have  supported  creative  ways  of  achieving  this  goal.  But  we  have  to  do  some  cost-  benefit 
 analysis  here.  I  fear  that  allowing  the  use  of  security  interests  could  provide  precious  little  benefit 
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 Federal  Communications  Commission  FCC  03-  222 
 2 
 compared  to  the  potentially  large  cost  to  the  spectrum  management  system.  The  marginal  improvement  in  access  to  capital  may  be  small,  given  that  companies  today  can  already  grant 
 security  interests  in  stock  and  in  the  proceeds  of  a  license  sale.  But  the  costs  are  potentially  huge.  Allowing  security  interests  could  undermine  our  authority  in  Sections  301  and  304  of  the  Act. 
 The  FCCs  basic  ability  to  develop  wireless  policy  and  manage  interference  could  be  threatened.  If  a  court  is  convinced  that  an  FCC  decision  to  require  additional  CALEA  compliance,  E-  911 
 public  safety  actions,  or  to  change  operations  to  reduce  interference  unduly  puts  the  investment  of  a  security  interest  holder  at  risk,  could  that  court  tie  the  Commissions  hands?  If  so,  we  would  be 
 unable  to  do  our  job.  Finally,  after  NextWave,  we  should  be  wary  of  decisions  that  put  us  at  a  disadvantage  in  bankruptcy  disputes.  Yet,  allowing  security  interests  creates  great  uncertainty  in 
 this  context,  and  could  lead  to  the  Commission  being  unable  to  protect  public  funds  when  a  licensee  declares  bankruptcy. 

 But  this  section  of  the  item  merely  asks  questions.  Because  of  the  limited  nature  of  this  section  of  the  item,  because  we  are  not  considering  allowing  any  party  other  than  RUS  to  hold  a 
 security  interest,  and  because  of  the  presence  of  these  good  probing  questions,  I  can  support  this  section  of  the  item. 

 The  Bureau  has  done  a  good  job  seeking  comment  on  each  of  the  worries  that  I  just  mentioned.  I  also  want  to  acknowledge  and  thank  my  colleagues  for  working  to  make  this  a 
 better  item  as  we  went  through  the  deliberative  process.  I  hope  that  people  will  pay  attention  to  this  proceeding  and  file  comments.  I  want  to  especially  encourage  folks  who  share  my  doubts  to 
 respond  fulsomely  to  this  NPRM.  We  need  to  know  the  implications  of  this  decision  fully  before  acting.  We  certainly  do  not  have  the  answers  yet.  So  we  need  your  help. 
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 Federal  Communications  Commission  FCC  03-  222 
 SEPARATE  STATEMENT  OF  COMMISSIONER  KEVIN  J.  MARTIN 

 Re:  Facilitating  the  Provision  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting  Opportunities  for  Rural  Telephone  Companies  to  Provide  Spectrum-  Based  Services  (WT 
 Docket  No.  02-  381);  2000  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits  for  Commercial  Mobile  Radio  Services  (WT  Docket  No.  01-  14);  and  Increasing  Flexibility  to 
 Promote  Access  to  and  the  Efficient  and  Intensive  Use  of  Spectrum  and  the  Widespread  Deployment  of  Wireless  Services,  and  to  Facilitate  Capital  Formation. 

 I  have  always  maintained  that  one  of  the  Commissions  most  important  priorities  is  to  facilitate  the  deployment  of  communications  services  in  rural  America.  Wireless  services  are 
 particularly  critical  in  rural  communities  where  such  technologies  may  provide  not  only  the  most  efficient,  but  sometimes  the  only  practical  method  of  offering  communications  services. 
 Accordingly,  it  is  crucial  that  we  fulfill  our  obligation  to  promote  the  development  and  rapid  deployment  of  wireless  services  in  rural  America. 

 The  item  we  consider  today  raises  a  broad  set  of  questions,  ranging  from  how  to  define  rural,  to  whether  technical  changes  such  as  modified  power  limits  in  rural  areas  will  further  our 
 goals,  to  requesting  input  on  how  we  can  maximize  our  partnership  with  the  USDA  and  the  Rural  Utilities  Services  program.  I  am  glad  we  are  asking  these  questions  and  addressing  these 
 important  issues.  I  look  forward  to  seeing  the  comments  responding  to  this  NPRM. 
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 Federal  Communications  Commission  FCC  03-  222 
 SEPARATE  STATEMENT  OF  COMMISSIONER  JONATHAN  S.  ADELSTEIN 

 Re:  Facilitating  the  Provision  of  Spectrum-  Based  Services  to  Rural  Areas  and  Promoting  Opportunities  for  Rural  Telephone  Companies  to  Provide  Spectrum-  Based  Services;  WT 
 Docket  No.  02-  381 
 At  our  last  open  meeting,  we  shed  an  important  light  on  the  Commissions  ongoing  efforts  to  support  the  deployment  of  basic  and  advanced  telecommunications  services  to  those  Americans 
 living  in  our  Nations  rural  communities.  At  that  time  I  highlighted  my  goal  of  implementing  policies  that  provide  for  and  maintain  a  rural  telecommunications  system  that  is  second  to  none. 
 In  that  light,  I  am  very  pleased  to  support  this  Notice  of  Proposed  Rule  Making  (NPRM)  because  spectrum-  based  communications  can  play  such  an  integral  part  of  that  telecommunications 
 network. 
 The  NPRM  tackles  a  number  of  the  issues  that  I  believe  are  so  critical  to  promoting  the  provision  of  spectrum-  based  services  in  rural  areas.  Not  only  do  we  address  the  nuts  and  bolts  of  how  we 
 define  rural,  but  we  also  look  at  some  of  the  more  challenging  issues  such  as  performance  requirements  and  relaxed  power  limits  for  licensed  services. 

 I  am  particularly  supportive  of  the  request  for  comment  on  ways  the  Commission  can  support  the  USDAs  Rural  Utilities  Service  (RUS)  Telecommunications  Program.  As  I  mentioned  at  our  last 
 meeting,  I  had  the  privilege  of  working  on  legislation  authorizing  and  providing  funds  to  the  RUS  for  deployment  of  broadband  services  in  rural  areas  when  I  was  a  staffer  in  the  Senate  as  part  of 
 last  years  Farm  Bill.  It  is  so  worthwhile  to  explore  how  the  Commission  can  support  the  wireless  applications  of  this  program,  as  I  truly  believe  that  spectrum-  based  services  offer  great 
 potential  to  Rural  America. 
 I  also  am  pleased  to  support  our  limited  question  on  the  ability  of  the  Commission  to  allow  security  interests  by  RUS  in  FCC  licenses.  I  very  much  appreciate  the  efforts  of  the  Wireless 
 Telecommunications  Bureau  staff  to  draft  a  section  that  presents  a  balanced  discussion  of  this  novel  issue.  I  take  very  seriously  Congress  charge  that  we  manage  the  nations  airwaves  because 
 spectrum  is  a  finite  public  national  resource,  with  characteristics  unlike  that  of  any  other.  The  Commission  always  must  retain  the  authority  and  flexibility  to  regulate  the  rights  and 
 responsibilities  of  its  licensees.  RUS,  because  it  also  is  part  of  the  Federal  Government,  may  be  an  appropriate  holder  of  a  security  interest,  particularly  as  it  is  my  understanding  that  RUS  retains 
 the  security  interests  it  holds  through  its  rural  loan  program.  I  believe  that  the  document  as  drafted  weighs  these  important  considerations  in  asking  the  questions  of  whether  or  not  we 
 should  or  even  can  allow  RUS  to  hold  security  interests  in  FCC  licenses. 
 Finally,  while  I  do  have  some  concerns  with  the  question  of  a  possible  modification  to  the  cellular-  cross  ownership  rule,  I  am  encouraged  by  the  tentative  conclusion  to  retain  the  rule  for 
 those  RSA  that  are  served  by  three  or  fewer  providers.  I  believe  that  we  have  set  the  bar  sufficiently  high  to  changing  the  rule  for  those  mobile  wireless  markets  that  are  served  by  the 
 fewest  providers. 
83