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                            Before theFederal Communications Commission
                         Washington, D.C.


In the Matter of                )
                                )
Rulemaking To Amend Parts 1, 2, 21, and 25)       CC Docket No. 92-297
Of the Commission's Rules to Redesignate)         
The 27.5-29.5 GHz Frequency Band, To)        
Reallocate the 29.5-30.0 GHz Frequency)
Band, To Establish Rules and Policies for)
Local Multipoint Distribution Service)
And for Fixed Satellite Services)
                                )
Petitions for Reconsideration of the)
Denial of Applications for Waiver of the)
Commission's Common Carrier Point-to-) 
Point Microwave Radio Service Rules)
                                )
Suite 12 Group Petition for     )       PP-22
Pioneer Preference              )




                    Second Report and Order, 
                  Order on Reconsideration, and
               Fifth Notice of Proposed Rulemaking


     Adopted: March 11, 1997                                           Released: March 13, 1997


Comment Date:       April 21, 1997
Reply Comment Date:   May 6, 1997


By the Commission: Commissioners Quello and Ness issuing separate statements;
                   Commissioner Chong approving in part, dissenting in part, and issuing a
                                      statement.                        Table of Contents

                                                        Paragraph

I.  INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . .1

   A. Overview . . . . . . . . . . . . . . . . . . . . . . . . .1
   B. Background . . . . . . . . . . . . . . . . . . . . . . . .5
   C. Summary of Decision  . . . . . . . . . . . . . . . . . . 13
      
      1. LMDS Service Rules and Related Decisions. . . . . . . 13
      2. Competitive Bidding Rules and Procedures. . . . . . . 14

II. LOCAL MULTIPOINT DISTRIBUTION SERVICE  . . . . . . . . . . 15

   A. Designation of Spectrum in 31 GHz Band . . . . . . . . . 15

      1. Background  . . . . . . . . . . . . . . . . . . . . . 15
      2. Comments  . . . . . . . . . . . . . . . . . . . . . . 20
      3. Decision  . . . . . . . . . . . . . . . . . . . . . . 35

        a. Summary . . . . . . . . . . . . . . . . . . . . . . 35
        b. Need and Usefulness of 31 GHz Spectrum for LMDS . . 38
        c. Extent of Incumbent Licenses and Services in 31 GHz Band 44

          (1) Number of Licensees  . . . . . . . . . . . . . . 44
          (2) Scope of Existing 31 GHz Services  . . . . . . . 52
          (3) Traffic Control Systems  . . . . . . . . . . . . 57

        d. Basis for Redesignation: Protection Status of
           Incumbents and Public Interest  . . . . . . . . . . 63
        e. Incumbent Accommodation Alternatives  . . . . . . . 69

          (1) Co-Existence with LMDS . . . . . . . . . . . . . 69
          (2) Relocation to 23 GHz Band  . . . . . . . . . . . 72
          (3) Proposed Band-Sharing Plans  . . . . . . . . . . 74

        f. Spectrum Sharing Plan . . . . . . . . . . . . . . . 79

          (1) Segmentation . . . . . . . . . . . . . . . . . . 80
          (2) LMDS Use and Protection  . . . . . . . . . . . . 85
          (3) Incumbent Licensee Use and Protection  . . . . . 88
          (4) Relocation and Modification Procedures . . . . . 91
          (5) Applications for New Authorizations and for
              Modifications or Renewals of Existing Licenses . 94
          (6) Rules  . . . . . . . . . . . . . . . . . . . . .104

        g. Application of NEPA . . . . . . . . . . . . . . . .106

   B. Licensing of Spectrum  . . . . . . . . . . . . . . . . .116

      1. Number of Licenses per Geographic Area  . . . . . . .116

        a. Background; Comments. . . . . . . . . . . . . . . .116
        b. Decision  . . . . . . . . . . . . . . . . . . . . .125

      2. Size of Geographic Service Areas  . . . . . . . . . .132

        a. Background; Comments  . . . . . . . . . . . . . . .132
        b. Decision  . . . . . . . . . . . . . . . . . . . . .135

      3. Spectrum Disaggregation and Geographic Partitioning .140

        a. Background; Comments  . . . . . . . . . . . . . . .140
        b. Decision  . . . . . . . . . . . . . . . . . . . . .144

      4. Eligibility . . . . . . . . . . . . . . . . . . . . .146

        a. Background  . . . . . . . . . . . . . . . . . . . .146

          (1)  NPRMs . . . . . . . . . . . . . . . . . . . . .146
          (2)  Comments  . . . . . . . . . . . . . . . . . . .152

        b. Decision  . . . . . . . . . . . . . . . . . . . . .157

          (1) Basis for Eligibility Restrictions . . . . . . .157
          (2) Effects of LEC and Cable Company Eligibility on
              Competition:  1,150 Megahertz Licenses . . . . .162

             (a) Market Structure for Local Exchange Telephony and 
               MVPD  . . . . . . . . . . . . . . . . . . . . .163
             (b) LMDS As a Source of Competition . . . . . . .170
             (c) Usefulness of Short-Term Eligibility Restrictions 176

          (3) Effects of LEC and Cable Company Eligibility on
              Competition:  150 Megahertz Licenses . . . . .  182
          (4) Effects of CMRS and MMDS Eligibility on Competition 183

        c. Eligibility Rules.. . . . . . . . . . . . . . . . .185

      5. Flexible Service and Framework for Licensing  . . . .200

        a. Scope of Services . . . . . . . . . . . . . . . . .200

          (1) Background; Comments . . . . . . . . . . . . . .200
          (2) Decision . . . . . . . . . . . . . . . . . . . .205

             (a) Flexible Service Definition . . . . . . . . .205
             (b) Telecommunications Services . . . . . . . . .210
             (c) Video Programming Distribution and 
                 Other Non-Common Carrier Services . . . . . .213

        b. Regulatory Framework for Licensing LMDS . . . . . .218

          (1) Background; Comments . . . . . . . . . . . . . .218
          (2) Decision . . . . . . . . . . . . . . . . . . . .221

      6. Application and Operating Rules and Procedures for LMDS228

        a. Background; Decision. . . . . . . . . . . . . . . .228
        b. Application Forms . . . . . . . . . . . . . . . . .231
        c. Public Notice . . . . . . . . . . . . . . . . . . .236
        d. Foreign Ownership Restrictions. . . . . . . . . . .240
        e. Initial Applications. . . . . . . . . . . . . . . .244
        f. Changing Regulatory Status. . . . . . . . . . . . .245

          (1) Amendments to Pending Applications . . . . . . .246
          (2) Modification Applications. . . . . . . . . . . .248

        g. Discontinuance, Reduction, or Impairment of Service252
        h. Fees. . . . . . . . . . . . . . . . . . . . . . . .256
        i. Equal Employment Opportunity. . . . . . . . . . . .258
        j. License Terms . . . . . . . . . . . . . . . . . . .259
        k. Renewal Expectancy. . . . . . . . . . . . . . . . .260
        l. Construction Requirements . . . . . . . . . . . . .263
    
          (1) Background; Comments . . . . . . . . . . . . . .263
          (2) Decision . . . . . . . . . . . . . . . . . . . .266

   C. Technical Rules and Requirements.. . . . . . . . . . . .273
        
      1. Frequency Coordination  . . . . . . . . . . . . . . .273

        a. Background; Comments  . . . . . . . . . . . . . . .273
        b. Decision  . . . . . . . . . . . . . . . . . . . . .277

      2. Polarization  . . . . . . . . . . . . . . . . . . . .282

        a. Background; Comments  . . . . . . . . . . . . . . .282
        b. Decision  . . . . . . . . . . . . . . . . . . . . .284

      3. Equivalent Isotropically Radiated Power . . . . . . .285

        a. Background; Comments  . . . . . . . . . . . . . . .285
        b. Decision  . . . . . . . . . . . . . . . . . . . . .289

      4. RF Emissions  . . . . . . . . . . . . . . . . . . . .292
        
      5. Spectral Efficiency . . . . . . . . . . . . . . . . .297

        a. Background; Comments  . . . . . . . . . . . . . . .297
        b. Decision  . . . . . . . . . . . . . . . . . . . . .301

   D. Competitive Bidding Rules and Procedures . . . . . . . .302

      1. Use of Competitive Bidding  . . . . . . . . . . . . .302

        a. Background; Comments  . . . . . . . . . . . . . . .302
        b. Decision  . . . . . . . . . . . . . . . . . . . . .304

      2. Competitive Bidding Issues  . . . . . . . . . . . . .307

        a. Competitive Bidding Design for LMDS Licenses  . . .307

          (1) Background; Comments . . . . . . . . . . . . . .307
          (2) Decision . . . . . . . . . . . . . . . . . . . .309

        b. LMDS Bidding Procedures . . . . . . . . . . . . . .311
         
          (1) Bid Increments and Tie Bids  . . . . . . . . . .312
          (2) Stopping Rules . . . . . . . . . . . . . . . . .315
          (3) Duration of Bidding Rounds . . . . . . . . . . .317
          (4) Bid Withdrawals  . . . . . . . . . . . . . . . .318
          (5) Activity Rules . . . . . . . . . . . . . . . . .319

        c. Procedural and Payment Issues . . . . . . . . . . .327

          (1) Upfront Payments . . . . . . . . . . . . . . . .328
          (2) Down Payments, Long-Form Applications, and Payment in Full 331
          (3) Bid Withdrawal, Default, and Disqualification Payments333

        d. Regulatory Safeguards . . . . . . . . . . . . . . .337
  
          (1) Transfer Disclosure  . . . . . . . . . . . . . .337
          (2) Anti-Collusion Rules . . . . . . . . . . . . . .338

        e. Treatment of Designated Entities  . . . . . . . . .340

          (1) Overview . . . . . . . . . . . . . . . . . . . .340
          (2) Installment Payments, Upfront Payments, Down
              Payments, and Unjust Enrichment  . . . . . . . .344
          (3) Bidding Credits and Unjust Enrichment  . . . . .355
          (4) Rural Telephone Companies  . . . . . . . . . . .362

   E. Preemption . . . . . . . . . . . . . . . . . . . . . . .364

      1. Background; Comments. . . . . . . . . . . . . . . . .364
      2. Decision  . . . . . . . . . . . . . . . . . . . . . .370

        a. Non-Common Carrier Services and Video Programming .374

          (1) General Standards  . . . . . . . . . . . . . . .374
          (2) Over-the-Air Reception Devices for Video Programming 376
                 
        b. Common Carrier Services and Telecommunications Services 378
     
          (1) General Standards  . . . . . . . . . . . . . . .378
          (2) Personal Wireless Service Facilities . . . . . .381

III. ORDER ON RECONSIDERATION OF WAIVER
    APPLICATION DENIALS  . . . . . . . . . . . . . . . . . . .383

   A. Background; Pleadings  . . . . . . . . . . . . . . . . .383
   B. Decision . . . . . . . . . . . . . . . . . . . . . . . .388

      1. Effect on Assigned Users  . . . . . . . . . . . . . .391
      2. Evaluation of Public Interest Arguments . . . . . . .397
      3. Claims Regarding Nature of Services and Types of Applicants 402

IV. FIFTH NOTICE OF PROPOSED RULEMAKING  . . . . . . . . . . .407

   A. Introduction . . . . . . . . . . . . . . . . . . . . . .407
   B. Discussion . . . . . . . . . . . . . . . . . . . . . . .410

      1. In General  . . . . . . . . . . . . . . . . . . . . .410
      2. Available License Area  . . . . . . . . . . . . . . .412
      3. Minimum or Maximum Disaggregation Standards . . . . .414
      4. Combined Partitioning and Disaggregation  . . . . . .415
      5. Construction Requirements . . . . . . . . . . . . . .416
      6. License Term  . . . . . . . . . . . . . . . . . . . .418
      7. Competitive Bidding Issues  . . . . . . . . . . . . .420
      8. Licensing Issues  . . . . . . . . . . . . . . . . . .423

V. PROCEDURAL MATTERS  . . . . . . . . . . . . . . . . . . . .425

   A. Regulatory Flexibility Analyses  . . . . . . . . . . . .425
   B. Paperwork Reduction Analyses . . . . . . . . . . . . . .428
   C. Ex Parte Presentations . . . . . . . . . . . . . . . . .433
   D. Pleading Dates . . . . . . . . . . . . . . . . . . . . .434
   E. Further Information  . . . . . . . . . . . . . . . . . .435

VI. ORDERING CLAUSES . . . . . . . . . . . . . . . . . . . . .436
    
APPENDIX A: Final Rules
APPENDIX B:  List of Existing Governmental and Private Business 31 GHz Licensees
APPENDIX C:  Initial Regulatory Flexibility Analysis
APPENDIX D: Final Regulatory Flexibility Analysis
APPENDIX E:  List of Pleadings


                         I. INTRODUCTION

A. Overview

     1.  This is the Second Report and Order in the Commission's ongoing proceeding to
establish and license Local Multipoint Distribution Service (LMDS), a fixed broadband point-to-
multipoint microwave service, in the 27.5-29.5 GHz band (28 GHz band).  We adopt, in part,
service rules proposed in the First NPRM and Third NPRM to govern the licensing and
operations of LMDS.  We adopt, in part, competitive bidding rules proposed in the Third NPRMto select among mutually exclusive applications for LMDS.  We also adopt, in part, proposals in
the Fourth NPRM to redesignate spectrum in the 31.0-31.3 GHz band (31 GHz band) for LMDS
and to impose eligibility restrictions on certain potential applicants.  We rule on petitions for
reconsideration of the Commission's dismissal of waiver applications in the First NPRM.  We
also adopt a Fifth Notice of Proposed Rulemaking proposing specific procedural, operational,
and administrative rules for the partitioning and disaggregation of LMDS licenses.

     2.  Our decision today will open the door for a new broadband wireless service.  The
technology developed for use in this frequency band provides very high subscriber capacity for
two-way video telecommunications.  There is sufficient capacity in the proposed LMDS system
designs to provide wireless competition to both local exchange carriers (LECs) and cable
television systems, even in urban areas.  In addition, based on the interest generated in LMDS by
entrepreneurs in the United States, LMDS has attracted attention and support from both
developed and developing countries around the world. LMDS developers offer the prospect of
modern wireless telephone systems, video distribution, and other communications services to
developing countries that do not have a wireline or cable infrastructure. 

     3.  We defer issuing a final Order on our Tentative Decision and Supplemental Tentative
Decision in the Third NPRM regarding CellularVision's pioneer preference request in the First
NPRM, and, instead, order the Wireless Telecommunications Bureau and the Office of
Engineering and Technology to initiate a peer review process.  Pursuant to Section 1.402(h) of
the Commission's Rules, the Chief, Office of Engineering and Technology, will select a panel of
experts to review CellularVision's technology and recommend whether the request should be
granted.  The Commission will establish, conduct, and seek the consensus of the panel pursuant
to the Federal Advisory Committee Act, and will evaluate its recommendations in light of all the
submissions and comments in the record.  In addition, panelists will have the authority to seek
further information pertaining to preference requests and to perform field evaluations, as
appropriate.

     4.  The Commission makes no warranties about the use of this spectrum for particular
services.  Applicants should be aware that a Commission auction represents an opportunity to
become a Commission licensee in this service, subject to certain conditions and regulations.  A
Commission auction does not constitute an endorsement by the Commission of any particular
services, technologies, or products, nor does a Commission license constitute a guarantee of
business success.  Applicants should perform their individual due diligence before proceeding, as
they would with any new business venture.

B. Background

     5.  In January 1991, the Commission granted the application of CellularVision's
predecessor-in-interest, Hye Crest Management, Inc., for a license to provide LMDS in the 27.5-
28.5 GHz frequency band covering the New York City Primary Metropolitan Statistical Area
(NYPMSA).  The application was granted pursuant to waiver of the point-to-point rules in Part
21 in order to allow a fixed cellular point-to-multipoint operation for video distribution (wireless
cable).  The licensee was granted waivers of Sections 21.108 (directionalization and bandwidth
requirements) and 21.700 (status eligibility).

     6.  CellularVision is currently providing competitive video distribution service within its
assigned service area.  The licensee is also planning to implement telecommunications service. 
Approximately 975 applications similar to Hye Crest's were filed between February, 1991 and
October, 1992 requesting waiver of the point-to-point rules so that point-to-multipoint service
could be offered.  The Commission implemented a freeze on the acceptance of applications for
common carrier point-to-point microwave service in the 28 GHz band in an order released
October 29, 1992, to stop the filing of additional waiver applications.

     7.  This rulemaking proceeding was initiated by three petitions for rulemaking concerning
the 28 GHz band.  Harris filed a petition for rulemaking requesting that the Commission
channelize the 28 GHz band so that manufacturers of point-to-point equipment could standardize
their systems.  CellularVision filed a petition for rulemaking to change the point-to-point rules in
a manner consistent with its waiver so that point-to-multipoint video distribution service could
be offered on a regular basis in the band.  In response to CellularVision's petition, Video/Phone
filed a petition for rulemaking proposing a broadband, on-demand video telecommunications
service.

     8.  The First NPRM was released on January 11, 1993.  In it, the Commission considered
the three petitions for rulemaking.  The Commission tentatively concluded that redesignation of
the fixed point-to-point use of the band to fixed point-to-multipoint could stimulate greater use of
the 28 GHz band, and proposed detailed service rules (other than technical requirements) for
implementation of LMDS.  The Commission did not specify what type of service would have to
be offered, indicating that the marketplace would best decide the use of this spectrum.

     9.  The Commission proposed two blocks of 1,000 megahertz each for LMDS.  This
proposal was based on CellularVision's existing technology.  However, because the 28 GHz
band is allocated on a co-primary basis with the Fixed Satellite Service (FSS) for uplinks, the
Commission also requested comment from satellite entities regarding the effect of redesignation
and the proposed rules on any proposed satellite use of the band.

     10.  In response to the First NPRM, a number of different uses were proposed for
terrestrial and satellite licensing.  The Commission considered various proposals for the 28 GHz
band and released the Second Notice of Proposed Rulemaking (Second NPRM) on February 14,
1994.  In it, the Commission found that the majority of parties supported the Commission's
finding of widespread interest in point-to-multipoint uses of the 28 GHz band, but also found
significant interest in the band on the part of the satellite industry.  Accordingly, the Commission
tentatively concluded that the public interest would be served by allowing both terrestrial and
satellite providers to co-exist in the 28 GHz band, and decided to begin a negotiated rulemaking
procedure to develop technical rules for sharing the band.  As a result, the Commission
established the LMDS/FSS 28 GHz Band Negotiated Rulemaking Committee (NRMC).

     11.  The NRMC met between July 26, 1994, and September 23, 1994; the Report of the
Committee, dated September 23, 1994, was presented to the Commission and is included in the
docket of this proceeding.  The results of the work of the NRMC indicated that LMDS and FSS
service uplinks (i.e., the ubiquitous subscriber transceivers) are not technically able at this time to
share the same spectrum, and that LMDS and feeder links to non-geostationary satellites
operating in the Mobile Satellite Service (MSS) could share the same spectrum, subject to
feasible sharing criteria.  The Commission released the Third NPRM on July 28, 1995, that
proposed to segment the 28 GHz band to permit both LMDS and FSS systems to operate and to
accommodate feeder links for certain MSS systems in the band.  We also proposed service and
technical rules revised from the First NPRM and competitive bidding procedures to choose
among mutually exclusive applications.

     12.  In the First Report and Order and Fourth NPRM, we adopted our proposal to
designate band segments in the 28 GHz band for several types of wireless systems and  cleared
the way for our consideration in this Report and Order of the proposed, outstanding service and
technical rules in order to implement LMDS.  We proposed to designate the 31 GHz band for
LMDS use on a primary protected basis.  We sought comment on whether the Commission
should adopt LMDS eligibility or use restrictions for incumbent LECs and cable operators within
their respective geographic service areas.  Those issues are resolved in this Order.

C. Summary of Decision  

  1. LMDS Service Rules and Related Decisions 

     13.  Following is a summary of our actions with respect to LMDS service rules and
related issues:

   Spectrum at 31.0-31.3 GHz is designated for LMDS, and incumbent licensees, other than
    Local Television Transmission Service (LTTS) licensees, are protected from harmful
    interference in the segments at 31.0-31.075 and 31.225-31.300 GHz.

   The LMDS spectrum (27.5-28.35 GHz, 29.1-29.25 GHz, and 31.0-31.3 GHz) will be
    licensed by the 493 Basic Trading Areas (BTAs) for a total of 1,300 GHz of spectrum per
    BTA.

   Two licenses, for 1150 megahertz and for 150 megahertz, will be awarded for each BTA,
    for a total of 986 LMDS licenses.

   All licensees will be permitted to disaggregate and partition their licenses pursuant to our
    general Part 101 assignment and transfer rules.

   There are no restrictions on the number of licenses a given entity may acquire.

   Incumbent LECs and cable companies may not obtain in-region 1,150 megahertz licenses
    for three years.

   LMDS includes both common carrier and non-common carrier services, and an applicant
    may request authorization in a license on a common carrier basis, a non-common carrier
    basis, or on both a common carrier and a non-common carrier basis in a single license.  

   LMDS licensees will be subject to liberal construction requirements.

   All petitions for reconsideration of our decision to dismiss the waiver applications made by
    entities seeking a license under Hye Crest Management are denied.

   As noted, we direct the Chief, Office of Engineering and Technology, to select a panel of
    experts to review CellularVision's technology and recommend whether its pioneer
    preference request should be granted.

  2. Competitive Bidding Rules and Procedures

     14.  Following is a summary of our actions with respect to LMDS competitive bidding
procedures:

   We will use simultaneous multiple round auctions for LMDS.

   We will announce by Public Notice prior to the LMDS auction the general guidelines for
    bid increments; we will use a simultaneous stopping rule; we will reserve the discretion to
    vary the duration of the bidding rounds or the interval at which bids are accepted; and we
    will use the Milgrom-Wilson activity rule with some variations.

   We delegate authority to the Chief, Wireless Telecommunications Bureau, to determine an
    appropriate calculation for the upfront payment, which the Bureau will announce by Public
    Notice.

   Winning bidders must supplement their upfront payments with a down payment sufficient
    to bring their total deposits up to 20 percent of their winning bid(s).

   There will be a substantial payment assessed if bidders withdraw a high bid, are found not
    be qualified to hold licenses after submitting a high bid, or default on payment of a balance
    due.

   We adopt installment payments and bidding credits for small entities participating in
    LMDS auctions.

            II. LOCAL MULTIPOINT DISTRIBUTION SERVICE
A. Designation of Spectrum in 31 GHz Band

  1. Background

     15.  In the First Report and Order and Fourth NPRM, we adopted a band plan that
designated the spectrum in the 27.5-30.0 GHz band (28 GHz band plan) for LMDS systems. 
However, we required that LMDS licensees restrict their operations to hub-to-subscriber trans-

mission in the 29.1-29.25 GHz segment.  Thus, LMDS licensees would not have 1,000 mega-

hertz of unencumbered spectrum.  We proposed to designate the 31.0-31.3 GHz (31 GHz) band
for LMDS on a primary protected basis, in order to ensure that there is adequate two-way
interactive capacity for the various proposed LMDS systems.  We requested comment on our
proposal to designate LMDS as a primary ``protected'' use at 31 GHz, which means that LMDS
providers would be entitled to interference protection from any other current authorized primary
user of the band.  We requested comment on any technical issues that LMDS operators might
encounter and possible measures for overcoming such technical difficulties associated with
LMDS use. 

     16. We addressed the extent to which the 31 GHz band is encumbered by existing ser-

vices and the possible impact of our proposal on these services.   We found that existing use is
light and concentrated in only a few areas, and that the majority of the licensees are local govern-

ments using the band to monitor and control traffic light facilities.  We concluded that our pro-

posal to make LMDS a protected service presupposes that incumbent licensees would continue to
operate on an unprotected basis as secondary to LMDS.  We found that overlaying LMDS oper-

ations in those areas where there are existing users raises potential interference problems that
could degrade the utility of such systems, as well as adversely affect the new LMDS operations.

     17. Consequently, we proposed a number of alternatives for accommodating incumbent
licensees without limiting the usefulness of the band for LMDS.  We pointed out that in adopting
the 31 GHz rules, we had directed entities that could not operate where there is a potential for
harmful interference to operate instead in other bands where protection is provided.  We stated
that the 31 GHz services are permitted in the 23 GHz band and requested comment on the reloca-

tion of incumbent 31 GHz systems to that band.  We asked whether incumbents should be enti-

tled to any recovery for reasonable relocation costs and, if so, if LMDS applicants should be
required to contribute to the recovery of such reasonable costs.

     18. Alternatively, we requested comment on whether there are any methods by which the
incumbent services could be accommodated without delaying, causing interference to, or limiting
the usefulness of LMDS at 31 GHz.  We pointed out that although incumbent licensees have
assumed all the risks of receiving interference, we nevertheless encouraged cooperation among
the LMDS providers and existing licensees in exploring any methods that would allow the
services to coexist without placing any economic or technical burdens on the LMDS providers. 
We also asked if there are existing mechanisms that will permit all of these services to share the
entire band.  Finally, we requested comment on whether we should accept any new applications,
modifications, or renewal applications in the 31 GHz services in light of the proposal to establish
a secondary status for these services.

     19. The following sections, in reviewing the record and presenting our decisions, address
several broad issues.  First, is there a need for 1,000 megahertz of unencumbered spectrum for
LMDS and, if so, does the 31 GHz band offer the best means of achieving this in combination
with spectrum at 28 GHz that we have already assigned to LMDS?  Second, if we utilize
spectrum at 31 GHz for LMDS, what is the nature of incumbent operations that will be affected
and what is the level of incumbent usage?  Third, how should we weigh the utility of these uses
as compared to LMDS?  Fourth, in making spectrum at 31 GHz available for LMDS, should
incumbents be relocated to other bands, or should some form of sharing the 31 GHz spectrum be
developed that balances the needs of incumbents and LMDS providers in a way that best serves
the public interest?

  2. Comments

     20.  Support for our proposal to redesignate, on a primary protected basis, the 31 GHz
band for LMDS is expressed by a variety of proponents of LMDS.  This includes satellite
systems represented by GE, Hughes, LMC, and Motorola, which argue that allocating an
additional 300 megahertz of spectrum for LMDS use is important to satisfy their spectrum
requirements and promote innovative satellite networks with a wealth of high-speed, broadband,
interactive services on demand within the United States and around the globe.  They state that
the additional unencumbered spectrum for LMDS will solve concerns created by the First Report
and Order, in which we provided that 150 of the 1,000 megahertz in 28 GHz would be shared on
a co-primary basis with NGSO/MSS feeder links.  

     21.  Support also is filed in comments of various groups and associations on behalf of
their members, including PTV, Ad Hoc RTG, and WCA.  PTV generally supports the
availability of the proposed spectrum for use by its public television station members.  Ad Hoc
RTG argues that we should designate 300 megahertz because of significant demand for the two-
way interactive services that LMDS can provide and that rural telephone companies seek to pro-

mote.  WCA points out that we correctly found that wireless cable operators, which it
represents, could use the additional spectrum for two-way LMDS services to provide local
telephone services in competition with local telephone companies.

     22.  Support for allocating an additional 300 megahertz for LMDS also was filed in
comments by HP, RioVision, and WebCel, which argue that the extra capacity is needed to
ensure the economic viability of an interactive LMDS system and accommodate the two-way and
symmetric broadband LMDS uses that are expected to compete with incumbent cable and
telephony services.  

     23.  CellularVision submits extensive comments in support of our proposal, which it
argues is an essential element of its efforts since 1991 to establish LMDS on sufficient spectrum
to develop the multiple potential uses for LMDS that are not yet ascertained.  CellularVision
initiated LMDS under the Pioneer's Preference authorized in the First NPRM, and anticipates
offering consumers the full range of two-way services intended by designating additional
spectrum for LMDS.  Its affiliate, CVTT, states that it developed the multi-faceted high-tech
LMDS technology and urges we promptly designate 31 GHz for LMDS so that industry will
develop the new equipment and applications to create commercially viable uses with the 28 GHz
spectrum.   Other developers of LMDS that submit comments in support are Endgate, M/A-
COM, TI, and Titan.  They urge us to promptly designate the additional spectrum in 31 GHz to
provide the technology sector with the assurance to develop and implement the services intended
for LMDS. 

     24.  In response to our request for comments on the technical adaptability of the band,
ComTech states that equipment costs would be higher if the 31 GHz band is used rather than 1
gigahertz of contiguous spectrum, because multiple antennas would be required rather than only
one.  RioVision is concerned as to what additional equipment may be required for two-way
transmissions in 31 GHz and how much the additional equipment will cost.  However,
CellularVision and CVTT assert that leading LMDS manufacturers, such as Philips, Titan, and
M/A-COM, are expected promptly to develop commercially viable applications and equipment
for use of the 31 GHz band in conjunction with their equipment for the 28 GHz band. 
However, they request that LMDS licensees be given the flexibility to deploy services that can
use the 31 GHz spectrum until the technology is developed for LMDS uses.  M/A-COM and
Titan confirm that they intend to commit research and development resources to develop com-

mercially viable hardware to be used in connection with the 28 GHz LMDS systems.  Endgate
asserts that the technical solution for antennas and active electronics is more difficult to design
and produce if the return link is within the 31 GHz band, but that solutions can be readily
developed once we designate the spectrum.

     25.  In response to our request for comments on proposals for accommodating incumbent
services authorized under the existing 31 GHz services, several of the comments argue that no
alternative provisions for protecting them from interference are warranted because incumbent
licenses are issued on a non-protected basis and thus they are secondary to any other service that
may operate on the band.  ComTech contends that if these licensees cannot operate on a non-
interference basis, it is their legal and financial responsibility to correct that interference.   GE
argues that they should be required to terminate operations or move to another band if it is
technically infeasible for current systems to coexist with LMDS.

     26.  CellularVision and TI argue that the licensees knowingly accepted such non-
protected licenses and have no legitimate expectation of protection in the face of harmful inter-

ference from LMDS.  Hughes argues that our proposal does not alter the legal standing of in-

cumbent licensees.  ComTech, RioVision, and TI object to any compensation if such licensees
are relocated, inasmuch as they are secondary users that must bear the impact of any interference
problems, and to any applications for licensing of such services or, as TI further argues, any
grandfathering of existing licensees. 

     27.  CellularVision, Endgate, and HP support our suggestion for cooperation among
LMDS interests and incumbent 31 GHz licensees to explore methods for allowing both tech-

nologies to coexist on the 31 GHz band.  HP is concerned about displacing existing services,
particularly local municipalities using the spectrum for traffic control, and suggests alternatives
that include splitting 31 GHz into two bands, establishing criteria for sharing that eliminates
potential interference, and relocating traffic signal systems to 28 GHz.  On reply, Cel-

lularVision submits a plan for sharing the band with incumbent users.  Endgate submits another
plan based on different segmentation for sharing the band with incumbents.   

     28. Opponents of our proposal to redesignate 31 GHz spectrum for LMDS include a vari-

ety of  proponents of existing 31 GHz services, as identified below.  As a general matter, parties
opposing our proposal argue that we underestimated the extent and importance of the incumbent
31 GHz services and licensees, in particular those governmental entities using the spectrum for
traffic and air pollution control.  They argue that the impact of LMDS operations as proposed
would undermine all existing operations and be contrary to the public interest.  Most oppose any
alternative that requires them to leave the 31 GHz band and subjects them to interference from
LMDS.  Most request that a plan be developed that allows them to continue existing services at
least in part of the band while providing LMDS with the spectrum needed.     

     29.  Several governmental entities submit comments in support of the continued use of 31
GHz for traffic control systems.  The municipalities include the Cities of Palm Springs, San Die-

go, and Topeka, which are licensees, and the City of Long Beach and the 
City and County of Honolulu, which are not licensees.  They all have purchased and installed 31
GHz radio links to interconnect signalized intersections with a Traffic Management Center in
systems that manage traffic incidents, congestions, and synchronization.  They intend to extend
the systems into growing areas.  They argue that their 31 GHz microwave systems are cost-
effective and inexpensive to install and maintain.  They request that we maintain their ability to
use the frequency for their traffic control systems and that we not permit LMDS to interfere with
such services, which would create undue hardships.  Many of the systems are part of Intelligent
Transportation Systems (ITS) promoted under Federal transportation goals.   
     30.  Comments also were filed on behalf of the State of California (by MSAPRC) and by
Nevada DOT.  MSAPRC argues that it has funded signal synchronization projects in 31 GHz
along heavily traveled, multijurisdictional arterial highways in Southern California as a specific
air pollution reduction strategy.  Nevada DOT is replacing an outdated traffic system throughout
the metropolitan Las Vegas Area, for which applications are pending, with a system that relies on
31 GHz channels for surveillance.  MSAPRC and Nevada DOT argue that the harmful interfer-

ence from LMDS would seriously impair such systems and they request we adopt a plan that per-

mits 31 GHz systems to continue to operate and grow. 

     31.  Comments also were filed by USDOT, through its ITS Joint Program Office, and by
SBA.  USDOT asserts that it and area governments are making major investments in new tech-

nologies to alleviate traffic congestion and that 31 GHz point-to-point microwave links are a sig-

nificant tool.  SBA argues that in the Initial Regulatory Flexibility Analysis (IRFA) in the Fourth
NPRM, we underestimated the number of small entities to be affected by our proposed rede-

signation of 31 GHz and failed to consider alternatives to displacing incumbent licensees.  They
oppose our proposal to redesignate the entire 31 GHz band exclusively to LMDS as against the
public interest and Federal goals promoting traffic management systems and clean air. 

     32.  IMSA is an organization that promotes the development and use of electrical
signaling and communications systems for public safety.  Its members include many governmen-

tal agencies.  IMSA submits extensive comments opposing the factual and legal basis of our
proposal.  ITE is an organization of transportation professionals that argues that our proposal
would adversely impact the development of ITS being promoted by USDOT as an alternative
traffic management tool.  IMSA and ITE request that we consider alternatives to displacing 31
GHz services and argue that continued access to the band is in the public interest.

     33. Four developers and sellers of equipment submit comments opposing our proposal. 
Sierra is the leading developer and supplier of 31 GHz technology.  It submits extensive com-

ments to demonstrate that our proposal is against the public interest and urging that 31 GHz
services be continued.  Comstat states that it recently installed three systems supplied by Sierra
and has invested in spare radio systems.  Sunnyvale specializes in traffic control equipment and
asserts that Sierra just completed development for it of a microwave unit that is now available in
the market to meet demands for 31 GHz technology.   They argue that our proposed redesig-

nation would render their equipment useless, because of the harmful interference from LMDS,
and urge us to permit 31 GHz services to continue.  ICE-G develops systems operating at 28
GHz and 40 GHz, and opposes designation of 31 GHz for LMDS on the grounds that 40 GHz is
better suited because of the equipment it has developed.

     34.  In response to our proposals for alternatives and for cooperation to achieve some
methods for coexisting, most comments request that we adopt a band-sharing plan that preserves
a part of the band for continuation of 31 GHz services.  On reply, Sierra submits a band-sharing
plan based on different segmentation and provisions than that of CellularVision.  The plan is
supported by IMSA, ITE, SBA, Sunnyvale, and USDOT.   

  3. Decision

    a. Summary

     35.  We conclude that it is in the public interest to protect incumbent licensees insofar as
it is possible to maintain the status quo in their existing operations, while allowing LMDS access
to the entire spectrum to initiate new communications service with wide-ranging advanced tech-

nologies.  We achieve this public interest objective through the following actions, findings, and
decisions in the succeeding sections of this Order.

     36.  First, we designate 300 megahertz of spectrum in the 31 GHz band to LMDS.  Sec-

ond, we conclude that incumbent licensees in the 31 GHz band do not presently use the spectrum
intensively, but that certain uses by State and local government agencies provide important ser-

vices to the public.  Third, we find that we must carefully balance these incumbent uses and the
potential value of LMDS in deciding upon the best means of resolving issues in this proceeding
in the public interest.  Fourth, we adopt a plan for use of the spectrum that includes features of
plans suggested in the record.  We find that incumbents cannot co-exist in the 31 GHz band with-

out protection from LMDS, and that relocation to the 23 GHz band or any other band is neither
practical nor suitable.  Most commenters support a band-sharing plan that accords incumbents
some protection from LMDS, while allowing LMDS to be designated to use the spectrum.

     37.  Fifth, although LMDS is accorded protection throughout the spectrum as we pro-

posed, we impose on LMDS the requirement to protect incumbent licensees from harmful inter-

ference in the two 75 megahertz bands at each end.  Incumbent and LMDS operators in the two
outer bands will negotiate to establish the necessary protections for each other.  Sixth, incum-

bents in the middle 150 megahertz, except those with temporary authorizations, may relocate to
the outer bands by modifying their licenses within 15 days after the effective date of rules
adopted in this Order, or pursue alternative service options.  Finally, we do not permit new
applications to be filed under our current 31 GHz licensing rules, and pending applications are
dismissed.  Incumbent licensees may continue their operations within the terms of their licenses,
as long as they do not expand or increase services.  While they may renew their licenses, they are
limited in their modifications.

    b. Need and Usefulness of 31 GHz Spectrum for LMDS

     38.  Sierra argues that our proposed designation of 31 GHz for LMDS is both excessive
and premature.  It contends that LMDS proponents have not justified a present need for 300
megahertz at 31 GHz nor the technical suitability for the band.  It asserts that the 1,000 mega-

hertz allotted on a primary or co-primary basis in the 28 GHz band is ample for LMDS at this
early stage of its development.  Sierra contends that wireless cable and local exchange services
must compete with highly advanced systems, and that the likelihood of success for LMDS entry
in these markets, as well as other proposed LMDS uses, is too conjectural to warrant taking 31
GHz spectrum away from its current users.  Sierra requests that we continue our efforts described
in the First Report and Order to acquire access to spectrum below 27.5 GHz for LMDS.   ICE-
G requests that we also reconsider designating LMDS at 40 GHz, which it argues is well suited
for LMDS uses.

     39. In the First Report and Order, we concluded that additional spectrum was needed
outside the 28 GHz band for LMDS because the comprehensive 28 GHz band plan we adopted
did not provide the 1 gigahertz of unencumbered spectrum as originally proposed.  As
CellularVision states in its comments, the LMDS proponents consistently have demonstrated
throughout this proceeding that each LMDS operator must have at least 1 gigahertz of unen-

cumbered spectrum.  This is necessary to ensure LMDS can provide a competitive broadband
alternative to local exchange services offered by local telephone companies and to video pro-

gramming services provided by wireline cable operators.

     40.  We summarize in paragraphs 20 through 23, supra, all the LMDS proponents that
support our proposal, and they emphasize the necessity of acquiring additional unencumbered
spectrum because 150 megahertz of spectrum in the 1,000 megahertz block originally proposed
has been limited to downstream communications.  They describe the experimentation and
advancements in two-way services that require the 300 megahertz and that achieves our goal for
the full range of telecommunications and video services intended.  We conclude that it has been
sufficiently demonstrated that LMDS has greater potential in the marketplace if we provide the
additional spectrum we proposed for its licensing.

     41. The comments do not reflect any technical problems that are obstacles to use of the
31 GHz band by LMDS operators, nor the need for any measures to facilitate their deployment of
services in the band.  While LMDS proponents acknowledge that no LMDS equipment has been
specifically designed for the band, equipment manufacturers claim they are committed to devel-

oping the necessary hardware once we designate the 31 GHz band for LMDS use.  In addition,
HP contends that non-contiguous spectrum will enable interactive broadband services without
the need for costly diplexers and filters in the customer premises equipment.   Contrary to
Sierra's contentions, we find that 31 GHz is suitable for LMDS and can readily be used for
LMDS to compete with the full range of telecommunications and video programming services if
we provide the necessary spectrum.

     42. Several commenters support an alternative allocation of adjacent spectrum below 27.5
GHz for LMDS to provide a single contiguous band.  We considered this in the First Report
and Order where we directed Commission staff to continue discussions with NTIA to explore
the feasibility of shared use or reallocation of some portion of this band from the Government for
commercial usage.  No further developments have occurred since that time to make the
requested spectrum available to us for designation for LMDS use.  We believe that it would not
be in the public interest to delay the licensing of LMDS and the development of LMDS
equipment while we explore potentially speculative options for additional spectrum.  However,
we continue to support these efforts to explore the availability of additional spectrum.  

     43. As for the 40 GHz band, we considered the viability of the band for LMDS in the
First Report and Order and concluded that, while its immediate use was not established, we
would address possible long term uses in a pending proceeding that is reviewing frequencies
above 40 GHz.  No commenter has presented compelling reasons for us to revisit the issue. 
Insofar as other bands apart from 31 GHz are available at this time to assign to LMDS, we find,
based on our assessment of possible alternatives and based upon the record established in this
proceeding, that no adequate alternatives presently exist that would suffice for the expeditious
development of services contemplated for LMDS.  Sierra and other commenters opposing our
proposed approach have failed to identify any alternative sources of spectrum that could
reasonably be considered sufficient to meet our stated objectives in licensing LMDS.

    c. Extent of Incumbent Licenses and Services in 31 GHz Band

      (1) Number of Licensees

     44.  In the Fourth NPRM, we concluded that existing usage in the 31 GHz band appears
to be relatively light, geographically concentrated, and principally engaged in traffic signal
communications.  In providing a description and estimate in the IRFA of the small entities that
might be affected by our proposals, we concluded that the majority would be small entities that
are municipalities or other local governmental entities.  We stated that there are 27 such
incumbent licensees in the band and we estimated that 25 or 26 were small entities based on the
SBA definition of small municipalities, which have populations less than 50,000.  Sierra,
IMSA, SBA, and other commenters opposing our proposed redesignation of 31 GHz argue that
we have significantly underestimated the number of licensees, as well as the volume and extent
of the current 31 GHz services nationwide.

     45.  Specifically, Sierra states that we overlooked several licensees in the list of licensees
that were mailed copies of the Fourth NPRM and argues that our data base appears to be incom-

plete.  IMSA submits a list of a number of current 31 GHz licensees that reflects 70 rows of
names, generated from the Commission's data base, and asserts that there actually may be more. 
Sunnyvale submits a list of more than 40 electronic traffic control modules it has installed, and
another list of more than 40 locations where a larger number of installations are in process.  It
further argues that the license count does not reflect the inherent time delay in applying the
technology to the traffic control environment.  ITE and USDOT assert that about 40
communities have installed, or are installing, 31 GHz traffic control systems.  SBA asserts that
it was informed by Sierra that there may be as many as 100 incumbent licensees, both public and
private, in this band.  SBA submits a list prepared by Sierra of 27 dealers and resellers of Sierra's
equipment, which is used by incumbent licensees. 

     46.  We agree with Sierra and the other commenters that the number of  licensees we
included in the IRFA of the Fourth NPRM did not reflect the total number of current licensees
under the existing 31 GHz rules.  Based on a review of our current data base, we find a total of
86 licensees operating at 122 stations.  We note that the list of licensees submitted by IMSA is
similar, but out-of-date and does not identify many of the licensees.  Moreover, the list duplicates
several licensees by identifying each application and counting it separately. 

     47. We clarify that, in the IRFA, we were considering the number of incumbent licensees
that are small governmental entities that would be affected by our proposal to designate 31 GHz
for LMDS, rather than all of the incumbent licensees that might be small entities.  A review of
our current database reveals that existing licenses have been issued for three categories of 31
GHz services, as follows:

   LTTS provided by a variety of telephone and other communications companies.

   Governmental services including traffic control provided by municipalities, counties, and
    States.
  
   Private business uses provided by a variety of businesses and groups.

In the IRFA, we stated that 27 incumbent licensees were governmental entities.  However, we
correct that number under our current database that reflects that, of the total 86 licensees, 19 are
governmental entities and that 14 of them are municipalities of various sizes.  As for the remain-

ing number of licensees, our database reflects that 59 are LTTS licensees and 8 are private busi-

ness users. 

     48.  Sunnyvale identifies approximately 40 municipalities in which it has installed traffic
control devices.  However, we can find only approximately 12 on the list that are licensees and
are in our database.  Although it also submits the names of more than 50 governmental entities
where it has installations on contract and awaiting completion, we do not know how many of
those localities, if any, would become licensees.  Although ITE and USDOT also assert that 40
communities are using 31 GHz traffic systems, we note above that our database reflects a total of
14 licensed municipalities and we cannot otherwise verify commenters' figures.  It could be the
listings identify unlicensed users of the spectrum, a fact that may have escaped our monitoring
and enforcement efforts.  If users of 31 GHz spectrum have failed to apply for a license and are
not operating lawfully, they cannot expect to be included in our considerations here.  

     49. As for the list submitted by SBA identifying 27 dealers of Sierra's equipment, the list
does not indicate if any of them are licensees or if the equipment they sell is used by licensed 31
GHz services.  However, we note that Comstat is listed, and it filed comments.  Comstat states it
has installed three systems supplied by Sierra to carry critical information from facility to facility
and that were appropriately licensed through the Commission.  It claims that the customers
would have to move to other frequencies if we designated 31 GHz for LMDS as proposed and
that, as a result, the systems would be useless and its spare radio systems would be a total loss.

     50.  We realize that manufacturers of equipment used for existing 31 GHz services would
be affected by our proposal, which could require them to modify such equipment for other
spectrum or develop new equipment for other uses, such as LMDS.  Nevertheless, these
manufacturers are not included in the proposed rule changes, and they are neither subject to our
existing 31 GHz rules nor the proposed changes to the licensing of that band. SBA argues that
over a dozen of Sierra's resellers appear to be small businesses, but since it appears they are not
licensees and the impact of this rulemaking is unclear and indirect at best, we do not alter our
figures to include them in the number of existing services impacted by our proposed designation
for LMDS nor consider how alternatives could minimize such an impact if it did exist.

     51. We also clarify for Sierra that the licensees listed for mailing the Fourth NPRM omits
the LTTS licensees, but includes all the remaining licensees.  We find their omission from the
mailing list has no material effect on our considerations of our proposed designation.  In the
Fourth NPRM, we sought comment from all interested parties and discussed all incumbent
licensees, noting that 31 GHz spectrum is used as a radio link by broadcasters.  In this Report
and Order, we are considering all incumbent licensees and interests in determining whether our
proposal is in the public interest.

      (2) Scope of Existing 31 GHz Services

     52.  IMSA, Sierra, and Sunnyvale argue that we also underestimated the locations and
extent of all incumbent uses of 31 GHz spectrum when we stated in the Fourth NPRM that usage
appears light and geographically concentrated in a few areas of the Nation.  Sierra presents a
variety of arguments in support of its contentions, as follows.  It asserts that the traffic control
systems are used by more than 30 State, county, and city governments spread over at least 10
States and that many of them are large cities, counties, or States.  It contends that uses are not
limited to traffic lights and local area networks, and that non-governmental users are similarly
dispersed and provide an assortment of wireless voice, video, and data communication services
for private and common carrier applications.

     53.  Sierra also asserts that our proposal to designate the 31 GHz band for primary use by
LMDS ignores our goals when we adopted the service rules for 31 GHz in 1985 to meet commu-

nications needs unfilled by traditional service categories.  Sierra states that it provides the major-

ity of 31 GHz transmitters currently in use, that it is shipping 75 percent more equipment in 1996
than in 1995, and that it expects to ship four times more equipment in 1997 than in 1996.  It con-

tends that the market for private network equipment continues to double every two years and that
the wireless solution for short-range transmissions in 31 GHz is particularly economical and
preferable.

     54.  In addressing these arguments, we first seek to clarify the nature and scope of the ser-

vices that we authorized for 31 GHz in the Spectrum Utilization Second Report and Order.  As
we stated in the Fourth NPRM, we made the spectrum at 31 GHz available to satisfy various
short-range, fixed and mobile communications needs pursuant to reduced licensing and coordina-

tion requirements.  The examples included a common carrier using the band to establish a
temporary radio link to bypass an existing cable facility that has been disrupted or a broadcaster
establishing a radio link between a television camera and a mobile relay station needed by broad-

casters or cable operators.  To encourage expanded use of the band, we authorized operations on
a co-equal, non-protected basis.  Applicants specify whether operations are to be licensed on a
point-to-point basis or within an area of operation defined by a point and radius.  The rules im-

plementing the 31 GHz services are currently located in Part 101 for the private operational fixed
and LTTS microwave services, in Part 74 for auxiliary broadcasting services, in Part 78 for cable
television relay services, and in Part 95 for general mobile radio services.  The 31 GHz band is
one of several bands identified in the rules that are available for these services. 

     55. Our designation of the 31 GHz band for these services was part of an ongoing pro-

ceeding to establish a spectrum utilization policy for the use of certain bands between 947 MHz
and 40 GHz by fixed and mobile services.  However, just as we did in that docket, we have a
responsibility to revisit spectrum use to determine whether it is being put to the most efficient
and effective use in the public interest.  We have noted that our database reveals that current li-

censees fall into three categories of users, and all of them are regulated under Part 101.  Most are
LTTS licensees.  Unlike the other two categories of users, LTTS is licensed on a broad area basis
to provide temporary service for less than six months on an isolated, as-needed basis.  Service
may be offered only if licensees are able to clear their channels for use.  Thus, reliance on 31
GHz spectrum to meet these immediate needs is tenuous, since licensees must have alternative
services available if interference-free 31 GHz spectrum is not available.  Only eight licenses are
issued for private business uses, which are limited in scope to internal business uses.  As for the
remaining 19 governmental licensees, they provide traffic control services that all of the com-

ments address and that we discuss below.

     56.  Thus, although licensees may be dispersed nationwide and services scattered among
many States, most of those licenses are for services with no fixed location that are only tempo-

rary and secondary in nature.   All of the services are limited to very short range microwave ser-

vices that consist of simplified communication functions, which are not licensed only on the 31
GHz band.  We do not dispute the importance that some State and local governmental agencies
place on their utilization of 31 GHz for traffic control and other functions.  However, they are
limited to approximately 19 licensees and their operations are confined to localized services
scattered among seven States.  Based on an assessment of the nationwide availability of the
spectrum, it is apparent that the number of entities operating under the existing rules for 31 GHz
services is small and the locations are very few and confined.   

      (3) Traffic Control Systems

     57.  Most of the comments opposing our proposed designation of 31 GHz argue that the
band is being used by public safety entities to provide important traffic control services that are
being developed in furtherance of national traffic and air pollution control goals.  As indicated,
there are 19 licensees that are governmental entities and that are authorized to engage in such
services.  IMSA, ITE, Nevada DOT, SBA, Sierra, Sunnyvale, and USDOT argue that our pro-

posal fails to take into account the importance of the traffic control technology and systems in 31
GHz to public safety and pollution control.  Specifically, IMSA and Sierra argue that the
technology is becoming increasingly popular for effective traffic control systems which involve
video, voice, and other communications devices and that are significantly less costly than
traditional method of interconnecting signals using underground cable.  Sunnyvale recently
completed development of traffic control equipment with Sierra that is being promoted on the
market and that is in demand. 

     58. ITE argues that transportation professionals are involved in ITS programs funded by
USDOT, which use different technologies to improve transportation and promote more efficient
use of existing infrastructure by avoiding new highway construction costs.  ITE argues that 31
GHz traffic systems are used for ITS and that we should not change the use of the band without
making USDOT a partner in the decision making process.  USDOT asserts that use of point-to-
point microwave links has become a significant tool in the surveillance and control of the roads
by providing a data and video pipeline for traffic managers.  It asserts that the Federal and local
governments are making major investments in new technologies to alleviate traffic congestion
and urges that we protect existing and in-progress investments by allowing 31 GHz service to
continue on at least a portion of the spectrum.   SBA emphasizes the importance of our consid-

eration of the impact of our proposal on local governmental entities, which it contends are ex-

pected to grow significantly now that Sunnyvale's traffic control technology is available.  

     59.  Of the governmental entities that are licensed to use the spectrum for such traffic
control systems, MSAPRC indicates that it is funding such systems in Southern California.  Ne-

vada DOT established a traffic signal control system for the Las Vegas metropolitan area, which
has over 1 million population.  It has received authorization to operate in the 13 GHz and 18
GHz bands to transport video images in the system, and is awaiting authorization in the 31 GHz
band to extend the system around the control center.  The system will cost approximately $11
million and is expected to reduce air pollution and save costs over existing management systems. 
It argues that the video surveillance signals will be degraded without deployment of the 31 GHz
technology and the viability of the new network would be threatened. 

     60.  Of the municipalities, Palm Springs states it has licensed and installed 31 GHz radios
for the past two years involving 35 signals, with a plan for an additional 20 signals to be added in
the next year and for a total of 70 when the project is completed in three years.  It argues that the
systems are affordable, important to the public safety, and reduce exhaust emissions.  San Diego
recently completed installation of a signal system using 31 GHz to coordinate data between 13
intersections and a master traffic control system.  It argues that design and installation costs are
substantially reduced, maintenance costs are less, and the interconnect system is more effective
than others.

     61.  Topeka operates 42 radio links in the 31 GHz band as part of a system that controls
traffic lights throughout the city.  It asserts that it invested $165,000 in the system.  Although
Honolulu and Long Beach do not hold licenses, Lone Beach claims it has spend over $1.5
million to purchase 31 GHz radios that link 37 intersections to the Traffic Management Center
(TMC). Honolulu asserts that it depends on the 31 GHz bandwidth for communications between
its TMC and various signal sites, and that it is expanding its system into freeway and other
programs.  All the entities argue that adoption of our proposed designation would require them to
modify or replace equipment in order to use other technologies, at great expense to taxpayers.

     62. We find that commenters have demonstrated that the traffic control systems currently
using 31 GHz spectrum are an important category of incumbent services.  We recognized in the
Fourth NPRM that traffic signal communication is the most extensive incumbent use of 31 GHz,
which commenters confirm. These systems are used increasingly by state and local gov-

ernments to reduce congestion at busy intersections and combat air pollution by controlling
vehicle emissions under standards and goals established by the Federal Government.  In the
following sections we balance these incumbent interests with the interests that we believe make it
important for us to designate spectrum for new LMDS operations.

    d. Basis for Redesignation: Protection Status of
        Incumbents and Public Interest

     63.  In the Fourth NPRM, we sought comment regarding whether incumbents should be
relocated to another band where interference protection is provided by our rules, such as the 23
GHz frequency band, or whether incumbents could be accommodated by other methods without
affecting LMDS in the same band despite the fact that incumbents have assumed all the risks of
receiving interference.  IMSA, SBA, Sierra, and Sunnyvale argue that our reliance on the
present lack of interference protection at 31 GHz is no basis to displace the incumbent services
from 31 GHz and subject them to interference, for the first time, that would effectively eliminate
their services.  IMSA argues that we ignored in the Fourth NPRM both our intent in originally
allocating the 31 GHz band and the practical reality of 31 GHz operations under currently
applicable technical rules.  Sierra points out that, although 31 GHz users may have no legal
protection against interfering co-users, they are afforded effective protection against interference
by the technical rules.

     64.  All three categories of current licensees were licensed under rules that require they
share the frequency on a co-equal basis on a non-protected basis, without protection from
harmful interference.  However, as commenters assert, their operations in effect are free from
interference.  In the Spectrum Utilization Second Report and Order, we concluded that the proba-

bility of causing or receiving harmful interference at 31 GHz would be small because of the
technical requirements we imposed and the geographic diversity of use.  Our goal was to provide
for reduced licensing and coordination requirements for service providers utilizing the band,
giving each licensee equal access and no rights to object to harmful interference being caused by
any other licensed operation. 

      65.  Thus, as IMSA argues, it would appear that incumbent 31 GHz licensees engaged in
traffic control operations are not typical secondary spectrum users, inasmuch as all other catego-

ries of licensees in the band are not entitled to protection.  And among the current licensees, the
technical rules provide them with effective protection and immunity from the other licensed
operators.  Moreover, current licensing is not extensive, so that licensees experience little or no
impact from other 31 GHz licensees.  Despite their non-protected status, incumbent licensees are
not currently subject to interference and had no reason to anticipate a large degree of interference
under the existing licensing scheme.  

     66.  Sierra further argues that the fact that incumbents rely on technical rules for inter-

ference protection, rather than on more explicit rules barring interfering operations, is irrelevant
to the requirement that we make allocation decisions based on the public interest.  IMSA and
Sierra, among others, request that we consider fully the interests of the present users of 31 GHz
as reflected in this record, which they argue establishes that it would be contrary to the public
interest to adopt our proposal to redesignate the band for LMDS use on a primary basis.  IMSA
argues that although some public value is derived from the promotion of new commercial tech-

nologies such as LMDS, we cannot ignore the corresponding public detriment from displacing
important governmental services such as traffic signal coordination facilities in which a
considerable amount of taxpayer dollars is invested.

     67.  The public interest underlies any decision we make in allocating spectrum.  It is for
this reason we sought comment on alternative methods for accommodating incumbent spectrum
uses in the 31 GHz band.  Although we have found that implementation of LMDS generally is in
the public interest, we must weigh all the equities reflected in the record and balance any benefits
against any possible harms.  This applies equally to the incumbent services as to the LMDS
services.  As SBA points out, we are required to consider the impact of our proposed designation
on existing users of the spectrum, in particular small governmental entities and small businesses,
and consider alternatives that could minimize the impact of our proposals on them.  We find that
the traffic control systems serve important governmental services and are used to achieve
Federal, State, and local goals to relieve traffic congestion and air pollution.  We also find that 31
GHz licensees have existed co-equally and free from interference up until now.  Licensed
municipalities demonstrate they have substantial investments in signal systems using a number
of 31 GHz radio links, and could require protection of these public safety operations from
LMDS.

     68.  On the other hand, we held in the First Report and Order that LMDS is an important
new technology with a wealth of innovative services to meet a nationwide demand for improved
wireless telecommunications and video subscriber services.  It is expected to compete with local
exchange companies for telephone service and with cable carriers, greatly enhancing customer
choice and facilitating the rapid dissemination of innovative communications services.  We will
weigh all these considerations in the following sections in determining how to designate the 31
GHz band between these competing interests.

    e. Incumbent Accommodation Alternatives

      (1) Co-Existence with LMDS

     69.  We requested comment regarding how incumbent licensees might co-exist with
LMDS services under our proposal to designate the entire 300 megahertz in the 31 GHz band to
LMDS on a primary, protected basis.  For example, we asked if LMDS licensees would have suf-

ficient capacity to accommodate existing licensees as customers of their services.

     70.  Endgate maintains that, if the entire 300 megahertz is designated for LMDS as pro-

posed, incumbent users could begin to lease point-to-point spectrum from the spectrum owners. 
It contends that this has the advantage of guaranteeing interference-free operation.  
CellularVision and CVTT request that we ensure that LMDS licensees have the flexibility to
deploy services utilizing the 31 GHz spectrum during the period that the technology is being de-

veloped for LMDS use.  CellularVision argues that the flexibility to enter into post-auction
sublease agreements will ensure the most efficient use of the spectrum.  ComTech, RioVision,
and TI argue that existing licensees accepted their licenses with non-protected status and as such
would be secondary to LMDS and not entitled to compensation or other accommodation.  TI
contends that incumbents could continue to use the spectrum by engineering around LMDS to
resolve interference problems and notes that Topeka suggested relocating the radios it oper-

ates.

     71.  All of the comments that were filed opposing designation of the 31 GHz band to
LMDS are from parties interested in the traffic control uses of the band provided by govern-

mental entities under our existing licensing rules for 31 GHz.  Of these traffic control interests,
none of them believes that co-existence under our proposal is possible.  They argue that, if the
Commission accords LMDS access to the entire 300 megahertz on a primary protected basis, any
incumbent licensees are reduced to a secondary status and the interference from LMDS would
essentially eliminate their 31 GHz services.  They seek to avoid the costs of new or modified
equipment to either accommodate the interference or move to another service band.  Topeka, for
example, urges that we at least make provisions to ``grandfather'' public safety entities to protect
them from interference or provide compensation for equipment changes.  None of the
comments indicates if LMDS technology would be useful or could be modified to serve their
needs.

      (2) Relocation to 23 GHz Band

     72.  We asked for comments on various aspects of the 23 GHz band, its suitability, and if
incumbents should be entitled to relocation costs.  No comments present reasons to support a
move to the 23 GHz band.  IMSA, Sierra, and Topeka oppose the proposal and argue that the
band is not a suitable substitute for 31 GHz for a range of technical and financial reasons.  For
example, Sierra argues that the cost of modifying existing 31 GHz radios would be the same as
replacing them with new, more costly 23 GHz equipment.  Moreover, 23 GHz equipment must
be larger than 31 GHz, so that a 23 GHz antenna with a small enough beamwidth for efficient
frequency reuse is too big for existing housing and would require the development of new
casings before incumbents could relocate to 23 GHz.

     73.  As commenters point out, moving to the 23 GHz band would impose financial
hardships on incumbent licensees.  This is a large burden to impose on the tax-supported
municipalities and other governmental entities that use the traffic control systems in 31 GHz.  It
appears that the operations cannot be replicated in the 23 GHz band without considerable
changes to the 31 GHz equipment.  In these circumstances, we do not adopt relocation of
incumbent services to 23 GHz as an alternative at this time.  We will consider in the following
sections the plans submitted by the various parties for sharing the 31 GHz band through
compromises.

      (3) Proposed Band-Sharing Plans

     74.  CellularVision suggests that we modify our proposal to designate the entire 300
megahertz in the 31 GHz band for LMDS.  Instead, it proposes that we designate a total of 50
megahertz, from 31.0-31.025 GHz and 31.275-31.3 GHz, for point-to-point use on a primary
basis, and a total of 250 megahertz, from 31.025-31.275 GHz, for LMDS on a primary basis for
two-way service.  CellularVision suggests that LMDS licensees be given secondary access to the
50 megahertz designated on a primary basis for point-to-point use, based on its belief that LMDS
technology will not interfere with current 31 GHz use.

     75.  CellularVision submits a technical paper to demonstrate that two 25 megahertz seg-

ments are sufficient to accommodate use by the current systems and that operation on that basis
is technically feasible.  It argues that the paper demonstrates that the band is being used ineffi-

ciently by a small number of licensees and that, with an increase in frequency stability and use of
narrower channels, existing uses can be accommodated in only 50 megahertz.  In reply, Sierra
filed ex parte statements that address the technical requirements of incumbent traffic control
services and the need for a minimum of 120 megahertz for incumbent systems to operate.

     76.  Sierra and Sunnyvale offer a proposal set out by Sierra for sharing 300 megahertz in
the 31 GHz band.  The plan would designate a total of 150 megahertz to be retained for use by
existing and potential users for fixed service point-to-point microwave radios under the existing
31 GHz rules.  That spectrum would consist of 75 megahertz between 31.000-31.075 GHz and
75 megahertz between 31.225-31.300 GHz.  The middle 150 megahertz of the band would be
designated for LMDS use on a primary protected status.  The Sierra plan provides that the middle
150 megahertz would be designated for subscriber-to-hub operations to compensate for the 150
megahertz that was restricted against such operations in the 28 GHz band.  Sierra and Sunnyvale
claim that the plan offers equipment design benefits for LMDS because of the separation
between the 29 GHz and 31 GHz bands.  Although the frequency separation does make antenna
design more challenging, changes would be minimal because the total difference between the
upper ends and lower ends of the two bands is less than 2 gigahertz.  As for incumbent ser-

vices, Sierra does not anticipate harmful adjacent-band interference from LMDS use in the
middle sub-band.  Sierra asserts that the proposed plan should meet the technical needs of both
services.

     77.  Under the plan, current 31 GHz services would retain the use of the upper and lower
75 megahertz sub-bands under the same conditions to which they are currently subject, on an un-

protected basis and free of interference from LMDS.  LMDS would not be allowed to operate
there.  Incumbent point-to-point users in the middle block designated for LMDS could remain on
their present frequencies until they receive interference from, or cause interference to, LMDS
operations.  At that time, their equipment would be retuned, rather than replaced, to conform to
the new frequency plan and they would henceforth operate in the upper or lower 75 megahertz
bands.  All new point-to-point licenses would be issued in the two outer band segments.  Sierra
asserts that it offers the plan after consultation with LMDS interests.

     78.  Endgate supports the Sierra plan as a reasonable compromise of the various compet-

ing interests.  It argues that we should increase the existing 50 milliwatt power limit at 31 GHz to
approximately a 55 dBW limit.  IMSA, ITE, Nevada DOT,  SBA, and USDOT support the
plan, which they contend accommodates all the parties' interests while accomplishing the policy
goals of the Commission.  They argue that all users of the spectrum should be adequately ac-

commodated to best serve the public interest and assure equitable treatment of the public
agencies involved.  

    f. Spectrum Sharing Plan

     79.  Based on the considerations expressed in the record, we have decided to modify our
proposal to designate the 31 GHz band on a primary protected basis for LMDS.  Instead, we
adopt a plan to share the 300 megahertz based on features of both the plans submitted by
CellularVision and Sierra.  We find that a sharing plan is supported by the principal advocates of
both LMDS and incumbent 31 GHz services.  Although most of the LMDS commenters
generally support our proposed designation, none has filed pleadings in specific opposition to the
subsequently submitted plans.  As we had requested, the parties involved have cooperated and
produced alternative band sharing plans that they each contend would allow the services to coex-

ist without imposing economic or technical burdens on LMDS providers.  These are laudable ef-

forts that enable us to reach a decision that, while not relying exclusively on either proposed
plan, is more equitable and balanced.

      (1) Segmentation

     80.  We adopt our proposal to designate for LMDS the 300 megahertz of spectrum in the
31 GHz band.  However, rather than adopt our proposal to accord LMDS primary protected
status and incumbents secondary status for the entire 300 megahertz, we segment the band as
enumerated by Sierra for purposes of according protection from harmful interference, as
follows:

As discussed more fully below, we
grant LMDS protection from harmful
interference by incumbents or other
LMDS licensees in the middle 150
megahertz of the 31 GHz band.   We do
not grant any incumbent licensees
protection from harmful interference in
the middle 150 megahertz.  We provide
that the existing operations of governmental and private business incumbent licensees in the up-

per and lower 75 megahertz bands are to be protected from harmful interference from LMDS to
enable them to continue existing operations.   LMDS licensees in the upper and lower 75
megahertz bands will receive protection from harmful interference by other LMDS licensees and
from all incumbent licensees.  

     81.  We find that this spectrum division ensures sufficient spectrum to meet the needs of
both LMDS and incumbent licensees.  It has been sufficiently established that LMDS requires at
a minimum an additional 150 megahertz of unencumbered spectrum in order to compensate for
the 150 megahertz encumbered in the First Report and Order and to provide LMDS with the 1
gigahertz we found it needed for broadband service.  Although CellularVision has proposed that
LMDS be assigned 250 megahertz in the center of the band, it appears that this proposal was
based on its belief that two 25 megahertz segments are sufficient for incumbent systems. 
However, Sierra has demonstrated that this segmentation cannot accommodate most incumbent
operations.

     82.  According to Sierra, even major equipment modifications would not make sufficient
capacity available to manage certain kinds of inputs that are important to municipal licensees that
use their equipment for video monitoring.  It appears that an assignment of only 50 megahertz
to incumbents would make it difficult to avoid intra-system interference in certain system
configurations.  Sierra points out that a typical major intersection sends and receives data in four
directions, consisting of both directions along each street.  Thus, at least four frequency pairs are
required to allow proper frequency coordination to prevent individual radio links at the intersec-

tion from interfering with each other.  We conclude that CellularVision's segmentation plan
would be inadequate for important incumbent services.  

     83.  Sierra has stated that the 200 megahertz requirement for existing, four-frequency pair
traffic control installation equipment could be modified to accommodate four frequency pairs
within 150 megahertz, at a price accessible to existing municipal licensees.  Although Sierra
has indicated that it could modify its equipment to accommodate existing operations within 125
megahertz (with 62.5 megahertz at each end of the band), this would not be as satisfactory as
providing 75 megahertz at each end.  On balance, we find that the segmentation proposal
advanced by Sierra meets the needs of LMDS, while providing most incumbent licensees with
the spectrum needed to continue their important operations.

     84.  Sunnyvale requests that, if no compromise designation of spectrum is approved, we
initiate a negotiated rulemaking under Section 1.18 of the Commission's Rules.  Inasmuch as
we adopt a band sharing plan that reflects the segmentation requested by Sierra and provides the
protection that Sunnyvale seeks for incumbent licensees, we deny the request.  As a result, we
need not address Sunnyvale's argument that adoption of our original proposal to authorize 300
megahertz in the 31 GHz band would constitute a modification of the existing licenses in the
band by removing them from a co-equal status among approved users to a secondary status with
new users.  The band sharing plan we adopt allows incumbent licensees engaged in traffic con-

trol services, which Sunnyvale addresses, to continue operating in the amount of spectrum they
require without harmful interference from LMDS, thus preserving their status.

      (2) LMDS Use and Protection

     85.  We decline to adopt Sierra's proposal with respect to the limitations it seeks to im-

pose on LMDS access to the entire band.  We are adopting our proposal to designate the entire
300 megahertz for LMDS use, rather than designating only the 150 megahertz in the middle
segment, as Sierra requests.  There is no need to exclude LMDS from the outer 150 megahertz. 
LMDS is required to protect governmental and private business incumbent licensees in the outer
bands from harmful interference, which is to ensure that they are able to continue their existing
operations.  In the case of such incumbent licensees that are licensed on a point-to-radius basis,
LMDS licensees shall be subject to this protection requirement in the case of existing links
operated by such incumbents and in the case of links added by such incumbents in the future in
accordance with the terms of their point-to-radius licenses.  For example, an LMDS licensee may
not initiate operations within the point-to-radius area licensed to an incumbent, even if the
incumbent has not initiated operations to the fullest extent of the license.  An LMDS licensee,
however, may initiate operations at the border of the incumbent's license area without prior
coordination if the LMDS licensee's operations would not cause harmful interference to an
incumbent's existing operations.  In the future, the incumbent may add additional stations within
its license area and would need to coordinate if its new operations might cause harmful
interference to the existing operations of the LMDS licensee.  

     86.  We also adopt our proposal to provide LMDS with protected status in the entire 300
megahertz, rather than limiting it to only a primary protected status in the middle segment. 
Although LMDS may operate in the middle 150 megahertz without concern to the interference it
may be creating, it is to be concerned to a certain extent about interference in the outer bands in
order to protect governmental and private business incumbent licensees.  However,  we require
those incumbent licensees in the outer bands to also protect LMDS from harmful interference. 
This does not diminish their protection from LMDS, but does require both sets of licensees to
negotiate and arrive at mutually acceptable solutions to interference in the outer bands.  

     87.  We reject Sierra's proposal to limit LMDS operations in the middle segment to only
subscriber-to-hub service. This limitation would be inconsistent with our goal to provide LMDS
with the middle 150 megahertz on a primary protected basis to ensure that, when it joins this
band with the unencumbered 850 megahertz in the 28 GHz band, it has the spectrum required for
interactive communications and full development of LMDS technology and service.  Because of
the secondary status of incumbents in this middle portion, we find that limits on LMDS opera-

tions there would not necessarily help incumbents (without upgrading their status), but would
very likely thwart our goals for LMDS.  We therefore adopt no restriction in the 31 GHz band
with regard to the direction of permissible LMDS transmissions.  LMDS operators thus are
permitted to transfer information from hub-to-hub, hub-to-subscriber, and subscriber-to-hub.   

      (3) Incumbent Licensee Use and Protection

     88.  We have determined that a plan to share the 31 GHz band better meets the needs of
incumbents, rather than relocation of incumbents to another band.  All incumbents are permitted
to continue operating in the entire 300 megahertz of spectrum.  In addition, our rules do not
preclude an incumbent licensee from obtaining an LMDS license.  We decline to adopt
CellularVision's proposal to exclude incumbents altogether from the middle segment that is
assigned to LMDS.  That serves no purpose under the plan we adopt, which provides LMDS
with primary status in the middle segment.  Thus, LMDS has the protection it needs from harm-

ful interference to ensure an unencumbered segment of 150 megahertz, and the continued
operations of incumbents in this segment is of negligible impact.  

     89.  As for the two outer bands of 75 megahertz each, we do not include LTTS incumbent
licensees for protection from harmful interference from LMDS as we do for the remaining
incumbent licensees.  As discussed previously, our database reveals that 59 of the total 86
licensees under 31 GHz rules are LTTS, while the remaining 19 are governmental entities and 8
are private businesses.   Essentially all of the comments seek protection for the traffic control
systems established by the municipal licensees, while no comments address LTTS.  As we noted,
LTTS is unlike the other two categories of users because of the temporary, secondary nature of
the service.  We leave the status of LTTS licensees unchanged for several reasons.  Unlike the
municipal and other private business incumbent licensees, they provide short-term services on a
temporary basis and do not have the same type of permanent facilities or systems that we have
found should be protected.  Moreover, they currently operate on a secondary basis to any perma-

nent facilities wherever their temporary operations are set up.  Finally, they have broad authori-

zation that provides access to the entire band and would make it difficult to limit their protection
to a small geographic area.

     90.  All incumbents in the middle segment, and LTTS in the entire band, will be second-

ary to LMDS and may continue to operate within the existing parameters of their licenses.  How-

ever, should frequency conflicts arise with an LMDS system, all incumbents have several possi-

ble options for resolving the conflict.  The incumbent can modify its system to eliminate any in-

terference to LMDS systems, acquire the use of spectrum from the LMDS licensee through
geographic partitioning, transfer its operations to a different transmission medium, or lease ser-

vice or transmission capacity from a common carrier.    

      (4) Relocation and Modification Procedures

     91.  We seek to accommodate non-LTTS incumbents in the middle 150 megahertz seg-

ment that cannot alter their systems satisfactorily or are otherwise concerned about their second-

ary status to LMDS providers in that segment.  We provide an option for them to relocate to the
blocks of 75 megahertz at each end of the band in order to take advantage of the protection we
have provided non-LTTS licensees in those segments from harmful interference by LMDS li-

censees.  This relocation option will be available for a 15-day period following the effective date
of the rules adopted in this Report and Order, as set forth in paragraph 440, infra.  Because of the
fact that the rules adopted in this Report and Order will not take effect before the end of the 60-
day period following their publication in the Federal Register, we believe that incumbent
licensees will have sufficient time to determine whether to file license modifications in order to
relocate to the blocks of 75 megahertz at each end of the band.

     92.   Relocation from the middle 150 megahertz segment requires that the non-LTTS
incumbent apply for a modification of its license under the relocation procedure we adopt in this
Order.  Modification applications are to be filed by the end of the 15-day period commencing on
the effective date of the rules adopted in this Order.  Modification applications are filed in
accordance with the existing rules that govern the incumbent 31 GHz licensees in Part 101 of the
Commission's Rules.  Under our current rules, any such licensee filing a modification application
in accordance with this Report and Order will be required to implement any license changes
granted by the Commission not later than 18 months after the date of such grant.  Because the
incumbents are not authorized to provide service on a common carriage basis, their modification
applications are not subject to the public notice and petition to deny requirements of Section
101.37 of the Commission's Rules.  Thus, applications for modification of an incumbent's
license under the relocation procedure would be expedited.
  
     93.  We conclude that the relocation option and the license modification procedure we
adopt provide incumbent governmental and private business licensees in the middle 150 mega-

hertz segment with a reasonable opportunity to continue their operations in a manner that is not
unduly disruptive.  We note that Sierra proposed that incumbent licensees in this segment could
retune their equipment, rather than replace the equipment, to conform to the segmentation plan
we adopt and operate in the two 75 megahertz bands.  Our relocation option provides them
with this opportunity.  Sierra further requests that, as a matter of equity, we require LMDS li-

censees to pay for the retuning or other costs that might be incurred by incumbent licensees from
relocating within the band.  We adopted the segmentation plan based in part on Sierra's
comments that the costs of adjusting equipment for a move within the band to these 75
megahertz segments would not be significant.  Moreover, relocation to another spectrum band is
an option.  We will not require any compensation for relocation costs.

      (5) Applications for New Authorizations and for
          Modifications or Renewals of Existing Licenses

     94.   We sought comment on whether we should accept any applications for new licenses
or for modification and renewal of existing licenses under the existing 31 GHz rules, in light of
the secondary nature of the protected status of incumbent licensees to LMDS.  In Sierra's pro-

posed band-sharing plan, the incumbent services would be entirely preserved in the segments of
75 megahertz at each end of the band and future growth would be permitted under the existing
rules.  All comments from proponents of 31 GHz, which are the traffic control interests, support
Sierra's proposal and seek continued use of the band to expand existing operations or establish
new services under the existing rules.  

     95. ITE and USDOT argue that 31 GHz radio links are being used in the development of
ITS programs, which are expected to meet Federal traffic management goals at reduced costs
over the next 20 years.  They urge that we allow the continued use of these services and adopt the
Sierra plan, which serves the public interest by protecting public agencies that have invested
public funds in this technology and by promoting public safety.  Sunnyvale asserts that it
developed 31 GHz equipment with Sierra over six years that is now available for traffic control
systems to be used in ITS programs in furtherance of this Federal policy for improved traffic
management.  It argues that this equipment is becoming popular, as endorsed by Topeka.
 Nevada DOT plans to implement a large traffic system in the Las Vegas area of 1 million
population using 31 GHz equipment that it has funded.  Palm Springs, San Diego, and Topeka
plan to expand outside existing areas, as do Long Beach and Honolulu.   

     96.  IMSA and Sierra argue that, regardless of the outcome of this Report and Order,  we
should continue to accept new applications for 31 GHz licenses and, where LMDS is accorded
primary protected status, new licenses could be subject to the risk of interference.  IMSA, and
Topeka as well, argue that we should grandfather incumbent licensees to provide protection and
allow them to renew or modify their licenses to preserve the value of their investments in 31
GHz facilities.  Sierra argues that a freeze on applications is not supported by most LMDS
proponents and would serve no purpose, and argues that we should at least permit users to
squeeze what remaining value they can from their investments by renewing, modifying, expand-

ing, or constructing new systems subject to LMDS interference in that case.  

     97.  On the other hand, TI requests that we cease licensing new users in the 31 GHz band
and that we do not grandfather existing users, inasmuch as they are secondary users that should
not be elevated in status.  RioVision agrees.  ComTech contends that applications could be al-

lowed if we have accorded LMDS primary protected status and ensured that no interference will
ensue, but is concerned that resources could be strained by trying to deal with the interference
caused to LMDS by these operations.  HP asserts that further licensing could create confusion
in the band.

     98.  We have carefully considered the advantages and disadvantages of allowing applica-

tions for new and expanded 31 GHz services under the existing rules, but conclude that any
further growth and development of these services is inconsistent with the band-sharing plan we
adopt.  We have determined to designate all 300 megahertz for LMDS as necessary to fully
accommodate the development and deployment of LMDS, based on comments.  As TI and
WebCel confirm, the promise of LMDS is its significant broadband potential and any reductions
in the proposed spectrum block would delay the development of important equipment and limit
the ability of LMDS providers to offer very high bandwidth services.   Incumbents have
acknowledged the inherent incompatibility of their services with LMDS, which is likely to deter
interest in new services that have to share spectrum with such expanding and powerful systems. 
Expansion of  31 GHz services would likely have a chilling effect on the efforts of LMDS pro-

viders to establish and expand their services in response to consumer demand, seriously jeopar-

dizing our objectives in designating the band for LMDS.  
 
     99.  Under the band-sharing plan we adopt, government and private business incumbent
licensees are protected to the fullest extent possible in order to preserve their existing operations. 
Taxpayer investments and the public benefits being derived from these described systems should
not be jeopardized or diminished.  While many of the comments address specific or general plans
for future growth of traffic control systems, that cannot be accommodated under the plan because
of the uncertainties of such plans in the face of the need for LMDS to develop and utilize the
spectrum.  As Nevada DOT and USDOT indicate, traffic control systems are being developed for
a variety of bands and the technology is improving or changing rapidly.  It cannot be predicted
that 31 GHz would continue to offer the best technology, or that LMDS technology would not be
developed to suit some of these incumbent services.  Moreover, LMDS supporters indicated a
desire to accord access to their spectrum, either through leasing or other means through which
similar traffic control systems could grow.  On balance, we find the benefits of allowing the
expansion of incumbent licensees are outweighed by the harms to LMDS licensees of any future
growth of existing 31 GHz services.  
  
     100.  Given these considerations, we conclude that it is in the public interest, and in the
interest of all of the parties, to dismiss any pending applications.  A review of our database re-

flects that there are several pending applications, all of which were filed after the release date of
the Fourth NPRM and by new applicants not currently licensed.  Thus, these applicants were on
notice that the Commission was considering a change in our rules for the 31 GHz band.  Three of
the pending applicants with several applications are the State of Nevada and the Cities of Las
Vegas and North Las Vegas.  Although Sierra submits a list identifying 13 large installations
that it claims are pending, only the Las Vegas installations are included in our records as having
applications.   

     101.  In its comments, Nevada DOT has demonstrated that these pending applications are
for radio links that are an integral part of its traffic signal control system for the large metropoli-

tan area around Las Vegas, which has been underway for several months.  We recognize that our
dismissal may create unexpected disruptions and expenses with respect to implementing this plan
and achieving its traffic management goals for the area.  On the other hand, these consequences
would be less than the impact of expanding LMDS operations over such a system after it were
fully implemented.  Our obligation is to allocate the Nation's natural resource of its spectrum for
the most effective and efficient use.  It has been demonstrated that, in comparison with the
technology and demand for the kinds of services in LMDS, the extent to which the incumbent 31
GHz services have used this nationwide spectrum over the past 12 years in which it has been
available is minimal.  Given the rapidly changing marketplace and technology, Nevada DOT
may well have access to other technologies that equally suit its needs, while it has been spared
the unnecessary expense of implementing a system for which the future is at best uncertain. 

     102.  We permit incumbent licensees to renew their licenses in order to maintain their
operations.  We also permit them to continue to plan and conduct their operations to the full ex-

tent permitted under the current terms of their licenses, so long as they do not expand or increase
these operations.  Non-LTTS incumbent licensees are licensed either on a point-to-radius basis,
which establishes a radius of operations, or a point-to-point basis, which is linear.  To stay within
their existing service parameters, the radius licensees may add links within the outer bands, as
long as they do not go outside the radius.  The point-to-point licensees are engaged in fixed
operations provided by radio links between two points.  They may not add additional links and
are limited to whatever frequency pairs now exist.  With regard to LTTS licensees, we have
pointed out that LTTS is authorized nationwide without any designation of points to serve short-
term immediate needs.  LTTS operations in existence on or after the date our rules take effect
may continue those services, as well, but may not expand those services nor initiate new
operations.  

     103.  In these circumstances, we find that the kind of modifications that incumbent li-

censees may make to their licenses must be limited to ensure that they do not expand their
operations.  Accordingly, we will not allow the filing of applications to modify under Sections
101.57 and 101.59, because the modifications listed there include changing power, sites, and
other service aspects that could alter operations considerably and create additional problems for
LMDS.  Section 101.61 provides for modifications that do not require prior authorization and
allow for the replacing of equipment, as well as other changes, that would provide incumbents
with the flexibility to manage existing operations without expanding.  We amend Section 101.57
to exclude incumbents.   

      (6) Rules

    104.  We modify the rules for the licensing of 31 GHz services in order to eliminate future
licensing and provide for the continuation of existing services under the band-sharing plan we
have adopted.  As we have indicated, all incumbent licensees are governed by Part 101 of our
rules.  Inasmuch as no licensees are authorized under Parts 74, 78, and 95, we delete the
provisions at Sections 74.602(h), 78.18(a)(5), and 95.1(b) that authorize the assignment of the 31
GHz band for the services in those Parts, and make any other conforming amendments to those
Parts.  

     105.  As for Part 101, we amend the separate rules in Subpart J for LTTS by deleting the
31 GHz band as a band available for assignment in Sections 101.803(a), 101.803(d), and
101.803(e).  The technical rules for Part 101 that establish frequency availability, coordination
procedures, tolerances, bandwidth, transmitter power limitations, and frequency assignments are
further amended to delete the 31 GHz band as available for assignment and to preserve for all
incumbent licensees their access to the entire band, subject to renewal.  The amendments
provide for the sharing plan for 31 GHz by placing all incumbent licensees in a secondary status
to LMDS in the middle 150 megahertz band.  As for the outer segments of 75 megahertz, LTTS
incumbent licensees remain in a secondary status to LMDS while non-LTTS incumbent licensees
and LMDS licensees are equally protected from harmful interference.

    g. Application of NEPA

     106.  Both Sunnyvale and IMSA also contend that the National Environmental Policy
Act of 1969 (NEPA) and Section 1.1307(c) of the Commission's Rules, require that we
prepare an Environmental Impact Statement (EIS) prior to making a decision on the 31 GHz
spectrum proposal set forth in the Fourth NPRM.  They argue that the 31 GHz band is currently
used by governmental licensees for traffic video cameras and traffic signal controls, in part, to
reduce automobile idling time and consequent air pollution, and that these uses must be
preserved in order to facilitate these entities' compliance with Congressionally-mandated air
quality standards.  These commenters claim that our proposal to designate the 31 GHz spectrum
for LMDS, will have a ``significant impact on the quality of the human environment,'' requiring
an evaluation of that impact and consideration of alternative proposals, pursuant to Section 102
of NEPA and Section 1.1307(c) of the Commission's Rules.

     107.  We believe that the LMDS licensing plan, as modified and adopted in this Order,
does not constitute a major Federal action that will significantly affect the quality of the human
environment, and thus does not require the preparation of an EIS under Section 102 of NEPA. 
We have been persuaded by the comments that traffic control systems are an important category
of incumbent services, and thus we have taken several measures to mitigate the impact of our 31
GHz plan on such services.  Specifically, we have declined to adopt the proposal in the Fourth
NPRM for use of the 31 GHz band, which gave rise to the concerns expressed by Sunnyvale and
IMSA.  Instead, we have permitted the continued operation of traffic monitoring and control
systems by incumbent licensees in this band.  We thus believe that the adopted LMDS licensing
plan does not trigger NEPA, in that the licensing plan (1) maintains the status quo by allowing
governmental and private business incumbent licensees to expand their operations to the full
extent permitted under the terms of their present licenses and to renew those licenses, according
to their original terms and parameters, in order to maintain their operations; and (2) does not alter
or further impact the environment in any way.  Furthermore, as detailed below, alternative
measures and technologies exist that will enable the expansion of current operations by
governmental entities that hold existing licenses, as well as allow the introduction of such
systems by other governmental entities.  

     108.  We have considered alternative band sharing plans developed by several parties,
which they contend will allow LMDS and incumbent services to coexist, and we have adopted
some of the principal components of these plans.  We rejected CellularVision's proposal to
allocate two 25 megahertz segments in the 31 GHz band for incumbent use because we were
convinced by Sierra that such a plan would have allocated insufficient spectrum to avoid intra-
system interference in certain traffic control systems.   Under the 31 GHz plan adopted, all
incumbent licensees retain the use of the 31 GHz band, while the governmental and private
business licensees additionally are accorded protection in the two outer 75 megahertz segments
from harmful interference from LMDS.  The governmental and private business incumbent
licensees presently operating in the middle 150 megahertz segment of the band and accorded
secondary status with respect to LMDS in that segment have the option of relocating to the 75
megahertz segments where they, too, will be entitled to protection from harmful interference
from LMDS.  We believe that, under this plan, the traffic monitoring and traffic signal control
functions that Sunnyvale and others contend are vital to the environment can be maintained in
the band at their current levels, while allowing us to designate additional spectrum for LMDS.

     109.  The action we are taking allows the governmental and private business incumbent
licensees to expand their operations to the full extent permitted under the terms of their present
licenses and to renew those licenses, according to their original terms and parameters, in order to
maintain their operations.  This plan preserves the status quo.  Under our plan, incumbent
governmental licensees are authorized to continue using 31 GHz spectrum to operate traffic
monitoring and control systems.  The viability and usefulness of these systems is thus being
preserved by the rules and procedures we adopt in this Order.

     110.  We have considered the significance of our decision to prohibit incumbents from
seeking modifications to their present licenses in order to expand their operations beyond the
scope permitted by those licenses.  Incumbents hold either one of two types of licenses.  One
type of license specifies the coordinates of both the transmitting and the receiving stations, and
limits operations to those stations.  The second articulates the scope of licensed operations in
terms of an area of operations.  Our band sharing plan will necessarily have a greater impact
upon those incumbents holding point-to-point licenses.  Under the terms of the plan we are
adopting, incumbents with service area licenses will be permitted to add more transmitting and
receiving stations to their current operations, so long as those additions do not exceed the service
area boundaries, power levels, or other specifications set forth in the license.  Point-to-point
licensees, on the other hand, will be limited to the scope of their presently licensed operations
and will not be authorized to obtain additional point-to-point licenses.

     111.  Although our present approach does not permit governmental licensees to expand
their traffic monitoring and control operations through more extensive use of 31 GHz spectrum
acquired by applications for point-to-point licenses, we emphasize that current operations are not
disturbed by this limitation, such that the protection and preservation of the environment
resulting from these governmental traffic systems will continue on the same basis and to the
same extent as they do today.  Thus, we conclude that our plan, taken as a whole, will occasion
minimum disruption for most incumbent governmental operations.

     112.  We also note that a question exists whether there is sufficient causal connection
between our LMDS licensing decision and ambient air quality to say that our actions in this
proceeding could be the ``proximate cause'' of any impact on the human environment.  We note
that, under the present licensing scheme, an incumbent governmental licensee's expansion of its
traffic monitoring systems and a new governmental applicant's ability to use the 31 GHz
spectrum for such functions, are contingent upon their applying for and being granted a license. 
Furthermore, the removal of this opportunity cannot be said to be the proximate cause of the
vehicular and other pollution factors that have precluded their attainment of ambient air quality
standards established under the Clean Air Act.  Our action merely limits, to some extent, a
governmental entity's choice of methodologies for addressing one source of pollution and
consequent non-attainment -- vehicular pollution.

     113.  The number of incumbent licensees engaged in traffic control operations and thus
affected by this limitation on incumbent expansion is small.  Traffic control operations are
provided by governmental licensees, of which there are a total of 19 spread across seven States. 
It appears from our database that less than half of these governmental licensees are authorized on
a point-to-point basis.  Of these, only four are located in non-attainment areas requiring plans to
improve air quality in order to comply with the standards established by the Environmental
Protection Agency. 

     114.  A number of alternatives are available to these incumbents, if they wish to expand
their operations.  Specifically they could bid for and purchase the smaller, significantly less
costly 150 megahertz license in the competitive bidding process we are establishing in this
Order.  They also could acquire the use of spectrum from an LMDS licensee through spectrum
disaggregation or geographic partitioning of the LMDS license.  Furthermore, they could transfer
their operations to a different transmission medium, lease service or transmission capacity from a
common carrier, or expand their wired traffic control systems.  These alternatives are also
available to governmental entities that are not presently licensed in the 31 GHz band and whose
applications to commence such service are barred by the action we take here today.  These are
significant factors when weighing the impact of a regulatory action on the environment.

     115.  In sum, we do not believe that the LMDS licensing plan, as modified and adopted
herein, raises environmental concerns or otherwise affects incumbent governmental licensees'
continued operation of traffic monitoring and control operations, or the air quality controls for
which they are responsible.  Current operations are not disturbed by our licensing plan, and the
present level of air quality protection afforded by these operations is preserved.  We believe that
the impact of limiting the expansion of existing systems, and any resulting effect on air quality,
is minimal -- very few governmental licensees will be affected, and most of these are not located
in nonattainment areas.  Furthermore, all of these licensees have recourse to some other option
for monitoring and controlling traffic and minimizing air pollution.

B. Licensing of Spectrum
 
  1. Number of Licenses per Geographic Area

    a. Background; Comments
    
     116.  In the First NPRM, Third NPRM, and Fourth NPRM we sought comment on the
number of LMDS licenses we should authorize in each geographic licensing area.  In the First
NPRM, we proposed to designate 1,000 megahertz in the 28 GHz band for LMDS and, based on
the existing technology, proposed that the 28 GHz band be licensed in two blocks of 1,000
megahertz each to two different carriers.  In the Third NPRM we proposed that 150 megahertz
of the 1 gigahertz in the 28 GHz band be licensed on a co-primary basis with MSS feeder links
and sought comment on the number and size of licenses to make available in light of the
proposed change in designation.  We had noted that LMDS may be competing in a
multichannel video programming distribution market (MVPD) that is dominated by cable
television, but that is poised for the entry of several alternative distribution technologies, and
sought comment on whether, from a competitive standpoint, it would be advisable to authorize
only one LMDS license for 1,000 megahertz in each market.   We also asked whether the
advent of digital technology should affect our assessment of the minimum amount of spectrum
needed by a licensee to compete in the MVPD environment.  We discussed alternative
licensing schemes, and sought comment on the specific spectrum amounts that would be
required, were we to decide to license more than one LMDS provider in each market.

     117.  In the First Report and Order, we adopted our proposal to designate the 1,000
megahertz in the 28 GHz band for LMDS and to require that 150 megahertz be shared on a co-
primary basis with MSS feeder links.  Specifically, LMDS was accorded the primary designation
in the 850 megahertz located in the 27.5-28.35 GHz segment, while the segment of 150
megahertz at 29.1-29.25 GHz in the band is shared on a co-primary basis and limited to LMDS
hub-to-subscriber transmissions.   Because of the encumbrance of the 150 megahertz, we
proposed to designate an additional 300 megahertz of spectrum on a primary protected basis in
the 31 GHz band for LMDS.  We sought comment on how to assign this additional spectrum and
whether to treat it as a separate block or combine it with spectrum in the 28 GHz band to be
assigned as a single block.  We tentatively concluded to assign the proposed 31 GHz band and
the designated spectrum in the 28 GHz band as a single license block.

     118.  The majority of parties responding to our initial inquiry in the Third NPRM argue
that if LMDS providers do not receive a sufficient amount of spectrum, they cannot provide
competitive services in either the MVPD marketplace or in the local telephony marketplace. 
Many of these commenters contend that approximately 1,000 megahertz of spectrum is the
minimum amount necessary to create a commercially viable system that will enable LMDS
licensees to compete with ``wired'' cable television systems and other MVPD providers.

     119.  Because, in the First Report and Order, 150 of the 1,000 megahertz in the 28 GHz
band was allocated on a co-primary basis with MSS and LMDS subscriber-to-hub transmissions
were precluded in this segment, many of these commenters and others support our proposal to
designate the entire 300 megahertz in the 31 GHz band to LMDS and to auction it with the 1,000
megahertz at 28 GHz as a single license block.  They reason that this will enable LMDS
providers to take full advantage of technical innovation and offer the full panoply of services to
respond to marketplace needs.  No commenter focuses on or explains why it would be
necessary to assign all 300 megahertz (rather than 150 megahertz) to a single licensee, in order to
compensate for the encumbered nature of the 150 megahertz in the 28 GHz band.

     120.  Bell Atlantic points out that a few parties seek to use the designated spectrum in
smaller blocks.  It notes that some, such as Emc3, seek to use this spectrum for ``niche products,''
while others, such as NYNEX and WCA, seek to supplement their Multipoint Distribution
Service (MDS) spectrum.  In addition to Emc3, NYNEX, and WCA, several other parties
advocate segmenting the LMDS spectrum to create smaller blocks.  For example, Ad Hoc RTG,
PRTC, and WCA support our proposal to designate spectrum in the 31 GHz band for LMDS but
maintain that the 31 GHz block should be licensed as a separate unit in each LMDS service
area.  These parties contend that licensing the 31 GHz band as a separate block would facilitate
market entry by a greater number of LMDS providers and would increase market competition.

     121.  Should the Commission decide otherwise, however, Ad Hoc RTG requests that the
Commission afford rural telephone companies and other designated entities bidding credits and
installment plans, as in previous auctions, as a means of facilitating market entry by a greater
number of LMDS providers.  WCA recommends, as an alternative, that LMDS auction
winners be authorized to disaggregate their spectrum.  As we have discussed, Sierra states that
governmental licensees' vehicle control operations presently requiring 200 megahertz of capacity
could be conducted using only 150 megahertz of spectrum, with modifications to existing
equipment that would require only modest financial investments by these licensees.

     122.  Commenters also addressed the issue of smaller license blocks in the context of our
inquiry in the Third NPRM about the relevance of impending digital technology in formulating a
spectrum plan for LMDS.  NYNEX and others argue that, with the advancement of digital
technology, assignments of less than 1,000 megahertz of spectrum per licensee can be
channelized into viable commercial operations.  Emc3 argues that the 1,000 megahertz of
spectrum proposed for LMDS under the Third NPRM band plan could be divided into four
licenses of 212.5 megahertz each within the 27.5-28.35 GHz band, and three licenses of 50
megahertz each within the 29.1-29.25 GHz band.  According to Emc3, as little as
150 megahertz of spectrum could be used to provide a commercially viable communications
service by using digital technology; thus, the Commission should not support the inefficient use
of spectrum for LMDS by giving access to the full amount of LMDS spectrum for analog
technology.

     123.  GTE contends that, with the advent of digital technology, the optimum LMDS
licensing structure would be two equal, unaffiliated licensees in each market, with each licensee
having a primary assignment of 425 megahertz in the 27.5-28.35 GHz band and 75 megahertz of
co-primary assignment in the 29.1-29.25 GHz band.  WCA contends that the Commission
could license three LMDS providers per geographic service area, with two 425 megahertz
licenses and one 150 megahertz license.  WCA opposes establishing a single LMDS licensee per
market because it argues that this could effectively preclude certain services that are only
economically viable if the provider can acquire authorizations for less bandwidth.

     124.  The majority of commenters, however, urge the Commission to refrain from basing
our LMDS licensing plan on the development and impending availability of digital LMDS
technology.  These commenters argue that digital technology is not available in the near term,
and that approximately 1,000 megahertz per licensee is thus required in order to enable an analog
LMDS system to compete with incumbent MVPD providers and one-way and two-way voice
and data subscriber-based service providers.  Commenters also argue that even if digital
LMDS, once available, becomes as efficient as other digital technologies, LMDS providers will
still need at least 1,000 megahertz to compete in the cable and local telephony environments,
because the use of digital technology by competitors will also increase these competitors'
spectrum capacity.  CellularVision argues that even if digital technology may prove ultimately
to be appropriate for certain applications of LMDS, analog technology may remain most
appropriate for other applications of LMDS. 

    b. Decision

     125.  For the reasons discussed in the following paragraphs, we have decided that LMDS
potential can be exploited most effectively by assigning the 1,300 megahertz designated for
LMDS in two licensing blocks.  We base this decision in part on our conclusion that LMDS
spectrum promises significant versatility as a vehicle for increasing competition in the telephony
and cable programming markets, and has the capacity to meet the more circumscribed needs of
smaller operators and niche markets.  We will issue one license for 1,150 megahertz, consisting
of the 1,000 megahertz located in the 28 GHz band and 150 megahertz located in the center of
the 300 megahertz segment of the 31 GHz band.  We also will issue an additional, smaller
license for 150 megahertz, located entirely in the 31 GHz band and consisting of the two 75
megahertz segments located at each end of the 300 megahertz block.  LMDS licensees in the
smaller block will have to protect certain incumbent operations that exist in some localities under
the band-sharing plan we have adopted in this Report and Order.

     126.  As discussed later in this Report and Order, we adopt our proposal to base licensing
on the 493 geographic areas known as BTAs and to simultaneously auction the two licenses in
each BTA.  We conclude that establishing both a 1,150 megahertz and a 150 megahertz LMDS
license in each BTA is the most effective way to promote the public policy goals and objectives
of this proceeding.  Our principal goal in this rulemaking has been to increase the potential for
more competition in the video programming and telephony markets.  The promotion of
competition is the surest means of serving consumers through the delivery of an array of
offerings that is responsive to consumer demand for feature-rich video and telecommunications
services marked by high quality and reasonable prices.

     127.  We agree with those commenters favoring a minimum of 1,000 megahertz of
contiguous spectrum, or its equivalent, for an LMDS license and believe that the creation of a
1,150 megahertz LMDS license in each BTA achieves this goal.  The addition of 150 megahertz
in the 31 GHz band will compensate for the use restriction imposed on 150 megahertz in the 28
GHz band that will be licensed to both LMDS and satellite services on a co-primary basis.  This
increase in capacity should assist LMDS licensees in developing two-way services that will make
them viable entrants in the MVPD, voice, and data telecommunications marketplaces.

     128.  The creation of an additional 150 megahertz license in each BTA will also provide
benefits to consumers and other members of the public.  One possibility would be for the 150
megahertz license to be acquired by the same entity as the 1,150 megahertz license.  This would
accommodate the desire of commenters advocating that the Commission should assign one 1,300
megahertz license.  Alternatively, each license in a market could be acquired by a separate entity. 
Commenters claim that a license of smaller bandwidth would have the benefit of providing for
smaller operators, development of niche markets, and provision of services that would only be
economically viable under cheaper, narrower bandwidth licenses.

     129.  In addition to those benefits cited by commenters, we assign the spectrum for the
150 megahertz license from the outer segments of the 31 GHz band in order to reflect the band-
sharing plan we have adopted for 31 GHz and ensure our objectives are achieved.  The smaller
license will allow us to accommodate more easily the ability of incumbent governmental and
private business licensees to continue their existing operations in that spectrum segment on a
protected basis, while minimizing any potential disruption to larger LMDS operations in the
1,150 megahertz block.  We consider this minimization of disruptions to LMDS operations to be
an important aspect of achieving our goal of increasing competition in the MVPD, voice, and
data telecommunications marketplaces.  Under our band-sharing plan, incumbent governmental
and private business licensees presently using the 31 GHz band would have interference
protection from the holder of the smaller, 150 megahertz license, but would be accorded no
protection from interference by the operator holding the 1,150 LMDS license for that BTA. 
Moreover, the smaller license should make it easier for any incumbent licensee or entity
interested in continuing to have access to the 31 GHz band for incumbent services to acquire a
license for the redesignated spectrum under the LMDS licensing rules.     

     130.  In adopting this licensing plan, we generally agree with those commenters who
contend that the future development and availability of digital LMDS equipment should not be a
determining factor in limiting the spectrum available to each LMDS licensee.  Commenters
demonstrate that digital LMDS equipment is not commercially available for LMDS operations
on the 28 GHz spectrum, and is not yet developed for the 31 GHz spectrum.  In designating the
31 GHz band for LMDS, we noted that, although developers of LMDS technology expect to
make the 31 GHz band readily accessible for LMDS use, they seek the regulatory certainty of our
authorizing implementation of LMDS before fully committing the resources necessary to
develop commercially viable applications of spectrum.  It would not be in the public interest to
preclude LMDS licensees from using immediately available equipment by limiting too strictly
the amount of spectrum available to an LMDS licensee using analog equipment.  However, we
believe that the advent of digital technology does provide support for creating a second, smaller
license for each service area.  A 150 megahertz LMDS license could provide a less costly, hence
more easily accessible, forum for operators wishing to experiment with the use of digital
technology in LMDS.  Creating such an opportunity would encourage the development of more
efficient equipment that might provide greater service to the public.  We believe that our creation
of two licenses of unequal size accommodates these concerns and objectives.

     131.  Comments addressing the issue of eligibility raised in the Fourth NPRM are also
relevant to this licensing issue.  Ad Hoc RTG points out that the high cost of deploying fiber
and coaxial cable in remote areas makes LMDS the most likely alternative for video and
telephone services in rural areas.  NTCA points out that rural areas can be expected to be the
last to receive video programming services from large LMDS providers, however, because the
large size of BTAs will enable LMDS licensees, other than rural LECs, to ``neglect'' rural areas
until late in the license term.  The Alliance makes a similar claim with respect to the provision
of vital services such as voice, data, two-way video, teleconferencing, telemedicine,
telecommuting and global networks in rural areas.  These comments provide additional support
for creating a second, relatively small license for each BTA, as a less-costly vehicle for providing
vital telecommunications services to rural areas that might be ``neglected'' by larger LMDS
providers attempting to recoup, as rapidly as possible, the significant investments that acquisition
of a 1,150 megahertz license will require.

  2. Size of Geographic Service Areas

    a. Background; Comments

     132.  In the Third NPRM, we discussed the comments received on the proposal in the
First NPRM that we license LMDS based on Rand McNally Commercial and Marketing Guide
BTAs, and tentatively concluded that BTAs continue to appear to be the best geographic areas
for licensing LMDS.  We tentatively concluded that there is a reasonable likelihood that
LMDS services will have a local focus, and that BTA service areas would best approximate the
likely scope of LMDS services.  We proposed to use the 487 BTAs identified at that time by
Rand McNally, but to exclude from the New York BTA the area currently served by
CellularVision, and to add as additional areas for licensing the United States territories and
possessions over which we have jurisdiction:  the Virgin Islands, American Samoa, Guam,
Puerto Rico, and the Commonwealth of Northern Marianas.

     133.  The majority of commenters believe that using BTAs as geographical service areas
will result in greater economies of scale and that they best approximate the service markets to be
offered.  WCA argues that the desire of wireless cable operators to incorporate LMDS licenses
into their systems will be enhanced by establishing BTAs as LMDS service areas.  ComTech
supports our proposal to use BTAs, stating that these areas are manageable in size for small
businesses and that using these areas will increase the likelihood that rural areas will receive
service more quickly.  PTWBS argues that there should be no restrictions on the number of
BTAs a licensee may obtain at auction.

     134.  Several commenters, however, support the use of Metropolitan Statistical Areas
(``MSAs'') and Rural Service Areas (``RSAs'') as LMDS service areas, because they represent
manageable territories within which to initiate service.  GTE argues that by basing LMDS
licenses on smaller areas, an entity that has an economic reason to expand its area may do so
either through the auction process or through post-auction transactions.  According to M3ITC,
larger market areas will serve to eliminate or disqualify entrepreneurs wishing to enter the LMDS
industry because the financial requirements to provide service in them will be greater.

    b. Decision

     135.  We adopt our proposal to license LMDS based on BTA geographic service areas in
the 1992 Commercial Atlas and Marketing Guide, published by Rand McNally, that identifies
487 BTAs based on the 50 States.  We also adopt our proposal to add the six additional areas
for licensing over which we have jurisdiction and which we will include as BTAs; namely, the
U.S. Virgin Islands, American Samoa, Guam, San Juan, Puerto Rico, Mayaguez Puerto Rico, and
the Northern Mariana Islands.  While the total number of BTAs for licensing LMDS is 493, we
will exclude the New York BTA in which CellularVision currently is licensed from the initial
licensing of LMDS.   The request of CellularVision for a pioneer's preference is subject to a peer
review process we establish in this Report and Order and issues concerning its license are
pending the outcome of review.    

     136.  We conclude that BTAs serve as logical geographic areas for licensing LMDS
because they represent the natural flow of commerce, comprising areas within which consumers
have a community of interest.  In terms of the MVPD marketplace, we believe that the MVPD
market is no longer contained within the franchise area of local cable companies and will come
to encompass larger markets, even as they retain local content.  In addition, the advent of wire
and satellite broadband services has resulted in the expansion of regional and national markets
for video programming.  Our use of BTAs to license LMDS will enable LMDS licensees to have
a more level playing field in this environment of market ``regionalization,'' but it will also
preserve the delivery of local programming and other LMDS services to the relevant market
segments.  MSAs and RSAs, which were used for licensing Cellular Service, are much smaller
than recently adopted wireless geographic service areas, e.g., MDS and PCS.  Accordingly, we
conclude that their use for licensing LMDS might result in an unnecessary fragmentation of
natural markets.  While simultaneous multiple round bidding would permit the consolidation of
interdependent MSAs and RSAs, and licensees could acquire additional markets after the auction
through the assignment and transfer process, we believe that these options may result in
unproductive regulatory and transaction costs for the Commission and applicants.  The use of
BTAs alleviates these problems and ensures that LMDS providers can deliver services to the
marketplace in a timely and efficient manner.

     137.  We expect that many LMDS providers will seek to provide one-way and two-way
voice and data subscriber-based services over their systems in addition to providing video
programming services.  BTAs are a logical service area in which to provide such services for
several reasons.  First, we believe that most LMDS providers will seek to combine an array of
video programming services with one-way and two-way telecommunications and data services in
an effort to create packages of services that are competitive with those we expect to be offered by
incumbent LECs and cable providers.  By operating within BTAs, LMDS operators will be able
to tailor their combined service offerings to compete effectively with cable and
telecommunications services providers, because BTAs closely approximate areas where
consumers have a community of interest.

     138.  Second, we agree with commenters that BTAs afford licensees greater economies of
scale than smaller geographic service areas such as MSAs and RSAs. The ability to aggregate the
cost of core networks required to provide one-way and two-way interactive services over LMDS
systems allows LMDS providers to maintain a potential cost competitiveness with other
technologies, such as hybrid fiber-coaxial cable facilities and high speed twisted pair
transmission facilities.  Third, given the cellular structure of LMDS systems, we believe that
BTAs, each of which has a central, usually urban commercial center, are manageable from the
standpoint of establishing a network capable of providing an array of competitive services.

     139.  Finally, we believe that BTAs represent reasonable building blocks for establishing
an LMDS system capable of delivering an array of competitive services.  BTAs vary in size,
population, and demographics; therefore, we expect that there will be wide-ranging strategies for
acquiring service areas.  We expect that there will be prospective LMDS providers who wish to
serve areas larger than the typical BTA, and we will not restrict the number of BTAs a licensee
may acquire at auction.  We also expect that there will be prospective LMDS providers with
more limited business plans seeking a single BTA or a partitioned BTA.

  3.  Spectrum Disaggregation and Geographic Partitioning

    a. Background; Comments

     140.  Observing that continued technological improvements may reduce the amount of
spectrum required to provide a full range of services, we proposed in the Third NPRM that
LMDS licensees be permitted to disaggregate their licenses.  We asked commenters to address
how a licensee would accomplish such disaggregation, and what rules the Commission should
promulgate for licensing disaggregated spectrum.  We further requested parties to comment on
whether designated entity licensees that receive bidding credits in the auction or permission to
make installment payments should be permitted to disaggregate spectrum. 

     141.  In addition, we sought comment on our tentative conclusion that geographic
partitioning for any part of an LMDS licensing area would be in the public interest.  We
determined that the issue of geographic partitioning should be considered to enable LMDS
licensees to recoup some of their initial licensing and construction costs, while providing a
method for entities with specific local concerns or insufficient capital to purchase rights for the
entire service area, to acquire a portion of the geographic area originally licensed.  We also
determined that geographic partitioning may allow some areas, particularly rural areas, to be
served sooner than would otherwise be possible.

     142.  In their comments, CellularVision, GTE, HP, Nortel, PTWBS, and TI support the
Commission's proposal to permit the disaggregation of spectrum by LMDS licensees. 
ComTech proposes specific limitations on disaggregated licenses, including the proposal that
designated entities that received bidding credits and that disaggregate their spectrum be required
to pay the Commission the difference between what the designated entity paid and what the
payment would have been without the bidding credit.  NYNEX opposes disaggregation,
arguing that there is no compelling reason to develop rules in this proceeding that ``countenance
and facilitate the private brokering of spectrum,'' and repeats its belief that the Commission
should seek to determine the size of, and then auction, spectrum blocks that will support
economically viable service in late 1996 and beyond.

     143.  A number of commenters believe that geographic partitioning of any part of an
LMDS license is appropriate.  Some commenters argue that geographic partitioning will result in
faster build-out.  Ameritech contends that the relatively high cost of LMDS construction and
the shorter transmission paths it provides, in addition to the limitation of service to consumers
within reach of cell transmitters, lend support for the Commission's proposals with regard to
geographic partitioning.  Ameritech also states that permitting partitioning would essentially
make LMDS a potential architecture choice for cable operators who otherwise would not likely
provide service in areas of less dense population.  In support, ComTech urges the Commission
to ensure that newly created licensees meet both existing build-out requirements and payments if
the geographic area was purchased from a designated entity.  Although supporting the use of
MSAs and RSAs, GTE states that, if BTAs are used, the Commission should allow geographic
partitioning only on an all-or-nothing basis, so that a licensee would be required to partition all of
its spectrum in a given area to the new licensee.

    b. Decision

     144.  We conclude in general that all LMDS licensees shall be permitted to disaggregate
and partition their licenses, and we also propose in the Fifth Notice of Proposed Rulemaking
specific procedural, administrative, and operational rules to govern the disaggregation and
partitioning of LMDS licenses.  We also note, however, that those taking advantage of
designated entity provisions will be subject to certain restrictions.

     145.  We believe that affording licensees the flexibility to disaggregate and partition their
licenses will encourage spectrum saving, encourage more rapid deployment of services in the
LMDS spectrum, and leave the decision of determining the correct size of licenses to the
licensees and the marketplace.  Licensees are in the best position to analyze their business plans,
to assess new technology, and to determine customer demand.  As a result, we believe that
permitting disaggregation and partitioning will promote efficient use of LMDS spectrum. 
Moreover, the nature of the LMDS cell structure makes disaggregation and partitioning powerful
tools for licensees to concentrate on core areas or to deliver services to isolated complexes, such
as rural towns or university campuses, that do not lie within major market areas.  We further
believe that disaggregation and partitioning will provide opportunities for small businesses
seeking to enter the MVPD and local telephony marketplaces.

  4. Eligibility

    a. Background

      (1) NPRMs

     146.  In the First NPRM, we sought comment on our proposal to license two competitors
in each LMDS service area and to refrain from adopting restrictions on the licensing of LMDS to
specific categories of telecommunications providers.  We returned to this issue in the Third
NPRM, in which we proposed to grant only one license for each LMDS service area.  We also
sought additional comment on the eligibility issue, including whether LECs, cable companies,
Commercial Mobile Radio Service (CMRS) providers, and Multichannel Multipoint Distribution
Service (MMDS) licensees should be eligible to acquire LMDS licenses.  In the Fourth
NPRM, we also addressed the eligibility of in-region LEC and cable companies to acquire LMDS
licenses, as we discuss in greater detail below.

     147.  In the course of this rulemaking proceeding, we drew several tentative conclusions
on eligibility and requested comment on these conclusions, as well as on a range of other related
issues.   In the Third NPRM we invited comment on our tentative conclusion that there are no
existing statutory or regulatory restrictions that prohibit a LEC from acquiring an LMDS license. 
We asked whether allowing LECs to acquire LMDS licenses in their service areas would
eliminate an important new source of competition in the local exchange market, whether LECs
would be likely to acquire LMDS spectrum as a means of forestalling competitive entry into the
local exchange market, and whether we should adopt rules similar to our cellular-PCS cross-
ownership restrictions to address this concern.  We also noted that LECs might use LMDS to
facilitate entry into the multichannel video programming market.  Because LMDS spectrum
cannot at this time be used for mobile services, we tentatively determined that the acquisition of
LMDS licenses by CMRS providers would not raise competitive concerns and that there is no
reason to include LMDS spectrum in the CMRS spectrum caps.

     148.  For cable television companies, we sought comment on similar legal and policy
issues.  We tentatively found that there are no existing statutory or regulatory restrictions pro-

hibiting a cable company from holding an interest in an LMDS license in the area served by its
cable system, and that the statutory ban on cable and MMDS cross-ownership does not include
cable and LMDS cross-ownership within its terms.  We asked if cable companies would have an
incentive to warehouse spectrum or to divert it to less optimal uses.  However, we also indicated
that cable companies are a potentially significant source of competition to LECs in the provision
of local telephone services.  We sought comment regarding how to balance these competing
public interests concerning cable operators' participation in LMDS.  In addition, we stated that
we were reluctant to bar MMDS licensees from participation in LMDS because the two-way
capability of LMDS might allow them to provide local telephone service in competition with
LECs.

     149.  In the Fourth NPRM we sought to augment the record in this proceeding by identi-

fying and seeking comment on the following issues specific to participation in LMDS by
incumbent LECs and cable operators.  We observed that the record in this proceeding supports
the conclusion that LMDS is a potentially important source of competition in either or both the
local exchange and multichannel video programming markets.  We sought comment,
specifically, ``on whether we should temporarily restrict eligibility for incumbent LECs and
cable companies that seek to obtain LMDS licenses in their geographic service areas.''  In this
regard, we noted that eligibility restrictions, even those with a sunset provision, might effectively
preclude incumbent LECs and cable operators from participating in the initial licensing process,
because we planned to begin the LMDS licensing process in 1996.  We also requested comment
on this issue.

     150.  We asked for comment concerning the projected uses of LMDS spectrum, whether
LMDS licenses represent a resource for reducing the market power of incumbent LECs and
cable operators, and whether there are any other viable means of entry into the local exchange
and cable markets.  We asked whether there would be any inherent cost advantages for
incumbent LECs or cable companies due to economies of scope, or other efficiencies, such as
billing and marketing of services.  We inquired whether prohibiting incumbent LEC and cable
operators from bidding on LMDS licenses in their geographic service areas would discourage
investment in LMDS or the development of LMDS technology.

     151.  We also sought comment in the Fourth NPRM concerning the nature of any eligi-

bility restrictions that might be imposed.  We solicited comment on the duration of any eligibility
restrictions we might impose, but emphasized that eligibility restrictions would continue only
until there is increased competition in local video and telephone exchange markets.  In the cable
context, we inquired whether the four-pronged test for effective competition set forth in Section
623(l) of the Communications Act would be a reliable indicator of appropriate levels of multi-

channel video programming.  With respect to LECs, however, we noted that there is no standard
test for effective competition in the local exchange market.  We also sought comment on several
practical, administrative decisions necessary to imposing any form of eligibility restriction,
including defining the term ``incumbent,'' defining an attributable interest in an incumbent LEC
or cable operator, and determining the relationship between limits on participation by incumbent
LECs and cable operators in LMDS and our proposal in the Third NPRM to allow partitioning
and disaggregation.

      (2) Comments

     152.  A number of parties support unrestricted eligibility, and in particular for the
eligibility of LECs or cable companies to provide service in rural areas.  They argue generally
that restrictions would directly conflict with the goal of the 1996 Act of removing regulatory
barriers to entry and could stifle competition by preventing competitors from using an efficient
mix of technologies and discouraging investment by the very entities best equipped to become
viable competitors through the use of LMDS technology.  Because LMDS likely will require
substantial investment in capital and spectrum licenses, many of these parties argue that it is
fitting to allow the broadest possible participation by the largest number of potential licensees.

     153.  Two commenters argue for comprehensive, permanent eligibility restrictions on
participation by LECs and cable operators in LMDS both inside and outside of their current
service areas.  CVTT claims that LECs would use LMDS licenses for ``limited, non-competi-

tive applications'' and only as an adjunct to existing services.  SkyOptics argues that LMDS is
the only near-term source of facilities-based competition in the wireline telephony industry, and
that incumbents should be barred from participating in LMDS based on Section 601 of the 1996
Act and because participation in LMDS by incumbents would violate the antitrust laws. 
SkyOptics goes on to argue that if capital investors understand that incumbents will pay
whatever is necessary to protect their market power, they will not supply capital to new entrants
merely to bid up the final prices paid by incumbents.

     154.  Many other commenters advocate eligibility restrictions for LECs and cable
operators limited to those areas in which they currently operate.  Attorneys General from 17
States, for example, contend that incumbents will bid or pay premium prices to maintain future
monopoly profits, thus discouraging or outbidding other potential competitors for LMDS
spectrum.  WebCel maintains that there is a lack of evidence in the record that LECs could
benefit from economies of scope or other efficiencies in their use of LMDS spectrum because
LMDS is a broadband, wireless service, provided by equipment vendors with a turn-key, stand-
alone network ``infrastructure'' that shares little or nothing in common with wireline twisted-pair
telephone networks and coaxial cable systems.  

     155.  In its reply comments, DOJ argues that incumbent acquisition of LMDS spectrum
can be expected to lead to higher prices for services, and to the warehousing of spectrum or its
use for a less than optimum mix of services.  The Economic Staff of the FTC asserts that it is
``premature'' to conclude that local telephony is now sufficiently competitive to eliminate
competitive concerns arising from a LEC's acquisition of the sole LMDS license in an
overlapping geographic service area.  The FTC points out that ``competitive access providers''
still account for only a very small share of the market for access to local exchange networks and
do not serve most small business and residential customers.  Drawing an analogy to
anticompetitively-motivated horizontal mergers, the FTC contends that buildout requirements
may avoid the warehousing of spectrum, but do not address the risk of price increases where no
viable competition exists.  NTIA argues for bidding eligibility and cross-ownership rules that
bar incumbents from acquiring LMDS licenses in service areas where they possess market
power, because an LMDS license holder that also possesses market power with respect to one of
the potential LMDS services would have an incentive to limit the expansion of output of that
service in order to preserve its supra-competitive profits.

     156.  Others advocate limiting restrictions to the largest LECs and cable operators or
allowing incumbents to hold only one LMDS license.  CellularVision argues that imposing
restrictions on regional Bell operating companies (RBOCs) and the largest multiple system
operators (MSOs) will enhance the ability of small businesses to obtain LMDS licenses. 
Allied/GELD argues that incumbents should be limited to a single LMDS license and that such
license should be outside their operating or franchise area in order to avoid the negative effects of
increasing industry consolidation.  No parties, except SkyOptics, argue that there are exist-

ing legal restrictions limiting LEC and cable company acquisition of LMDS licenses, and only
one other commenter, GTE, argues that there are existing legal restrictions limiting cable TV
acquisition of LMDS licenses.  GTE argues that the restriction on cable company ownership of
an MMDS license contained in Section 613 of the Communications Act also applies to cable
company ownership of an LMDS license.  There is no legal basis for extending the reach of
this narrowly focussed section from MMDS to LMDS. Similarly, no parties support restricting
the participation of CMRS providers in LMDS auctions, and only one commenter, M3ITC,
supports restricting the participation of MMDS licensees in LMDS auctions.

    b. Decision

      (1) Basis for Eligibility Restrictions

     157.  Our overall goal in assessing the need to restrict the opportunity of any class of
service providers to obtain and use spectrum to provide communications services has been to
determine whether the restriction is a necessary step in ensuring that consumers will receive
efficient communications services at reasonable charges.  Since we are of the view that
competitive markets are the most direct and reliable means for ensuring that consumers receive
the benefits described in the Communications Act, we have evaluated the need for spectrum
licensing restrictions in terms of whether the restrictions are necessary to promote competition  in
the telecommunications marketplace and whether these restrictions are otherwise consistent with
our obligation to promote the public interest.

     158.  When granting the Commission authority in Section 309(j)(3) to auction spectrum
for the licensing of wireless services, Congress acknowledged our authority ``to [specify]
eligibility and other characteristics of such licenses.''  Congress specifically directed that we
exercise that authority so as to ``promot[e] . . .  economic opportunity and competition  . . . by
avoiding excessive concentration of licenses and by disseminating licenses among a wide variety
of applicants.''  Congress also emphasized this pro-competitive policy in Section 257, in which
it articulated a ``national policy'' in favor of ``vigorous economic competition'' and the
elimination of barriers to market entry by a new generation of telecommunications providers.

     159.  Our primary goal in the present proceeding is to encourage efficient competition in
the telephony and MVPD markets.  We have also expressed a corresponding concern with
providing opportunities for smaller operators.  These objectives are drawn from the direction
given us by Congress.  They have guided our examination of whether eligibility restrictions may
be necessary in the case of LMDS licensing.  Our assessment of whether restrictions will
promote competition in the telecommunications marketplace and whether restrictions are
consistent with promoting the public interest, has included the following:

  (1) An assessment of the extent to which LMDS may constitute a new source of
      competition for local exchange telephony and MVPD.

  (2) An analysis of the current market structure for local exchange telephony and for MVPD
      (with particular attention to the degree of market power presently held by incumbent
      service providers in both markets) and whether these incumbent service providers are
      likely to use LMDS licenses to maintain their market power in their respective lines of
      service.

  (3) An evaluation of whether short-term narrowly-tailored eligibility restrictions are the
      best means of increasing competition in the local telephony and MVPD markets.

  (4) An estimation of whether incumbent providers of local exchange telephony and MVPD,
      if they now possess market power, also have efficiencies or economies in providing
      LMDS that no other class of potential licensees possesses.

We have examined these issues closely and have concluded that certain short-term eligibility
restrictions should be imposed on incumbent LECs and cable companies, if we are to achieve our
goals in this proceeding and the Congressional policies underlying them.  Eligibility restrictions
should be eliminated in an area when the incumbent LEC and cable company face sufficient
facilities-based competition in the provision of their respective services so that they no longer
have substantial market power in the provision of those services.

     160.  For the reasons discussed below, we find that short-term limitations must be placed
on the eligibility of incumbent LECs and cable companies (and entities owning attributable
interests in such companies) to own an attributable interest in the 1,150 megahertz LMDS license
in their authorized or franchised service areas.  Incumbent LECs and cable companies will be
able to participate fully in the auction of LMDS licenses, but they will be required to divest any
overlapping interests, as defined below, if they win a license at the auction.  These eligibility
restrictions will terminate three years after the effective date of the LMDS rules.  However, the
restrictions may be extended if, upon review prior to the end of this period, we determine that
maintaining the restriction would further promote competition in the local exchange or MVPD
market, or both.  In addition, we may waive the restriction subsequent to the initial award of
licenses, upon a showing of good cause by the petitioner.  No restrictions on the 150 megahertz
license will be imposed.  Based on comments to our Third NPRM, we have decided that no
restrictions on incumbent CMRS or MMDS licensees are necessary.

     161.  In imposing these eligibility restrictions we believe that such ``predictive
judgments'' are supported by general economic theory and analysis.  The court in Cincinnati
Bell suggested that such support could be supplied through the use of expert economic data  or
``by analogizing to related industries in which the claimed anticompetitive behavior has taken
place.''  Thus, below we set out the basis in economic theory for our conclusion that open
eligibility will impede substantially the pro-competitive benefits of licensing LMDS.  Where
available, we also identify instances in the telecommunications industry in which potential
entrants with market power have engaged in anticompetitive behavior of the sort we attempt to
prevent here.

      (2) Effects of LEC and Cable Company Eligibility on
          Competition: 1,150 Megahertz Licenses

     162.  Based on the record here, standard economic theory, our experience, an analogous
situation in the cable TV industry, and our assessment of competitive and regulatory
developments in the local telephony and MVPD markets, we find on balance that a policy
favoring restricted eligibility for a limited time would result in the greatest likelihood of
increased competition in the local telephony and MVPD markets.  By restricting in-region LEC
and cable companies, we ensure the entry of a new LMDS operator that could provide
competition in the LEC market, the MVPD market, or both.  An incumbent, on the other hand,
would have a strong incentive to obtain an LMDS license in order to prevent a new entrant from
obtaining the license and competing directly in the incumbent's current market.  In so doing,
such an incumbent will have forestalled market entry by an entity that could provide both
telephony and MVPD and will have deprived consumers of an opportunity to choose between a
possible two providers in each market and the lower prices for such services that consumer
choice necessarily implies.  Furthermore, either incumbent would have no incentive to use the
LMDS spectrum to provide the service in which it has market power because this could result in
lower prices for the service, and lower profits.  By temporarily restricting incumbents' eligibility
to acquire in-region LMDS licenses, this policy maximizes the likelihood of increasing
competition in both the LEC and MVPD markets.

        (a) Market Structure for Local Exchange Telephony and MVPD 

     163.  As we have unanimously observed in recent proceedings, both incumbent LECs and
cable television firms currently possess substantial market power.  An in-region LMDS license
would be valuable to these firms not only because they could use it as other firms would, but also
because, by obtaining the license, they could preserve excess profits that an independent LMDS
competitor would erode.  We recognize that as a result of ongoing technological changes and
passage of the 1996 Act, there are other sources of potential and actual competition to the
incumbent LEC and cable firms in the local telephony and local MVPD markets.  For
multichannel video distribution, likely sources of competition include open video systems
(OVS), MMDS, DBS, FSS program distributors, and satellite master antenna television systems. 
For fixed voice and broadband data services, the competitive alternatives include new
facilities-based, wireline entrants, such as interexchange carriers (IXCs), competitive access
providers (CAPs), and cable firms, non-facilities-based entrants utilizing the new local
competition provisions of the 1996 Act, and a variety of wireless possibilities, including PCS and
cellular service providers.  In many of the foregoing cases, LECs may enter MVPD markets and
cable television firms may enter local exchange markets.

     164.  However, these various competitive prospects, taken together, do not mean that an
incumbent LEC or cable TV firm will be unable to preserve substantial market power or delay
significantly the development of competition by acquiring in-region LMDS licenses.  Some
commenters point out that all these other technologies are ``likely'' or ``actual'' potential sources
of competition to LECs and cable firms. However optimistic those beliefs may be, they do not
change the fact that at this time LECs and cable firms hold market power, as we have
unanimously found many times.  In our opinion, to assert that competition from these various
sources is likely to arise requires a great deal of speculation. The emergence of significant
competition in the local telephony and video programming distribution markets is not certain and
will unquestionably take time, notwithstanding the recent removal of legal and regulatory
barriers to such competition.  None of these technologies and service categories has yet posed
anything like a significant competitive antidote to the incumbents' market power, despite, in
some cases, their having been in existence for many years (e.g., cellular and MMDS).  It is
unlikely that a meaningful increase in competition will evolve over the time it will take to
license, construct, and begin service on LMDS systems.  Thus, absent short-term eligibility
restrictions, incumbents would be able to delay the onset of competition from LMDS by
acquiring LMDS licenses congruent to their present service territories.  

     165.  Bell Atlantic argues that restricting LEC participation in LMDS only makes sense if
the LMDS spectrum is currently the vehicle most likely to bring about local telephone
competition.  It argues that other recent developments, such as the introduction of PCS and the
availability of unbundled network elements, are much more likely than LMDS to bring about
competition in the local exchange telephony market.  Bell Atlantic argues that, under these
circumstances, acquiring and withholding LMDS from the local telephony market would not
limit competition or affect pricing, with the result that incumbents would have no incentive to
attempt this strategy.  As discussed below, the evidence strongly supports our conclusion that
LMDS is a likely vehicle to provide local telephone competition.  Because we cannot
confidently predict what the ultimate uses of LMDS spectrum will be, we must base our analysis
on the substantial possibility that LMDS licenses may enable more effective entry into local
telephony, local MVPD, and local broadband data markets.  As we have explained above, we
believe the possibility that LMDS spectrum in fact constitutes a rare opportunity to deploy
two-way broadband wireless services that could effectively compete with the current incumbents
providing narrowband LEC and one-way cable services, as many commenters have argued,
means that a short-term eligibility restriction applicable to those firms now possessing market
power is both prudent and reasonable.

     166.  In addition to its basis in general economic theory, our conclusion that LECs and
cable companies would likely attempt to preempt competition in their respective markets, absent
eligibility restrictions, and that their consequent acquisition of in-region LMDS licenses would
handicap the pro-competitive benefits of licensing this new service, may find support in
circumstances in the early 1990s with respect to the advent of satellite broadcast service
providers as potential competitors to local cable companies.  In complaints filed by 40 State
Attorneys General on June 9, 1993, and August 18, 1993,  following a five-year investigation
into anticompetitive practices in the cable television industry, seven of the Nation's largest
multiple system operators (MSOs) and Primestar Partners, L.P., a joint venture composed of
these MSOs and a subsidiary of the General Electric Company, were alleged to have stifled
competition from their non-cable competitors, such as DBS operators, and to have attempted to
suppress the development of DBS technology as a competitor to cable television service.  

     167.  Specifically, the Primestar joint venture was alleged to have established
``anticompetitive restrictions on cable programming access by distributors that compete with the
cable MSOs.''  The Attorneys General point out that, at the time the lawsuits were initiated, the
seven MSOs provided service to nearly half of the Nation's cable television subscribers, virtually
all of them operating in areas without a direct competitor, and that DBS therefore posed a serious
challenge to their local monopolies.  In addition, the Primestar joint venture participants agreed
that Primestar would not offer programming that would compete with programming already
offered by the seven MSOs. The joint venture agreement also granted each MSO the exclusive
right to distribute satellite broadcast service in its cable franchise area, in order to eliminate
competition among the joint venturers.  The Department of Justice conducted a parallel
investigation of these anticompetitive practices.  In  separate settlement agreements between the
defendants and the Attorneys General and the Department of Justice, entered as final judgments
on September 14, 1993, and April 4, 1994, respectively, the defendant MSOs agreed to desist
from these practices.  The defendants did not, however, admit any violation of statutory or
regulatory requirements.

     168.  In the LMDS context, the Attorneys General point out that the settlement negotiated
by the States ensured that satellite broadcasters, microwave relay television systems, and other
providers that have attempted to compete against the cable television industry will be able to buy
programming owned and controlled by the cable industry on ``reasonable terms,'' and barred the
defendants from discriminating against potential competitors offering a competing technology. 
They contend that, because, like satellite broadcast service in the early 1990s, LMDS has the
capacity to be a direct, facilities-based competitor to existing LECs and cable television
companies, without a bar on eligibility ``this new form of direct competition to the existing LECs
and cable monopolists will be lost.''

     169.  The anticompetitive motives and behavior alleged to have been manifested by cable
companies with respect to satellite broadcast service and addressed in the Primestar Cases, are
similar to the motives and behavior that we anticipate with respect to incumbent entry into
LMDS and are attempting to address here:

   The acquisition of licenses in order to forestall market entry by, and consequent
    competition from, a new competitor.

   The loss of a valuable opportunity to introduce competition into concentrated markets
    characterized by firms with substantial market power.

We believe that the conduct alleged to have been displayed in the Primestar case constitutes
additional support, in line with that referred to as persuasive in Cincinnati Bell, for our
assessment that LECs and cable companies should be barred from acquiring in-region 1,150
megahertz LMDS licenses until they face sufficient facilities-based competition in the provision
of their respective services so that they no longer have substantial market power in the provision
of those services.

        (b) LMDS as a Source of Competition 

     170.  Our concern regarding LEC and cable eligibility is educated by the substantial
record collected in this proceeding on the capabilities of LMDS.  LMDS has the potential to
provide fixed video, voice, and data services, services that may be one-way or two-way.  We
have stated in this Order that we will not specify the type of service that must be offered by
LMDS operators but will allow the marketplace to determine the best use of this spectrum. 
Thus, LMDS licenses may be used to provide service in the local MVPD market, the local
telephone market, a broadband data market, or a combination of these possibilities.  For example,
CellularVision is currently providing one-way video service, and TI's plan explicitly incorporates
interactive video, voice, and data in an integrated system.  LMDS offers a significant amount of
capacity, larger than currently available wireless services.  For instance, according to TI, the
LMDS system they have manufactured for use in other countries can be used to serve 16,000
telephone subscribers, in each LMDS cell with a three-mile radius, concurrently with about 200
video-on-demand channels.  For the reasons discussed below, we believe that the likelihood
that LMDS can increase competition in either the local multichannel video or local telephone
exchange markets (or both simultaneously) is high and warrants analysis in order to determine
whether in-region LEC and cable TV incumbents should be permitted to acquire and hold initial
licenses.  

     171.  While all bidders in an auction for LMDS licenses can be expected to base their
bids on their individual assessment of the most efficient use of the spectrum, LECs and cable
companies assessing the value of in-region LMDS licenses would have the additional incentive
to protect their market power and preserve a stream of future profits.  Thus, whereas a new
entrant lacking a share in any local market can be expected to use the LMDS license to compete
in a range of possible markets, it is reasonable for us to conclude that a local incumbent would
likely attempt to foreclose the possibility of such competitive entry by obtaining the LMDS
license and using it only to complement its current operations, not to compete with them. We
believe that this incentive will skew its decisions regarding the uses to which LMDS spectrum is
put, resulting in inefficient use of the spectrum, and will not promote competition, two factors we
are required to assess under Section 309(j)(3)(B) and Section 309(j)(3)(D) when specifying
eligibility and other characteristics of licenses to be issued by competitive bidding.

     172.  Even if one incumbent were to use LMDS to enter the other's market, increasing
competition in that market relative to the status quo, the potential to increase competition will
have been reduced because there would be no increase in the level of competition in that
incumbent's original market.  Thus, we have determined to maximize the opportunity for
competition in two areas of telecommunications demonstrating a present lack of competition, by
reserving the 1,150 megahertz LMDS license for an entrant without market power in either the
local telephony or MVPD markets in the BTA.

     173.  In assessing the need to apply eligibility restrictions to in-region LECs and cable
TV incumbents, we are cognizant of the view that, in specific circumstances, a dominant firm has
the incentive to expend resources to perpetuate the status quo.  Thus, incumbents are likely to be
high bidders for LMDS licenses.  Moreover, we find that the temptation for preemptive
acquisition is particularly compelling here because of the unusually large size of the LMDS
spectrum allocation.  A single, large spectrum block of relatively unused spectrum will be
auctioned in each service area, and development of equipment and technology is already quite
advanced.  As noted above, the capacity of an LMDS license is unprecedented.  Although an
incumbent might use an in-region LMDS license to enter and increase competition in some other
market (for example, a LEC might use LMDS to provide MVPD operations) this would not
assuage our concerns about competition because, even if such use did take place, there is no
assurance that this would be the most economically efficient use of the spectrum licensed. 

     174.  A number of theoretical economic models demonstrate the actions a firm can take to
retain a monopoly or dominant position in a market.  These actions can include creating entry
barriers to competitors by strategically locating retail outlets, by introducing a large number of
similar brands, by making substantial expenditures in research and development to win a patent
race, or by investing in significant additional productive capacity or inputs.

     175.  The economic principle at work in these circumstances is that a monopolist stands
to lose more profits than a duopolist has to gain; thus, the monopolist has a greater incentive to
preempt than an entrant has to enter.  The strongest predictions of a firm's incentive to outbid
(or deter) a potential entrant result when the incumbent is a monopolist and compares its current
position to a duopoly outcome.  Several commenters acknowledge the incumbent LECs' and
cable television firms' current dominant positions in their respective markets and assert that these
firms' incentives would be to block entry into their respective geographic markets. 
Accordingly, we believe there is sufficient economic support to limit LECs' and cable television
firms' in-region eligibility to participate in the LMDS auction.

        (c) Usefulness of Short-Term Eligibility Restrictions 

     176.  The third element of our inquiry is whether eligibility restrictions are the best means
of achieving our goal of increasing competition in the LEC and MVPD markets.  We find that
they are.  We requested comments on allowing unrestricted eligibility for LMDS auctions, but
limiting the use to which the spectrum could be put by incumbent telephone and cable television
firms.  Commenters generally oppose a use restriction.  We believe that use restrictions will
not solve the primary competitive concern raised by incumbent acquisition of LMDS.  To protect
its market position, an incumbent has an incentive to use LMDS spectrum to provide services it
does not provide, and to restrict output of its current service.  Therefore, preventing the
incumbent from providing its current service with the newly acquired spectrum will not constrain
its behavior in a way that will make its current market more competitive.  We also believe that
use restrictions would constitute an unreasonable intrusion into firms' operations and be
administratively difficult to enforce.  In addition, since we do not know at this time whether the
LMDS spectrum is best used for local telephone, video, or something else, a use restriction could
substantially harm the efficient use of this spectrum -- one of our paramount statutory mandates.

     177.  Persuasive comments from several parties, including DOJ, various State Attorneys
General, and staff of the FTC, have convinced us that in this proceeding, on balance, it is
preferable to impose eligibility restrictions rather than to rely on ex post remedies such as
enforcement of the antitrust laws.  In addition, while we recognize that restrictions may
prevent incumbent firms from experimenting with certain technology and market combinations,
and might conceivably foreclose or delay desirable entry by incumbents into new markets, we
believe that we have designed restrictions that minimize the likelihood of these potential negative
impacts.  As further explained below, the restrictions will be temporary, ending when the
likelihood of anticompetitive behavior has abated, and they will be structured as flexibly as
possible to minimize adverse limitations on incumbents. Thus, there is no evidence that the
temporary restrictions will result in a sacrifice of efficiency gains.  With respect to efficiency
gains, we note that, despite our specific query on this topic in the Fourth NPRM, no substantive
evidence of economies of scope  or other efficiencies of joint operation of an LMDS system by
an incumbent LEC or cable operator has been provided by commenters.

     178.   In addition, the 1996 Telecommunications Act recognizes the anticompetitive
implications of market power and recognizes the need to reduce market power by encouraging
competitive entry into communications markets.  Nevertheless, a number of commenters who
oppose any restrictions on LECs or cable companies argue that such restrictions are inconsistent
with the 1996 Act.  These arguments are rebutted by several commenters who support
restrictions.  DOJ, for example, argues that restrictions on ``in-region'' ownership of an LMDS
license are consistent with the 1996 Act because they would promote competition by enabling
LECs and cable companies to offer out-of-region local telephone or cable service without any
restrictions, or in-region service using a means other than LMDS.  Section 613(c) of the
Communications Act, for example, grants the Commission authority to prescribe rules with
respect to the ownership or control of cable systems by persons who own or control other media
of mass communications (including, presumably, LMDS) that operate in the same community
served by the cable system.  Finally, regarding prior Commission precedent, we note that our
rules prohibit cellular licensees from owning an A, B, or C-block PCS license in the same
geographic area.  Therefore, we find that our decision to restrict LEC or cable company
ownership of LMDS licenses is consistent with the provisions and policies of the
Communications Act.

     179.  Commenters from the rural telephone community argue against any restrictions on
LEC ownership of LMDS licenses.  They discuss why, even if the Commission decides to
impose restrictions on LECs, we should exempt those LECs that are rural telephone companies. 
They reason that unless rural telephone companies are able to participate in the LMDS market,
consumers in rural areas are likely to be deprived of the benefits of this new service.  We agree
that it would be undesirable to impair the provision of LMDS service to rural consumers. 
Although we have decided to impose some short-term restrictions on LECs, including rural
telephone companies, we do not believe that these restrictions, as crafted, will hinder the
introduction of LMDS in rural areas.  Rural LECs have not made the case that they are the only
entities that can provide LMDS in their service territories.

     180.  Therefore, if it is profitable to provide service in rural areas, a licensee should be
willing to do so, either directly or by partitioning the license and allowing another firm to
provide service.  In addition, because rural LECs are generally small, they are unlikely to have
the degree of overlap with BTAs necessary, as explained below, to trigger our eligibility
restriction.  Further, to the extent a rural (or any other) LEC does exceed the attributable interest
limit we are adopting, we are permitting such a LEC to obtain an LMDS license and then to
divest any overlapping attributable interests.  A rural LEC would also have the option of
acquiring a 150 megahertz license in its service area.  Finally, to the extent any LEC is
unsuccessful in the LMDS auction, it will still have the opportunity to participate -- subject to the
eligibility rules -- by either acquiring spectrum from an LMDS licensee through the partitioning
and disaggregation rules we are adopting, or by contracting (in a way that does not circumvent
any applicable ownership and control requirements and does not raise competitive concerns) with
the LMDS licensee to provide service in its telephone market area.

     181.  In addition to satisfying our test for imposition of eligibility restrictions, we believe
that establishing temporary, in-region eligibility restrictions on the 1,150 megahertz LMDS
licenses best comports with the auction goals of the Communications Act.  In particular, these
minimal restrictions will promote economic opportunity and competition, and will avoid
excessive concentration of licenses by disseminating licenses among a wide variety of applicants.

      (3) Effects of LEC and Cable Company Eligibility on
          Competition: 150 Megahertz Licenses

     182.  We conclude that acquisition by incumbent LECs or cable television firms of the in-
region 150 megahertz LMDS license does not pose significant competitive concerns.  First, we
believe that acquisition of the licenses for both the large and small spectrum blocks is not
necessary in order for entrants to establish viable systems; the license for the large block alone
should provide ample spectrum capacity.  Thus, incumbents should have no incentive to acquire
the license for the small block solely to hobble the development of the 1,150 megahertz
licensees.  Second, the 150 megahertz license provides inadequate capacity to enable the
provision of attractive MVPD service.  Thus, cable company acquisition of this license raises no
anticompetitive concerns.  Third, given the fact that we have now provided for an additional
competitive option in the form of the 1,150 megahertz licensee, we find that incumbent LECs
will not have a meaningful incentive to acquire the 150 megahertz license in order to preempt
entry and slow the development of future competition.

      (4) Effects of CMRS and MMDS Eligibility on Competition

     183.  With respect to CMRS providers, the only comments in the record addressing the
issue of eligibility for such providers support our tentative conclusion in the Third NPRM that
participation by CMRS firms raises no competitive concerns because LMDS cannot be used to
provide mobile service.  With one exception, no comments to the Fourth NPRM addressed
this issue nor the related question of whether to count LMDS spectrum as part of the CMRS
spectrum cap.  Since the issuance of the Third NPRM, we have authorized CMRS licensees to
provide fixed services.  To the extent that CMRS licenses are most valuable for mobile uses,
there is no reason to be concerned about CMRS acquisition of fixed LMDS licenses.  To the
extent that CMRS licenses may be used to provide fixed services, we find that the combination
of CMRS and LMDS in the same BTA would imply no market power.  First, there are existing
wireline competitors, especially the incumbent LEC and cable television firm, that can provide
fixed wireless services.  Second, our CMRS spectrum cap will prevent anticompetitive
concentration of CMRS spectrum itself.  For these reasons, we adopt our tentative conclusion
that CMRS providers will be eligible for LMDS auctions in their service areas, and that LMDS
spectrum will not count against the CMRS spectrum cap.

     184.  The Third NPRM sought comment on the issue of MMDS licensee eligibility, and
stated our reluctance to restrict the opportunity of MMDS licensees to obtain LMDS spectrum,
absent compelling public interest arguments to the contrary.  In responding to the Third
NPRM, M3ITC expresses concern at the prospect of MMDS licensee eligibility for LMDS
auctions, speculating that with sufficient investment MMDS firms could offer two-way services
with their existing assigned spectrum.  There is no compelling evidence, however, that MMDS
licensees possess market power sufficient to distort their incentives to acquire and deploy in-
region LMDS.  Moreover, as WCA argues, the possibility of employing LMDS for two-way
communications makes it a potentially beneficial complement to MMDS.  The combination
may allow more effective challenges to the dominant incumbent firms, and should present
minimal competitive risks.  Therefore, we find that  MMDS licensee eligibility to acquire LMDS
spectrum in their service areas is consistent with our objective to increase competition.

    c. Eligibility Rules

     185.  We now turn to the definitions that will be used to determine if an entity is an
``incumbent'' and, if so, whether the eligibility restrictions will apply.  The Fourth NPRM did not
specifically address the issue of defining an ``incumbent.''  Given the dynamic nature of the local
exchange and MVPD businesses, we believe it is important to establish a clear definition of the
term ``incumbent'' in the context of any eligibility rules.  In order to achieve this clarity, we have
decided to adopt definitions drawn directly from the statute.  Thus, we define an incumbent LEC
as one that comports with the statutory definition of an incumbent LEC in Section 251(h) of the
Communications Act, and we define an incumbent cable company as one that is franchised to
provide cable service and is not subject to effective competition pursuant to Section 623(l) of the
Communications Act.

     186.  In the Fourth NPRM, the Commission sought comment regarding whether an
incumbent LEC or cable company should be considered ``in-region'' if 20 percent or more of the
population of the BTA is within the LEC's authorized telephone service area or the cable
company's franchised service area.  Comments from those parties supporting geographically
limited restrictions generally favor the use of 20 percent or more of the population of the BTA
being within the LEC's authorized telephone service area or the cable company's franchised
service area as the test for overlapping service areas, or being ``in-region.''

     187.  Even though many commenters concur with the 20 percent overlap proposal, we
believe, upon further review, that we should adopt a 10 percent overlap test, for the following
reasons.  First, we stated that the approach we suggested in the Fourth NPRM was meant to
parallel the geographic overlap percentage contained in the cellular and PCS cross-ownership
rule, or 10 percent.  That approach, however, was erroneously crafted in describing the rule
as establishing a 20 percent benchmark.  Second, we believe a 10 percent threshold is a better
indicator of conflicting interests and, given the ability of a licensee to partition its license to
come into compliance, a fair and more effective means of accomplishing the public interest goal
of fostering competitive markets.

     188.  Third, as we have found in the case of cellular and PCS providers, we believe that
``an overlap of less than 10 percent of the population is sufficiently small that the potential for
exercise of undue market power by the . . . operator is slight.''  Finally, we intended to adopt a
rule that would conform with the overlap rule used in conjunction with the CMRS spectrum cap. 
We believe as a general matter that it is preferable to have rules for wireless spectrum that are as
consistent as possible for the sake of overall simplicity, ease of compliance, and administrative
efficiency.  Therefore, we are adopting rules that consider an incumbent LEC or cable company
to be ``in-region'' if 10 percent or more of the population of the BTA is within the LEC's
authorized telephone service area or the cable company's franchised service area. 

     189.  The Fourth NPRM also sought comment regarding what should constitute an
attributable interest for an incumbent LEC or cable operator.  We suggested that we would
consider an ownership interest of at least 10 percent by an incumbent LEC or its affiliate, or an
incumbent cable company or its affiliate, would be considered an attributable interest for
purposes of determining the applicability of any eligibility restrictions.  Comments on this
aspect of the proposal from those supporting geographically limited restrictions generally support
using 10 percent ownership as an attribution threshold.

     190.  We have decided to adopt attribution rules that apply when an ownership interest is
at least 20 percent, for the following reasons.   First, we have concluded that a 20 percent
attribution rule provides the proper balance between ``encourag[ing] capital investment and
business opportunities'' in LMDS, and guarding against potential competitive harms associated
with the exercise of undue influence by incumbent LECs and cable companies in connection with
the operations of LMDS licensees.  Second, we believe that one of the factors leading us to
establish the 20 percent benchmark for CMRS also applies in the case of LMDS, namely, that
``increased flexibility in our rules will enable [LMDS] providers to adapt their services to meet
customer demand.''

     191.  Third, we also conclude that establishment of a 20 percent attribution level will
facilitate a wide variety of service providers to enter the marketplace, thus promoting the
competitive delivery of wireless services, with attendant benefits to consumers and the national
economy.  Finally, as with the geographic overlap issue discussed above, we believe there are
good reasons to adopt rules that are consistent with existing rules governing wireless service
licensees.  The rules governing CMRS services use 20 percent as the ownership level that
constitutes an attributable interest in a license.  As a consequence of our decision, no entity
having an ownership interest of at least 20 percent in an incumbent LEC or cable company will
be permitted to hold a 20 percent or greater interest in a 1,150 megahertz in-region LMDS
licensee. 

     192.  In determining ownership interests, affiliate relationships will be quantified using a
multiplier, and management and joint marketing agreements may be considered to be attributable
interests under certain circumstances.  The attribution rules, among other things, will provide
that: officers and directors have an attributable interest in their company; non-voting stock in
excess of 20 percent is attributable; stock interest held in trust is attributable to those who have or
share the power to vote or sell the stock; debt and instruments such as warrants with rights of
conversion to voting interests are generally not attributable until conversion is effected; and
limited partnership interests are attributable.   

     193.  In the Fourth NPRM, we proposed to restrict eligibility of incumbent LEC and
cable companies to obtain in-region LMDS licenses for a limited time.  While we have
determined that carefully-tailored temporary restrictions on incumbent LECs and cable
companies are necessary to help assure that competition in the LEC and MVPD markets is
enhanced with the licensing of LMDS, we believe it is possible to be less restrictive than our
proposal in one significant respect.  We find no compelling public benefit to be achieved by
foreclosing incumbent LECs and cable companies from participating fully in the auction of 1,150
megahertz LMDS licenses, including the auction of in-region licenses, so long as such firms
subsequently come into compliance with our eligibility rules.  As noted in reply comments from
the Staff of the FTC, a cable MSO that owns a system contained entirely within a BTA should be
able to sell this system to avoid competitive problems associated with this overlapping
ownership interest.

     194.  This example highlights the possibility that incumbent LECs and cable companies
might find it advantageous to obtain a large LMDS license and then to divest sufficient
overlapping interests to bring them into compliance with our ownership restrictions. 
Therefore, we are adopting rules that permit incumbent LECs and cable companies to participate
fully in the auction of 1,150 megahertz licenses if they agree to divest overlapping ownership
interests.  LMDS licensees will have 90 days from the date of the final grant of their license to
submit to the Commission an application to assign or transfer control of the conflicting portion
of its LMDS license or to certify that it has come into compliance with the Commission's
eligibility restriction in Section 101.1002(a) of the Commission's Rules.

     195.  As discussed below, we are providing LMDS licensees additional flexibility to
disaggregate their LMDS licenses into smaller spectrum blocks.  However, we will not permit
licensees to use disaggregation as a means of divesting overlapping ownership interests to
comply with the attribution rules for LMDS.  The substantial flexibility LMDS licensees will
have to use their spectrum to provide any service that is consistent with the broad technical
parameters established for this service would make it impossible to develop and enforce a system
that uses a reduction in the amount of licensed spectrum as an objective measure of compliance
with our ownership restrictions.  We note, however, that a licensee may transfer a portion of its
ownership interest in order to meet the attribution limitations for LMDS.  In addition, licensees
will be permitted to geographically partition their spectrum in order to come into compliance
with our eligibility restrictions.

     196.  We tentatively concluded in the Fourth NPRM that any restrictions on incumbent
LECs and cable companies should be temporary, and proposed two alternatives.  First, the
restrictions could end when competition in the relevant market, LEC or MVPD, is such that the
incumbent no longer has market power.  Second, the restrictions could end on a date certain,
such as three to five years hence, when it would be reasonable to assume that the market power
of the incumbents would have been reduced sufficiently to allay our competitive concerns about
their participation in the LMDS market.  Those commenters that support limited restrictions
generally agree with the concept of a competition-based test to end restrictions on incumbents. 
There is no consensus, however, on the best means of measuring when competition is sufficient
to permit incumbent entry.  

     197.  WebCel, for example, while recognizing the limitations of using the competitive
checklist for RBOC entry into the inter-LATA and long distance markets for all LECs, and the
four-pronged test for effective cable competition in Section 623(l) of the Communications Act,
would nonetheless use these tests because they would be relatively simple to apply.  CPI,
however, argues that neither of these tests is appropriate and that instead the Commission should
place the burden on incumbents to demonstrate in each case that effective competition exists and
would continue even if the incumbent were to enter the market as an LMDS licensee.  Only
two commenters address the question of establishing a sunset date for incumbent restrictions,
CPI and RioVision.  CPI opposes establishing a sunset as too arbitrary and suggests instead that
the Commission establish a date certain by which it would reevaluate the need for the
restrictions.  RioVision comments that five years may be a reasonable date on which to end the
restrictions.  

     198.  We agree with those parties arguing that the competitive checklist would be
inappropriate for use in determining whether conditions are suitable to allow LEC acquisition of
in-region LMDS licenses.  We think that there will be sufficient entry and increases in
competition in the markets at issue here for us to be able to sunset the restrictions on incumbent
LECs and cable companies three years after the effective date of the LMDS rules.  Based on our
assessment of the state of LMDS technology and estimates of when entry into the LEC and cable
markets is likely, we believe three years is an appropriate initial period to keep these restrictions
in place.  Further, we have a statutory obligation to review all regulations every two years,
beginning in 1998, to determine whether competition has increased sufficiently to make these
regulations unnecessary.  Therefore, we will undertake a review of these eligibility restrictions
and the relevant competitive developments in 2000 to determine if sufficient competition has
emerged to allow sunset of the LMDS restrictions.  The restrictions may be extended if we
determine that the incumbent LEC or cable company still have substantial market power in the
provision of those services.

     199.  In addition, we recognize that some incumbent LECs or cable companies might be
able to show earlier than three years after the effective date of the rules we are adopting in this
Order that the actual conditions in a particular market are sufficiently competitive and rivalrous
so that the restriction is no longer necessary promote competition in the telecommunications
marketplace.  In considering a petition for waiver of or forbearance from the restriction, we
will generally be guided by the 1992 Merger Guidelines, because the competitive effects of an
acquisition by an incumbent LEC or cable company of an in-region LMDS license are likely to
be similar to the effects of a merger between that company and an actual or hypothetical
company whose principal competitive asset is that license.  In particular, some of the factors we
will consider in determining whether a particular market actually is sufficiently competitive at
the time of the petition are:

  (1) the number and capacity of competing providers of local telephone or multichannel
      video services, especially those with independent means of distribution, that are
      available to a significant number of consumers in the geographic region at issue;

  (2) the substitutability of the services of those competing providers with the local telephone
      and multichannel video services offered by the incumbent LEC or cable firm;

  (3) evidence as to whether the LEC or cable company could or would lose a significant
      portion of its subscribers to its competitors if it unilaterally increased its prices or
      lowered the quality of its services;

  (4) the regulatory environment for competing providers in the relevant geographic region;
      and

  (5) whether the LEC or cable company has in fact experienced a significant loss in  market
      share due to the entry of new competitors or the expansion of existing competitors.

If the LEC or cable company is successful in making such a demonstration, then such showing
will constitute a sufficient basis for the Commission to waive or forbear from applying the
eligibility restrictions that apply to that LEC or cable company.  We will entertain such showings
after the initial award of licenses.

  5. Flexible Service and Framework for Licensing

    a. Scope of Services

      (1) Background; Comments

     200.  In the First NPRM, we proposed to redesignate the 28 GHz band from a fixed
common carrier point-to-point microwave service to a local multipoint distribution service that
would include non-common carrier services.  We found that the band was not being utilized,
that petitioners had demonstrated an ability to use it for MVPD, and that such use would serve
the public interest.  We proposed to implement LMDS under flexible rules that would allow a
licensee to provide a video programming or telecommunications service and provide sufficient
flexibility to accommodate different types of point-to-point and point-to-multipoint
communications services. 

     201.  To accommodate the expanded service definition, we proposed to allow licensees to
provide not only a common carrier service, but also a non-common carrier service.  We pointed
out that this would be consistent with our regulation of MDS and certain domestic satellites,
which allow the election of common carrier or non-common carrier status.  We proposed that
the LMDS provider elect its regulatory status as a common or non-common carrier based on the
nature of the service offerings under the definitions established in NARUC I.  LMDS providers
would choose to operate as a common or non-common carrier on a channel-by-channel or cell-
by-cell basis.  We requested comments.

     202.  In the Third NPRM, we considered the comments filed to the First NPRM.  They
expect LMDS to include video distribution, broadband video telecommunications, and two-way
data and voice subscriber-based services, and support the flexibility to choose authorization on a
common carrier or non-common carrier basis in order to choose the category of services they
want to offer.  We renewed our proposal in the First NPRM to allow the applicant or licensee
to elect its status, based on the services it seeks to provide.  However, we proposed additional
licensing options requested by commenters to treat all LMDS applicants or licensees as common
carriers, unless they submitted information to the contrary.  We requested comments.

     203.  Of the comments filed in response to our service proposals in the Third NPRM, all
agree that LMDS should be implemented to encompass both telecommunications and video
programming services, and to permit maximum flexibility in allowing licensees to provide the
entire array of services.  They support our proposal to allow the applicant or licensee to choose
its regulatory status as a common carrier or non-common carrier, based on services that it
chooses to provide.

      204.  For example, CellularVision urges us to adopt a regulatory approach that freely
allows a licensee to offer competitive video and telephony services without unnecessary
regulatory rigidity.  It asserts that its technology allows a unique flexibility to offer any
combination of video, voice, and data services and to vary the mix within each cell.  ComTech
asserts that LMDS will not only be used for MVPD, but also in many different ways in different
market situations.  It asserts that the technology is extraordinarily flexible and can be configured
uniquely and efficiently on a variety of bases.  Ameritech contends that, because of the early
level of technical development and the uncertainty regarding the services ultimately to be
offered, it would be premature to force the nascent LMDS industry into a regulatory
pigeonhole.  

      (2) Decision

        (a) Flexible Service Definition

     205.  We find that it is in the public interest to adopt our proposal to implement LMDS
and authorize licensees to provide non-common carrier services as well as common carrier
services.  We agree with commenters that it is essential to adopt a broad service definition for
LMDS that encompasses the wide variety of services not only contemplated by commenters, but
also developed in the future after service is initiated.  Commenters establish that the nature and
extent of potential services is broad and changing.  Since our initial proposals in the First NPRM,
new advances in wireless technology have made possible a greater variety of interactive
telecommunications and video services.  Moreover, the 1996 Act embodies a national
telecommunications policy which requires that we promote competition in telecommunications
markets through removing regulatory barriers to entry, encouraging technological developments,
and ensuring that consumer demand is met.  By authorizing licensees to provide non-common
carrier services as well as common carrier services, we ensure that licensees can meet all service
demands.  

     206.  Since the First NPRM, we have enhanced the flexibility of licensees in other
wireless services that have broad service definitions that include common carrier and non-
common carrier services.  In adopting a new application form for MDS, we confirmed that MDS
includes alternative services and we provided applicants the option on the new form to indicate
their choice for common carrier or non-common carrier regulatory status.  For satellite
services, we have determined to provide all U.S.-licensed fixed satellite service systems with a
choice between offering common carrier and non-common carrier services and the opportunity
also to elect their regulatory classification in their applications.  In another proceeding, we
have adopted streamlined rules in Part 25 for satellite services to use a simplified procedure to
change licenses from non-common carrier status to common carrier status.  When we
implemented DBS systems under interim rules we adopted a policy to permit the dual provision
of common and non-common carrier services, which continues under the permanent rules. 
The flexibility we adopt for LMDS is consistent with the treatment accorded these services.

     207.  To ensure the flexibility in LMDS service offerings that commenters seek and we
proposed, we will permit any fixed terrestrial uses that can be provided within the technical
parameters for LMDS.  We conclude that, for now, our significant allocation of spectrum under
such a broad and flexible service definition should permit licensees to satisfy a broad array of
their customers' communications needs, whether through one or multiple service offerings. 
Although LMDS is allocated as a fixed service, we know of no reason why we would not allow
mobile operations if they are proposed and we obtain a record in support of such an allocation. 
We believe this would be consistent with our goal of providing LMDS licensees with maximum
flexibility in designing their systems.  We have authorized other wireless services to include
mobile and fixed services, depending on whether developments in the service and related
equipment demonstrate a need for changing the rules and a capability for mobile and fixed
services to coexist in these bands.
 
     208.  We give applicants and licensees the flexibility to design their service offerings in
response to market demand.  The service offering that is selected would determine the extent to
which the applicant or licensee is subject to regulation.  If a service offering falls within the
statutory definition that encompasses common carrier status, the application and the subsequent
license is subject to Title II and the common carrier licensing requirements of Title III of the Act
and our Rules.  Otherwise, services are provided on a non-common carriage basis, and the
application and the licensee would be subject to Title III and certain other statutory and
regulatory requirements, depending on the specific characteristics of the service.  A licensee is
required to adhere to the pertinent requirements in conducting its operations, depending on
whether the operations are common carriage or not.

     209.  Telecommunications services and video programming distribution services have
been identified by commenters as the likely uses for LMDS spectrum over the short term.  Since
our issuance of notices of proposed rulemaking in this proceeding, the regulatory status of these
and related services has been addressed and modified in the 1996 Act.  The impact of the 1996
Act on the nature of these services for LMDS is discussed below to assist applicants in
determining their choice of regulatory status.

        (b) Telecommunications Services

     210.  A wide array of telecommunications services may be provided in LMDS, including
one-way and two-way voice and data services and video conferencing.  It is expected that many
may be offered in the local telephony marketplace as an alternative to the wired telephone
network.  In their comments, telephone service providers argue that providers of
telecommunications service under an LMDS license should be treated as common carriers
subject to Title II requirements in the same manner as other telecommunications services.   

     211.  The 1996 Act provides that a telecommunications carrier will ``be treated as a
common carrier under this Act only to the extent that it is engaged in providing
telecommunications services.''  A telecommunications service is the ``offering of telecommuni-

cations for a fee directly to the public, or to such classes of users as to be effectively available
directly to the public, regardless of the facilities used.''  Telecommunications means ``the
transmission, between or among points specified by the user, of information of the user's choos-

ing, without change in the form or content of the information as sent and received.''  We
adopted these definitions in new Part 51, which provides the rules governing interconnection of
such carriers.  Thus, to the extent an LMDS licensee is providing a service that fits within
these definitions, that licensee is subject to Title II and it is governed by the common carrier
requirements pertinent to its services and set out in our rules.

     212.  The 1996 Act established certain general duties pursuant to which
telecommunications carriers must interconnect with other telecommunications carriers.  It also
established certain requirements under which LECs must provide interconnection to all telecom-

munications carriers.  In implementing these provisions, we held that all telecommunications
carriers that compete with each other should be treated alike regardless of the technology used. 
Thus, to the extent an LMDS common carrier licensee is a telecommunications carrier, it is
governed by the general duties set out in new Rule 51.100 that provide for interconnection with
other telecommunications carriers.  Such a carrier would also be required to adhere to any other
provisions in Part 51 that may be pertinent to a telecommunications carrier.  To the extent that
such an LMDS provider would meet the definition of a LEC, it also would be governed by the
obligations applicable to all LECs in Subpart C of Part 51 of our rules. 
     
        (c) Video Programming Distribution and
            Other Non-Common Carrier Services

     213.  To the extent licensees are not offering telecommunications services or common
carrier services as set forth in NARUC I, they will not be regulated as common carriers.  Thus, if
licensees transmit information that is not of the user's choosing or offer telecommunications only
for internal purposes, the licensees are exempt from Title II to the extent of such service.  Such
services would include MVPD to subscribers, since such services would not involve information
of the user's choosing.  We proposed that applicants be allowed to choose to be licensed on a
non-common carrier basis in order to meet the demand for MVPD to subscribers.  We have
recognized that LMDS represents a potential technology to compete with wired cable television
systems and that the LMDS frequencies may be used to deliver multichannel video program-

ming.  Such services also would include private uses of the spectrum for internal purposes. 
Although we did not specifically propose to license LMDS in the performance of private
microwave services, purely internal uses are inherently permitted under an authorization that
allows non-common carrier services to be provided.

     214.  The 1996 Act adopts a new section in Title VI that provides for the regulatory treat-

ment of video programming services by wireless providers.  Specifically, Section 651(a)(1)
provides that, to the extent a common carrier or any other person is providing video
programming to subscribers using radio communications, ``such carrier (or other person) shall be
subject to the requirements of Title III and Section 652, but shall not otherwise be subject to the
requirements of this title.''  We interpret Section 651(a)(1) as setting forth all applicable
sections of the statute.  Because Section 651(a)(1) does not include a reference to Title II, we
believe that a person providing video programming to subscribers using radiocommunications
would not be subject to Title II of the Act.  We note that the next provision in Section 651(a)(2)
specifically provides for Title II regulation in addressing non-radio based services.  
     
     215.  It appears that, to the extent an LMDS licensee provides MVPD, the intent of the
statute is to regulate the service on a non-common carriage basis.  This is consistent with the
regulatory classification we assigned to video programming in adopting election rules for
MDS and to those services that did not qualify as common carriage in adopting election rules
for satellite services.  It is also consistent with our consideration of the video programming
service options available to telephone companies under the 1996 Act.  We have stated that
Section 651(a)(1) offers them the option to ``provide video programming to subscribers through
radio communication under Title III,'' while Section 651(a)(2) offers the option to ``provide
transmission of video programming on a common carrier basis under Title II.''

     216.  As a wireless service provider, the LMDS licensee providing video programming
services is not subject to franchising or regulation as a cable system under Title VI of the Act,
other than Section 652, or under the Commission's Cable Rules in Part 76.  As noted above,
Section 651(a)(1) specifically excludes a radio-based system from the other provisions of Title
VI for cable communications, apart from Section 652.     

     217.  The 1996 Act removed the statutory ban on telephone companies' offering video
programming in their service areas and repealed our previous rules and policies for telephone-
network video systems, known as video dialtone.  Thus, our request for comments in this
proceeding regarding how the video dialtone policies might affect common carrier LMDS
providers is moot.  In addition to the video programming service options in Sections 651(a)(1)
and (2) discussed above, the 1996 Act added Section 653 to the Communications Act
establishing OVS as a new framework for telephone companies to enter into the video
programming marketplace.  Section 653 permits LECs and others to provide cable service to
subscribers through an OVS that complies with the special provisions of the section.  OVS is
not subject to common carrier regulation under Title II and is entitled to reduced cable regulation
under Title VI.  We have adopted rules in Part 76 of our rules to implement the requirements for
establishment and operation of an OVS, and we have interpreted Section 653 as allowing even
non-LECs to operate an OVS.  Section 651(a)(4) specifically permits a common carrier to elect
to provide video programming by means of an OVS.  Thus, an LMDS licensee that is a
common carrier could elect to provide video programming under the OVS rules, rather than on a
non-common carrier basis under the LMDS rules.

    b. Regulatory Framework for Licensing LMDS 

      (1) Background; Comments

     218.  In the First NPRM, we proposed to adopt procedures similar to those for MDS to
permit the LMDS applicant or licensee to choose whether it will operate as a common carrier or
non-common carrier.  We proposed an election mechanism for a licensee to follow whenever it
wanted to change its regulatory status between common carrier and non-common carrier. 
Under the mechanism, the applicant or licensee would choose whether to operate as a common or
non-common carrier on a channel-by-channel and on an individual cell basis and notify the
Commission accordingly.  Authority would be issued on either a common carrier or a non-
common carrier basis, as requested by the applicant.  Areas and channels not on record as having
non-common carrier status would be presumed to have common carrier status.  Licensees would
be required to maintain an accurate record of their status elections with the Commission. 
Changes in status were to be reported within 10 days of the effective date of the change. 
Common carrier licensees would be required to follow the special discontinuance procedures we
adopted for MDS when they changed status.  In the Third NPRM, we proposed additional
options in which we would presume all services to be common carriage, unless the applicant
demonstrated otherwise.
               
     219.  As discussed above, commenters urge us to adopt a flexible regulatory framework
for authorizing LMDS that allows the broadest possible performance of services with the least
amount of regulatory interference.  None of the commenters believes that a presumption of
common carrier status is appropriate.  Bell Atlantic and CellularVision contend that, if a pre-

sumption of regulatory status has to be applied to LMDS providers, it should be non-common
carrier status because the near-term use would be for distribution of multichannel video
programming.  BellSouth argues that we should not prejudge the regulatory status of the
services yet to evolve, while GTE contends that LMDS should be designed such that competitive
market forces are the controlling factors.

     220.  Commenters, however, request that we ensure that licensees operate in a manner
consistent with their claimed regulatory status.  BellSouth asserts that a provider's decision to
elect common or non-common carrier status is irrelevant unless the provider actually operates
consistently with that choice.  It agrees with our proposal that applicants be required to describe
the service they propose to offer in sufficient detail for us to confirm that the status elected is
consistent with how the carrier will actually operate.  It asserts that the Commission is obligated
to retain oversight of compliance with the statutory and judicial standards for status based on the
type of service offered.

      (2) Decision

     221.  We adopt a regulatory framework for LMDS that permits the full array of LMDS
service offerings without undue regulatory restraint.  To achieve our goal, our framework reflects
not only the flexibility included in our proposals, but also the statutory, regulatory, and technical
changes that have taken place since then to enhance the climate for competition.  Our goal is to
maintain an open and flexible approach that will allow the business judgments of individual
LMDS applicants and licensees to shape the nature and components of the services offered
pursuant to LMDS licenses.  
  
     222.  Thus, we agree with commenters not to apply a presumption of common carrier
status to an application.  The presumption is unnecessarily restrictive and an inaccurate reflection
of the variety of services available in LMDS.  We also decline to adopt our proposal to require
the applicant to indicate its choice for regulatory status on a channel-by-channel or cell-by-cell
basis.  LMDS licenses will be based on BTA geographic service areas.  Our goal is to provide a
sufficiently large service area for each licensee to design systems to meet consumer needs on a
local or regional basis, without regulatory concern for the individual channel or cell involved. 
Licensees are permitted to construct stations and place them in operation anywhere within their
authorized geographic areas at any time, unless there are requirements otherwise in our rules that
would necessitate the filing of an individual application for separate authorization of a station. 
An LMDS licensee may be required to adhere to the following filing or authorization
requirements in modifying a station: (1) in Section 1.1301 through 1.1319 concerning actions
that may have a significant impact on the quality of the human environment, (2) in Sections
22.369 and 101.123 concerning radio frequency quiet zones, (3) Part 17 of our rules concerning
antenna structure clearance procedures and the obligation under Section 17.4 to register with the
Commission prior to construction, (4) any restrictions regarding border areas under international
agreements, and (5) any applicable technical rules in this part.  

     223.  In addition, we do not adopt our proposal to require applicants to describe the
services they seek to provide.  It is sufficient that the applicant indicate its choice for regulatory
status in a streamlined application process.  The extent and nature of the services to be provided
under the respective classifications are matters for the licensee to decide and not for the
Commission to consider in granting a license.  As we recently stated, an applicant is to rely on
the realities of the services to be provided in electing the appropriate regulatory status.  In
providing guidance to MDS applicants, we pointed out that an election to provide service on a
common carrier basis requires that the elements of common carriage be present; otherwise, the
service is non-common carriage. 

     224.  As commenters point out, we rely on the designation by an applicant of its status as
a common carrier or non-common carrier to enable us to fulfill our obligations to enforce the
common carrier requirements of the statute and our regulations.  We have stated that our need for
applicants to elect their regulatory classification in their applications serves informational
purposes to enable us to determine whether to apply Title II or other statutory requirements to the
application and the subsequent operations.  

     225.  We also decline to require an applicant to choose between either common carrier or
non-common carrier status in providing services under the broad license to be issued.  We find it
is inconsistent with the broad service definition and the flexible operations we adopt for LMDS
to require the licensee to forgo one category of service for the other category.  Licensees may
well provide services that include elements of both common carrier and non-common carrier
services.  Instead, we will permit LMDS to be licensed to allow both common carrier and non-
common carrier services in a single license.  Thus, under our framework an applicant may
request both common carrier and non-common carrier status in the same application, which will
result in the issuance of both authorizations in a single license.  The licensee will be able to
provide all LMDS services anywhere within its licensed area at any time, consistent with the
statutory and regulatory requirements that are imposed on the respective operations.  It is the
licensee's obligation to maintain the various operations in compliance with the requirements.  

     226.  We conclude that this flexible approach to licensing and regulatory status achieves
efficiencies in the application and administrative process, as well as in the licensee's
performances.  We have allowed certain mobile services in Part 24 and Part 90 to be authorized
in a single license on both a common carrier and private carrier basis in order to provide services
in both categories of service.  Alternatively, the applicant may wish to limit its operations to
common carrier or non-common services, in which case it would apply only for authorization on
a common carrier or a non-common carrier basis, and the license would be issued for the status
specified.     

     227.  We discuss below the specific procedures and rules we adopt to implement the
flexible framework for the licensing and operations of LMDS. 
     
  6. Application and Operating Rules and Procedures for LMDS

    a. Background; Decision

     228.  We proposed to implement service rules for LMDS in Part 21 of the Commission's
Rules that contained the rules for fixed microwave services.  On February 29, 1996, we adopted a
new Part 101 that consolidates all of the common carrier microwave services, except MDS, from
Part 21 together with the private microwave services in former Part 94 under one set of
streamlined rules for all fixed microwave services.  MDS remains regulated under Part 21,
which has been amended in a separate proceeding. 

     229.  We will include the service rules for LMDS in Part 101.  As proposed in the First
NPRM, we adopt a new Subpart L to be added for LMDS that will include the procedures
specific to its licensing and operations, as discussed below.  We will otherwise modify the
general provisions of Part 101 where necessary to include LMDS.  The revised rules are in
Appendix A of this Order.  In Subpart A of Part 101, we adopt the definitions of LMDS
proposed in the Third NPRM.  In Subparts C and D, we modify the technical standards and
operations discussed elsewhere in this Order.  As for the application and licensing rules in
Subpart B and the operating rules in Subpart E, we modify them to reflect the procedures we
adopt in Subpart L to implement the broad service definition and flexible regulatory
classifications for LMDS carriers.  

     230.  The licensing and operating rules and procedures for LMDS are discussed below,
based on the rules proposed in the First NPRM and the changes we adopt above in response to
the comments for a flexible service definition and simplified status election procedures.  To the
extent any of the comments addressed the proposed rules, the remarks were included in the
comment summaries we provided above in the background of our previous discussion. The
proposed rules in the First NPRM were drafted for inclusion in Part 21 and relied on many of the
general rules, as well as the MDS-specific rules, for processing applications and changing status. 
However, when we consolidated all of the Part 21 microwave services except MDS into new Part
101 and adopted the Part 21 rules for the removed services, we modified the rules for Part 101 to
limit their provisions to common carriers.  This effectively eliminated their applicability to the
non-common carrier LMDS services, as originally proposed.  Many of the amendments we adopt
below in Part 101 are to reinstate the original scope of the rule from Part 21 insofar as it was
proposed for LMDS.  

    b. Application Forms

     231.  In the First NPRM, we proposed a lengthy rule with numerous provisions for the
content and form of applications for new LMDS systems and for the modification of existing
licenses.  It provided for the number of pages, the contents of the certifications and other
required information, and several exhibits.  The exhibits included a service proposal indicating
how the applicant determined the needs of the public and intended to provide service, a statement
of public interest, and a system design.  The rule also proposed that an applicant submit FCC
Form 494, the application form used in Part 21.

     232.  Many changes have occurred since the First NPRM, as reflected in this Order, to
invalidate the proposed rule.  As discussed in Section II.D., infra, we adopt competitive bidding
rules and procedures to select from among competing applications if two or more entities file
mutually exclusive initial applications. Consequently, all applicants for initial LMDS authori-

zation now are required, first, to submit a short-form application (FCC Form 175) as described
under the rules governing competitive bidding procedures in Subpart Q of Part 1 of our rules. 
An applicant subsequently files a long-form application that is specific to the service only if it is
the winning bidder after an auction is held or, in cases of no mutual exclusivity, it is the sole
applicant.  Here, we are discussing the long-form application to be used in LMDS.

     233.  When we consolidated our fixed microwave service rules into new Part 101 in the
Part 101 Report and Order, we adopted in new Section 101.15 the application forms from Part
21 and proposed for LMDS.  However, we determined to replace application Form 494 with a
unified application form for all the services consolidated into Part 101.  The new form would
reflect a simplified procedure for use by all Part 101 applicants and would provide for all the
necessary information, replacing the need for the specificity in the proposed LMDS application
rule.  It also would reflect our elimination in the Part 101 Report and Order of several
application showings that we included in the proposed LMDS rule, including the financial
showing, the public interest showing, and other managerial showings.  We also determined to
incorporate in the Form 494 replacement the essential ownership information from Form 430,
which we would eliminate.  We also eliminated the use of Form 494A and the requirement to
certify completion of construction.

     234.  On February 3, 1997, we implemented new FCC Form 415 for Part 101 to be used
for initial applications, amendments to applications, and modifications to licenses and for
providing all of the essential information for issuing a license and enforcing compliance with any
pertinent regulations.  However, we do not adopt the use of Form 415 for LMDS.  We find that
Form 600 used for other wireless services is more suitable for LMDS, providing for expedited
filing and electronic processing that is not yet implemented for Form 415.  In all other respects,
Form 600 is similar to Form 415, in that it encompasses the versatility of uses and enables the
streamlined filing procedures intended for LMDS and available to other Part 101 applicants in
Form 415.  We will modify Form 600 to include LMDS and reflect the filing procedures we
adopt for LMDS and discuss below.

     235.  We adopt new Section 101.1013 to identify the application forms to be used for
LMDS.  Form 600 is used for the filing of an initial application, as well as an application to
amend a pending application and to modify an existing license.  Form 600 also is to be submitted
for notification within 30 days of the addition, removal, relocation, or other modification of any
stations in a licensee's authorized area.  Although licensees are free to establish or modify
operations anywhere within their licensed area at any time, it is necessary that we have on file
updated information on the technical aspects of any operations under our jurisdiction for
enforcement and other purposes and not, as here, for authorization.  Section 101.15 provides
for the use of Form 405 for renewal of station license, Form 702 for assignment of license, and
Form 704 for transfer of control, which we will include for LMDS use.  We do not include a
form for the partial assignment of license also in Section 101.15, inasmuch as the extent to which
a license may partition or disaggregate its license is a matter that is pending in the Fifth Notice of
Proposed Rulemaking we adopt in this proceeding. 

    c. Public Notice

     236.  We did not specifically provide for public notice for LMDS filings in our proposed
rules in the First NPRM.  Filings would have been governed by the general provisions in Part 21,
which provide a 30-day notice period for initial applications, major amendments, and certain
modifications and provide for the filing of petitions to deny.   In consolidating the rules in Part
101, we adopted the same public notice provisions in Section 101.37 and, for petitions to deny,
in Section 101.43. 

     237.  The public notice requirements are imposed in Section 309(b) of Title III of the Act
on initial applications and substantial amendments thereof filed by wireless common carriers. 
The same provision also grants the Commission the authority to impose public notice
requirements for other licenses, even though public notice is not required by the statute.  We
impose uniform 30-day public notice requirements in our rules governing applications in the
other wireless services that provide status election procedures to allow authorization on either a
common carrier or non-common carrier basis.  For example, no distinction is made between
applications for either status under the public notice requirements for MDS or satellite
systems.  When we adopted the MDS rules, we specifically determined to hold applicants or
licensees electing non-common carrier status to the same licensing rules as common carriers in
Part 21 and to all the application provisions of Title III.   

     238.  As in the MDS and satellite rules, we adopt our proposal to impose a uniform public
notice requirement on all LMDS applications and will modify Section 101.37 to include all
LMDS applications in its provisions, rather than only common carrier applications as currently
required.  We find that imposing the 30-day notice requirement on non-common carrier
applications would not be an undue burden on such applicants, but rather would be
administratively useful.  This enables us to ensure that the applicant filing for both common
carrier and non-common carrier authorization in a single license is in compliance with the
licensing requirements for common carriers imposed in Title III.  

     239.  Moreover, imposing the statutory requirement even on the LMDS applicant seeking
initial authorization on only a non-common carrier basis facilitates our ability to ensure its
flexibility as a licensee to change or add offerings under our broad service definition.  In the
MDS and satellite rules, we allow licensees to make subsequent status changes under reduced
notification requirements.  In the First NPRM, we proposed to allow LMDS licensees to notify
the Commission ten days after the change occurred.  While we discuss below the modification
procedures we adopt for LMDS licensees to follow in changing status, we establish here the
importance of the 30-day notice requirement on all initial applications.  When we adopted the
MDS rules, we pointed out that anyone objecting to status changes was on notice that it would be
possible for the licensee to change status.  Similarly, we expect interested parties to be on
notice that any LMDS licensee is free to change its status or add to its status, and they should
take into account the broad service definition when the applicant files its initial application under
the public notice provisions of Section 101.37.

    d. Foreign Ownership Restrictions

     240.  In the First NPRM, we proposed a rule concerning the eligibility of applicants to be
granted LMDS authorization.  The proposed rule does not include, nor did we address, the
foreign ownership eligibility restrictions on the issuance of a license, so that LMDS applicants
would have been governed by the MDS provisions in Part 21.  Certain foreign ownership and
citizenship requirements are imposed in Sections 310(a) and 310(b) of the Act, as modified by
the 1996 Act, that prohibit the issuance of licenses to certain applicants.  The statutory
provisions are adopted in Part 101 at Section 101.7 and reflect the restrictions as they must be
imposed on LMDS applicants.  Specifically, Section 101.7(a) prohibits the granting of any
license to be held by a foreign government or its representative.  Section 101.7(b) prohibits the
granting of any common carrier license to be held by individuals that fail any of the four
citizenship requirements listed.

      241.  By its terms, Section 101.7 applies to LMDS applicants without modification. 
Thus, the LMDS applicant requesting authorization only for common carrier service would be
prohibited from holding a license if it met any of the additional criteria in Section 101.7(b).  If
the LMDS applicant requested authorization only for non-common carrier services, it could hold
a license if it met the single alien ownership requirement in Section 101.7(a) regardless if it
would otherwise be disqualified for a common carrier authorization.  As for the LMDS applicant
requesting authorization for both non-common carrier and common carrier services, it would be
disqualified from a license if it met any of the criteria in Section 101.7(b).  Whether the applicant
is seeking only common carrier authorization in a license or in combination with a non-common
carrier authorization, the provisions of Section 101.7(b) would apply in either situation and
would prevent any common carrier authorization from being issued to an ineligible applicant.

     242.  In the filing of application under the MDS and satellite rules, we require the
applicant electing non-common carrier status to submit the same information that common
carrier applicants submit to address the alien ownership restrictions under Section 310(b) of the
Act.  In adopting the MDS rules, we directed applicants electing non-common carrier status to
file Form 430 to provide the information on ownership qualifications the same as common
carrier applicants.  We amended Section 21.11(a) of our rules to specifically impose on non-
common carrier MDS licensees the obligation to file Form 430 on an annual basis in order to
establish licensee qualifications.  In the Satellite Rules Report and Order, we decided to continue
to require non-common carriers applicant to provide the foreign ownership information requested
of common carrier applicants in the new application form proposed for satellite services.  We
pointed out that the new form does not eliminate the requirement that both common carrier and
non-common carrier earth and space station licensees must file an updated Form 430 whenever
there are changes to a licensee's financial and legal qualifications.  

      243.  We adopt a similar requirement for non-common carrier LMDS applicants in new
Rule 101.1013(b) and require them to provide the same foreign ownership information required
of common carrier applicants when they file an application.  Under the regulatory flexibility
accorded licensees to change status with a minimum of regulatory interference, updated
information can be used whenever the licensee changes to common carrier status without
imposing an additional filing when the licensee makes the change.  Like common carriers, non-
common carriers will be required to file an updated form whenever there are changes to the
foreign ownership information as well as the other legal and financial qualifications.  We would
not disqualify the applicant requesting authorization exclusively to provide non-common carrier
services from a license if its citizenship information reflects it would otherwise be disqualified
from a common carrier license.  That is not permitted under the statute.  As we stated in the
Satellite Rules Report and Order, we are requiring non-common carriers to address all the alien
ownership prohibitions to better enable us to monitor all of the licensed providers in light of their
ability to provide both common and non-common carrier services.   

    e. Initial Applications

     244.  As stated, we are adopting use of FCC Form 600 for use as the long-form
application for initial authorization, amending a pending application, modifying an existing
license, and for notification within 30 days of any increase, removal, relocation, or other
modification regarding stations in a licensee's authorized area.  Under the flexible regulatory
framework we have adopted, an applicant may request initial authorization on both a common
carrier and non-common carrier basis in a single license.  It may also request authorization only
on a common carrier basis or a non-common carrier basis.  We will modify Form 600 to include
LMDS in its provisions and to permit the applicant to indicate whether it is requesting common
carrier authorization, non-common carrier authorization, or both authorizations in its license.  As
we stated, the LMDS applicant is not required to describe its proposed services, and its choice of
status is based on its own determination of the nature of its services.  If an applicant is unsure of
the nature of its services and whether or not they are classified as common carrier services, it
may submit a petition with its application, or at any time, requesting clarification and including
service descriptions for that purpose.   
 
    f. Changing Regulatory Status

     245.  In the First NPRM, we proposed a status election mechanism for an applicant or
licensee to change between common and non-common carrier status.  We have concluded,
however, that the mechanism we proposed is not consistent with the overall licensing framework
we have established in this Order, and we therefore have declined to adopt the proposed
mechanism.  We adopt for LMDS the procedures in Part 101 for filing applications for
amendments to pending applications and for modification of existing licenses, and will modify
the rules to provide for amendments or modifications that seek to change, or add to, regulatory
status as common carriage or non-common carriage, as discussed below.

      (1) Amendments to Pending Applications  

     246.  Section 101.29 provides for the filing of applications to amend pending
applications.  We will permit amendments to LMDS applications that amend the carrier status
reflected on the application.  An amendment may change the proposed classification from
common carriage to non-common carriage, or from non-common carriage to common carriage. 
It also may add common carriage or non-common carriage to an initial classification request in
order to amend the pending application to reflect a request for authorization in a single license to
provide both common carrier and non-common carrier services.

     247.  We will not designate such amendments as major in order to subject the amended
application to public notice, but rather treat the filing as any other amendment for expedited
processing.  All initial applications for LMDS authorization are being submitted to public notice
and petitions to deny, and we have put interested persons on notice that the LMDS service
definition includes both common and non-common carrier services that a licensee can provide in
any combination under a simplified notification process we discuss later.  In these circumstances,
we find no reason to impose an additional notice period on the pending application and no reason
to amend Section 101.29, which otherwise includes LMDS in its provisions.   

      (2) Modification Applications

     248.  We also permit licensees to modify their licenses in order to change, or add to, the
authorized status.  In determining the appropriate procedures to use, we note that licensees
changing status in the MDS, satellite, or DBS rules blend the notice requirements of
discontinuance with the modification process.  In initially adopting the status change procedures
for satellites services, we found that we could make the same public interest findings in granting
the request for modification coterminously with granting authority to discontinue service. 
Unlike those services, we will permit LMDS licensees not only to operate exclusively as a
common carrier or non-common carrier, but to provide services on both bases.  Thus, we must
provide a modification procedure that does not presume the underlying service will be
discontinued and does not build into it the discontinuance notice requirements.  

     249.  In recently considering the procedures for satellite licensees to change status, we
decided to use different license modification procedures to accomplish the change, depending on
the change requested. A change from non-common carrier status to common carrier status was
determined to be a modification that does not require prior Commission authorization and would
only require Commission notification after 30 days.  A change from common to non-common
carrier status is a modification application that requires full public notice and prior Commission
approval in order to allow the discontinuance of common carriage.  

     250.  We will not combine our discontinuance procedures with the modification
procedures, but rather will adopt one streamlined process for all requests to change or add to the
regulatory status of a licensee. We find that all applications to modify a licensee's status should
be filed as modifications that do not require prior Commission authorization.  With respect to the
Title III notice requirements, we have imposed the public notice requirements on all initial
applications and interested parties are on notice of the flexibility accorded licensees to change
from non-common carrier to common carrier status.  We also require all licensees to maintain a
current record of their foreign ownership status, which allows us to assess the licensee's
compliance with that Title III licensing requirement in the event of a change to common carrier
status.  

     251.  In these circumstances, we see no reason to require licensees changing status to be
hampered by further notice requirements, except to the extent they may be discontinuing an
underlying service.  This is consistent with the reduced notice requirements we impose on status
changes in the MDS rules, as well as the satellite rules.  Section 101.61 provides for
modifications that do not require prior Commission authorization, which we will modify to
include LMDS licensees.  Under the rule, licensees are required to notify the Commission of
changes by submitting a completed application form within 30 days after the changes are made. 
We believe that the 30-day notification requirement is administratively useful and is appropriate
for carrier classification changes, except to the extent that a status change would result in the
discontinuance, reduction, or impairment of existing services.  In that case, the licensee must
adhere to the discontinuance requirements in Section 101.305 discussed below.  We amend
Section 101.61(b) to require that, if the LMDS applicant filing for a modification in its carrier
classification would also be subject to Section 101.305, the applicant adhere to the filing
deadlines and requirements in Section 101.305 when filing its Form 600 under Section 101.61,
which are more stringent than the 30-day notification requirement in Section 101.61(b).

    g. Discontinuance, Reduction, or Impairment of Service

     252.  In the First NPRM, we proposed that LMDS be subject to the special rules for
discontinuance of common carrier services by MDS licensees in Section 21.910.  In all other
respects, licensees would have been subject to the general discontinuance provisions for common
and non-common carrier services in Section 21.303.  In adopting the rules in Part 101, we
included them in Section 101.305. 

     253.  Title II of the Act requires that no common carrier may discontinue, reduce or
impair service without prior Commission approval.  In conformance with this requirement,
Section 101.305(b) requires a licensee subject to Title II to obtain prior authorization from the
Commission pursuant to the procedures set forth in Part 63 of our rules.  Thus, an LMDS
licensee authorized to provide common carrier service that seeks to change status to a non-
common carrier or otherwise reduce its common carrier service is subject to Section 101.305(b). 
We find no reason to adopt the special MDS rules in Section 21.910 for discontinuance of LMDS
common carrier service, which is appropriately covered by the procedures in Part 63.  If the
LMDS common carrier licensee filing under Section 101.305(b)
is also filing under Section 101.61 to modify its classification to non-common carriage, the filing
under Section 101.61 must conform with the deadlines and requirements under Section
101.305(b).  

     254.  Section 101.305(c) requires that a licensee not subject to Title II who voluntarily
discontinues, reduces or impairs its service give written notification to the Commission within
seven days of the change.  Thus, an LMDS licensee engaged in non-common carrier services is
governed by this provision.  We amend the rule to clarify the ambiguity, which states that it is for
``common carrier licensees not subject to title II,''  and provide that, like Section 21.303(c) from
which it came,``any licensee, not subject to title II'' is covered.  If the LMDS non-common
carrier licensee is also filing under Section 101.61 to modify its classification to non-common
carriage, the filing under Section 101.61 must conform with the 7-day deadline under Section
101.61.
          
     255.  The discontinuance rules require that the licensee submit the license for cancellation
in the event that permanent discontinuance of service is authorized.  In MDS, we exclude the
licensee from this requirement and provide that the MDS license need not be surrendered for
cancellation if discontinuance of either the common carrier or non-common carrier services is a
result of a change of status under the MDS procedures.  We amend Sections 101.305(b) and
101.305(c) to similarly exclude LMDS licenses from cancellation under such circumstances.

    h. Fees

     256.  Fees are prescribed in Section 101.11 for applications or other filings requiring fees
as set forth in Subpart G of Part 1 of the Commission's Rules.  In the First NPRM, we pointed
out that fees for filing applications are set by Congress in Section 8(a) of the Communications
Act, which does not include LMDS.  We proposed to adopt the fee structure of MDS, which is
listed in Section 1.1105 for common carrier services, on the grounds that LMDS is a type of
multipoint distribution service.  We find that this is an issue appropriately to be decided by
Congress.  Congress has not granted the Commission the authority to amend the application fee
schedule and we may not take any action to change the schedule in this proceeding.

     257.  Since 1994, the Commission has implemented procedures in Subpart G of Part 1 for
prescribing and collecting annual regulatory fees from all Commission licensees to recover costs
incurred in carrying out our activities.  We adopted the regulatory fees for fiscal year 1996 in
an Order released July 5, 1996.  We are required each year to consider adjustments of the fees
and to add or reclassify services in the Schedule to reflect additions, deletions, or changes in the
nature of services.  Thus, regulatory fees for LMDS will be considered upon adoption of these
rules for inclusion in the Schedule in the proposed regulatory fees for fiscal year 1997.  We note
that for 1996, we adopted a regulatory fee for MDS of $140 per call sign and a similar fee for
common carrier fixed point-to-point microwave service.  Although regulatory parity may
dictate that fees for similar services be equivalent, we have not yet determined the specific costs
associated with our enforcement, policy, and rulemaking activities relating to LMDS.  In order to
provide interested parties with the opportunity to comment on the costs associated with the
regulation of LMDS, we will address these questions in the rulemaking proceeding concerning
proposed changes to the regula
tory fee schedule for fiscal year 1997.   

    i. Equal Employment Opportunity

     258.  Section 101.311 requires that equal employment opportunity (EEO) must be
accorded by all common carrier licensees consistent with the provisions of Section 21.307, which
governs MDS.  That rule imposes the EEO requirements on all MDS licensees, whether
authorized to provide common carrier services or non-common carrier services. Section 21.920
in the MDS rules specifically adopts the cable rules for EEO in Subsection E of Part 76, which
requires that an MVPD is an entity subject to the EEO rules there.  As with MDS, the LMDS
non-common carrier will be authorized to provide video programming and must be subject to the
same EEO requirements as the common carrier licensee.  Accordingly, we
 modify Section 101.311 to impose the requirements on all LMDS licensees.
     
    j. License Terms

      259.  Section 101.67 provides that all licensees under Part 101 will have a license term
not to exceed 10 years.  In the First NPRM, we proposed a license term of five years, but re-

quested comment on whether a term of 10 years would be more appropriate.  Commenters
generally favored a grant of 10 years to ensure that the services are implemented successfully. 
We adopt a 10-year term for LMDS licensees.  This is consistent with the rules governing other
Part 101 services.  It also serves our goal of providing licensees with flexibility to develop this
spectrum as the market demands and to employ innovative technologies which may not be
available immediately upon licensing.
  
    k. Renewal Expectancy

     260.   In the First NPRM we proposed to establish renewal expectancy rules for LMDS
licenses and requested comment regarding  the operation and administration of such rules in the
context of license renewal comparative hearing proceedings.  Based upon our review of the
record and further examination of this issue, we have decided to establish a major preference
(generally referred to as a ``renewal expectancy'') as a comparative factor for consideration by the
Commission in LMDS license renewal proceedings.  It is our view that this renewal expectancy,
coupled with the 10-year license term, will contribute toward the establishment of a stable
regulatory environment that will serve to attract investment capital that, in turn, will fuel the
development and deployment of services utilizing the LMDS spectrum bands.

     261.  Our renewal expectancy for LMDS is based on renewal expectancy rules we have
adopted for cellular service.  Under the rules we adopt today, an LMDS license renewal
applicant involved in a comparative renewal proceeding is entitled to a renewal expectancy if the
record of the renewal applicant for the relevant license period provides sufficient evidence that
the applicant has furnished substantial service during its license term, and that the applicant has
substantially complied with the Communications Act, and with applicable Commission rules and
policies.  We define ``substantial service,'' for purposes of our proposed renewal expectancy rule,
as service that is sound, favorable, and substantially above a level of mediocre service that just
might minimally warrant renewal.

     262.  We also require that, in order to qualify for a renewal expectancy, an LMDS license
renewal applicant must submit a showing that explains the basis upon which the applicant should
receive the expectancy.  We require that this showing shall, at a minimum, include the following:

   A description of the current service provided by the applicant, in terms of geographic
    coverage and population served.

   An explanation of the applicant's record of expansion, including a timetable of the
    construction of new facilities to meet changes in demand for services provided by the
    applicant.

   A description of investments made by the applicant in its system.

   A copy of any Order adopted by the Commission finding that the renewal applicant has
    violated the Communications Act or any Commission rule or policy, and a list of any
    pending proceedings in which allegations have been made that the applicant has violated
    the Communications Act or any Commission rule or policy.

    l. Construction Requirements

      (1) Background; Comments

     263.  In the Third NPRM, we noted that the record indicates that the only potential delays
in the deployment of LMDS would be manufacturing sufficient equipment.  In order to foster the
maximum diversity in services and technology, we tentatively concluded that build-out
requirements should not be strict.  On the other hand, we expressed concern that rural areas
would not receive service without a build-out requirement.  Accordingly, we proposed that
LMDS licensees be required to have made service available to a minimum of one-third of the
population of their geographic areas within five years from the date of license grant, and to two-
thirds of the population of their geographic areas within ten years from the date of license
grant.

     264.  The parties are divided on this issue.  Bell Atlantic and CellularVision support the
Commission's proposal.  ComTech also agrees with the build-out requirements proposed in the
Third NPRM, with a variation.  ComTech encourages the Commission to require a faster build-
out requirement for companies that acquire a license covering or immediately adjacent to their
existing service areas, because it believes that these requirements will ensure against
anticompetitive behavior.

     265.  HP, TI, and M3ITC, potential LMDS manufacturers, oppose any build-out
requirement if auctions are used as a licensing mechanism.  HP argues against a build-out
requirement based on concerns that all licensees might not be able or willing to satisfy them.  It
argues that: (1) not all geographical areas within a BTA will be suitable for LMDS due to
propagation characteristics; (2) some potential license holders might already have an existing
broadband infrastructure in some portions of their license area, which they would possibly not
choose to overlay with redundant wireless architecture; and (3) even in areas where LMDS is the
technology of choice, some households will be ``shadowed.''  TI, too, opposes adoption of a
build-out schedule, arguing that LMDS equipment may not be immediately available in
sufficient quantities to permit licensees to comply with such a requirement.  Instead, M3ITC
recommends a time limit in which an operator is permitted to claim its service area, e.g., eight
years. Thereafter, M3ITC suggests, the Commission should open unserved areas for licensing in
the same manner as has been done with respect to cellular unserved areas.

      (2) Decision

     266.  We have concluded that we will adopt very flexible build-out requirements for
LMDS.  Specifically, we will require licensees to provide ``substantial service'' to their service
area within 10 years.  Although LMDS licensees will have incentives to construct facilities to
meet the service demands in their licensed service area, we believe that minimum construction
requirements can promote efficient use of the spectrum, encourage the provision of service to
rural, remote, and insular areas, and prevent the warehousing of spectrum.

     267.  The build-out requirement that we adopt today is based upon the requirement we
recently adopted for Wireless Communications Services, which is the most liberal construction
requirement the Commission has adopted.  We believe that this liberal build-out requirement is
appropriate in the case of LMDS for a number of reasons.  First, we are providing LMDS
licensees with the flexibility to offer a range of services using the LMDS spectrum.  Given the
broad range of new and innovative services that the comments lead us to believe might be
provided over LMDS spectrum, imposing strict construction requirements that would apply over
the license term would be neither practical nor desirable as a means of meeting the objectives
established in Section 309(j) of the Act regarding warehousing and rapid deployment.  Without
knowing the specific type of service or services to be provided, it would be difficult to devise
specific construction benchmarks.

     268.  Further, given the undeveloped nature of equipment for use in this band, we are
concerned that strict construction requirements might have the effect of discouraging
participation in the provision of services over the LMDS spectrum.  It may be that a potential
licensee could efficiently conduct certain operations on LMDS spectrum, but must await further
technological developments to do so affordably.  Adopting strict construction requirements here
could effectively preclude efficient uses of the spectrum.

     269.  At the 10-year period, we will require all LMDS licensees to submit an acceptable
showing to the Commission demonstrating that they are providing substantial service.  Licensees
failing to demonstrate that they are providing substantial service will be subject to forfeiture of
their licenses.  We note that in the past we have defined substantial service as ``service which is
sound, favorable, and substantially above a level of mediocre service which just might minimally
warrant renewal.''  For LMDS, however, we believe that further elaboration on this standard in
the form of examples of what might constitute substantial service is useful.

     270.  Thus, for an LMDS licensee that chooses to offer point-to-multipoint services, a
demonstration of coverage to 20 percent of the population of its licensed service area at the 10-
year mark would constitute substantial service.  In the alternative, an LMDS licensee that
chooses to offer fixed, point-to-point services, the construction of four permanent links per one
million people in its licensed service area at the 10-year renewal mark would constitute
substantial service.  In addition, the Commission may consider such factors 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 licensee's operations
serve niche markets or focus on serving populations outside of areas served by other licensees. 
These safe-harbor examples are intended to provide LMDS licensees a degree of certainty as to
how to comply with the substantial service requirement by the end of the initial license term. 
This requirement can be met in other ways, and we will review licensees' showing on a case-by-
case basis.  

     271.  We believe that these build-out provisions fulfill our obligations under Section
309(j)(4)(B).  We also believe that the auction and service rules which we are adopting for
LMDS, together with our overall competition and universal service policies, constitute effective
safeguards and performance requirements for LMDS licensing.  Because a license will be
assigned in the first instance through competitive bidding, it will be assigned efficiently to a firm
that has shown by its willingness to pay market value its willingness to put the license to its best
use.  We also believe that service to rural areas will be promoted by our proposal to allow
partitioning and disaggregation of LMDS spectrum.

     272.  Finally, we note that we reserve the right to review our liberal construction
requirements in the future if we receive complaints related to Section 309(j)(4)(B), or if our own
monitoring initiatives or investigations indicate that a reassessment is warranted.  We also
reserve the right to impose additional, more stringent construction requirements on LMDS
licenses in the future in the event of actual anticompetitive or rural service problems and if more
stringent construction requirements can effectively ameliorate those problems.
  
C. Technical Rules and Requirements     

  1. Frequency Coordination
    
    a. Background; Comments

     273.  In the Third NPRM, we recognized that, although a licensee under our proposed
framework would be able to conduct operations anywhere within its geographic area, a licensee
may need to coordinate its operation with other entities licensed to provide service in
geographically adjacent service areas to avoid interference situations.  We proposed to require
applicants to coordinate frequencies among themselves at their service area boundaries under our
existing coordination rules.  This process, the NPRM suggested, would be highly efficient, and
would provide LMDS operators sufficient engineering flexibility to avoid interference problems. 
Alternatively, we proposed to establish a power flux density (PFD) level at the service area
boundaries.  Included in the PFD rule would be a provision allowing parties to exceed the limit if
they could agree on a higher level.  The Third NPRM suggested that this approach would
possibly require less Commission involvement and would hasten the introduction of LMDS
services.  Therefore, we asked commenters to recommend a PFD limit they believed to be
reasonable.

     274.  In general, LMDS proponents favor employing a frequency coordination procedure,
rather than limiting the PFD at the service area boundaries.  For the most part, they
acknowledge that the PFD approach would be much simpler; but, as they explain, LMDS
development is still in its infancy and therefore, it would be extremely difficult to determine a
PFD standard that would be protective of all LMDS system designs.  Besides, they note,
competitive forces are more likely to cause system operators to maximize performance standards. 
These competitive forces, commenters argue, are likely to be more effective than any action by
the Commission.  

     275.  To ensure successful frequency coordination and adequate interference control, TI
proposes that the coordination notification contain values for the following parameters: (1) EIRP;
(2) channelization and frequency plan; (3) modulation type and channel bandwidth; (4)
frequency stability; (5) receiver parameters (noise figure, bandwidth, and thresholds); (6) antenna
characteristics; and (7) system geometry.  In addition, TI recommends that coordination
between adjacent LMDS systems only encompass hubs located within 20 kilometers of  BTA
boundaries and that coordination be limited to BTAs with different licensees.  TI further suggests
that existing coordination procedures contained in Section 21.100(d) of the Commission's Rules
serve as a guide, and that we adopt a rule requiring LMDS systems to use power control
techniques to further simplify resolution of interference problems.
       
     276.  NYNEX recommends that the Commission establish an independent technical
advisory committee to establish technical rules.  CellularVision opposes any rule requiring
LMDS operators to use active power control and interlock techniques in their systems.  It
contends that these approaches are not necessary, and that they will only complicate LMDS
designs and serve to drive up equipment costs to consumers.

    b. Decision 

     277.  There is no support in the record for establishing a service area boundary PFD limit
for coordinating adjacent LMDS systems.  Commenters believe that LMDS has not matured to
the point necessary to enable the calculation of a reasonable limit that would be beneficial in its
application.  Moreover, adoption of a limit now could stifle more advanced development of
LMDS technology.  Considering these potential drawbacks, we decline to set such a standard. 
We reject NYNEX's proposal that we establish a technical advisory committee to develop the
technical record established in this proceeding further.  As NYNEX notes, referring this matter to
another committee would only delay to our process, and in our view would not be likely to yield
any additional benefits.   

     278.  Instead of adopting a service area boundary PFD limit, we have decided to adopt the
frequency coordination procedures outlined in Section 101.103(d), as proposed in the Third
NPRM.  This coordination process provides licensees the greatest amount of flexibility in system
design while ensuring that system interference will be kept to a minimum.  These benefits for
microwave services are well documented.  Our experience with other services employing prior
frequency coordination procedures shows that those services are successfully implemented with
little delay and rarely result in unresolved frequency interference cases.  Given the support in the
record and the past success of the process in other services, we believe LMDS will benefit from a
similar program.  The regulatory scheme being adopted provides each LMDS licensee complete
control over its own facilities within its designated service area.  Therefore, each licensee will
have the flexibility to establish most service performance and interference levels within its
system without affecting the operations of adjacent systems owned by other licensees.  

     279.  We adopt new Section 101.103(g) to provide that, under these procedures, LMDS
providers licensed to operate in the 27.5-28.35 GHz  and 31.0-31.3 GHz bands will follow the
requirements of Section 101.103(d) and provide each adjacent LMDS licensee and each
potentially-affected, adjacent-channel FSS licensee, as necessary, values for the appropriate
parameters listed in that subsection.  In addition, LMDS providers authorized to operate in the
31.000-31.075 and 31.225-31.300 GHz bands will also be required to coordinate with each non-
LTTS cochannel incumbent licensee operating in these bands, consistent with the requirements
of Section 101.103(d).  Coordinating parties must supply information related to their
channelization and frequency plan, receiver parameters (e.g., noise figure, bandwidth, and
thresholds) and system geometry.  We agree with TI that, based on various assessments
conducted in this proceeding, coordination between adjacent LMDS systems need only
encompass hubs and subscriber transceivers located within 20 kilometers of  BTA boundaries. 
Each LMDS licensee must complete this coordination process prior to initiating service within its
service area.

     280.  Currently, Section 101.103(b) does not require existing 31 GHz licensees to
conduct frequency coordination, but rather identifies operations in the band as unprotected and
subject to harmful interference.  However, given our decision to designate the 31 GHz band for
LMDS and to afford non-LTTS incumbent licensees in the 31.000-31.075 and 31.225-31.300
GHz bands protection status from LMDS equal to that of LMDS without changing their
unprotected status among themselves, we must ensure that the non-LTTS incumbent licensees
and the LMDS licensees operating in these bands are protected against each other.  To achieve
this goal, we revise Section 101.103(b) to reflect the protections we have adopted in this Report
and Order for operations in the 31 GHz band.  Also, new Section 101.103(g) requires that the
non-LTTS incumbent licensees in the 31.000-31.075 and 31.225-31.300 GHz bands complete
frequency coordination prior to any system modification if any transmitting station is within 20
km of an LMDS facility.  In other words, these parties will be subject to the requirements of 
Section 101.103(d).  Participating parties should  resolve any problems that develop during this
process.  Only unresolved frequency conflicts should be reported to the Commission.  In such
cases we will resolve the conflicts.    

     281.  At this time we do not see a need to require LMDS licensees to employ active
power control and interlock circuitry in their systems.  Although these devices may ensure that
systems maintain a more constant power level and result in subscriber antennas being more
accurately aligned, these are system elements that contribute to service performance and should
be left to the discretion of the service providers.  We do not wish to impose unnecessary costs on
system operators or to indirectly impose service quality standards.   As an additional matter, we
adopted sharing rules in Section 101.147(x) in the First Report and Order between LMDS hub-
to-subscriber transmissions and NGSO/MSS feeder links in the 29.100-29.250 GHz band, which
impose certain coordination and protection requirements on LMDS licensees operating in that
band.  We take the opportunity at this time to delete  the rule from Section 101.147 and place it
into Section 101.103 at subpart (h) without change so that all the coordination obligations of
LMDS licensees are under Section 101.103.  

  2. Polarization

    a.  Background; Comments

     282.  To ease the frequency coordination process further, we proposed in the Third
NPRM to restrict the type of polarization employable by LMDS systems to orthogonally-
polarized signals.  Based on available antenna technology, we concluded that adjacent LMDS
systems could realize cross-polarization isolation levels of at least 20 dB,  and that allowing
other types of polarization would  potentially impose some geographical separation between
systems, and thereby reduce service to the public.  

     283.  Commenters differ on this issue.  Supporters of our proposal maintain that using
orthogonally-polarized signals would advance the frequency coordination process, and would
facilitate co-frequency sharing.  ComTech also argues that such signals will help avoid
interference to satellite systems.  Parties in opposition argue that because the Commission
proposed to require frequency coordination between LMDS licensees, a restriction on the use of
various signal polarizations is unnecessary.  Those commenters note further that, although the
limit may be appropriate now, future system developments may require different polarization
schemes.  NASA adds that because of orientation relationships of LMDS and FSS antennas,
there is not likely to be any significant signal polarization isolation between these systems.

    b. Decision

     284.  Based on our review of the record and our further analysis of this issue, we
conclude that greater system efficiency would be achieved if we adopt a uniform polarization
scheme at least for service area boundaries.  Allowing the use of any type of polarization scheme
could produce undue hardship on some LMDS licensees, because they might be required to make
system alterations to adapt to an adjacent licensee using a non-orthogonal scheme.  Because the
polarization pattern employed in one service area could have a ripple effect throughout a region,
the benefit of providing system owners complete autonomy in this area is outweighed by the
potential cost in system modifications and delay in service implementation.  We wish to point
out that the restriction will apply only to the polarization scheme used at the service area
boundary.  Twenty kilometers beyond that boundary, licensees may employ any polarization
format they conclude best meets their service and system requirements.  

  3. Equivalent Isotropically Radiated Power

    a. Background; Comments

     285.  With the intent of creating a homogeneous LMDS environment, we proposed to
restrict the maximum equivalent isotropically radiated power (``EIRP'') at which LMDS  systems
operate in the 27.5-28.35 GHz band to a -52 dBW/Hz.  As to the band 29.1-29.25 GHz, we
proposed that LMDS systems not operate at power levels more than those set forth in the sharing
agreement between Motorola and various LMDS proponents.  As an additional mitigating
interference factor, the Third NPRM proposed to adopt a 0.001 percent frequency tolerance for
all LMDS equipment.

    286.  Comments regarding the proposed EIRP limit range from concurrence to disapproval. 
For example, TI says that the recommended power level is sufficient if the measuring standard is
1 megahertz as opposed to 1 hertz.  TI proposes this modification because it wants to employ a
pilot reference carrier in its system design.  The power of  that signal exceeds the -52 dBW/Hz
proposed limit when measured on a per-hertz basis.  BellSouth supports the limits for LMDS
hubs, but requests that no limit be placed on subscriber transceiver equipment (or return links). 
BellSouth argues that these units should be able to employ the maximum power permissible in
the band, i.e., -18 dBW/Hz, so that future equipment, designed for improved service quality, can
be accommodated.  While sharing views similar to BellSouth's, HP suggests that subscriber
transceiver equipment EIRP be limited to -30 dBW/Hz.  

    287.  On the other hand, Endgate opposes any limit less than -18 dBW/Hz for operation in
the 27.5-28.35 GHz band.  According to Endgate, field tests have shown that the proposed -52
dBW/Hz limit will support line-of-sight coverage in normal foliated environments, but will not
provide sufficient coverage to justify an LMDS system economically.  Endgate contends that the
LMDS system power level determines the quality of service provided.  Although the suggested
power level benefits LMDS systems, NASA claims that this level makes LMDS systems more
susceptible to interference from FSS operations.  As a compromise, CellularVision offers a
maximum limit of -35 dBW/Hz based on a bandwidth of 1 megahertz.  It believes this level is
sufficient to meet the needs of LMDS subscribers and is conducive to frequency coordination.  

    288.  Although they support the Commission's efforts to maximize use of the 28 GHz
band, CellularVision and ComTech do not support adoption of a frequency tolerance standard for
LMDS subscriber transceiver equipment.  They contend that although the proposed standard is
within the state-of-the-art, it cannot be achieved at the necessary low cost for LMDS subscriber
transceiver equipment.  Additionally, according to CellularVision and ComTech, LMDS
subscriber transceiver equipment will operate at power levels much lower than hub stations, and,
traditionally, the Commission has permitted lower-powered stations to operate at a lower
frequency tolerance.  Therefore, they propose that subscriber transceiver equipment operating
below 500 mW be exempt from any frequency stability requirement, or, in the alternative, that
the current Part 21 standard of 0.03 percent for such facilities be adopted.  

    b. Decision

     289.  The proposed EIRP limit was based on typical power levels LMDS system
proponents provided for the general system characteristics contained in the ``Report of the
LMDS/FSS 28 GHz Band Negotiated Rulemaking Committee.''  In addition, we believed that
establishing such a maximum power level would create a more homogeneous LMDS operating
environment because future system power levels would be closely aligned with the systems of
record.  Additionally, we saw this as aiding the ability to coordinate adjacent system operations. 
Proponents of a higher power limitation, however, want more flexibility to design future systems
that can take advantage of more modern modulation techniques and greater discretion to use the
EIRP system parameter to mitigate interference problems.  

     290.  To meet our objectives and provide system designers with the necessary flexibility
to further advance LMDS systems, we are adopting a maximum EIRP for LMDS hubs operating
in the 27.5-28.35 GHz and 31 GHz bands of 30 dBW/MHz.  This higher EIRP, besides
facilitating the above objectives, will also improve the reliability of longer paths and further
improve service quality.  In some cases, this may result in a requirement for fewer hub sites and a
reduction in the cost of providing LMDS services.  Moreover, this power increase should
accommodate TI's proposed system single frequency operation as well.  Because the
transmission paths from the subscriber terminal equipment to a hub may be viewed as a point-to-
point configuration, we will accord LMDS operators the discretion to use as much as 42
dBW/MHz (which is equivalent to the -18 dBW/hz noted in the Third NPRM) for such
transmissions. We revise the table of transmitter power limitations in Section 101.113 to reflect
the limits we adopt for LMDS and to permit incumbents in 31 GHz to continue at their currently
authorized level.   Operations to take place in the 29.100-29.250 GHz band are governed by
rules we adopted in the First Report and Order in Sections 101.113(c), as well as 101.133(d) and
101.147(t), which are new provisions designed to facilitate the sharing of this spectrum by
LMDS, FSS/Geostationary Orbit (GSO) gateways, and MSS feeder link licensees.

     291.  Although CellularVision and ComTech oppose adopting a frequency stability
standard, they do not provide any data supporting their allegation that the costs they would incur
to comply with our proposal would be too high.  Other commenters believe as we do, that the
proposed standard is reasonable, is within the state-of-the-art, and is economically feasible. 
Limiting the range within which the frequency can drift, in our view, will aid in coordinating
frequency usage at service area boundaries.  This means services can be introduced more rapidly
and service quality can be significantly improved.  Therefore, we adopt our 0.001 percent
proposal for all LMDS transmitting equipment and amend the table of frequency tolerance
percentages in Section 101.107 accordingly, while permitting incumbent licensees in the 31 GHz
band to continue at their existing level.  

  4. RF Emissions

    292.  Although we have set power limitations for LMDS hubs and subscriber transceivers,
these limits do not reflect consideration of potential radio frequency (RF) radiation hazard to
equipment installers, passersby or subscribers.  Generally, the hub antenna will transmit its main
beam at some angle below the horizon, to communicate with subscriber transceivers.  Its
radiation pattern and EIRP levels will be similar to those of an MDS transmit station, a service
the Commission has considered as part of its requirements for evaluating RF radiation exposure
of the public or workers in the RF Guidelines Report and Order.  Similarly, we expect that the
LMDS  hub transmitting antennas would be mounted in a fashion that should preclude public
access.  For the purpose of complying with our RF radiation exposure guidelines and because of
the technical similarities between LMDS and MDS, we are requiring LMDS licensees to follow
the RF radiation guidelines and procedures that apply to MDS systems.

    293.  We note that if an MDS transmitting antenna is not rooftop mounted and its height
above ground is less than 10 meters and the station's total power is greater than 1,640 Watts
EIRP, a routine environmental evaluation will have to be performed.  If the facility is mounted
on a rooftop and the power is greater than 1,640 W EIRP, a routine evaluation will have to be
performed.  We will apply the same criteria to LMDS.  We note, however, that facilities,
operations, and transmitters otherwise categorically excluded from the requirement to undertake
such studies or to prepare a formal environmental assessment, are still expected to comply with
our guidelines and may be subject to further environmental evaluation in special cases.  

    294.  Subscriber transceiver antennas present a unique situation.  There is no existing
service designed to operate in a similar fashion with similar technical parameters.  Nonetheless,
we emphasize that all FCC-regulated transmitters, including the subscriber terminals used in
LMDS systems, are required to meet the applicable Commission guidelines regarding RF
exposure limits.  The subscriber antennas to be used are very small and can be mounted in a
variety of places at a subscriber location.  Generally, we expect these antennas to be mounted so
that neither subscribers nor passersby venture into their transmit beams, because a person will
block the signal and interrupt the transmissions between the hub and subscriber transceivers. 
Moreover, it is anticipated that LMDS subscriber equipment will be installed by professional
personnel, thereby minimizing the possibility that subscribers or passersby will intercept the
transceiver signal.

    295.  We believe it is incumbent upon LMDS licensees to exercise reasonable care to
protect users and the public from the operation of LMDS transceivers.  Since the Commission
has not specifically addressed RF emissions guidelines for this kind of equipment, we believe
that requiring licensees to provide user and installation information, and to label subscriber
antennas properly, provides adequate notice regarding the potential safety hazards of LMDS
subscriber transceivers.  We will therefore require LMDS licensees to attach labels to every
antenna, in a conspicuous fashion.  Such labels should include reference to the Commission
guidelines that apply.  In addition, we expect LMDS licensees to include a full explanation of the
labels that appear on their antennas, as well as reference to the applicable Commission guidelines
in the instruction manuals and other information accompanying their subscriber transceivers.  For
example, this information should include advice as to minimum separation distances required
between users and radiating antennas to meet the Commission's exposure guidelines.  While we
will require LMDS licensees to attach labels and provide users with notice of radiation hazards,
we will not mandate the specific language to be used.  However, we will require use of the
ANSI-specified warning symbol for RF exposure.

    296.  Although we have declined to require interlock features, we recognize that such
features could enhance the safety of LMDS subscriber transceivers.  For example, such a feature
could reduce or terminate transmitting power if someone were to block the antenna's close-in
main beam.  Thus, we strongly encourage the use of safety interlock features on the subscriber
units to the extent that such features can be made available at a reasonable cost.  We expect
LMDS licensees to act in good faith, and to work with all interested parties, to achieve the
protection intended.  If, in the future, we find that the requirements and procedures we adopt
today do not provide adequate protection from RF emissions to subscribers and the general
public, we may revisit the issue of  ensuring adequate safeguards.

  5. Spectral Efficiency

    a. Background; Comments

     297.  In the Third NPRM we sought comment on whether a spectral efficiency standard is
necessary and suggested that, if a standard is necessary, the minimum equipment performance be
1 bps/Hz for digital modulated systems.  We also asked if there is a better gauge of spectral
efficiency that would minimize enforcement concerns for the Commission.

     298.  BellSouth and TI concur with our proposal to establish a spectral efficiency of 1
bps/Hz for digital modulated LMDS equipment. They do not believe this standard would be an
administrative burden, and they argue that it would be an adequate gauge of equipment
efficiency.  NASA argues that the proposal is outdated because more advanced modulation
techniques have made efficiency levels of 7 bps/Hz achievable.  Nevertheless, taking a more
practical view, it suggests that the standard be set at 4 bps/Hz, since this efficiency is consistent
with 32-level or higher QAM schemes and should pose no problem to equipment
manufacturers.

     299.  Several commenters, such as CellularVision, ComTech, and GEC, argue that a
spectral efficiency standard is unnecessary because of our intent to auction LMDS spectrum. 
They contend that when licensees acquire spectrum via auctions, they have an economic
incentive to make the optimal tradeoff  between equipment cost and spectral efficiency.  In
addition, these commenters contend, multiple access schemes and frequency reuse efficiency of
LMDS are much more significant factors in considering overall spectral efficiency than
modulation efficiency.  Additionally, ComTech argues that use of efficiency standards adopted
in the Private Land Mobile Radio Services (``PLMRS'') refarming proceeding is inappropriate
because those standards are not developed for LMDS system architecture.  ComTech states that,
unlike PLMRS, which generally employs frequencies only once in a metropolitan area, LMDS
supports many separate reuses of spectrum within a given area.  With modulation efficiency
equalling PLMRS, ComTech concludes that LMDS would have a ``spectral efficiency'' measured
over a given area that is 50 or more times that of PLMRS.  Thus, ComTech argues, no standard
is needed, and if any is promulgated, it should be one that characterizes the true efficiency
employed by LMDS. 

     300.  GEC maintains that power amplifier devices are not available that can deliver the
linearity required for NASA's suggested modulation and spectral efficiency of 4 bps/Hz. 
Therefore, GEC suggests that the Commission not require a spectral efficiency level beyond that
of analog delivery.  CellularVision reiterates its earlier position that if the spectrum is to be
auctioned, there is no need for a spectral efficiency standard.  Nevertheless, if there must be one,
it recommends 1.0 bps/Hz as a minimum.

    b. Decision  

     301.  We decline to adopt the 1.0 bps/Hz transmitter spectral efficiency standard.  In the
Third NPRM we recognized that modulation techniques have advanced over this period and will
continue to do so.  Furthermore, we agree with commenters that auctions are an effective means
of guaranteeing that optimum efficiency will be achieved in the use of spectrum by LMDS
licensees.  Carriers who have invested in their acquisition of LMDS licenses have an incentive to
utilize the spectrum in the manner that best ensures a return on their investment, and a
component of this utilization is likely to involve the licensees' pursuit of spectral efficiencies. 
We note, however, that this assessment by licensees will involve balancing between equipment
costs and attainable levels of spectral efficiency.  We believe that it is sound public policy to
provide equipment manufacturers and licensees sufficient flexibility to design and install
equipment that best meets the service needs of the customers.

D. Competitive Bidding Rules and Procedures

  1. Use of Competitive Bidding

    a. Background; Comments

     302.  Section 309(j) of the Communications Act gives the Commission auction authority
over services where mutually exclusive applications for initial licenses or construction permits
are accepted for filing.  Additionally, Section 309(j) requires that the principal use of the
spectrum to be auctioned will involve or is reasonably likely to involve the provision of
subscription-based communications services.  In the Third NPRM we stated our belief that
LMDS spectrum meets these requirements and tentatively concluded that use of competitive
bidding to award LMDS licenses will promote the objectives described in Section 309(j)(3) of
the Communications Act.  

     303.  Most commenters support auctioning LMDS spectrum.  M3ITC, however,
disagrees with the Commission's proposal to auction LMDS licenses, and proposes the use of
lotteries.  In opposing the use of auctions for LMDS spectrum, M3ITC expresses concern that
small businesses may lack the financial ability to participate in the auction, particularly in the
major markets.  It suggests the imposition of a royalty or other fee on lottery winners to generate
revenue in lieu of auctions.  PTV advocates a set-aside of 150 megahertz of LMDS spectrum
for educational uses. It states that if a 150 megahertz band is reserved for noncommercial use,
auctions should not be used to award licenses in this band.   As an alternative to a set-aside,
PTV proposes that the Commission require LMDS licensees to provide access to a limited
number of channels or a percentage of capacity to non-commercial entities at no charge or at
preferential rates.

    b. Decision
      
     304.  We conclude that auctioning LMDS licenses would further the Communications
Act's objectives.  First, based on our previous experience in conducting auctions for other
services, we believe that use of competitive bidding to award LMDS licenses, as compared with
other licensing methods, would speed the development and deployment of this new technology,
products and services to the public with minimal administrative or judicial delay, and would
encourage efficient use of the spectrum as required by Sections 309(j)(3)(A) and 309(j)(3)(D). 
Second, auctions meet the objectives of Section 309(j)(3)(B) because we are adopting
competitive bidding rules that foster economic opportunity and the distribution of licenses
among a wide variety of applicants, including small businesses.

     305.  We also have determined that use of auctions to assign LMDS licenses will advance
the goals of Section 309(j)(3)(C) by enabling the public to recover a portion of the value of the
public spectrum.  If we use a licensing methodology that ensures that licenses are assigned to
those who value them most highly, it follows that such licensees can be expected to make the
most efficient and intensive use of the spectrum.  Because LMDS is eligible for competitive
bidding under the statutory requirements set forth in Section 309(j)(2)(A), we are precluded from
using lotteries to award LMDS licenses.  Accordingly, we reject M3ITC's suggestion that we
use lotteries to award LMDS licenses.  Moreover, as discussed infra, we believe that M3ITC's
concerns regarding small business participation are addressed by the special provisions we adopt
today for small businesses participating in LMDS auctions.

     306.  Finally, with respect to PTV's argument for a set-aside of LMDS spectrum for
educational purposes, we decline at this time to adopt this specific proposal.  While we are not
adopting public interest programming obligations at this time, we reserve the right to do so on
LMDS providers who provide video services.  Licensees are specifically on notice that the
Commission may adopt public interest requirements at a later date.  If public interest obligations
are found to be warranted, one option would be to adopt rules similar to those Congress enacted
for DBS providers, including a 4 percent to 7 percent set-aside of capacity for non-commercial
educational and informational programming.  Another option would be to hold LMDS
licensees to a ``promise versus performance'' type standard.  

  2. Competitive Bidding Issues       

    a.  Competitive Bidding Design for LMDS Licenses

      (1) Background; Comments

     307.  In the Third NPRM, we tentatively concluded that we would use simultaneous
multiple round auctions to award LMDS licenses, and that we would not use combinatorial
bidding in LMDS licensing. We also proposed to award all LMDS licenses together in one
simultaneous multiple round auction because of the expected value and significant
interdependence of the licenses sought.  
             
     308.  In its comments, TI supports the use of simultaneous multiple round bidding
because of the degree of interdependence among LMDS licenses.  WCA and CellularVision
also support the use of simultaneous multiple round bidding. ComTech believes that the
Commission should not employ combinatorial bidding on the basis that it would be difficult for
small operators to determine the likelihood of winning any particular market.  No comments
were filed regarding our proposal to group all LMDS licenses together in one auction.

      (2) Decision

     309.  Based on the record in this proceeding and our successful experience conducting
simultaneous multiple round auctions for other services, we believe a simultaneous multiple
round auction is the most appropriate competitive bidding design for LMDS.  First, for certain
bidders, the value of these licenses will be significantly interdependent because of the desirability
of aggregation across geographic regions.  Simultaneous multiple round bidding will generate
more information about license values during the course of the auction, and provide bidders with
more flexibility to pursue back-up strategies, than auctioning licenses separately.  Simultaneous
multiple round bidding therefore is most likely to award licenses to the bidders who value them
the most highly and to provide bidders with the greatest likelihood of obtaining the license
combinations that best satisfy their service needs.  We currently do not have the operational
capability to use combinatorial bidding but will consider doing so in future auctions.

     310.  We will conduct simultaneous auctions of two licenses in each of 492 BTAs for
LMDS, for a total of 984 licenses.  Each BTA will have one license consisting of 1,150
megahertz: 1,000 megahertz in the 28 GHz band (27.5-28.35 GHz and 29.1-29.25 GHz) and 150
megahertz in the 31 GHz band (31.075 GHz-31.225 GHz); and a second license consisting of
150 megahertz in the 31 GHz band (31.0-31.075 GHz and 31.225-31.399 GHz) will be auctioned
concurrently.  As mentioned above, we will not include the New York BTA at this time in the
licensing process because of the outstanding issues connected with the CellularVision pioneer
preference request.      
 
    b. LMDS Bidding Procedures

     311.  In the Third NPRM we proposed to use simultaneous multiple round competitive
bidding procedures similar to those used for broadband PCS.  Accordingly, we will use the
competitive bidding procedures of Part 1, Subpart Q, for LMDS with modifications as indicated
below.

      (1) Bid Increments and Tie Bids 

     312.  In the Third NPRM, we stated that in simultaneous multiple round auctions it is
important to specify minimum bid increments to speed the progress of the auction and help
ensure that the auction closes within a reasonable period of time.  In the Competitive Bidding
Second Report and Order, we reserved the right to specify minimum bid increments in dollar
terms as well as in percentage terms.  This approach ensures a timely completion of the auction
even if bidding begins at a very low dollar amount.  The Third NPRM, therefore, proposed a
minimum bid increment equal to some percentage of the high bid from the previous round or a
dollar amount per ``MHz-pop'' or ``bidding unit,'' whichever is greater.  The number of ``MHz-
pops'' is calculated by multiplying the population of the service area by the amount of spectrum
authorized by the license.  We proposed to announce by Public Notice prior to auction the
specific bid increment that generally will be used, and to retain the discretion to set and vary the
minimum bid increments for individual licenses or groups of licenses over the course of an
auction.  Finally, where a tie bid occurs, we proposed to determine the high bidder by the order
in which we received the bids.  

     313.  No commenters disagreed with our general proposal to establish minimum bid
increments and our proposal for determining the winner between two tie bids.  However,
ComTech requests that the Commission ensure that bid deposits, bid increments, and other
monetary amounts that have been calculated based on MHz-pops in previous auctions should
reflect the fact that only one license covering 1 gigahertz is issued per service area.  ComTech
also requests that we use the number of households in such calculations in lieu of the population
of the service area.

     314.  We will follow the practice that we have used for other auctions and announce by
Public Notice prior to the LMDS auction the general guidelines for bid increments.  We retain
the discretion to set and, by announcement before or during the auction, vary the minimum bid
increments for individual licenses or groups of licenses. Where a tie bid occurs, we will
determine the high bidder by the order in which the Commission received the bids.  We
address ComTech's proposal in our discussion below of upfront payments.  To allow for the
flexibility to deal with this proposal, we retain the discretion to vary both absolute and
percentage bid increments for specific licenses.

      (2) Stopping Rules

     315.  When simultaneous multiple round auctions are used, a stopping rule must be
established for determining when the auction is over.  In the Third NPRM, we proposed a
simultaneous stopping rule in which bidding generally remains open on all licenses until there is
no new acceptable bid on any license.  No specific comments were filed in response to this
proposal.

     316.  We will adopt a simultaneous stopping rule for LMDS.  The auction will close after
one round passes in which no new valid bids, proactive activity rule waivers (as defined at
paragraphs 319 through 326, infra), or bid withdrawals are submitted.  We will retain the
discretion, however, to keep the auction open even if no new valid bids, proactive waivers, or bid
withdrawals are submitted.  In the event that this discretion is exercised, the effect will be the
same as if a bidder had submitted a proactive waiver.  This will help ensure that the auction is
completed within a reasonable period of time, because it will enable the Commission to utilize
larger bid increments, which speed the pace of the auction, without risking premature closing of
the auction.  Since we also impose an activity rule (as discussed infra), we believe that
simultaneous closing for all licenses will afford bidders flexibility to pursue back-up strategies
without running the risk that bidders will hold back their bidding until the final rounds.  In
addition, we retain the discretion to declare after forty rounds that the auction will end after some
specified number of additional rounds.  If this option is used, we will accept bids only on licenses
where the high bid has increased in at least one of the last three rounds.

      (3) Duration of Bidding Rounds

     317.  We proposed in the Third NPRM to reserve the discretion to vary the duration of the
bidding rounds or the interval at which bids are accepted.  No specific comments were filed in
response to this proposal.  Because in simultaneous multiple round auctions bidders may need a
significant amount of time to evaluate back-up strategies and develop their bidding plans, we
reserve the discretion to vary the duration and frequency of bidding rounds. We will announce
any changes to the duration of rounds and intervals between bidding either by Public Notice prior
to the auction or by announcement during the auction.

      (4) Bid Withdrawals

     318.  In the Third NPRM, we proposed to permit a high bidder to withdraw one or more
of its high bids during the bid withdrawal period in each round subject to the bid withdrawal
payments specified below.  The only comment on this proposal was WCA's suggestion that we
restructure our bid withdrawal provisions if we decided to award more than one license per
geographic service area.  Because we are awarding two licenses of different size (1,150
megahertz and 150 megahertz) per geographic area, we find it unnecessary to address the merits
of WCA's alternative proposal, which was predicated on the assumption that we would award
two LMDS licenses of equal size (450 megahertz each).  We will not make use of a bid
withdrawal period within each round as we have in previous auctions, but will permit a high
bidder to withdraw the high bid from a previous round subject to the bid withdrawal payments
discussed below.  If a high bid is withdrawn (and not bid upon in the same round), the license
will be offered in the next round at the second highest bid price.  We may at our discretion adjust
the offer price in subsequent rounds until a valid bid is received on the license.  In addition, to
prevent a bidder from strategically delaying the close of the auction, we retain the discretion to
limit the number of times that a bidder may re-bid on a license from which it has withdrawn a
high bid. 

      (5) Activity Rules

     319.  In the Competitive Bidding Second Report and Order, we adopted the Milgrom-
Wilson activity rule as our preferred activity rule where a simultaneous stopping rule is used. 
The Milgrom-Wilson approach encourages bidders to participate in early rounds by limiting their
maximum participation to some multiple of their minimum participation level.  In the Third
NPRM, we tentatively concluded that the Milgrom-Wilson activity rule should be used in
conjunction with the proposed simultaneous stopping rule for LMDS auctions.  We believed
that the Milgrom-Wilson approach would best achieve the Commission's goals of affording
bidders flexibility to pursue back-up strategies, while at the same time ensuring that
simultaneous auctions are concluded within a reasonable period of time. 

     320.  In its comments, ComTech urges the Commission to adopt bidder activity rules that
assume only one license covering 1 gigahertz of spectrum for each service area and which
establish the number of households covered as the activity criterion.  That is, bidders would
declare their eligibility solely in terms of households. 

     321.  For LMDS auctions, we will use the Milgrom-Wilson activity rule with some
variations.  Milgrom and Wilson divide the auction into three stages. We will set, by
announcement before the auction, the minimum required activity levels for each stage of the
auction. We retain the discretion to set and, by announcement before or during the auction, vary
the required minimum activity levels (and associated eligibility calculations) for each auction
stage.  Retaining this flexibility will improve our ability to control the pace of the auction and
help ensure that the auction is completed within a reasonable period of time.   

     322.  For the LMDS auctions, we will use the following transition guidelines: The
auction will begin in Stage One and will generally move from Stage One to Stage Two and from
Stage Two to Stage Three when the auction activity level is below ten percent for three
consecutive rounds.  Under no circumstances can the auction revert to an earlier stage.  However,
we retain the discretion to determine and announce during the course of an auction when, and
whether, to move from one auction stage to the next, based on a variety of measures of bidder
activity, including, but not limited to, the auction activity level as defined above, the percentage
of licenses (measured in terms of bidding units) on which there are new bids, the number of new
bids, and the percentage increase in revenue.
   
     323.  To avoid the consequences of clerical errors and to compensate for unusual
circumstances that might delay a bidder's bid preparation or submission in a particular round, we
will provide bidders with a limited number of waivers of the above-described activity rule.  We
believe that some waiver procedure is needed because we do not wish to reduce a bidder's
eligibility due to an accidental act or circumstances not under the bidder's control.

     324.  We will provide bidders with five activity rule waivers that may be used in any
round during the course of the auction.  If a bidder's activity is below the required activity
level, a waiver will be applied automatically.  That is, for example, if a bidder fails to submit a
bid in a round, and its activity from any standing high bids (that is, high bids at the end of the
previous round) falls below its required activity level, a waiver will be automatically applied.  A
waiver will preserve current eligibility in the next round.  An activity rule waiver applies to an
entire round of bidding and not to a particular BTA service area.  Initial eligibility is determined
by the amount of the upfront payment received and the licenses identified in the applicant's FCC
Form 175, which are discussed below.

     325.  Bidders will be afforded an opportunity to override the automatic waiver
mechanism when they place a bid if they intentionally wish to reduce their bidding eligibility and
do not want to use a waiver to retain their eligibility at its current level.  If a bidder overrides
the automatic waiver mechanism, its eligibility will be permanently reduced, and it will not be
permitted to regain its bidding eligibility from a previous round.  An automatic waiver invoked
in a round in which there are no new valid bids will not keep the auction open.  Bidders will have
the option of entering a proactive activity rule waiver during any round.  If a bidder submits a
proactive waiver in a round in which no other bidding activity occurs, the auction will remain
open.   
  
     326.  We retain the discretion to issue additional waivers during the course of an auction
for circumstances beyond a bidder's control.  We also retain the flexibility to adjust by Public
Notice prior to an auction the number of waivers permitted, or to institute a rule that allows one
waiver during a specified number of bidding rounds or during specified stages of the auction.    

    c. Procedural and Payment Issues

     327.  In the Competitive Bidding Second Report and Order, as modified by the
Competitive Bidding Second Memorandum Opinion and Order, we established general
procedural and payment rules for auctions, but also stated that such rules may be modified on a
service-specific basis.  We will generally follow the procedural and payment rules established
in Subpart Q of Part 1 of the Commission's Rules.  Any service-specific modifications based on
the particular characteristics of LMDS will be set forth by Public Notice by the Wireless
Telecommunications Bureau.

      (1) Upfront Payments

     328.  The Third NPRM proposed to require participants in LMDS auctions to tender to
the Commission a substantial upfront payment.  We stated in the Competitive Bidding Second
Report and Order that as a general rule we will base upfront payments on a formula of $0.02 per
MHz-pop for the largest combination of MHz-pops a bidder anticipates being active on in any
single round of bidding.  We have varied our upfront payments for certain services.  We
generally, however, follow a formula of multiplying the population of the license service area by
the amount of spectrum authorized by the license to determine MHz-pops and then multiplying
that amount by a dollar figure.   

     329.  In support of our proposal, CellularVision states that a substantial upfront payment
``should ensure that the process of licensing LMDS nationwide is not encumbered by frivolous
bidders.''  CellularVision and ComTech, however, object to our proposal to base the minimum
bid on a dollar amount per MHz-pop.  CellularVision argues that the $0.02 per MHz-pop formula
used in the PCS context is not appropriate for LMDS.  Stating that the PCS formula was
designed to represent approximately five percent of the expected value of PCS licenses,
CellularVision points out that a 1000 megahertz LMDS license would represent about 33 times
more spectrum than the largest PCS license.  Using the PCS formula, the upfront payment for
a BTA with one million pops would be $20 million; for the whole Nation, it would be $5 billion. 
Accordingly, CellularVision argues that the Commission should use a formula far lower than the
PCS model of $0.02 per MHz-pop.  ComTech proposes that the Commission use a bid deposit
of $0.08 per household and adjust the remaining auction rules accordingly.  ComTech notes
that initial bid deposits of $0.08 per household would still exceed the initial deposits in the PCS
proceedings, while keeping the barriers to entry low.
     
     330.  We recognize that for purposes of LMDS the formula of $0.02 per MHz-pop can
yield very high upfront payments given the amount of spectrum offered in each service area. 
Rather than completely abandon our general formula for purposes of LMDS, we believe that the
concerns of CellularVision and ComTech may be alleviated by lowering the $0.02 per MHz-pop
used to calculate the payment.  We therefore delegate authority to the Chief, Wireless
Telecommunications Bureau (``Bureau''), to determine an appropriate calculation for the upfront
payment, which the Bureau will announce by Public Notice.  In calculating the upfront
payment, the Bureau should take into consideration the value of similar spectrum.

      (2) Down Payments, Long-Form Applications, and
          Payment in Full
  
     331.  The Third NPRM proposed a 20 percent down payment for winning bidders in
LMDS auctions.  No comments were filed on this specific proposal.

     332.  We will require all winning bidders in LMDS auctions to supplement their upfront
payments with a down payment sufficient to bring their total deposits up to 20 percent of their
winning bid(s).  Winning bidders, except for small businesses and businesses with annual gross
revenues between $40 million and $75 million, will be required to submit this payment by wire
transfer to our lock-box bank within ten (10) business days following release of a public notice
announcing the close of bidding and high bidders.  Winning bidders will also be required to
file a long-form application within ten (10) business days of the announcement of the high
bidders.  If, pursuant to Section 309(d) of the Communications Act, we dismiss or deny any and
all petitions to deny filed against a long-form application, or if no petitions to deny are filed, we
will issue an announcement to this effect, and the winning bidder will then have ten (10) business
days to submit the balance of its winning bid, unless it qualifies for an installment payment plan.  

      (3) Bid Withdrawal, Default, and Disqualification Payments 

     333.  As we discussed in the Competitive Bidding Second Report and Order, it is
important to the success of our system of competitive bidding that potential bidders understand
that there will be a substantial payment assessed if they withdraw a high bid, are found not to be
qualified to hold licenses, or default on payment of a balance due.  In the Third NPRM, we
proposed to use the bid withdrawal, default and disqualification rules set forth in Sections
1.2104(g) and 1.2109 of the Commission's Rules for LMDS auctions.  No specific comments
were received on this proposal.  

     334.  For the LMDS auctions, we adopt the bid withdrawal, default and disqualification
rules contained in Sections 1.2104(g) and 1.2109 of the Commission's Rules.  If a license is re-
offered by auction, the ``winning bid'' refers to the high bid in the auction in which the license is
re-offered.  If a license is re-offered in the same auction, the winning bid refers to the high bid
amount, made subsequent to the withdrawal, in that auction.  If the subsequent high bidder also
withdraws its bid, that bidder will be required to pay an amount equal to the difference between
its withdrawn bid and the amount of the subsequent winning bid the next time the license is
offered by the Commission.  If a license that is the subject of withdrawal or default is not
re-auctioned, but is instead offered to the highest losing bidders in the initial auction, the
``winning bid'' refers to the bid of the highest bidder who accepts the offer.

     335.  If a bidder has withdrawn a bid or defaulted on one or more licenses but the amount
of the withdrawal or default payment cannot yet be determined, the bidder will be required to
make a deposit of up to 20 percent of the amount bid on such licenses.  When it becomes
possible to calculate and assess the withdrawal or default payment, any excess deposit will be
refunded.  Upfront payments will be applied to such deposits and to bid withdrawal and default
payments due before being applied toward the bidder's down payment on licenses the bidder has
won and seeks to acquire.

     336.  In addition, if a default or disqualification involves gross misconduct,
misrepresentation or bad faith by an applicant, we retain the option to declare the applicant and
its principals ineligible to bid in future auctions, or take any other action we deem necessary,
including institution of proceedings to revoke any existing licenses held by the applicant.

    d. Regulatory Safeguards

      (1) Transfer Disclosure
      
     337.  The Communications Act directs us to ``require such transfer disclosures and anti-
trafficking restrictions and payment schedules as may be necessary to prevent unjust enrichment
as a result of the methods employed to issue licenses and permits.''  As we proposed in the
Third NPRM, we will adopt the transfer disclosure requirements contained in Section 1.2111(a)
of the Commission's Rules for all LMDS licenses obtained through the competitive bidding
process.  CellularVision agrees with the Commission's proposal not to limit transfers and
assignments of LMDS licenses.  Rules governing transfer of LMDS licenses by designated
entities are discussed below. 

      (2) Anti-Collusion Rules

     338.  In the Third NPRM, we proposed to apply the anti-collusion rules set forth in
Sections 1.2105 and 1.2107 of the Commission's rules to LMDS auctions.  There were no
comments filed on this proposal.

     339.  We will apply the anti-collusion rules set forth in Sections 1.2105 and 1.2107 of the
Commission's Rules to LMDS auctions.  In addition, where specific instances of collusion in
the competitive bidding process are alleged in petitions to deny, we may conduct an investigation
or refer such complaints to the United States Department of Justice for investigation.  Bidders
who are found to have violated the antitrust laws or the Commission's rules in connection with
participation in the auction process may be subject to forfeiture of their down payment or their
full bid amount and revocation of their license(s), and they may be prohibited from participating
in future auctions.

    e. Treatment of Designated Entities

      (1) Overview
  
     340.  In authorizing the Commission to use competitive bidding, Congress mandated that
we ``ensure that small businesses, rural telephone companies, and businesses owned by members
of minority groups and women are given the opportunity to participate in the provision of
spectrum-based services.''  The Communications Act requires us to ``consider the use of tax
certificates, bidding preferences, and other procedures'' in order to achieve this Congressional
goal.  In addition, Section 309(j)(3)(B) provides that in establishing eligibility criteria and
bidding methodologies the Commission shall promote ``economic opportunity and competition .
. . by avoiding excessive concentration of licenses and by disseminating licenses among a wide
variety of applicants, including small businesses, rural telephone companies, and businesses
owned by members of minority groups and women.''  Finally, Section 309(j)(4)(A) provides
that to promote these objectives, the Commission shall consider alternative payment schedules
including installment payments.

     341.  We stated in the Third NPRM that for services using the 28 GHz band we fully
intend to meet the statutory objectives of promoting economic opportunity and competition, of
avoiding excessive concentration of licenses, and of ensuring access to new and innovative
technologies by disseminating licenses among a wide variety of applicants, including small
businesses, rural telephone companies, and businesses owned by members of minority groups
and women.  We noted, however, that we must be cautious and deliberative in our selected
approach in light of the statute's directive to avoid judicial delays and the substantial legal risks
involved with providing preferential treatment on the basis of race or gender.  In Adarand
Constructors v. Pea, the Supreme Court held that race-based measures must be narrowly
tailored to further a compelling government interest.  Gender-based measures, on the other
hand, are required to meet an intermediate standard of review.  We sought comment on how
we can best promote opportunities for businesses owned by minorities and women in the
provision of LMDS and satellite services in light of constitutional requirements.  We also asked
commenters to supply evidence regarding past discrimination, continuing discrimination,
discrimination in access to capital, underrepresentation and other significant barriers facing
businesses owned by minorities and women in satellite services, services similar to LMDS, and
in licensed communications services generally.

     342.  RioVision argues that the Commission should develop special provisions to provide
designated entities with realistic opportunities to participate in the auction process, including
bidding credits, installment payments, and a reduced upfront payment more favorable than that
suggested in the Third NPRM.  However, neither RioVision nor other commenters provided
evidence with regard to past discrimination, continuing discrimination, or other significant
barriers experienced by minorities and women.
     
     343.  We remain committed to meeting the statutory objectives of promoting economic
opportunity and competition, of avoiding excessive concentration of licenses, and of ensuring
access to new and innovative technologies by disseminating licenses among a wide variety of
applicants, including small businesses, rural telephone companies, and businesses owned by
members of minority groups and women.  However, because commenters have submitted no
evidence or data to support LMDS race- or gender-based auction provisions, we conclude that we
do not have a sufficient record to support such special provisions at this time.  We therefore
adopt installment payments and bidding credits for small businesses in LMDS auctions as
detailed infra.  We believe that these special provisions will provide small businesses with a
meaningful opportunity to obtain LMDS licenses.  Moreover, many minority- and women-owned
entities are small businesses and will therefore qualify for these same special provisions.  We
believe that this approach furthers the objectives of Section 309(j) of the Communications Act.  

      (2) Installment Payments, Upfront Payments,
          Down Payments, and Unjust Enrichment 

     344.  In the Third NPRM, we proposed to adopt installment payments for small
businesses bidding for LMDS licenses.  We also requested comment on the related issue of
reduced upfront payments for small businesses.  In the Competitive Bidding Second Report and
Order, we concluded that a reduced down payment requirement coupled with installment
payments is an effective means to address the difficulty small businesses have raising capital  for
spectrum licenses.  In the Third NPRM, we proposed to use this approach in the LMDS
auctions, and sought comment on whether any additional or alternative special provisions should
be provided for small businesses bidding on LMDS spectrum.

     345.  To ensure that large businesses do not become the unintended beneficiaries of
installment payment provisions meant for small businesses, we also proposed to make the unjust
enrichment provisions adopted in the Competitive Bidding Second Report and Order applicable
to installment payments by small business applicants.  In addition, we sought comment on the
necessity of additional unjust enrichment provisions for LMDS licensing.  With respect to
eligibility for installment payments, we proposed to define a small business as an entity that,
together with affiliates and attributable investors, has average gross revenues not exceeding $40
million for the three preceding years.

     346.  In its comments, RioVision argues in favor of installment payments and reduced
upfront payments for all designated entities.  Emc3 and CellularVision believe that the
Commission should adopt provisions for small businesses, including installment payment
options.  CellularVision encourages the Commission to consider other measures to ensure that
small businesses can compete in auctions with cable and telephone service providers, such as a
small business bidding credit higher than the 25 percent used in the PCS auctions. 
CellularVision also argues that if we use a revenue-based test to define small businesses, our
proposed $40 million annual gross revenues threshold is too low for LMDS purposes because it
will eliminate from eligibility small businesses that are large enough to compete against
entrenched cable and telephone providers.  CellularVision believes that a threshold of $100
million in annual gross revenues would be more appropriate for LMDS.  Emc3 and
CellularVision agree with our proposal to provide for reduced upfront payments for small
business.

     347.  CellularVision supports the proposal to place restrictions on the transfer or
assignment of licenses held by designated entities, but it argues that a designated entity should be
able to sell or transfer its license without restriction after the seventh year of the license term. 
ComTech, however, strongly urges the Commission to adopt transfer rules which would relieve
the transferor of any regulatory or other burdens associated with the newly created license.  
 
     348.  Substantial capital will be required to acquire and construct LMDS systems.  As
we have previously discussed, however, it is difficult for small businesses to raise such capital. 
In order to promote the innovation that small businesses can bring to the development of
LMDS, we adopt installment payments for small businesses bidding for LMDS licenses.  We
will define small businesses as entities that, together with controlling principals and affiliates,
have average gross revenues not exceeding $40 million for the three preceding years. However,
to address the concerns identified by CellularVision, we also make provision for entities with
gross revenues exceeding $40 million.  Broadband PCS presented a similar situation in which the
considerable capital needed to bring service to the public justified special provisions for entities
with financial means greater than $40 million in average gross revenues.  For the broadband PCS
entrepreneurs' block auctions, we therefore provided installment payments for entities with $75
million or less in gross revenues for the three preceding years.  We will adopt similar
provisions for LMDS.  We believe that low-cost government financing available through
installment payment plans for such entities will promote long-term participation by more
businesses which, because of their size, lack access to sufficient capital to compete with more
entrenched communications providers.  We believe that the high cost of LMDS and the presence
of very large companies in the markets for various LMDS services make this option fully
consistent with Congress's intent in enacting Section 309(j)(4)(A) to avoid a competitive bidding
program that has the effect of favoring communications providers with established revenue
streams over smaller entities.

     349.  Under the rules we adopt here, installment payments will be available to applicants
that, together with controlling principals and affiliates, have average gross revenues for the three
preceding years of more than $40 million but not more than $75 million.  Interest on their
installment payments will be equal to the rate for U.S. Treasury obligations of maturity equal to
the license term, fixed at the time of licensing, plus 2.5 percent.  Payments of interest and
principal shall be amortized over the ten years of the license term.  Small businesses -- applicants
that, together with controlling principals and affiliates, have average gross revenues for the three
preceding years not to exceed $40 million -- will be eligible for installment payments at an
interest rate based on the rate for U.S. Treasury obligations of maturity equal to the license term,
fixed at the time of licensing, plus 2.5 percent (the same rate as that imposed on entities with $40
million to $75 million in average gross revenues). Payments for small businesses shall include
interest only for the first two years and payments of interest and principal amortized over the
remaining eight years of the license term.  The rate of interest on ten-year U.S. Treasury
obligations will be determined by taking the coupon rate of interest on the ten-year U.S. Treasury
notes most recently auctioned by the Treasury Department before licenses are conditionally
granted.

     350.  We believe it is appropriate to also adopt the unjust enrichment provisions of our
broadband PCS rules in order to prevent large companies from becoming the unintended
beneficiaries of these installment payment plans.  We believe that these rules are preferable to
our current general unjust enrichment rules governing installment payments because they
provide greater specificity about funds due at the time of transfer or assignment and specifically
address changes in ownership that would result in loss of eligibility for installment payments,
which the general rules do not address.  These rules specify that applicants seeking to assign or
transfer control of a license to an entity not meeting the eligibility standards for installment
payments must pay not only unpaid principal as a condition of Commission approval but also
any unpaid interest accrued through the date of assignment or transfer.

     351.  Additionally, these rules provide that if a licensee utilizing installment payment
financing seeks to change its ownership structure in such a way that would result in a loss of
eligibility for installment payments, it must pay the unpaid principal and accrued interest as a
condition of Commission approval of the change.  Finally, in recognition of the tiered
installment payment plans offered to broadband PCS licensees, these rules provide that if a
licensee seeks to make any change in ownership that would result in the licensee qualifying for a
less favorable installment plan, it must seek Commission approval of such a change and adjust its
payment plan to reflect its new eligibility status.  A licensee, under this rule, may not switch its
payment plan to a more favorable plan.

     352.  For purposes of determining small business status, or status as a business with
average annual gross revenues for the preceding three years of more than $40 million but not
more than $75 million, we will attribute the gross revenues of all controlling principals in the
small business applicant as well as the gross revenues of affiliates of the applicant.  This is a
much simpler approach than we utilized in broadband PCS because it does not require a ``control
group'' and looks only to the gross revenues of the applicant, controlling principals of the
applicant, and affiliates of the applicant.  We also choose not to impose specific equity
requirements on controlling principals. We will still require, however, that in order for an
applicant to qualify as a small business, qualifying small business principals must maintain
control of the applicant.  The term ``control'' includes both de facto and de jure control of the
applicant.  Typically, de jure control is evidenced by ownership of 50.1 percent of an entity's
voting stock.  De facto control is determined on a case-by-case basis.  An entity must
demonstrate at least the following indicia of control to establish that it retains de facto control of
the applicant:  (1) the entity constitutes or appoints more than 50 percent of the board of directors
or partnership management committee; (2) the entity has authority to appoint, promote, demote
and fire senior executives that control the day-to-day activities of the licensees; and (3) the entity
plays an integral role in all major management decisions. We caution that while we are not
imposing specific equity requirements on small business principals, the absence of significant
equity could raise questions about whether the applicant qualifies as a bona fide small business.

     353.  We adopt a uniform upfront payment for all bidders.  Our experience in previous
auctions indicates that we have underestimated the value of spectrum and that upfront payments
have not created a barrier to small business participation in our auctions.  We believe that this
action is consistent with our policy reason for requiring upfront payments --  to deter insincere
and speculative bidding and to ensure that bidders have the financial capacity to build out their
systems.
  
     354.  With regard to reduced down payments for small businesses, our experience in
previous auctions leads us to adopt a uniform 20 percent down payment provision for all bidders. 
We believe that this sizeable down payment will discourage insincere bidding and increase the
likelihood that licenses are awarded to parties who are best able to serve the public.  A 20 percent
down payment should also provide us with strong assurance against default and sufficient funds
to cover default payments in the unlikely event of default.  Small businesses and entities with
average gross revenues for the preceding three years of between $40 million and $75 million will
be required to supplement their upfront payments to bring their total payment to 10 percent of
their winning bids within 10 business days of a public notice announcing the close of the auction. 
Prior to licensing, they will be required to pay an additional 10 percent.  The government will
then finance the remaining 80 percent of the purchase price. 

      (3) Bidding Credits and Unjust Enrichment

     355.  In the Third NPRM we proposed to use bidding credits for small businesses
participating in LMDS auctions.  We tentatively concluded that affording such businesses
bidding credits and installment payments constitutes the most cost-effective and efficient means
of achieving Congress' objective of ensuring an opportunity for these designated entities to
participate in the provision of LMDS while preserving the advantages of competitive open
bidding.  We proposed a bidding credit of 25 percent that would be available on one of the
proposed spectrum blocks.  To prevent unjust enrichment by small businesses transferring
licenses acquired through the use of bidding credits, we proposed imposition of a payment
requirement on transfers of such licenses to entities that are not owned by small businesses.  

     356.  While M3ITC advocates a lottery to award LMDS licenses, it states in its comments
that if the licenses are auctioned, the Commission must provide a ``significant bidding credit'' to
allow small business entrepreneurs competing in the LMDS auctions to overcome the disparity
of financial resources between major corporations and small business entrepreneurs.  Emc3advocates a 25 percent bidding credit.  CellularVision supports the Commission's proposal to
adopt bidding credits and encourages the Commission to consider other regulatory measures,
including a small business bidding credit higher than 25 percent.  ComTech supports rules
restricting the transfer and assignment of licenses held by designated entities, but it argues that a
designated entity should be able to sell or transfer its license without restriction after the seventh
year of the license term.  

     357.  PTV suggests that the Commission offer a bidding credit to commercial entities that
propose to set aside capacity for use by noncommercial educational entities at preferential
rates.  Similarly, RioVision argues that designated entity provisions should be available to a
commercial/educational partnership.  Bell Atlantic supports these proposals and acknowledges
that the public can benefit from the distribution of noncommercial programming over LMDS. 
It argues that if the Commission decides to accommodate noncommercial programming, it
should do so through bidding credits as proposed by PTV.

     358.  Based on the record before us, we adopt a 25 percent bidding credit for small
businesses in LMDS auctions, and a 15 percent bidding credit for entities with average gross
revenues of more than $40 million but not exceeding $75 million.  Commenters who advocated
higher credits offered no data upon which to base such credits.  We decline to adopt the bidding
credit proposed by PTV and Bell Atlantic for commercial entities that set aside part of their
capacity for educational institutions at preferential rates.  At this time, we do not believe that we
have an adequate record regarding the legal and policy implications of such bidding credits.

     359.  We believe it is appropriate to align our unjust enrichment rules for LMDS with our
narrowband PCS and 900 MHz SMR unjust enrichment rules as they relate to bidding credits. 
These rules provide that, during the initial license term, licensees utilizing bidding credits and
seeking to assign or transfer control of a license to an entity that does not meet the eligibility
criteria for bidding credits will be required to reimburse the government for the total value of the
benefit conferred by the government, that is, the amount of the bidding credit, plus interest at the
rate imposed for installment financing at the time the license was awarded, before the transfer
will be permitted.

     360.  The rules which we now adopt additionally provide that, if, within the original term,
a licensee applies to assign or transfer control of a license to an entity that is eligible for a lower
bidding credit, the difference between the bidding credit obtained by the assigning party and the
bidding credit for which the acquiring party would qualify, plus interest at the rate imposed for
installment financing at the time the license was awarded, must be paid to the United States
Treasury as a condition of approval of the assignment or transfer.  If a licensee that utilizes
bidding credits seeks to make any change in ownership structure that would render the licensee
ineligible for bidding credits, or eligible only for a lower bidding credit, the licensee must first
seek Commission approval and reimburse the government for the amount of the bidding credit,
or the difference between its original bidding credit and the bidding credit for which it is eligible
after the ownership change, plus interest at the rate imposed for installment financing at the time
the license was awarded.  Additionally, if an investor subsequently purchases an interest in the
business and, as a result, the gross revenues of the business exceed the applicable financial caps,
this unjust enrichment provision will apply.
        
     361.  The amount of this payment will be reduced over time as follows:  (1) a transfer in
the first two years of the license term will result in a forfeiture of 100 percent of the value of the
bidding credit (or, in the case of small businesses transferring to businesses having average gross
revenues of more than $40 million but not more than $75 million, 100 percent of the difference
between the bidding credit received by the former and the bidding credit for which the latter is
eligible); (2) in year three of the license term the payment will be 75 percent; (3) in year four the
payment will be 50 percent; and (4) in year five the payment will be 25 percent, after which there
will be no required payment.  These assessments will have to be paid to the U.S. Treasury as a
condition of approval of the assignment, transfer, or ownership change.

      (4) Rural Telephone Companies

     362.  We sought comment in the Third NPRM  on whether we should provide bidding
credits or other special provisions for rural telephone companies seeking to become LMDS
providers.  However, no comments were filed on this issue.  We do not believe that special
provisions are needed to ensure adequate participation by rural telephone companies in the
provision of LMDS services for the same reasons stated in the Third NPRM.  Further, because
we are providing installment payments for entities with average annual gross revenues as high as
$75 million, we believe that many rural telephone companies may qualify for installment
payments.  Also, the degree of flexibility we will afford in the use of this spectrum, including
provisions for partitioning or disaggregating spectrum, should assist in satisfying the spectrum
needs of rural telephone companies at low cost.  Therefore, we conclude that the interests of
rural telephone companies are adequately addressed by the LMDS rules we adopt herein.

     363.  The ability of rural telephone companies to bid for and hold licenses in each
company's respective region is subject to the eligibility requirements which are delineated in
paragraphs 185-199, supra.

E. Preemption

  1. Background; Comments

     364.  In the First NPRM, we discussed the standards that govern our determination
whether State and local legal requirements imposed on LMDS licensees should be preempted. 
We stated that, for LMDS licensees choosing non-common carrier status, ``preemption is
primarily a function of the extent of the conflict between federal and state and local
regulation.''  We tentatively concluded that State entry and rate regulation should be preempted
for such systems providing video programming.  Beyond that, however, we found that at that
stage in the proceeding the record did not contain any information regarding the extent to which
State and local regulations might conflict with provision of LMDS.  We pointed out that,
although State law which conflicts with the Federal provisions must be preempted, we required a
factual record on this subject prior to making any final preemption determination.  We
requested comment on the extent to which the Commission may be required to preempt State
entry and rate regulation of LMDS licensees choosing non-common carrier status.

     365.  For licensees providing telecommunications services as common carriers, we have
jurisdiction only over the interstate portions of those services and could preempt State regulation
of the intrastate common carrier LMDS services if we make certain findings under the
requirements set out in Louisiana PSC.  Accordingly, we requested comments on addressing
the questions of whether the LMDS telecommunications services can be severed into intrastate
and interstate components and, if not, whether potential State regulation would thwart or impede
the Commission's interstate regulatory objectives for LMDS.  We had incomplete technological
information on the structure of system operations and no evidence that any particular State
regulatory policies would thwart or impede our efforts to establish this new services. 
Commenters were asked to provide a factual basis for a determination of the interstate/intrastate
nature of potential telecommunications services and the necessity of preempting State regulation
of intrastate common carrier non-video services.

     366.   In the Third NPRM, we renewed our tentative conclusion that we cannot make a
determination at that time that preemption of State regulation of common carrier aspects of
LMDS is appropriate.  We also renewed our tentative conclusion that State entry and rate
regulation should be preempted for LMDS licensees providing non-common carrier video
programming.  With regard to all other preemption issues, we proposed to defer such issues for
future consideration as they arise on a case by case basis.  We requested further comments on
these proposals.

     367.  Comments that responded to our requests favor preemption of State and local
regulation of LMDS video distribution systems and telecommunications services and of the
placement of reception and transmission devices or facilities.  With respect to video
programming, GEC requests that we adopt rules that preempt State regulation of LMDS video
services to ensure that all systems are under the same rules.  It argues this is necessary for
national consistency and for the operations of systems that cross States lines, which may be
subject to different rate structures, programming selection, or equipment use.  CellularVision
supports our tentative conclusion that intrastate regulation of video programming should be
preempted, inasmuch as such service is inherently interstate in nature and such regulation could
impede competition and the prompt deployment of LMDS nationwide.  

     368. Bell Atlantic also agrees that intrastate regulation of video distribution service
should be preempted and argues that there is a strong Federal interest in promoting competition
to monopoly cable television systems.  Bell Atlantic is concerned about local regulation of
transmitting and receiving antennas.  It points out that the Commission has preempted local
zoning restrictions with respect to satellite antennas that were found to inhibit access to satellite
services.  It argues that these local zoning regulations pose the same threat to the Federal interest
in delivering video programming through LMDS technology and requests the Commission to
expand a pending Notice of Proposed Rulemaking revising the satellite rule to cover LMDS
antennas. 

     369.  With regard to preemption of State regulation of common carrier
telecommunications service by LMDS, CellularVision agrees with our conclusion in the Third
NPRM to defer consideration of such issues until they arise.  Duncan points out generally that
local regulations concern valid issues of health and safety, as well as land use.  However, it
requests that we now raise and address issues concerning zoning, land use, and other restrictions
on location of towers and antenna before licensees begin to roll out a service.  

  2. Decision

    370.  As explained in Louisiana PSC, preemption occurs in the following ways.  It
occurs when Congress, in enacting a Federal statute, expresses a clear intent to preempt State law
or has legislated comprehensively, thus occupying an entire field of regulation so that there is no
room for State law or the State law is an obstacle to the Congressional objectives.  Preemption
also occurs when there is outright conflict between Federal and State law, when compliance with
both Federal and State law is in effect physically impossible, or when there is implicit in Federal
law a barrier to State regulation.  Preemption also may result not only from action taken by
Congress itself, but a Federal agency acting within the scope of its congressionally delegated
authority may preempt State regulation.  In the First NPRM, we set out the general standards on
which we rely to consider conflicting laws and determine when preemption is warranted, and
requested commenters to submit the technical and operational information necessary to make the
determination.  As noted, the standards varied between common and non-common carrier
services.  

    371.  Commenters did not submit the specific information for the factual basis on which
we must rely to determine whether preemption of a specific State or local regulation is
warranted.  While they agree with our tentative finding that we should preempt intrastate
regulation of video distribution by LMDS providers, they do not indicate what regulations
conflict with the potential offering of LMDS and what interests are at stake.  As a new service,
LMDS has not yet been initiated under the service rules we adopt here and the extent of potential
conflicts with intrastate regulations is not known, particularly where no factual basis is provided
for consideration.  Accordingly, we will defer preemption issues in LMDS for future
consideration as they arise on a case by case basis.  

    372. Under Commission procedures, petitions are filed for preemption with the necessary
information under the pertinent standards for us to determine whether preemption is warranted.
We set out below the general standards to guide petitioners in filing for preemption in those
situations where Congress and our regulations do not expressly preempt certain State or local
regulations.  We also set out the statutory and regulatory provisions that expressly extend
preemption jurisdiction to us in the services included in LMDS.  The 1996 Act included several
provisions that affect the intrastate regulation of telecommunications services and video
programming.  These include provisions that preempt or limit the intrastate regulation of
antennas and facilities that address in part the concerns of Bell Atlantic, Duncan, and GEC
regarding consistency in the placement and use of such equipment. 

    373. We are confident that State and local governments will endeavor to legislate in a
manner that affords appropriate recognition to the important Federal interests at stake here in
implementing LMDS and thereby avoid unnecessary conflicts with Federal policy, as well as
time consuming and expensive litigation in this area.  LMDS licensees that believe that local or
State governments have been overreaching and may have precluded accomplishment of their
legitimate communications goals should bring our policies or the law discussed here to the
attention of such governments.  Licensees may otherwise submit petitions for our review of the
conduct that they seek to preempt.
 
    a. Non-Common Carrier Services and Video Programming

      (1) General Standards

     374.  As commenters point out, the courts have held that video programming services are
inherently interstate and, therefore, the Commission has jurisdiction to promulgate rules and
preempt State or local regulation. The Supreme Court has articulated the standards for Federal
preemption of non-Federal regulation in considering cable services in City of New York. The
Court explained that ``[w]hen the Federal government acts within the authority it possesses under
the Constitution, it is empowered to pre-empt state laws to the extent it is believed that such
action is necessary to achieve its purposes.''  The Commission may preempt non-Federal
regulations when the non-Federal body ``has created an obstacle to the accomplishment and
execution of the full purposes and objectives'' of the Commission acting within its
congressionally delegated authority.   

     375. We have considered preemption petitions filed under these standards, as Bell
Atlantic points out, and we subsequently adopted the proposed rules that preempt certain State
and local regulation after weighing both the Federal and non-Federal interests.  We rely on
Section 1 of the Communications Act, which mandates access to communications services by all
people in the United States, together with numerous powers granted by Title III of the Act and
any other statutory provisions pertinent to the service all would establish the existence of a
Federal interest in promoting the service.  Whether local regulations interfere with any Federal
objectives and there is a local interest to protect are matters for petitioners to demonstrate.  Our
focus is on the effect of the local interest on the Federal interest and the appropriate
accommodation of the local interest involved.    

      (2) Over-the-Air Reception Devices for Video Programming

     376.  The 1996 Act provides express authority in Section 207 for the Commission to
prohibit all restrictions on over-the-air reception devices.  It required us to ``promulgate
regulations to prohibit restrictions that impair a viewer's ability to receive video programming
service through devices designed for over-the-air reception of television broadcast signals,
multichannel multipoint distribution service, or direct broadcast satellite services.''  We
subsequently adopted a rule prohibiting any such governmental restriction, including any State or
local law or regulation, and any nongovernmental restriction on property within the exclusive use
or control of the viewer in which the viewer has a direct or indirect ownership interest.  We
requested comment on whether Section 207 applies to restrictions on property not within the
exclusive use or control of the viewer and in which the viewer has a direct or indirect property
interest, which remains pending a decision.

     377.  In adopting the new rule, we specifically found that LMDS is a closely-related
service that Congress did not mean to exclude from the statutory provision and that LMDS
would be governed by the same one-meter antenna-size restriction we adopted for protection
under the rule for MDS and similar services.  We also consolidated for consideration our
pending proposal to modify our existing rule prohibiting certain restrictions on satellite antenna
reception that we initiated in the Earth Station Notice and that Bell Atlantic, in its comments to
the Third NPRM here, requested we expand to include LMDS reception.  Inasmuch as the new
Section 207 rule subsumes the pending proceeding and rule revision, as well as includes LMDS
in its provisions, we do not need to consider Bell Atlantic's request further.     

    b. Common Carrier Services and Telecommunications Services

      (1) General Standards

     378.  In Louisiana PSC and its progeny, the courts have articulated the general standards
that traditionally govern our preemption determinations in cases where common carrier services
are involved.  In Louisiana PSC, the Supreme Court applied Section 2 of the Act in those cases
and found that, although it prohibits the Commission from exercising Federal jurisdiction in
connection with intrastate communications services, we may preempt State regulation of
intrastate service when it is not possible to separate the interstate and intrastate components of
the asserted Commission regulation.  Federal courts subsequently have held that where
interstate services are jurisdictionally mixed with intrastate services and facilities otherwise
regulated by the States, State regulation of the intrastate service that affects interstate service may
be preempted where the State regulation thwarts or impedes a valid Federal policy.  As we
stated in the First NPRM, petitioners seeking preemption under this standard would provide
information on the severability of the interstate and intrastate service and on the State regulatory
policies that thwart or impede our efforts in establishing the inseverable LMDS services.  

     379.  However, the 1996 Act includes a broad, preemption provision in Section 253 for
the removal of State or local barriers to entry of telecommunications service. Section 253(a)
provides that ``[n]o State or local statute or regulation, or other State or local legal requirement,
may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or
intrastate telecommunications services.''  Certain traditional authorities of the States and local
governments are preserved in Sections 253(b) and (c), but expressly defined.

     380.  We did not initiate a rulemaking to implement Section 253.  Rather, Section 253(d)
directs the Commission to rule on a petitioner's preemption request after public notice and an
opportunity for comment on a particular State or local requirement.   We considered the first
petition filed under its provisions by Classic Telephone, Inc., in a Memorandum Opinion and
Order released October 1, 1996.  We concluded that Section 253(a) at the very least proscribes
the State and local legal requirements found in the petition that prohibit all but one entity from
providing telecommunications services in a particular State or locality.  We determined under
Section 253 to preempt the decisions denying petitioner's franchise applications.  We recently
granted another petition under Section 253(a), which was filed by the New England Public
Communications Council to preempt a State decision that prohibits a particular class of potential
competitors from offering telecommunications services in the State.   

        (2) Personal Wireless Service Facilities

     381.  Section 704(a) of the 1996 Act establishes a national wireless telecommunications
facilities siting policy by amending Section 332(c) of the Act to include a new paragraph (7) that
places limitations on State and local regulation of ``the placement, construction, and
modification of personal wireless service facilities'' by requiring that such regulations not
unreasonably discriminate among providers of functionally equivalent services, and not prohibit
the provision of personal wireless services.  In addition, we are expressly authorized in Section
332(c)(7)(B)(iv) to preempt State and local regulations based on the environmental effects of RF
emissions if the facilities comply with our regulations governing such emissions.  We recently
adopted updated RF exposure guidelines that our licensees are required to follow.  Section
704(a) further provides procedures for any person adversely affected by State and local
regulations, other than those regarding RF emissions, to seek relief from the State or local
authority first and ultimately from the court, rather than the Commission.  In cases involving
State or local regulation based on RF emissions, any person adversely affected may petition the
Commission for relief.

    382.   Thus, to the extent an LMDS licensee qualifies as a personal wireless service, it may
file under the procedures in Section 332(c)(7)(B) concerning the siting of its antenna or other
facility for providing services based on RF concerns.  Personal wireless services are defined in
Section 332(c)(7)(C) as ``commercial mobile services, unlicensed wireless services, and common
carrier wireless exchange access services.''  An LMDS licensee may engage in exchange access
services.

                 III. ORDER ON RECONSIDERATION OF
                    WAIVER APPLICATION DENIALS

A. Background; Pleadings

     383.  In conjunction with the First NPRM, we denied 971 waiver applications filed by
parties in the wake of Hye Crest Management seeking waivers similar to those we granted to
authorize CellularVision's predecessor-in-interest to provide LMDS in the NYPMSA.  The
Commission denied the applications because they were based on the existing point-to-point rules
which we concluded were inappropriate for LMDS; because granting the applications would
have resulted in a de facto reallocation of the spectrum; and because grant of the waivers would
have been detrimental to the assigned users of the band.  In addition, we found that grant of so
many waivers would have been contrary to guidance provided by the courts.

     384.  The Texas Petitioners have requested that we reconsider our denial of their
applications for service in the Rio Grande Valley area.  In addition, Gustine filed a petition for
reconsideration.  These parties argue that their applications are unique.  The Texas Petitioners
argue that their plan will allow distance education to revitalize the Rio Grande Valley region. 
Gustine distinguishes its application because no other applicant is a municipality, and no other
applicant brings Gustine's unique features to the proposed service offering.  

     385.  Video/Phone has taken the lead for a number of other waiver applicants, each of
which has filed brief, nearly identical petitions endorsing Video/Phone's petition. 
Video/Phone claims that it would still be possible for the Commission to meet the needs of future
point-to-point applicants even if it were to grant the waiver applications.  Video/Phone argues
it was arbitrary and capricious for the Commission to dismiss the waiver requests without
considering the merits of each or the public interest benefits that would result from prompt
deployment of the new services.  

     386.  The Joint Petitioners filed a separate petition for reconsideration, in addition to a
petition supporting Video/Phone's petition.  The parties argue that (1) if an application was
accepted for filing in the Commission's public notices and if there are no mutually exclusive
applications filed; and (2) if an MMDS system cannot be established in the market, then good
cause is shown to grant a waiver application.  

     387.  M3ITC filed a petition for reconsideration asserting that its applications are unique
because of its wholly local orientation.  GEC suggests several procedural alternatives for the
Commission to reduce the number of applications which it considers for grant.  Finally, CHT
argues that the Commission's dismissal of its application and waiver request without regard to
the merits is an abuse of the Commission's discretion and a violation of CHT's procedural due
process rights.  

B. Decision

     388.  As a threshold matter, we note that, although the Commission has wide latitude to
choose whether it will proceed by adjudication (e.g., waiver proceedings) or by rulemaking,  it
is nevertheless the case that guidance from the courts indicates that issues of general applicability
are more suited to rulemaking than to adjudication.  Here, we conclude that the practical effect
of granting the waiver applicants' requests to relieve them of the obligation of providing point-to-
point service, in a frequency band for which only point-to-point service rules existed, would have
established a policy of general applicability to all operators in the 28 GHz band.  This is
particularly true because, if we had granted a large portion of the waivers requested, there would
have been few, if any, geographic areas available for point-to-point service in this band. 
Moreover, the attempts by some petitioners to reduce, through post facto procedural rules, the
number of applications which we would consider simply would serve to establish further policies
of general applicability, albeit of an exclusionary nature.  Accordingly, in fairness to all parties
interested in providing services in the 28 GHz band, we chose to proceed by rulemaking rather
than the adjudicatory path of waiver.

     389.  In addition, the features in applications for which the applicants claim uniqueness as
a justification for favorable adjudication of their waiver requests are not the type for which
retrospective determination is appropriate.  For example, the extent to which educational
institutions, local interests, or municipal entities may be favored in the licensing process is a
matter of public policy of general applicability.  Such policy often may be better ascertained after
a notice-and-comment rulemaking proceeding. The specific public interest factors justifying
award of an individual application are part of the policy determination which is this
Commission's responsibility to ascertain in connection with adjudication of individual
applications.  Again, we believe that in this case, rulemaking rather than individual
adjudication is the better method to set national policy in a matter of frequency designation. 

     390.  Even had we chosen to proceed by waiver, applicants have not met the applicable
standards. Guidance on standards for waiving our rules is provided by the courts: ``[a]n applicant
for waiver faces a high hurdle even at the starting gate.''  On appeal, the petitioner must show
that the Commission's action was based on insubstantial reasons amounting to an abuse of
discretion.  Our specific standards for the waiver of a frequency allocation are discussed in Big
Bend Telephone.  Big Bend Telephone sets forth the following demonstrations necessary for a
waiver: ``that the existing frequency allocation is not suited or is insufficient to accommodate the
applicant's requirements; that the frequencies requested are under-utililzed; that the proposed use
of the frequencies will not be detrimental to their assigned users; and that the public interest will
be served by a grant of the waiver.'' Two of the Big Bend Telephone standards are relevant
here: that the proposed use of the frequencies will not be detrimental to their assigned users, and
that the public interest will be served by grant of the waiver.  As discussed below, petitioners do
not meet these standards for waiver of our rules.

    1. Effect on Assigned Users

     391.  Petitioners argue that the First NPRM was inconsistent in finding that the 28 GHz
frequency band was fallow while at the same time finding that grant of the waiver applications
would be detrimental to the assigned users of the 28 GHz band.  First, we note that the Big Bend
Telephone standards require findings both that the frequencies are under-utilized and that the
proposed use of the frequencies will not be detrimental to their assigned users.  In Big Bend
Telephone, the Commission found that the Broadcast Auxiliary frequencies at issue were lying
fallow, but we could not conclude that the proposed use of the frequencies would not be
detrimental to their assigned users because such use might foreclose future broadcast auxiliary
users. 

     392.  Similarly, in our Order denying the petitions for waiver of our 28 GHz band rules,
we found that granting these petitions for waiver would be detrimental to the assigned users
defined as potential common carrier point-to-point applicants.  We believe that the potential for
point-to-point applicants was not speculative because Harris had filed a petition for rulemaking
requesting the Commission to channelize the 28 GHz band for manufacturers of point-to-point
equipment.  The point-to-point manufacturing industry was prepared to begin developing
equipment for the band.  Harris's petition was addressed in the First NPRM, but the
channelization proposed in the First NPRM was not consistent with that proposed by Harris.  We
determined that point-to-point service was not the best use of the band, and proposed
redesignating the entire 2 gigahertz to be used for point-to-multipoint services.

     393.  By making this proposal, we would have removed the spectrum from availability to
point-to-point users except on the basis of case-by-case coordination.  At a minimum, this was an
issue on which the Commission could expect to receive comments from point-to-point service
providers.  Accordingly, in view of the interest expressed by point-to-point manufacturers, and
their request that channelization be proposed in a manner inconsistent with LMDS
channelization, it is obvious that granting waiver applicants' requests would have been
detrimental to the assigned users, namely, potential point-to-point service providers and
equipment manufacturers.

     394.  In addition, we do not agree with Video/Phone's suggestion that gradual
deployment of service in the 28 GHz band would protect the interests of point-to-point licensees
if any were to be licensed in the band.  Video/Phone's exhibit acknowledges that if we were to
authorize any point-to-point licensees in the 28 GHz band, they ultimately would have to be
moved out of the band to new spectrum as LMDS expands.  In view of the facts that such
spectrum has not been identified, and neither have the policies for how the incumbents would be
relocated to new spectrum, we do not believe that this option is viable.  Our experience with
relocating incumbent point-to-point microwave licensees for PCS has taught us that this is not a
procedure which we would deliberately establish for the future. 

     395.  Subsequent events have proven that the decision in the First NPRM was
appropriate.  TIA and Harris have vigorously opposed our proposals with regard to point-to-point
services in the 28 GHz band throughout this proceeding.  These point-to-point industry
representatives insist that the proposed LMDS rules are inconsistent with the parties' preferred
method of operations.  Such issues are more appropriately examined in the context of a
rulemaking than in the context of individual adjudicatory proceedings for hundreds of waiver
applications.

     396.  Moreover, although not clearly foreseen in the First NPRM, there are other assigned
users of the 28 GHz band for whom grant of the waiver applications would have been
detrimental.  Fixed satellite service uplinks are also authorized to be licensed in the 28 GHz
band.  The First NPRM requested comment from fixed satellite service providers and many of
them responded, indicating their extensive plans for using this spectrum.  These parties have
indicated that their plans are not able to be coordinated with point-to-point use.  Accordingly,
subsequent events have borne out the correctness of the Commission's finding that grant of the
waiver applications would have been detrimental to the assigned users of the band.

  2. Evaluation of Public Interest Arguments

     397.  The First NPRM also stated that the waiver applications were being denied because
of our conclusion that the existing point-to-point rules were not appropriate for the service
proposed by applicants, and it thus would not be in the public interest to grant the waivers
because such a grant would result in the offering of services on a widespread basis that were not
congruent with the existing licensing framework.  For example, waiver applicants requested a
minimum of 1 gigahertz of spectrum each.  The typical point-to-point application would request
only 6 megahertz of spectrum.  Moreover, the geographic area to be covered normally would be
only that involved in the direct line between two directionalized antennas, rather than entire
metropolitan areas as proposed by waiver applicants.  Grant of a point-to-point application would
not normally preclude grant of another application on the same frequency in the same geographic
area, since highly directionalized antennas can be coordinated so as not to cause interference to
one another.

     398.  On the other hand, grant of the waiver applications would have precluded another
applicant from using the same frequencies in an entire geographic area.  Finally, mutually
exclusive applicants for Part 21 fixed microwave spectrum must be designated for comparative
hearing.  This is the only procedure available to choose among mutually exclusive waiver
applicants.  Thus, the lottery procedures suggested by some petitioners could not have been
conducted without an additional rulemaking proceeding.  In sum, the nature of the services
sought to be offered pursuant to the waiver applications, unlike point-to-point applications,
raised a host of issues that extended beyond the bounds of the services contemplated under the
existing point-to-point rules.  We thus concluded that grant of the waivers would not serve the
public interest, and the parties seeking reconsideration of that conclusion present no facts or
arguments that cause us to alter our determination.

     399.  Petitioners contend that their applications should have been granted notwithstanding
the pendency of the rulemaking.  Video/Phone in particular argues that, consistent with our
previous practice, we could have granted the applications subject to the outcome of the
rulemaking and subject to modification if the rulemaking resulted in parameters different from
those authorized in the conditional grant.  None of the cases cited by Video/Phone proposes to
redesignate a large block of spectrum and to establish a new service comprised of a unique
combination of telecommunications services using new technology, as is the case here.  The
potential differences between the current point-to-point rules and the rules needed for the
proposed point-to-multipoint services involving both video distribution and telephony services
involve major issues such as eligibility standards for applicants, the configuration of geographic
service areas, the regulatory status of licensees, build-out requirements, and the technical
parameters of services offered by licensees.  Such fundamental changes between old and new
rules could require extensive and fundamental changes to conditional licenses granted under
earlier rules.  Such changes could seriously disrupt service to the public, and therefore, would not
be in the public interest in this case.

     400.  Several of the petitioners argue that bringing needed services to the public justifies
granting the applications subject to the outcome of the rulemaking.  While it is true that the
public interest is strong in facilitating the entry of competitors in the video distribution and
telephony markets, we believe that the public interest is better served by developing consistent
rules for this competitive entry through a notice and comment proceeding.  

     401.  Some petitioners argue that grant of the waivers and the resulting deployment of
new technology would give practical experience with the services and give the United States a
``head start'' with the new service, and that failing to do so would jeopardize the national interest
by delaying introduction of the new technology.  We observe, however, that the single grant to
CellularVision has provided some practical experience with the new technology, and other
manufacturers have proceeded with development of other types of LMDS technology. 
Moreover, the pendency of this rulemaking proceeding has served to stimulate both domestic and
foreign interest in LMDS in the 28 GHz band.  Far from exerting a chilling effect, as some
commenters feared, the instant proceeding is regarded with interest around the world.  

  3. Claims Regarding Nature of Services and Types of Applicants

     402.  Individual waiver applicants claim that the unique qualities of their service
proposals justify their receiving a grant, even if most other such applications are not justified. 
We have never found, however, that local expertise is a necessary element for video distribution
or the provision of common carrier services.  Local expertise is of some value in the cable
television and broadcast mass media, where licensees hold a public trust and must ensure that
they serve the locality in which they operate.  No such requirement, however, is currently
imposed on wireless cable or telephony operators.  In addition, petitioners proposing this
criterion in support of a waiver may have done so in the context of the lottery authority where
local applicants were often competing with hundreds of other applications.  That situation is no
longer a problem since we have received competitive bidding authority.  Accordingly, local
presence or expertise is not a determining factor for waiver of our frequency designation rules in
this case.

     403.  In addition, the Joint Petitioners suggest that the issue of whether MMDS is
available in the area for which a waiver application has been filed should be a factor in
evaluating whether to grant the applications for waiver.  While we appreciate that the Joint
Petitioners' proposal was designed to bring video distribution service in some form to areas
which might have fallen outside an area of adequate signal strength from MMDS stations, we
have chosen to address this service issue through a rulemaking proceeding.  We have redesigned
the MMDS rules and have already begun the licensing process for MMDS in BTAs.  Thus,
MMDS should be more easily available to persons in the situation described by the Joint
Petitioners.

     404.  Two other parties suggest that their applications are unique and deserve separate
consideration. Gustine and UTPA argue that, because they are a municipality and an educational
institution, respectively, their waivers should be granted.  We acknowledge the benefits that
petitioners' proposals could bring to their areas, particularly UTPA's proposal for providing
distance education in the Rio Grande Valley through an arrangement with RioVision.  On
balance, however, we do not believe it is necessary to grant these waiver requests in order to
meet our commitment to facilitating communications in education.  As we have already stated,
we believe that licensing of LMDS should be based on our newly adopted LMDS rules, rather
than through the granting of waivers of our prior licensing and service rules for use of spectrum
in the 28 GHz band. We believe that Gustine and UTPA will have the opportunity to obtain
access to LMDS services by purchasing those services from a commercial LMDS licensee, by
obtaining a 150 megahertz LMDS license within their BTA, or through the disaggregation or
partitioning of an LMDS license.  And, as noted in paragraph 306, supra, we reserve our right, in
the future, to adopt requirements to address these needs.  Accordingly, we believe that the rules
promulgated herein will meet these petitioners' needs and that granting their waiver requests
would not be appropriate.

     405.  Some petitioners propose that we use a variety of procedural cut-off methods to
distinguish among the waiver applications.  Without addressing our authority to institute
retroactive eligibility and application cut-off rules, we clarify that our statement in the First
NPRM regarding the large number of waiver applications would have been equally applicable if
only a few waiver applications had been filed.  Any showing of further interest in point-to-
multipoint service in the 28 GHz band would have triggered our decision to institute a
rulemaking procedure to accommodate the new service.  Accordingly, limiting the number of
waiver applications that qualify for processing would not have reached the underlying problems
associated with the fundamental spectrum use issues raised by these applicants.

     406.  In sum, none of the petitions for reconsideration will be granted because (1) the
proposed use of frequencies was detrimental to the assigned users at the time they were filed; (2)
the applications do not meet the public interest standards followed by this Commission for
waiver of frequency designation; and (3) the unique offers of service or type of applicant do not
outweigh the countervailing public interest in the resolution of the fundamental service issues by
rulemaking proceeding rather than adjudication.

             IV.  FIFTH NOTICE OF PROPOSED RULEMAKING

A. Introduction

     407.  In the Order we are adopting today we have concluded that we will permit any
holder of an LMDS license to partition or disaggregate portions of its authorization.  In the recent
Partitioning and Disaggregation Report and Order we expanded our rules to permit geographic
partitioning and disaggregation for broadband PCS licensees, and we sought comment on
geographic partitioning and spectrum disaggregation in the case of licensees holding cellular or
General Wireless Communications Service (GWCS) licenses.

     408.  We have previously examined partitioning and disaggregation issues for other ser-

vices on a service-by-service basis.  We presently permit, or are seeking comment on, geographic
partitioning and spectrum disaggregation for several services, e.g., MDS, GWCS, 800 MHz
Specialized Mobile Radio (SMR), paging, 38 GHz fixed point-to-point microwave, 900
MHz SMR, and WCS.    

     409.  We believe that it is necessary, as part of the next phase of our LMDS rulemaking,
to propose specific procedural, administrative, and operational rules to ensure effective
implementation of the general partitioning and disaggregation rules we have adopted today.  It is
our tentative view that a more complete delineation of these partitioning and disaggregation
mechanisms, which we hope to achieve in this rulemaking, will ensure realization of the
competitive benefits that are at the core of our partitioning and disaggregation policy.

B. Discussion

  1. In General

     410.  In this Fifth Notice of Proposed Rulemaking we will seek comment as to how
various requirements imposed on LMDS licensees (e.g., construction requirements) may be
modified if such licensees partition or disaggregate their authorization.  We seek comment as to
whether partitioning of LMDS licenses should be permitted in a manner similar to the rules for
partitioning we have adopted for broadband PCS licensees.  In addition, we seek comment as to
specific procedural, administrative, and operational rules under which LMDS licensees are
permitted to disaggregate their licensed spectrum.

     411.  In the following paragraphs we seek comment on specific aspects of partitioning
and disaggregation, which we will need to address in order to administer the general partitioning
and disaggregation rules for LMDS licensees that we have adopted in this Second Report and
Order.  For example, we seek comment as to whether there are any technical or regulatory
constraints unique to the LMDS service that would render any aspects of partitioning or
disaggregation impractical or administratively burdensome.  Further, we recognize that there are
special competitive bidding issues, similar to those raised in the broadband PCS context, that
must be resolved if we permit partitioning and disaggregation for LMDS.  We shall address those
issues separately in paragraphs 420 through 422, infra.

  2. Available License Area

     412.  In the Partitioning and Disaggregation Report and Order, we found that allowing
partitioning of broadband PCS licenses along any service area defined by the parties is the most
logical approach.  We concluded that allowing the parties to define the partitioned PCS service
area would allow licensees to design flexible and efficient partitioning agreements which would
permit marketplace forces to determine the most suitable service areas.  We also found that
requiring PCS partitioning along county lines was too restrictive and might discourage
partitioning. 

     413.  We have decided to base LMDS licenses on BTA geographic service areas, finding
that BTAs are logical licensing areas for LMDS because they comprise areas within which
consumers have a community of interest.  We tentatively conclude that a flexible approach to
partitioned areas, similar to the one we adopted for broadband PCS, is appropriate for LMDS. 
We therefore propose to permit partitioning of LMDS licenses based on any license area defined
by the parties.  We seek comment on this proposal, and in particular on whether there are any
technical or other issues unique to the LMDS service that might impede the adoption of a
flexible approach to defining the partitioned license area.

  3. Minimum or Maximum Disaggregation Standards

     414.  We seek comment as to whether we should augment our general rule permitting
disaggregation of LMDS spectrum in order to establish minimum disaggregation standards.  We
seek to determine whether, given any unique characteristics of LMDS, technological and
administrative considerations warrant the adoption of such standards.  We seek comment as to
whether we should adopt standards which would be flexible enough to encourage disaggregation
while providing a standard which is consistent with our technical rules and by which we would
be able to track disaggregated spectrum and review disaggregation proposals in an expeditious
fashion.

  4. Combined Partitioning and Disaggregation

     415.  We seek comment regarding whether combined partitioning and disaggregation
should be permitted for LMDS.  By ``combined'' partitioning and disaggregation we refer to
circumstances in which a licensee would be authorized, for example, to obtain a license for a
portion of a BTA with only a portion of the 1,150 megahertz license or the 150 megahertz license
involved in the disaggregation of spectrum.  As another example, the licensee could obtain a
license consisting of a partitioned portion of one or more other licenses held by other LMDS
providers and a disaggregated portion of one or more other licenses held by other LMDS
providers.  We tentatively conclude that we should permit such combinations in order to provide
carriers with the flexibility they need to respond to market forces and demands for service
relevant to their particular locations and service offerings.

  5. Construction Requirements

     416.  In the Order we have adopted today we have promulgated a performance standard
under which a licensee must make a showing of substantial service at the end of the license
term.  In the case of partitioned LMDS licenses, we propose that the partitionee must certify
that it will satisfy the same construction requirements as the original licensee.  The partitionee
then must meet the prescribed service requirements in its partitioned area while the partitioner is
responsible for meeting those requirements in the area it has retained.

     417.  In the case of disaggregated LMDS licenses, we propose to adopt rules for LMDS
licensees similar to those disaggregation certification rules we have adopted for broadband
PCS.  Under such a certification approach, the disaggregating parties would be required to
submit a certification, signed by both the disaggregator and disaggregatee, stating whether one or
both of the parties will retain responsibility for meeting the performance requirement for the
LMDS market involved.  If one party takes responsibility for meeting the performance
requirement, then actual performance by that party would be taken into account in a renewal
proceeding at the end of the license term, but such performance would not affect the status of the
other party's license.  If both parties agree to share the responsibility for meeting the performance
requirement, then the performance of each of the parties would be taken into account in the
respective renewal proceedings.

  6. License Term

     418.  In the Order we have adopted today we established a 10-year license term for
LMDS licenses.  In this Fifth Notice of Proposed Rulemaking we are proposing that LMDS
licensees should be eligible for a license renewal expectancy based upon the criteria established
in Section 22.940(a) of the Commission's Rules.

     419.  In the Partitioning and Disaggregation Report and Order, we found that allowing
parties acquiring a partitioned license or disaggregated spectrum to ``re-start'' the license term
from the date of the grant of the partial assignment application could allow parties to circumvent
our established license term rules and unnecessarily delay service.  We seek comment as to
whether our LMDS rules should similarly provide that parties obtaining partitioned LMDS
licenses or disaggregated spectrum hold their license for the remainder of the original licensee's
10-year license term.  In addition, we seek comment as to whether LMDS partitionees and
disaggregatees should be afforded the same renewal expectancy as we have proposed for other
LMDS licensees.  We tentatively conclude that limiting the license term of the partitionee or
disaggregatee is necessary to ensure that there is maximum incentive for parties to pursue
available spectrum as quickly as practicable.

  7. Competitive Bidding Issues

     420.  Competitive bidding issues similar to those in broadband PCS arise in the context of
LMDS partitioning and disaggregation.  Our competitive bidding rules for the LMDS service
include provisions for installment payments and bidding credits for small businesses and
businesses with average annual gross revenues not exceeding $75 million.  We also adopted rules
to prevent unjust enrichment by such entities that seek to transfer licenses obtained through use
of one of these special benefits.

     421. We tentatively conclude that LMDS partitionees and disaggregatees that would
qualify for installment payments should be permitted to pay their pro rata share of the remaining
Government obligation through installment payments.  We seek comment on this tentative
conclusion.  We further invite comment as to the exact mechanisms for apportioning the re-

maining Government obligation between the parties and whether there are any unique circum-

stances that would make devising such a scheme for LMDS more difficult than for broadband
PCS.  Since LMDS service areas are allotted on a geographic basis, in a manner similar to
broadband PCS, we propose using population as the objective measure to calculate the relative
value of the partitioned area and amount of spectrum disaggregated as the objective measure for
disaggregation, and we seek comment on this proposal.

     422.  We seek comment regarding whether to apply unjust enrichment rules to small
business LMDS licensees, or LMDS licensees with average annual gross revenues not exceeding
$75 million, that partition or disaggregate to larger businesses.  Commenters should address how
to calculate unjust enrichment payments for LMDS licensees paying through installment
payments and those that were awarded bidding credits that partition or disaggregate to larger
businesses.  Commenters should address whether the unjust enrichment payments should be
calculated on a proportional basis, using population of the partitioned area and amount of
spectrum disaggregated as the objective measures.  We propose using methods similar to those
adopted for broadband PCS for calculating the amount of the unjust enrichment payments that
must be paid in such circumstances, and we seek comment on this proposal.

  8. Licensing Issues

     423.  We propose that all LMDS licensees who are parties to disaggregation or parti-

tioning arrangements must comply with our technical and service rules established in the Order
we are adopting today.  We also propose that coordination and negotiation among licensees must
be maintained and applied in licensing involving disaggregated or partitioned licenses. 

     424.  We propose to treat the disaggregation and partitioning of LMDS licenses to be
types of assignments requiring prior approval by the Commission.  We therefore propose to
follow existing assignment procedures for disaggregation and partitioning.  Under this pro-

posal, the licensee must file FCC Form 702 signed by both the licensee and qualifying entity. 
The qualifying entity would also be required to file an FCC Form 430 unless a current FCC
Form 430 is already on file with the Commission.

                      V. PROCEDURAL MATTERS
A. Regulatory Flexibility Analyses

     425.  The Initial Regulatory Flexibility Analysis, as required by Section 603 of the
Regulatory Flexibility Act, is set forth in Appendix C.  The Commission has prepared the
Initial Regulatory Flexibility Analysis of the expected impact on small entities of the proposals
suggested in the Fifth Notice of Proposed Rulemaking.  Written public comments are requested
on the Initial Regulatory Flexibility Analysis.  In order to fulfill the mandate of the Contract with
America Advancement Act of 1996 regarding the Final Regulatory Flexibility Analysis, we ask a
number of questions in our Initial Regulatory Flexibility Analysis regarding the prevalence of
small businesses in the local exchange and MVPD industries.

     426.  Comments on the Initial Regulatory Flexibility Analysis must be filed in accor-

dance with the same filing deadlines as comments on the Fifth Notice of Proposed Rulemaking,
but they must have a separate and distinct heading designating them as responses to the Initial
Regulatory Flexibility Analysis.  The Secretary shall send a copy of the Fifth Notice of Proposed
Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for
Advocacy of the Small Business Administration in accordance with Section 603(a) of the
Regulatory Flexibility Act.

     427.  The Final Regulatory Flexibility Analysis, as required by Section 604 of the Regu-

latory Flexibility Act, is set forth in Appendix D.

B. Paperwork Reduction Analyses

     428.  The Second Report and Order imposes new or modified information collection
requirements applicable to the public.  The Fifth Notice of Proposed Rulemaking contains pro-

posed information collection requirements applicable to the public.  As part of our continuing
effort to reduce paperwork burdens, we invite the general public to take this opportunity to com-

ment on the information collections contained in the Second Report and Order and the Fifth
Notice of Proposed Rulemaking, as required by the Paperwork Reduction Act of 1995.  
     429.  Public and agency comments regarding the information collections contained in the
Fifth Notice of Proposed Rulemaking are due on or before 60 days after the publication of the
Fifth Notice of Proposed Rulemaking in the Federal Register.

     430.  Written comments by the public on the new or modified information collections
contained in the Second Report and Order are due on or before 30 days after publication of the
Second Report and Order in the Federal Register.  Written comments must be submitted by
OMB on the proposed or modified information collections on or before 60 days after publication
of the Second Report and Order in the Federal Register. 

     431.  Comments submitted in accordance with paragraph 429 or 430, supra, should
address:

   Whether the collection of information is necessary for the proper performance of the
    functions of the Commission, including whether the information shall have practical utili-
    
    ty.

   The accuracy of the Commission's burden estimates.

   Ways to enhance the quality, utility, and clarity of the information collected.

   Ways to minimize the burden of the collection of information on the respondents, includ-
    
    ing the use of automated collection techniques or other forms of information technology.

     432.  In addition to filing the comments specified in paragraph 429, supra, with the Sec-

retary, a copy of any such comments on the information collections contained herein should be
submitted to Dorothy Conway, Federal Communications Commission, Room 234, 1919 M
Street, N.W., Washington, D.C. 20554, or via the Internet to dconway@fcc.gov.   In addition to
filing the comments specified in paragraph 430, supra, with the Secretary, a copy of any such
comments on the information collections contained herein should be submitted to Dorothy
Conway, and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 - 17th Street, N.W.,
Washington, D.C. 20503 or via the Internet at fain_t@al.eop.gov.  For additional information
regarding the information collections contained herein, contact Dorothy Conway.

C. Ex Parte Presentations

  433.  The Fifth Notice of Proposed Rulemaking is a non-restricted notice and comment
rulemaking proceeding.  Ex parte presentations are permitted, provided they are disclosed as
provided in Commission rules.  See generally Sections 1.1202, 1.1203, and 1.1206(a) of the
Commission's Rules.

D. Pleading Dates

  434.  Pursuant to applicable procedures set forth in Sections 1.1415 and 1.419 of the
Commission's Rules, interested parties may file comments to the Fifth Notice of Proposed
Rulemaking on or before April 21, 1997, and reply comments on or before May 6, 1997.  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, participants must file an original and five
copies of all comments, reply comments, and supporting comments.  If participants want each
Commissioner to receive a personal copy of their comments, an original and nine copies must be
filed.  Comments and reply comments should be sent to Office of the Secretary, Federal Com-

munications Commission, Washington, D.C. 20554.  Comments and reply comments will be
available for public inspection during regular business hours in the FCC Reference Center
(Room 239) of the Federal Communications Commission, 1919 M Street, N.W., Washington,
D.C. 20554.

E. Further Information

  435.  For further information concerning this rulemaking proceeding contact Bob James,
Private Wireless Division, at (202) 418-0680, Mark Bollinger or Jay Whaley, Auctions Division,
at (202) 418-0660, Auctions Division, or Joseph Levin or Jane Phillips, Policy Division, at (202)
418-1310, Wireless Telecommunications Bureau, Federal Communications Commission, Wash-

ington, D.C. 20554.

                       VI. ORDERING CLAUSES

  436.  IT IS ORDERED that the actions of the Commission herein ARE TAKEN pursuant to
Sections 4(i), 257, 303(r), and 309(j) of the Communications Act of 1934, 47 U.S.C.  154(i),
257, 303(r), 309(j).

  437.  IT IS FURTHER ORDERED that the Commission's Rules ARE AMENDED as set
forth in Appendix A, effective 60 days after publication of this Order in the Federal Register.

  438.  IT IS FURTHER ORDERED that the Petitions for Reconsideration of the Memorandum
Opinion and Order in Application of Hye Crest Management, Inc., for License Authorization in
the Point-to-Point Microwave Radio Service in 27.5-29.5 GHz Band and Request for Waiver of
the Rules, File No. 10380-CF-P-88, filed by the University of Texas-Pan American, RioVision of
Texas, Inc., the City of Gustine, California, Video/Phone Systems, Inc., Northeast Wireless,
High Band Broadcasting Corporation, FM Video Broadcasters, Western Sierra Bancorp, M3
Illinois Telecommunications Corporation, Perry W. Haddon as President of GHz Equipment
Company; Connecticut Home Theater Corporation, Alliance Associates, Stevan A. Birnbaum,
BMW Associates, Joseph B. Buchwald,  Celltel Communications Corporation, Linda Chester,
Thomas F. Clark, the Committee to Promote Competition in the Cable Industry, Arnold
Cornblatt, CT Communications Corporation, Evanston Transmission Company, Judy Feinberg,
Lawrence Fraiberg, Freedom Technologies, Inc., Rosalie Y. Goldberg, Harry A. Hall, Lloyd
Hascoe, L.D.H. International, Inc., Paul R. Likins, William Lonergan, Herbert S. Meeker, James
L. Melcher, Frederick Myers, Frederick M. Peyser, PMJ Securities, Inc., Robert E. La Blanc
Associates, Inc., Jeanne P. Robertson, Sanford Robertson, Robert Rosenkranz, R&R
Telecommunications Partners, SCNY Communications, Inc., Seaview Telesystems Partners,
Lewis W. Siegel, Michael S. Siegel, Kim Sloan, SMC Associates, Charles D. Snelling, Telecom
Investment Corp., Telecommunications/Haddock Investors, Video Communications Corporation,
Diane Wechsler, and Ivan Wolff ARE DENIED.  

  439.  IT IS FURTHER ORDERED that Local Multipoint Distribution Service licensees
SHALL ATTACH appropriate labels to every subscriber transceiver antenna and provide notice
to users regarding the potential hazard of remaining within the Maximum Permissible Exposure
separation distance of these high gain antennas, as indicated herein.  

  440.  IT IS FURTHER ORDERED, that, effective upon adoption of this Order, applications
WILL NOT BE ACCEPTED for filing under Part 101 of the Commission's Rules either for new
services or for license modifications in the 31 GHz band, except those filed by incumbent city li-

censees and private business users pursuant to the terms of this Order, and that all such applica-

tions for license modifications SHALL BE FILED no later than 15 days following the effective
date of this Order.

  441.  IT IS FURTHER ORDERED that the applications filed for authorization to operate
under the existing licensing rules for the 31,000-33,000 MHz band and pending review under the
existing rules SHALL BE DISMISSED, and applicants that submitted filing fees with the
applications SHALL BE REFUNDED.

  442.  IT IS FURTHER ORDERED that, pursuant to Section 1.402(h) of the Commission's
Rules, the Chief, Office of Engineering and Technology, SHALL SELECT a panel of experts
to review the specific technologies set forth in the pioneer preference request that was filed by
the Suite 12 Group, on September 23, 1991, as amended on November 19, 1991, and that was ac-

cepted and placed on Public Notice on December 16, 1991.

  443.  IT IS FURTHER ORDERED that, pursuant to Section 5(c) of the Communications Act
of 1934, the Chief, Wireless Telecommunications Bureau, IS GRANTED DELEGATED AU-

THORITY to implement and modify auction procedures in the Local Multipoint Distribution
Service, including the general design and timing of the auction; the number and grouping of
authorizations to be offered in a particular auction; the manner of submitting bids; the amount of
bid increments; activity and stopping rules; and application and payment requirements, including
the amount of upfront payments; and to announce such procedures by Public Notice. 

        FEDERAL COMMUNICATIONS COMMISSION



        William F. Caton
        Acting Secretary                           APPENDIX A
                                
                           Final Rules

Part 1 of Title 47 of the Code of Federal Regulations is amended as follows:

Part 1 - PRACTICE AND PROCEDURE

1.  The authority citation for Part 1 continues to read as follows:

AUTHORITY:  47 U.S.C.  151, 154, 303 and 309(j), unless otherwise noted.

2.  Section 1.1307 is amended by adding a new entry at the end of Table 1 in paragraph (b)(1) as
follows:

 1.1307  Actions which may have a significant environmental effect, for which Environ-
          
          mental Assessments (EAs) must be prepared.

* * * * *

       TRANSMITTERS, FACILITIES, AND OPERATIONS SUBJECT TO
                 ROUTINE ENVIRONMENTAL EVALUATION


                 Service (Title 47 CFR Rule Part)
                     Evaluation required if:



***
***


             Local Multipoint Distribution Service
                    (subpart L of part 101)
       Non-rooftop antennas:    Height above ground level
                                to radiation center < 10
                                  m and power > 1640 W
                                          EIRP
                                
            Rooftop antennas:   Power > 1640 W EIRP
                                
        LMDS licensees are required to attach a label to
       subscriber transceiver antennas that (1) provides
      adequate notice regarding potential radio frequency
      safety hazards, e.g., information regarding the safe
          minimum separation distance required between
       users and transceiver antennas; and (2) references
          the applicable FCC radio frequency emission
        guidelines contained in FCC OST Bulletin 65, 2d
                            Edition.
                                
                                           
                                
Subpart Q or Part 1 of Subchapter A of Chapter I of Title 47 of the Code of Federal Regulations
                     is amended as follows:
                                
                PART 1 - PRACTICE AND PROCEDURE
                                
3.  Section 1.77 is amended by revising paragraph (i) to read as follows:
                                
    1.77  Detailed application procedures, cross references
                                
                           * * * * * 
                                
   (i)  Rules governing applications for authorizations in the Common Carrier and Private
Radio terrestrial microwave services and Local Multipoint Distribution Services are set out in
                           Part 101.
                                
4.  Section 1.2102 is amended by adding paragraph (a)(9) as follows:
                                
  1.2102  Eligibility of applications for competitive bidding.
                                
                           (a) * * *
                                
  (9)  Local Multipoint Distribution Service (LMDS) (see 47 CFR Part 101).
                                
Part 2 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:
                                
5.  Section 2.106 is amended by revising Column 6 for the entries 27.5-29.5 GHz and 31.0-31.3
                    GHz to read as follows:
                                
                  2.106 Table of Frequency Allocations.Part 74 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:

6.  In  74.602, paragraph (h) is removed and paragraphs (i) and (j) are redesignated as para-

graphs (h) and (i).

Part 78 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:

7.  In  78.18, paragraph (a)(5) is removed and paragraphs (a)(6) through (a)(8) are renumbered
as paragraphs (a)(5) through (a)(7).
  
Part 95 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:

8.  In  95.1, paragraph (b) is removed and paragraph (c) is redesignated as (b).

Part 101 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:

                PART 101 - FIXED MICROWAVE SERVICE

9.  The authority citation for Part 101 continues to read as follows:

AUTHORITY:  47 U.S.C.  154, 303, 309(j), unless otherwise noted.

10.  Section 101.1 is amended by revising paragraph (a) to read as follows:

 101.1   Scope and authority.

   (a)  The purpose of the rules in this part is to prescribe the manner in which portions of the
radio spectrum may be made available for private operational, common carrier, and Local
Multipoint Distribution Service fixed, microwave operations that require transmitting facilities
on land or in specified offshore coastal areas within the continental shelf. 

* * * * * 

11.  Section 101.3 is amended by revising the two paragraphs in alphabetical order to read as fol-

lows:

* * * * *

Local Multipoint Distribution Service Hub Station.  A fixed point-to-point or point-to-multipoint
radio station in a Local Multipoint Distributution Service System that provides one-way or two-
way communication with Local Multipoint Distribution Service Subscriber Stations.

* * * * *

Local Multipoint Distribution Service System.  A fixed point-to-point or point-to-multipoint radio
system consisting of Local Multipoint Distribution Service Hub Stations and their associated
Local Multipoint Distribution Service Subscriber Stations.

* * * * *

12. Section 101.5 is amended by revising paragraph (d) to read as follows:

 101.5   Station authorization required.

* * * * *

   (d)  For stations authorized under Subpart H (Private Operational Fixed Point-to-Point
Microwave Service), Subpart I (Common Carrier Fixed Point-to-Point Microwave Service), and
Subpart L (Local Multipoint Distribution Service), construction of new or modified stations may
be initiated prior to grant of an authorization.  As a condition to commencing construction under
this subparagraph (d), the Commission may, at any time and without hearing or notice, prohibit
such construction for any reason.  Any construction conducted hereunder is at the applicant's sole
risk. 

13. Section 101.11 is amended by revising paragraph (a) to read as follows:

 101.11  Filing of applications, fees, and number of copies.

   (a) Part 1 of this chapter contains information on application filing procedures and
requirements for all services authorized under this part.  All filings, unless they are filed
electronically, must include the original application plus one copy.  Instructions for electronic
filing will be provided by public notice.

14.  Section 101.15 is amended by revising paragraph (a) to read as follows:

 101.15  Application forms for common carrier fixed stations.

   (a) New or modified facilities.  Except for Local Multipoint Distribution Service in Subpart
L, FCC Form 415 must be submitted and a license granted for each station.  FCC Form 415 also
must be submitted to amend any license application, to modify any license pursuant to 
101.57(a) and 101.59, and to notify the Commission of modifications made pursuant to  101.61. 
Cancellation of a license may be made by letter.

* * * * *

15.  Section 101.19 is amended by revising paragraph (a)(5) to read as follows:

 101.19  General application requirements.

* * * * *

   (a) * * *

* * * * *

   (5)  Show compliance with the special requirements applicable to each radio service and
make all special showings that may be applicable (e.g., those required by  101.103(d),
101.701, 101.1001-101.1015, etc.). 

* * * * *

16.  Section 101.21 is amended by revising the introduction and adding paragraph (g) as follows:

 101.21  Technical content of applications.

   Applications, except FCC Form 175, must contain all technical information required by the
application form and any additional information necessary to fully describe the proposed
facilities and to demonstrate compliance with all technical requirements of the rules governing
the radio service involved (see Subparts C, F, G, I, J, and L, as appropriate).  The following
paragraphs describe a number of technical requirements.

* * * * *

   (g)  Each application in the Local Multipoint Distribution Service must contain all technical
information required by FCC Form 600 and any other applicable form or associated Public
Notices and by any applicable rules in this part and Subpart L.
         
17.  Section 101.29 is amended by revising paragraph (a) to read as follows:

 101.29  Amendment of pending applications.

   (a)  Any pending application may be amended as a matter of right if the application has not
been designated for hearing, or for comparative evaluation pursuant to  101.51, or for the
random selection process, or is not subject to the competitive bidding process, provided,
however, that the amendments must comply with the provisions of  101.41 as appropriate.

* * * * *

18.  Section 101.35 is amended by adding paragraph (e) as follows:

 101.35  Preliminary processing of applications.

* * * * *

   (e) Competitive bidding applications will be processed pursuant to part 1, subpart Q, of this
chapter and subpart M of this part.

19.  Section 101.37 is amended by revising paragraph (a) and adding paragraph (e) to read as
follows:

 101.37  Public notice period.

   (a)  At regular intervals, the Commission will issue a public notice listing:

   (1) The acceptance for filing of common carrier applications, Local Multipoint Distribution
Service applications, and major amendments thereto;

   (2)  Significant Commission actions concerning these applications;

   (3)  The receipt of common carrier applications and Local Multipoint Distribution  Service
applications for minor modifications made pursuant to  101.59;

   (4)  Information which the Commission in its discretion believes of public significance; and  

   (5)  special environmental considerations as required by Part 1 of this chapter.

* * * * *

   (e) Paragraphs (a) through (c) of this section shall not apply to FCC Form 175.

20.  Section 101.45 is amended to revise the introduction to paragraph (b) as follows:

* * * * *

   (b) A common carrier application, except in the Local Multipoint Distribution Service, will
be entitled to be included in a random selection process or to comparative consideration with one
or more conflicting applications only if:

* * * * *

21.  Section 101.47 is amended by revising the introduction of paragraph (f) to read as follows:

 101.47  Consideration of applications.

* * * * *

   (f)  Except with respect to applications subject to Subpart L of this part, whenever the public
interest would be served thereby, the Commission may grant one or more mutually exclusive
applications expressly conditioned upon final action on the applications, and then either conduct
a random selection process (in specified services under this rule part), designate all of the
mutually exclusive applications for a formal evidentiary hearing or (whenever so requested)
follow the comparative evaluation procedures of  101.51, as appropriate, if it appears:

22.  Section 101.57 is amended by revising paragraph (a) to read as follows:

 101.57  Modification of station license.

   (a)(1)  Except as provided in  101.59, and except in the case of licenses authorized for
operation in the 31,000-31,300 MHz band prior to March 11, 1997, and except in the Local
Multipoint Distribution Service as provided in  101.61(c)(10), no modification of a license
issued pursuant to this part (or the facilities described thereunder) may be made except upon
application to the Commission.

   (2)  Notwithstanding the provisions of subparagraph (1) of this paragraph, licensees (other
than licensees in the Local Television Transmission Service) authorized to operate in the 31,000-
31,300 MHz band prior to March 11, 1997, may submit applications to the Commission for
modification of such licenses not later than the end of the 15-day period following [the effective
date of this rule].

23.  Section 101.59 is amended by revising paragraphs (a) and (b)(1) to read as follows:

 101.59  Processing of applications for facility minor modifications.

   (a)  Except in the Local Multipoint Distribution Service as provided in  101.61(c)(10),
unless an applicant is notified to the contrary by the Commission, as of the twenty-first day
following the date of public notice, any application that meets the requirements of paragraph (b)
of this section and proposes only the change specified in paragraph (c) of this section will be
deemed to have been authorized by the Commission.

   (b)  An application may be considered under the procedures of this section only if:

   (1)  It is in the Private Operational Fixed Point-to-Point Microwave, Common Carrier Fixed
Point-to-Point Microwave, Local Television Transmission, Digital Electronic Message Services,
and Local Multipoint Distribution Services;

* * * * *

24.  Section 101.61 is amended by revising paragraph (b)(3), adding paragraphs (c)(9) and (10),
and revising paragraph (d) to read as follows:

 101.61  Certain modifications not requiring prior authorization.

* * * * *

   (b)  Licensees of fixed stations in the Private Operational Fixed Point-to-Point Microwave,
Common Carrier Fixed Point-to-Point Microwave, Local Television Transmission, Digital
Electronic Message Services, and Local Multipoint Distribution Services may make the facility
changes listed in paragraph (c) of this section without obtaining prior Commission authorization,
if: 

* * * * *

   (3) The Commission is notified of changes made to facilities by the submission of a
completed FCC Form 415 within 30 days after the changes are made, except that licensees in the
Local Multipoint Distribution Service must notify the Commission by the submission of a com-

pleted FCC Form 600 within 30 days or, if the change is subject to  101.305(b) or 101.305(c),
within the time periods required in those subparts.

* * * * *

   (c)  * * *

   (9)  In the Local Multipoint Distribution Service, changes in regulatory status from common
carrier to non-common carrier status or non-common carrier to common carrier status, or from
the addition of common carrier or non-common carrier status to an existing license in order to be
authorized to provide both common carrier and non-common carrier services; except that chang-

es that result in the discontinuance, reduction, or impairment of the existing service are subject to
the requirements of  101.305(b) and (c).

   (10) In the Local Multipoint Distribution Service, the addition, removal, or relocation of
facilities within the area authorized by the license, except as provided in  101.1009.

   (d)  Licensees may notify the Commission of permissible changes or correct erroneous infor-

mation on a license not involving a major change (i.e., a change that would be classified as a
major amendment as defined by  101.29) without obtaining prior commission approval by filing
FCC Form 415, except in Local Multipoint Distribution Service by filing FCC Form 600.
  
25.  Section 101.63 is amended by revising paragraph (a) to read as follows:

 101.63  Period of construction; certification of completion of construction.

  (a)   Each station, except in the Local Multipoint Distribution Services, authorized under this
part must be in operation within 18 months from the initial date of grant.  Modification of an
operational station must be completed within 18 months of the date of grant of the applicable
modification request.

* * * * *

26.  Section 101.101 is amended by revising the table entries for the 27,500-29,500 MHz and
31,000-31,300 MHz bands and by adding below the table a line for LMDS in alphabetical order
to read as follows:

           101.101 Frequency availability.
FREQUENCY
BAND (MHz)
                          RADIO SERVICE



COMMON
CARRIER
(Part 101)
PRIVATE
RADIO
(Part 101)
BROADCAST
AUXILIARY
(Part 74)
OTHER
(Parts 15,
21, 24, 25,
74, 78 &
100)
NOTES


27,500-28,350
LMDS






29,100-29,250
LMDS


SAT



31,000-31,300
CC  LMDS
LTTS
OFS


F/M/TF


* * * * *

ITFS:   Instructional Television Fixed Service -- (Part 74)
LMDS: Local Multipoint Distribution Service (including non-common carrier and common carrier services) --
      (Part 101, Subpart L)
LTTS: Local Television Transmission Service -- (Part 101, Subpart J)

* * * * *

27.  Section 101.103 is amended by revising paragraph (b) and adding new paragraphs (g) and
(h) to read as follows:

 101.103 Frequency coordination procedures.

* * * * *

   (b)(1)  Operations in the bands 31,000-31,075 MHz and 31,225-31,300 MHz licensed prior
to March 11, 1997, were licensed on an unprotected basis and are subject to harmful interference
from similarly licensed operations in that band.

   (i)  Operations licensed in the Local Mulitpoint Distribution Service and those operations li-

censed prior to March 11, 1997, except in the Local Television Transmission Service, operating
in these bands are equally protected against harmful interference from each other.

   (ii)  In the case of operations licensed prior to March 11, 1997, except in the Local Televi-

sion Transmission Service, that are licensed on a point-to-radius basis, LMDS licensees shall be
subject to the protection requirement established in this section in the case of existing links
operated by such licensees, and in the case of links added by such licensees in the future in
accordance with the terms of their point-to-radius licenses.

   (iii)  An LMDS licensee may not initiate operations within the point-to-radius area licensed
to an operator (other than an operator in the Local Television Transmission Service) prior to
March 11, 1997, even if such operator has not initiated operations to the fullest extent of the
license.  An LMDS licensee, however, may initiate operations at the border of such operator's
license area without prior coordination if the LMDS licensee's operations would not cause
harmful interference to the other operator's existing operations.

   (iv)  An operator (other than an operator in the Local Television Transmission Service)
licensed on a point-to-radius basis prior to March 11, 1997, may add additional stations within its
license area.  Such operator shall coordinate with any affected LMDS licensee if its new
operations might cause harmful interference to the existing operations of such LMDS licensee.

   (v)  Operations licensed prior to March 11, 1997, on a point-to-point basis may not be
extended or otherwise modified through the addition of point-to-point links.  Such operations
shall be limited to the use of frequency pairs licensed as of March 11, 1997.  Operations licensed
in the Local Television Transmission Service as of March 11, 1997, may continue to operate, but
such operators may not expand existing operations nor initiate new operations.

   (2)  Operations in the 31,075-31,225 MHz band licensed prior to March 11, 1997, shall
receive no protection against harmful interference from authorized operations in the Local
Multipoint Distribution Service in that band. 

* * * * *

   (g)  Licensees operating in Basic Trading Areas authorized in the Local Multipoint Distribu-

tion Service.

   (1)  When the transmitting facilities in a Basic Trading Area (BTA) are to be operated in the
bands 27,500-28,350 MHz; 29,100-29,250 MHz; and 31, 000-31,300 MHz and the facilities are
located within 20 kilometers of the boundaries of a BTA, each licensee must complete the
frequency coordination process of subsection 101.103(d)(2) with respect to neighboring BTA
licensees that may be affected by its operations prior to initiating service.  In addition, all
licensed transmitting facilities operating in the bands 31,000-31,075 MHz and 31,225-31,300
MHz and located within 20 kilometers of neighboring facilities must complete the frequency
coordination process of  101.103(d)(2) with respect to such authorized operations before
initiating service.  

   (2)  Response to notification should be made as quickly as possible, even if no technical
problems are anticipated.  Any response to notification indicating potential interference must
specify the technical details and must be provided to the applicant, either electronically or in
writing, within the 30-day notification period.  Every reasonable effort should be made by all
licensees to eliminate all problems and conflicts.  If no response to notification is received within
30 days, the licensee will be deemed to have made reasonable efforts to coordinate and com-

mence operation without a response.  The beginning of the 30-day period is determined pursuant
to subsection 101.103(d)(v). 

   (h)  Special requirements for operations in the band 29,100-29,250 MHz.  

   (1)(i) Local Multipoint Distribution Service (LMDS) receive stations operating on frequen-

cies in the 29,100-29,250 MHz band within a radius of 75 nautical miles of the geographic coor-

dinates provided by a non-GSO-MSS licensee pursuant to  101.113(c)(2) or (c)(3)(i) (the
``feeder link earth station complex protection zone'') shall accept any interference caused to them
by such earth station complexes and shall not claim protection from such earth station
complexes.

   (i)  LMDS licensees operating on frequencies in the 29,100-29,250 MHz band outside a
feeder link earth station complex protection zone shall cooperate fully and make reasonable
efforts to resolve technical problems with the non-GSO MSS licensee to the extent that trans-

missions from the non-GSO MSS operator's feeder link earth station complex interfere with an
LMDS receive station.

   (2)  No more than 15 days after the release of a public notice announcing the commencement
of LMDS auctions, feeder link earth station complexes to be licensed pursuant to  25.257 of this
chapter shall be specified by a set of geographic coordinates in accordance with the following
requirements:  no feeder link earth station complex may be located in the top eight (8) metro-

politan statistical areas (MSAs), ranked by population, as defined by the Office of Management
and Budget as of June 1993, using estimated populations as of December 1992; two (2)
complexes may be located in MSAs 9 through 25, one of which must be Phoenix, AZ (for a
complex at Chandler, AZ); two (2) complexes may be located in MSAs 26 to 50; three (3)
complexes may be located in MSAs 51 to 100, one of which must be Honolulu, Hawaii (for a
complex at Waimea); and the three (3) remaining complexes must be located at least 75 nautical
miles from the borders of the 100 largest MSAs or in any MSA not included in the 100 largest
MSAs.  Any location allotted for one range of MSAs may be taken from an MSA below that
range.

   (3)(i)  Any non-GSO MSS licensee may at any time specify sets of geographic coordinates
for feeder link earth station complexes with each earth station contained therein to be located at
least 75 nautical miles from the border of the 100 largest MSAs.

   (ii)  For purposes of subsection (h)(3)(i), non-GSO MSS feeder link earth station complexes
shall be entitled to accommodation only if the affected non-GSO MSS licensee preapplies to the
Commission for a feeder link earth station complex or certifies to the Commission within sixty
days of receiving a copy of an LMDS application that it intends to file an application for a feeder
link earth station complex within six months of the date of receipt of the LMDS application.

   (iii)  If said non-GSO MSS licensee application is filed later than six months after certifica-

tion of the Commission, the LMDS and non-GSO MSS entities shall still cooperate fully and
make reasonable efforts to resolve technical problems, but the LMDS licensee shall not be
obligated to re-engineer its proposal or make changes to its system.

   (4)  LMDS licensees or applicants proposing to operate hub stations on frequencies in the
29,100-29,250 MHz band at locations outside of the 100 largest MSAs or within a distance of
150 nautical miles from a set of geographic coordinates specified under subsection (h)(2) of
(h)(3)(i) shall serve copies of their applications on all non-GSO MSS applicants, permittees or
licensees meeting the criteria specified in  25.257(a).  Non-GSO MSS licensees or applicants
shall serve copies of their feeder link earth station applications, after the LMDS auction, on any
LMDS applicant or licensee within a distance of 150 nautical miles from the geographic
coordinates that it specified under  101.113(c)(2) or (c)(3)(i).  Any necessary coordination
shall commence upon notification by the party receiving an application to the party who filed the
application.  The results of any such coordination shall be reported to the Commission within
sixty days.  The non-GSO MSS earth station licensee shall also provide all such LMDS licensees
with a copy of its channel plan.

28.  Section 101.107 is amended by revising the Table entry for the frequency band 19,700 to
40,000 MHz line and adding a footnote in sequence to reads as follows:

 101.107 Frequency tolerance.

* * * * *



                  FREQUENCY TOLERANCE (PERCENT)


                         Frequency (MHz)
                          All fixed and
                          Base stations
                         Mobile stations
                           Over 3 Watts
                         Mobile stations
                         3 Watts or less


     19,700 to 27,500 (6)
          0.03




     27,500 to 28,350
          0.001




     29,100 to 29,250
          0.001




     31,000 to 31,075 (8)
          0.001




     31,075 to 31,225 (8)
          0.001




     31,225 to 31,300 (8)
          0.001




     31,300 to 40,000 (6)
          0.03




* * * * *

   (8)   For stations authorized prior to March 11, 1997, transmitter frequency tolerance shall not exceed 0.03
         percent.  

29.  Section 101.109 is amended by revising paragraph (c) by removing the Table entry on the
lines 27,500 MHz to 29,500 MHz and 31,000 to 31,300 MHz line and adding lines to the Table
to read as follows:

 101.109 Bandwidth.

* * * * *

   (c)    * * *

Frequency Band       Maximum
       (MHz)            Authorized
                           Bandwidth

21,200 to 23,600     100 MHz  /4/
27,500 to 28,350     850 MHz
29,100 to 29,250     150 MHz
31,100 to 31,075     75 MHz
31,075 to 31,225     150 MHz
31,225 to 31,300     75 MHz

* * * * *

30.  Section 101.113 is amended by revising paragraph (a) by removing the Table entry on the
line 27,500 to 29,500 MHz frequency band and the line 31,000 to 31,300 MHz frequency band,
adding lines in sequence to the Table, revising footnote (7), and adding footnotes (8) and (9) in
sequence to read as follows:

 101.113 Transmitter power limitations.

   (a)  * * *



                       Frequency Band (MHz)
Maximum allowable
EIRP  (1)*



Fixed
(dBW)
Mobile
(dBW)



     27,500 to 28,350 (9)
+30 dBW/MHz



     29,100 to 29,250
(7)



     31,000 to 31,075 (8), (9)
30 dBW/MHz
30 dBW/MHz 


     31,075 to 31,225 (8), (9)
30 dBW/MHz 
30 dBW/MHz 


     31,225 to 31,300 (8), (9)
30 dBW/MHz 
30 dBW/MHz  







* * * * *

(7) See  101.113(c).

(8) For stations authorized prior to March 11, 1997, transmitter output power shall not exceed 0.05 watt.

(9) For subscriber transceivers authorized in these bands, the EIRP shall not exceed 55dBW or 42 dBW/MHz.

* * * * *

31.  Section 101.147 is amended by revising the introductory statement in paragraph (a), revising
the list of frequencies in paragraph (a) by removing the line 27,500-29,500 MHz and the line
31,000-31,300 MHz and adding lines in sequence, revising the footnote /16/ in paragraph (a),
removing paragraph (x), redesignating paragraphs (t) through (w) as paragraphs (u) through (x),
adding a new paragraph (t), and revising paragraph (u), as follows:

 101.147 Frequency assignments

   (a)  Frequencies in the following bands are available for assignment for fixed microwave
services.

* * * * *

27,500-28,350 MHz16
29,100-29,250 MHz5, 16
31,000-31,300 MHz16

* * * * *

  16  As of [the effective date of this rule], frequencies in these bands are available for assignment only to LMDS
      radio stations.  Stations initially authorized prior to that date may continue to operate within the existing
      terms of the outstanding licenses.

* * * * *

   (t)  27,500-28,350; 29,100-29,250; 31,000-31,300 MHz.  These frequencies are available for
LMDS systems.  Each assignment will be made on a BTA service area basis, and the assigned
spectrum may be subdivided as desired by the licensee.  

   (u)  31,000-31,300 MHz.  Stations licensed in this band prior to March 11, 1997, may con-

tinue their authorized operations, subject to license renewal, on the condition that harmful
interference will not be caused to LMDS operations licensed in this band after [the effective date
of this rule].   In the sub-bands 31,000-31,075 and 31,225-31,300 MHz, stations initially licensed
prior to March 11, 1997, except in LTTS, and LMDS operations authorized after [the effective
date of this rule], are equally protected against harmful interference from each other in
accordance with the provisions of  101.103(b).  For stations, except in LTTS, permitted to
relocate to these sub-bands, the following paired frequencies are available:

   (1)  25 MHz authorized bandwidth channels

    TRANSMIT        RECEIVE
    (receive)         (transmit)
    (MHz)           (MHz)


    31,012.5          31,237.5
    31,037.5          31,262.5
    31,062.5          31,287.5

  (2)  75 MHz authorized bandwidth channel

    TRANSMIT        RECEIVE
    (receive)         (transmit)
    (MHz)           (MHz)

    31,037.5          31,275.0

* * * * *

32.  Section 101.305 is amended by revising paragraphs (a) through (c) to read as follows:

 101.305 Discontinuance, reduction, or impairment of service.

   (a)  If the public communication service provided by a station in the Common Carrier Radio
Services and the Local Multipoint Distribution Service is involuntarily discontinued, reduced or
impaired for a period exceeding 48 hours, the station licensee must promptly notify the
Commission, in writing, at Federal Communications Commission, Common Carrier Radio Ser-

vices, 1270 Fairfield Road, Gettysburg, Pennsylvania 17325.  In every such case, the licensee
must furnish full particulars as to the reasons for such discontinuance, reduction or impairment of
service, including a statement as to when normal service is expected to be resumed.  When
normal service is resumed, prompt notification thereof must be given in writing to the Federal
Communications Commission, Common Carrier Radio Services, 1270 Fairfield Road,
Gettysburg, Pennsylvania, 17325. 

   (b)  No station licensee subject to title II of the Communications Act of 1934, as amended,
may voluntarily discontinue, reduce or impair public communication service to a community or
part of a community without obtaining prior authorization from the Commission pursuant to the
procedures set forth in part 63 of this chapter.  In the event that permanent discontinuance of
service is authorized by the Commission, the station licensee must promptly send the station
license to the Federal Communications Commission, Common Carrier Radio Services, 1270
Fairfield Road, Gettysburg, Pennsylvania 17325 for cancellation; except that station licensees in
the Local Multipoint Distribution Service need not surrender the license for cancellation if the
discontinuance is a result of a change of status by the licensee from common carrier to non-
common carrier pursuant to  101.61.
                                                                              
   (c) Any licensee not subject to title II of the Communications Act of 1934, as amended, who
voluntarily discontinues, reduces or impairs public communication service to a community or a
part of a community must give written notification to the Commission within 7 days thereof.  In
the event of permanent discontinuance of service, the station licensee must promptly send the
station license to the Federal Communications Commission, Common Carrier Radio Services,
1270 Fairfield Road, Gettysburg, Pennsylvania 17325 for cancellation; except that station li-

censees in the Local Multipoint Distribution Service need not surrender the license for cancel-

lation if the discontinuance is a result of a change of status by the licensee from non-common
carrier to common carrier pursuant to  101.61.  

* * * * *

33.  Section 101.311 is revised to read as follows:

 101.311 Equal employment opportunities.

   Equal opportunities in employment must be afforded by all common carrier licensees and all
Local Multipoint Distribution Service licensees in accordance with the provisions of  21.307.

* * * * *

34.  Section 101.803 is amended by revising note (7) of paragraph (a), revising note (9) of para-

graph (d), and removing paragraph (e) to read as follows:  

 101.803 Frequencies.  

   (a) * * * 

  (7) As of [the effective date of this rule], frequencies in these band only are available for assignment to LMDS
      radio stations. Stations authorized prior to that date may continue to operate within the existing terms of the
      outstanding licenses, subject to renewal.

* * * * *

   (d) * * * 

  (9) As of [the effective date of this rule], frequencies in these band only are available for assignment to LMDS
      radio stations.  Stations authorized prior to that date may continue to operate within the existing terms of the
      outstanding licenses, subject to renewal.

35.  A new Subpart L is to be added, as follows:

Subpart L - Local Multipoint Distribution Service

Sec.
101.1001 Eligibility
101.1003 LMDS eligibility restrictions for incumbent LECs and cable companies.
101.1005 Frequencies available.
101.1007 Geographic service areas and number of licenses.
101.1009 System operations
101.1011 Construction requirements and criteria for renewal expectancy.
101.1013 Permissible communications services.
101.1015 Application form and contents.
101.1017 Requesting regulatory status.

 101.1001  Eligibility.

   Any entity, other than one precluded by  101.7 and by  101.1003 of this part, is eligible
for authorization to provide Local Multipoint Distribution Service (LMDS) under this subpart. 
Authorization will be granted upon proper application filed under the rules in this part and this
subpart.

 101.1003  LMDS eligibility restrictions for incumbent
          LECs and cable companies.

   (a) Eligibility for LMDS license.  Except as provided in paragraph (b) of this section, no in-

cumbent LEC or incumbent cable company, as defined in paragraph (c) of this section, nor any
entity owning an attributable interest in an incumbent LEC or incumbent cable company, shall
have an attributable interest in an LMDS license whose geographic service area significantly
overlaps such incumbent's authorized or franchised service area. 

   (1) Termination of restriction.  This restriction shall terminate three years following 
[the effective date of this rule] unless the Commission extends its applicability based on a
determination that incumbent LECs or incumbent cable companies continue to have substantial
market power in the provision of local telephony or cable television services.

   (2) Waiver of restriction.  Upon completion of the initial award of LMDS licenses, an
incumbent LEC or incumbent cable company may petition for a waiver of the restriction on
eligibility based upon a showing that the petitioner no longer has market power in its authorized
or franchised service area as the result of the entry of new competitors, other than an LMDS
licensee, into such service area.
      
   (b) Exception to eligibility restriction.  The restriction set forth in paragraph (a) of this
section shall not apply to any license for the 31,000-31,075 megahertz and 31,225-31,300
megahertz bands of LMDS spectrum.

   (c) Incumbent LECs and cable companies defined.  The terms incumbent LEC and
incumbent cable company shall be defined as follows:

   (1) Incumbent LEC.  The term incumbent local exchange carrier or incumbent LEC shall be
defined, in accordance with  251(h) of the Communications Act, to mean, with respect to an
area, that:

   (A) On February 8, 1996, the LEC provided telephone exchange service in such area and
was deemed to be a member of the exchange carrier association pursuant to  69.601(b) of this
chapter; or

   (B) Is a person or entity that, on or after February 8, 1996, became a successor or assign of a
member described in paragraph (c)(1)(A) of this section; or

   (C) Is an entity, or a member of a class or category of entities, that the Commission has de-

termined under  251(h)(2) of the Communications Act to treat as a local exchange carrier.

   (2) Incumbent Cable Company.  The term incumbent cable company means a company that
is franchised to provide cable service and is not subject to effective competition under the fol-

lowing definition of effective competition in  623(l) of the Communications Act:

   (A) Fewer than 30 percent of the households in the franchise area subscribe to the cable ser-

vice of a cable system; or

   (B) The franchise area is:

   (i) Served by at least two unaffiliated multichannel video programming distributors each of
which offers comparable video programming to at least 50 percent of the households in the
franchise area; and

   (ii) The number of households subscribing to programming services offered by multichannel
video programming distributors other than the largest multichannel video programming dis-

tributor exceeds 15 percent of the households in the franchise area; or

   (C) A multichannel video programming distributor operated by the franchising authority for
that franchise area offers video programming to at least 50 percent of the households of that
franchise area; or

   (D) A local exchange carrier or its affiliate (or any multichannel video programming
distributor using the facilities of such carrier or its affiliate) offers video programming services
directly to subscribers by any means (other than direct-to-home satellite services) in the franchise
area of an unaffiliated cable operator which is providing cable service in that franchise area, but
only if the video programming services so offered in that area are comparable to the video
programming services provided by the unaffiliated cable operator in that area.

   (d) Significant overlap with authorized or franchised service area.  For purposes of
paragraph (a) of this section, a significant overlap of an incumbent LEC's or incumbent cable
company's authorized or franchised service area occurs when at least 10 percent of the population
of the authorized or franchised service area, as determined by the 1990 census figures for the
counties contained in such service area, is within the LMDS licensed service area.

   (e) Definition of attributable interest.  For purposes of paragraph (a) of this section, an entity
shall be considered to have an attributable interest in an incumbent LEC, incumbent cable
company, or LMDS licensee pursuant to the following criteria:

   (1) A controlling interest shall constitute an attributable interest. Controlling interest means
majority voting equity ownership, any general partnership interest, or any means of actual
working control (including negative control) over the operation of the entity, in whatever manner
exercised.

   (2) Partnership and similar ownership interests and any stock interest amounting to 20
percent or more of the equity, or outstanding stock or outstanding voting stock of an entity.

   (3) Stock interests held in trust that exceed the limit set forth in paragraph (e)(2) of this sec-

tion shall constitute an attributable interest of any person who holds or shares the power to vote
such stock, of any person who has the sole power to sell such stock, and, in the case of stock held
in trust, of any person who has the right to revoke the trust at will or to replace the trustee at will.
If the trustee has a familial, personal, or extra-trust business relationship to the grantor or the
beneficiary, the stock interests held in trust shall constitute an attributable interest of such grantor
or beneficiary, as appropriate.

   (4) Non-voting stock shall constitute an attributable interest in the issuing entity if it exceeds
the limit set forth in paragraph (e)(2) of this section.

   (5) Debt and interests such as warrants and convertible debentures, options, or other interests
(except non-voting stock) with rights of conversion to voting interests shall not constitute
attributable interests unless and until conversion is effected.

   (6) Limited partnership interests amounting to 20 percent or more, calculated according to
both the percentage of equity paid in and the percentage of distribution of profits and losses, shall
constitute an attributable interest of each such limited partner.

   (7) Officers and directors of an incumbent LEC or incumbent cable company, an LMDS li-

censee, or an entity that controls such incumbent LEC, incumbent cable company, or LMDS
licensee, shall be considered to have an attributable interest in such incumbent LEC, incumbent
cable company, or LMDS licensee.

   (8) Ownership interests that are held indirectly by any party through one or more intervening
corporations or other entities shall be determined by successive multiplication of the ownership
percentages for each link in the vertical ownership chain and application of the relevant
attribution benchmark to the resulting product, except that, if the ownership for any interest in
any link in the chain exceeds 50 percent or represents actual control, it shall be treated as if it
were a 100 percent interest.

   (9) Any person who manages the operations of an incumbent LEC or incumbent cable
company or an LMDS licensee pursuant to a management agreement shall be considered to have
an attributable interest in such incumbent LEC, incumbent cable company or LMDS licensee, if
such person or its affiliate has authority to make decisions or otherwise engage in practices or
activities that determine, or significantly influence:

   (i) The nature or types of services offered by such entity;

   (ii) The terms upon which such services are offered; or

   (iii) The prices charged for such services.

   (10) Any person or its affiliate who enters into a joint marketing arrangement with an incum-

bent LEC, an incumbent cable company, an LMDS licensee, or an affiliate of such entity, shall
be considered to have an attributable interest in such incumbent LEC, incumbent cable company,
LMDS licensee, or affiliate, if such person or its affiliate has authority to make decisions or
otherwise engage in practices or activities that determine:

   (i) The nature or types of services offered by such entity;

   (ii) The terms upon which such services are offered; or

   (iii) The prices charged for such services.

   (f) Divestiture.  Any incumbent LEC or incumbent cable company, or any entity owning an
attributable interest in an incumbent LEC or incumbent cable company, that would otherwise be
barred from participating in an LMDS auction by the eligibility restriction in paragraph (a) of
this section, may be a party to an LMDS application (i.e., have an attributable interest in the
applicant), and such applicant will be eligible for an LMDS license, pursuant to the divestiture
procedures set forth in paragraphs (f)(1) through (f)(6) of this section.

   (1) Divestiture shall be limited to the following prescribed means:

   (A) An LMDS applicant holding an attributable interest in an incumbent LEC or incumbent
cable company may divest such interest in the incumbent LEC or cable company.

   (B) Other LMDS applicants disqualified under paragraph (a), will be permitted to: 

   (i) Partition and divest that portion of the existing authorized or franchised service area that
causes it to exceed the overlap restriction in paragraph (d) of this section, subject to applicable
regulations of state and local governments; or

   (ii) Partition and divest that portion of the LMDS geographic service area that exceeds the
overlap restriction in paragraph (d) of this section.

   (C) Divestiture may be to an interim trustee if a buyer has not been secured in the required
period of time, as long as the LMDS applicant has no interest in or control of the trustee and the
trustee may dispose of the license as it sees fit.

   (2) The LMDS applicant shall certify as an exhibit to its short form application that it and all
parties to the application will come into compliance with paragraph (a). 

   (3) If such LMDS applicant is a successful bidder in an auction, it must submit with its
long-form application a signed statement describing its efforts to date and future plans to come
into compliance with the eligibility restrictions in paragraph (a) of this section.

   (4) If such an LMDS applicant is otherwise qualified, its application will be granted subject
to a condition that the applicant shall come into compliance with the eligibility restrictions in
paragraph (a), within ninety (90) days of final grant of such LMDS license.

   (5) An LMDS applicant will be considered to have come into compliance with paragraph (a)
of this section if:

   (A) In the case of the divestiture of a portion of an LMDS license, it has submitted to the
Commission an application for license assignment or transfer of control of the requisite portion
of the LMDS geographic service area. 

   (B) In all other cases, it has submitted to the Commission a signed certification that it has
come into compliance with paragraph (a) of this section by the following means, identified in
such certification:

   (i) By divestiture of a disqualifying interest in an incumbent LEC or incumbent cable
company, identified in terms of the interest owned, the owner of such interest (and, if such owner
is not the applicant itself, the relationship of the owner to the applicant), the name of the party to
whom such interest has been divested, and the date such divestiture was executed; or

   (ii) By divestiture of the requisite portion of the incumbent LEC's or incumbent cable
company's existing authorized or franchised service area, identified in terms of the name of the
party to whom such interest has been divested, the date such divestiture was executed, the name
of any regulatory agency that must approve such divestiture, and the date on which an
application was filed for this purpose with the regulatory agency.

   (6) If no such certification or application is tendered to the Commission within ninety (90)
days of final grant of the initial license, the Commission may consider the short form certifi-

cation and the long form divestiture statement to be material, bad faith misrepresentations and
shall invoke the condition on the initial license, cancelling or rescinding it automatically, shall
retain all monies paid to the Commission, and, based on the facts presented, shall take any other
action it may deem appropriate.

Note 1 to paragraph (e):  Waivers of  101.1002(e) may be granted upon an affirmative showing:

   (1)  That the interest holder has less than a 50 percent voting interest in the licensee and
there is an unaffiliated single holder of a 50 percent or greater voting interest;

   (2) That the interest holder is not likely to affect the local market in an anticompetitive man-

ner;

   (3) That the interest holder is not involved in the operations of the licensee and does not
have the ability to influence the licensee on a regular basis; and

   (4) That grant of a waiver is in the public interest because the benefits to the public of com-

mon ownership outweigh any potential anticompetitive harm to the market.

 101.1005  Frequencies available.
 
   (a)  The following frequencies are available for assignment to LMDS in two license blocks:

   Block A of 1,150 MHz Block B of 150 MHz

   27,500-28,350 MHz    31,000-31,075 MHz
   29,100-29,250 MHz    31,225-31,300 MHz
   31,075-31,225 MHz

   (b)  In Block A licenses, the frequencies are authorized as follows:

   (1) 27,500-28,350 MHz is authorized on a primary protected basis and is shared with Fixed
Satellite Service (FSS) systems.

   (2) 29,100-29,250 MHz is shared on a co-primary basis with feeder links for non-
geostationary orbit Mobile Satellite Service (NGSO/MSS) systems in the band and is limited to
LMDS hub-to-subscriber transmissions, as provided in  25.257 and  101.103(h) of this part. 

   (3) 31,075-31,225 MHz is authorized on a primary protected basis and is shared  with pri-

vate microwave point-to-point systems licensed prior to March 11, 1997, as provided in 
101.103(b).

   (c) In Block B licenses, the frequencies are authorized as follows:

   (1) on a primary protected basis if LMDS shares the frequencies with systems licensed as
Local Television Transmission Service (LTTS) licensed prior to March 11, 1997, as provided in
 101.103(b).

   (2) on a co-equal basis with systems not licensed as LTTS prior to March 11, 1997, as pro-

vided in  101.103(g) of this part.
  
 101.1007  Geographic service areas and number of licenses.

   LMDS service areas are Basic Trading Areas (BTAs) as defined in the Rand McNally 1992
Commercial Atlas & Marketing Guide, 123rd Edition, at pages 38-39, that identifies 487 BTAs
based on the 50 States and as defined to include the BTA-like areas of the United States Virgin
Islands, American Samoa, Guam, Mayaguez/Aguadilla-Ponce, Puerto Rico, San Juan, Puerto
Rico, and the Commonwealth of Northern Marinas, for a total of 493 BTAs.

 101.1009  System operations.

   (a)  The licensee may construct and operate any number of fixed stations anywhere within
the area authorized by the license without prior authorization, except as follows:

   (1) A station would be required to be individually licensed if:

   (A)  international agreements require coordination;

   (B)  submission of an Environmental Assessment is required under  1.1307.

   (C) the station would affect the radio quiet zones under  101.123.

   (2)  Any antenna structure that requires notification to the Federal Aviation Administration
(FAA) must be registered with the Commission prior to construction under  17.4.

   (b)  Whenever a licensee constructs or makes system changes as described in paragraph (a),
the licensee is required to notify the Commission within 30 days of the change under  101.61
and include a statement of the technical parameters of the changed station.   

 101.1011  Construction requirements and criteria for renewal expectancy.

   (a)  LMDS licensees must make a showing of ``substantial service'' in their license area
within ten years of being licensed.  ``Substantial'' service is defined as service which is sound, fa-

vorable, and substantially above a level of mediocre service which might minimally warrant re-

newal.  Failure by any licensee to meet this requirement will result in forfeiture of the license and
the licensee will be ineligible to regain it.

   (b)  A renewal applicant involved in a comparative renewal proceeding shall receive a pref-

erence, commonly referred to as a renewal expectancy, that is the most important comparative
factor to be considered in the proceeding as long as the applicant's past record for the relevant li-

cense period demonstrates that:

   (1)  The renewal applicant has provided ``substantial'' service during its past license term;
and

   (2)  The renewal applicant has substantially complied with applicable FCC rules, policies,
and the Communications Act of 1934, as amended.

   (c)  In order to establish its right to a renewal expectancy, an LMDS renewal applicant in-

volved in a comparative renewal proceeding must submit a showing explaining why it should
receive a renewal expectancy.  At a minimum, this showing must include:

   (1)  A description of its current service in terms of geographic coverage and population
served:

   (2)  An explanation of its record of expansion, including a timetable of new construction to
meet changes in demand for service:

   (3)  A description of its investments in its LMDS system; and

   (4)  Copies of all FCC orders finding the licensee to have violated the Communications Act
or any FCC rule or policy; and a list of any pending proceedings that relate to any matter
described in this paragraph.

   (d)  In making its showing of entitlement to a renewal expectancy, a renewal applicant may
claim credit for any system modification applications that were pending on the date it filed its
renewal application.  Such credit will not be allowed if the modification application is dismissed
or denied.

 101.1013  Permissible communications services.

   (a)  Authorizations for stations in the Local Multipoint Distribution Service will be granted
to provide services on a common carrier basis or a non-common carrier basis or on both a com-

mon carrier and non-common carrier basis in a single authorization.

   (b)  Stations may render any kind of communications service consistent with the
Commission's rules and the regulatory status of the station to provide services on a common
carrier or non-common carrier basis.

   (c) An applicant or licensee may submit a petition at any time requesting clarification of the
regulatory status required to provide a specific communications service. 

 101.1015  Application form and contents.

   (a)  Applications for initial authorization are filed on FCC Form 175 in accordance with
Subpart M of this Part, and Part 1, Subpart Q.  FCC Form 600 is submitted subsequently either
by the winning bidder, if an auction is held to decide among two or more mutually exclusive
applications, or, in cases of no mutual exclusivity, by the sole applicant.  Applications to amend
pending applications and to modify licenses are filed on FCC Form 600.

   (b)  Foreign ownership information.  All LMDS applicants will provide the information re-

quested on FCC Form 600 to address all of the eligibility requirements in  101.7 of this Part. 
All licensees will keep the information updated.

 101.1017  Requesting regulatory status.

   (a) Initial applications.

   (1) An applicant will specify on FCC Form 600 if it is requesting authorization to provide
services on a common carrier basis, a non-common carrier basis, or on both a common carrier
and non-common carrier basis. 

   (b) Amendment of pending applications.  

   (1) Any pending application may be amended to: (i) change the carrier status requested, or
(ii) add to the pending request in order to obtain both common carrier and non-common carrier
status in a single license.

   (2) Amendments to change, or add to, the carrier status in a pending application are minor
amendments filed under  101.29 in this Part.

   (c) Modification of license.

   (1)  A licensee may modify a license to: (i) change the carrier status authorized, or (ii) add to
the status authorized in order to obtain both common carrier and non-common carrier status in a
single license.

   (2) Applications to change, or add to, the carrier status in a license are modifications not
requiring prior Commission authorization filed under  101.61 of this Part.  If  the change results
in the discontinuance, reduction, or impairment of an existing service, the licensee is also gov-

erned by  101.305(b) or (c) and submits the application under  101.61 in conformance with the
time frames and requirements of  101.305(b) or (c).

36.  A new subpart M consisting of  101.1101 through 101.1112 will be added to Part 101 to
read as follows:

Subpart M -- Competitive Bidding Procedures for LMDS

Sec.
101.1101 LMDS service subject to competitive bidding.
101.1102 Competitive bidding design for LMDS.
101.1103 Competitive bidding mechanisms.
101.1104 Bidding application (FCC Forms 175 and 175-S).
101.1105 Submission of payments.
101.1106 Long-form application (FCC Form 600).
101.1107 Bidding credits for small businesses and entities with average gross revenues of not
         more than $75 million. 
101.1108 Installment payments for licenses won by small businesses and entities with average
         gross revenues of not more than $75 million.
101.1109 Certifications, disclosures, records maintenance and audits.
101.1110 Petitions to deny. 
101.1111 Procedures for partitioned licenses.
101.1112 Definitions.

 101.1101  LMDS service subject to competitive bidding.

   Mutually exclusive initial applications for LMDS licenses are subject to competitive bidding
procedures.  The procedures set forth in part 1, subpart Q, of this chapter will apply unless
otherwise provided in this part.

 101.1102  Competitive bidding design for LMDS.

   The Commission will employ a simultaneous multiple round auction design when choosing
from among mutually exclusive initial applications to provide LMDS, unless otherwise specified
by the Wireless Telecommunications Bureau before the auction.

 101.1103  Competitive bidding mechanisms.

   (a)  Sequencing.  The Commission will establish and may vary the sequence in which LMDS
licenses are auctioned.

   (b)  Grouping.  The Commission will determine which licenses will be auctioned simulta-

neously or in combination based on interdependency and administrative circumstances.  

   (c)  Minimum bid increments.  The Commission may, by public announcement before or
during an auction, require minimum bid increments in dollar or percentage terms.

   (d)  Stopping rules.  The Commission may establish stopping rules before or during an auc-

tion in order to terminate the auction within a reasonable time.

   (e)  Activity rules.  The Commission may establish activity rules which require a minimum
amount of bidding activity.  In the event that the Commission establishes an activity rule in
connection with a simultaneous multiple round auction, each bidder may request waivers of such
rule during the auction.  The Commission may, by public announcement either before or during
the auction, specify or vary the number of waivers available to each bidder.
 
   (f)  Bid withdrawal, default and disqualification payments.  The Commission will impose
payments on bidders who withdraw high bids during the course of an auction, who default on
payments due after an auction terminates, or who are disqualified.  Payments will be calculated
as set forth in  1.2104(g) and 1.2109 of this chapter.  When the amount of such a payment
cannot be determined, a deposit of up to 20 percent of the amount bid on the license will be
required.

   (g)  Tie bids.  Where a tie bid occurs, the high bidder will be determined by the order in
which the bids were received by the Commission.

 101.1104  Bidding application (FCC Forms 175 and 175-S).

   Each applicant to participate in competitive bidding for LMDS licenses must submit an
application (FCC Forms 175 and 175-S) pursuant to the provisions of  1.2105 of this chapter.  

 101.1105  Submission of payments.

   (a)  Each applicant to participate in an LMDS auction will be required to submit an upfront
payment in accordance with  1.2106 of this chapter as announced by the Wireless Telecom-

munications Bureau by Public Notice.
  
   (b)  Winning bidders in LMDS auctions, except those businesses meeting the definition of
small business or qualifying as a business with average gross revenues for the preceding three
years of not more than $75 million under  101.1112, must submit a down payment to the Com-

mission in an amount sufficient to bring their total deposits up to 20 percent of their winning bids
within ten business days following the release of a Public Notice announcing the close of the
auction.  Winning bidders, except those qualifying for installment payments,  must pay the full
balance of their winning bids with ten business days following the release of a Public Notice that
the Commission is prepared to award the licenses.

   (c)  Winning bidders in LMDS auctions that meet the definition of small business or
businesses with average gross revenues for the preceding three years of not more than $75
million under  101.1112 must submit a down payment to the Commission in an amount suffi-

cient to bring their total deposits up to 10 percent of their winning bids within ten business days
following the release of a Public Notice announcing the close of the auction, and up to 20 percent
of their winning bids within ten business days of the release of a Public Notice that the
Commission is prepared to award the licenses.  The remaining 80 percent of the purchase price
will then be subject to the installment financing provisions of  101.1108.
 
 101.1106  Long-form application (FCC Form 600).

   Each successful bidder for an LMDS license must submit a long-form application (FCC
Form 600) within ten business days after being notified by Public Notice that it is the winning
bidder.  Applications for LMDS on FCC Form 600 must be submitted in accordance with  
1.2107 of this chapter, all applicable procedures set forth in the rules in this part, and any
applicable Public Notices that the Commission may issue in connection with an auction.  After
an auction, the Commission will not accept long-form applications for LMDS licenses from
anyone other than the auction winners and parties seeking partitioned licenses pursuant to
agreements with auction winners under  101.1111 of this chapter.

 101.1107  Bidding credits for small businesses and entities with average gross revenues of
            not more than $75 million. 

   (a)  A winning bidder that qualifies as a small business pursuant to  101.1112 may use a
bidding credit of 25 percent to lower the cost of its winning bid.

   (b)  A winning bidder that has average gross revenues for the preceding three years of more
than $40 million but not more than $75 million pursuant to  101.1112 may use a bidding credit
of 15 percent to lower the cost of its winning bid.

   (c)  The bidding credits referenced in paragraphs (a) and (b) of this section are not cumula-

tive.

   (d)  Unjust enrichment.

   (1) A licensee that utilizes a bidding credit, and that during the initial license term seeks to
assign or transfer control of a license to an entity that does not meet the eligibility criteria for a
bidding credit, will be required to reimburse the U.S government for the amount of the bidding
credit plus interest at the rate imposed for installment financing at the time the license was
awarded, as a condition of Commission approval of the assignment or transfer.   If, within the
initial term of the license, a licensee that utilizes a bidding credit seeks to assign or transfer con-

trol of a license to an entity that is eligible for a lower bidding credit, the difference between the
bidding credit obtained by the assigning party and the bidding credit for which the acquiring
party would qualify, plus interest at the rate imposed for installment financing at the time the
license was awarded, must be paid to the U.S. government as a condition of Commission
approval of the assignment or transfer.  If, within the initial license term, a licensee that utilizes a
bidding credit seeks to make any ownership change that would result in the licensee losing
eligibility for a bidding credit (or qualifying for a lower bidding credit), the amount of the
bidding credit (or the difference between the bidding credit originally obtained and the bidding
credit for which the restructured licensee would qualify), plus interest at the rate imposed for
installment financing at the time the license was awarded, must be paid to the U.S. government
as a condition of Commission approval of the ownership change.

   (2)  The amount of payments made pursuant to paragraph (d)(1) of this section will be re-

duced over time as follows:  (1) a transfer in the first two years of the license term will result in a
forfeiture of 100 percent of the value of the bidding credit (or, in the case of small businesses
transferring to businesses having average gross revenues of more than $40 million but not more
than $75 million, 100 percent of the difference between the bidding credit received by the former
and the bidding credit for which the latter is eligible); (2) in year three of the license term the
payment will be 75 percent; (3) in year four the payment will be 50 percent; and (4) in year five
the payment will be 25 percent, after which there will be no required payment.

 101.1108  Installment payments for licenses won by small businesses and entities with
            average gross revenues of not more than $75 million. 

   (a)  A winning bidder that qualifies as a small business pursuant to  101.1112 must submit
to the Commission a down payment of 20 percent of the net auction price for the license pursuant
to  101.1105(c) of this chapter and may pay the remaining 80 percent of the net auction price for
the license in installment payments over the term of the license.  Interest shall be imposed based
on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted,
plus 2.5 percent.  Payments shall include interest only for the first two years and payments of
interest and principal amortized over the remaining eight years of the license term.

   (b)  A winning bidder that has average gross revenues for the three preceding years of more
than $40 million but not more than $75 million pursuant to  101.1112 must submit to the
Commission a down payment of 20 percent of the net auction price for the license pursuant to 
101.1105(c) of this chapter and may pay the remaining 80 percent of the net auction price for the
license in installment payments. Interest shall be imposed based on the rate for ten-year U.S.
Treasury obligations applicable on the date the license is granted, plus 2.5 percent. Payment of
interest and principal shall be amortized over the ten years of the license term.  

   (c) Unjust enrichment.  A licensee that utilizes installment financing and that seeks to assign
or transfer control of a license to an entity not meeting the eligibility standards for installment
payments must pay not only unpaid principal but also any unpaid interest accrued through the
date of assignment or transfer as a condition of Commission approval.  If a licensee that utilizes
installment financing seeks to assign or transfer control of a license to an entity qualifying for a
less favorable installment plan, its payment plan will be adjusted to reflect the assignee's or
transferee's eligibility status as a condition of Commission approval of the assignment or
transfer.  If a licensee that utilizes installment financing seeks to change its ownership structure
in such a way that would result in a loss of eligibility for installment payments, it must pay the
unpaid principal and accrued interest as a condition of Commission approval of the change.  If
such a change in ownership would result in the licensee qualifying for a less favorable install-

ment plan, it must adjust its payment plan to reflect its new eligibility status as a condition of
Commission approval.  A licensee may not change its payment plan to a more favorable plan.
  
   (d) Late installment payment.  Any licensee that submits a scheduled installment payment
more than fifteen days late will be charged a late payment fee equal to five percent of the amount
of the past due payment.
  
   (e)  Payments will be applied in the following order: late charges, interest charges, principal
payments.

 101.1109  Certifications, disclosures, records maintenance and audits.

   (a)  Short-form applications: certifications and disclosure.  In addition to certifications and
disclosures required in part 1, subpart Q, of this chapter, each applicant for an LMDS license
which qualifies as a small business or a business with average gross revenues for the three
preceding years of more than $40 million but not more than $75 million shall append the
following information as an exhibit to its FCC Form 175:

   (1)  The identity of the applicant's affiliates and controlling principals; and

   (2)  The applicant's gross revenues, computed in accordance with  101.1112.

   (b)  Long-form applications: certifications and disclosure.  In addition to the requirements
in  1.2107, each applicant submitting a long-form application for an LMDS license and qual-

ifying as a small business or a business with average gross revenues for the three preceding years
of more than $40 million but not more than $75 million shall, in an exhibit to its long-form
application:

   (1)  Disclose separately and in the aggregate the gross revenues, computed in accordance
with  101.1112, for each of the following:  the applicant, the applicant's affiliates, the applicant's
controlling principals, and, if a consortium of small businesses or businesses with average gross
revenues for the three preceding years of more than $40 million but not more than $75 million,
the members of the joint venture;

   (2)  List and summarize all agreements or other instruments (with appropriate references to
specific provisions in the text of such agreements and instruments) that support the applicant's
eligibility as a small business or a business with average gross revenues for the three preceding
years of more than $40 million but not more than $75 million, including the establishment of de
facto and de jure control; such agreements and instruments include, but are not limited to,
articles of incorporation and bylaws, shareholder agreements, voting or other trust agreements,
franchise agreements, and any other relevant agreements including letters of intent, oral or
written; and

   (3)  List and summarize any investor protection agreements, including rights of first refusal,
supermajority clauses, options, veto rights, and rights to hire and fire employees and to appoint
members to boards of directors or management committees.

   (c)  Records maintenance.  All winning bidders qualifying as small businesses or businesses
with average gross revenues for the three preceding years of more than $40 million but not more
than $75 million shall maintain at their principal place of business an updated file of ownership,
revenue, and asset information, including any document necessary to establish eligibility as a
small business or business with average gross revenues for the three preceding years of more
than $40 million but not more than $75 million.  Licensees (and their successors-in-interest) shall
maintain such files for the term of the license.  Applicants that do not obtain the license(s) for
which they applied shall maintain such files until the grant of such license(s) is final, or one year
from the date of the filing of their short-form application (FCC Form 175), whichever is earlier.

   (d)  Audits.

   (1)  Applicants and licensees claiming eligibility as a small business or business with aver-

age gross revenues for the three preceding years of more than $40 million but not more than $75
million shall be subject to audits by the Commission.  Selection for audit may be random, on
information, or on the basis of other factors.

   (2)  Consent to such audits is part of the certification included in the short-form application
(FCC Form 175).  Such consent shall include consent to the audit of the applicant's or licensee's
books, documents and other material (including accounting procedures and practices) regardless
of form or type, sufficient to confirm that such applicant's or licensee's representations are, and
remain, accurate.  Such consent shall include inspection at all reasonable times of the facilities,
or parts thereof, engaged in providing and transacting business, or keeping records regarding
licensed LMDS service, and shall also include consent to the interview of principals, employees,
customers and suppliers of the applicant or licensee.

 101.1110  Petitions to deny.

   Procedures regarding petitions to deny long-form applications in the LMDS service will be
governed by  1.2108(b) through 1.2108(d) of this chapter.  

 101.1111  Procedures for partitioned licenses.

   (a) LMDS licensees may apply to partition their licensed geographic service area or
disaggregate their licensed spectrum.

   (b) If partitioned licenses or disaggregated licenses are being applied for in conjunction with
a license(s) to be awarded through competitive bidding procedures --
 
   (1) The applicable procedures for filing short-form applications and for submitting upfront
payments and down payments contained in this Chapter shall be followed by the applicant,
which must disclose as part of its short-form application all parties to agreement(s) with or
among entities to partition or disaggregate the license pursuant to this section, if won at auction. 
See  1.2105(a)(2)(viii).

   (2) Each entity that is a party to an agreement to partition the license shall file a long-form
application for its respective, mutually agreed-upon geographic area or spectrum together with
the application for the remainder of the BTA or spectrum filed by the auction winner.

   (c) If the partitioned or disaggregated license is being applied for as a partial assignment of
the license following grant of the initial license, request for authorization for partial assignment
of a license shall be made pursuant to  101.115(f).
 
 101.1112  Definitions.

   (a) Scope.  The definitions in this section apply to  101.1101 through 101.1112, unless
otherwise specified in those sections.

   (b) Small business; consortium.

   (1) A small business is an entity that, together with its affiliates and controlling principals,
has average gross revenues for the three preceding years of not more than $40 million.

   (2)  For purposes of determining whether an entity meets the definition of small business or
qualifies as a business with average gross revenues for the three preceding years of more than
$40 million but not more than $75 million, the gross revenues of the applicant, its affiliates and
controlling principals shall be considered on a cumulative basis and aggregated.

   (3)  Consortium.  A consortium of small businesses, or a consortium of businesses with
average gross revenues for the three preceding years of more than $40 million but not more than
$75 million, is a conglomerate organization formed as a joint venture between or among
mutually independent business firms, each of which individually satisfies the definition of a
small business or business with average gross revenues for the three preceding years of more
than $40 million but not more than $75 million.  Each individual member must establish its
eligibility as a small business or business with average gross revenues for the three preceding
years of more than $40 million but not more than $75 million.  Where an applicant (or licensee)
is a consortium of small businesses or a consortium of businesses with average gross revenues
for the three preceding years of more than $40 million but not more than $75 million, the gross
revenues of each business shall not be aggregated.

   (c) Gross Revenues.  Gross revenues shall mean all income received by an entity, whether
earned or passive, before any deductions are made for costs of doing business (e.g., cost of goods
sold), as evidenced by audited financial statements for the relevant number of most recently
completed calendar years, or, if audited financial statements were not prepared on a calendar-
year basis, for the most recently completed fiscal years preceding the filing of the applicant's
short-form application (FCC Form 175).  If an entity was not in existence for all or part of the
relevant period, gross revenues shall be evidenced by the audited financial statements of the
entity's predecessor-in-interest or, if there is no identifiable predecessor-in-interest, unaudited
financial statements certified by the applicant as accurate.  When an applicant does not otherwise
use audited financial statements, its gross revenues may be certified by its chief financial officer
or its equivalent.

   (d) Affiliate.

   (1) Basis for affiliation.  An individual or entity is an affiliate of an applicant if such indi-

vidual or entity:

   (i)  Directly or indirectly controls or has the power to control the applicant, or

   (ii) Is directly or indirectly controlled by the applicant, or

   (iii) Is directly or indirectly controlled by a third party or parties who also control or have the
power to control the applicant, or

   (iv) Has an ``identity of interest'' with the applicant.

   (2) Nature of control in determining affiliation.

   (i) Every business concern is considered to have one or more parties who directly or
indirectly control or have the power to control it.  Control may be affirmative or negative and it
is immaterial whether it is exercised so long as the power to control exists.

   Example for paragraph (d)(2)(i).  An applicant owning 50 percent of the voting stock of
   another concern would have negative power to control such concern since such party
   can block any action of the other stockholders.  Also, the bylaws of a corporation may
   permit a stockholder with less than 50 percent of the voting stock to block any actions
   taken by the other stockholders in the other entity.  Affiliation exists when the applicant
   has the power to control a concern while at the same time another person, or persons,
   are in control of the concern at the will of the party or parties with the power of control.

   (ii) Control can arise through stock ownership; occupancy of director, officer, or key
employee positions; contractual or other business relations; or combinations of these and other
factors.  A key employee is an employee who, because of her position in the concern, has a
critical influence in or substantive control over the operations or management of the concern.

   (iii) Control can arise through management positions if the voting stock is so widely
distributed that no effective control can be established.

   Example for paragraph (d)(2)(iii).  In a corporation where the officers and directors
   own various size blocks of stock totaling 40 percent of the corporation's voting stock,
   but no officer or director has a block sufficient to give him control or the power to
   control and the remaining 60 percent is widely distributed with no individual stock-
   
   holder having a stock interest greater than 10 percent, management has the power to
   control.  If persons with such management control of the other entity are controlling
   principals of the applicant, the other entity will be deemed an affiliate of the applicant.

   (3) Identity of interest between and among persons. 

   Affiliation can arise between or among two or more persons with an identity of interest,
   such as members of the same family or persons with common investments.  In
   determining if the applicant controls or is controlled by a concern, persons with an
   identity of interest will be treated as though they were one person.

   (i) Spousal affiliation.  Both spouses are deemed to own or control or have the power to
control interests owned or controlled by either of them, unless they are subject to a legal
separation recognized by a court of competent jurisdiction in the United States.

   (ii) Kinship affiliation.  Immediate family members will be presumed to own or control or
have the power to control interests owned or controlled by other immediate family members.  In
this context ``immediate family member'' means father, mother, husband, wife, son, daughter,
brother, sister, father- or mother-in-law, son- or daughter-in-law, brother- or sister-in-law,
step-father or -mother, step-brother or -sister, step-son or -daughter, half-brother or -sister.  This
presumption may be rebutted by showing that:

   (A) The family members are estranged,

   (B) The family ties are remote, or

   (C) The family members are not closely involved with each other in business matters.

   Example for paragraph (d)(3)(ii).  A owns a controlling interest in Corporation X.  A's
   sister-in-law, B, has a controlling interest in an LMDS license application.  Because A
   and B have a presumptive kinship affiliation, A's interest in Corporation X is
   attributable to B, and thus to the applicant, unless B rebuts the presumption with the
   necessary showing.

   (4) Affiliation through stock ownership.

   (i) An applicant is presumed to control or have the power to control a concern if she owns or
controls or has the power to control 50 percent or more of its voting stock.

   (ii) An applicant is presumed to control or have the power to control a concern even though
he owns, controls, or has the power to control less than 50 percent of the concern's voting stock,
if the block of stock she owns, controls, or has the power to control is large as compared with
any other outstanding block of stock.

   (iii) If two or more persons each owns, controls or has the power to control less than 50
percent of the voting stock of a concern, such minority holdings are equal or approximately equal
in size, and the aggregate of these minority holdings is large as compared with any other stock
holding, the presumption arises that each one of these persons individually controls or has the
power to control the concern; however, such presumption may be rebutted by a showing that
such control or power to control, in fact, does not exist.

   (5) Affiliation arising under stock options, convertible debentures, and agreements to merge.
 Stock options, convertible debentures, and agreements to merge (including agreements in
principle) are generally considered to have a present effect on the power to control the concern. 
Therefore, in making a size determination, such options, debentures, and agreements will
generally be treated as though the rights held thereunder had been exercised.  However, neither
an affiliate nor an applicant can use such options and debentures to appear to terminate its control
over another concern before it actually does so.

   Example 1 for paragraph (d)(5).  If company B holds an option to purchase a
   controlling interest in company A, who holds a controlling interest in an LMDS
   application, the situation is treated as though company B had exercised its rights and
   had become owner of a controlling interest in company A.  The gross revenues of
   company B must be taken into account in determining the size of the applicant.

   Example 2 for paragraph (d)(5).  If a large company, BigCo, holds 70 percent (70 of
   100 outstanding shares) of the voting stock of company A, who holds a controlling
   interest in an LMDS license application, and gives a third party, SmallCo, an option to
   purchase 50 of the 70 shares owned by BigCo, BigCo will be deemed to be an affiliate
   of company A, and thus the applicant, until SmallCo actually exercises its options to
   purchase such shares.  In order to prevent BigCo from circumventing the intent of the
   rule, which requires such options to be considered on a fully diluted basis, the option is
   not considered to have present effect in this case.

   Example 3 for paragraph (d)(5).  If company A has entered into an agreement to merge
   with company B in the future, the situation is treated as though the merger has taken
   place.

   (6) Affiliation under voting trusts.

   (i) Stock interests held in trust shall be deemed controlled by any person who holds or shares
the power to vote such stock, to any person who has the sole power to sell such stock, and to any
person who has the right to revoke the trust at will or to replace the trustee at will.

   (ii) If a trustee has a familial, personal or extra-trust business relationship to the grantor or
the beneficiary, the stock interests held in trust will be deemed controlled by the grantor or
beneficiary, as appropriate.

   (iii) If the primary purpose of a voting trust, or similar agreement, is to separate voting
power from beneficial ownership of voting stock for the purpose of shifting control of or the
power to control a concern in order that such concern or another concern may meet the
Commission's size standards, such voting trust shall not be considered valid for this purpose
regardless of whether it is or is not recognized within the appropriate jurisdiction.

   (7) Affiliation through common management.  Affiliation generally arises where officers,
directors, or key employees serve as the majority or otherwise as the controlling element of the
board of directors or the management (or both) of another entity.

   (8) Affiliation through common facilities.  Affiliation generally arises where one concern
shares office space, employees, or other facilities (or any combination of the foregoing) with
another concern, particularly where such concerns are in the same or related industry or field of
operations, or where such concerns were formerly affiliated, and through these sharing
arrangements one concern has control, or potential control, of the other concern.

   (9) Affiliation through contractual relationships.  Affiliation generally arises where one con-

cern is dependent upon another concern for contracts and business to such a degree that one
concern has control, or potential control, of the other concern.

   (10) Affiliation under joint venture arrangements.

   (i) A joint venture for size determination purposes is an association of concerns or
individuals (or both), with interests in any degree or proportion, formed by contract, express or
implied, to engage in and carry out a single, specific business venture for joint profit for which
purpose they combine their efforts, property, money, skill and knowledge, but not on a continu-

ing or permanent basis for conducting business generally.  The determination whether an entity is
a joint venture is based upon the facts of the business operation, regardless of how the business
operation may be designated by the parties involved.  An agreement to share profits/losses
proportionate to each party's contribution to the business operation is a significant factor in
determining whether the business operation is a joint venture.

   (ii) The parties to a joint venture are considered to be affiliated with each other.                            APPENDIX B

            List of Existing Governmental and Private
                    Business 31 GHz Licensees


   The Commission has decided to auction two licenses in each BTA simultaneously, one
license for 1,150 MHz, consisting of 1,000 megahertz located in the 28 GHz band and 150
megahertz located in the center of the 300 megahertz segment of the 31 GHz band (31,075-
31,225 MHz), and a smaller license for 150 megahertz, located entirely in the 31 GHz band. 
This second 150 megahertz license consists of two 75 megahertz segments located at each end of
the 300 megahertz block (31,000-31,075 MHz and 31,225-31,300 MHz).  LMDS service provid-

ers will be entitled to interference protection from any other presently-authorized primary users
in the entire band.  Although LMDS operations are permitted in the 31,000-31,075 and 31,225-
31,300 MHz bands, incumbent governmental licensees and private business users, and excluding
LTTS licensees, operating in these two segments are entitled to protection against harmful
interference from any LMDS operation in these blocks.  Therefore, bidders should be aware that
some BTA's have incumbent operations in the smaller 150 megahertz block that must be pro-

tected from harmful interference under the Commission's Rules.  

   Listed below are BTAs with incumbent licensees and the cities in which operations are
authorized.  Prospective bidders should not rely solely on this list, but should carefully review
the Commission's databases and records before formulating bidding strategies.  Records relating
to these stations are available for public inspection during regular business hours in the FCC
Reference Room at the Federal Communications Commission, 1270 Fairfield Road, Gettysburg,
Pennsylvania.



                              Market
No. 
                        Basic Trading Area
                          Authorizations
                      Cities with Authorized
                            Operations
                       Licensees/Call Signs









B262
Los Angeles, CA

La Habra, CA
City of La Habra/WNTV232





Montclair, CA
City of Montclair/WNTR498, etc.





Palm Springs, CA
City of Palm Springs/WNTV245, etc.





San Bernardino, CA
City of San Bernardino/WNTS881
County of San Bernardino/WNTU750





Upland, CA
City of Upland/WNTT952









B245
Las Vegas, NV

Laughlin, NV
Budget Rental Car of Northern Arizo-

na/WNTZ735





Bullhead City, AZ
Budget Rental Car of Northern Arizo-

na/WNTZ734









B402
San Diego, CA

San Diego, CA
City of San Diego/WPJF232
















B404
San Francisco, CA

Cupertino, CA
City of Cupertino/WNTR886, etc.





Daly City, CA
City of Daly City/WNTW384





Menlo Park, CA
Venture Law Group/WPJF201, etc.





Petaluma, CA
City of Petaluma/WNTT654, etc.





Santa Clara, CA
City of Santa Clara/WNTR417





San Francisco, CA
Academy of Art College/WPJB264, etc.









B389
Sacramento, CA

Sacramento, CA
State of California/WNTY579









B434
Stockton, CA

Tracy, CA
City of Tracy/WNTW798









B074
Charlotte, NC

Charlotte, NC
City of Charlotte/WNTW392









B051
Boston, MA

Framingham, MA
Preseptive Bio Systems, Inc./WPJC807, etc.





Natick, MA
Natural Microsystems, Inc./WPJC925, etc









B024
Atlanta, GA

Marietta, GA
County of Cobb/WPJE982









B297
Milwaukee, WI

Milwaukee, WI
Dept. of Transportation State of
WI/WPJD491, etc.









B413
Seattle-Tacoma, WA

Burlington, WA
State of Washington/WNTR826





Seattle, WA
State of Washington/WNTS695, etc.









B347
Phoenix, AZ

Mesa, AZ
Lutheran Healthcare Network/WNTX926









B421
Sioux City, IA

Sioux City, IA
Nutra Flo ITI/WNTV448, etc.









B445
Topeka, KS

Topeka, KS
City of Topeka/WNTW208









B202
Idaho Falls, ID

Idaho Falls, ID
City of Idaho Falls/WNTW717



















Gulf of Mexico
Chevron USA, Inc./WNTX932





                            APPENDIX C

             Initial Regulatory Flexibility Analysis

     As required by the Regulatory Flexibility Act, the Commission has prepared an Initial
Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the policies
and rules proposed in the Fifth Notice of Proposed Rulemaking (Fifth NPRM).  Written public
comments are requested on the IRFA.  Comments must be identified as responses to the IRFA
and must be filed by the deadlines for comments on the Notice. The Secretary shall send a copy
of the Fifth NPRM, including the IRFA, to the Chief Counsel for Advocacy of the Small
Business Administration in accordance with the RFA.

     Need for and Objectives:  Our objectives are to afford licensees the flexibility to
disaggregate and partition their licenses so as to: (1) promote efficient use of LMDS spectrum by
leaving determinations regarding the correct size of licenses to the licensees, who are in the best
position to analyze their business plans, assess new technology, and determine customer demand, 
(2) encourage more rapid deployment of services in the LMDS spectrum, (3) enable licensees to
concentrate on core areas or to deliver services to isolated complexes, such as rural towns or
university campuses, that do not lie within major market areas, and (4) provide opportunities for
small businesses seeking to enter the multichannel video programming distribution and local
telephony marketplaces. 

     Legal Basis for Proposed Rules:  The proposed action is authorized under the Ad-

ministrative Procedure Act, 5 U.S.C.  553; and  4(i), 257, 303(g), 303(r) 309(j) and 332(a) of
the Communications Act of 1934, 47 U.S.C.  154(i), 257, 303(g),  303(r), 309(j), 332(a).

     Description and Estimate of Small Entities Subject to the Rules:  We incorporate by
reference the detailed description and estimate of the number of potential small LMDS 
licensees identified in the accompanying FRFA for the Second Report and Order, Appendix D,
infra. 

     Reporting, Recordkeeping, and Other Compliance Requirements:  Under 
the proposal contained in the Fifth NPRM: (1) acquisitions by partitioning or disaggregation will
be treated as assignments of a license and will require the parties to seek prior approval of the
Commission ; (2) the parties will be required to identify which of them will be responsible for
complying with the construction requirements set forth in the Second Report and Order we have
adopted today, and to submit a certification to that effect, signed by both parties; (3) parties fail-

ing to meet their construction requirement obligations will be subject to forfeiture of their
license; (4) licensees afforded bidding preferences and other benefits available to small entities
will be subject to the Commission's unjust enrichment rules should they partition or disaggregate
to entities that are not small businesses.  If adopted, this proposal would apply to all LMDS
licensees and all entities that attempt to acquire an LMDS license by means of partitioning or
disaggregation.  We request comment on how these requirements can be modified to reduce the
burden on small entities and still meet the objectives of the proceeding.

     Significant Alternatives Minimizing the Significant Economic Impact on a Sub-

stantial Number of Small Entities Consistent with the Stated Objectives:  We have not
identified any significant alternatives that would minimize the significant economic impact on
small entities that are consistent with the stated objectives to allow a flexible approach to
partitioning and disaggregation of LMDS.  We tentatively conclude that a flexible approach
affords providers, including small businesses, the ability to respond to market forces and de-

mands for service relevant to their particular locations and service offerings.

     The regulatory burdens we have imposed on LMDS licensees with respect to assignments
and buildout certifications, as well as unjust enrichment, are necessary in order to ensure that the
public receives the benefits of innovative new services in a prompt and efficient manner.  We
seek comment on any significant alternatives that are consistent with the objectives in the
NPRM.

     Federal Rules That Overlap, Duplicate, or Conflict with These Proposed 
Rules:  None.                            APPENDIX D

              Final Regulatory Flexibility Analysis



                        Table of Contents

                                                             Page

I.  Need for and Objectives of Action  . . . . . . . . . . . . D2
II. Summary of Issues Raised by Public Comments in Response to
    Initial Regulatory Flexibility Analysis  . . . . . . . . . D3

   A. IRFA Issues  . . . . . . . . . . . . . . . . . . . . . . D3
   B. Other Service Issues . . . . . . . . . . . . . . . . . . D4
   C. Competitive Bidding Issues . . . . . . . . . . . . . . . D7

III. Description and Estimate of Small Entities Subject to Rules D8

   A. Estimates of Potential Applicants of LMDS  . . . . . . . D8
   B. Estimates of LECs and Cable Companies Ineligible Under the
       Temporary, In-Region Eligibility Restriction  . . . . .D10

      1. Local Exchange Carriers . . . . . . . . . . . . . . .D10
      2. Cable Services or Systems . . . . . . . . . . . . . .D11

   C. Estimates of Incumbent Services in 31 GHz Band . . . . .D13

IV. Summary of Projected Reporting, Recordkeeping, and Other
    Compliance Requirements  . . . . . . . . . . . . . . . . .D14
V. Significant Alternatives to Proposed Rules Which Minimize Significant
    Economic Impact on Small Entities and Accomplish Stated Objectives D16

   A. Alternatives To Minimize Impact of Redesignation of 31 GHz for LMDS D16
   B. Alternatives To Minimize Impact of LMDS Service Rules  .D19
   C. Alternatives To Minimize Impact of LMDS Auction Rules  .D21

VI. Report to Congress . . . . . . . . . . . . . . . . . . . .D22     As required by the Regulatory Flexibility Act, 5 U.S.C.  603 (RFA), an Initial Regu-

latory Flexibility Analysis (IRFA) was incorporated in the First NPRM, the Third NPRM, and
the Fourth NPRM in this proceeding.  The Commission sought written public comments on the
proposals in each of the Notices, including on the IRFA.  The Commission's Final Regulatory
Flexibility Analysis (FRFA) in this Second Report and Order (hereinafter in this Appendix
referred to as the ``Order'') conforms to the RFA, as amended by the Contract with America
Advancement Act of 1996 (CWAAA), Pub. L. No. 104-121, 110 Stat. 847 (1996). 

               I. Need for and Objectives of Action    

     We adopt licensing and service rules to establish a flexible regulatory framework for the
implementation of Local Multipoint Distribution Service (LMDS), a new broadband wireless
communications service.  We designate spectrum in the 31.0-31.3 GHz (31 GHz) band for
LMDS, in addition to the 28 GHz designated in the First Report and Order, to ensure adequate
spectrum needed for the broad array of video programming and one-way or two-way
telecommunications and data services that may be offered by LMDS providers and to promote
competition with incumbent cable and local exchange telephone service (LEC) providers.  

     We provide for licenses based on broad geographic areas known as BTAs and issued in
two sizes for each area, 1,150 megahertz and 150 megahertz.  The larger size service areas may
offer economies of scale, while the smaller service areas may encourage new entrants and
technological experiments to meet local or special needs.  We limit the eligibility of incumbent
LECs and cable companies from being issued the larger license in their areas of operation for
three years, in order to promote the development of LMDS and ensure a meaningful increase in
competition in the local telephone and cable markets.

     The adoption of competitive bidding rules promotes the expedited delivery of this
technology to the public and permits recovery for the public of a portion of the value of the
public spectrum resource made available for commercial use.  Additional objectives in adopting
these rules are to assure that the spectrum is used efficiently, to provide entities of any size a
meaningful opportunity to bid on this spectrum despite limited capital resources, and to avoid
unjust enrichment through the methods used to award uses of this resource.

     We deny petitions for reconsideration of our dismissal in the First NPRM of applications
for waiver which sought to allow petitioners to provide LMDS in the 28 GHz band under the
existing point-to-point rules.  We defer consideration of the comments filed in response to our
tentative decision in the Third NPRM to grant CellularVision a Pioneer Preference, until the re-

cord is supplemented upon conclusion of a peer review process that we require in the Order.  

         II. Summary of Issues Raised by Public Comments
      In Response to Initial Regulatory Flexibility Analysis

A. IRFA Issues

     We received one comment in direct response to the IRFA in the Fourth NPRM based on
our request for comment on our proposal to designate, on a primary protected basis, the 31.0-
31.3 GHz  (31 GHz) band to LMDS.  SBA opposes our proposed designation because it
contends that the Fourth NPRM fails to consider the impact on existing users of the spectrum,
which it argues are largely small governmental entities and small businesses.  SBA contends
that, in Section IV of the IRFA, the description and estimate of the number of small entities to
which the proposed rule will apply misconstrues and underestimates the small entities that are
incumbent licensees.  It asserts that rather than 25 or 26 licensees, as we estimated, the
comments of Sunnyvale indicate there are more than 40 incumbent local governments holding
licenses.  SBA contends that Sierra asserts there are as many as 100 incumbent licensees and
there are over a dozen marketers or resellers of its equipment that are small businesses. We
consider in the Order the comments of SBA and other commenters on the number of licensees
in the 31 GHz service, as discussed fully in paragraphs 44-51 of the Order, and later in this
FRFA.

     SBA further argues that, in Section VI of the IRFA, we failed to consider significant
alternatives to redesignating the entire 31 GHz band to LMDS that might minimize the impact
on the incumbent licensees that are small entities.  It argues that the only alternative to the
proposed 31 GHz designation that we considered in the IRFA involved alternative spectrum
bands for LMDS to use, rather than any alternatives for the incumbent licensees.

     We consider in the Order the comments of SBA and other commenters on numerous
alternatives to accommodate existing licensees in the 31 GHz services, as discussed fully in
paragraphs 69-103 of the Order, and later in this FRFA.  The IRFA itself did not identify any
alternatives to our proposed designation of 31 GHz for LMDS in order to reduce the impact on
incumbent licensees.  However,  the text of the Fourth NPRM, in paragraphs 100-104,
specifically identified several alternative methods by which incumbent operations could be
accommodated if LMDS were authorized on a primary protected basis in the 31 GHz band.  We
requested comments on those alternatives and any other options we should consider that would
not impose undue economic burdens on the new LMDS operations.  We modify our proposal
and adopt a band-sharing plan that provides non-LTTS incumbent licensees with protection
from LMDS on a portion of the 31 GHz band, while designating the entire band for LMDS.

B. Other Service Issues

     We also consider significant issues raised in comments to our proposals in the First
NPRM, Third NPRM, and Fourth NPRM that may have a significant economic impact on a
substantial number of small entities.  In response to the Fourth NPRM, several comments were
filed in response to our proposal to designate, on a primary protected basis, the 31 GHz band for
LMDS and our request for comments on various alternatives for accommodating the incumbent
31 GHz licensees.  Several comments were received from proponents of LMDS, including
CellularVision, in favor of designating 31 GHz for LMDS, while several comments were
received from proponents of the existing 31 GHz services that oppose changes to the services
and their being relegated to secondary status to LMDS.

     We received several comments in response to the accommodation proposals.  All of the
comments opposing our proposal, including IMSA and ITE on behalf of their members, argue
that permitting LMDS to operate in the entire 300 megahertz on a primary basis essentially
would eliminate their operations and that co-existence under these circumstances would not be
possible.  Palm Springs argues that it would be forced to disband its 31 GHz traffic
communication system, creating undue hardship.  On the other hand, CellularVision and
Endgate assert that, as LMDS licensees, they would offer leasing options to incumbents, if
available.  Several comments argue against our suggestion that current 31 GHz services could
move to another frequency band where protection for such operations is provided under our
rules, such as 23 GHz.  Sierra, as the primary manufacturer of the 31 GHz equipment, asserts
that the cost of modifying equipment for other bands would be more than replacement costs and
also would require the development of new equipment.  Topeka argues that moving to the 21
GHz band would cause financial hardship that would require allocating funds through local tax
dollars and it seeks to avoid the costs of converting or replacing equipment that may be required
by a move.

     In response to our request for cooperation among the LMDS providers and existing
licensees to explore methods for allowing the services to coexist, CellularVision and Sierra
submit two different band-sharing plans.  In CellularVision's plan for 25 megahertz at each end
of band for incumbent services, Sierra argues that the equipment for 31 GHz would not function
in the narrow bandwidth and important traffic signal services could not be provided.  It argues
that the 75 megahertz at each end that it proposes in its plan would not require expensive
modifications and would accommodate existing services.  Sierra argues that its plan is
supported by current 31 GHz licensees.  SBA and USDOT, as Federal Government entities,
support the Sierra plan and argue that incumbent services should be maintained to assist in
meeting national goals of reducing traffic congestion and air pollution.           

     The governmental entities, manufacturers, and organizations in support of incumbent
services argue that we should accept new applications, modifications, and renewal applications
in the band for traffic control systems.  For example, Palm Springs asserts that it plans to build
out its 31 GHz microwave system from the current 35 signals to a total of 70 signals over the
next three years.  It requests that we maintain their ability to use the band for their systems. 
Topeka argues that, if we adopt our proposal, we at least grandfather existing licensees in the
LMDS rules to permit renewals and modifications and to ensure their protection from LMDS
interference.   

     Of the remaining issues, some commenters oppose our proposal in the Fourth NPRMthat both the 28 GHz band and the 31 GHz band be assigned as a single block in an LMDS
license.   For example, the Ad Hoc RTC and others request that the 31 GHz block be licensed
as a separate unit in each LMDS service area.  Emc3 argues that as little as 150 megahertz of
spectrum could be used to provide a viable service using digital technology.   WCA argues for
three licenses per geographic area, the smallest being 150 megahertz.  These commenters argue
that additional licenses of smaller bandwidth would provide for smaller operators, encourage the
development of niche markets, and promote economical services similar to those in narrower
bandwidth licenses, particularly in rural areas.
 
     Some commenters, including M3ITC, oppose our proposal in the Third NPRM to license
LMDS on broad geographic areas based on the Rand McNally Commercial and Marketing
Guide Basic Trading Areas (BTAs).  They argue that use of the smaller designations of
Metropolitan Statistical Areas (MSAs) and Rural Service Areas (RSAs) would provide more
manageable territories within which to initiate service and be more affordable for entrepreneurs. 

     CellularVision and other commenters support our proposal to permit the disaggregation
of spectrum by LMDS licensees and to permit the geographic partitioning of any part of an
LMDS license.  

     Many comments support our request for comments in the Fourth NPRM on whether to
temporarily restrict eligibility of incumbent LECs and cable companies that seek to obtain
LMDS licenses in their geographic service areas.  CVTT and SkyOptics argue that LECs and
cable companies should be permanently ineligible in order to ensure that smaller companies
enter the new market.  Other comments, including WebCel, advocate restrictions limited to
those areas in which LECs and cable companies currently operate.  Other parties, including
CellularVision, argue that we should impose restrictions on the largest LECs and cable
companies or allow incumbents to hold only one LMDS license.  Some parties oppose our
proposal to define in-region incumbent LECs or cable companies based on a 20 percent
population threshold and to define an attributable interest to be an ownership interest of 10
percent.  Some parties, including RioVision and other small entities, agree that the restrictions
could end when competition is sufficient, either after a five-year period or under a test
established by the Commission. 

     Virtually all the comments support our proposal in the First NPRM to designate a new
LMDS service from the existing point-to-point microwave common carrier service to a local
multipoint distribution service that allows non-common carrier service as well as common
carrier service.  CellularVision, M3ITC, and other small entities seek a broad service definition
that allows the LMDS provider to choose any common or non-common carrier service within
the technical rules.  CellularVision and other commenters oppose our proposal to apply a
presumption that a service is common carriage.  They argue that the licensing framework should
be sufficiently open and flexible to allow the business judgments of licensees to shape the
nature of the services to be offered. 

     Some comments, including M3ITC, oppose our proposal in the Third NPRM to impose
construction requirements on licensees and require service to be available to a minimum of one-
third of the population of their geographic areas within five years from the date of license grant,
and to two-thirds of the population within ten years from the date of the grant of the license. 
M3ITC alternatively argues that a time limit such as eight years would be sufficient to claim a
service area, after which unserved areas should be opened for licensing.  ComTech, on the other
hand, supports the requirements and requests that we impose a faster requirement for companies
that acquire a license adjacent to their existing service area to ensure against anti-competitive
behavior.  

     With respect to the technical rules proposed in the Third NPRM, CellularVision,
Endgate, and other commenters oppose an alternative proposal to establish a power flux density
(PFD) rather than require applicants to coordinate frequencies among themselves at their service
area boundaries.  They argue that LMDS development is in its infancy and it would be difficult
to determine a PFD standard to be protective of all LMDS system designs.  CellularVision
opposes requiring LMDS operators to use active power control and interlock techniques in their
systems, which it contends are unnecessary, expensive, and will complicate designs.  Next,
Endgate opposes our proposal to restrict the use of various signal polarizations and require
orthogonally-polarized signals as unnecessary.  Further, Endgate opposes our proposal to restrict
the maximum equivalent isotropically radiated power (EIRP) at which LMDS systems operate
in the 28 GHz band to a -52 dBW/Hz.  It opposes any limit less than -18 dBW/Hz and contends
that the proposed limit will not provide coverage to justify an LMDS systems economically. 
CellularVision offers a compromise maximum limit of -35 dBW/Hz, which it argues is
sufficient to meet the needs of LMDS subscribers and is conducive to frequency coordination. 
CellularVision and ComTech also argue that our proposal to adopt a frequency tolerance
standard for subscriber transceiver equipment would be too costly.  

C. Competitive Bidding Issues

     With respect to competitive bidding (para. 303 of the Order), most commenters sup-

ported the Commission's proposal to auction LMDS spectrum.  M3ITC, however, disagreed and
proposed the use of lotteries, expressing a concern that small businesses may lack the financial
ability to participate in the auction, particularly in the major markets.  It suggested the
imposition of a royalty or other fee on lottery winners to generate revenue in lieu of auctions.

     The Commission's proposal to require participants in LMDS auctions to tender to the
Commission a substantial upfront payment was generally supported (paras. 328-330 of the
Order), but CellularVision and ComTech objected to establishing an upfront payment of $0.02
per MHz-pop for the largest combination of MHz-pops a bidder anticipates being active on in
any single round of bidding, as this would yield an upfront payment of approximately $20
million for a BTA with one million pops and an upfront payment of approximately $5 billion
for the whole Nation.

     The Commission proposed adoption of the transfer disclosure requirements contained in
47 CFR  1.2111(a) for all LMDS licenses obtained through the competitive bidding process. 
CellularVision agreed with the Commission's proposal not to limit transfers and assignments of
LMDS licenses.

     The Commission sought comment on the best way to promote opportunities for busi-

nesses owned by minorities and women in light of the Supreme Court's decision in Adarand
Constructors v. Pea, which held that federal race-based programs are subject to strict scrutiny. 
Commenters were also asked to document discrimination against such businesses.  RioVision
argued that the Commission should develop special provisions to provide designated entities
with realistic opportunities to participate in the auction process, but RioVision and other
commenters failed to supply evidence of discrimination against such businesses (paras. 340-342
of the Order).

     The Commission's proposal to establish a small business definition for LMDS and adopt
installment payments for small businesses bidding for LMDS licenses met with general
approval from commenters. However, CellularVision recommended that the Commission
establish a higher limit on average annual gross revenues in its definition of small business,
arguing that the proposed limit of $40 million in average annual gross revenues was too low to
help small businesses.  The Commission's request for comment on the related issue of reduced
upfront payments for small businesses yielded comments from CellularVision and Emc3 in
favor of reduced upfront payments for these entities (paras. 344-346 of the Order).

     The Commission's proposal to make the unjust enrichment provisions adopted in the
Competitive Bidding Second Report and Order applicable to installment payments by small
business applicants (paras. 344-345 of the Order) received general support, although
CellularVision argued against restrictions after the seventh year of the license term.  ComTech
urged the Commission to adopt transfer rules which would relieve the transferor of any
regulatory or other burdens associated with the newly created license.  The Commission's
proposal to make available a bidding credit of 25 percent for small businesses and the corre-

sponding imposition of a payment requirement on transfers of such licenses to entities that are
not small businesses was supported by commenters M3ITC, Emc3, and CellularVision, the latter
encouraging the Commission to consider other regulatory measures, including a small business
bidding credit higher than 25 percent. (para. 355 of the Order). 
     
                 III. Description and Estimate of
                 Small Entities Subject to Rules

     The service regulations we adopt to implement LMDS would apply to all entities
seeking an LMDS license, including small entities.  In addition, the in-region, temporary
eligibility restrictions we adopt would apply to qualifying LECs and cable companies.  Finally,
the rules we adopt to designate additional spectrum for LMDS in the 31.0-31.3 GHz band
would apply to all entities providing incumbent services under existing rules for 31 GHz
services. We consider these three groups of affected entities separately below.

A.  Estimates of Potential Applicants of LMDS

     SBA has developed definitions applicable to radiotelephone companies and to pay
television services.  We are using these definitions that SBA has developed because these
categories approximate most closely the services that may be provided by LMDS licensees. 
The definition of radiotelephone companies provides that a small entity is a radiotelephone
company employing fewer than 1,500 persons.  The definition of a pay television service is one
which has annual receipts of  $11 million or less.   

     The size data provided by SBA do not enable us to make an accurate estimate of the
number of telecommunications providers which are small entities because it combines all
radiotelephone companies with 500 or more employees.  We therefore use the 1992 Census of
Transportation, Communications, and Utilities, conducted by the Bureau of the Census, which is
the most recent information available.  This document shows that only 12 radiotelephone firms
out of a total of 1,178 such firms which operated during 1992 had 1,000 or more employees.  
Likewise, the size data provided by SBA do not enable us to make a meaningful estimate of the
number of cable and pay television providers which are small entities because it combines all
such providers with revenues of  $11 million or less.  We therefore use the 1992 Census of
Transportation, Communications, and Utilities (Table 2D), conducted by the Bureau of the
Census, which is the most recent information available. This document shows that only 36 of
1,788 firms providing cable and pay television service have a revenue of greater than $10
million.  Therefore, the majority of LMDS entities to provide video distribution and
telecommunications services may be small businesses under SBA's definition. 

     The Commission has not developed a definition of small entities applicable to LMDS
licensees, which is a new service being licensed in the Order.  The RFA amendments were not
in effect until shortly before the Fourth NPRM was released, and no data has been received
establishing the number of small businesses associated with LMDS.  However, in the Third
NPRM we proposed to auction the spectrum for assignment and requested information regarding
the potential number of small businesses interested in obtaining LMDS spectrum, in order to
determine their eligibility for special provisions such as bidding credits and installment pay-

ments to facilitate participation of small entities in the auction process.  In the Order we adopt
criteria for defining small businesses for purposes of determining such eligibility.  We will use
this definition for estimating the potential number of entities applying for auctionable spectrum
that are small businesses. 

     As discussed in Section II.D.2.e. of the Order, we adopt criteria for defining small
businesses and other eligible entities for purposes of defining eligibility for bidding credits and
installment payments.  We define a small business as an entity that, together with affiliates and
controlling principals, has average gross revenues not exceeding $40 million for the three
preceding years (paras. 345 and 348 of the Order). Additionally, bidding credits and installment
payments are available to applicants that, together with affiliates and controlling principals,
have average gross revenues for the three preceding years of more than $40 million but not
more than $75 million (paras. 349  and 358 of the Order).

     SBREFA was not in effect until the record in the Third NPRM closed, and we did not
seek comment on the potential number of prospective applicants for LMDS that might qualify
as small businesses. Therefore, we are unable to predict accurately the number of applicants for
LMDS that would fit the definition of a small business for competitive bidding purposes. 
However, using the definition of small business we adopted for auction eligibility, we can
estimate the number of applicants that are small businesses by examining the number of
applicants in similar services that qualified as small businesses.  For example, MDS authorizes
non-common carrier services similar to what may be developed through LMDS.  The MDS
rules provide a similar definition of a small business as an entity that, together with its affiliates,
has annual gross revenues for the three preceding years not in excess of $40 million.  A total of
154 applications were received in the MDS auction, of which 141, or 92 percent, qualified as
small businesses.  

     We plan to issue 2 licenses for each of the 492 BTAs, excluding New York, that are the
geographic basis for licensing LMDS.  Thus, 984 licenses will be made available for
authorization in the LMDS auction.  Inasmuch as 92 percent of the applications were received
in the MDS auction were from entities qualifying as small businesses, we anticipate receiving at
least the same from LMDS applicants interested in providing non-common carrier services.  

      There is only one company, CellularVision, that is currently providing LMDS video
services.  Although the Commission does not collect data on annual receipts, we assume that
CellularVision is a small business under both the SBA definition and our proposed auction
rules.   

B. Estimates of LECs and Cable Companies Ineligible
  Under the Temporary, In-Region Eligibility Restriction

  1. Local Exchange Carriers

     Neither the Commission nor the SBA has developed a definition for small providers of
local exchange services (LECs).  The closest applicable definition under the SBA rules is for
telephone communications companies other than radiotelephone (wireless) companies.  The
most reliable source of information regarding the number of LECs nationwide of which we are
aware appears to be the data that we collect annually in connection with the TRS Worksheet. 
According to our most recent data, 1,347 companies reported that they were engaged in the
provision of local exchange services.  Although it seems certain that some of these carriers are
not independently owned and operated, or have more than 1,500 employees, we are unable at
this time to estimate with greater precision the number of LECs that would qualify as small
business concerns under SBA's definition.  Consequently, we estimate that there are fewer than
1,347 small incumbent LECs.  

     Because the small incumbent LECs subject to these rules are either dominant in their
field of operations or are not independently owned and operated, consistent with our prior prac-

tice, they are excluded from the definition of ``small entity'' and ``small business concerns.'' 
Accordingly, our use of the terms ``small entities'' and ``small businesses'' does not encompass
small incumbent LECs.  Out of an abundance of caution, however, for regulatory flexibility
analysis purposes, we will consider small incumbent LECs within this analysis and use the term
``small incumbent LECs'' to refer to any incumbent LECs that arguably might be defined by
SBA as ``small business concerns.''

  2. Cable Services or Systems

     The SBA has developed a definition of small entities for cable and other pay television
services, which includes all such companies generating $11 million or less in revenue annu-

ally.  This definition includes cable systems operators, closed circuit television services, direct
broadcast satellite services, multipoint distribution systems, satellite master antenna systems and
subscription television services.  According to the Census Bureau, there were 1,788 total cable
and other pay television services and 1,423 have $11 million or less in revenue.

     The Commission has developed its own definition of a small cable system operator for
the purposes of rate regulation.  Under the Commission's Rules, a ``small cable company,'' is
one serving fewer than 400,000 subscribers nationwide.  Based on our most recent infor-

mation, we estimate that there were 1,439 cable operators that qualified as small cable system
operators at the end of 1995.  Since then, some of those companies may have grown to serve
over 400,000 subscribers, and others may have been involved in transactions that caused them
to be combined with other cable operators.  Consequently, we estimate that there are fewer than
1,439 small entity cable system operators.  

     The Communications Act also contains a definition of a small cable system operator,
which is ``a cable operator that, directly or through an affiliate, serves in the aggregate fewer
than 1 percent of all subscribers in the United States and is not affiliated with any entity or
entities whose gross annual revenues in the aggregate exceed $250,000,000.''  The Commis-

sion has determined that there are 61,700,000 subscribers in the United States.  Therefore, we
found that an operator serving fewer than 617,000 subscribers shall be deemed a small operator,
if its annual revenues, when combined with the total annual revenues of all of its affiliates, do
not exceed $250 million in the aggregate.  Based on available data, we find that the number of
cable operators serving 617,000 subscribers or less totals 1,450.  We do not request nor do we
collect information concerning whether cable system operators are affiliated with entities whose
gross annual revenues exceed $250,000,000, and thus are unable at this time to estimate with
greater precision the number of cable system operators that would qualify as small cable
operators under the definition in the Communications Act.

     We find that the definition of small entities developed by SBA includes categories of
services that are not included in LMDS, such as satellite master antenna systems.  Thus, the
estimated figure that 1,423 cable systems are small businesses that would be affected by our
rule would be an overstatement.  There is no other definition for us to use, since none has been
developed for cable systems limited to LMDS-type services.  Moreover, there is no harm in
relying on the SBA number, which overestimates rather than underestimates potential cable
systems that might be affected. 

C. Estimates of Incumbent Services in 31 GHz Band

      We proposed in the Fourth NPRM to designate the 31 GHz band for LMDS, on a
primary protected basis, and requested comment on how to accommodate incumbent licensees,
which are not protected from harmful interference under their licenses.  In the IRFA, we
estimated the number of small entities to which the proposed rule would apply based on the
number of incumbent licensees in the 31 GHz band that are governmental entities.  We stated
there are 27 incumbent licensees and that a total of 25 or 26 are small entities.  Our adjustment
was based on the requirement that we estimate the number of governmental entities with
populations of less than 50,000 that would be affected by our new rules.  We then applied the
Census Bureau ratio that 96 percent of all counties, cities, and towns in the Nation have
populations of fewer than 50,000.  We requested comment in the IRFA on the number of
small entities significantly impacted by our proposed designation of 31 GHz for LMDS.

     We address SBA's comments in paras. 44-46 of the Order, where we agree that we did
not reflect the correct number of total licensees in the 31 GHz band.  We consider the lists of
licensees and users submitted by Sunnyvale and Sierra, which we find include duplicates and
several users that are not licensed.  Based on a review of our database, we found there are a
total of 86 licensees for 31 GHz services under the current rules.  We found that licensees fall
into three categories of services, as follows: (1) governmental entities using the band primarily
for traffic control systems; (2) cellular and other communications companies providing LTTS;
and (3) private business users.  

     Of the total licensees, 59 licensees are LTTS licensees, 8 are private business users, and
19 are governmental entities.  Of the 19 governmental entities, 14 are municipalities and the
remainder are counties or states.  The cities appear small in size, except for the Cities of
Charlotte, San Diego, and Topeka.  Thus, the correct number of  small governmental entities
that are licensees in the 31 GHz services should be 11 or less, rather than the 26 or 27 we stated
in the IRFA.  As for the entire number of licensees that qualify as small entities, we cannot
determine from the remaining 59 LTTS licensees or 8 private business licensees which are
small.  Many of the LTTS licensees are not small, such as MCI or Bell Atlantic New Jersey,
Inc.  Nevertheless, to ensure that no small interests are overlooked, we will assume that most of
these are small licensees and, together with the 11 small governmental entities, will consider at
least 50 of all 86 licensees to be small entities.

      IV. Summary of Projected Reporting, Recordkeeping, and
                   Other Compliance Requirements

     The Order adopts a number of rules that will entail reporting, recordkeeping, and third
party consultation.  We find that these requirements are the minimum needed to ensure the
integrity and efficiency of LMDS licensing and serve the public interest, as reflected in this
record.

     In designating the 31 GHz band for LMDS, we adopt in the Order a band-sharing plan
that designates the two outer 75 megahertz segments for non-LTTS incumbent licensees to be
protected from harmful interference from LMDS.  We adopt technical rules that require LMDS
licensees to coordinate frequencies with incumbent licensees.  We adopt a procedure to allow
non-LTTS incumbent licensees in the middle 150 megahertz segment that is not protected to
relocate to the outer segments within 15 days after the effective date of the Order and to file an
application to modify their licenses to reflect the new frequencies (paras. 91-92 of the Order). 
Relocation and protection are accorded to all incumbents except LTTS, which are temporary
services that operate on a secondary basis and in any band, so that the protections would not
benefit them.  Many of the non-LTTS incumbent licensees are small entities. We find that the
relocation and coordination process we have established does not impose undue cost burdens
and we believe it is administratively manageable.  Moreover, we have found that while relo-

cation of such incumbents to adjacent bands will involve some costs for adjusting equipment,
we do not expect at this time that such costs will impose an undue burden on small incumbents.

     We limit the eligibility of incumbent LECs and cable companies to hold the larger
license of 1,150 megahertz in each BTA for LMDS.  They are barred (for a period of three
years from the effective date of LMDS rules) from holding an attributable interest is such a
license in the service area in which they operate.  We adopt rules similar to the CMRS spectrum
cap that defines in-region if 10 percent or more of the population of the BTA is within the
applicant's service area.  We adopt attribution rules that apply when an ownership interest is at
least 20 percent.  However, we permit incumbent LECs and cable companies to participate fully
in the auction of any in-region license, so long as they come into compliance after conclusion of
the auction.  We require such LMDS licensees to divest overlapping ownership interests by
selling their existing system or by partitioning within 90 days after the grant of their license. 
We find that these requirements should not affect many small entities, which are not likely to be
incumbents LECs or cable companies. These requirements may also create opportunities for
small businesses who wish to bid for LMDS licenses and compete in the LMDS market.

     We adopt a number of service rules to initiate LMDS under procedures for licensing and
filing applications, conducting operations, and establishing technical parameters.  Applicants are
required to submit a completed FCC Form 175.  Auction winners are required to filed a
completed FCC Form 600.  All applications are submitted for 30-day public notice and
applicants are required to keep FCC Form 600 up-to-date concerning all of the foreign owner-

ship information requested on the form.  Licensees may change status between common
carriage and non-common carriage or add an additional status to conduct both operations upon
notification to the Commission that does not require prior approval.  However, common carriers
discontinuing or reducing operations must adhere to statutory notification requirements imposed
in Part 63 of the Commission's Rules.

     We adopt limited technical regulations. We impose a coordination process on each
LMDS licensee prior to initiating service in the 27.5-28.35 GHz band in which each adjacent
LMDS licensee and each potentially-affected, adjacent-channel FSS licensee must provide
values for the appropriate operational parameters.  Coordinating parties must supply information
related to their channelization and frequency plan, receiver parameters, and system geometry. 
Coordination between adjacent LMDS systems need only encompass hubs located within 20
kilometers of BTA boundaries.  We would resolve any conflicts between licensees.  LMDS
licensees in the two outer segments of the 31 GHz band also must coordinate with non-LTTS
incumbent licensees to protect those licensees from harmful interference.  In some cases, the
services of persons with technical or engineering expertise may be required to assist with the
coordination information. 

     We are directed by Section 309(j)(4)(E) of the Communications Act to ``require such
transfer disclosures and anti-trafficking restrictions and payment schedules as may be necessary
to prevent unjust enrichment as a result of the methods employed to issue licenses and
permits.''  The Commission adopted safeguards designed to ensure that the requirements of
this section are satisfied, including a transfer disclosure requirements for licenses obtained
through the competitive bidding process for LMDS.  An applicant seeking approval for a
transfer of control or assignment of a license within three years of receiving a new license
through competitive bidding procedures must, together with its application for transfer of
control or assignment, file with the Commission a statement indicating that its license was
obtained through competitive bidding.  Such applicant must also file with the Commission the
associated contracts for sale, option agreements, management agreements, or other documents
disclosing the total consideration that the applicant would receive in return for the transfer or
assignment of its license.

     With respect to small businesses, we have adopted unjust enrichment provisions to deter
speculation and participation in the licensing process by those who do not intend to offer service
to the public, or who intend to use the competitive bidding process to obtain a license at a lower
cost than they would otherwise have to pay and to later sell it at a profit, and to ensure that
large businesses do not become the unintended beneficiaries of measures meant to help small
firms.  Small business licensees seeking to transfer their licenses to entities which do not qualify
as small businesses, or entities with more than $40 million but not more than $75 million in
average gross revenues for the three preceding years that seek to transfer their licenses to larger
entities, as a condition of approval of the transfer, must remit to the government a payment
equal to a portion of the total value of the benefit conferred by the government.

       V. Significant Alternatives to Proposed Rules Which
          Minimize Significant Economic Impact on Small
            Entities and Accomplish Stated Objectives

     We modify a number of our proposals in the Third NPRM and  Fourth NPRM to
minimize any significant economic impact on small entities consistent with the objectives of the
Order based on the comments we have received in this proceeding.

A. Alternatives To Minimize Impact of
  Redesignation of 31 GHz for LMDS
   
     Specifically, we decided that LMDS needed the additional 300 megahertz of spectrum at
31 GHz in order to obtain the 1 gigahertz of unencumbered spectrum for broadband services
and sufficient spectrum to experiment with services and technology that competes with tele-

phone and cable operators.  We deny requests from CellularVision and other commenters to
consider an alternative allocation to spectrum below 27.5 GHz or the request from ICE-G to
consider allocation to the 40 GHz band.  We considered these matters in the First Report and
Order and their availability has not changed since then.

     Among the alternatives, we decide that co-existence of incumbent 31 GHz licensees 
with LMDS would not be possible because incumbents would be reduced to a secondary status
if LMDS were accorded primary protected status and the interference from LMDS would render
such services useless.  We agree with CellularVision that incumbents could lease or otherwise
arrange to continue to use redesignated spectrum, but find that incumbents cannot rely on these
arrangements as a reasonable alternative to minimize the impact.  We also decide that
movement to another band such as 23 GHz that provides protection for incumbent services is
not feasible because of the major costs to incumbents to modify or replace equipment.

     We decide that the plans submitted by CellularVision and Sierra to share the 31 GHz
band establish a framework for us to reach a compromise based on the needs of both LMDS and
31 GHz proponents and adopt an outcome that is more equitable and balanced.  We decide to
segment the 300 megahertz for establishing protections based on the enumerations used by
Sierra.  Under this plan, the middle 150 megahertz is designated for LMDS on a primary
protected basis and incumbent licensees are not granted protection from harmful interference. At
each end of the band, a segment of 75 megahertz each is designated for protection of non-LTTS
incumbent licensees from LMDS to enable them to continue existing operations.  We decide
that the plan of CellularVision to increase the middle segment to 250 megahertz on a primary
protected basis and leave incumbents protected in only 25 megahertz at each end would not
accommodate traffic signal technology at intersections and would be too costly.  We decide that
LMDS requires no more than 150 megahertz of unencumbered spectrum in the middle.  

     We do not adopt Sierra's limitations on LMDS use or access of the entire 31 GHz band. 
We agree with CellularVision and other comments that the benefits to according LMDS access
to the entire band and to allowing the full array of LMDS services can be achieved while
according the protections that non-LTTS incumbent licensees need to continue their operations. 
Thus, we accord LMDS a protected status throughout the band, but require LMDS in return to
protect non-LTTS existing services in the outer segments.  We do not agree with CellularVision
that incumbents should be excluded altogether from the middle segment, inasmuch as LMDS
has primary status there and is protected from harmful interference there.

     To accommodate incumbents, we permit them to relocate to the outer segments and
adopt a procedure that requires them to file an application to modify their licenses within 15
days after the rules adopted in the Order take effect, if they choose to relocate.  Under our
current rules, any 31 GHz licensee filing a modification application in accordance with the
Order will be able to implement license changes any time during the 18-month period after the
Commission grants the modification.  Moreover, because the incumbents are not authorized to
provide service on a common carriage basis, their modification applications are not subject to
the public notice and petition to deny requirements of Section 101.37 of the Commission's
Rules.  Thus, applications for modification of an incumbent's license under the relocation
procedure would be expedited.

     We find that relocation within the band gives existing 31 GHz licensees a reasonable
opportunity to continue their operations with a minimum of expense and disruption.  We decide
not to include LTTS licensees for protection in the outer segments nor permit them to relocate,
but to leave their status unchanged because of the nature of their services.  These decisions are
discussed more fully at paras. 85-93 of the Order.

     We decide to limit the band-sharing plan to achieve protections for existing 31 GHz
non-LTTS licensees in order to minimize the impact of our objective of implementing LMDS in
31 GHz on existing traffic control systems provided by small municipalities and other
governmental entities.  Commenters, including Palm Springs, demonstrate that public funds
have been expended that would be wasted if incumbents were not protected and that these
systems help control traffic and air pollution in furtherance of Federal goals.  However, we
decide not to allow future licensing under the existing rules and to limit incumbent licensees to
their existing operations.  We carefully consider the advantages and disadvantages of future
growth under such rules, and conclude that it would be inconsistent with our objective to permit
the licensing of LMDS on 31 GHz in order to meet the consumer demand for those
telecommunications and video services it will provide. 

      We decide to permit incumbent licensees to renew and to modify their licenses to the
extent they are not expanding service. As a result, the plans of Palm Springs and other licensees
to expand existing operations under current rules cannot be achieved.  The impact on small
entities would not be extensive, inasmuch as we have shown that all incumbents are few in
number and engaged in short-range services, as compared with the potential harm to LMDS
development if the entire 31 GHz spectrum were not available and was encumbered by
changing, incompatible, localized services.   

     Because we do not permit the licensing of new 31 GHz services, we find the dismissal
of all pending applications to be consistent with our objectives.  As we noted in para. 100 of the
Order, we have concluded that it is in the public interest to dismiss the pending applications. 
Moreover, a review of our database indicates that all pending applications were filed after the
release date of the Fourth NPRM and by new applicants not currently licensed.  Thus, these
applicants were on notice that we were considering a change in our rules for the 31 GHz band. 
To the extent any of these applicants are small entities, the impact would not considerable be-

cause they have not invested fully in such new systems and alternative spectrum or options to
gain access to 31 GHz is available, such as leasing from LMDS licensees.

B. Alternatives To Minimize Impact of LMDS Service Rules
 
     To accommodate concerns expressed by Ad Hoc RTG and others about our proposal to
license LMDS as a single block of the 28 GHz and 31 GHz spectrum, we decided to auction
two licensees of different sizes for each BTA.  We considered the band-segmentation plan we
adopted for protecting non-LTTS incumbent licensees in 31 GHz and the comments of LMDS
proponents that 150 megahertz is viable for certain LMDS services.  We decide to issue one
license for 1,150 megahertz, consisting of 1,000 megahertz located in the 28 GHz band and 150
megahertz in the middle of the 300 megahertz located in the 31 GHz band.  We also will issue a
smaller license for 150 megahertz consisting of the two 75 megahertz segments located at each
end of the 300 megahertz block in 31 GHz.  The small license can be acquired by LMDS to
achieve the objectives of the broadest spectrum for its experimentation, or may be used by
incumbent licensees to accommodate their needs to continue using the 31 GHz band on a
protected basis or by small entities such as rural interests to develop niche markets or provide
more economical narrower bandwidth services.   We have decided to establish a 1,150
megahertz license because we believe that a large block of unencumbered spectrum will provide
LMDS providers with an opportunity to compete with broadband services and develop two-way
services.   

     We decide that our proposal to license LMDS based on BTA geographic service areas is
the most logical area for LMDS.  We decline to use the smaller MSAs and RSAs requested by
M3ITC and other commenters because their areas are smaller than existing video programming
and telephony service areas and their use might result in unnecessary fragmentation of natural
markets.  BTAs ensure that the wide array of LMDS services can be provided, afford greater
economies of scale, and vary in size to afford building blocks for establishing an LMDS system. 
We do not restrict the number of BTAs a licensee may acquire at auction, but also point out that
the varying sizes provide more opportunities for smaller businesses to enter the market.  

     We decide that our proposal for disaggregating spectrum and allowing the geographic
partitioning of an LMDS licensed area would benefit small business and allow some areas, such
as rural areas, to be served more readily (para. 145 of the Order).

     We agree with WebCel and other small entities to adopt our proposal to restrict eligi-

bility of incumbent LECs and cable companies and decide that they may not acquire the larger
LMDS license of 1,150 megahertz in their geographic service areas for three years.  We find
that such firms would not need the small license for unencumbered service and thus would not
have the incentive to hobble competition.  We do not adopt the request of SkyOptics and CVTT
for permanent ineligibility to protect smaller entities, because they can bid for the smaller
license and the 3-year period may be sufficient to allow new entrants to become established. 
We do not agree with commenters from the rural telephone community that argue against any
restrictions on LEC ownership of LMDS licenses.  We find our restrictions should not hinder
LMDS in rural areas, because they do not have the overlap that triggers our restriction and they
can acquire spectrum from an LMDS licensee through contract or partitioning and
disaggregation.  We modify our proposal to define in-region incumbent LECs or cable
companies to reflect the same provisions in the CMRS spectrum cap.  This ensures consistency
in our rules for wireless services for ease of compliance and efficiency.

     In adopting application procedures for LMDS, we agree with CellularVision and other
small entities to adopt a broad service definition that allows the LMDS provider to provide any
fixed microwave service, whether common or non-common carrier.  We expand our proposal to
allow an applicant or licensee to apply for both common and non-common authorization in the
same license, depending on the services it seeks to provide.  We clarify the effect of the
Telecommunications Act of 1996 on the nature of the video programming and
telecommunications services that we originally identified as potential services in LMDS to
assist applicants and licensees in determining the regulatory status to govern their operations. 
We agree with commenters to not apply the presumption we proposed to treat LMDS as
common carriage.

     By authorizing both common and non-common carrier service in a single license, we
eliminate the burden in our proposed procedures that would require a licensee to submit an
application whenever it sought to change its services between common and non-common carrier
services.  We decide this achieves economies in the licensing process, ensures the flexibility
licensees need to provide the full array of LMDS offerings, and promotes the development of
the services that may compete with existing telecommunications and video programming
services.  To ensure that applicants or licensees are in compliance with the statutory
requirements imposed on common carriers and reflected in the Part 101 rules that govern
LMDS, we decide to subject all LMDS applications to the 30-day public notice provisions and
require all applicants to submit information in response to all the alien ownership eligibility
restrictions.  Consequently, we can rely on a simplified procedure for licensees to notify us of
any change in their regulatory status, either by changing or adding common carrier or non-
common carrier status, through notification by application after the change is implemented,
unless the change results in the impairment of a common carrier service that requires prior
approval under the discontinuance rules. These procedures are adopted to ensure
implementation of LMDS under a simplified format. 

     For the technical rules, we agree with commenters to use the prior frequency coordi-

nation procedures rather than a service area boundary PFD limit, which could stifle technology
and inhibit flexibility in system design.  We decide to adopt uniform polarization to achieve
greater system efficiency.  We disagree with CellularVision and ComTech that adopting a
frequency stability standard would be costly, but find that it aids in coordinating usage to assist
the rapid development of service.

C. Alternatives To Minimize Impact of LMDS Auction Rules 

     We decline to adopt the use of lotteries in lieu of auctions.  We conclude that auctioning
LMDS licenses would further the Communications Act's objectives:  first, by speeding the
development and deployment of this new technology, products and services to the public with
minimal administrative or judicial delay, and encouraging efficient use of the spectrum; second,
by fostering economic opportunity and the distribution of licenses among a wide variety of
applicants, including small businesses; and, third, by enabling the public to recover a portion of
the value of the public spectrum.  Concerns regarding small businesses having the financial
ability to participate in LMDS auctions are addressed by the special provisions adopted for
small businesses.  We also decline to adopt Public Television's suggestion of a set-aside of
spectrum for educational purposes.

     We adopt a uniform upfront payment for all applicants for LMDS auctions, and decide
not to adopt a reduced down payment for small businesses, because we believe that this action
is consistent with our reason for requiring upfront payments, i.e., to deter insincere and
speculative bidding and to ensure that bidders have the financial capacity to build out their
system. We delegate authority to the Wireless Telecommunications Bureau to determine an
appropriate calculation for the upfront payment, which the Bureau will announce by Public
Notice.  The Bureau will take into consideration CellularVision's and ComTech's objection to
the proposed formula of $0.02 per MHz-pop for the largest combination of MHz-pops a bidder
anticipates being active on in any single round of bidding.
     
     Because we believe the record with regard to past discrimination, continuing discrimi-

nation, and other significant barriers experienced by minorities and women is insufficient to
support race- and gender-based competitive bidding provisions under the standards of judicial
review applicable to such provisions, we do not adopt such provisions.  Instead, we adopt race-
and gender-neutral provisions such as installment payments and bidding credits for small
businesses in order to provide small businesses with an opportunity to obtain LMDS licenses. 
Many minority- and women-owned entities are small businesses and will therefore qualify for
these same special provisions.

      CellularVision recommended a definition of small business with a ceiling of $100
million in annual gross revenues.  We choose, for the purposes of LMDS auctions, to define a
small business as an entity that, together with affiliates and controlling principals, has average
gross revenues not exceeding $40 million for the three preceding years.  To address
CellularVision's concerns, we also adopt bidding credits and installment payments for LMDS
applicants that, together with affiliates and controlling principals, have average gross revenues
for the three preceding years of more than $40 million but not more than $75 million, as
elaborated in paras. 346-348 of the Order.

     Emc3 and CellularVision proposed a small business bidding credit of 25 percent or more. 
The rules adopted in the Order provide a 25 percent bidding credit for small business applicants
in the LMDS auctions, and a 15 percent bidding credit for entities with average gross revenues
of more than $40 million but not exceeding $75 million.  Commenters who advocated higher
credits offered no data upon which to base such credits.  We also decline to offer a bidding
credit to commercial entities that set aside part of their capacity for educational institutions at
preferential rates.  We do not believe that we have an adequate record regarding the legal and
policy implications of such credits.
   
                      VI. Report to Congress

     We will submit a copy of this Final Regulatory Flexibility Analysis, along with the
Order, in a report to Congress pursuant to 5 U.S.C.  801(a)(1)(A).  A copy of this FRFA will
also be published in the Federal Register.                            APPENDIX E

                        List of Pleadings

First Notice of Proposed Rulemaking
Comments

Acor, Everett T., Jr.
Alex, Brown & Sons
Alpha Industries, Inc.
Amby, Faith C.
America's Public Television Stations, Public Broadcasting Service, Organization of State      Broadcasting Executives and Southern Educational Communications Association  
Ameritech 
Anchorage Telephone Utility
Baderwood International, Inc.
Bell Atlantic Corporation, et al. (Bell Atlantic)
BellSouth Corporation, et al. (BellSouth)
Box Springs Educators
Calling Communications Corporation
Cardiff Broadcasting Company
Caribbean Communications Corporation d/b/a St. Thomas-St. John Cable TV
Carney, Joseph D. & Associates
Catel Telecommunications 
Cellular Television Associates, Inc.
Coalition for Wireless Cable
Cole, Raywid & Braverman
Competitive Cable Association
Cyrus Partnership
Dataflow Systems
Digital Microwave Corporation (DMC)
Eagle Engineering & Communications Group, Inc.
Educational Parties (filing jointly): American Council on Education, Board on Distance
  Education and Telecommunications of the National Association of State Universities and
  Land Grant Colleges, Instructional Telecommunications Consortium of the American Asso-
  
  ciation of Community Colleges, Western Cooperative for Educational Telcommunications,
  Arizona Board of Regents for the Benefit of the University of Arizona, California State
  University, Alliance for Higher Education, Iowa Public Broadcasting Board, University of
  Maine at Augusta, University of Washington, University of Wisconsin System, Washington
  State University, South Carolina Educational Television Commission and Ana G. Mendez
  Educational Foundation
EMI Communications Corporation
Foresight Communications
GHz Equipment Company, Inc. (GEC)
Gilio, Robin V.
GTE Service Corporation (GTE)
Guy, Frederick R.
Haddon, Perry W.
Hornby, Harold
Hughes Space and Communications Co. and Hughes Network Systems, Inc.
Joplin Beepers, Inc.
King Broadcasting Associates
Kingswood Associates
Linz, Robert M., P.E.
Levin, Michael H.
Loral/Qualcomm Partnership, L.P. (Loral/Qualcomm)
M3 Illinois Telecommunications Corporation (M3ITC)
M/A-Com, Inc. (M/A-Com)
Metrocom Telecasting
Mettler Communications, Inc.
Milani, Patricia B.
Motorola, Inc.
Motorola Satellite Communications, Inc. and Iridium, Inc. (Motorola)
Multi-Micro, Inc.
National Aeronautic and Space Administration (NASA) 
National Association for the Advancement of Colored People
National Captioning Institute
New York Department of Public Service
Norris Satellite Communications, Inc.
NYNEX Mobile Communications Company
Pacific Telesis Group, Pacific Bell and Nevada Bell
RioVision of Texas, Inc. (RioVision)
Rochester Telephone Corporation
Rock Hill Telephone Company, Fort Mill Telephone Company and Lancaster
  Telephone Company
RSW Communications, Ltd.
Rumore, Victor
Seiter, Steven P.
Senvista General Partnership
Sprint Corporation on behalf of Sprint Communications Company, L.P. and the United and   Central Companies (Sprint)
Stephenson, Todd
Subscriber TV Partners
Suite 12 Group
Technology Engineering Company
Telephone and Data Systems, Inc. (TDS)
Total TV, Inc.
United States Telephone Association (USTA)
University of California
University of Colorado
University of Texas System
US West, Inc. (US West)
Utilities Telecommunications Council
Video/Multipoint, Inc.
Video/Phone Systems, Inc. (Video/Phone)
Virginia Communications, Inc.
Western Sierra Bancorp
Wireless Cable Association International, Inc. (WCA)
Wireless Cable, Ltd.

Reply Comments

Anchorage Telephone Utility
Bell Atlantic
Calling Communications Corporation
Coalition for Wireless Cable
Cole, Raywid & Braverman
Comcast Corporation, Jones Intercable, Inc. and Cablevision Industries Corporation
DMC
Eagle Engineering & Communications Group, Inc.
GEC
GTE
Hughes Space and Communications Co.
Leaco Rural Telephone Company
M3ITC
Motorola, Inc.
Motorola 
NASA 
National Association of Regulatory Utility Commissioners (NARUC)
National Council of LaRaza
New York Department of Public Service
Public Broadcasting Service
RioVision
Rumore, Victor
Seiter, Steven P.
Senvista General Partnership
Sprint
Suite 12 Group
TDS
Thomas & Associates
Video/Phone
USTA
WCA

Third Notice of Proposed Rulemaking

Comments

Airtouch Communications, Inc. (Airtouch)
Alcatel Network Systems, Inc. (Alcatel)
Ameritech
Andrew Corporation (Andrew Corp.)
Association of America's Public Television Stations and Public Broadcasting Service (PTV) 
Bell Atlantic
BellSouth
Boeing 
CellularVision USA, Inc. (CellularVision)
ComTech Associates, Inc. (ComTech)
Constellation Communications, Inc. (Constellation)
Cox Enterprises Inc., et al. (Cox)
DMC
Duncan Weinberg Miller & Pembroke, P.C. (Duncan)
Endgate
Entertainment Made Convenient International, Inc. (Emc3)
GE American Communications, Inc. (GE)
GEC
GTE
Harris Corporation-Farinon Division (Harris)
Hewlett-Packard Company (HP)
Hughes Communications Galaxy, Inc. (Hughes)
Lockheed Martin Corporation (LMC)
Loral Aerospace Holdings, Inc. (Loral)
Loral/Qualcomm
M3ITC
Motorola
NASA 
National Cable Television Association (NCTA)
Northern Telecom, Inc. (Nortel)
NYNEX Corporation (NYNEX)
Orion Network Systems, Inc. (Orion)
Pacific Telesis Wireless Broadband Services (PTWBS)
Panamsat Corporation (Panamsat)
RioVision
Satellite Industry Association (SIA)
Summit Communications, Inc. (SCI)
Telecommunications Industry Association (TIA)
Teledesic Corporation (Teledesic)
TDS
Texas Instruments, Inc. (TI)
Titan Information Systems Corporation (Titan)
TRW, Inc. (TRW)
WCA

Reply Comments

Bell Atlantic
BellSouth
CellularVision
ComTech
Emc3
GE
GEC
Hon. Mark Hatfield
Hughes
Loral
Loral/Qualcomm
Motorola
NetSat 28 Company, L.L.C. (NetSat)
NYNEX
Orion
PTWBS
SCI
TIA
Teledesic
TI
TRW

Fourth Notice of Proposed Rulemaking
Comments

Ad Hoc Rural Telecommunications Group (Ad Hoc RTG)
Allied Associated Partners and GELD Information Services (Allied/GELD)
Ameritech
PTV  
Bell Atlantic Corporation and SBC Communications, Inc. (Bell Atlantic/SBC)
BellSouth
CellularVision
CellularVision Technology and Telecommunications, L.P. (CVTT)
City of Long Beach (Long Beach)
City of San Diego (San Diego)
City and County of Honolulu (Honolulu)
City of Palm Springs (Palm Springs)
City of Topeka (Topeka)
Competition Policy Institute (CPI)
Comstat Communications, Inc. (Comstat)
ComTech
Endgate
Farmers Telephone Cooperative, Inc. (Farmers Tel)
GE
HP
Hughes
ICE-G, Inc., dba International Communications Electronics Group (ICE-G)
Institute of Transportation Engineers (ITE)
Japan, Government of (Japan)
LMC
M/A-Com
MCI Communications Corporation (MCI) 
Mobile Source Air Pollution Review Committee (MSAPRC)
NCTA
National Telephone Cooperative Association (NTCA)
Opportunities Now Enterprises (ONE)
Pacific Telesis Group
Pioneer Telephone Association, Inc. (Pioneer)
Puerto Rico Telephone Company (PRTC)
RioVision
Roseville Telephone Company (Roseville)
Sierra Digital Communications, Inc. (Sierra)
Skyoptics, Inc. (Skyoptics)
Sunnyvale General Devices and Instruments, Inc. (Sunnyvale)
TI
USTA
US West
Webcel Communications, Inc. (Webcel)
WCA

Reply Comments

Ad Hoc RTG
Ameritech
Attorneys General of Connecticut, Delaware, Florida, Idaho, Illinois, Iowa, Massachusetts,    Minnesota, Missouri, New York, Oklahoma, Pennsylvania, Rhode Island, Virginia,
  Washington, West Virginia, and Wisconsin (Attorneys General)
CellularVision
Comcast Corporation (Comcast)
CPI
Endgate
Federal Trade Commission (FTC)
GE
HP
Hughes
ICE-G
Independent Alliance (Alliance)
International Municipal Signal Association (IMSA)
M/A-Com
Midwest Wireless Communications, L.L.C. (Midwest)
Motorola
NCTA
NYNEX
Organization for the Protection and Advancement of 
  Small Telephone Companies (OPASTCO)
Public Service Telephone Company (Public Service Telco)
PTV
Sierra
Small Business Administration (SBA)
Sunnyvale
TI
Titan
United States Department of Justice (DOJ)
USTA
US West
Webcel

Petitions for Reconsideration of Waiver Application Denials

Alliance Associates
Birnbaum, Stevan (Birnbaum)
BMW Associates (BMW)
Buchwald, Joseph B. (Buchwald)
Celltel Communications Corporation (Celltel)
Chester, Linda (Chester)
City of Gustine, California (Gustine)
Clark, Thomas F. (Clark)
Committee to Promote Competition in the Cable Industry (CPCCI)
Connecticut Home Theater Corporation (CHT)
Cornblatt, Arnold (Cornblatt)
CT Communications Corporation (CTC Corp)
Evanston Transmission Company (Evanston)
Feinberg, Judy (Feinberg)
Fraiberg, Lawrence (Fraiberg)
Freedom Technologies, Inc. (FTI)
GEC
Goldberg, Rosalie Y. (Goldberg)
Hall, Harry A. (Hall)
L.D.H. International, Inc. (LDH)
Hascoe, Lloyd (Hascoe)
Likins, Paul R. (Likins)
Lonergan, William (Lonergan)
M3ITC
Meeker, Herbert S. (Meeker)
Melcher, James L. (Melcher)
Myers, Frederick (Myers)
Northeast Wireless, High Band Broadcasting Corp., FM Video Broadcasters and Western      Sierra Bancorp (Joint Petitioners)
Peyser, Frederick M. (Peyser)
PMJ Securities, Inc. (PMJ)
Robert E. La Blanc Associates, Inc. (La Blanc)
Robertson, Jeanne P. (J. Robertson)
Robertson, Sanford B. (S. Robertson)
Rosenkranz, Robert (Rosenkranz)
R&R Telecommunications Partners (R&R) 
SCNY Communications, Inc. (SCNY)
Seaview Telesystems Partners (Seaview)
Siegel, Lewis W. (L. Siegel)
Siegel, Michael S. (M. Siegel)
Sloan, Kim (Sloan)
SMC Associates (SMC)
Snelling, Charles D. (Snelling)
Telecom Investment Corp. (TIC)
Telecommunications/Haddock Investors (THI)
University of Texas-Pan Am (UTPA) and RioVision, jointly (Texas Petitioners)
Video Communications Corporation (VCC)
Video/Phone
Wechsler, Diane (Wechsler)
Wolff, Ivan (Wolff)


                                                                 

                                                   March 11, 1997

                    FCC CHAIRMAN REED HUNDT
                 STATEMENT REGARDING COMMISSION
           ADOPTION OF LMDS SERVICE AND AUCTION RULES

Re:  Rulemaking to Amend Parts 1,  2,  21, and 25 of the Commission's Rules to
Redesignate the 27.5-29.5 GHz Frequency Band, to Reallocate the 29.5-30.0 GHz
Frequency Band, to Establish Rules and Policies for Local Multipoint Distribution Service
and for Fixed Satellite Services, CC Docket No. 92-297; Petitions for Reconsideration of the
Denial of Applications for Waiver of the Commission's Common Carrier Point-to-Point
Microwave Radio Service Rules;  Suite 12 Group Petition for Pioneer Preference, PP-22.   


     The Commission today has affirmed the interest of the public in the new digital age,
planting the flag of public interest on this new terrain.  In this item we have said that we
reserve the right at some future time to define specifically the public interest commitment in
LMDS.  This means that all bidders and future licensees are on notice that the public interest
will be served.

     At the same time, the Commission has defined this service as broadly as possible opening
the door to potential new sources of competition for cable television, local telephony and data
services.  The auction method is the right way to assign licenses to those who have the best
plans.  Our flexible rules are the best way to allow licensees freedom to design and implement
those plans.  This approach will introduce competition, allow the market to make decisions
about business plans and preserve our ability to adopt specific and quantifiable public interest
rules where necessary.  

                               -FCC-
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                          Separate Statement
                                  of
                     Commissioner James H. Quello

                    March 11, 1997

Re:  Rulemaking to Amend Parts 1,  2,  21, and 25 of the Commission's Rules to Redesignate the
27.5-29.5 GHz Frequency Band, to Reallocate the 29.5-30.0 GHz Frequency Band, to Establish
Rules and Policies for Local Multipoint Distribution Service and for Fixed Satellite Services, CC
Docket No. 92-297; Petitions for Reconsideration of the Denial of Applications for Waiver of the
Commission's Common Carrier Point-to-Point Microwave Radio Service Rules;  Suite 12 Group
Petition for Pioneer Preference, PP-22.   

I am pleased that, with the long awaited release of this item, the rules governing Local Multipoint
Distribution Service  (LMDS) are finally in place.  Because I have publicly expressed my
disappointment that this service has been delayed far too long by regulatory inaction, I write
separately to state that I am heartened by the bottom-line cuts.  The Order as a whole is well
reasoned and well written.  The decisions on particular issues are firmly grounded in the public
interest.

I support this Order because of the potential public interest benefits offered by an additional
innovative transmission medium -- local multipoint distribution -- for communications services. 
I believe that it is likely that LMDS providers will become a positive competitive force in the near
term. The panoply of services proposed under the expansive definition that we have given 'LMDS'
hold the promise of jump-starting competition to traditional voice, video, and data communications
service providers.  

The benefits of competition to the consumers of communications services are beyond peradventure. 
The FCC has pursued an overarching deregulatory policy of encouraging competition for many
years.  Moreover, the development of real and demonstrable competition was the touchstone
principle that pervades the sweeping changes to our enabling statute that were codified in the
Telecommunications Reform Act of 1996.  The licensing of LMDS will at last allow innovative
communications entrepreneurs to begin to fulfill the regulatory and legislative vision of vigorous
competition across a broad range of services.  

LMDS is a new family of services that will challenge the entrenched monopolies.  For this reason,
we have established only minimal rules.  We have affirmatively declined to impose so-called
"public interest obligations" on these fledgling services.  Additionally, we have designed a
competitive bidding schema that balances the competitive opportunities for incumbent monopoly
providers of similar services in-region and new entrants.  

Although it has taken far too long, the result is carefully crafted.  LMDS will benefit from the
certainty gained by this Commission resolving the fundamental issues "up-front."


                                                           March 11, 1997



                        Separate Statement 
                                 of
                       Commissioner Susan Ness


Re:  Rules and Policies for Local Distribution Service and for Fixed Satellite Services,
      CC Docket No. 92-297

I support the Commission's decision to place a limited, short-term eligibility restriction on
in-region local exchange carriers (LECs) and cable companies.   

The rationale for this short-term eligibility restriction is based upon well-founded and sound
economics and antitrust policy.  Our record contains the informed views of the Antitrust
Division of the U.S. Department of Justice, the Economic Staff of the Federal Trade
Commission, the Attorneys General of seventeen states, and the National Telecommunications
and Information Administration.  All support eligibility restrictions, based upon their
assessments of the status of competition in the local exchange and cable television markets, the
potential pro-competitive impact that independent LMDS operators could have in these markets,
and the adverse impact upon competition that would result from extending eligibility to
incumbent LECs and cable firms.  These parties speak for consumers of telecommunications
services and no one else, and I am glad that the majority has heeded their opinions and advice.

The Commission will be assigning an unprecedented amount of spectrum -- 1150 
megahertz -- to a single licensee.  By comparison, all of the PCS licenses together totalled 120
megahertz -- one-tenth the size of the LMDS license.  The record indicates that licensees need
broad bandwidth to offer a comprehensive LMDS service.  Therefore, only one provider will be
licensed in each geographic area.  Because in most service areas LECs and cable are the sole
providers of their services, they should not be permitted to further increase their market power
by obtaining the exclusive LMDS license as well.  

There are substantial economic incentives for these monopoly providers to seek these licenses
within their service areas.  Therefore, this limited restriction is pro-competitive and in the public
interest.  LECs and cable will be eligible for licenses outside their service areas.  We also have
provided for waivers where it can be demonstrated that the local market for these services is
competitive.  Our eligibility rules constitute the least restrictive means available to accomplish
our pro-competitive purposes.  

In her dissent, my colleague devotes a great portion of her argument to discussing the potential
competitors to incumbent LECs and cable firms -- among them cellular, PCS, 38 and 18 GHz
services, unbundled elements of the LECs' networks, DBS, MMDS, SMATVs, etc.  However,
listing these potential competitors does not alter the fact that these alternatives have not yet
borne fruit, as the majority opinion notes.  I agree that we are not likely to see substantial
erosion of the market power of LECs and cable firms in the next three years, which is the
relevant time horizon of this short-term restriction.

I hope that all of these competitive alternatives will thrive.  Where incumbents no longer
exercise market power in the local exchange or multichannel video markets, it would not be
appropriate to restrict in-region LECs and cable firms from participating in the LMDS service
(or any other service, for that matter).  That is why I am pleased that our Report and Order
clearly outlines the circumstances under which we would waive the restriction prior to our
general review of this rule in three years.  Combined with the short-term nature of the
restriction, the waiver process is an appropriate means of responding where competition has
developed in some markets more rapidly than in others.  

Our decision today not only holds out the promise of a new source of competitive entry, but
also recognizes the interests of incumbents by providing a mechanism for them to participate in
this service once they no longer exercise market power.  In the meantime, the short-term
restriction will accelerate the day when the video and telephone markets become deconcentrated
and competitive.  This is the course that is most likely to bring benefits of increased choice,
better service, and lower prices to American consumers.























                                                        March 11, 1997

            STATEMENT OF COMMISSIONER RACHELLE B. CHONG
                         DISSENTING IN PART

Re:        Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission's Rules to
           Redesignate the 27.5-29.5 GHz Frequency Band, to Establish Rules and
           Policies for Local Distribution Service and for Fixed Satellite Services, CC
           Docket No. 92-297, Second Report and Order, Order on Reconsideration, and
           Fifth Notice of Proposed Rulemaking

           I support the majority of our decision today to adopt service and competitive
bidding rules for the new Local Multipoint Distribution Service ("LMDS").  I am pleased we
have finally released this long overdue Second Report and Order launching this innovative new
service.  What I find most exciting about LMDS is that its licensees may provide new
competition in the local exchange telephone market, the multichannel video programming
distribution ("MVPD") market, or the Internet access market.  I write separately, however, to
dissent from the portion of  the Second Report and Order restricting the eligibility of in-region
cable companies and local exchange carriers ("LECs") from bidding on the 1,150 MHz block of
LMDS spectrum in their authorized or franchised service areas.  I also write separately to
clarify the portion of our decision related to public interest obligations.

           In my view, an eligibility restriction is a very drastic regulatory measure.  It
acts as a complete ban to an industry's participation in an innovative new service within its
service area.  It would be my preference to reserve eligibility restrictions for those instances
where the record shows that extreme measures are clearly warranted to prevent a substantial
competitive harm to a specific market.

           I do not believe this is one of those instances.  Here, eligibility restrictions are
imposed not to prevent a specific and predictable harm, but in an attempt to enhance the mere
possibility of competition in the local exchange and MVPD markets.  When viewed in light of
our decision for a flexible use allocation for LMDS, the decision to impose eligibility
restrictions simply does not make sense.  To the contrary, by precluding the participation of
incumbent LEC and cable operators, competition in those markets may well be harmed by
arbitrarily denying some of the strongest potential competitors the ability to branch out into new
markets.  For example, today's decision would preclude an incumbent LEC from buying the
LMDS spectrum to offer a new wireless video programming service that could provide much
needed competition in the MVPD market.  Similarly, this decision would preclude an incumbent
cable operator from buying the spectrum to make a bold move into the wireless telephony
market.  

           The Order justifies its eligibility restrictions because incumbent LECs and cable
operators allegedly have an incentive to preempt local competition by buying an LMDS
license.  At best, this argument is speculative.  While LECs and cable operators may have an
incentive to preclude competition in their markets, this argument succeeds only if one of two
things are true.  Either LMDS spectrum must provide a unique opportunity for enhancing
competition in both of the markets, or, if the LMDS opportunity is not unique, then LECs and
cable operators must have the resources and the ability to preclude all other potential
competitors.  In this case, neither situation is true.  

           As an initial matter, LMDS does not provide a unique opportunity for cable or 
telephone competition.  On the local exchange side, there are a large number of likely
alternative sources of competition besides LMDS.  As one LEC commenter has noted:

           Competition can be expected from a variety of sources:  cable system operators
           reconditioning their networks to permit two-way networked communications,
           mobile telephone operations (viz., e.g. cellular and PCS), various workgroup
           wireless offerings based on rationalization of current spectrum assignments,
           various new satellite-based services, 38 GHz licensees like WinStar, and 18
           GHz DEMS licensees like the Associated Group (which just hired Alex Mandl
           to run its operations in 31 individual markets).  Obviously a number of
           operators with substantial financial backing (MFS, Teleport, MCI Metro) are
           deploying conventional networks and taking advantage of profit opportunities
           wherever they exist under the current "crazy quilt" of regulated prices.  Many
           new competitors (including AT&T) will be availing themselves of opportunities
           to compete by purchasing unbundled offerings and reselling LEC retail
           offerings.  

           Similarly, on the cable side, there are a number of actual competitors already. 
Competitors in the MVPD market include Direct Broadcast Service ("DBS") operators, MMDS
operators, wireless cable, SMATVs, home satellite dishes, and over the air broadcast television. 
Many of these competitors are making significant inroads to compete with the cable operators. 
For example, our recent Video Competition Report finds that DBS subscribership has increased
substantially since 1995, and some observers project that DBS operators will offer service to
"over 20% of all MVPD subscribers by the year 2000."  Electric utilities and Internet access
providers also will pose competitive challenges to cable operators in the coming years. 

           In the face of all of this budding competition, the argument that in-region LECs
and cable companies will invest in LMDS spectrum merely to preempt competition seems quite
speculative.  Our record is bare of evidence indicating that incumbent LECs and cable operators
will indeed use such a strategy for LMDS.  Nor does our recent experience with the PCS
spectrum auctions show that incumbent LECs will make concerted efforts to buy the spectrum
in their areas to preempt competition. 

           The majority recognizes that these other sources of potential and actual
competition to LECs and cable operators remove the anticompetitive incentives for incumbents
bidding on 150 MHz LMDS licenses.  Unfortunately, this reasoning was not extended to the
1150 MHz block.  The majority asserts that, "these various competitive prospects, taken
together, do not mean that an incumbent LEC or cable TV firm will be unable to preserve
substantial market power or delay significantly the development competition by acquiring in-
region [1150 MHz] LMDS licenses."  I disagree.  LMDS has great potential, but as noted
above, LMDS is not the only path to a competitive cable and local telephone marketplace. 
Thus, I believe that substantial anticompetitive effects from open eligibility for LMDS are
unlikely, because the relevant markets are in fact becoming increasingly competitive.

            The majority asserts that the primary goal of the eligibility restriction is to
encourage competition in both the telephony and MVPD markets.  They seem to assume that
the best use of the LMDS spectrum by any licensee would be for a combined offering of
telephony and video services.  What is ironic is that the Second Report and Order does notrequire licensees to use the LMDS spectrum for either telephony or video services.  We have all
agreed to give LMDS licensees discretion to choose how to use the spectrum.  Given this
flexible allocation decision, I cannot understand how it makes sense to allow some competitors
to use the spectrum for some purposes while preventing others, specifically incumbent LECs
and cable operators, from making that same decision.  

           The majority acknowledges that the incumbent LEC's use of the LMDS
spectrum to provide video services would increase competition in the MVPD market. 
However, they go on to assert that this increase in competition would not assuage their concerns
because they have no way of knowing whether the LEC's use of the spectrum would be the
most economically efficient use of the spectrum.  What troubles me here is that the majority
appears to distrust market forces to deliver the most efficient use of the spectrum, and instead,
believes the government must second-guess the marketplace and impose heavy regulatory
restrictions on the basis of sheer conjecture.

           It was exactly this type of speculation that caused the Sixth Circuit Court to
reverse our decisions with regard to eligibility restrictions on PCS spectrum in Cincinnati Bell
Telephone Co. v. FCC.  In that decision, the Sixth Circuit rejected the FCC's eligibility
restrictions that prevented certain cellular providers from buying PCS licenses in their service
area.  Since the eligibility restrictions had "such a profound effect on the ability of businesses
to compete in the twenty-first century technology of wireless communications, it was incumbent
upon the FCC to provide more than its own broadly stated fears to justify its rules."  I believe
that this case is no different.  In my view, our order relies on only broadly stated fears --
"general economic theory" -- to fix a market failure that has not occurred and is not likely to
occur.

           What is overlooked is what the incumbent providers have to offer as
competitors in the cable and local exchange telephone markets.  The Commission has already
acknowledged that cable operators could provide valuable facilities-based competition in the
LEC market and vice versa.  The concept of cross fertilization between telephone companies
and cable operators is exactly what drove the Commission's policies on "video dialtone" and
Congress' efforts to create "open video systems."  Both were designed to encourage local
telephone companies to enter the video business in their service areas to provide much needed
competition to the cable TV market.  Moreover, one of the main goals of the 1996 Act was to
abolish outdated legal and barriers to allow current market players to compete in other lines of
business previously prohibited to them.  Yet, our action today will deny incumbent LECs  and
cable operators the ability to realize important efficiencies, gain economies of scale, and provide
unfettered "one stop shopping" to consumers.
           
           By foreclosing the ability of incumbent LECs and cable operators to provide
competition in the MVPD and telephony markets respectively, our decision also may run afoul
of Congressional intent.  At least with regard to telephone company entry into the video market,
Congress has stated that there should be a number of options for that entry, including LMDS. 
In addressing the establishment of open video systems, Congress recognized that "telephone
companies need to be able to choose from among multiple video entry options to encourage
entry, and so systems under this section [are] allowed to tailor services to meet the unique
competitive and consumer needs of individual markets."  In addressing effective competition
to cable companies, Congress recognized that LECs might provide video programming services
'by any means' and defined this to include "any medium (other than direct-to-home satellite
service) for the delivery of comparable programming, including MMDS, LMDS, an open video
system, or a cable system."    Consistent with Congressional intent, I believe that we should
have given incumbent LECs and cable operators the same opportunities and the same access to
technology that we provide to all competitors in the MVPD and local exchange markets.  Thus,
I respectfully dissent to this portion of today's decision.

           With regard to public interest programming obligations for eventual LMDS
licensees who use the spectrum to provide video services, the majority wisely chose not to
impose quantified programming obligations.  First, I believe it to be premature to impose
programming obligations, especially when we do not know who the LMDS licensees will be
and whether they will even provide video services such that a programming obligation would be
relevant. 

           Second, it is my view that a quantified programming obligation would
improperly place the heavy hand of government on the programming decisions of the LMDS
providers.  While we have put the licensees on notice that the Commission could decide in the
future to initiate a proceeding to consider programming obligations, such a proceeding is not
imminent.  Unlike other services in which Congress has made specific pronouncements
requiring programming obligations, Congress has not directed the Commission to impose
obligations on this nascent service;  I see no evidence of a compelling need to do so at this time. 
Finally, I believe that the Commission should think long and hard before deciding to embark on
such a regulatory course down a path that will have the Commission ordering all licensees who
program content to air certain amounts of programming by government fiat.