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[Federal Register Volume 65, Number 109 (Tuesday, June 6, 2000)]
[Rules and Regulations]
[Pages 35843-35855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13961]

[[Page 35843]]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[GEN Docket No. 90-314, ET Docket No. 92-100, PP Docket No. 93-253; FCC 
00-159]

Narrowband Personal Communications Services; Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document adopts a number of modifications to the 
Commission's existing narrowband Personal Communications Services (PCS) 
rules. These include the use of Major Trading Areas for future 
licensing, the establishment of a ``substantial service'' alternative 
to the current construction benchmarks, and modifications to certain 
provisions of the narrowband PCS competitive bidding rules. The 
Commission also eliminates the narrowband PCS spectrum aggregation 
limit and adopts partitioning and disaggregation rules. The Commission 
believes that the rule modifications it adopts will improve the 
efficiency of spectrum use, reduce the regulatory burden on spectrum 
users, encourage competition, and promote service to the largest 
feasible number of users.

DATES: Effective August 7, 2000, except for Sec. 24.104, which contains 
information collection requirement that has not been approved by the 
Office of Management and Budget. The FCC will publish a document in the 
Federal Register announcing the effective date for this section. Public 
and agency comments on the information collection are due on or before 
July 6, 2000.

FOR FURTHER INFORMATION CONTACT: Alice Elder, Auctions and Industry 
Analysis Division, Wireless Telecommunications Bureau, at (202) 418-
0660.

SUPPLEMENTARY INFORMATION: This is a summary of a Second Report and 
Order (Second R&O) in the Commission's narrowband PCS proceeding 
adopted May 5, 2000, and released May 18, 2000. The complete text of 
this Second R&O is available for inspection and copying during normal 
business hours in the FCC Reference Center (Room CY-A257), 445 12th 
Street, SW, Washington, DC. It may also be purchased from the 
Commission's copy contractor, International Transcription Services, 
Inc. (ITS, Inc.), 1231 20th Street, NW, Washington, DC 20036, (202) 
857-3800. It is also available on the Commission's web site at http://www.fcc.gov/wtb/auctions.

Synopsis of the Second Report and Order

    1. The Commission adopts a Second Report and Order (Second R&O) in 
its narrowband PCS proceeding, amending certain rules governing this 
service. The Commission provided for the operation of narrowband PCS in 
the 900 MHz band, adopting a spectrum allocation and channelization 
plan, licensing rules, and technical standards for the service, in 
1993. See Amendment of the Commission's Rules to Establish New 
Narrowband Personal Communications Services, First Report and Order, 58 
FR 42681 (August 11, 1993). See also Amendment of the Commission's 
Rules to Establish New Narrowband Personal Communications Services, 
Memorandum Opinion and Order, 59 FR 14115 (March 25 1994). In 
Implementation of Section 309(j) of the Communications Act--Competitive 
Bidding, Second Report and Order, 59 FR 22980 (May 4, 1994), the 
Commission determined that, pursuant to section 309(j) of the 
Communications Act of 1934, as amended, PCS is subject to competitive 
bidding in the case of mutually exclusive applications, and the 
Commission adopted general competitive bidding rules for auctionable 
services. In Implementation of Section 309(j) of the Communications 
Act--Competitive Bidding, Third Report and Order, 59 FR 26741 (May 24, 
1994), the Commission established competitive bidding rules 
specifically for narrowband PCS. Currently, of the three megahertz of 
900 MHz spectrum allocated for narrowband PCS, two one-megahertz blocks 
have been divided into specific channels for licensing. The remaining 
one megahertz of narrowband PCS spectrum has been reserved to 
accommodate future development of narrowband PCS. Thus far, nationwide 
and regional licenses have been awarded through two auctions, which 
were held in 1994.
    2. This Second R&O resolves issues raised in Amendment of the 
Commission's Rules to Establish New Personal Communications Services, 
Narrowband PCS, Report and Order and Further Notice of Proposed 
Rulemaking (Narrowband PCS R&O/Further Notice), 62 FR 27507 (May 20, 
1997). In response to the Narrowband PCS R&O/Further Notice, the 
Commission received 15 comments and 16 reply comments.
    3. Service Area Reallocation. In this Second R&O, the Commission 
amends its current allocation of narrowband PCS spectrum to eliminate 
Basic Trading Areas (BTAs) and license the remaining spectrum, 
including the response channels, based on Major Trading Areas (MTAs). 
The Commission finds that MTAs are the most appropriate geographic area 
for licensing the remaining narrowband PCS spectrum because they will 
serve the needs of a wide range of entities, including both large and 
small service providers. The Commission does not believe that using 
MTAs will compromise the goal of ensuring entry for small businesses or 
undermine the confidence of either incumbent and potential licensees or 
the investment community.
    4. Finally, the Commission notes that the use of MTAs will avoid 
any potential problems that might arise from inconsistencies between 
the boundaries of Major Economic Areas (MEAs) and existing regional 
licenses based on MTAs. Moreover, Rand McNally & Company, which owns 
the copyright to MTAs, has granted a blanket license to parties with an 
interest in this proceeding to use MTAs, and there is therefore no 
impediment to their use for narrowband PCS.
    5. Spectrum Aggregation Limit. In this Second R&O, the Commission 
eliminates the narrowband PCS spectrum aggregation limit. Adopted in 
1993, this rule provided that a single licensee was permitted to hold 
licenses for no more than three channels, either paired or unpaired, in 
any geographic area. The limit was adopted to ensure that narrowband 
PCS services would be offered on a competitive basis.
    6. The Commission recently has concluded that the paging/messaging 
industry is highly competitive. Moreover, narrowband PCS licensees 
increasingly compete with other sectors of the wireless industry, 
including broadband PCS and Specialized Mobile Radio (SMR) that offer 
the same or similar services. Thus, the Commission finds that the 
aggregation limit is not needed to prevent an undue concentration of 
licenses, either through the auctioning of additional narrowband PCS 
spectrum or post-auction mergers. Moreover, in order to compete with 
other providers of paging and messaging services, narrowband PCS 
licensees may need to consolidate and should not be prevented from 
doing so by the narrowband PCS spectrum aggregation limit.
    7. Further, the Commission does not believe that large companies 
will attempt to acquire licenses merely to foreclose entry by smaller 
entities, because it is clear that such a strategy would not be 
successful in limiting competition. Acquiring spectrum for

[[Page 35844]]

purposes of withholding its use would be very expensive. In addition, 
such efforts would be difficult, given the large number of licensees 
already competing in this market and the fact that narrowband PCS 
licensees face competition from other wireless sectors. Although the 
Commission has found that a Commercial Mobile Radio Services (CMRS) 
spectrum cap is necessary to ensure that the mobile voice market is 
competitive, the risk of excessive concentration through mergers is far 
lower in the paging/messaging context. Paging carriers face growing 
competition from short messaging services and other digital service 
features offered by an increasing number of mobile voice carriers. In 
addition, the recent auction of spectrum in the 929 and 931 MHz bands 
should facilitate further entry or capacity expansion. The Commission 
notes that it retains the ability to evaluate individual transfer and 
assignment applications on a case-by-case basis through its review of 
such applications.
    8. Eligibility for Response Channels. In order to provide an 
opportunity for incumbent paging licensees to upgrade their operations, 
the Commission set aside 100 kilohertz (eight unpaired frequencies) of 
the three megahertz allocated for narrowband PCS as paging response 
channels, i.e., channels to be used in paired communications with 
existing one-way paging frequencies to provide mobile-to-base station 
communications. The Commission's intent in establishing these channels 
was to provide a means for one-way (single frequency) paging licensees 
to obtain a second frequency for the purpose of delivering signals back 
from their customers' mobile devices.
    9. In this Second R&O, the Commission lifts all eligibility 
restrictions on applying for paging response channels, finding that 
such restrictions unnecessarily exclude potential users of the response 
channels that are not paging licensees, e.g., narrowband PCS licensees. 
Thus, eligibility for acquiring narrowband PCS response channels will 
no longer be limited to existing paging licensees, i.e., those licensed 
to operate conventional one-way paging base stations under part 22 or 
part 90 of the Commission's rules as of the application filing deadline 
for the paging response channels. The Commission finds that lifting the 
eligibility restrictions will encourage entry of new narrowband PCS 
providers by providing greater flexibility to new licensees to use 
these channels in conjunction with other spectrum to provide new 
services. In keeping with its decision to abolish the limit on 
aggregation of narrowband PCS spectrum, as well as its decision to 
eliminate eligibility restrictions for paging response channels, the 
Commission also concludes that there should be no limit on the number 
of response channels a licensee may hold.
    10. The Commission will retain the current rule restricting use of 
the response channels to mobile-to-base transmissions. Several 
commenters argue that allowing these channels to be used for other 
purposes would cause harmful interference with current narrowband PCS 
licensees. The Commission agrees with these commenters and will retain 
the current rule restricting use of the response channels to mobile-to-
base transmissions.
    11. Construction and Coverage Requirements for Narrowband PCS 
Licensees. The Commission will maintain its current coverage 
requirements for narrowband PCS and adopts a substantial service 
requirement as an alternative. The Commission finds that coverage 
requirements, including a substantial service standard, encourage the 
provision of service to areas that would not necessarily receive 
service expeditiously solely through the operation of market forces. 
The Commission recognizes that narrowband PCS is a developing service 
and that there has been a delay in equipment availability. It therefore 
believes that it would not be appropriate at this time to establish 
three- and five-year benchmarks for this service, as it has done for 
the paging services, in lieu of the current benchmarks. The Commission 
also believes, however, that its five- and ten-year construction 
benchmarks provide sufficient time for narrowband PCS licensees to 
construct their systems and that there is no need to alter the current 
benchmarks. Any problems that individual licensees may have because of 
difficulties with financing or equipment availability may be addressed 
by evaluating requests for waiver on a case-by-case basis.
    12. The Commission further finds that a substantial service option 
may be very useful in allowing licensees to use spectrum flexibly to 
provide new and innovative services uninhibited by a requirement that 
they meet a specific coverage benchmark or lose their license. In 
addition, rural areas may be more difficult to serve than urban areas. 
Permitting licensees to make a substantial service showing may 
encourage them to build out in rural areas because it would give them 
the option of satisfying the Commission's construction requirements by 
serving rural areas without necessarily having to meet either 
population or composite area benchmarks. The Commission finds that 
these advantages outweigh any concerns commenters have regarding 
potential speculation or anticompetitive conduct.
    13. In the past the Commission has offered guidance to licensees in 
other services with regard to factors that it would consider in 
evaluating whether the substantial service requirement has been met. 
The Commission will apply these same factors to evaluations of 
substantial service showings made by narrowband PCS licensees. Thus, 
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. A 
licensee may also demonstrate that it is providing service to unserved 
or underserved areas without covering a specific composite area or 
percentage of the population. Because the substantial service 
requirement can be met in a variety of ways, the Wireless 
Telecommunications Bureau (Bureau) will review licensees' showings on a 
case-by-case basis.
    14. Just as it believes that the addition of a substantial service 
alternative to its rules will be helpful to entities seeking to provide 
innovative services, the Commission also recognizes that there may be 
instances in which a flexible approach to its narrowband PCS 
operational or technical rules would be helpful to such entities and 
would promote the development of new services. Although the Commission 
has crafted these rules to generally provide for a wide range of 
technologies and business plans, there may be instances where 
particular circumstances render the rules unreasonable or overly 
burdensome, to the extent the public interest would be harmed by their 
strict application. The Commission therefore will give expedited 
treatment to requests for waivers of these operational and technical 
rules, and, to the extent it finds that such waivers will not harm 
other licensees and will be in the public interest, it will consider 
them favorably.
    15. Construction and Coverage Requirements for Nationwide Paging 
Licensees. In Revision of Part 22 and Part 90 of the Commission's Rules 
to Facilitate Future Development of Paging Systems, Memorandum Opinion 
and Order on Reconsideration and Third Report and Order (Paging MO&O/
Third Report and Order), 64 FR 33762 (June 24, 1999), the Commission 
considered the issue of coverage requirements for nationwide geographic 
area paging

[[Page 35845]]

licensees and deferred any decision on the issue until it resolved 
similar matters in the instant narrowband PCS rulemaking proceeding. In 
this Second R&O, the Commission declines to adopt coverage requirements 
for nationwide paging licensees that would be in addition to the build-
out requirements they have already met.
    16. Nationwide paging licensees have already met pre-existing 
build-out rules, which were imposed in connection with nationwide 
exclusivity rules prior to the advent of geographic area licensing. 
Having carefully examined its databases reflecting the extent of 
construction by nationwide paging licensees, the Commission finds that 
all of these licensees are already providing sufficient coverage to 
meet the five-year benchmark applicable to nationwide narrowband PCS 
licensees, and some of them have met the ten-year benchmark. Thus, 
while the Commission expects nationwide paging licensees to build out 
their systems to the same extent as nationwide narrowband PCS 
licensees, it concludes that the build-out requirements set forth in 
its previous rules were adequate to promote coverage by nationwide 
paging licensees that is equivalent to that of nationwide narrowband 
PCS licensees, which have recently reached their five-year benchmark. 
In addition, while the Commission anticipates that nationwide paging 
licensees' build-out in rural areas should increase in the future given 
that licensees appear to have already constructed in most urban areas, 
it has no evidence that nationwide paging licensees' build-out in rural 
areas is deficient. The Commission therefore concludes that it is 
unnecessary to impose a new layer of regulations on nationwide paging 
licensees by adopting additional coverage requirements for them. 
However, if the Commission is presented with evidence that there is a 
need to impose a requirement equivalent to the ten-year nationwide 
narrowband PCS benchmark, it will consider revisiting this issue in the 
future.
    17. Applicability of the Part 1 General Competitive Bidding Rules. 
Following the release of the Narrowband PCS R&O/Further Notice in April 
1997, the Commission adopted an order establishing uniform competitive 
bidding provisions for all auctionable services. See Amendment of Part 
1 of the Commission's Rules--Competitive Bidding Procedures, Third 
Report and Order and Second Further Notice of Proposed Rule Making 
(Part 1 Third Report and Order), 63 FR 770 (January 7, 1998). Thus, the 
general competitive bidding rules found in subpart Q of part 1 of the 
Commission's rules, including provisions adopted in the Part 1 Third 
Report and Order, will serve as the general competitive bidding rules 
for all future auctions, regardless of whether service-specific rules 
have previously been adopted. Subpart Q of part 1 of the Commission's 
rules will apply to narrowband PCS, unless the Commission determines 
that, with regard to particular matters, the adoption of service-
specific rules is warranted. The Balanced Budget Act of 1997 provides 
that, before the issuance of bidding rules, the Commission must provide 
adequate time for parties to comment on proposed auction procedures. In 
response to this statutory requirement, the Commission has directed the 
Bureau, under its existing delegated authority, to seek comment prior 
to the commencement of each auction on a variety of auction-specific 
operational issues. See Part 1 Third Report and Order (citing Balanced 
Budget Act of 1997, section 3002(a)(1)(B)(iv)). Under part 1 and 
consistent with this approach, matters such as auction design, license 
grouping, activity rules, minimum opening bids, and reserve prices will 
be determined by the Bureau pursuant to its delegated authority.
    18. The Commission declines to adopt the suggestion that it require 
applicants to identify each frequency in each market on which they wish 
to bid and submit upfront payments for each individual license. The 
Commission believes that its current rules, which require an upfront 
payment to cover only those licenses on which an applicant intends to 
bid in any one round, are appropriate because they allow bidders the 
flexibility to pursue backup strategies during the course of an auction 
in the event they are unable to obtain their first choice of licenses. 
Such flexibility is crucial to an efficient auction and optimal license 
assignment. The Commission also declines to modify its anti-collusion 
rule to provide a safe harbor for carriers engaged in negotiations 
regarding mergers or intercarrier agreements. It has declined to create 
such a safe harbor in the past, and it has not been presented with an 
adequate justification for departing from that decision with respect to 
narrowband PCS. Finally, certain commenters urge the Commission to 
provide auction participants with the identity of all competing 
bidders. It has generally been the Commission's practice to disclose 
the identity of all bidders in Commission auctions. If, however, in the 
case of particular auctions a limit on such information appears 
warranted, the Bureau will, consistent with the Balanced Budget Act of 
1997 and current practice, seek comment on the issue in a public notice 
prior to the auction.
    19. Treatment of Designated Entities. The term ``designated 
entity'' refers to small businesses, rural telephone companies, and 
businesses own by minorities and/or women. In this Second R&O, the 
Commission declines to offer race- and gender-based designated entity 
provisions for narrowband PCS at this time. Commenters in this 
proceeding have submitted no evidence or data on the issue of race- or 
gender-based auction provisions, and the Commission concludes that it 
does not have a sufficient record to support such special provisions at 
this time under current standards of judicial review. See Adarand 
Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (requiring a strict 
scrutiny standard of review for Congressionally mandated race-conscious 
measures) and United States v. Virginia, 518 U.S. 515 (1996) (applying 
an intermediate scrutiny standard of review to a state program 
containing gender classification).
    20. The Commission remains committed to meeting the statutory 
objectives of promoting economic opportunity and competition, avoiding 
excessive concentration of licenses, and 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. It 
believes the bidding credits it adopts for small businesses will assist 
in meeting these objectives because many minority- and women-owned 
entities are small businesses and will therefore qualify for these 
special provisions. The Commission also believes that its 
standardization of the rules regarding definitions of eligible 
entities, unjust enrichment, and bidding credits in the Part 1 Third 
Report and Order will assist small and minority- and women-owned 
businesses because the resulting predictability will facilitate 
effective business planning and capital accumulation. The Commission's 
Office of Communications Business Opportunities has initiated several 
studies to gather information regarding barriers to entry faced by 
minority- and women-owned firms that wish to participate, or have 
participated, in Commission auctions. Further, the Commission has 
recently commenced several new studies to explore additional entry 
barriers and to seek further evidence of racial and gender

[[Page 35846]]

discrimination against potential licensees. In addition, it will 
continue to track the rate of participation in its auctions by 
minority- and women-owned firms and evaluate this information with 
other data gathered to determine whether provisions to promote 
participation by minorities and women can satisfy judicial scrutiny. If 
a sufficient record can be adduced, the Commission may consider race- 
and gender-based auction provisions in the future.
    21. The Commission declines to adopt financial preferences designed 
specifically for rural telephone companies. The Commission is not 
persuaded by the argument that it should provide special bidding 
credits for rural telephone companies in order to meet its obligation 
to ensure that rural telephone companies have the opportunity to 
participate in spectrum-based services. The Commission has no evidence 
that large rural telephone companies encounter barriers to capital 
formation comparable to those faced by other designated entities. 
Moreover, the vast majority of rural telephone companies that have 
participated in the Commission's auctions to date have identified 
themselves as small businesses and have qualified for bidding credits 
on that basis. Thus, the Commission finds that small business bidding 
credits are sufficient to ensure that rural telephone companies have 
opportunities to participate in spectrum-based services.
    22. For purposes of narrowband PCS, the Commission will define a 
small business as an entity with average annual gross revenues not to 
exceed $40 million for the preceding three years and a very small 
business as an entity with average annual gross revenues not to exceed 
$15 million for the preceding three years. The Commission declines to 
adopt different definitions and thresholds for different channel 
blocks.
    23. In the Part 1 Third Report and Order, the Commission 
established a standard schedule of bidding credits for small 
businesses. While these bidding credits are higher than some previously 
adopted for specific services, the Commission concluded in the Part 1 
Third Report and Order that, based on its auction experience and the 
fact that it had decided to suspend the use of installment payments, 
the schedule adopted would provide adequate opportunities for small 
businesses to participate in spectrum auctions. The Commission believes 
that the levels of bidding credits in this schedule, which are higher 
than those proposed in the Narrowband PCS R&O/Further Notice, are 
sufficient to promote the participation of small businesses in the 
provision of narrowband PCS. The Commission therefore sees no reason to 
deviate from them here, and declines to adopt higher levels as 
recommended by certain commenters. Thus, as provided in 
Sec. 1.2110(e)(2) of the Commission's rules, small and very small 
businesses will be eligible for bidding credits as follows: Small 
businesses, i.e., those entities with average annual gross revenues for 
the preceding three years not exceeding $40 million, will receive a 15 
percent bidding credit. Very small businesses, i.e., those entities 
with average annual gross revenues for the preceding three years not 
exceeding $15 million, will receive a 25 percent bidding credit. These 
bidding credits will be available on all channels for which licenses 
are auctioned. Thus, bidding credits will not be restricted to certain 
channels.
    24. The Commission will attribute the gross revenues of the 
applicant, the applicant's controlling interests, and its affiliates in 
making determinations regarding small business status. This approach is 
consistent with the standard proposed in Amendment of Part 1 of the 
Commission's Rules--Competitive Bidding Procedures, Memorandum Opinion 
and Order and Notice of Proposed Rule Making, 62 FR 13540 (March 21, 
1997), wherein the Commission proposed a ``controlling interest'' 
standard as the general attribution rule for all future auctions. Under 
this standard, eligibility for small business provisions will be 
determined by attributing the gross revenues of the applicant, its 
controlling interests, which are defined to include those that exercise 
either de jure or de facto control, and its affiliates. Typically, de 
jure control is evidenced by holdings of greater than 50 percent of the 
voting stock of a corporation or, in the case of a partnership, general 
partnership interests. De facto control is determined on a case-by-case 
basis, and includes the criteria set forth in a Notice of Hearing 
Designation Order (Ellis Thompson Corp.), 60 FR 1776 (January 5, 1995).
    25. The ``controlling interest'' definition also provides specific 
guidance on calculation of various types of ownership interests. For 
purposes of calculating equity held in an applicant, the definition 
provides for full dilution of certain stock interests, warrants, and 
convertible debentures. In addition, the definition provides for 
attribution of partnership and other ownership interests, including 
stock interests held in trust, non-voting stock, and indirect ownership 
through intervening corporations. When an applicant cannot identify 
controlling interests under the definition, the revenues of all 
interest holders in the applicant and their affiliates will be counted. 
For example, if a company is owned by four entities, each of which has 
25 percent voting equity and no shareholders' agreement or voting trust 
gives any one of them control of the company, the revenues of all four 
entities and their affiliates must be counted. Treating such a 
corporation in this way is similar to the Commission's treatment of a 
general partnership--all general partners are considered to have a 
controlling interest. This rule looks to substance over form in 
assessing eligibility for small business status.
    26. The Commission's intent is to provide flexibility that will 
enable legitimate small businesses to attract passive financing in a 
highly competitive and evolving telecommunications marketplace. At the 
same time, the Commission believes that this controlling interest 
threshold will function effectively to ensure that only those entities 
truly meriting small business status are eligible for small business 
provisions. In particular, the Commission believes that the de jure and 
de facto concepts of control used to determine controlling interests in 
an applicant and the application of its affiliation rules will 
effectively prevent larger firms from illegitimately seeking status as 
a small business. The Commission also finds that the controlling 
interest standard it adopts, along with the definition of ``affiliate'' 
set forth in part 1 of its rules (see 47 CFR 1.2110(b)(4)), adequately 
addresses commenters' concerns regarding new business structures and 
widely held companies.
    27. The Commission continues to believe that the obstacles faced by 
small businesses, including women- and minority-owned small businesses, 
in raising capital are not necessarily confined to small business 
principals and affiliates with limited personal net worth. Moreover, 
personal net worth limits are difficult to apply and enforce. The 
Commission therefore eliminates the $40 million individual net worth 
limitation in its narrowband PCS rules.
    28. With respect to payment matters, the Commission declines to 
adopt installment payment plans for small businesses participating in 
narrowband PCS auctions in the future. The Commission's experience has 
demonstrated that installment payments may not be necessary to ensure a 
meaningful opportunity for small businesses to participate successfully 
in its auction program. The Commission continues to believe that 
bidding

[[Page 35847]]

credits, coupled with its partitioning and disaggregation policies, are 
sufficient to overcome barriers faced by small businesses seeking to 
participate in the narrowband PCS marketplace. As a result of the 
Commission's decision to suspend installment payments, and its adoption 
of rules governing late payments and defaults in part 1, subpart Q, 
issues related to installment payments regarding interest, late payment 
fees, and payment schedules raised in the Narrowband PCS R&O/Further 
Notice are now moot. Current licensees paying for their licenses in 
installments are subject to the late payment and default provisions in 
part 1.
    29. The Commission believes that when a small business entity 
applies to transfer or partition its license or disaggregate spectrum, 
unjust enrichment rules are necessary in order to ensure that non-small 
business entities cannot take indirect advantage of the Commission's 
small business incentives. However, the Commission does not need to 
establish a separate unjust enrichment requirement for narrowband PCS 
because it has adopted a uniform requirement in part 1, subpart Q, of 
its rules for all services. Accordingly, the unjust enrichment 
provisions set forth at 47 CFR 1.2111 will apply to narrowband PCS. 
These provisions address assignments and transfers between entities 
qualifying for different tiers of bidding credits. Because the 
Commission will now offer bidding credits only to small businesses, its 
unjust enrichment rules will apply to any case where a licensee that 
qualified for a bidding credit seeks to transfer or partition to an 
entity that is not a small business. In addition, the Commission's 
revised attribution rules will apply in determining small business 
status. Finally, the Commission declines to adopt a holding period or 
transfer restrictions for narrowband PCS licenses that would be in 
addition to its unjust enrichment rules.
    30. Partitioning and Disaggregation. The Commission will permit all 
narrowband PCS licensees, including incumbents, to partition their 
geographic license area at any time to any entity eligible for a 
narrowband PCS license. Small businesses and others may face certain 
barriers to entry into the provision of spectrum-based services, which 
may be addressed by allowing qualifying entities to acquire a 
partitioned license. The Commission also believes that the partitioning 
policy it adopts will allow licensees to use spectrum more efficiently, 
speed service to underserved areas, and stimulate competition.
    31. Partitioning will be permitted based on any geographic area 
defined by the parties to a partitioning arrangement. Partitionees will 
hold their licenses for the remainder of the partitioner's ten-year 
license term. This term is appropriate because a licensee, through 
partitioning, should not be able to confer greater rights than it was 
awarded under the terms of its license grant.
    32. Parties to a partitioning arrangement will have two options for 
meeting the applicable narrowband PCS construction requirements. Under 
the first option, the partitionee may certify that it will satisfy the 
same construction requirements as the original licensee, with the 
partitionee meeting the requirements in its partitioned area and the 
partitioner responsible for satisfying the requirements in the area it 
has retained. Under the second option, the original licensee may 
certify that it has already met or will meet its five-year construction 
requirement and that it will meet the 10-year requirement for the 
entire market involved. All parties should understand that, under the 
first option, both the partitioner and partitionee are individually 
responsible for meeting the coverage requirements for their respective 
areas. Failure by either party to meet its coverage requirements will 
result in the automatic cancellation of its license without further 
Commission action. Under the second option, only the partitioner's 
license will be cancelled if it fails to meet the coverage requirements 
for the entire geographic area. The partitionee will not be subject to 
coverage requirements except for those necessary to obtain license 
renewal.
    33. Partitioning applicants will be required to submit, as separate 
attachments to the partial assignment application, a description of the 
partitioned service area and a calculation of the population of the 
partitioned service area. The partitioned service area must be defined 
using counties, FCC-defined service areas (e.g., Economic Areas), or 
the boundaries of the area described in terms of latitude and 
longitude. When partitioning counties or FCC-defined service areas, the 
applicant need only supply the county and state, or market number. When 
describing the boundary of an area, however, the applicant must supply 
sets of coordinates (latitude and longitude referenced to the North 
American Datum of 1983--NAD83) along the boundary sufficient to 
describe the area. An applicant may use as few as three sets of 
coordinates, up to a maximum of 120 sets of coordinates in order to 
describe an area. Applicants are free to aggregate several areas 
described by coordinates in order to accurately describe the boundary 
of the partitioned area.
    34. The Commission will also permit all narrowband PCS licensees, 
including nationwide licensees to disaggregate portions of their 
spectrum in the same general manner as it has for licensees in other 
CMRS services where it has adopted disaggregation. The Commission 
concludes that marketplace forces should determine whether it is 
technically feasible to disaggregate narrowband spectrum. Allowing 
narrowband PCS spectrum disaggregation could potentially expedite the 
introduction of service to underserved areas and provide increased 
flexibility to licensees. The Commission also believes that 
disaggregation combined with bidding credits and geographic 
partitioning will facilitate the acquisition of narrowband PCS spectrum 
by small businesses.
    35. The Commission finds that it is unnecessary to require a party 
that wishes to disaggregate to retain a minimum amount of spectrum. 
Thus, the Commission will allow disaggregating parties to negotiate 
channelization plans among themselves as a part of their disaggregation 
agreements. Parties will be permitted to disaggregate spectrum in any 
increments as long as such disaggregation is otherwise consistent with 
the Commission's rules. Disaggregatees will be authorized to hold 
licenses for the remainder of the disaggregator's original ten-year 
term. As the Commission concluded with respect to partitioners, the 
disaggregator should not be entitled to confer greater rights than it 
was awarded under the initial license grant.
    36. With respect to meeting construction requirements, 
disaggregating parties will be permitted to choose between two options: 
Under the first option, the parties may agree that either the 
disaggregator or the disaggregatee will be responsible for meeting the 
coverage requirements for the geographic service area. Under the second 
option, the disaggregator and disaggregatee may certify that they will 
share the responsibility for meeting the coverage requirements for the 
entire geographic area. Under the first option, if the certifying party 
fails to meet the coverage requirements for the entire geographic area, 
that party's license will be subject to cancellation, but the non-
certifying party's license will not be affected. However, if the 
parties to a disaggregation agreement select the second option and 
jointly fail to satisfy

[[Page 35848]]

the coverage requirements for the entire geographic area, both parties' 
licenses will be subject to cancellation. Parties seeking Commission 
approval of a disaggregation agreement will be required to include a 
certification as to which party or parties will be responsible for 
meeting the construction requirements.
    37. Combined partitioning and disaggregation will be permitted. 
This will allow narrowband PCS licensees the flexibility to design the 
types of agreements they desire, and will advance the goals of 
providing competitive service offerings and encouraging new market 
entrants. In the event that there is a conflict in the application of 
the partitioning and disaggregation rules, the partitioning rules will 
prevail. When a combination of partitioning and disaggregation is 
proposed, the Commission will use both the population of the 
partitioned area and the amount of spectrum disaggregated to calculate 
unjust enrichment payments.
    38. The Commission has adopted a general rule that determines the 
amount of unjust enrichment payments assessed for all current and 
future licensees that engage in partitioning and disaggregation. 
Specifically, the rules adopted in the Part 1 Third Report and Order 
indicate that if a licensee seeks to partition any portion of its 
geographic area, the amount of the unjust enrichment payment will be 
calculated based on the ratio of the population in the partitioned area 
to the overall population of the license area. In the event of 
disaggregation, the amount of the unjust enrichment payment will be 
based upon the ratio of the amount of spectrum disaggregated to the 
amount of spectrum held by the disaggregating licensee. See 47 CFR 
1.2111(e). The unjust enrichment provisions adopted in the Part 1 Third 
Report and Order will apply to any narrowband PCS licensee that 
receives a bidding credit and later elects to partition or disaggregate 
its license. When combined partitioning and disaggregation is proposed, 
the Commission will use a combination of both population of the 
partitioned area and amount of spectrum disaggregated to make these pro 
rata calculations.
    39. Installment payments have been suspended as a means of 
financing small businesses and other designated entities seeking to 
secure spectrum licenses. Nonetheless, there are a small number of 
current narrowband licensees that qualified as small businesses for 
installment payment plans. If such a licensee sought to partition or 
disaggregate its license to another small business, the partitionee or 
disaggregatee would be permitted to pay its portion of the remaining 
obligation on the license in installments. If, however, such a licensee 
sought to partition or disaggregate its license to a non-small 
business, the Commission's part 1 unjust enrichment rules would apply.
    40. Because the Commission has suspended its installment payment 
program, the issue of default obligations for parties entering into 
partitioning and disaggregation agreements is moot with respect to 
future licensees. With respect to current small business licensees that 
may partition or disaggregate to other small businesses, the Commission 
concludes that a default on one party's payment obligation should not 
affect the other party's license.
    41. Ownership Disclosure Requirements. The Commission believes that 
requiring detailed ownership information is necessary to ensure that 
all applicants claiming small business status qualify for such status. 
Disclosure of ownership information also aids bidders by providing them 
with information about their auction competitors and alerting them to 
entities subject to the Commission's anti-collusion rules. The 
Commission has adopted uniform ownership disclosure requirements in 
part 1, subpart Q, of its rules for all services. See 47 CFR 1.2112. 
These rules require all auction applicants to disclose the real party 
or parties in interest by including as an exhibit to their short-form 
applications detailed ownership information. Moreover, they require 
that applicants list controlling interests as well as all parties 
holding a 10 percent or greater interest in the applicant and any 
affiliates of these interest holders. These rules, combined with the 
controlling interest standard the Commission adopts in this Second R&O 
and its definition of ``affiliate,'' will help to ensure that only 
qualifying applicants obtain the benefits of the Commission's small 
business provisions, without being unduly burdensome.
    42. Construction Prior to Grant of Licenses for Narrowband and 
Broadband PCS. The Commission will apply its part 1 rules, which permit 
applicants for all licenses awarded by competitive bidding to begin 
construction of facilities prior to the grant of their applications. 
Sees 47 CFR 1.2113. The Commission believes that allowing pre-grant 
construction furthers the statutory objective of rapidly deploying new 
technologies, products, and services for the benefit of the public. 
Pre-grant construction will be subject to any narrowband PCS service 
restrictions, including but not limited to antenna restrictions, 
environmental requirements, and international coordination. Any 
applicant engaging in pre-grant construction does so entirely at its 
own risk, and the Commission will not take such activity into account 
in ruling on any petition to deny.

Procedural Matters

A. Regulatory Flexibility Analysis

    43. A Final Regulatory Flexibility Analysis, pursuant to the 
Regulatory Flexibility Act, 5 U.S.C. 604, is incorporated in this 
document.

B. Paperwork Reduction Act Analysis

    44. This Second R&O contains a modified information collection. As 
part of its continuing effort to reduce paperwork burdens, the 
Commission invites the general public and the Office of Management and 
Budget (OMB) to take this opportunity to comment on the information 
collection contained in this Second R&O, as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. Public and agency comments 
are due on or before July 6, 2000. Written comments must be submitted 
by OMB on the modified information collection on or before August 7, 
2000. Comments should address: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Control Number: 3060-0625.
    Title: Amendment of the Commission's Rules to Establish New 
Personal Communications Services, Narrowband PCS.
    Form Number: N/A.
    Type of Review: Revision of existing collection.
    Respondents: Business or other for-profit; Individuals or 
households; Not-for-profit institutions; Federal Government; and State, 
Local or Tribal Government.
    Number of Respondents: 1,500.
    Estimate Time Per Response: 3.5 hrs. (avg.).
    Frequency of Response: On occasion.
    Total Annual Burden: 5,250 hours.
    Total Annual Costs: $1,050,000.
    Needs and Uses: The amendments to the Commission's narrowband 
Personal

[[Page 35849]]

Communications Services rules adopted in this proceeding will improve 
the efficiency of spectrum use, reduce the regulatory burden on 
spectrum users, encourage competition, and promote service to the 
largest feasible number of users.
    45. In addition to filing comments with the Secretary, a copy of 
any comments on the information collection(s) contained herein should 
be submitted to Judy Boley, Federal Communications Commission, Room 1-
C804, 445 12th Street, SW., Washington, DC 20554, or via the Internet 
to [email protected] and to Edward Springer, OMB Desk Officer, 10236 NEOB, 
725 17th Street, NW., Washington, DC 20503 or via the Internet to 
[email protected].

E. Ordering Clauses

    46. Authority for issuance of this Second R&O is contained in 
sections 4(i), 257, 303(r), and 309(j) of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 257, 303(r), and 309(j).
    47. Accordingly, it is ordered that part 24 of the Commission's 
rules is amended as specified, effective August 7, 2000, except 
Sec. 24.104, which shall be effective upon OMB approval.
    48. It is further ordered that the Commission's Consumer 
Information Bureau, Reference Information Center, shall send a copy of 
this Second R&O, including the Final Regulatory Flexibility Analysis, 
to the Chief Counsel for Advocacy of the Small Business Administration.

Final Regulatory Flexibility Analysis

    49. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the 
Narrowband PCS R&O/Further Notice in this proceeding. The Commission 
sought written public comment on the proposals in the Narrowband PCS 
R&O/Further Notice, including comment on the IRFA. No commenter raised 
an issue concerning the IRFA. The Commission's Final Regulatory 
Flexibility Analysis (FRFA) in this Second R&O conforms to the RFA.

i. Need for and Purpose of this Action

    50. This Second R&O amends the Commission's rules for narrowband 
PCS. The amendments adopted promote efficient licensing of narrowband 
PCS and enhance the service's competitive potential in the Commercial 
Mobile Radio Service marketplace. The Second R&O also makes the 
competitive bidding rules for narrowband PCS, which previously provided 
preferences for minority- and women-owned businesses, race- and gender-
neutral. The Commission deems the latter changes necessary in light of 
the Supreme Court's decisions in Adarand Constructors, Inc. v. Pena, 
515 U.S. 200 (1995) (requiring a strict scrutiny standard of review for 
Congressionally mandated race-conscious measures) and United States v. 
Virginia, 518 U.S. 515 (1996) (applying an intermediate scrutiny 
standard of review to a state program containing gender 
classification). By applying the Commission's standardized part 1 
competitive bidding rules to narrowband PCS and eliminating most of the 
service-specific competitive bidding rules previously applied, the 
Second R&O also simplifies and reduces the regulatory burden on 
applicants and licensees.

ii. Summary of Issues Raised by the Public in Response to the IRFA

    51. No party filed comments responding to the IRFA. The Commission 
has, however, taken small business concerns into account in the Second 
R&O, as discussed in Sections v and vi of this FRFA.

iii. Description and Estimate of the Number of Small Entities to Which 
the Rules Will Apply

    52. The rules adopted in the Second R&O will affect small 
businesses that hold or seek to acquire narrowband PCS licenses. These 
entities include small businesses that obtain nationwide, regional or 
MTA geographic area licenses through auction, assignment, or transfer 
and small businesses that acquire partitioned and/or disaggregated MTA, 
regional, or nationwide geographic area licenses.
    53. To date, two auctions of narrowband PCS licenses have been 
conducted. Through these auctions, the Commission has awarded a total 
of 41 licenses, out of which 11 were obtained by small businesses. For 
purposes of the two auctions that have already been held, small 
businesses were defined as entities with average gross revenues for the 
prior three calendar years of $40 million or less. To ensure meaningful 
participation of small business entities in the auctions, the 
Commission adopts a two-tiered definition of small businesses in the 
Second R&O. A small business is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $40 million. A very small 
business is an entity that, together with affiliates and controlling 
interests, has average gross revenues for the three preceding years of 
not more than $15 million. In December 1998, the Small Business 
Administration approved this two-tiered definition, which had been 
proposed in the Narrowband PCS R&O/Further Notice. Letter of December 
2, 1998, to Amy J. Zoslov, Chief, Auctions and Industry Analysis 
Division, Wireless Telecommunications Bureau, from Aida Alvarez, 
Administrator Small Business Administration.
    54. Without this definition, the Commission would utilize the SBA 
definition applicable to radiotelephone companies, i.e., an entity 
employing fewer than 1,500 persons. See 13 CFR 121.201, Standard 
Industrial Classification Code 4812. Nearly all radiotelephone 
companies have fewer than 1,000 employees. The 1992 Census of 
Transportation, Communications, and Utilities, conducted by the Bureau 
of the Census, shows that only 12 radiotelephone firms out of a total 
of 1,178 such firms that operated during 1992 had 1,000 or more 
employees. U.S. Bureau of the Census, U.S. Department of Commerce, 1992 
Census of Transportation, Communications, and Utilities, UC92-S-1, 
Subject Series, Establishment and Firm Size, Table 5, Employment Size 
of Firms: 1992, SIC Code 4812 (issued May 1995).
    55. In the future, the Commission will auction 459 licenses to 
serve MTAs and 408 response channel licenses. There is also one 
megahertz of narrowband PCS spectrum that has been held in reserve and 
that the Commission has not yet decided to release for licensing. The 
Commission cannot predict accurately the number of licenses that will 
be awarded to small entities in future auctions. However, 4 of the 16 
winning bidders in the two previous narrowband PCS auctions were small 
businesses, as that term was defined under the Commission's rules. The 
Commission assumes, for purposes of the evaluations and conclusions in 
this FRFA, that a large portion of the remaining narrowband PCS 
licenses will be awarded to small entities. The Commission also assumes 
that at least some small businesses will acquire narrowband PCS 
licenses by means of the Commission's partitioning and disaggregation 
rules.

iv. Summary of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    56. The rules adopted in the Second R&O impose reporting and 
recordkeeping requirements on small businesses, as well as others, 
seeking to obtain or transfer licenses through partitioning and 
disaggregation. The information requirements will be used

[[Page 35850]]

to determine whether the proposed partitionee or disaggregatee is an 
entity qualified to obtain a partitioned license or disaggregated 
spectrum. The information will be a one-time filing by an applicant 
requesting such a license. The information can be submitted on FCC Form 
603 for part 24 narrowband PCS services. The Commission estimates that 
the average burden on the applicant is three hours for the information 
necessary to complete these forms. The Commission estimates that 75 
percent of the respondents, which may include small businesses, will 
contract out the burden of responding. The Commission estimates that it 
will take approximately 30 minutes to coordinate information with those 
contractors. The remaining 25 percent of respondents, which may include 
small businesses, are estimated to employ in-house staff to provide the 
information. Applicants filing electronically, including small 
businesses will not incur any per minute on-line charge. The Commission 
estimates that applicants contracting out the information would use an 
attorney or engineer (average of $200 per hour) to prepare the 
information.
    57. Narrowband PCS applicants and licensees, including small 
businesses, will be subject to the reporting and recordkeeping 
requirements already contained in the Commission's part 1 competitive 
bidding rules, which apply to all auctionable services. These part 1 
rules include the unjust enrichment rule set forth at 47 CFR 1.2111, 
which includes a reporting requirement for applicants seeking approval 
of a transfer of control or assignment of license within three years of 
receiving a new license through competitive bidding. The part 1 rules 
also include the uniform ownership disclosure requirements of 47 CFR 
1.2112, which require all auction applicants to disclose the real party 
or parties in interest by including as an exhibit to their short-form 
applications detailed ownership information. The Commission finds that 
these rules, combined with its controlling interest standard and 
definition of ``affiliate,'' will help to ensure that only qualifying 
applicants obtain the benefits of its small business provisions, 
without being unduly burdensome. In addition, narrowband PCS licensees 
that qualify as designated entities will be required to maintain at 
their facilities or by a designated agent, for the term of the license, 
information relevant to their eligibility for designated entity status. 
This requirement will further help to ensure that only qualifying 
applicants obtain the benefits of the Commission's small business 
provisions.

v. Steps Taken To Minimize Burdens on Small Entities

    58. The rules adopted in the Second R&O are designed to implement 
Congress' goal of giving small businesses, as well as other entities, 
the opportunity to participate in the provision of spectrum-based 
services. The rules are also consistent with the Communications Act's 
mandate to identify and eliminate market entry barriers for 
entrepreneurs and small businesses in the provision and ownership of 
telecommunications services. See generally 47 U.S.C. 257, 309(j).
    59. Service Areas. The Commission finds that MTAs, rather than 
nationwide and regional geographic areas, are the most appropriate 
geographic area for licensing the remaining narrowband PCS spectrum 
because they will serve the needs of a wide range of entities, 
including both large and small service providers. Certain commenters 
argued that any additional nationwide or regional licenses would be too 
costly for small businesses to acquire and build out. MTAs, however, 
are not too large to preclude the entry of small businesses, and those 
interested in service areas larger than MTAs will be able to create 
such areas by aggregating licenses.
    60. Bidding Credits. To ensure meaningful participation of small 
business entities in the auctions, the Commission adopts a two-tiered 
definition of small businesses in the Second R&O. A small business is 
an entity that, together with affiliates and controlling interests, has 
average gross revenues for the three preceding years of not more than 
$40 million. A very small business is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $15 million. Small 
businesses are eligible for a 15 percent bidding credit. Very small 
businesses are eligible for a 25 percent bidding credit. In contrast to 
the Commission's previous rules, bidding credits will now be applicable 
to narrowband PCS licenses on all channels.
    61. Partitioning and Disaggregation. The Second R&O adopts rules 
permitting narrowband PCS licensees to partition portions of their 
geographic areas, or disaggregate portions of the spectrum for which 
they hold a license, to other entities qualified to be licensees. Such 
partitioning and disaggregation will facilitate market entry by parties 
that may lack the financial resources to participate in auctions, 
including small businesses. Partitioning and disaggregation are 
expected to enable small businesses to obtain licenses for areas 
smaller than nationwide, regional or MTA areas, or smaller amounts of 
spectrum, at costs they will be able to afford. The Commission's 
decision to allow parties to partitioning or disaggregation agreements 
to choose between two options to meet their coverage requirements will 
provide small businesses with more flexibility in managing their 
resources.
    62. Substantial Service Option. The Second R&O allows narrowband 
PCS licensees to demonstrate ``substantial service'' as an alternative 
to meeting the coverage requirements set forth in the existing rules. 
The Commission finds that a substantial service option may be very 
useful in allowing licensees, including small businesses, to use 
spectrum flexibly to provide new and innovative services uninhibited by 
a requirement that they meet a specific coverage benchmark or lose 
their license.
    63. Application of Part 1 Standardized Rules. The Commission 
believes that its application of the part 1 standardized rules 
regarding eligible entities, unjust enrichment, and bidding credits 
will assist small businesses because the resulting predictability will 
facilitate the business planning and capital fundraising process.

vi. Significant Alternatives Considered

    64. The Commission considered and rejected the following 
alternative proposals concerning service areas, spectrum aggregation, 
response channels, coverage requirements, nationwide paging licensees, 
competitive bidding rules, installment payments, and disaggregation.
    65. Service Areas. The Commission declined to adopt Metrocall's, 
Celpage's and Benbow's recommendation that it use a combination of 
regional and MTA service areas for future licensing of narrowband PCS. 
Similarly, the Commission declined to adopt Arch's proposal that it 
allocate one of the two remaining 50 kHz paired channels as a 
nationwide license. Taking into consideration other commenters' 
argument that it would be too costly for small businesses to acquire 
and build out nationwide and regional licenses, the Commission decided 
to use MTAs for future licensing. The Commission also declined to adopt 
several commenters' recommendation that it use BTA-based licenses to 
license narrowband PCS spectrum. The Commission concluded that using 
MTAs rather than BTAs would not

[[Page 35851]]

compromise the goal of ensuring entry for small businesses.
    66. Spectrum Aggregation. In the Second R&O, the Commission 
considered the argument that it should maintain the narrowband PCS 
spectrum aggregation limit, which was originally adopted to ensure that 
narrowband PCS services would be offered on a competitive basis. The 
Commission decided to eliminate the narrowband PCS aggregation limit, 
finding that the aggregation limit is not needed to prevent an undue 
concentration of licenses and that it may be harmful if it 
disadvantages narrowband PCS licensees in competing against other 
services.
    67. Response Channels. In the Second R&O, the Commission considered 
and rejected its tentative conclusion that the response channels should 
not be restricted to mobile-to-base transmissions, provided that 
licensees comply with the relevant rules regarding maximum transmitter 
power and interference. The Commission agreed with commenters Arch, 
Benbow, and PCIA that allowing these channels to be used for other 
purposes would cause harmful interference with current narrowband PCS 
licensees and determined that it would retain the current rule 
restricting use of the response channels to mobile-to-base 
transmissions.
    68. Construction and Coverage Requirements. The Commission declined 
to adopt recommendations by certain commenters that it modify its 
current construction benchmarks. It declined, for example, to adopt 
Arch's and Benbow's suggestion that it eliminate the five-year 
construction requirement and allow both existing and new narrowband PCS 
licensees to meet a 37.5 percent population benchmark by the tenth year 
of their license terms. The Commission found that its five- and ten-
year construction benchmarks provide sufficient time for narrowband PCS 
licensees to construct their systems. The nationwide narrowband PCS 
licensees that have reached their five-year buildout benchmarks have 
all represented that they met the requirement, and none requested a 
waiver. The Commission found that there is no need to alter the current 
benchmarks, and that it is best to address any problems that individual 
licensees may have because of difficulties with financing or equipment 
availability by evaluating requests for waiver on a case-by-case basis.
    69. Several commenters opposed the adoption of a ``substantial 
service'' requirement on the grounds that replacing the existing 
coverage requirements with a substantial service test would encourage 
speculation, fraud, and anticompetitive behavior. In considering and 
rejecting this argument, the Commission concluded that coverage 
requirements, including a substantial service standard, encourage the 
provision of service to areas that would not necessarily receive 
service expeditiously solely through the operation of market forces. 
The Commission found that the substantial service option may be very 
useful in allowing licensees to use spectrum flexibly to provide new 
and innovative services uninhibited by a requirement that they meet a 
specific coverage benchmark or lose their license. The Commission also 
concluded that permitting licensees to make a substantial service 
showing may encourage them to build out in rural areas. The Commission 
also declined to adopt Ameritech's recommendation that substantial 
service be defined as ``service that is sound, favorable, and 
reasonably capable of meeting an appropriate portion of the public 
demand for one or more of the communications services of which the 
system is capable under the Commission's rules.'' In the past the 
Commission has offered guidance to licensees in other services with 
regard to factors that it would consider in evaluating whether the 
substantial service requirement has been met, and it will maintain this 
practice with respect to narrowband PCS.
    70. Nationwide Paging Licenses. In the Paging MO&O/Third Report and 
Order, the Commission considered the issue of coverage requirements for 
nationwide geographic area paging licensees and deferred any decision 
on the issue until it resolved similar matters in the instant 
narrowband PCS rulemaking proceeding. In the Second R&O, the Commission 
found that all nationwide paging licensees are already providing 
sufficient coverage to meet the five-year benchmark applicable to 
nationwide narrowband PCS licenseees, and some of them have met the 
ten-year benchmark. Thus, the Commission concluded that the build-out 
requirements imposed on nationwide paging licensees under its previous 
rules were adequate to promote coverage equivalent to that of 
nationwide narrowband PCS licensees, and therefore it is not necessary 
to adopt coverage requirements for nationwide paging licensees that 
would be in addition to the build-out requirements they have already 
met.
    71. Competitive Bidding Rules. The Commission declined to adopt 
certain commenters' recommendation that it require applicants to 
identify each frequency in each market on which they wish to bid and 
submit upfront payments for each individual license. The Commission 
found that its current rules, which require an upfront payment to cover 
only those licenses on which an applicant intends to bid in any one 
round, are appropriate because they allow bidders the flexibility to 
pursue backup strategies during the course of an auction in the event 
they are unable to obtain their first choice of licenses. The 
Commission also declined to modify its anti-collusion rule to provide a 
safe harbor for carriers engaged in negotiations regarding mergers or 
intercarrier agreements, as requested by PCIA. The Commission has 
declined to create such a safe harbor in the past, and it has not been 
presented with an adequate justification for departing from that 
decision here. Finally, several commenters requested that the 
Commission provide auction participants with the identity of all 
competing bidders. It has generally been the Commission's practice to 
disclose the identity of all bidders in Commission auctions. If, in the 
case of particular auctions, a limit on such information appears 
warranted, the Wireless Telecommunications Bureau will, consistent with 
the Balanced Budget Act of 1997 and current practice, seek comment on 
the issue in a public notice prior to the auction.
    72. Installment Payments. The Commission declined to adopt 
installment payment plans for small businesses participating in 
narrowband PCS auctions. This action is consistent with the 
Commission's policy set forth in the Part 1 Third Report and Order, 
where the Commission noted that its experience has demonstrated that 
installment payments may not be necessary to ensure a meaningful 
opportunity for small businesses to participate successfully in its 
auction program.
    73. Bidding Credits. The Commission decided to adopt a 15 percent 
bidding credit for small businesses and a 25 percent bidding credit for 
very small businesses. A small business is an entity with average 
annual gross revenues not to exceed $40 million for the preceding three 
years, and a very small business is an entity with average annual gross 
revenues not to exceed $15 million for the preceding three years. The 
Commission declined to adopt higher bidding credits, as Merlin and RTG 
recommend. The bidding credits adopted are those provided for in the 
Commission's part 1 standardized competitive bidding rules. The 
Commission believes that these levels of

[[Page 35852]]

bidding credits, which are higher than those proposed in the Narrowband 
PCS R&O/Further Notice, are sufficient to promote the participation of 
small businesses in the provision of narrowband PCS, and that there is 
no reason to deviate from the standard schedule of bidding credits 
here.
    74. Bidding Credits for Rural Telephone Companies. The Commission 
declined to adopt RTG's and NTCA's recommendation that it provide 
special bidding credits for rural telephone companies in order to meet 
its obligation to ensure that rural telephone companies have the 
opportunity to participate in spectrum-based services. The Commission 
has no evidence that large rural telephone companies encounter barriers 
to capital formation comparable to those faced by other designated 
entities. In addition, the vast majority of rural telephone companies 
that have participated in the Commission's auctions to date have 
identified themselves as small businesses and have qualified for 
bidding credits on that basis. Thus, the Commission believes that small 
business bidding credits are sufficient to ensure that rural telephone 
companies have the ability to participate in spectrum-based services, 
and it does not believe that rural telephone companies will be unable 
to compete in narrowband PCS auctions or the messaging marketplace 
without special financial preferences.
    75. Attribution. The Commission declined to adopt Merlin's 
recommendations regarding amending its rules to adapt to various 
business structures. Merlin suggests, for example, that, for purposes 
of defining whether a company is widely held, whatever its form of 
business organization, the Commission should formulate its rules to 
state that a widely held company is one in which no single equity 
holder has 15 percent or more of the equity of the applicant. The 
Commission found that the controlling interest standard adopted in the 
Second R&O, along with the definition of ``affiliate'' set forth in 
part 1 of the Commission's rules, adequately addresses Merlin's 
concerns.
    76. Disaggregation. Some commenters stated that disaggregation is 
not technically feasible and therefore it is unnecessary for the 
Commission to address the issue at this time. In considering and 
rejecting such arguments, the Commission concluded that marketplace 
forces should determine whether it is technically feasible to 
disaggregate narrowband spectrum. The Commission also concluded that 
allowing narrowband PCS spectrum disaggregation could potentially 
expedite the introduction of service to underserved areas and provide 
increased flexibility to licensees. Finally, the Commission found that 
disaggregation combined with bidding credits and geographic 
partitioning will facilitate the acquisition of narrowband PCS spectrum 
by small businesses.
    77. Report to Congress. The Commission will send a copy of the 
Second R&O, including this FRFA, in a report to be sent to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996. See 5 U.S.C. 801(a)(1)(A). In addition, the Commission will send 
a copy of the Second R&O, including FRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 24

    Communications common carriers, Personal communications services, 
Radio, Reporting and recordkeeping requirements.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 24 as follows:

PART 24--PERSONAL COMMUNICATIONS SERVICES

    1. The authority citation for part 24 continues to read as follows:

    Authority: 47 U.S.C. 154, 301, 302, 303, 309 and 332.

Sec. 24.101  [Removed and Reserved]

    2. Remove and reserve Sec. 24.101.
    3. Section 24.102 is amended by removing paragraph (d) and by 
revising the introductory text to read as follows:

Sec. 24.102  Service areas.

    Narrowband PCS service areas are nationwide, regional, and Major 
Trading Areas (MTAs), as defined in this section. MTAs are based on the 
Rand McNally 1992 Commercial Atlas & Marketing Guide, 123rd Edition, at 
pages 38-39 (MTA Map). Rand McNally organizes the 50 States and the 
District of Columbia into 47 MTAs. The MTA Map is available for public 
inspection in the FCC's Library, Room TW-B505, 445 12th Street SW, 
Washington, D.C.
* * * * *

    4. Section 24.103 is amended by removing the Note and by revising 
paragraph (a), (b), (c), (d), introductory text of paragraph (e), and 
(f) to read as follows:

Sec. 24.103  Construction requirements.

    (a) Nationwide narrowband PCS licensees shall construct base 
stations that provide coverage to a composite area of 750,000 square 
kilometers or serve 37.5 percent of the U.S. population within five 
years of initial license grant date; and, shall construct base stations 
that provide coverage to a composite area of 1,500,000 square 
kilometers or serve 75 percent of the U.S. population within ten years 
of initial license grant date. Licensees may, in the alternative, 
provide substantial service to the licensed area as provided in 
paragraph (d) of this section.
    (b) Regional narrowband PCS licensees shall construct base stations 
that provide coverage to a composite area of 150,000 square kilometers 
or serve 37.5 percent of the population of the service area within five 
years of initial license grant date; and, shall construct base stations 
that provide coverage to a composite area of 300,000 square kilometers 
or serve 75 percent of the service area population within ten years of 
initial license grant date. Licensees may, in the alternative, provide 
substantial service to the licensed area as provided in paragraph (d) 
of this section.
    (c) MTA narrowband PCS licensees shall construct base stations that 
provide coverage to a composite area of 75,000 square kilometers or 25 
percent of the geographic area, or serve 37.5 percent of the population 
of the service area within five years of initial license grant date; 
and, shall construct base stations that provide coverage to a composite 
area of 150,000 square kilometers or 50 percent of the geographic area, 
or serve 75 percent of the population of the service area within ten 
years of initial license grant date. Licensees may, in the alternative, 
provide substantial service to the licensed area as provided in 
paragraph (d) of this section.
    (d) As an alternative to the requirements of paragraphs (a), (b), 
and (c) of this section, narrowband PCS licensees may demonstrate that, 
no later than ten years after the initial grant of their license, they 
provide substantial service to their licensed area. Licensees choosing 
this option must notify the FCC by filing FCC Form 601, no later than 
15 days after the end of the five year period following the initial 
grant of their license, that they plan to satisfy the alternative 
requirement to provide substantial service. ``Substantial service'' is 
defined as service that is sound, favorable, and substantially above a 
level of mediocre service that would barely warrant renewal.

[[Page 35853]]

    (e) In demonstrating compliance with the construction requirements 
set forth in this section, licensees must base their calculations on 
signal field strengths that ensure reliable service for the technology 
utilized. Licensees may determine the population of geographic areas 
included within their service contours using either the 1990 census or 
the 2000 census, but not both.
* * * * *
    (f) Upon meeting the five and ten year benchmarks in paragraphs 
(a), (b), and (c) of this section, or upon meeting the substantial 
service alternative in paragraph (d), licensees shall notify the 
Commission by filing FCC Form 601 and including a map and other 
supporting documentation that demonstrate the required geographic area 
coverage, population coverage, or substantial service to the licensed 
area. The notification must be filed with the Commission within 15 days 
of the expiration of the relevant period.
* * * * *

    5. Section 24.104 is added to read as follows:

Sec. 24.104  Partitioning and disaggregation.

    Nationwide, regional, and MTA licensees may apply to partition 
their authorized geographic service area or disaggregate their 
authorized spectrum at any time following grant of their geographic 
area authorizations.
    (a) Application required. Parties seeking approval for partitioning 
and/or disaggregation shall apply for partial assignment of a license 
pursuant to Sec. 1.948 of this chapter.
    (b) Partitioning. In the case of partitioning, applicants and 
licensees must file FCC Form 603 pursuant to Sec. 1.948 of this chapter 
and describe the partitioned service area on a schedule to the 
application. The partitioned service area shall be defined by up to 120 
sets of geographic coordinates at points at every 3 degrees azimuth 
from a point within the partitioned service area along the partitioned 
service area boundary unless either an FCC-recognized service area is 
used (e.g., MEA or EA) or county lines are followed. The geographical 
coordinates must be specified in degrees, minutes, and seconds to the 
nearest second latitude and longitude, and must be based upon the 1983 
North American Datum (NAD83). In the case where FCC-recognized service 
areas or county lines are used, applicants need only list the specific 
area(s) through use of FCC designations or county names that constitute 
the partitioned area.
    (c) Disaggregation. Spectrum may be disaggregated in any amount.
    (d) Combined partitioning and disaggregation. Licensees may apply 
for partial assignment of authorizations that propose combinations of 
partitioning and disaggregation.
    (e) License term. The license term for a partitioned license area 
and for disaggregated spectrum shall be the remainder of the original 
licensee's license term as provided for in Sec. 1.955 of this chapter.
    (f) Coverage requirements for partitioning. (1) Parties to a 
partitioning agreement must satisfy at least one of the following 
requirements:
    (i) The partitionee must satisfy the applicable coverage 
requirements set forth in Sec. 24.103 for the partitioned license area; 
or
    (ii) The original licensee must meet the coverage requirements set 
forth in Sec. 24.103 for the entire geographic area. In this case, the 
partitionee must meet only the requirements for renewal of its 
authorization for the partitioned license area.
    (2) Parties seeking authority to partition must submit with their 
partial assignment application a certification signed by both parties 
stating which of the options they select.
    (3) Partitionees must submit supporting documents showing 
compliance with their coverage requirements as set forth in 
Sec. 24.103.
    (4) Failure by any partitionee to meet its coverage requirements 
will result in automatic cancellation of the partitioned authorization 
without further Commission action.
    (g) Coverage requirements for disaggregation. (1) Parties to a 
disaggregation agreement must satisfy at least one of the following 
requirements:
    (i) Either the disaggregator or disaggregatee must satisfy the 
coverage requirements set forth in Sec. 24.103 for the entire license 
area; or
    (ii) Parties must agree to share responsibility for meeting the 
coverage requirements set forth in Sec. 24.103 for the entire license 
area.
    (2) Parties seeking authority to disaggregate must submit with 
their partial assignment application a certification signed by both 
parties stating which of the requirements they select.
    (3) Disaggregatees must submit supporting documents showing 
compliance with their coverage requirements as set forth in 
Sec. 24.103.
    (4) Parties that accept responsibility for meeting the coverage 
requirements and later fail to do so will be subject to automatic 
license cancellation without further Commission action.

    6. Section 24.129 is amended by revising the introductory text and 
paragraph (c), removing paragraph (d) and removing the ``*'' whenever 
it appears to read as follows:

Sec. 24.129  Frequencies.

    The following frequencies are available for narrowband PCS.
* * * * *
    (c) Nine frequencies are available for assignment on an MTA basis 
as follows:
    (1) Two 50 kHz channels paired with 50 kHz channels:

Channel 18: 940.35-940.40 and 901.35-901.40 MHz; and,
Channel 19: 940.40-940.45 and 901.40-901.45 MHz.

    (2) Five 50 kHz channels paired with 12.5 kHz channels:

Channel 20: 930.75-930.80 and 901.8375-901.8500 MHz;
Channel 21: 930.80-930.85 and 901.8500-901.8625 MHz;
Channel 22: 930.85-930.90 and 901.8625-901.8750 MHz;
Channel 25: 930.90-930.95 and 901.8750-901.8875 MHz; and,
Channel 26: 930.95-931.00 and 901.8875-901.9000 MHz.

    (3) Two 50 kHz unpaired channels:

Channel 23: 940.90-940.95 MHz; and
Channel 24: 940.95-941.00 MHz.
* * * * *

    7. Section 24.130 is revised to read as follows:

Sec. 24.130  Paging response channels.

    The following eight 12.5 kHz unpaired channels are available for 
assignment on an MTA basis and shall be used only to provide mobile-to-
base station communications:

A: 901.9000-901.9125 MHz;
B: 901.9125-901.9250 MHz;
C: 901.9250-901.9375 MHz;
D: 901.9375-901.9500 MHz;
E: 901.9500-901.9625 MHz;
F: 901.9625-901.9750 MHz;
G: 901.9750-901.9875 MHz; and
H: 901.9875-902.0000 MHz.

    8. Section 24.132 is amended by revising paragraph (e) to read as 
follows:

Sec. 24.132  Power and antenna height limits.

* * * * *
    (e) MTA and regional base stations located less than 80 kilometers 
(50 miles) from the licensed service area border must limit their 
effective radiated power in accordance with the following formula:

PW = 0.0175 x dkm* * 6.6666 x hm* * -3.1997
PW is effective radiated power in watts
dkm is distance in kilometers
hm is antenna HAAT in meters; see Sec. 24.53 for HAAT calculation 
method
* * * * *

[[Page 35854]]

Secs. 24.302 through 24.309  [Removed and Reserved]

    9. Remove and reserve Secs. 24.302 through 24.309.

Sec. 24.320  [Removed and Reserved]

    10. Section 24.320 is removed and reserved.
    11. Section 24.321 is added to read as follows:

Sec. 24.321  Designated entities.

    (a) Eligibility for small business provisions. (1) A small business 
is an entity that, together with its controlling interests and 
affiliates, has average gross revenues not exceeding $40 million for 
the preceding three years.
    (2) A very small business is an entity that, together with its 
controlling interests and affiliates, has average gross revenues not 
exceeding $15 million for the preceding three years.
    (3) For purposes of determining whether an entity meets either of 
the definitions set forth in paragraphs (a)(1) and (a)(2) of this 
section, the gross revenues of the entity, its controlling interests 
and affiliates shall be considered on a cumulative basis and 
aggregated. An applicant seeking status as a small business or very 
small business under this section must disclose on its short- and long-
form applications, separately and in the aggregate, the gross revenues 
of the applicant (or licensee), its controlling interests and 
affiliates for each of the previous three years.
    (4) Persons or entities that hold interests in an applicant (or 
licensee) that are affiliates of each other or have an identity of 
interests identified in Sec. 1.2110(b)(4)(iii) of this chapter will be 
treated as though they were one person or entity and their ownership 
interests aggregated for purposes of determining an applicant's (or 
licensee's) compliance with the requirements of this section.
    (5) Where an applicant (or licensee) cannot identify controlling 
interests under the standards set forth in this section, the gross 
revenues of all interest holders in the applicant, and their 
affiliates, will be attributable.
    (6) A consortium of small businesses (or a consortium of very small 
businesses) is a conglomerate organization formed as a joint venture 
between or among mutually independent business firms, each of which 
individually satisfies the definition in paragraph (a)(1) of this 
section (or each of which individually satisfies the definition in 
paragraph (a)(2) of this section). Where an applicant or licensee is a 
consortium of small businesses (or very small businesses), the gross 
revenues of each small business (or very small business) shall not be 
aggregated.
    (7) Designated entities must describe on their long-form 
applications how they satisfy the requirements for eligibility for 
designated entity status, and must list and summarize on their long-
form applications all agreements that affect designated entity status 
such as partnership agreements, shareholder agreements, management 
agreements and other agreements, including oral agreements, 
establishing, as applicable, de facto or de jure control of the entity. 
Such information must be maintained at the licensee's facilities or by 
its designated agent for the term of the license in order to enable the 
Commission to audit designated entity eligibility on an ongoing basis.
    (b) Controlling interest. (1) For purposes of this section, a 
controlling interest includes individuals or entities with either de 
jure or de facto control of the applicant. De jure control is evidenced 
by holdings of greater than 50 percent of the voting stock of a 
corporation, or in the case of a partnership, general partnership 
interests. De facto control is determined on a case-by-case basis. An 
entity must disclose its equity interest and demonstrate at least the 
following indicia of control to establish that it retains de facto 
control of the applicant:
    (i) The entity constitutes or appoints more than 50 percent of the 
board of directors or management committee;
    (ii) The entity has authority to appoint, promote, demote, and fire 
senior executives that control the day-to-day activities of the 
licensee; and
    (iii) The entity plays an integral role in management decisions.
    (2) The following rules apply for the calculation of certain 
interests.
    (i) Ownership interests shall be calculated on a fully diluted 
basis; all agreements such as warrants, stock options, and convertible 
debentures will generally be treated as if the rights thereunder 
already have been fully exercised.
    (ii) Partnership and other ownership interests and any stock 
interest equity, or outstanding stock, or outstanding voting stock 
shall be attributed as specified in this paragraph (b).
    (iii) Stock interests held in trust shall be attributed to 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. If the trustee has a familial, personal, or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests 
held in trust will be attributed to the grantor or beneficiary, as 
appropriate.
    (iv) Non-voting stock shall be attributed as an interest in the 
issuing entity.
    (v) Limited partnership interests shall be attributed to limited 
partners and shall be calculated according to both the percentage of 
equity paid in and the percentage of distribution of profits and 
losses.
    (vi) Officers and directors of an entity shall be considered to 
have a controlling interest in the entity. The officers and directors 
of an entity that controls a licensee or applicant shall be considered 
to have a controlling interest in the licensee or applicant.
    (vii) Ownership interests that are held indirectly by any party 
through one or more intervening corporations will 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 percentage for an 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.
    (viii) Any person who manages the operations of an applicant or 
licensee pursuant to a management agreement shall be considered to have 
a controlling interest in such applicant or licensee if such person, or 
its affiliate, has authority to make decisions or otherwise engage in 
practices or activities that determine, or significantly influence:
    (A) The nature or types of services offered by such an applicant or 
licensee;
    (B) The terms upon which such services are offered; or
    (C) The prices charged for such services.
    (ix) Any licensee or its affiliate who enters into a joint 
marketing arrangement with an applicant or licensee, or its affiliate, 
shall be considered to have a controlling interest, if such applicant 
or licensee, or its affiliate, has authority to make decisions or 
otherwise engage in practices or activities that determine, or 
significantly influence:
    (A) The nature or types of services offered by such an applicant or 
licensee;
    (B) The terms upon which such services are offered; or
    (C) The prices charged for such services.
    (c) Bidding credits. (1) After August 7, 2000, a winning bidder 
that qualifies as a small business or a consortium of small businesses 
as defined in this section may use the bidding credit specified in 
Sec. 1.2110(e)(2)(iii) of this

[[Page 35855]]

chapter. A winning bidder that qualifies as a very small business or a 
consortium of very small businesses as defined in this section may use 
the bidding credit specified in Sec. 1.2110(e)(2)(ii) of this chapter.
    (2)(i) Businesses owned by members of minority groups and women, 
including small businesses owned by members of minority groups and 
women, that are winning bidders on nationwide licenses on Channel 5, 
Channel 8, and Channel 11 prior to [effective date of rules] will be 
eligible for a twenty-five (25) percent bidding credit.
    (ii) Businesses owned by members of minority groups and women, 
including small businesses owned by members of minority groups and 
women, that are winning bidders on regional licenses on Channel 13 and 
Channel 17 prior to August 7, 2000 will be eligible for a forty (40) 
percent bidding credit.
    (d) Installment payments. Small businesses, including small 
businesses owned by members of minority groups and women, that are 
winning bidders on any regional license prior to August 7, 2000 will be 
eligible to pay the full amount of their winning bids in installments 
over the term of the license pursuant to the terms set forth in 
Sec. 1.2110(f) of this chapter.

    12. Section 24.404 is amended by revising paragraph (a)(1) to read 
as follows:

Sec. 24.404  Eligibility.

    (a) * * *
    (1) The applicant is qualified under the applicable laws and the 
regulations, policies and decisions issued under the laws, including 
Sec. 24.12;
* * * * *

Sec. 24.430  [Amended]

    13. Section 24.430 is amended by removing paragraph (a)(4), 
redesignating paragraph (a)(5) as paragraph (a)(4) and adding the word 
``and'' at the end of paragraph (a)(3).''
[FR Doc. 00-13961 Filed 6-2-00; 8:45 am]
BILLING CODE 6712-01-P
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