[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Rules and Regulations]
[Pages 41603-41607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17028]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 101

[CC Docket No. 92-97; FCC 00-223]


Removal of LMDS Eligibility Restriction

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document allows to sunset as of June 30, 2000, the Local 
Multipoint Distribution Service (LMDS) eligibility restriction. That 
restriction prohibits incumbent local exchange carriers and cable 
companies from having an attributable interest in the LMDS A block 
license that overlaps with ten percent or more of the population in 
their service areas. The action is taken to complete the Commission's 
review of this restriction.

EFFECTIVE DATE: Effective June 30, 2000.

FOR FURTHER INFORMATION CONTACT: Peter Wolfe, 202-418-1310.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third 
Report and Order and Memorandum Opinion and Order (Third R&O/MO&O) in 
CC Docket No. 92-97; FCC 00-00-223, adopted June 20, 2000, and

[[Page 41604]]

released June 27, 2000. The complete text of this Third R&O/MO&O is 
available for inspection and copying during normal business hours in 
the FCC Reference Information Center, Courtyard Level, 445 12th Street, 
S.W., Washington, DC, and also may be purchased from the Commission's 
copy contractor, International Transcription Services (ITS, Inc.), CY-
B400, 445 12th Street, S.W., Washington, DC.

Synopsis of the Third R&O/MO&O

    1. This Third R&O/MO&O completes the Commission's review of the 
Local Multipoint Distribution Service (LMDS) eligibility restriction, 
which prohibits incumbent local exchange carriers (LECs) and cable 
companies from having an attributable interest in the LMDS A block 
license that overlaps with ten percent or more of the population in 
their service area. As a result of that review, the Commission allows 
the scheduled sunset of that restriction to occur as of June 30, 2000. 
The eligibility restriction was adopted in the Second Report and Order 
in this proceeding (62 FR 23148, April 29, 1997), subject to an 
expiration date of June 30, 2000. The Commission, in adopting the 
restriction, noted that it would undertake a review of the restriction 
prior to its sunset. (47 CFR 101.1003(a).)
    2. In adopting the LMDS eligibility restriction, the Commission 
considered four factors. First, that LMDS was a likely vehicle for the 
provision of local telephony, multi-channel video distribution (MVPD) 
service, or both. Second, the Commission found that the incumbent local 
exchange carriers (LECs) and incumbent cable companies were dominant in 
their respective markets, 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, and 
would have no incentive to use the LMDS spectrum to offer services that 
would compete with their own services. Third, the Commission determined 
that a short-term eligibility restriction, with an opportunity for 
review, would be the best means to increase competition in the local 
and telephony and MVPD markets, in light of the Commission's belief 
that there would be sufficient entity and increases in competition to 
permit sunset within three years. Fourth, the Commission found that 
efficiencies arising from ownership of an LMDS system by an incumbent 
LEC or incumbent cable provider had not been shown.
    3. As a result of its review, the Commission first concludes that 
the standard for determining whether to sunset the eligibility 
restriction should be whether open eligibility poses a significant 
likelihood of substantial competitive harm in specific markets, and, if 
so, whether eligibility restrictions are an effective way to address 
that harm. The Commission determines that the record does not support a 
conclusion that open eligibility poses such a significant threat of 
substantial competitive harm in specific markets; indeed, open 
eligibility may improve the availability of services, especially in 
rural areas.
    4. The Commission, as discussed more fully in the complete text of 
the Third R&O/MO&O, therefore finds that the LMDS eligibility 
restriction should be allowed to sunset because open eligibility (1) 
will not pose a significant likelihood of substantial competitive harm 
in any market; (2) is likely to provide access to additional capital to 
fully develop LMDS; (3) will treat LMDS similarly to substitutable 
spectrum; and (4) should help make services more available in rural 
areas.

Administrative Matters

Final Regulatory Flexibility Analysis

    5. This is a summary of the Final Regulatory Flexibility Analysis. 
The full Final Regulatory Flexibility Analysis may be found at Appendix 
D of the complete Third Report and Order and Memorandum Opinion and 
Order.
    6. In order to ensure compliance with the requirements contained in 
the Regulatory Flexibility Act (RFA) and to alert all affected entities 
of the repercussions of the Commission's action, an Initial Regulatory 
Flexibility Analysis (IRFA) was incorporated in Appendix B of the Sixth 
Notice of Proposed Rulemaking (Sixth NPRM), 64 FR 71373, December 21, 
1999, in this proceeding. Additionally, a Final Regulatory Flexibility 
Analysis was included in Appendix D of the Second Report and Order in 
this proceeding. The Commission sought written public comment on the 
proposals in the Fifth NPRM (62 FR 16514, April 7, 1997), including 
comment on the IRFA. The present Final Regulatory Flexibility Analysis 
(FRFA), contained in the Third Report and Order and Memorandum Opinion 
and Order (Third R&O), conforms to the RFA.
Need for, and Objectives, of the Third R&O
    7. The Commission allows to sunset the Local Multipoint 
Distribution Service (LMDS) eligibility restriction which prohibits 
incumbent local exchange carriers (ILECs) and cable companies from 
having an attributable interest in the LMDS A-block license that 
overlaps with ten percent or more of the population in their service 
areas. This restriction was initially imposed because of concern the 
ILECs and the cable companies would use LMDS spectrum to eliminate the 
threat of competitive entry in the local exchange telephone and cable 
markets, in which they are dominant. The Third R&O finds that the LMDS 
A-block eligibility restriction is no longer necessary to protect LMDS 
as a source of competition with ILECs and incumbent cable companies, 
and that the benefits of removing the restriction outweigh any benefits 
of retaining the restriction.

Summary of Significant Issues Raised By Public Comments in Response to 
the IRFA or the FRFA

    8. The central issue in this proceeding is the continued need for 
the eligibility restriction. The restriction was adopted subject to an 
expiration date of June 30, 2000. The expiration date, like the other 
issues in this proceeding, was the result of notice and comment 
procedures. The Commission received fourteen comments and eight reply 
comments in response to the Sixth NPRM.
    9. No comments were received directly regarding the IRFA or the 
FRFA contained in the Second R&O. The Sixth NPRM sought comment on 
whether the standard for determining whether the restriction is 
extended should be that the incumbent LECs or cable companies continue 
to have substantial market power in the provision of local telephone or 
cable television services, or if a different standard should be used. 
As discussed in paragraphs 6-7 of the Third R&O, the Sixth NPRM also 
suggested two alternative standards. Although most of the commenters 
support allowing the eligibility rule to sunset, those who comment on 
the standard are somewhat divided. Several commenters argue in favor of 
using the market dominance standard to decide whether the eligibility 
should sunset.
    10. The Commission agrees with the majority of parties who comment 
on the standard issue, and either urge the Commission to adopt the 39 
GHz standard or at least to reject the ``substantial market power'' 
standard. Therefore, the Commission adopts the 39 GHz standard. In 
paragraphs 8-9 of the Third R&O, the Commission details the rationale 
for selecting the 39 GHz test as the appropriate standard to apply in 
determining whether the LMDS restriction should sunset.
    11. The Sixth NPRM asked what services are likely to be provided on 
LMDS. The Commission agrees with the

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majority of commenters on this issue who contend that the LMDS A block 
licensees provide or are expected to provide broadband services, 
instead of local telephone or cable services. Because the Commission 
believes that the LMDS A block is not being used to provide services 
which are primarily local exchange or multi-channel video distribution 
(MVPD), the Third R&O concludes that it is unlikely that the possible 
use of LMDS spectrum by incumbents will result in the blocking of entry 
into those services, and thus allows the restriction to lapse. 
Commenters also generally contend that the broadband market is robust 
and competitive, and that incumbent cable companies and incumbent LECs 
could not use LMDS spectrum to dominate the broadband market. The 
Commission finds that an increasing number of broadband firms and 
technologies are providing growing competition to incumbent LECs and 
cable companies, apparently limiting the threat that they will be able 
to preclude competition in the provision of broadband services. The 
Commission also finds no evidence that the incumbent LECs or incumbent 
cable companies have the incentive to warehouse LMDS licenses in order 
to protect their control of these markets from competition. These 
issues are discussed at paragraphs 14--21 in the Third R&O.
    12. Although the majority of commenters favor the sunset of LMDS 
eligibility restrictions, some commenters argue that it is premature to 
terminate the restriction because the first LMDS products are just 
becoming available in the United States. Paragraphs 23-33 in the Third 
R&O explain the Commission's rationale for rejecting this contention. 
Briefly, the Third R&O sunsets the LMDS eligibility restriction because 
open eligibility (1) will not pose a significant likelihood of 
substantial competitive harm in any market; (2) is likely to provide 
access to additional capital to fully develop LMDS; (3) will treat LMDS 
similarly to substitutable spectrum; and (4) should help make services 
more available in rural areas. Paragraphs 14-21of the Third R&O find 
that the record does not support a conclusion that open eligibility 
poses a significant threat of substantial competitive harm in specific 
markets, LEC or MVPD, or that eligibility restrictions are an effective 
way of addressing potential competitive harm. Paragraph 24 of the Third 
R&O discusses how removal of the restriction may result in access to 
capital resources to more fully develop LMDS. Paragraphs 26 and 27 
detail why LMDS should be treated no differently from other 
substitutable spectrum.
    13. Paragraphs 28-29 discuss allegations by rural commenters that 
the LMDS in-region eligibility restriction imposes several 
disadvantages on small, rural telecommunications carriers. The Third 
R&O, while recognizing that the eligibility restriction was initially 
imposed on rural markets because the Commission believed that it could 
stimulate competition to LEC's in these markets, now finds that this 
has not occurred, and that allowing the eligibility restriction to 
sunset will remove possible impediments to small and rural carrier LMDS 
deployment. The negative effects of the eligibility restriction on 
small and rural entities and consumers, are discussed more fully in 
paragraphs 28-32 of the Third R&O.
Description and Estimate of the Number of Small Entities to Which Rules 
Will Apply
    14. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one which: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA). A small organization is generally ``any not-for-
profit enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 1992, there were 
approximately 275,801 small organizations.
    Common Carrier Services and Related Entities. According to data in 
the most recent Commission Carrier Locator Interstate Service Providers 
report, there are 3,528 interstate carriers, including inter alia, 
local exchange carriers, wireline carriers and service providers, 
interexchange carriers, competitive access providers, operator service 
providers, pay telephone operators, providers of telephone toll 
service, providers of telephone exchange service, and resellers.
    The SBA has defined establishments engaged in providing 
``Radiotelephone Communications'' and ``Telephone Communications, 
Except Radiotelephone'' to be small businesses when they have no more 
than 1,500 employees. The Commission discusses the total estimated 
number of telephone companies falling within the two categories and the 
number of small businesses in each, and then attempts to refine further 
those estimates to correspond with the categories of telephone 
companies that are commonly used under the rules.
    The Commission includes small incumbent LECs in this present RFA 
analysis. The SBA's Office of Advocacy contends that, for RFA purposes, 
small incumbent LECs are not dominant in their field of operation 
because any such dominance is not ``national'' in scope.
    Total Number of Telephone Companies Affected. The U.S. Bureau of 
the Census (Census Bureau) reports that, at the end of 1992, there were 
3,497 firms engaged in providing telephone services, as defined 
therein, for at least one year. This number contains a variety of 
different categories of carriers, including local exchange carriers, 
interexchange carriers, competitive access providers, cellular 
carriers, mobile service carriers, operator service providers, pay 
telephone operators, covered specialized mobile radio providers, and 
resellers. The Commission finds it reasonable to conclude that fewer 
than 3,497 telephone service firms are small entity telephone service 
firms or small ILECs that may be affected by the action taken in this 
Third R&O.
    Wireline Carriers and Service Providers. The SBA has developed a 
definition of small entities for telephone communications companies 
except radiotelephone (wireless) companies. The Census Bureau reports 
that there were 2,321 such telephone companies in operation for at 
least one year at the end of 1992. According to the SBA's definition, a 
small business telephone company other than a radiotelephone company is 
one employing no more than 1,500 persons. All but 26 of the 2,321 non-
radiotelephone companies listed by the Census Bureau were reported to 
have fewer than 1,000 employees. Thus, even if all 26 of those 
companies had more than 1,500 employees, there would still be 2,295 
non-radiotelephone companies that might qualify as small entities or 
small ILECs. The Commission is unable at this time to estimate with 
greater precision the number of wireline carriers and service providers 
that would qualify as small business concerns under the SBA's 
definition. Consequently, the Commission estimates that fewer than 
2,295 small telephone communications companies other than 
radiotelephone companies are small entities or small

[[Page 41606]]

ILECs that may be affected by the actions taken in this Third R&O.
    Local Exchange Carriers, Competitive Access Providers, Competitive 
Local Exchange Carriers. Neither the Commission nor the SBA has 
developed a definition for small providers of local exchange service, 
competitive access providers, or competitive local exchange carriers. 
The closest applicable definition under the SBA rules is for telephone 
communications companies other than radiotelephone (wireless) 
companies. According to the most recent telecommunications industry 
revenue data, 1,348 carriers reported that they were engaged in the 
provision of incumbent local exchange services, and 212 carriers 
reported that they were providing competitive access or competitive 
local exchange services. The Commission is unable at this time to 
estimate with greater precision the number of LECs that would qualify 
as small business concerns under the SBA's definition. Consequently, 
the Commission estimates that fewer than 1,560 providers of local 
exchange service, or of competitive access or competitive local 
exchange services are small entities or small entities that may be 
affected by the actions taken in this Third R&O.
    A-Block LMDS Providers. The total number of A-block LMDS licenses 
is limited to 493, one for each Basic Trading Area. The Commission has 
held auctions for all 493 licenses, in which it defined ``very small 
business'' (average gross revenues for the three preceding years of not 
more than $15 million), ``small business'' (more than $15 million but 
not more than $40 million), and ``entrepreneur'' (more than $40 but not 
more than $75 million) bidders. There have been 99 winning bidders that 
qualified in these categories in these auctions all of which may be 
affected by the actions taken in this Third R&O
    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 
annually. 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 data 
from 1992, there were 1,788 total cable and other pay television 
services and 1,423 had less than $11 million 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 its most recent information, 
the Commission estimates that there were 1,439 cable operators that 
qualified as small cable system operators at the end of 1995, and that 
there are currently 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 Commission has determined that there are 66 million 
subscribers in the United States. Therefore, the Commission found that 
an operator serving fewer than 660,000 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, the Commission finds that the 
number of cable operators serving 660,000 subscribers or less totals 
1,450. The Commission does not request or collect information 
concerning whether cable system operators are affiliated with entities 
whose gross annual revenues exceed $250 million, 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. It should be further noted that 
recent industry estimates project that there will be a total of 66 
million subscribers.
Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    The actions taken in the Third R&O entail no new or revised 
reporting, recordkeeping or other compliance requirements.
Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered
    Although the Commission LMDS eligibility restriction was initially 
intended to stimulate competition between all sorts of entities, 
including small entities, only two of the 19 comments that were filed 
ask that the restriction be retained. The restriction was adopted with 
a June 30, 2000, sunset date to allow sufficient time for the 
Commission to conduct a thorough review of the effectiveness of the 
restriction. The Commission first adopts the 39 GHz approach to 
determine if the restriction should be extended. Two other alternative 
standards exist. The first alternative allows that the incumbent LECs 
or cable companies continue to have substantial market power in the 
provision of local telephone or cable television services. Two 
commenters urge the Commission to retain the restriction using the 
market dominance standard and arguing that LECs and cable companies 
remain dominant in their respective markets. As discussed in paragraphs 
10-11 of the Third R&O, the Commission rejects continued use of the 
market power standard, because the substantial market power test does 
not address whether the incumbents are able to preclude competition in 
other markets which LMDS licensees wish to enter. No comments were 
submitted in support of the second option that would provide that the 
incumbent companies possess the incentive and ability to purchase the 
LMDS block to prevent entry of a competitor.
    Thus, the Commission, in the Third R&O concludes that the 39 GHz 
test is the appropriate standard to apply in determining whether the 
LMDS eligibility should sunset. The 39 GHz test is a more discerning 
standard than the standard market power test in that it not only 
considers the broadest set of market facts and circumstances, but it 
also will allow the Commission to focus on the issues it needs to 
decide--whether the incumbents are likely to use their market power to 
cause substantial competitive harm by preventing the use of LMDS 
spectrum for services that would otherwise be provided by LMDS 
licensees, and whether the restrictions will prevent such actions. 
Paragraphs 8-9 of the Third R&O present a complete discussion of the 
benefits of the 39 GHz standard.
    Finally, as discussed in paragraphs 22-33 of the Third R&O, the 
Commission has considered the benefits of allowing the eligibility 
restriction to expire as opposed to the benefits of extending it, and 
determines, with the support of the large majority of commenters, that 
allowing the restriction to sunset offers the most benefit to the most 
parties. Small businesses in particular stand to benefit from removal 
of the eligibility restriction. Paragraphs 28-32 of the Third MO&O, for 
example, discuss the effect of the LMDS eligibility restriction on 
small and rural carrier LMDS deployment, finding that the restriction 
causes undue hardship for rural carriers,

[[Page 41607]]

of which many are small entities, possibly in violation of the 
Telecommunications Act of 1996. Commenters who argue against retaining 
the restriction contend that application of the restriction to rural 
telephone companies imposes significant economic and social costs, that 
communities served by rural ILEC's are often not sufficiently lucrative 
markets to attract other providers, that competitive concerns are not 
applicable in a rural market, and that rural carriers lack the 
resources to warehouse spectrum. For these reasons, the Commission 
believes that small businesses will benefit from allowing the LMDS 
eligibility restriction to sunset rather than to retain the 
restriction.
    Report to Congress: The Commission will send a copy of this Third 
Report and Order and Memorandum Opinion and Order, including this FRFA, 
in a report to be sent to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A). In 
addition, the Commission will send a copy of the Third Report and Order 
and Memorandum Opinion and Order and this FRFA to the Chief Counsel for 
Advocacy of the Small Business Administration.

Ordering Clauses

    It is ordered, that 47 CFR 101.1003 is removed. This modification 
shall become effective on June 30, 2000. (This rule modification may 
become effective on less than 30 days' notice because it relieves a 
restriction. See 5 U.S.C. 553((d))((1). Moreover, the Commission finds 
good cause to make this modification effective on less than 30 days' 
notice because the restriction in the previous rule terminates on June 
30, 2000. See 5 U.S.C. 553(d)(3).)
    The Commission's Office of Public Affairs, Reference Operations 
Division, shall send a copy of this MO&O and FNPRM, 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 of 1980, Public Law 
96-354, 94 Stat. 1164, 5 U.S.C. 601-612 (1980).

List of Subjects in 47 CFR Part 101

    Communications, Local multipoint distribution service.

    Federal Communications Commission.

Magalie Roman Salas,
 Secretary.

Rule Change

    Accordingly, 47 CFR part 101 is amended as follows:

PART 101--FIXED MICROWAVE SERVICES

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

    Authority: 47 U.S.C. 154, 303.

    2. Sec. 101.1003  [Removed]
    Remove Sec. 101.1003.

[FR Doc. 00-17028 Filed 7-5-00; 8:45 am]
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