Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41225

and gross revenues used in this section

are defined in § 90.912.

[FR Doc. 97–19913 Filed 7–30–97; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 90

[PR Docket No. 93–144; GN Docket No. 93–

252; PP Docket No. 93–253; FCC 97–224]

Facilitate Future Development of SMR

Systems in the 800 MHz Frequency

Band

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: In the First Report and Order

and Eighth Report and Order in PR

Docket No. 93–144, GN Docket No. 93–

252, and PP Docket No. 93–253, the

Commission adopted final service and

competitive bidding rules for the upper

200 channels of the 800 MHz

Specialized Mobile Radio (SMR) band.

In the Second Further Notice of

Proposed Rulemaking, the Commission

sought comment on additional service

and competitive bidding rules for the

remaining 800 MHz SMR spectrum and

the General Category channels. After

carefully reviewing the comments and

petitions the Commission received

following the issuance of the Further

Notice of Proposed Rulemaking, the

Commission addresses the Petitions for

Reconsideration in this order.

EFFECTIVE DATE: September 29, 1997.

FOR FURTHER INFORMATION CONTACT:

Shaun Maher or Michael Hamra, Policy

and Rules Branch, Commercial Wireless

Division, Wireless Telecommunications

Bureau at (202) 418–0620 or Alice Elder,

Auctions and Industry Analysis

Division, Wireless Telecommunications

Bureau at (202) 418–0660.

SUPPLEMENTARY INFORMATION: This

Memorandum Opinion and Order on

Reconsideration in PR Docket No. 93–

144, GN Docket No. 93–252, and PP

Docket No. 93–253, adopted June 23,

1997, and released July 10, 1997, is

available for inspection and copying

during normal business hours in the

FCC Dockets Branch, Room 230, 1919 M

Street, NW., Washington, DC. The

complete text may be purchased from

the Commission’s copy contractor,

International Transcription Service,

Inc., 2100 M Street, NW., Suite 140,

Washington, DC 20037 (telephone (202)

857–3800).

I. Background

1. In the 800 MHz Report and Order,

61 FR 6138 (February 16, 1996), the

Commission restructured the licensing

framework that governs the 800 MHz

SMR service. For the upper 200

channels, the Commission replaced siteand frequency-specific licensing with a

geography-based system similar to those

used in other Commercial Mobile Radio

Services (‘‘CMRS’’). The Commission

designated the upper 200 channels of

800 MHz SMR spectrum for geographic

licensing, and created 120-, 60- and 20-

channel blocks within the U.S.

Department of Commerce Bureau of

Economic Analysis Economic Areas

(‘‘EAs’’). The Commission concluded

that mutually exclusive applications for

these licenses would be awarded

through competitive bidding.

Additionally, the Commission granted

EA licensees the right to relocate

incumbent licensees out of the upper

200 channels to comparable facilities.

The Commission reallocated the 150

contiguous 800 MHz General Category

channels for exclusive SMR use.

2. The Commission also established

competitive bidding rules for the upper

200 channels of 800 MHz SMR

spectrum. Specifically, the order

provided for the award of 525 EA

licenses in the upper 200 channel block

through a simultaneous multiple round

auction. Incumbents and new entrants

may bid for all EA licenses, subject to

the CMRS spectrum cap in § 20.6 of the

Commission’s rules. The Commission

also adopted a ‘‘tiered’’ approach to

installment payments for small

businesses in the upper 200 channel

block, and allowed partitioning for rural

telephone companies.

A. Geographic Licensing in the 800 MHz

SMR Band

1. Geographic Licensing in Contiguous

Spectrum Blocks

3. In the CMRS Third Report and

Order, 59 FR 59945 (November 21,

1996), the Commission found that

licensing 800 MHz SMR spectrum in

contiguous blocks would make SMR

systems more competitive with other

CMRS systems by maximizing technical

flexibility so that, for example, it would

be possible for SMR licensees to deploy

spread spectrum and other broadband

technologies. In the 800 MHz Report

and Order the Commission concluded

that the entire upper 200 channel block

should be licensed on a contiguous

basis throughout a geographic area

because the SMR geographic license

would then be equivalent in size to the

smallest block of spectrum now

authorized for broadband PCS.

4. Commenters argue that the

Commission has not justified its

decision to group the upper 200

channels of 800 MHz SMR spectrum

into geographically licensed contiguous

blocks or adequately explained how the

need for contiguous spectrum justifies

disruption of established SMR operators

and that the Commission’s rules

impermissibly fail to mandate that

contiguous blocks of spectrum be used

to offer innovative or competitive

services. They also argue that the

Commission’s decision should be

reversed if it is based on reducing its

administrative burden. It argues that

scarcity of Commission resources

cannot justify any changes in its rules

and that geographic licensing will in

fact increase the Commission’s

administrative burden. One commenter

asserts that most incumbent licensees

span all three EA frequency blocks.

Thus, relocating most incumbents will

require that at least four applications be

filed, placed on public notice and

processed by the Commission. It also

claims that these burdens will be

exacerbated by the burdens of sitespecific licensing because the

Commission has not eliminated current

site-specific licenses.

5. Discussion: The Commission rejects

the contention that it has failed to

justify the need for licensing the upper

200 channels in contiguous blocks. In

the CMRS Third Report and Order, the

Commission determined that, where

feasible, assigning contiguous spectrum

is likely to enhance the competitive

potential of CMRS geographic providers.

In the 800 MHz Report and Order the

Commission determined that geographic

licensing and contiguous spectrum are

essential to the competitive viability of

SMR service because they will permit

use of spread spectrum and other

broadband technologies and eliminate

delays and transaction costs associated

with site-by-site licensing.

6. The Commission disagrees with

Commenters claim that geographic

licensing will have a negative impact on

existing SMR operators. The

Commission’s rules continue to protect

incumbent operators from interference.

In the upper 200 channels, the

Commission requires EA licensees to

comply with existing rules that require

minimum separation from incumbents’

facilities. Thus, an EA licensee must

either locate its station at least 113 km

(70 miles) from any incumbent’s facility,

or if it seeks to operate stations less than

113 km from an incumbent’s facility, it

must comply with the Commission’s

short-spacing rule, unless it negotiates a

shorter distance with the incumbent.

Additionally, incumbent SMRs on the
41226 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

upper 200 channels also have the

operational flexibility to add

transmitters in their existing coverage

area, without prior notification to the

Commission, so long as their 22 dBu

interference contours are not exceeded.

The Commission cannot agree with the

contention that competition and

innovation will be increased by

allocation of spectrum resources via a

blanket regulatory prescription rather

than through individual market

participants’ decisions. In the 800 MHz

Report and Order, the Commission

stated that its goal was to provide

regulatory symmetry and operational

flexibility that will allow SMR providers

to use new technologies and compete

with other CMRS providers. By giving

licensees flexibility to use spectrum on

either a contiguous or non-contiguous

basis, the Commission gives SMR

operators more ways to provide service

and more ways to compete with other

CMRS providers.

7. The Commission also rejects the

claim that geographic licensing will

increase its administrative burden.

Under the Commission’s site-specific

licensing rules, it has received and

processed approximately 6,000

applications for individual SMR

licenses and modifications a year, and

in some years, as many as 20,000

applications. By contrast, geographic

licensing of the upper 200 channels will

be accomplished by issuing 525 EA

licenses, and virtually eliminating the

need for subsequent modifications of

any license unless it is transferred or

partitioned. Moreover, licensees will no

longer be required to file an application

for each base station; geographic

licensees will be able to construct basestations in pre-defined areas without the

Commission’s prior approval. These

changes represent dramatic reductions

in administrative burden for both

licensees and the Commission. In this

connection, the Commission rejects

commenter’s claim that reducing its

administrative costs is an invalid basis

for adopting new rules. While the

Commission’s rule changes are driven

by numerous considerations other than

administrative cost, e.g., promoting

more efficient spectrum use and

creating a regulatory framework that

will allow 800 MHz SMR operators to

compete more effectively with other

CMRS providers, the Commission

considers improving its efficiency and

reducing its cost to be valid public

interest considerations.

2. Size of EA Spectrum Blocks

8. Background. In the 800 MHz Report

and Order, the Commission concluded

that dividing the upper 200 channels

into various-sized channel blocks would

create opportunities for SMR providers

with differing spectrum needs. The

Commission rejected proposals to assign

the upper 200 channels in five- and/or

ten-channel blocks, concluding instead

that allocating one 120-channel block,

one 60-channel block, and one 20-

channel block for licensing on an EA

basis would equitably balance the

interests of all potential and existing

licensees.

9. Commenters argue that the record

does not support the Commission’s

decision to group currently allocated

channels into contiguous blocks. They

contend that the aggregation of 20, 60,

and 120 contiguous channels restricts

the number of small business entities

that can compete effectively at auction

because relocation channels will either

be unavailable or impracticably costly

and that the cost of relocating 20 or

more channels will be prohibitive for

small business.

10. Commenters claim that smaller

channel blocks would require an EA

applicant desiring adjacent channels to

bid more aggressively, and thus the

public would receive more value for the

spectrum. They also argue that 5-

channel geographic licenses would

facilitate bidding for designated entities

such as small businesses.

11. Discussion. The Commission

rejects commenters’ argument that the

public interest would be better served

by five-channel spectrum blocks. The

Commission stated in the 800 MHz

Report and Order, that the use of such

small spectrum blocks make it more

difficult to obtain sufficient spectrum to

establish a viable and competitive widearea system, and to use broadband

technologies such as CDMA and GSM.

The Commission also rejects the claim

that the aggregation of 20, 60, and 120

channels will reduce opportunities for

small businesses. Under Commission

rules, small businesses may form

coalitions to raise needed capital and

finance any desired relocations. The

Commission has adopted provisions in

its auction rules enabling small

businesses to receive bidding credits.

12. The Commission also rejects

Commenter’s claim that five-channel

blocks would increase spectrum

valuation. The Commission’s geographic

licensing system is designed to enhance

the competitive potential of the 800

MHz SMR operators. To accomplish

this, the Commission has tailored the

channel blocks to the needs of various

users by creating large, medium and

small channel blocks and by placing

these blocks to accommodate the

spectrum needs of different-sized SMR

providers. As the Commission

recognized in the 800 MHz Report and

Order, placing the 120-channel block

closest to the cellular spectrum

allocation will assist operators in

providing wide-area service by

facilitating dual-mode operation.

Placing the 20-channel block in the

portion of spectrum nearest to the lower

80 SMR channels will allow small to

medium-sized operators to expand

capacity while minimizing costs and

disruption to existing customers.

Similarly, the Commission expects that

in many EA’s medium-sized SMR

operators or consortia of smaller SMR

operators may find the 60-channel block

suitable to their needs.

13. The Commission similarly is not

persuaded by the claim that allocating

spectrum in five-channel blocks will

reduce the burdens of, and number of

entities involved in, relocation

negotiations. To the contrary, the

Commission’s relocation mechanism

provided for cost sharing and collective

negotiations so that relocation can

efficiently occur. Additionally, the

Commission notes that in the lower 80

channels, where the current fivechannel blocks are non-contiguous and

interleaved with blocks of non-SMR

channels, it is adopting the proposal to

license in five-channel blocks.

3. 800 MHz SMR Spectrum Aggregation

Limit

14. Background. In the CMRS Third

Report and Order, the Commission

adopted a 45 MHz limit on aggregation

of broadband PCS, cellular, and SMR

spectrum. It concluded that in light of

the broadband CMRS spectrum cap, no

separate limitation was necessary on

aggregation of spectrum in the upper

200 channel block. In the 800 MHz

Report and Order, the Commission

reasoned that the 800 MHz SMR service

is one of many competitive services

within the CMRS marketplace, and that

allowing unrestricted aggregation of

SMR spectrum would not impede CMRS

competition so long as 800 MHz SMR

licensees were subject to the 45 MHz

CMRS spectrum aggregation limit.

15. Petitions. Commenters argue that

the Commission has failed to consider

that its actions will increase the current

state of concentration in the SMR

industry. Accordingly, the Commission

must limit EA licensees to something

less than the entire 200 channels to

ensure a wide variety of applicants. One

commenter suggests that the

Commission prohibit any EA licensee

from acquiring more than one third of

the Upper 200 channels in any EA, thus,

providing adequate opportunities for

designated entities while avoiding

excessive concentration of licenses.
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41227

Commenters also argue that unlimited

spectrum aggregation is critical to

regulatory parity because an SMR

operator aggregating all 200 channels in

a market would still operate on only 10

MHz of spectrum, as compared to the 25

MHz for cellular and 30 MHz for A, B

and C block PCS licensees.

16. Discussion. The Commission sees

no need to adopt a spectrum aggregation

limit for the upper 200 channels beyond

the CMRS spectrum aggregation limit

set forth in 47 CFR 20.6. Market forces—

not regulation—should shape the

developing CMRS marketplace, and the

Commission is unpersuaded that further

constraints on SMR providers’ ability to

acquire spectrum are necessary. In fact,

the proposed restriction could handicap

all SMR providers—including small

businesses, rural telephone companies

and women-owned and minority-owned

businesses—by limiting their ability to

compete with cellular and broadband

PCS. The Commission has determined

that the relevant market for examining

concentration of SMR licenses is the

CMRS market as a whole, not SMR only.

Thus, even if one licensee were to

acquire all 10 MHz of spectrum in an

EA, this would not be sufficient to have

an anti-competitive effect on the

relevant market.

4. Licensing in Mexican and Canadian

Border Areas

17. Background: In the 800 MHz

Report and Order, the Commission

determined that EA licenses would be

made available without distinguishing

border from non-border areas. Thus, the

Commission determined that EA

licensees can use available border area

channels within their spectrum blocks,

subject to international assignment and

coordination. Although, reduced

channel availability and operating

restrictions may reduce values of border

area EA licenses, the Commission

concluded that EA applicants would

consider such factors when bidding on

such licenses. The Commission also

noted that EA licensees could privately

negotiate with other licensees to acquire

additional SMR spectrum in border

areas.

18. Petitions. Petitioners seek

clarification of the Commission’s border

area licensing plan. They note that in

border areas some of the upper 200

channels are assigned to non-SMR

categories. They seek clarification that

these channels are not subject to EA

licensing and that incumbent licensees

are not subject to mandatory relocation.

Petitioners note that in many EAs

adjacent to either the Canadian or

Mexican borders, no frequencies are

available for SMR use in the 120-

channel, and 60-channel blocks, and

few are available in the 20-channel

block and are concerned that bidders

will be unaware of this and may

overvalue the spectrum.

19. Discussion. The Commission

clarifies that non-SMR channels in the

border area are not subject to EA

licensing and thus are unaffected by this

rulemaking. The Commission further

clarifies that non-SMR channels that

have been allocated to SMR eligibles in

border areas, but to non-SMR eligibles

elsewhere in the country, have been

allocated to the upper 200 channel EA

licensees on a pro rata basis.

Prospective bidders should be aware

that these channels, which are not

available to them anywhere else except

in the border regions, will be assigned

for their use in the Canadian and

Mexican border regions. Most

importantly, EA licensees must afford

full interference protection to non-SMR

licensees operating in adjacent areas on

these channels.

20. The Commission notes that its

rules already specify which channels

are available for EA licensing in the

border regions. The Commission

believes that license applicants are best

situated to decide whether reduced

channel availability in border areas

affects the value of particular licenses.

Nonetheless, to help alleviate ITA’s

concern about applicant awareness, the

Commission will also provide

information regarding channel

availability border area in the auction

bidders package.

B. Rights and Obligations of EA

Licensees

1. Spectrum Management Rights

21. Background. In the 800 MHz

Report and Order, the Commission

determined that if an SMR incumbent

fails to construct, discontinues

operations, or otherwise has its license

terminated by the Commission, the

licensed spectrum automatically reverts

to the EA licensee. The Commission

thus eliminated all waiting lists for SMR

category channels within the upper 200

channel block and terminated its

finder’s preference program for the 800

MHz SMR service. Finally, the

Commission created a presumption that

permanent transfers and assignments

between an EA licensee and incumbents

operating within its spectrum block

would serve the public interest. The

Commission reasoned that this would

give EA licensees more flexibility to

manage their spectrum, be more

consistent with their cellular and PCS

rules, and reduce regulatory burdens on

both licensees and the Commission.

22. Petitions. Petitioner claims that

the Commission’s approach to spectrum

management violates Congressional

intent and its goal of regulatory

symmetry by disadvantaging non-EA

winning SMR licensees vis-a-vis EA

licensees. They argue, that incumbents

are disadvantaged because they will be

restricted from expanding on wide-area

blocks and that the Commission’s

construction requirements favor EA

licensees over incumbents. One

petitioner claims that the Commission

violated section 553(b) of the

Administrative Procedure Act by failing

to give notice of the elimination of the

finder’s preference program. It also

argues that the Commission should

temporarily retain the finder’s

preference program so that all persons

knowing of unconstructed or

discontinued facilities can request a

finder’s preference, take the channels,

and provide balance among those

applying for the wide-area SMR

frequency blocks.

23. Discussion. The Commission

rejects the claim that it has violated

Congressional intent by conferring

spectrum management rights on EA

licensees, including the right to recover

spectrum lost by incumbents who cease

operations or violate its rules. The

contention that these rules discriminate

against incumbent licensees is without

merit. Incumbents retain all of the rights

to operate that they held under their

pre-existing licenses. Thus, incumbents

who operate in compliance with the

Commission’s rules are not affected by

the spectrum recovery rule, while

incumbents who cease operations or

violate the Commission’s rules would

lose their spectrum rights under either

the old rules or the new rules. The only

difference in the Commission’s new

rules is that they have provided for

unused spectrum to revert to the EA

licensee rather than to be relicensed by

the Commission. This procedure does

not discriminate against incumbents:

any incumbent who seeks the

‘‘superior’’ spectrum management rights

of an EA license has the same

opportunity to obtain it as any other

applicant: by bidding for the EA license

through the auction process.

24. The Commission also rejects the

claim that it gives no notice of the

possible elimination of the finder’s

preference program. Such notice was

inherent in the Commission’s proposal

that rights to unconstructed or nonoperational channels would

automatically revert to the EA licensee.

The elimination of the Commission’s

finder’s preference program was thus

both necessarily implicit in and a
41228 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

logical outgrowth of, the Commission’s

proposals.

25. Finally, the Commission declines

to retain the finders preference program,

even on a temporary basis. The

Commission’s move to geographic

licensing makes the finder’s preference

program unnecessary because EA

licensees will have incentive to identify

and make use of unused spectrum

within their blocks. Additionally, the

finder’s preference program is

inconsistent with the Commission’s

objective of assigning spectrum through

geographic licensing because it would

perpetuate site-by-site licensing.

2. Treatment of Incumbent Systems

a. Mandatory Relocation of Incumbents

From the Upper 200 Channels

26. Background. In the 800 MHz

Report and Order, the Commission

adopted a mandatory relocation

mechanism for incumbents on the upper

200 channels. In order to minimize the

impact on existing licensees, the

Commission adopted two key

provisions: (1) If an EA licensee is

unable or unwilling to provide an

incumbent licensee with ‘‘comparable

facilities,’’ such an incumbent would

not be subject to mandatory relocation;

and (2) any incumbent that is relocated

from the upper 200 channels, either

voluntarily or involuntarily, will not be

required to relocate again if the

Commission adopts its geographic area

licensing proposal for the lower 80 and

General Category channels.

27. Petitions. Several petitioners

challenge the Commission’s decision to

authorize mandatory relocation of

incumbent SMR licensees. They argue

that the Commission’s licensing

framework does not require mandatory

relocation, and that relocations should

occur through private negotiations

between EA licensees and incumbents.

Other petitioners object that there are no

alternative channels on which to

relocate incumbents. Still, other

commenters are concerned that

mandatory relocation will reduce the

amount of competitive service offered to

the public and thus be harmful to end

users and subscribers. These petitioners

argue that requiring relocation of an

incumbent’s entire system effectively

excludes most bidders from the auction,

including small businesses. Another

petitioner adds that the public interest

is not served by displacing existing

SMRs so other SMRs can provide the

same service. And, another argues that

the Commission has behaved

inconsistently with respect to 800 MHz

and paging services, two comparably

encumbered frequency bands, because

they have concluded that ‘‘alternative’’

spectrum for relocation exists in the 800

MHz band but does not exist in the

paging bands.

28. Discussion. In the 800 MHz Report

and Order, the Commission concluded

that while voluntary negotiations are

important and to be encouraged,

mandatory relocation is necessary to

achieve the transition to geographic area

licensing and to enhance the flexibility

of EA licensees on the upper 200

channels. The Commission rejects

petitioners’ contention that the

Commission could accomplish these

goals by relying on voluntary

negotiations alone. While the

Commission expects most relocation to

occur through voluntary negotiations, it

is concerned that EA licensees will be

unable to realize the potential of their

spectrum without some mandatory

mechanism in the event voluntary

negotiations prove unsuccessful. The

Commission reaffirms its conclusion

that a narrowly tailored mandatory

relocation mechanism is necessary to

the achievement of the goals of this

proceeding.

29. The Commission also rejects the

argument that relocation should not be

required because EA licensees will

provide the same service as incumbents

who are relocated. The Commission

expects that EA licensees will use their

spectrum to provide a wide variety of

services. While some of these services

may be of the same type provided by

incumbents who are relocated, the

ability to clear contiguous spectrum will

give EA licensees operational flexibility

to provide new and innovative services

that were far more difficult to develop

under site-by-site, channel-by-channel

licensing rules. Thus, relocation will not

merely replace one SMR licensee with

an identical licensee, but will allow

both parties to move towards more

efficient use of the spectrum.

30. Many petitioners who challenge

the Commission’s adoption of

mandatory relocation argue it will harm

incumbent licensees, particularly small

system operators. The Commission

disagrees with this view. The

Commission’s rules do not require any

incumbent to relocate unless the EA

licensee provides comparable facilities

and a seamless transition. Moreover, the

rules the Commission is adopting for the

lower 80 and General Category channels

provide positive incentives for small

businesses who relocate, including

bidding credits. Bidding credits assist

small business in obtaining licenses and

thus, provide small business with an

incentive to relocate to the lower

channels. In addition, because the

Commission is allowing incumbents on

the lower channels to operate within

their 18 dBu contours, incumbents on

these channels (including incumbents

who relocate from the upper 200

channels) will have greater operational

flexibility and protection from

interference than incumbents on the

upper 200 channels.

31. Some petitioners argue that the

Commission’s mandatory relocation

rules make relocation impractical for all

but a few large SMR operators who have

spectrum on the lower 80 and General

Category channels that can be used for

relocation. Even if this is so, the

Commission does not agree with

petitioners that this is an argument

against mandatory relocation: the

Commission considers it preferable to

allow relocation where it is feasible

rather than to prohibit it because it is

not feasible in every instance. Moreover,

the Commission disagrees with the

premise that small businesses will be

discouraged from participating in the

upper 200 channel auction because of

the practical difficulty of relocating

incumbents. Many of those small

businesses may themselves be

incumbents who choose to bid

(individually or in combination with

other small incumbents) for the upper

200 channel blocks rather than relocate.

In addition, small businesses may

develop business strategies that do not

depend on relocation, e.g., entering into

partitioning agreements with

incumbents or providing niche services

on available channels. The Commission

believes that market forces should be

relied upon for these types of decisions.

32. Finally, the Commission rejects

the claim that its decision conflicts with

its decision not to adopt mandatory

relocation in the Commission’s recently

completed paging rulemaking. The

Commission’s adoption of geographic

licensing rules in paging did not require

relocation because paging channels are

technically identical to one another and

paging technology is generally

consistent and compatible regardless of

the channel used. Thus, there is no

advantage in spectrum efficiency to be

gained from encouraging paging

incumbents in a particular band to

migrate to another band. In contrast, the

800 MHz SMR allocation is a mixture of

contiguous and non-contiguous

channels, which has led to the

development of sometimes incompatible

technologies. Relocation is therefore

beneficial because it creates incentives

for SMR providers to operate on the

spectrum most suitable for their

particular technologies.
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41229

b. Mandatory Relocation

Implementation Issues

i. Pre-Auction Negotiations

33. Background: In the CMRS Third

Report and Order, the Commission

suspended acceptance of new 800 MHz

applications pending adoption of new

800 MHz service and auction rules. On

October 4, 1995, the Wireless Bureau

imposed a similar freeze on new

applications for the General Category

channels. Under both of these freezes,

assignment and transfer of control

applications continued to be processed

if the location of the licensed facilities

remained unchanged.

34. In the 800 MHz Report and Order,

the Commission partially lifted the

freeze on new applications for SMR and

General Category channel licenses.

Specifically, the Commission allowed

filing of new applications to permit

assignments and transfers of control

involving modifications to licensed

facilities that were intended to

accommodate market-driven, voluntary

relocation arrangements between

incumbents and potential EA

applicants; and (1) would not change

the 22 dBu service contour of the

facilities relocated, (2) the assignment or

transfers would relocate a licensee out

of the upper 200 channels block, and (3)

the potential EA applicant and

relocating incumbent(s) were

unaffiliated. The Commission took these

actions to begin the relocation process

and thus ease the transition to a widearea licensing scheme for the upper 200

channels.

35. Petitions. Petitioner requests two

modifications of the Commission’s

partial lifting of the application freeze.

First, it asks that the Commission

‘‘clarify’’ that only incumbent 800 MHz

SMR licensees be treated as ‘‘potential

EA applicants.’’ It argues that absent

this restriction, anyone could negotiate

with an incumbent and avoid the

licensing freeze—regardless of eligibility

or intent to bid in the auctions.

Petitioner believes that the ability to

participate in pre-auction settlements

should ‘‘travel with the license.’’

Second, the petitioner requests that

prior to the auction the Commission

accept only those applications that

facilitate relocation of incumbents off

the upper 200 channels, as opposed to

moves from one upper 200 channel to

another. Petitioner argues that allowing

incumbents to move within the upper

200 channels could be used by potential

EA applicants for anti-competitive

purposes. Such a limitation on preauction settlements would prejudice

incumbent licensees without lower

band channels to trade and may reduce

the number of auction participants for

certain channels and satisfy

Congressional intent that the

Commission use negotiations to avoid

mutual exclusivity in application and

licensing procedures.

36. Discussion. The Commission goal

in partially lifting the freeze was to

facilitate the voluntary relocation of

incumbents off of the upper 200

channels. In order to facilitate this goal,

the Commission believes that anyone

who intends to bid in the upper 200

auction should be able to use this

procedure to obtain spectrum that could

be used for relocation of incumbents.

While the Commission anticipates that

most bidders for EA licenses will

themselves be incumbents, it is possible

that non-incumbents will bid as well.

Therefore, the Commission declines to

limit the filing of new applications to

incumbent 800 MHz SMR licensees as

requested. The Commission is

concerned that such a restriction could

arbitrarily limit the flexibility of

participants in pre-auction negotiations.

37. The Commission agrees that new

applications should only be accepted if

they facilitate relocation of incumbents

off of the upper 200 channels. In order

for the auction of the upper 200

channels to occur, bidders must have

certainty regarding the channels that are

currently licensed to incumbents.

Continuing to accept applications for

new authorizations on the upper 200

channels would deprive bidders of such

certainty and delay the auction process.

In addition, the Commission sees no

relocation benefit to allowing licensees

to acquire new spectrum on the upper

200 channels prior to the auction.

Therefore, pre-auction applications will

be accepted for relocation purposes only

on the lower 230 channels, and only if

they meet the conditions specified in

the 800 MHz Report and Order. The

Commission notes, however, that this

policy only applies to initial

applications for new spectrum, not to

transfers and assignments of existing

authorizations, which have never been

subject to the 800 MHz licensing freeze.

Therefore, incumbents may continue to

transfer and assign existing

authorizations on either the upper 200

channels or the lower 230 channels.

ii. Relocation Negotiations

38. Background. To encourage

negotiation between EA licensees and

incumbents the Commission adopted a

multi-phase, post-auction relocation

mechanism in the 800 MHz Report and

Order. In the initial one-year voluntary

period, the EA licensee and incumbents

may negotiate any mutually agreeable

relocation agreement. If no agreement is

reached, the EA licensee may initiate a

two-year mandatory negotiation period,

during which the parties are required to

negotiate in ‘‘good faith.’’ If the parties

still fail to reach an agreement, the EA

licensee may then initiate involuntary

relocation of the incumbent’s system.

However, such relocation must be to

comparable facilities and must be

seamless, i.e., without any significant

disruption in the incumbent’s

operations.

39. Petitions. Several commenters

argue that the Commission’s phased

negotiation plan does not serve the

public interest and object to the oneyear voluntary period and two year

mandatory period. They argue that the

Commission recently recognized the

advantages of a two-year voluntary

period and have no compelling reason

to deviate from this precedent and that

a two-year voluntary period gives

incumbents the flexibility in timing

their relocation and minimizes the

adverse impact of relocation on existing

SMR service subscribers.

40. Some commenters argue that the

Commission should reduce the

mandatory negotiation period to one

year, because the 800 MHz relocation

process will be less complex than that

faced by PCS licensees and 2 GHz

microwave incumbents. Others support

the adopted relocation process of oneyear voluntary and two-year mandatory

negotiation periods, although they want

relocation safeguards to apply to all

incumbents, including non-SMR

licensees.

41. Commenters complain that the

Commission’s rules do not require EA

licensees to begin negotiations at any

particular time and do not require an EA

licensee to relocate incumbents during

the initial year. It is argued that EA

licensees should be required to notify

the incumbent that mandatory

negotiations have begun, lest an EA

licensee wait out the voluntary period

and then declare later that mandatory

negotiations have begun, leaving

incumbents unprepared. Another argues

that the EA licensee must show that it

has made a bona fide attempt to

negotiate during the voluntary period.

42. Commenters also complain that

the Commission has not explained how

disputes over whether negotiations have

been conducted in ‘‘good faith’’ are to be

adjudicated. They also argue that since

the Communications Act authorizes the

Commission neither to reject nor

delegate its authority to resolve

licensing disputes, the Commission

must either (1) expeditiously resolve

these disputes or (2) reject mandatory

frequency relocation and let the market

determine whether frequency relocation
41230 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

will occur. They also ask that the

Commission allow incumbents to

decide who will retune end-user

equipment. They note that hundreds of

thousands of mobile units and control

stations are included in incumbent SMR

systems. Thus, it is concerned that the

Commission’s requirement that EA

licensees build and test the new

[relocated] system could be read to

permit or require that EA licensees

intervene in relations between an

incumbent and its customers.

43. Discussion: The Commission

agrees with commenters that the

mandatory negotiations period be

limited to one year. The Commission

agrees that such a reduction will serve

the public interest by facilitating the

clearing of incumbents from the EA

blocks so that the EA licensees can

implement their wide-area systems.

Moreover, this reduction will minimize

the period during which incumbents

will experience uncertainty concerning

relocation. Finally, the Commission

notes that this approach is consistent

with its recent decision in PCS to adopt

a one-year voluntary period and a oneyear mandatory period for the C, D, E,

and F blocks.

44. The Commission rejects the

proposal that we extend voluntary

negotiations to two years. A one-year

voluntary period and a one-year

mandatory period balances the

desirability of giving parties flexibility

to negotiate voluntarily with the need to

ensure that relocation, where feasible,

occurs expeditiously. The Commission

sees no need to extend the voluntary

period for an additional year. The

Commission finds that petitioners have

not supported their claims that another

year of voluntary negotiations would

‘‘minimize the adverse impact’’ of

relocation. In fact, although the

voluntary period has not yet

commenced, incumbents and potential

EA licensees can begin voluntary

negotiations at any time, thus affording

themselves more than a year to reach a

voluntary agreement. The Commission

finds that it would not serve the public

interest to delay for another year.

Finally, the Commission notes that in

recent decisions they have reduced

voluntary negotiation periods to one

year.

45. In response to the argument that

the Commission has not explained how

disputes over good faith will be

resolved, the Commission notes that in

this case as in all others, licensees may

bring infractions of the Commission’s

rules to its attention. Nevertheless, the

Commission strongly encourage parties

to use expedited alternative dispute

resolution procedures, such as binding

arbitration, mediation or other

alternative dispute techniques. Further,

since relocation agreements are

pursuant to private contracts, the

Commission anticipates that parties will

pursue common law contract remedies

in the court of competent jurisdiction if

alternative dispute resolution is not

successful.

46. Finally, the Commission clarifies

that its relocation rules are not intended

to require the mandatory disclosure of

incumbents’ proprietary information or

customer lists. Incumbents must

cooperate with the EA licensees and

facilitate the testing of their relocated

equipment, but incumbents need not

disclose competitively sensitive

information.

iii. Notice

47. Background. In the 800 MHz

Report and Order, the Commission

recognized that incumbents need

prompt information about the EA

licensees’ relocation plans. As such, the

Commission required EA licensees

within 90 days of the release of the

Public Notice commencing the

voluntary negotiation period to notify

incumbents operating in their spectrum

block of their intent to relocate such

incumbents. Moreover, if an incumbent

does not receive timely notice of the EA

licensees intent to relocate, the EA

licensee can no longer require that

incumbent to relocate.

48. Because such notice affects an EA

licensee’s relocation rights, the

Commission decided that the EA

licensee must file a copy of the

relocation notice and proof of the

incumbent’s receipt of the notice within

ten days of such receipt, or the

Commission will presume that the

incumbent was not notified of the

intended relocation. An incumbent

licensee notified of intended relocation

will be able to require joint negotiations

with all notifying EA licensees. These

requirements should ensure that

possible relocation will be properly

noticed and coordinated.

49. Petitions. Commenters ask the

Commission to amend its notice rule to

recognize proof of an attempt to notify

at the address in the Commission’s

database as proper notice and that the

Commission clarify that any EA

licensees relocation notice informs the

incumbent that it could be relocated out

of any EA license block on which its

SMR system is operating—even those

not licensed to the EA licensee

providing notice. Otherwise any EA

licensee’s failure to provide notice

could provide the incumbent a defense

to the relocation of part of its system

(and, thus, the entire system).

50. Discussion. The Commission’s

rules already require licensees to update

its data base with their current address.

The Commission thus agrees that proof

of an attempt to notify at the address in

its database constitutes sufficient

evidence of notice. The Commission

also agrees that notice by an EA licensee

shall constitute notice with respect to

the incumbent’s entire system,

including portions of the system outside

the EA licensees’ own spectrum block.

c. Incumbent Operational Flexibility

51. Background. In the 800 MHz

Report and Order the Commission

declined to allow non-EA licensees to

expand their systems at will after

geographic licensing has occurred

because such expansion would devalue

geographic licenses by creating

continuing uncertainty about the

amount of spectrum available under the

EA license. The Commission

recognized, however, that incumbents

should be allowed to make minor

alterations to their service areas to

preserve the viability of their systems.

Thus, in the 800 MHz Report and Order,

the Commission concluded that

incumbent licensees on the upper 200

channels should be allowed to make

modifications within their current 22

dBu interference contour without prior

notice to the Commission. The

Commission reasoned that this would

increase incumbents’ operational

flexibility without significantly affecting

the EA licensee’s wide-area system in

the same market. The Commission

stated, however, that incumbents must

still comply with its short-spacing

criteria even if the modifications do not

extend their 22 dBu interference

contours. Finally, the Commission also

decided to allow 800 MHz SMR

incumbents who are not relocated to

convert their current site-by-site

licenses to a single license authorizing

operations throughout the contiguous

and overlapping service area contours of

the incumbent’s constructed multiple

sites.

52. Petitions. Commenters asked that

the Commission clarify that the rule

allowing incumbents to modify their

systems within existing 22 dBu contours

does not apply to aggregate 22 dBu

contours but must be applied on a

channel-specific basis. For example, if

an incumbent is operating on more than

one station within a geographic area,

petitioner contends that the incumbent

should not be allowed to use a channel

licensed at one station at a site inside

the 22 dBu contour of another station if

that channel is not licensed at both

sites. Thus, an incumbent would be

allowed to re-use a channel throughout
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41231

the composite 22 dBu contour only of

those stations on which that channel is

licensed.

53. One commenter supports the

Commission’s decision to permit

incumbent licensees to convert their

current site-by-site licenses to a single

license, but argues that incumbent

licensees might abuse the procedure by

filing spurious requests that would

enable unaffiliated systems to obtain a

single geographic license. Commenter

proposed that the Commission allow

affected EA licensees to oppose such

requests.

54. Discussion. The Commission

clarifies that the rule allowing

incumbents to modify their systems

within their existing 22 dBu contours

will be applied on a channel-specific

basis. The Commission is concerned

that by allowing incumbents to

unilaterally redeploy channels to sites

where they were not previously

authorized would create continuous

uncertainty for EA licensees as to which

channels they could use at particular

locations. Thus, an incumbent may use

a channel within the 22 dBu contour of

all facilities authorized on that channel,

but may not redeploy the channel to

another facility (or within the 22 dBu

contour of such a facility) where that

channel is not previously authorized,

unless the EA licensee agrees to the

change. The Commission emphasizes,

however, that incumbents and EA

licensees may negotiate alternative

arrangements with respect to the

deployment of channels for their

respective systems.

55. The Commission rejects the

request to allow EA licensees to

formally oppose incumbent requests to

convert multiple site-by site licenses to

a single geographic license. The

Commission does not believe this

process will be susceptible to abuse by

incumbents, as Nextel contends.

Converting site-by-site licenses to a

geographic license will not in any way

expand the spectrum rights of

incumbents; it is simply an

administrative vehicle for simplifying

the licensing process. In addition, the

Commission is requiring incumbents

seeking geographic licenses to show that

their facilities are constructed and

operational, and that no other licensee

would be able to use the channels

within the designated geographic area.

3. Co-Channel Interference Protection

a. Incumbent SMR Systems

56. Background. In the CMRS Third

Report and Order, the Commission

retained most of its existing co-channel

protection rules for CMRS licensees,

including its existing station-specific

interference criteria for 800 MHz SMR

co-channel stations.

57. In the 800 MHz Report and Order,

the Commission concludes that EA

licensees on the upper 200 channels

must afford interference protection to

incumbent SMR systems as provided in

§ 90.621 of the Commission’s rules. As

a result, an EA licensee must either (1)

locate its stations at least 113 km (70

miles) from any incumbent’s facilities;

(2) comply with the Commission’s

short-spacing rule; or (3) negotiate with

the incumbent licensee if it wishes to

operate closer than these rules allow.

The Commission concluded that these

requirements will adequately protect

incumbents while EA licensees to build

stations in their authorized service

areas. The Commission believes that the

short-spacing rule provides flexibility to

EA licensees, allows incumbents to fill

in ‘‘dead spots,’’ and protects incumbent

licensees from actual interference.

58. Petitions. Commenters argue that

the Commission’s decision improperly

gives geographic licensees more rights

than incumbent licensees. They believe

that the Commission’s proposal will

preclude affected parties from equitably

balancing one operator’s desire to

expand against another operator’s desire

to obtain full value for an existing

investment. Another commenter

requests that the Commission require

EA licensees to file an application for

each proposed station and serve a copy

on any incumbent within 70 miles of

the proposed station. It claims that some

authorized wide-area licensees have

violated the Commission’s rules when

selecting co-channel station locations.

Additionally, it argues that the

Commission should not proceed until it

reviews its database of currently

authorized wide-area stations, confirm

those authorizations comply with the

Commission’s interference protection

rules, and cancel any wide-area

authorizations which were erroneously

granted.

59. Consumers also request

clarifications of certain aspects of the

interference protection rules.

Consumers asks the Commission to

clarify that the full primary co-channel

protection standards of § 90.621(b) must

be afforded by non-border area EA

auction winners to co-channel I/LT

category licensees. They also ask that

the Commission clarify that EA

licensees operating in California and the

Pacific Northwest must comply with the

unique co-channel interference

protection rules applicable to certain

transmitter sites in mountainous areas

of California and Washington state.

60. Discussion. The Commission

disagrees that it must give incumbent

and EA licensees identical co-channel

protection rights. In other auctions,

incumbents obtained the benefits of

being geographic area providers by

obtaining geographic area licenses. To

protect incumbents who do not want to

provide service in a predetermined

geographic area, the Commission has

maintained the technical co-channel

interference standards under which

such incumbents were originally

licensed. These measures give

incumbents the flexibility provided in

their original license. The Commission

also permits them to freely add sites

within their existing 22 dBu

interference contour.

61. The Commission also declines to

adopt the suggestion that it require EA

licensees to file applications on a persite basis. Such a procedure is

counterproductive to the Commission’s

goal of providing EA licensees

additional operational flexibility, and

would reintroduce some of the

administrative burdens associated with

site-by-site licensing.

62. Finally, as requested by

commenters, the Commission clarifies

that (1) full primary co-channel

protection pursuant to the standards of

§ 90.621(b) must be afforded to cochannel I/LT category licensees by nonborder area EA licensees and (2) the EA

licensees must comply with co-channel

separation rules in § 90.621(b) for

designated transmitter sites in California

and Washington.

b. Adjacent EA Licensees

63. Background. In the CMRS Third

Report and Order, the Commission

concluded that the co-channel

interference protection between

geographic area licensees would be

similar to those in the cellular and PCS

services, which impose interference

protection criteria for border areas in

Commission-defined service areas. In

the 800 MHz Report and Order, the

Commission determined that 40 dBuV/

m is an appropriate measure for the

desired signal level at the service border

area. Thus, the Commission prohibited

EA licensees from exceeding a signal

level of 40 dBuV/m at their service area

boundaries, unless the bordering EA

licensee(s) agree to a higher field

strength.

64. Petitions. One commenter claims

that the Commission should replace the

40 dBuV/m signal level standard with a

22 dBu standard as proposed. It also

claims that the Commission should

adopt a stricter protection standard

because entities operating at a signal

level of 40 dBuv/m at the same
41232 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

geographic boundary will interfere with

one another. It further argues that under

the proposal, resulting ‘‘dead spots’’ at

borders could be resolved by

negotiations between operators.

65. Discussion. The Commission

rejects the suggestion that it replace the

40 dBuV/m signal level standard with a

22 dBu standard. The Commission’s

approach here is consistent with its

approach in setting signal strength

thresholds in PCS and cellular services.

In all three instances, the Commission

has used a threshold that allows the

geographic area licensee to deliver a

reliable signal throughout its licensing

area. While the commenter is correct

that this could lead to interference

between adjacent licensees operating at

full power at a common service area

border, the Commission’s experience

has shown that actual interference is

uncommon because not all licensees

extend coverage to their licensing area

borders. Moreover, the Commission has

found that in those instances where

actual interference does occur, adjacent

licensees can and do resolve these

situations by mutual agreement. If the

Commission were to use the 22 dBu

standard, on the other hand, an EA

licensee seeking to provide reliable

coverage at the border of its licensing

area would require the consent of the

adjacent EA licensee even if the

adjacent licensee was not operating

close enough to the border to suffer

actual interference. The Commission

believes such a requirement would be

unnecessarily restrictive.

4. Emission Masks

66. Background. In the CMRS Third

Report and Order, the Commission

affirmed its out-of-band emission rules

for CMRS services and decided that outof-band emission rules should apply

only if emissions could potentially

affect other licensees operations.

Moreover, the Commission decided to

apply out-of-band emission rules to

licensees having exclusive use of a

block of contiguous channels only if

needed to protect operations outside of

the licensee’s authorized spectrum. In

the 800 MHz Report and Order, the

Commission decided to apply out-ofband emission rules only to the ‘‘outer’’

channels included in an EA license and

to spectrum adjacent to interior

channels used by incumbents. The

Commission also adopted and modified

a proposed emission mask rule to

maintain the existing level of adjacent

channel interference protection.

67. Petitions. Commenters supports

the emission mask rule described in

§ 90.691, but believes that it should also

apply to any non-EA 800 MHz part 90

CMRS system. They propose to amend

§ 90.210 of the Commission’s rules by

adding the following sentence to

footnote 3: ‘‘Equipment used in this

band by non-EA systems shall comply

with this section or the emission mask

provisions of Section 90.691.’’

68. Discussion. The Commission

agrees with petitioners that its § 90.691

emission mask rules should also apply

to non-EA 800 MHz part 90 CMRS

systems, and thus it will adopt the

proposed change to § 90.210 of the

Commission’s rules. By making this

change, the Commission will provide

incumbent licensees who do not submit

a winning bid in the auction process the

opportunity to use the more flexible

emission mask that it has adopted for

EA licensees. Moreover, it will aid

CMRS operators who are operating on

non-SMR pool channels to have the

same capabilities as those operating in

the SMR category. Thus, the

Commission amends § 90.210 by adding

the suggested sentence to footnote 3.

C. Construction Requirements

1. EA Licensees

69. Background. In the 800 MHz

Report and Order, the Commission

adopted a five-year construction

requirement for EA-based licensees

beginning when the license issues and

applying to all of the licensee’s stations

within the EA spectrum block,

including any stations previously

subject to an earlier construction

deadline. The Commission recognized

that it had adopted a ten-year period

adopted for PCS systems, but concluded

that the already-substantial construction

of 800 MHz systems made a five-year

period sufficient. Moreover, the

Commission recognized that geographicarea licensees that have invested in

existing systems or that have incurred

bidding costs must construct facilities

and provide service promptly, to

recover these costs.

70. Petitions. A petitioner argues that

EA licensees should not be able to

obtain an additional five years to

construct facilities previously subject to

earlier construction deadlines and that

the Commission’s approach rewards

spectrum warehousing and is

inconsistent with regulatory symmetry

because prior construction deadlines

were issued on a site-specific basis.

Other petitioners believe that the

Commission’s construction

requirements discriminate between EA

licensees and non-EA licensees and that

the Commission’s rationale for a fiveyear construction period is flawed

because it rested, in part, on an order

finding that a two-year construction

period was sufficient for existing SMRs.

71. Finally, the petitioner argues that

50 percent minimum channel use

should be required at more than a single

location within the EA or otherwise, a

licensee could meet this requirement by

building a multi-channel facility in a

rural portion of an EA and avoid serving

a metropolitan area. They contend that

this would enable EA licensees to avoid

constructing true wide-area systems and

to warehouse spectrum.

72. Discussion. The Commission

declines to reconsider its five-year

construction deadline. The Commission

is unpersuaded by the unsupported

assertion that a five-year construction

period for EA licensees does not serve

the public interest and that its EA

construction requirements will allow

those who warehouse to be unjustly

enriched at auction. To the contrary, the

auctions process requires licensees to

purchase the rights to, and thereby

compensate the American taxpayer for,

the spectrum that they use. Thus, the

Commission’s auction rules discourage

speculation and spectrum warehousing.

Moreover, the Commission does not

agree that its five-year construction

requirement will result in or reward

spectrum warehousing. The five-year

requirement assures that geographic

licensees promptly build out and

provide service.

73. The Commission also rejects

claims that it has acted discriminatorily

by adopting a two year construction

requirement for site-by-site licenses and

a five-year build out for EA licensees.

Further, the Commission rejects the

claim that its rationale for granting EA

licensees a five-year build out period,

while limiting existing site licensees to

an additional two years, is flawed. The

Commission imposes a two-year build

out period on site licensees because, by

definition, they are seeking authority to

build and operate a particular site. EA

licensees, in contrast, will be building

multiple sites throughout their licenses

entire geographical area and thus

require a longer build out period.

Moreover, the competitive bidding

process provides incentives for EA

licensees to build out quickly, and thus

reduces the likelihood that a longer

construction period would lead to

spectrum warehousing.

74. Finally, the Commission rejects

the proposed expansion of the 50

percent channel use requirement

because it finds that its concerns are too

speculative, and its suggested approach

too rigid. It would be economically

irrational for a licensee to construct

multiple channels in areas where there

is limited demand while leaving areas
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41233

where demand is greatest covered by

only a single channel. Moreover,

licensees should have the flexibility to

determine how best to provide services

in response to consumer demand. The

Commission does not believe that it

should micromanage how the EA

licensee chooses to provide service.

2. Extended Implementation Authority

a. Dismissal of Pending Extended

Implementation Requests

75. Background. In the 800 MHz

Report and Order, the Commission

stopped accepting requests for extended

implementation authority, accelerated

the termination date of pending

extended implementation periods, and

dismissed pending requests for

extended implementation authority. The

Commission reasoned that retaining

extended implementation authority for

up to five years would impede EA

licensees construction efforts, and that

parties still wanting extended

implementation could apply for EA

licenses under the Commission’s new

rules.

76. Petitions. A Commenter seeks

reconsideration of the Commission’s

dismissal of pending requests for

extended implementation and its

decision to reduce previously granted

construction periods from five to two

years. They argue that eliminating

existing extended implementation

periods unfairly harms incumbent SMR

providers. They also argue that

eliminating extended implementation

authority is an unlawful deprivation of

the property interest which it contends

it has in its FCC licenses and the

continuation of those licenses, and

argues that to deny or revoke such a

license without cause violates the

licensee’s due process rights.

77. The commenter also claims that

eliminating extended implementation

periods will harm the public and the

CMRS industry by excluding small and

mid-sized SMR providers from the

CMRS marketplace. They argue that

small SMR providers may lack the

resources to acquire spectrum for their

current markets at auction. It asserts that

eliminating extended implementation

compounds this problem by stranding

investment in SMR systems whose

construction periods will be cut short.

78. Finally, another commenter argues

that the Commission has recognized that

public safety agencies need extended

implementation because complex

government funding mechanisms

impede rapid deployment of public

safety systems. It argues that extended

implementation should be available to

public safety systems in the General

Category. Still, another commenter

argues that extended implementation

should be available for all private radio

licensees in the General Category,

because problems such as budgetary

constraints affect the I/LT and Business

users as much as Public Safety

licensees.

79. Discussion. The Commission

rejects the claim that eliminating

extended implementation interferes

with legitimate business expectations.

First, these licensees have already been

given significant time to complete

construction. Second, upon adequate

rejustification, licensees will have up to

two years to complete build out of their

systems. Far from being a ‘‘drastic

change’’ that will strand investment, as

contended, this is an equitable

transition to a more efficient method of

providing service and using spectrum.

Finally, one commenter’s reliance on

the public interest analysis in the OVS

NPRM, 61 FR 10496 (March 14, 1996),

is also misplaced. While, the OVS

proceeding did acknowledge a strong

public interest in establishing a level of

certainty in business plans, the

Commission did not suggest that a

licensees’ business expectations were

entitled to absolute protection, nor did

the Commission imply that these

expectations would always dictate the

course of future regulation.

80. The claim of a property interest in

its license is also without merit. Both

section 301 of the Communications Act

and relevant case law establish that

licensees have no ownership interest in

their FCC licenses. Moreover, the

Commission does not agree that ending

extended implementation will decrease

competition. To the contrary,

competitive bidding, which allocates

resources to those who value them most,

is a more efficient and competitive

method than the Commission’s prior

rules for licensing spectrum on an

extended basis. The Commission also

disagrees that terminating extended

implementation will limit small

business participation. To the contrary,

the Commission has adopted special

provisions, such as bidding credits, in

order to assist small businesses at

auction.

Finally, the Commission notes that it

only curtailed extended implementation

for SMR licensees. Thus, non-SMR

licensees with existing extended

implementation grants are not affected

by this proceeding. In addition, nonSMR licensees on 800 MHz channels

that are not subject to EA licensing (i.e.

Business, I/LT and Public Safety

channels may still obtain extended

implementation authority under

§ 90.629).

b. Rejustification of Extended

Implementation Authority

82. Background. In the 800 MHz

Report and Order, the Commission

required incumbent 800 MHz licensees

with extended implementation grants to

submit showings rejustifying the need

for extended time to construct their

facilities. The Commission provided

that if the Bureau approved a licensee’s

showing, the licensee would receive a

construction period of two years or the

remainder of its current extended

implementation period, whichever was

shorter. Licensees making an

insufficient or incomplete showing

would have six months to construct the

remaining facilities covered under their

implementation plans.

83. Petitions: Several petitioners seek

reconsideration or clarification of the

extended implementation rejustification

procedures adopted in the 800 MHz

Report and Order. One petitioner argues

that wide-area systems that received

extended implementation via waiver

should not be required to submit

rejustification showings because their

waivers were predicated on the

existence of underlying constructed

analog facilities. Another asks that the

Commission delineate the evidence that

a licensee must provide to rejustify its

extended implementation grant.

Petitioners also ask that the Commission

clarify whether licensees who received

license grants in the processing of the

800 MHz SMR backlog in October 1995

are eligible for extended

implementation.

84. Discussion. In the 800 MHz Report

and Order, the Commission specified

that all licensees with extended

implementation grants would be

required to file rejustification showings,

regardless of whether they sought

extended implementation under

§ 90.629 to construct new systems or

had obtained waivers to reconfigure

existing high-power analog systems into

low-power digital systems within the

existing analog footprint. One petitioner

argues that licensees who are converting

their systems should be exempt from the

rejustification requirement because they

are not seeking to occupy previously

unlicensed spectrum. The Commission

disagrees. The waivers that were granted

to licensees to convert existing analog

facilities gave them considerable

latitude to redeploy channels

throughout the aggregate footprint of

their systems, in effect allowing them to

obtain new spectrum (i.e., spectrum on

additional channels) within their

existing footprints. In order to provide

EA licensees with reasonable certainty

regarding what spectrum is available to
41234 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

them, the Commission believes it is

necessary that these licensees be subject

to the same timetable for constructing

their systems and returning

unconstructed channels as licensees

who received extended implementation

grants to build entirely new systems.

Therefore, the Commission denies the

request for reconsideration.

85. Since the filing of the petitions for

reconsideration, the Wireless Bureau

has solicited and received rejustification

showings from 37 licensees, and has

acted on the showings in a recent order.

The Commission also notes that prior to

the filing of these showings, the Bureau

issued a Public Notice describing the

information to be provided in the

rejustifications and clarifying that

licensees who obtained license grants in

the October 31, 1995 Bureau Public

Notice, and who had extended

implementation requests associated

with such applications, could treat such

requests as granted for purposes of the

rejustification filing requirement.

Therefore, the Commission dismisses

two petitioners’ reconsideration

requests as moot.

D. EA License Initial Eligibility

86. Background. In the 800 MHz

Report and Order, the Commission

concluded that restrictions on EA

licensee eligibility were not warranted,

except for foreign ownership restrictions

required by section 310(b) of the

Communications Act.

87. Petitions. A petitioner argues that

the Commission’s relocation

requirements have created a de facto

eligibility limitation. According to the

petitioner, if EA licensees must relocate

incumbent licensees onto ‘‘comparable

facilities,’’ then only entities having

sufficient ‘‘comparable spectrum’’ to

offer to incumbents can become EA

licensees, and it contends that this

relocation requirement will reduce the

number and quality of auction

participants and the amount of revenue

raised. It therefore argues that the

Commission should limit eligibility for

wide-area licenses on the upper 200

channels to applicants who do not

currently hold any wide-area SMR

authorizations. It argues that this

eligibility restriction will create more

competition for EA authorizations and

will increase the number of wide-area

CMRS service providers.

88. Discussion. The Commission

rejects the suggested eligibility

limitation because it confuses protecting

individual competitors with promoting

competition. In many instances, the

proposal would preclude entities from

bidding to obtain geographic area

licenses that encompass spectrum they

are already using. Such a restriction

would be inefficient and contrary to the

goals of this proceeding. By contrast,

open eligibility for EA licensees is procompetitive because it enables the

market, not regulation, to determine

who values the spectrum the most.

E. Redesignation of Other 800 MHz

Spectrum—General Category Channels

and Inter-Category Sharing

1. General Category Channels

89. Background. In the Commission’s

800 MHz Report and Order, the

Commission redesignated the General

Category channels exclusively for SMR

use. The Commission’s licensing

records showed that there are three

times as many SMR licensees in the

General Category as any other type of

part 90 licensee. The Commission

concluded that SMR providers’ demand

for additional spectrum significantly

exceeds the demand of non-SMR

services. Moreover, the Commission

anticipated that SMR providers’ demand

for this spectrum would be increased by

geographic area licensing of the upper

200 channels and its mandatory

relocation policy.

90. Petitions. A number of petitioners

challenge the Commission’s decision to

reclassify the General Category based on

its finding that SMR licensees

outnumber non-SMR licensees on these

channels. Some commenters argue that

many of these licensees are speculators

who have not constructed and are not

using the spectrum. Others contend that

the SMR licensing freeze and the

elimination of intercategory sharing

have artificially increased SMR demand

for General Category channels and argue

that the Commission has arbitrarily

reversed its prior treatment of the

General Category without adequate

explanation. They note that in the

Competitive Bidding Second Report and

Order, 59 FR 26741 (May 24, 1994), the

Commission declined to subject the

General Category to competitive

bidding, whereas it has now determined

that the General Category should be

reclassified and subject to auction. It

contend that the pattern of licensing on

the General Category channels has not

changed dramatically since the

Competitive Bidding Second Report and

Order was adopted, and that the

Commission therefore has no basis for

treating it differently now.

91. Some petitioners also argue that

reclassifying the General Category will

harm non-SMR operations on General

Category channels by stranding existing

investment in internal communications

systems. They contend that it will have

to re-engineer its nationwide network if

the General Category is redesignated.

Another adds that the Commission’s

decision will make American industry

less competitive internationally by

limiting its flexibility and that denying

public safety operators access to General

Category channels will jeopardize police

and ambulance communications

systems. It adds that redesignating the

General Category channels will harm

non-SMR licensees whose needs cannot

be met by commercial carriers and that

redesignation of the General Category

channels will not facilitate relocation

from the upper 200 channels, because it

will make it more difficult to

accommodate the relocation of nonSMR incumbents currently operating on

those channels. One petitioner argues

that a reallocation of the General

Category channels is ill-advised unless

the Commission identifies additional

spectrum to accommodate private

systems.

92. Discussion. In the 800 MHz Report

and Order, the Commission concluded

based on comments in the proceeding

and on its licensing records that the

primary demand for General Category

channels came from SMR operators.

Petitioners’ arguments do not persuade

the Commission that this conclusion

was incorrect. Petitioners concede that

SMR licensees far outnumber non-SMR

licensees on these channels. Moreover,

at the time the Commission froze

General Category licensing in 1995, it

noted that the number of SMR

applications for these channels had

risen markedly. Even if some of this

increased licensing activity was

attributable to speculation, as

petitioners contend, the Commission

believes that such activity is itself an

indication that demand for the spectrum

exists. The Commission also anticipates

that with the advent of geographic area

licensing on the upper 200 channels,

there will be substantial demand for

General Category channels among

legitimate small SMR operators,

including incumbents who relocate

from the upper 200 channels. Based on

these factors, and on the fuller record

relating to 800 MHz developed in this

proceeding, the Commission believes

that it was fully justified in reaching a

different conclusion with respect to the

General Category from that reached in

the earlier Competitive Bidding Second

Report and Order.

93. The Commission believes,

however, that petitioners have raised

valid concerns with respect to the

interests of non-SMR licensees

operating on the General Category

channels. As several petitioners note,

the Commission’s decision in the 800

MHz Report and Order, to reclassify the
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41235

General Category as SMR-only would

preclude non-SMRs from seeking

additional authorizations on these

channels to expand their systems. On

reconsideration, the Commission sees

no reason why non-SMRs should not

continue to be eligible for licensing in

the General Category. By allowing nonSMRs to obtain spectrum in this band,

the Commission gives non-SMRs more

options and greater flexibility for

continued growth of their systems.

94. While the Commission concludes

that non-SMRs should continue to be

eligible for General Category licensing,

the Commission emphasizes that this in

no way affects its decision to license

General Category channels

geographically, with competing

applications resolved through

competitive bidding. The Commission

has not altered its conclusion in the 800

MHz Report and Order, that General

Category channels are used primarily for

subscriber-based services, and thus are

subject to competitive bidding under

section 309(j). Moreover, competitive

bidding will further the public interest

by encouraging efficient spectrum use,

promoting competition, recovering

portions of the value of the spectrum for

the public and promote the rapid

deployment of service. The Commission

rejects petitioners’ view that this

approach will harm the interests of noncommercial licensees by requiring them

to compete for spectrum with

commercial systems. To the contrary,

there are several ways in which nonSMRs can benefit from the

Commission’s geographic licensing

rules. For example, non-commercial

operators may not only apply

individually for geographic area

licenses, but may also participate in

joint ventures (with other noncommercial operators or with

commercial service providers) or obtain

spectrum through partitioning and

disaggregation to meet their spectrum

needs. The Commission also expects

that geographic area licensing of SMR

and General Category spectrum will free

up non-SMR spectrum in the 800 MHz

band, providing more options for noncommercial operators where availability

of General Category spectrum is limited.

Finally, the Commission is continuing

with its initiatives to provide sufficient

spectrum for non-commercial

operations through its Refarming

proceeding and its participation in the

Public Safety Wireless Activity

Committee.

2. Inter-Category Sharing

95. Background. Prior to the 800 MHz

Report and Order, the Wireless Bureau

imposed a freeze on applications for

intercategory sharing among 800 MHz

Industrial/Land Transportation (I/LT),

Business, and Public Safety channels

(collectively, ‘‘Pool Channels’’). This

freeze was intended to stem the increase

in intercategory applications for Public

Safety channels by I/LT and Business

licenses whose own channels were

subject to increased demand from SMR

applicants. In the 800 MHz Report and

Order, the Commission eliminated

intercategory sharing by SMR licensees

on all of the Pool Channels. The

Commission also concluded that nonSMR licensees would no longer be

eligible for intercategory sharing on

SMR channels.

96. Petitions. Petitioners representing

I/LT and Business Radio operators

oppose the elimination of intercategory

sharing to the extent that it prevents

them from obtaining spectrum where

channels in their own pools are

unavailable. They argue that the

intercategory sharing freeze has harmed

the wireless industry by prohibiting

licensees from expanding in areas

lacking I/LT or Business channels and

that utilities and pipelines need

intercategory sharing to expand their

radio systems to meet current

communications requirements. They

add that commercial demand for 800

MHz spectrum has made it virtually

impossible for private system operators

to obtain channels in their own pools.

97. In contrast, one commenter

defends the current freeze on

intercategory sharing with respect to

Public Safety channels and opposes any

effort to reopen these channels to nonPublic Safety applicants. It argues that

because of the limited availability of

Business and I/LT channels and the

Commission’s proposals for geographic

licensing of the General Category, a

lifting of the intercategory freeze would

cause more Business and I/LT entities to

seek Public Safety channels as a ‘‘safe

harbor.’’ It argues therefore, that a

permanent bar on non-public safety

applications in the Public Safety pool is

needed to ensure that such channels

will be available for current and future

public safety use.

98. Discussion. The Commission will

retain the current prohibitions on

intercategory sharing between SMR and

non-SMR channels. By prohibiting

SMRs from applying for Pool Channels,

the Commission preserves the

availability of those channels for noncommercial and public safety uses.

Similarly, eliminating intercategory

sharing for SMR-only channels ensures

that they will be available exclusively

for licensing to SMR operators. In

addition, the Commission believes that

the concerns of ITA and others

regarding the availability of spectrum

for I/LT and Business systems are

sufficiently addressed by its decision to

restore non-SMR eligibility for General

Category channels.

F. Auctionability

99. Background. In the 800 MHz

Report and Order, the Commission

reiterated its conclusion that

competitive bidding is an appropriate

licensing mechanism for the 800 MHz

SMR service. The Commission

concluded that the 800 MHz SMR

service satisfies the criteria set forth by

Congress for determining when

competitive bidding should be used. It

noted that competitive bidding will

further the public interest requirements

of the Communications Act by

promoting rapid deployment of services,

fostering competition, recovering a

portion of the value of the spectrum for

the public, and encouraging efficient

spectrum use. The Commission further

noted that where competitive bidding is

used, a diverse group of applicants

including incumbent licensees and

potential new entrants into this service

will be able to participate in the auction

process because it has decided not to

restrict eligibility for EA licenses.

Finally, the Commission adopted

special provisions for small businesses

seeking EA licenses.

100. Petitions. Several petitioners

once again request that the Commission

use procedures other than competitive

bidding to license 800 MHz SMR. In

essence, petitioners contend that this

band does not fit within the

congressional criteria for auctions

because (i) Congress did not intend for

the 800 MHz SMR band to be auctioned;

(ii) the competitive bidding design for

the upper 10 MHz channels of the 800

MHz SMR band does not promote the

objectives contained in section 309(j) of

the Communications Act; and (iii) the

Commission has failed to consider

alternative licensing mechanisms which

avoid mutually exclusive applications.

101. Discussion. The Commission

reaffirms its conclusion that competitive

bidding is an appropriate tool to resolve

mutually exclusive license applications

for the upper 10 MHz channels of the

800 MHz SMR service. Moreover, the

criteria for auctionability set forth in

section 309(j) of the Communications

Act are met. The Commission has fully

considered the issues raised here by

petitioners both in the 800 MHz Report

and Order and the Competitive Bidding

Second Report and Order. The

Commission continues to believe that

competitive bidding is appropriate for

the upper 10 MHz of the 800 MHz SMR

spectrum and that employing this
41236 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

procedure strikes a reasonable balance

in protecting the public interest in the

use of the spectrum while promoting the

objectives specified in the

Communications Act.

102. The Commission disagrees with

petitioners’ contention that Congress

did not intend that the upper 10 MHz

of the 800 MHz SMR spectrum be

auctioned. Those petitioners contend

that Congress intended auctions to be

used for the licensing of new services

and not for currently allocated services,

such as the upper 10 MHz of the 800

MHz SMR. The Commission disagrees

with this position because section 309(j)

of the Communications Act does not

distinguish between new services and

existing services in terms of whether

initial licenses in a given service should

be subject to competitive bidding.

Furthermore, there is nothing in the

legislative history to indicate that

Congress intended to limit the

applicability of auctions to new

services. As the Commission noted in

the Competitive Bidding Second Report

and Order, the principal use of 800 MHz

SMR is to provide service to eligible

subscribers for compensation. The

Commission concludes that the use of

competitive bidding in the upper 10

MHz block is fully consistent with

section 309(j) of the Communications

Act and its legislative history.

103. In the Competitive Bidding

Second Report and Order, the

Commission concluded that its auction

designs are calculated to meet the policy

objective of introducing new

technologies to the public. Several

petitioners contend that the competitive

bidding procedures for the upper 10

MHz of the 800 MHz SMR do not

promote the section 309(j) objectives.

One petitioner contends that the

Commission’s auctioning policies do

not ensure that winning bidders will

employ advanced technologies to serve

the public. However, no commenter

raises any new arguments that persuade

the Commission to change its

conclusion that making the 800 MHz

SMR spectrum available for public use

through auctioning will lead, most

efficiently and effectively, to the

deployment of new technologies and

services to the public. As the

Commission noted in the Competitive

Bidding Eight Report and Order, it

believes that competitive bidding

furthers the public interest by

promoting rapid development of

service, fostering competition,

recovering a portion of the value of the

spectrum for the public and encouraging

efficient spectrum use.

104. The Commission does not agree

with the contention of some petitioners

that the administrative procedures

associated with licensing through

auctions are not as efficient as sitespecific licensing. The Commission

previously addressed the advantages to

both the Commission and licensees of

geographic area licensing. Petitioners do

not raise any new arguments that would

persuade the Commission to reconsider

the adoption of EA licensing for the 800

MHz SMR service. The Commission

again emphasizes that geographic area

licensing offers a flexible licensing

scheme that eliminates the need for

many of the complicated and

burdensome licensing procedures that

hampered SMR development in the

past.

105. In response to requests by

petitioners, the Commission considers

yet again whether auctioning allows for

the dissemination of licenses among a

wide variety of entities in the 800 MHz

SMR spectrum. Several petitioners, for

example, believe that auctioning will

lead to the concentration of licenses in

the hands of a few operators in each

market to the detriment of small

businesses. The Commission disagrees

with the contention that small

businesses will not be able to participate

in these auctions. The auction rules for

the upper 800 MHz SMR include small

business provisions such as bidding

credits and other measures that are

intended to meet the statutory objective

of providing opportunities for small

businesses in the upper 10 MHz

channels of the 800 MHz SMR service.

The results of prior auctions

demonstrate that these provisions have

ensured small businesses participation

in other auctionable services. The

Commission further notes that because

the 800 MHz SMR service falls within

the definition of the Commercial Mobile

Radio Services (CMRS), it is subject to

the 45 MHz aggregate spectrum cap on

CMRS. The spectrum cap has been

placed on CMRS licensees in order to

promote and preserve competition in

the CMRS marketplace by limiting the

number of licenses any one entity can

acquire.

106. The Commission has further

considered various alternative licensing

procedures for the 800 MHz SMR band

as requested by several petitioners.

These petitioners contend that section

309(j)(6)(E) of the Communications Act

prohibits the Commission from

conducting an auction unless it first

attempts alternative licensing

mechanisms to avoid mutual

exclusivity. In the course of this

proceeding, the Commission has

evaluated the appropriateness of other

licensing mechanisms for the upper 800

MHz SMR, but concluded those

methods are not in the public interest.

The Commission has found that ‘‘firstcome, first-served’’ licensing in the 800

MHz service leads to processing delays.

For the upper channels of the 800 MHz

SMR frequency band, the use of

competitive bidding is the most

appropriate licensing procedure because

the Commission anticipates a

considerable number of applications for

these licenses and competitive bidding

will allow the most expeditious access

to the spectrum if any of these

applications is mutually exclusive.

Therefore, the Commission rejects once

again other licensing procedures for the

upper 800 MHz SMR spectrum. In doing

so, the Commission must emphasize

that it has made every effort to include

the SMR industry in the decisionmaking process to make certain that the

concerns of the industry and,

particularly, incumbents are addressed

by the Commission.

G. Bidding Issues

1. Bid Increment

107. Background. In the 800 MHz

Report and Order for the upper 10 MHz

block, the Commission adopted the

same procedures for bid increments as

those used in auctions for MTA-based

PCS licenses. The Commission also

indicated that it would retain the

discretion to set and, by announcement

before or during the auction, vary the

minimum bid increments for individual

licenses or groups of licenses over the

course of the auction.

108. Petitions. One petitioner

supports a minimum bid increment but

believes that tying the minimum bid to

the absolute minimum bid establishes

an artificial value for each license rather

than allowing the marketplace to

determine the value of the licenses.

Instead, petitioner supports a five

percent minimum bid increment

because it will ensure active

participation by bidders without

requiring a disparate increase from one

round to the next.

109. Discussion. After considering the

record, the Commission modified its

rules to delegate authority to the Bureau

to set appropriate bid increments. The

Commission’s experience with other

auctions indicates that flexibility is

necessary to set appropriate bidding

levels to account for the pace of the

auction, the needs of the bidders, and

the value of the spectrum. While the

Commission believes that a bid

increment of $0.02 MHz-pop is

appropriate here, it will delegate

authority to the Bureau to vary the

minimum bid increment over the course

of the auction as it deems necessary.
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41237

The Bureau will announce by Public

Notice prior to the auction the general

guidelines for bid increments.

2. Upfront Payment

110. Background. In the 800 MHz

Report and Order, the Commission

determined that the upfront payment for

the upper 800 MHz SMR service should

be $0.02 per MHz-pop, with a minimum

payment of $2500. The Commission

indicated that in the initial Public

Notice, it would announce population

information and upfront payments

corresponding to each EA license.

Further, the Commission notes that

population coverage for each channel

block in each EA will be based on a

formula that takes into account the

presence of incumbent licenses.

111. Petitions. Petitioners request the

Commission to set a lower upfront

payment contending that $0.02 per

MHz-pop is too high given the value of

these licenses and that the Commission

reconsider its decision to use upfront

payments that take into account the

presence of incumbent licenses because

of the uncertainty that results from

ongoing channel relocation by

incumbents. Petitioner believes that

prospective bidders would be better

served by being advised that the band in

heavily encumbered, by being provided

with either a list of those incumbents or

information as to how that information

may be obtained.

112. Discussion. The Commission

reaffirms its upfront payment formula of

$0.02 MHz-pop and uniform

discounting for incumbency. The

Commission also reaffirms a minimum

upfront payment of $2500 and believes

that it is necessary to set an adequate

upfront payment to ensure participation

by qualified bidders. However, as

commenters suggest, the Commission

recognizes that for purposes of these

particular licenses the standard upfront

payment formula may yield higher

payment as compared to the values of

the license. The Commission will

modify its rules to delegate authority to

the Bureau to vary the minimum

upfront payment when it determines

that the standard $0.02 per MHz-pop

formula would result in an

unreasonably high upfront payment. In

determining an appropriate upfront

payment, the Bureau may take into

account such factors as the population

and the approximate amount of usable

spectrum in each EA. The Bureau will

announce any such modification by

Public Notice.

3. Activity Rules

113. Background. In the 800 MHz

Report and Order, the Commission

adopted the three-stage Milgrom-Wilson

activity rule in conjunction with the

simultaneous stopping rule. The

Commission noted that an activity rule

ensures that an auction will close

within a reasonable period of time by

requiring a bidder to remain active

throughout the auction. The

Commission further noted that under

the Milgrom-Wilson approach, bidders

are required to declare their maximum

eligibility in terms of MHz-pops, and to

make an upfront payment equal to $0.02

per MHz-pop. The Commission also

notes that the population calculation in

each EA will be discounted to take into

consideration the presence of

incumbent licensees.

114. Petitions. Petitioner requests the

Commission to reconsider the decision

to adjust the bidding unit of an EA

based on the occupation of channel

blocks by incumbents unless the

incumbent has constructed facilities. It

contends that the allowance of a

downward adjustment irrespective of

whether facilities have been constructed

unjustly enriches those entities holding

unconstructed authorizations.

115. Discussion. The Commission

affirms its decision to use a three-stage

Milgrom-Wilson activity rule for the

upper 10 MHz channels of the 800 MHz

SMR service. The Commission also

reaffirms the use of a uniform discount

on the upfront payment to take into

consideration the presence of

incumbent licenses. The Commission

disagrees with the recommendation that

a downward adjustment should be made

for constructed facilities only. This

proposal would require the Commission

to make an unsupported assumption

that none of the entities holding

unconstructed authorizations ever

intend to build out their systems.

H. Treatment of Designated Entities

1. Bidding Credits

116. Background. In the 800 MHz

Report and Order, the Commission does

not adopt bidding credits for designated

entities participating in the auctions for

the upper 10 MHz channels of the 800

SMR service. Bidding credits initially

had been proposed for businesses

owned by women and minorities. As a

result of the Supreme Court’s decision

in Adarand, in the 800 MHz Report and

Order the Commission concluded there

was an insufficient record to support the

adoption of special provisions solely

benefitting minority-and women-owned

business (regardless of size) for the

upper 10 MHz block auction.

117. Petitions. Petitioners request that

the Commission provide bidding credits

to small businesses in order to provide

these entities with a meaningful

opportunity to obtain licenses in the 800

MHz SMR service auction.

118. Discussion. In this instance, the

Commission grants petitioners’ request

and will provide bidding credits to

small businesses. The Commission

notes that in the 800 MHz Report and

Order, it concluded that special

provisions for small businesses are

appropriate for the 800 MHz SMR

service. The Commission also

recognizes that smaller businesses have

more difficulty accessing capital and

thus may need a higher bidding credit.

Accordingly, the Commission will adopt

tiered bidding credits that are narrowly

tailored to the varying abilities of

businesses to access capital. Tiering also

takes into account that different small

businesses will pursue different

strategies. In determining eligibility for

these bidding credits, the Commission

will employ the same tiered definitions

of small businesses as used in the 800

MHz Report and Order to determine

eligibility for installment payments in

the upper 10 MHz, with an adjustment

to reflect the unavailability of

installment payment plans for the 800

MHz SMR services. Accordingly, a

small business with average gross

revenues that do not exceed $15 million

will be eligible for a bidding credit of 25

percent. A small business having

revenues that do not exceed $3 million

will be eligible for a bidding credit of 35

percent. Revenues will be defined as

average gross revenues for the last three

years including affiliates. These are the

same levels of bidding credits used in

the WCS auction.

2. Installment Payments

119. Background. In the 800 MHz

Report and Order, the Commission

adopted rules which provided small

businesses participating in this auction

with tiered installment payment plans.

The Commission noted that it adopts

the same tiered installment payment

approach as in the 900 MHz SMR

auction.

120. Petitions. Petitioner requests that

the Commission eliminate all

installment payment plans for the upper

200 channels on the basis of its belief

that in prior auctions, the availability of

installment payments has encouraged

speculation and warehousing. Another

petitioner disagrees, stating that

installment payments are the only

means by which independent,

incumbent SMR operators will be able

to participate in the auctions. One

petitioner believes that the tiered

approach to installment payments is

insufficient to ensure meaningful

participation by small businesses, and
41238 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

as an alternative asks for 50 percent

bidding credits.

121. Discussion. As petitioned, the

Commission will not adopt installment

payments for the upper 200 channels.

While the Commission disagrees with

the petitioner’s contention that

installment payments encourage

speculation and warehousing of

spectrum, its experience with the

installment payment program leads the

Commission to conclude that

installment payments may not always

serve the public interest. The

Commission has found, for example,

that obligating licensees to pay for their

licenses as a condition of receipt

requires greater financial accountability

from applicants. Currently, in several

proceedings the Commission is

reviewing a number of issues related to

administration of installment payment

programs. Nonetheless, given that

applications for new 800 MHz SMR

licenses have not been accepted since

1994, the Commission’s priority is to

facilitate the licensing of the upper 200

channels without further delay.

Therefore, the Commission believes that

the public interest is best served by

going forward with the auction for the

upper 200 channels without extending

installment payments to small

businesses while it considers

installment payment issues generally.

122. The Commission disagrees with

petitioner’s contention that installment

payments are the only means by which

small SMR operators will be able to

participate in auctions. The Commission

notes that in other auctions in which

installment payments were not

available, small businesses were the

high bidders on a significant number of

licenses. Further, section 309(j)(4)

requires the Commission to consider

alternative methods to allow for

dissemination of licenses among a wide

variety of applicants, including small

businesses. To encourage small business

participation, the Commission has

raised the bidding credits available to

small businesses and very small

businesses to 25 percent and 35 percent

respectively. The Commission believes

that higher bidding credits will both

fulfill the mandate of section

309(j)(4)(D) to provide small business

with the opportunity to participate in

auctions and ensure that new services

are offered to the public without delay.

123. In view of the Commission’s

decision here, all winning bidders will

be required to supplement their upfront

payments with down payments

sufficient to bring their total deposits to

20 percent of their winning bid(s).

Consistent with the Commission’s

determination in the Second Report and

Order, it will allow bidders up to ten

days following the close of the auction

to make their down payments.

3. Attribution of Gross Revenues of

Investors and Affiliates

124. Background. In the 800 MHz

Report and Order, the Commission

adopts a definition of small business

which included attributing the gross

revenues of investors owning 20 percent

or more in the applicant. In light of the

pending petitions for reconsideration,

the Commission, on its own motion,

retains jurisdiction to reconsider the

attribution rule.

125. Discussion. In determining

eligibility for small business provisions,

the Commission will modify its

attribution rule to substitute the

‘‘controlling principal’’ concept for the

attribution model as it recently did for

auctions involving other services.

Specifically, the Commission will

eliminate the rule attributing the

revenues of certain investors. The

Commission will only attribute the gross

revenues of all controlling principals in

the small business applicant as well as

the gross revenues of the affiliates of the

applicant. The Commission will require

that in order for an applicant to qualify

as a small business, qualifying small

business principals must maintain both

de jure and de facto control of the

applicant. Typically, de jure control is

evidenced by ownership of 50.1 percent

of an entity’s voting stock. De facto

control is determined on a case-by-case

basis. An entity must demonstrate at

least the following indicia of control to

establish that it retains de facto control

of the applicant: (1) The entity

constitutes or appoints more than 50

percent of the board of directors or

partnership management committee; (2)

the entity has authority to appoint,

promote, demote and fire senior

executives that control the day-to-day

activities of the licensee; and (3) the

entity plays an integral role in all major

management decisions. This simplified

procedure was adopted for auctions

involving other services. The

Commission believes this modification

of its attribution rule will enhance the

opportunity for a wide variety of

applicants to obtain licenses.

Specifically, the Commission will

follow the attribution rules discussed in

the Lower 80 and General Category

licenses section of the Second Report

and Order in section 2(a), Small

Business Definition.

II. Ordering Clauses

126. It is ordered that, pursuant to the

authority of sections 4(i), 302, 303(r),

and 332(a)(2) of the Communications

Act of 1934, as amended, 47 U.S.C.

154(i), 302, 303(r), and 332(a), the rule

changes specified in the related final

rule (FCC 97–223) published elsewhere

in this issue of the Federal Register are

adopted.

127. It is further ordered that the rule

changes set forth in FCC 97–223 will

become effective September 29, 1997.

128. It is further ordered that the

referenced Petitions for Reconsideration

are granted to the extent discussed

herein, and are otherwise denied.

List of Subjects in 47 CFR Part 90

Radio, Specialized mobile radio

services.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97–19914 Filed 7–30–97; 8:45 am]

BILLING CODE 6712–01–P