[Federal Register Volume 62, Number 147 (Thursday, July 31, 1997)]
[Rules and Regulations]
[Pages 41190-41225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19913]



[[Page 41189]]

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Part IV





Federal Communications Commission





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47 CFR Part 90



Future Development of SMR Systems in the 800 MHz Frequency Band; Final 
Rules

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

[[Page 41190]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[PR Docket No. 93-144; FCC 97-223]


Future Development of SMR Systems in the 800 MHz Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This Second Report and Order resolves issues raised in the 
Second Further Notice of Proposed Rulemaking and completes the process 
by establishing technical and operational rules for the lower 230 800 
MHz channels. Specifically, this order establishes the U.S. Department 
of Commerce Bureau of Economic Analysis Economic Areas (EAs) as the 
relevant geographic service area for licensing these channels and 
defines the rights of incumbent SMR licensees already operating on the 
lower 230 channels. It also provides further details concerning the 
mandatory relocation rules adopted in the 800 MHz Report and Order, and 
establishes rules for partitioning and disaggregation of EA licenses. 
Coupled with the rules adopted in the 800 MHz Report and Order, the 
decisions reached in this order complete the process of converting to 
new rules for the 800 MHz SMR service and enable us to commence 
geographic area licensing of the service. These rule revisions not only 
eliminate a cumbersome and outdated regulatory regime, they will 
promote competition and provide SMR licensees with flexibility to 
deploy multiple technologies in response to a changing marketplace, and 
they further the Congressionally mandated goal of establishing 
regulatory symmetry between 800 MHz SMR licensees and other competing 
providers of Commercial Mobile Radio Services (CMRS).

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 Second Report and Order in PR Docket 
No. 93-144, GN Docket No. 93-252, and PP Docket No. 9-253, 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. As described in the 800 MHz Report and Order in PR Docket 93-
144, 61 FR 6138 (February 16, 1996), the Commission formerly used a 
site-by-site licensing approach for 800 MHz SMR channels, which were 
primarily used to provide dispatch radio service. In recent years, 
however, a number of SMR licensees have expanded the geographic scope 
of their services, aggregated channels, and developed digital networks 
to enable them to provide a type of service comparable to that provided 
by cellular and Personal Communications Service (PCS) operators. This 
trend led us to rethink our site-by-site licensing procedures, which 
were very cumbersome for systems comprised of several hundred sites 
because licensees were required to receive individual Commission 
approval for each site. We were concerned that site-by-site licensing 
procedures also impaired an SMR licensee's ability to respond to 
changing market conditions and consumer demand. We concluded that 
granting licenses through waivers and other case-by-case mechanisms was 
administratively burdensome and had resulted in a licensing regime that 
lacked uniformity. Accordingly, we initiated this proceeding to 
transition to a geographic area licensing approach for the 800 MHz SMR 
service. At the same time, we emphasized the need to consider the 
interests of incumbent SMR licensees, many of whom continue to provide 
traditional dispatch service and do not seek to develop services 
comparable to cellular or PCS.
    2. In the 800 MHz Report and Order, the Commission established an 
EA-based licensing procedure for the upper 200 channels in the 800 MHz 
SMR band. That procedure will enable an EA licensee to, among other 
things, construct facilities at any available site within its EA and to 
add, remove or relocate sites within the EA without prior Commission 
approval. The new rules also give the EA licensee flexibility to 
determine the channelization of available spectrum within the 
authorized channel block, the right to use any spectrum within its EA 
block that is recovered by the Commission from an incumbent licensee 
(i.e., the incumbent's license is terminated for some reason), and 
establishes a presumption that assignments from incumbents to the 
relevant EA licensee are in the public interest. In addition, the 800 
MHz Report and Order adopted a 10-year license term, and a five-year 
construction period with three-year and five-year coverage requirements 
for EA licensees on the upper 200 channels. We also created a mechanism 
for relocation of incumbent licensees on the upper 200 channels, 
delineated the parameters of unrelocated incumbents' expansion rights, 
and reallocated the former General Category channels to the 800 MHz SMR 
service. Finally, we established competitive bidding procedures for 525 
EA licenses in the upper 200 channel block.
    3. In the Second Further Notice of Proposed Rulemaking, in PP 
Docket 93-253, 61 FR 6212 (February 16, 1996), we sought comment on 
additional service rules for the upper 200 channels, and on instituting 
geographic area licensing for the lower 230 800 MHz SMR channels. With 
respect to the upper 200 channels, we asked commenters to address 
whether EA licensees should be permitted to partition and disaggregate 
their spectrum blocks. We also proposed additional procedures and 
clarifications regarding mandatory relocation of incumbent licensees 
from the upper 200 channels. With respect to the lower 230 channels, we 
proposed geographic area licensing procedures and auction rules similar 
to those adopted for the upper 200 channels. We declined to propose a 
mandatory relocation plan for incumbents on the lower 230 channels, 
however, and we proposed to adopt operating parameters for incumbents 
that would give them a reasonable opportunity to expand their 
businesses. We further proposed to establish competitive bidding rules 
for licensing the General Category and lower 80 channels with special 
provisions to encourage participation by designated entities in the 
auction of that spectrum.
    4. Sixty-five parties filed initial comments and fifty-eight 
parties filed reply comments in response to the Second Further Notice 
of Proposed Rulemaking. Numerous written ex parte presentations also 
have supplemented the record. Notably, in reply comments, AMTA, SMR WON 
and Nextel offered a proposal (``Industry Proposal'') for licensing the 
lower 230 channels through a pre-auction process that would allow 
incumbents to obtain rights to unlicensed spectrum through settlement 
agreements with one another. The parties submit that the Industry 
Proposal represents a consensus of the SMR industry and takes into 
account

[[Page 41191]]

the interests of wide-area licensees as well as site-by-site 
incumbents.

II. Discussion

A. Service Rules for the Lower 230 Channels

1. Geographic Area Licensing
    5. We adopt geographic area licensing for the lower 230 channels. 
Geographic area licensing will increase the flexibility afforded to 
licensees to manage their spectrum, and will reduce administrative 
burdens and operating costs by allowing licensees to modify, move, or 
add to their facilities within specified geographic areas without need 
for prior Commission approval. Geographic area licensing will also 
ensure that licensees on these channels have operational flexibility 
similar to that afforded to SMR licensees on the upper 200 channels as 
well as to cellular and PCS licensees.
    6. We reject the view that the heavy use of the lower 230 channels 
by incumbents renders geographic area licensing impractical. To the 
contrary, incumbents benefit from geographic area licensing because it 
will make it far easier for them to fill in gaps in their current 
systems, make modifications to meet shifting market demands, and expand 
into unserved areas. Even where a licensee's ability to expand is 
limited by the presence of adjacent systems, geographic licensing is 
preferable to site-specific licensing because it affords the same 
degree of protection from interference but allows licensees greater 
flexibility within their existing service areas. We also do not agree 
with the view that the prospective relocation of SMR incumbents from 
the upper 200 channels to the lower 230 is an obstacle to geographic 
licensing. Upon moving to the lower 230 channels, relocated licensees 
will be able to take advantage of the flexibility in our rules to the 
same extent as other licensees.
    7. We also disagree with UTC and other commenters who contend that 
geographic area licensing is inappropriate because of the presence of 
non-SMRs on the lower 230 channels. While non-SMR operators may not 
require geographic licenses to operate systems designed for internal 
communications, geographic area licensing remains the most efficient 
and logical licensing approach for the majority of licensees in the 
band. We are not persuaded that we should forego the benefits of 
geographic licensing to accommodate the interests of a small minority 
of systems. In any event, systems that are not SMR systems will remain 
fully protected under our geographic licensing rules. In addition, non-
SMRs can obtain spectrum to suit their internal communications needs by 
forming joint bidding consortia or by entering into partitioning and 
disaggregation agreements with EA licensees.
2. Service Areas
    8. We adopt EAs as the basis for geographic licensing of the lower 
230 channels. EAs are generally recognized by the SMR industry as being 
optimally sized for geographic licensing in this band, because EAs 
approximate the coverage of most SMR systems except the largest wide-
area operations. As we stated in the 800 MHz Report and Order, EAs will 
encourage a diverse group of prospective bidders, because they are 
small enough that licensees seeking to serve small markets can bid on 
areas they wish to serve, but are large enough that they can also form 
the basis for wide-area systems. By encouraging more diverse bidders in 
the auction, we believe we will fulfill the mandate of section 
309(j)(3)(B) & (4)(C) of the Communications Act to disseminate licenses 
among a wide variety of applicants and to ensure economic opportunities 
for a wide variety of applicants. In addition, having the same 
geographic area licenses for the upper 200 and lower 230 channels makes 
it easier for licensees to develop systems that use both upper 200 and 
lower 230 channels in a common licensing area.
3. Channel Blocks

a. Lower 80 Channels

    9. We adopt our proposal to license the lower 80 channels in five-
channel blocks. The non-contiguous nature of these channels makes it 
impractical to impose any other channel plan. This approach will also 
provide opportunities for incumbents and applicants that base their 
systems on trunking of non-contiguous channels, in keeping with the 
mandate of section 309(j)(4)(C) of the Communications Act to make 
equitable distribution of licenses and provide economic opportunities 
for a wide variety of entities. Furthermore, we find that this will be 
the less disruptive method for smaller incumbent licensees since they 
have acquired their channels in five channel increments. Therefore, we 
will license the lower 80 channels in sixteen five-channel blocks as 
set forth in Sec. 90.617(d) of our rules.

b. General Category Channels

    10. We understand the needs of those providers who want contiguous 
spectrum to implement frequency re-use technology, and those that want 
non-contiguous spectrum because the spectrum is highly encumbered, or 
because it suits their current technology. If we were to adopt very 
large contiguous blocks of spectrum we would preclude smaller entities 
from participating in the auction because presumably bigger blocks of 
spectrum would require larger bids to acquire than smaller blocks of 
spectrum. On the other hand, if we were to auction EAs on a channel-by-
channel basis, as suggested by Fresno, it would be difficult to 
accumulate contiguous spectrum and would require all licensees 
interested in accumulating spectrum to keep track of 150 auctions at 
one time. If one entity wanted to acquire five channel blocks in three 
EAs, the licensee would have to potentially keep track of 450 
simultaneous auctions.
    11. To accommodate licensees who want contiguous as well as those 
licensees that want large blocks of spectrum, we will adopt the 
Industry Proposal and allot three contiguous 50-channel blocks. We 
expect a significant amount of the former General Category channels to 
continue to be used for traditional SMR systems and retaining the 
contiguity of these channels will permit alternative offerings that may 
require multiple, contiguous channels. In addition, we find that 
allotting 50 channel blocks will allow bidders to aggregate even larger 
contiguous blocks of spectrum. We find that adopting such a channel 
plan strikes a balance between licensees with different spectrum 
allocation needs and allows licensees with different goals to pursue 
spectrum in the General Category. Once again, this fulfills the mandate 
of section 309(j)(4)(C) of the Communications Act that we distribute 
licenses in such a way so as to ensure economic opportunities for a 
wide variety of entities. While we do not adopt Fresno's or Sierra's 
proposals, small system licensees will have the opportunity to acquire 
smaller amounts of spectrum compatible with their existing technology 
through the newly-created disaggregation rules we adopt herein. 
Meanwhile licensees seeking to deploy contiguous spectrum technology 
will have the opportunity to acquire a 100 or 150 channel block of 
contiguous spectrum. Adopting this channel plan addresses the competing 
demands of trunked systems and wide-area systems that require 
contiguous spectrum.
4. Channel Aggregation Limits
    12. We conclude that no aggregation limit is necessary for the 
lower 230 channels. In both the CMRS Third Report and Order and the 800 
MHz

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Report and Order, we observed that the 800 MHz SMR service is just one 
of many competitive services in the CMRS marketplace. If a single 
licensee were to acquire all 230 channels in a single market, it would 
hold an aggregated 11.5 MHz of spectrum, not all of which would be 
contiguous. Even if a single licensee combined this spectrum with 
spectrum from the upper 200 channels, it would fall well short of the 
45 MHz spectrum cap, and would have less spectrum than PCS and cellular 
providers in the same market. The total potential aggregation of 
spectrum in the 800 MHz SMR service, combined with the General 
Category, is 21.5 MHz of spectrum, not all of which is contiguous. We 
do not believe that this level of aggregation would enable an SMR 
licensee to have an anticompetitive effect on the CMRS market. 
Moreover, we are concerned that limiting the ability of SMR providers 
to aggregate spectrum could handicap their efforts to compete with 
other services. As a practical matter, the presence of numerous 
incumbents on the lower 230 channels reduces the likelihood that 
significant aggregation of this spectrum will occur. However, we 
conclude that the marketplace, not our rules, should determine whether 
these channels will be used on an aggregated or disaggregated basis.
    13. We also decline to limit SMR applicants on the lower 230 
channels to obtaining one channel block at a time. This is inconsistent 
with our approach to licensing of other CMRS, including cellular, PCS, 
900 MHz SMR, and the upper 200 channels in the 800 MHz band. In 
addition, the use of competitive bidding to resolve mutually exclusive 
geographic area licenses on the lower 230 channels provides a strong 
incentive for licenses to utilize the channels.
5. Licensing in the Mexican and Canadian Border Areas
    14. In the 800 MHz Report and Order, we acknowledged that in the 
Canadian and Mexican border areas, some upper 200 channels would not be 
available or would be subject to power and height restrictions. 
Nevertheless, we did not distinguish between border and non-border 
areas for the upper 200 channels in our EA licensing plan, because we 
concluded that EA applicants could best determine the effect of such 
restrictions on the value of the spectrum. We adopt the same approach 
for the lower 230 channels as well. Thus, EA licensees on the lower 230 
channels of EAs that are adjacent to Canada or Mexico will be entitled 
to use any available channels within their spectrum blocks, except 
where use of such channels is restricted by international agreement.
    15. In addition, we clarify that SMR and General Category channels 
assigned to non-SMR pools in the border areas are not available for use 
by EA licensees in those regions. Thus, non-SMR licensees operating on 
those channels in border areas may continue to operate and will not be 
subject to relocation. Moreover, EA licensees must afford full 
interference protection to non-SMR licensees operating on these 
channels. We admonish potential applicants for EA licenses to carefully 
evaluate these limitations on spectrum availability when determining 
their bidding strategies for blocks of spectrum adjacent to the Mexican 
and Canadian borders.
    16. Finally, we note that there are some non-SMR channels in the 
non-border areas that in the Canadian and Mexican border areas are 
available soley to SMR eligibles. These channels will be associated 
with specific SMR and General Category spectrum blocks in these border 
areas. Prospective bidders on EAs near the Canadian and Mexican borders 
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. EA licensees must also 
afford full interference protection to non-SMR licensees operating in 
adjacent areas on these channels.
    6. Construction and Coverage Requirements for the Lower 230 
Channels

a. Requirements for EA Licensees

    17. We adopt the construction requirements proposed in the Second 
Further Notice of Proposed Rulemaking for the lower 230 channels. We 
believe that adoption of such flexible construction requirements will 
enhance the rapid deployment of new technologies and services and will 
expedite service to rural areas. We disagree with those commenters that 
contend that adoption of stricter construction requirements for the 
lower 230 channels will better serve the public interest. We find that 
more flexible construction requirements will allow EA licensees in the 
encumbered lower 230 channels to respond to market demands for service 
and thus eliminate the need for an EA licensee to meet construction 
requirements based on population alone. We disagree with those 
commenters that believe that strict construction requirements are 
necessary to deter speculation and warehousing. We believe that, by 
participating in the auction, licensees will have shown that they are 
genuinely interested in acquiring spectrum to utilize and not 
warehouse. At the same time, we continue to believe that licensees 
should be held to some type of construction requirement in order to 
encourage expedited construction and foster service to rural areas. 
Therefore, EA licensees in the lower 230 channel blocks, just as their 
counterparts in the upper 200 channels, will be required to provide 
coverage to one-third of the population within three years of the 
license grant, and to two-thirds of the population within five years of 
the license grant. However, in the alternative, EA licensees in the 
lower 230 channel block may provide ``substantial service'' to the 
geographic license area within five years of license grant. 
``Substantial service'' will be defined as service that is sound, 
favorable, and substantially above a level of mediocre service, which 
would barely warrant renewal. For example, a licensee may demonstrate 
that it is providing a technologically innovative service or that it is 
providing service to unserved or underserved areas. This flexibility 
will allow EA licensees to expedite service to rural areas that may 
have a higher service demand than a heavily populated urban area with 
less demand. As we proposed in the Second Further Notice of Proposed 
Rulemaking, we will not adopt a channel usage requirement for licensees 
in the lower 230 channel block. In addition, we decline to adopt PCIA's 
proposal to require that construction requirements be met on a ``per-
channel'' basis. We believe EA licensees should have the flexibility to 
respond to market-based demands for service and that adopting a ``per-
channel'' construction requirement would greatly interfere with 
licensees' ability to respond to such demands.
    18. The failure to meet these performance requirements will result 
in automatic termination of the geographic area license. This is 
consistent with our rules for broadband PCS, 900 MHz SMR services, 
Multipoint Distribution Services (MDS), and most recently for paging. 
We will individually license any incumbent facilities that were 
authorized, constructed, and operating at the time of termination of 
the geographic area license.

b. Requirements for Site-Based Licensees

    19. As a result of our decision to convert to EA-based licensing of 
the lower 230 channels, the only instances in which future site-based 
applications will be necessary are those few instances where site 
approval continues

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to be required, e.g., for sites at environmentally sensitive locations 
that require Commission approval under NEPA. In such instances, we will 
require incumbent licensees to construct facilities and commence 
service within 12 months in accordance with our proposal. EA licensees 
that are required to seek separate approval for environmentally 
sensitive locations within their geographic areas will be permitted to 
include those sites in their geographic area license and will not be 
subject to the 12 month construction deadline.
    20. We also take this opportunity to clarify two points. First, we 
note the applicability of the 12-month construction requirement to 
incumbents on the lower 230 channels holding site-based authorizations 
with construction periods that have not yet expired. In general, SMR 
licensees with site specific authorizations have 12 months from the 
grant date to complete construction and commence service, unless the 
authorization is part of a system that has received an extended 
implementation grant. Pursuant to the new rules we adopt herein, 
interior sites added within an incumbent's existing footprint will not 
be subject to construction requirements because they do not require 
separate authorizations.

c. Transfers and Assignments of Unconstructed Site-Specific Licenses

    21. We agree with SMR WON and Digital that temporary waiver of our 
restrictions against assignment or transfer of unconstructed site-
specific SMR licenses would facilitate the relocation process and 
geographic licensing. We believe that there is good cause to support 
waiver of the rule in this case. The special circumstances that exist 
with this innovative approach to licensing support temporary waiver of 
Sec. 90.609(b) of the rules. That rule was designed to prevent 
trafficking in site-specific licenses and spectrum warehousing by 
taking back unused spectrum. However, in this proceeding, we seek to 
encourage rapid migration of incumbents, preferably through voluntary 
negotiations, from the upper 200 channels to lower band 800 MHz 
channels. If we were to rigidly apply Sec. 90.609(b) in such 
circumstances, licensees holding unconstructed site-specific licenses 
on the lower channels would not be able to transfer their 
authorizations for relocation purposes unless they had constructed them 
first. Therefore, it is more efficient to waive the rule and allow 
licensees who have unconstructed lower channels suitable for relocation 
of upper channel incumbents to transfer them without prior 
construction, so that the relocated licensees can construct facilities 
suitable to their needs.
    22. In addition, relaxing our transfer restrictions facilitates 
geographic licensing of the lower channels themselves. We expect that 
in many instances, incumbents on the lower channels will bid for EA 
licenses on those channels to consolidate their existing holdings. 
However, because we are adopting new channel blocks for geographic 
licensing, particularly in the General Category, incumbents may find it 
advantageous to their bidding strategy to modify their holdings in 
advance of the auction through transfers or channel swaps. In addition, 
allowing transfer of unconstructed as well as constructed spectrum 
provides an opportunity for new entrants to position themselves for the 
auction by acquiring existing licenses in areas where they intend to 
bid.
    23. Therefore, to facilitate relocation and geographic licensing, 
we will temporarily waive the prohibition on assignment or transfer of 
unconstructed authorizations on the lower 80 and General Category 
channels. Thus, licensees on these channels may apply to transfer or 
assign their authorizations regardless of construction. Where 
unconstructed spectrum is transferred, the assignee or transferee will 
be subject to the same construction deadline as the transferor/
assignor. We will, however, allow licensees with extended 
implementation authority to apply their system-wide construction 
deadlines to licenses acquired by transfer that are within their pre-
existing footprint. This waiver will remain in effect until six months 
after the conclusion of the upper band EA auction. We believe this 
period will provide sufficient time for licensees to identify suitable 
lower band spectrum for transfer as part of voluntary relocation 
agreements, and for potential bidders in the lower band auction to 
negotiate transfers as part of their pre-auction strategy.
    24. We will extend this waiver to all holders of unconstructed 
spectrum on the lower 80 and General Category channels, including both 
SMR and non-SMR licensees. We will also allow these licensees to 
transfer or assign their authorizations to any eligible entity. 
Although Nextel argues that such transfers should be allowed only if 
they are between wide-area SMR incumbents and EA licensees, we believe 
such restrictions are unnecessary and unduly restrictive. First, we see 
no reason to allow only wide-area licensees to transfer unconstructed 
spectrum. The purpose of this policy is to facilitate the rapid 
assignment of all lower band spectrum--not just spectrum held by wide-
area licensees--to those who are most likely to use it. Similarly, we 
will not restrict holders of unconstructed spectrum to dealing with EA 
licensees. Although we expect that many transfers will in fact be to EA 
licensees, we do not believe that incumbents should be prevented from 
negotiating transfers to other parties who value the spectrum. In any 
event, such a restriction would prevent incumbents from negotiating 
transfers prior to the conclusion of the auction because EA winners 
will not be identified until then.
    25. We recognize that relaxing transfer restrictions makes it more 
difficult to take action against speculators who have not constructed 
facilities on their spectrum but instead have sought to warehouse 
spectrum for profit. However, we believe that the benefits of this 
approach for relocation and future geographic licensing in this service 
outweigh the potential cost. First, not all 800 MHz licensees who have 
failed to construct are necessarily speculators: our application freeze 
and uncertainty caused by the lengthy pendency of this proceeding have 
also made it difficult for legitimate licensees to develop their 
systems. Moreover, even in the case of licensees who acquired spectrum 
through application mills, allowing unconstructed spectrum to be 
transferred rapidly and efficiently to those who value it most allows 
development of the service to proceed and provides potential benefits 
to prospective bidders in the auction. This approach will also not 
compromise the objectives of geographic area licensing: because only 
currently licensed spectrum can be transferred, there is no impact on 
unlicensed spectrum that will be awarded to EA licensees. In addition, 
EA licensees are not obliged by this policy to negotiate with 
incumbents they believe have no intention of constructing facilities; 
if an incumbent fails to construct and commence operations within the 
period required by its license, the unused spectrum reverts to the EA 
licensee.

B. Rights and Obligations of EA Licensees in the Lower 230 Channels

    1. Operational Restrictions
    26. Except for using the 18 dB<greek-m>V/m contour to define the 
interference protection obligations of EA licensees with respect to 
lower 230 incumbents (discussed in Sec. IV-B-3-b, infra.), we will 
apply the same operational rules to EA licensees on the lower 230 
channels that are applicable to the upper 200 channels. No commenter 
has suggested that EA licensees on the lower 230 channels should not 
have the right to

[[Page 41194]]

modify their facilities without prior Commission approval, and we see 
no reason to treat the lower 230 channels differently in this regard. 
We also adopt the same notification requirements applicable to the 
upper 200 channels with respect to system additions, deletions, and 
modifications.
2. Spectrum Management Rights--Acquisition and Recovery of Channels 
Within Spectrum Blocks
    27. In light of our decision to extend EA licensing to the lower 
230 channels, we adopt the same rules for these channels with respect 
to recovery of unused spectrum and transfers and assignments of 
spectrum from incumbents to EA licensees. For the same reasons, we 
dismiss all wait-listed applications for these channels. Our action 
today will not apply to any application that is currently pending that 
includes a request for waiver of the processing freeze. We shall 
resolve those applications by separate action.
3. Treatment of Incumbents

a. Mandatory Relocation of Lower Channel Incumbents

    28. We will not adopt mandatory relocation procedures for either 
SMR or non-SMR incumbents on the lower 230 channels. The record 
supports our tentative conclusion that requiring incumbents to migrate 
off this spectrum would be impractical because there is no identifiable 
alternative spectrum to accommodate such migration. In addition, it is 
likely that many of the incumbents who will operate on these channels 
will have relocated from the upper 200 channels, and we have already 
determined that such relocatees should not be required to relocate more 
than once. Therefore, EA licensees on the lower 230 channels will not 
have the right to move incumbents off of their spectrum blocks unless 
the incumbent voluntarily agrees to move.

b. Incumbent Operations

i. Expansion and Flexibility Rights of Lower Channel Incumbents
    29. In the Further Notice of Proposed Rulemaking in this 
proceeding, we recognized that the geographic licensing scheme we 
designed for the upper 200 channels could result in some incumbent 
licensees remaining in this channel block, despite our mandatory 
relocation provisions. To avoid interference between these incumbent 
licensees and the new EA licensees in the upper 200 channel block, we 
concluded in our 800 MHz Report and Order that it was necessary to 
limit the ability of incumbent licensees to expand their systems after 
geographic licensing had occurred. At the same time, we concluded that 
incumbents should be afforded operational flexibility to add sites or 
make system modifications within those areas already licensed to them. 
We concluded that, for the upper 200 channel block, incumbent licensees 
would be allowed to make modifications within their current 22 
dB<greek-m>V/m interference contour and would be allowed to add new 
transmitters in their existing service areas without prior notification 
to the Commission. However, incumbents would be required to notify the 
Commission of any changes in technical parameters or additional 
stations constructed, including agreements with an EA licensee to 
expand beyond their signal strength contour, through a minor 
modification of their license.
    30. In the Second Further Notice of Proposed Rulemaking, we 
acknowledged that transitioning to a geographic licensing scheme in the 
lower 230 channels raises similar issues with respect to the rights of 
incumbents. We proposed to limit expansion rights of incumbent SMR 
licensees in the lower 230 channels in the same manner as we did in the 
upper 200 channel block. Under our proposal, incumbent licensees on the 
lower 230 channels would be allowed to modify or add transmitters in 
their existing service area without prior notification to the 
Commission, so long as they did not expand their 22 dB<greek-m>V/m 
interference contour. We proposed that incumbents would not be allowed 
to expand beyond the 22 dB<greek-m>V/m contour and into the geographic 
area licensee's territory without obtaining the prior consent of the 
geographic area licensee or unless the incumbent is the geographic area 
licensee for the relevant channel. We sought comment on this proposal 
and asked commenters to discuss whether a basis other than the 22 
dB<greek-m>V/m interference contour should be used to determine an 
incumbent's service area.
    31. We agree with the supporters of the Industry Proposal that the 
public interest would be served by giving incumbents on the lower 230 
channels some flexibility to expand beyond their 22 dB<greek-m>V/m 
contours. However, we decline to adopt the Industry Proposal in its 
entirety. The settlement concept would, in essence, allow incumbents to 
divide all remaining unlicensed spectrum on the lower 230 channels 
among themselves, with no opportunity for new entrants to obtain or 
even compete for such spectrum. As set forth below, this raises both 
statutory and policy concerns that prevent us from endorsing the 
proposal.
    32. First, by restricting the settlement process to incumbents, the 
Industry Proposal would foreclose new entrants from obtaining spectrum 
on any of the lower 230 channels that are subject to a settlement among 
incumbents. In any market where all of the channels in an EA were 
allocated by such settlements, the result would be that no 
opportunities for geographic licensing would be available to new 
entrants. The Industry Proposal would also preclude competition in the 
licensing process and restrict the number of potential applicants who 
can obtain licenses. Thus, it could yield a higher concentration of 
licenses than would result if non-incumbents were allowed to compete 
for the spectrum at the same time. We conclude that allowing only 
incumbent licensees to obtain rights to an entire EA while foreclosing 
opportunities for new entrants would be at odds with our goals of 
promoting economic competition in the 800 MHz SMR service and avoiding 
an undue concentration of licenses. The approach we adopt herein, 
unlike the Industry Proposal, would encourage participation of new 
entrants, including small businesses, and, therefore, promote vigorous 
economic competition and avoid excessive concentration of licenses.
    33. Furthermore, the Industry Proposal provides no method for the 
Commission to recover a portion of the value of public spectrum 
pursuant to section 309(j)(3)(C) of the Communications Act. Instead, 
incumbent licensees who negotiate expansion rights among themselves 
could obtain a windfall by obtaining rights to an entire EA without 
having to pay for such expanded rights. We disagree with commenters who 
attempt to justify this potential windfall by arguing that the proposed 
settlement procedure complies with the directive in section 
309(j)(6)(E) for the Commission to avoid mutual exclusivity through 
``engineering solutions, negotiation, threshold qualifications, service 
regulations, and other means'' section 309(j)(6)(E) requires us to 
adopt such methods where we find them to be ``in the public interest.'' 
We do not believe it is in the public interest to ``resolve'' the 
competing claims of incumbents and non-incumbents for spectrum by 
establishing a settlement mechanism that is limited to incumbents and 
excluding non-incumbents from the process.
    34. The Industry Proposal would also be inconsistent with the 
approach we have adopted in other services where we have converted from 
site-by-site licensing to geographic area licensing.

[[Page 41195]]

In our 900 MHz SMR proceeding and our recent paging proceeding, for 
example, we adopted similar rules for licensing on a geographic basis 
while protecting the existing operations of incumbent operators. In 
neither instance did we give incumbents the unrestricted right to 
obtain available spectrum through a pre-auction settlement process that 
excluded non-incumbents. We also rejected this and similar alternatives 
for the upper 200 channels of the 800 MHz band. For all of these 
reasons, we conclude that the Industry Proposal would not serve the 
public interest.
    35. While we reject the specific settlement procedure described in 
the Industry Proposal, we note that many of the positive aspects of the 
proposal can still be accomplished through the auction process we are 
establishing for the lower 230 channels. For example, incumbents on 
these channels are free to enter into partnerships, joint ventures, or 
consortia for purposes of applying for EA licenses on the lower 230 
channels in the areas where they currently operate. Incumbents may also 
negotiate transfers, swaps, partitioning arrangements, or similar 
agreements with respect to spectrum that is currently licensed to them. 
In some instances, taking these steps may result in only one entity 
applying for a given EA license. Where that occurs, no auction will be 
necessary because there will be no mutually exclusive applications to 
resolve. At the same time, providing all parties, incumbents and non-
incumbents alike, with the opportunity to compete for EA licenses will 
ensure that the spectrum is awarded to the party that values it the 
most.
    36. We also conclude that while geographic licensing is appropriate 
for the lower 230 channels, some additional flexibility is appropriate 
for incumbents on these channels to facilitate modifications and 
limited expansion of their systems. First, allowing incumbent licensees 
on the lower 230 channels such flexibility will facilitate the 
relocation of incumbent licensees on the upper 200 channels. Licensees 
who are faced with relocation will have a significant incentive to 
relocate rapidly and voluntarily if they know they will have greater 
flexibility to modify and expand their systems on the channels to which 
they are relocating. This will promote our objectives for enabling EA 
licensees on the upper 200 channels to make flexible use of their 
spectrum, while also protecting the interests of incumbents who 
relocate.
    37. In addition, affording greater flexibility to lower 230 
incumbents is appropriate because these channels are subject to an 
application freeze and geographic licensing of these channels will not 
occur until after the upper 200 channel auction is concluded and 
incumbents have had an opportunity to relocate to the lower channels. 
Because the upper 200 channels will be licensed first, EA winners on 
these channels will obtain the ability to expand within their 
geographic areas earlier than lower channel licensees. Allowing lower 
channel incumbents limited flexibility to expand prior to the auction 
will help to compensate for the fact that upper 200 licensees will 
obtain the benefits of geographic licensing sooner.
    38. Therefore, we adopt our proposal to allow incumbents on the 
lower 230 channels to make system modifications within their 
interference contours without prior Commission approval. Incumbent 
licensees who currently utilize the 40 dBu signal strength contour for 
their service area contour and 22 dBu signal strength contour for their 
interference contour will be permitted to utilize their existing 18 dBu 
signal strength contour for their interference contour as long as they 
obtain the consent of all affected parties to do so. See Sec. IV-B-4-a. 
Thus, an incumbent licensee, with the concurrence of all affected 
incumbents, that desires to make modifications to its existing system 
will be able to make such modifications such as adding new 
transmitters, and altering its coverage area, so long as such incumbent 
does not expand the 18 dBu interference contour of its system. 
Moreover, licensees who do not receive the consent of all incumbent 
affected licensees, will be able to make similar modifications within 
their 22 dBu signal strength interference contour. Licensees that do 
not desire to make modifications may also continue to operate with 
their existing systems. We find that this approach will not only enable 
incumbents to fill in ``dead spots'' in coverage or to reconfigure 
their systems to increase capacity, but will also allow for some 
incremental expansion of their systems.
    39. In the 800 MHz Report and Order, some commenters stated that 
smaller SMR entities only need to make smaller incremental changes to 
their service areas to better serve their customers. We believe that 
adopting the 18 dBu standard will allow such entities to make the 
incremental changes they desire. At the same time, we find that the 18 
dBu standard is superior to the Industry Proposal because it preserves 
opportunities for new entrants in areas that are currently unserved and 
that are not reasonably proximate to existing facilities. The 18 dBu 
standard is more flexible than the 22 dBu standard and will thereby 
increase opportunities for lower 230 incumbents to modify their 
existing operations to meet technological changes and market demands 
for service. This additional flexibility will also facilitate the 
relocation of incumbent SMR licensees from the upper 200 to the lower 
230 channels by providing these licensees with more flexibility to 
modify their existing systems than they would possess if they remained 
on the upper 200 channels.
    40. Because our prior rules governing separation of 800 MHz 
facilities are based on a 40/22 dB<greek-m>V/m standard, we recognize 
that the 18 dB<greek-m>V/m standard adopted here may have little 
practical significance in portions of the United States areas where 
incumbents are already operating in close proximity to one another, 
e.g., most markets east of the Mississippi. Therefore, as discussed in 
Sec. IV-B-4-a, we will continue to use the current separation tables 
and short-spacing rules based on the 40/22 dB<greek-m>V/m ratio to 
define the interference protection rights of incumbents against other 
incumbents, except where incumbents consent to the use of a more 
relaxed standard. In less densely populated areas, however, we expect 
the 18 dB<greek-m>V/m standard to be beneficial to incumbent systems 
seeking greater operational flexibility. In addition, as discussed in 
Sec. IV-B-4-b, we will use the incumbent's 36 dB<greek-m>V/m as opposed 
to 40 dB<greek-m>V/m contour as the basis for protection from 
interference by adjacent EA licensees.
ii. Converting Site-Specific Licenses to Geographic Licenses
    41. We will allow lower 230 channel incumbents to combine their 
site-specific licenses into single geographic licenses as proposed. 
This option will provide incumbents with the same flexibility and 
reduced administrative burden that geographic licensing affords to EA 
licensees, and will simplify the licensing process for the Commission. 
Because we have adopted the 18 dBu contour rather than the 22 dBu 
contour, where the incumbent licensee has obtained the consent of all 
affected parties, as the benchmark for defining an incumbent licensee's 
protected service area, we will use the contiguous and overlapping 18 
dbu contours of the incumbent's previously authorized sites to define 
the scope of the incumbent's geographic license. Therefore, after the 
auction of the lower 230 channels has been completed, incumbents in the 
lower 230 channels may convert their current multiple site licenses to 
a single

[[Page 41196]]

license. Incumbents seeking such reissued licenses must make a one-time 
filing of specific information for each of their external base station 
sites to update our database. Such filings should be made on FCC Form 
600 and should include a detailed map of the area the system will 
cover. We also will require evidence that such facilities are 
constructed and placed in operation. Once the geographic license has 
been issued, facilities that are later added or modified that do not 
extend the licensees' 18 dBu interference contour will not require 
prior approval or subsequent notification under this procedure. Such 
facilities should not receive interference because they will be 
protected by the presence of the licensee's external co-channel 
stations. Licensees who do not receive the consent of all affected 
parties may also follow the same process utilizing their 22 dBu signal 
strength interference contour, rather than the 18 dBu contour.
4. Co-Channel Interference Protection

a. Incumbent SMR Systems

    42. Our interference protection proposals in the Second Further 
Notice of Proposed Rulemaking assumed that we would use the 22 
dB<greek-m>V/m contour as the basis for determining the area in which 
lower 230 incumbents could operate. As noted in Sec. IV-B-3-b, supra, 
we have decided instead to allow all incumbents on the lower 230 
channels to use the 18 dB<greek-m>V/m contour as the basis for 
modifying and expanding their systems, provided that they obtain the 
consent of all co-channel incumbents potentially affected by the use of 
this standard. Because the 18 dB<greek-m>V/m standard gives incumbents 
greater flexibility to expand, we must apply stricter interference 
protection criteria to EA licensees to ensure that they do not 
interfere with incumbent operations. Specifically, we will require EA 
licensees either: (1) to locate their stations at least 173 km (107 
miles) from the licensed coordinates of any incumbent, or (2) to comply 
with co-channel separation standards based on a 36/18 dB<greek-m>V/m 
standard rather than the previously applicable 40/22 dB<greek-m>V/m 
standard. The 36 dB<greek-m>V/m desired signal strength contour is 
determined from the R-6602, F(50,50) curves for Channels 7-13 in 
Sec. 73.699 of the Commission's rules (Figure 10), with a 9 dB 
correction factor for antenna height differential. The 18 dB<greek-m>V/
m undesired signal strength contour is calculated using the R-6602, 
F(50,10) curves for Channels 7-13 found in Sec. 73.699 of the 
Commission's rules (Figure 10a), with a 9 dB correction factor for 
antenna height differential. In PR Docket No. 93-60, the Commission 
determined that a protection ratio of 18 dB would result in co-channel 
station spacings that provide reasonable protection from co-channel 
interference and, at the same time, provide for efficient reuse of 
valuable spectrum. Thus, EA licensees are required to ensure that the 
18 dB<greek-m>V/m undesired signal strength contour of a proposed 
station does not encroach upon the 36 dB<greek-m>V/m desired signal 
strength contour of an existing incumbent station. Furthermore, in the 
opposite situation, EA licensees will have their 36 dB<greek-m>V/m 
desired signal strength contour protected with an 18 dB ratio, since 
the undesired signal strength contour limit for incumbents that have 
reached consent of all other affected parties shall be 18 dB<greek-m>V/
m.
    43. We emphasize that this revised interference standard protects 
incumbents only against EA licensees, not against other incumbents. As 
noted above, incumbents who seek to use the 18 dB<greek-m>V/m standard 
must obtain the consent of other affected incumbents to do so. In the 
absence of such consent, the protection that one incumbent must afford 
another continues to be governed by Sec. 90.621(b) of the Commission's 
rules, i.e., incumbents must locate their stations at least 113 km (70 
miles) from the facilities of any other incumbent or comply with the 
co-channel separation standards based on the 40/22 dB<greek-m>V/m 
standard set forth in our prior short-spacing rules.

b. Adjacent EA Licensees

    44. We adopt the same interference protection standards for the 
lower 230 channels that we previously adopted for the upper 200 
channels. Thus, EA licensees on the lower 230 channels must limit their 
signal strength at their EA borders to 40 dB<greek-m>V/m, unless 
affected adjacent EA licensees agree to higher signal strength. We 
emphasize that this rule applies only to resolving interference issues 
between EA licensees. Thus, an EA licensee who complies with this rule 
may nevertheless be required to limit its operations further in order 
to comply with the rules governing protection of incumbents (see 
Sec. IV-B-4-a, infra).

c. Emission Masks

    45. In response to a request for reconsideration from Ericcson, 
again supported by Motorola, we are further modifying our emission mask 
rule for the upper 200 channels in the accompanying Memorandum Opinion 
and Order. We conclude that this rule, as modified, should also be 
applied to the lower 230 channels. Use of a common emission standard 
throughout the 800 MHz SMR band will facilitate use of common equipment 
and make it easier for licensees to combine upper 200 and lower 230 
channels in their systems. As in the case of the upper 200 channels, 
application of the emission mask rule to the lower 230 channels will 
apply only to ``outer'' channels used by the licensee, i.e., to 
channels that are creating out-of-band emissions that affect another 
licensee. Thus, the emission mask rules do not apply to ``interior'' 
channels in a spectrum block that do not create out-of-band emissions 
outside that block or on channels in the block that are used by 
incumbents.
5. Regulatory Classification of EA Licensees on the Lower 230 Channels
    46. We adopt our proposal with respect to SMR applicants who obtain 
EA licensees on the lower 230 channels, but modify it with respect to 
non-SMR applicants for EA licenses. We anticipate that most applicants 
for EA licenses on these channels will be SMR applicants who seek to 
provide interconnected service, thus meeting the statutory definition 
of CMRS. Therefore, we will presumptively classify SMR winners of EA 
licenses as CMRS providers. However, we will allow SMR applicants and 
licensees to overcome this presumption by demonstrating that their 
service does not meet the CMRS definition. This is consistent with our 
approach to broadband PCS and other services. We reject Genesee's 
contention that we have illegitimately used CMRS classification as a 
basis for auctioning the lower 230 channels. In fact, the issue of 
regulatory classification under section 332 of the Act is irrelevant to 
the issue of auctionability, which turns on the factors enumberated in 
section 309(j) of the Act. We address the issue of auctionability 
elsewhere in this order and decline to revisit it here.
    47. In the Memorandum Opinion and Order adopted today, we determine 
that non-SMRs as well as SMRs will be eligible to obtain EA licenses on 
the 150 General Category channels. While we expect most EA licenses to 
be sought by SMR providers, we agree with E.F. Johnson that where an EA 
license is obtained by a non-SMR operator, the CMRS presumption is 
inapplicable. Thus, in the event that EA licenses are awarded to Public 
Safety, Industrial/Land Transportation, or Business licensees, such 
licensees will be classified as PMRS providers. Although Business Radio 
licensees below 800 MHz may be classified as CMRS, Business Radio 
licensees above 800 MHz are precluded from providing for-

[[Page 41197]]

 profit service, and therefore are classified as PMRS.

C. Relocation of Incumbents From the Upper 200 Channels

1. Comparable Facilities
    48. We adopt our proposed definition of ``comparable'' facilities, 
with certain clarifications discussed below. In general, we define 
comparable facilities as facilities that will provide the same level of 
service as the incumbent's existing facilities. We also agree with 
commenters that being provided with comparable facilities requires that 
the change be transparent to the end user to the fullest extent 
possible. However, our definition does not require an EA licensee to 
upgrade the incumbent's facilities. As we proposed, EA licensees will 
not be required to replace existing analog equipment with digital 
equipment when there is an acceptable analog alternative that satisfies 
the comparable facilities definition. Thus, under these circumstances 
the cost obligation of the EA licensee will be the minimum cost the 
incumbent would incur if it sought to replace, but not upgrade, its 
system.
    49. We agree with many of commenters' suggestions for further 
refining the factors that are used to define comparable facilities. We 
conclude that the determination of whether facilities are comparable 
should be made from the perspective of the end user. To this end, we 
identify four factors--system, capacity, quality of service, and 
operating costs--that are relevant to this determination. We emphasize 
that these factors are only relevant to determining what facilities the 
EA licensee must provide to meet the requirements for mandatory 
relocation; we reiterate that incumbents and EA licensees are free to 
negotiate any mutually agreeable alternative arrangement.

a. System

    50. To meet the comparable facilities requirement, an EA licensee 
must provide the relocated incumbent with a comparable system. We 
believe the term ``system'' should be defined functionally from the end 
user's point of view, i.e., a system is comprised of base station 
facilities that operate on an integrated basis to provide service to a 
common end user, and all mobile units associated with those base 
stations. System comparability includes stations licensed on a 
secondary, non-protected basis. An incumbent that is licensed on a 
secondary basis at the time of notification must receive at least the 
equivalent type of license. We agree with SMR WON that this definition 
can include multiple-licensed facilities that share a common switch or 
are otherwise operated as a unitary system, provided that an end user 
has the ability to access all such facilities. However, our definition 
does not extend to facilities that are operationally separate. For 
example, if a subscriber on one system has the ability to roam on a 
neighboring system, we would not define the two facilities as part of a 
common ``system.'' In addition, our definition does not include managed 
systems that are comprised of individual licenses. We also agree with 
SMR WON and AMTA that a ``system'' may cover more than one EA if its 
existing geographic coverage extends beyond the EA borders. We reject 
Nextel and Pittencrief's suggestions that we define ``system'' more 
narrowly. In our view, a narrower definition would impair the 
flexibility of incumbents to continue meeting their customer's needs.

b. Capacity

    51. To meet the comparable facilities requirement, an EA licensee 
must relocate the incumbent to facilities that provide equivalent 
channel capacity. We define channel capacity as the same number of 
channels with the same bandwidth that is currently available to the end 
user. For example, if an incumbent's system consists of five 50 kHz 
(two 25 kHz paired frequencies) channels, the replacement system must 
also have five 50 kHz channels. If a different channel configuration is 
used, it must have the same overall capacity as the original 
configuration. We agree with commenters that comparable channel 
capacity requires equivalent signaling capability, baud rate, and 
access time. In addition, the geographic coverage of the channels must 
be coextensive with that of the original system.

c. Quality of Service

    52. Comparable facilities must provide the same quality of service 
as the facilities being replaced. We define quality of service to mean 
that the end user enjoys the same level of interference protection on 
the new system as on the old system. In addition, where voice service 
is provided, the voice quality on the new system must be equal to the 
current system. Finally, we consider reliability of service to be 
integral to defining quality of service. We measure reliability as the 
degree to which information is transferred accurately within the 
system. Reliability is a function of equipment failures (e.g. 
transmitters, feed lines, antennas, receivers, battery back-up power, 
etc.) and the availability of the frequency channel due to propagation 
characteristics (e.g. frequency, terrain, atmospheric conditions, 
radio-frequency noise, etc.) For digital data systems, this will be 
measured by the percent of time the bit error rate exceeds the desired 
value. For analog or digital voice transmissions, we will measure the 
percent of time that audio signal quality meets an established 
threshold. If analog voice system is replaced with a digital voice 
system the resulting frequency response, harmonic distortion, signal-
to-noise ratio, and reliability will be considered.

d. Operating Costs

    53. Another factor in determining whether facilities are comparable 
is operating costs. We define operating costs as costs that affect the 
delivery of services to the end user. If the EA licensee provides 
facilities that entail higher operating cost than the incumbent's 
previous system, and the cost increase is a direct result of the 
relocation, the EA licensee must compensate the incumbent for the 
difference. We anticipate that costs associated with the relocation 
process will fall into several categories. First, the incumbent must be 
compensated for any increased recurring costs associated with the 
replacement facilitates (e.g. additional rental payments, increased 
utility fees). Second, increased maintenance costs must be taken into 
consideration when determining whether operating costs are comparable. 
For example, maintenance costs associated with analog systems may be 
higher than the costs of digital equipment because manufacturers are 
producing mostly digital equipment and analog replacement parts can be 
difficult to find.
    54. While we conclude that EA licensees should be responsible for 
increased operating costs caused by relocation, we note that 
identifying whether increased costs are attributable to relocation 
becomes more difficult over time. Therefore, we will not impose this 
obligation indefinitely, but will end the EA licensee's obligation to 
pay increased costs five years after relocation has occurred. We 
believe this appropriately balances the interests of EA licensees and 
relocated incumbents.
2. Cost-Sharing

a. Sharing Relocation Costs on a Pro Rata Basis

    55. We adopt an approach that is similar to our PCS microwave 
relocation rules. We conclude that, absent an

[[Page 41198]]

agreement among EA licensees who are prepared to relocate the 
incumbent, all EA licensees who benefit from the relocation of the 
incumbent must share the relocation costs on a pro rata basis. Although 
several commenters believe that the Commission should adopt detailed 
rules for sharing relocation costs among multiple EA licensees, we do 
not believe that detailed rules are necessary since all EA licensees 
will be licensed at approximately the same time. However, we do not 
believe that all EA licensees will notify incumbents of their intention 
to relocate within 90 days of the release of the Public Notice 
announcing the commencement of the voluntary negotiation period because 
they may not be ready or capable of relocating an incumbent and, 
therefore will not participate in the relocation process. Those non-
notifying EA licensees, however may subsequently determine that those 
channels relocated out of their EA by other EA licensees are necessary 
for their use. Therefore, EA licensees who relocate the incumbent will 
obtain a right to reimbursement from non-notifying EA licensees who 
want to benefit from the relocation. We believe that allowing all EA 
licensees who relocate the incumbent a right to reimbursement is 
necessary to avoid a ``free-rider'' problem by those EA licensees who 
did not provide notification, but subsequently benefit from the 
relocation. We also believe that reimbursement rights will ensure that 
the incumbent is relocated as a whole and not on a piece-meal basis.
    56. The pro rata formula will be based on the number of channels 
being relocated out of each EA. Several commenters support this 
proposal, because the relocation process is likely to involve multiple 
EA licensees and one incumbent. The pro rata formula requires those EA 
licensees who participate in the relocation process to share the costs 
for relocating those channels that are located in a non-notifying 
licensee's EA. Therefore, the cost-sharing formula will determine the 
costs for relocating the incumbent's system out of each EA. We believe 
that determining the relocation costs for each EA will allow those EA 
licensees who participate in the relocation process to easily determine 
their cost obligation and their reimbursement share from later entrant 
EA licensees who did not participate. We believe that such a formula 
will negate the need for a complicated plan. The new formula is:
[GRAPHIC] [TIFF OMITTED] TR31JY97.000

Ci  equals the amount of reimbursement
Tc  equals the actual cost of relocating the incumbent
TCh  equals the total number of channels that are being relocated
Chj  equals the number of channels that each respective EA licensee 
will benefit from

    57. We believe the formula provides an effective and 
straightforward means of determining a participating EA licensee's cost 
obligation and the reimbursement shares for later entrant EA licensees. 
This formula is essential to make cost-sharing administratively 
feasible and fair for those EA licensees who participate in the 
relocation process and those who choose not to.
    58. The formula is similar to the formula adopted for sharing the 
relocation costs of microwave incumbents, but it does not take into 
account depreciation for the costs of reimbursing EA licensees who 
participated in the relocated process. Instead, non-notifying EA 
licensees who subsequently decide to use the channels or area of their 
EA that an incumbent was relocated out of must fully reimburse those 
participating EA licensees prior to testing. Similar to our decision in 
the microwave relocation proceeding, EA licensees who relocate channels 
that benefit other EA licensees and are fully outside of their market, 
should be entitled to full reimbursement of compensable costs for 
relocating that portion of the incumbent that are either fully outside 
their market area or licensed EA. However, because we realize that a 
non-notifying EA licensee may not decide to use those channels or serve 
the area of their EA that was once occupied by an incumbent, we 
conclude that ten years from the date of the Public Notice commencing 
the voluntary negotiation period, reimbursement rights will sunset.
    59. The following is an example of how the formula will work: In 
October 1997, EA licensees A, B, and C each notify the incumbent in a 
timely manner that they are prepared to relocate the incumbent. EA 
licensee D does not provide notification to the incumbent. The 
incumbent decides to compel simultaneous negotiations among EA 
licensees A, B, and C. As a result, EA licensees A, B, and C fully 
relocate the incumbent. The total costs for relocating the incumbent is 
$100,000. There were 60 channels that EA licensees A, B, C, and D can 
use as a result of the relocation. The channels located in each EA are 
as follows: EA A has 25 channels; EA B has 15 channels; EA C has 10 
channels; and EA D has 10 channels. For this example, we will calculate 
the formula for determining the costs share of EA licensee B. As a 
result, Chj=25, because that is the number of channels that EA licensee 
B will benefit from. The total number of channels that were relocated 
is 60 and, therefore TCh=60. In addition, Tc equals $100,000, because 
that is the total costs of relocating the incumbent. The calculation of 
licensee B's reimbursement payment is as follows:
[GRAPHIC] [TIFF OMITTED] TR31JY97.001

    Thus, licensee B pays $25,000. Licensee A would pay $41,666.66, 
licensee C would pay $16,666.66 and licensee D would pay $16,666.66. 
Therefore, licensee D will be obligated to reimburse licensees A, B, 
and C $16,666.66 if licensee D subsequently decides to use the channels 
in EA D. This amount must be equally divided among EA licensees A, B, 
and C. All three licensees will trigger a right to reimbursement from 
licensee D and will have the right to collect their share of the costs 
prior to licensee D commencing with testing.
    60. We decline to adopt the proposals of commenters that would 
allow EA licensees who relocate the incumbent to step into the shoes of 
the incumbent. We realize that not all EA licensees will provide 
notice, even though there are sufficient incentives to do so. However, 
we do not believe it would be appropriate to allow an EA licensee who 
is prepared to relocate the incumbent to succeed to all of the rights 
and obligations of that incumbent. In essence, succeeding to the rights 
and obligations of the incumbent would allow EA licensees to attain a 
de facto license for parts of an EA that they were not the high bidder 
for at auction. Therefore, we believe that all EA licensees who benefit 
initially or subsequently from the relocation of an incumbent should 
share the costs of the relocation on a pro rata basis. To accomplish 
this, EA licensees who relocate the incumbent will obtain a right to 
reimbursement from non-notifying EA licensees who subsequently decide 
to use the channels that were relocated. Therefore, we have designed a 
two-step process that will allow a participating EA licensee to obtain 
a reimbursement right and collect the initial costs for relocating 
channels outside of their EA.

b. Triggering a Reimbursement Right

    61. Commenters, although supportive of the Commission's proposal to 
allow EA licensees who negotiate a relocation

[[Page 41199]]

agreement the right to reimbursement from EA licensees who benefitted, 
did not specifically address how such right should be created. We 
believe that a right to reimbursement can easily be triggered by the 
procedures we adopted in the First Report and Order.
    62. In the First Report and Order, we developed a notification 
procedure that requires an EA licensee to file a copy of the relocation 
notice and proof of the incumbent's receipt of the notice to the 
Commission within ten days of receipt. Because notification affects an 
EA licensee's right to relocate an incumbent, we believe that such 
notification should also be the first step in triggering an EA 
licensee's reimbursement right. We believe the second step of 
triggering a reimbursement right is signing a relocation agreement with 
the incumbent. Thus, if an EA licensee timely notifies an incumbent of 
its intention to relocate, and subsequently negotiates and signs a 
relocation agreement with the incumbent, the EA licensee will have 
triggered its right to reimbursement from EA licensees who benefitted.
    63. In addition, because notification is the first step in 
establishing a reimbursement right for an EA licensee, we believe that 
such notification should also establish an obligation for those EA 
licensees who benefited from the relocation. We believe that an EA 
licensee who is sincere about using the channels in its EA will provide 
notice to the incumbent of its intention to relocate the incumbent. We 
agree with AMTA that EA licensees who do not participate in the 
relocation process should be prohibited from invoking mandatory 
negotiations or any of the provisions of the Commission's mandatory 
relocation guidelines.
    64. Therefore, if an EA licensee timely notifies an incumbent of 
its intention to relocate, but during the voluntary negotiation period 
decides not to participate in the relocation process, such EA licensee 
will be obligated to reimburse those EA licensees who have triggered a 
reimbursement right. EA licensees who do not provide notice to the 
incumbent, but subsequently decide to use the channels in the EA will 
be required to reimburse, outside of the Commission's mandatory 
relocation guidelines, those EA licensees who have established a 
reimbursement right. We believe that this procedure strikes a fair 
balance between EA licensees who relocate incumbents and those EA 
licensees who decide not to relocate incumbents.

c. Compensable Costs

    65. We agree with those commenters who believe that premium 
payments should not be reimbursable and therefore adopt our proposal 
that reimbursable costs will be limited to the actual costs of 
relocating the incumbent. We believe that EA licensees who have an 
incentive to be first to market will have a need to accelerate the 
relocation process. We agree with those commenters that believe other 
EA licensees will not receive the same advantage and therefore should 
not be required to contribute to premium payments. Therefore, we 
conclude that reimbursement rights will only apply to actual relocation 
costs.
    66. In the Second Further Notice of Proposed Rulemaking, we 
tentatively concluded that actual relocation costs will include, but 
not be limited to: SMR equipment; towers and/or modifications; back-up 
power equipment; engineering costs; installation; system testing; FCC 
filing costs; site acquisition and civil works; zoning costs; training; 
disposal of old equipment; test equipment; spare equipment; project 
management; and site lease negotiation. Commenters generally supported 
the list proposed, but were concerned that the list did not address 
other cost factors related to relocation. We agree with those 
commenters who argue that there are other factors related to the 
relocation process and therefore conclude that this list should be 
illustrative, and not exhaustive. However, because we want to encourage 
a fast relocation process free of disputes, we believe that the bulk of 
compensable costs should be tied as closely as possible to actual 
equipment costs. Based on this goal, we believe that subsequent EA 
licensees should only be required to reimburse EA relocators for 
incumbent transaction expenses that are directly attributable to the 
relocation, subject to a cap of two percent of the ``hard costs'' 
involved. Hard costs are defined as the actual costs associated with 
providing a replacement system, such as equipment and engineering 
expenses. This restriction on the reimbursement of transaction fees 
corresponds to the restriction we adopted with respect to PCS 
reimbursement of incumbent transaction expenses for cost-sharing during 
any time period--voluntary, mandatory, or involuntary. Therefore, we 
adopt the same restriction for purposes of this cost-sharing plan. 
However, EA licensees are not required to pay for transaction costs 
incurred by EA licensees during the voluntary or mandatory periods once 
the involuntary period is initiated, or for fees that cannot be 
legitimately tied to the provision of comparable facilities.
    67. In addition, we believe that actual costs should also include 
costs directly related to a seamless transition. In the First Report 
and Order, we concluded that during the involuntary negotiation period, 
the EA licensee must conduct the relocation in such a fashion that 
there is a ``seamless'' transition from the incumbents ``old'' 
frequency to its ``new'' frequency. We agree with ITA and SMR Systems 
that it may be necessary to operate the old system and the new system 
simultaneously to ensure a seamless transition. We want to encourage EA 
licensees and incumbents to exercise flexibility when negotiating a 
relocation agreement, but we also want to ensure that the incumbent is 
made whole, and is relocated without a substantial disruption in 
service. We also recognize that alternative means may be agreed upon to 
avoid a substantial disruption in service. Therefore, we will require 
that any costs directly associated with a seamless transition will be 
considered actual costs and, therefore reimbursable.

d. Payment Issues

    68. We partially agree with Genessee and conclude that 
reimbursement payments should be due when the frequencies of the 
incumbent have been cleared. We also agree with Fresno that an EA 
licensee may choose not to use the frequencies in a particular EA. 
Therefore, it is the EA licensee who must, within 90 days of the 
release of the Public Notice announcing the commencement of the 
voluntary negotiation period, decide whether they intend to participate 
in the mandatory relocation process.
    69. We believe that an EA licensee who provides notification is 
sincere of its intention to use the frequencies in the EA and 
therefore, concluded supra, that once an EA licensee notifies an 
incumbent of its intention to relocate the incumbent, the EA licensee 
will be obligated to pay its share of reimbursement. However, EA 
licensees who have triggered an obligation should not be required to 
submit payment until the channels they have been licensed for are 
available for use. Therefore, we conclude that payments will not be due 
until the incumbent has been fully relocated and the frequencies are 
free and clear. We believe this procedure strikes a clear balance 
between those EA licensees who negotiate a relocation agreement and 
those EA licensees who want the use of the frequencies, but decide not 
to negotiate a relocation agreement.

[[Page 41200]]

    70. Because non-notifying EA licensees will not receive the benefit 
of the Commission's relocation guidelines, they will be required to 
reimburse those EA licensees who have triggered a reimbursement right. 
Therefore, we conclude that non-notifying EA licensees who subsequently 
decide to use the channels, should be required to submit payment to 
those EA licensees who have triggered a reimbursement right prior to 
commencing testing of their system. We believe this strikes a fair 
balance between the EA licensee who has benefited a non-notifying EA 
licensee and the non-notifying EA licensees right to use those channels 
within its licensed EA. In addition, we believe that this will create 
an incentive for both parties to expedite negotiations among 
themselves.
3. Resolution of Disputes that Arise During Relocation
    71. Commenters strongly support the Commission's proposal to use 
ADR procedures when disputes arise as to the amount of reimbursement 
required and the relocation negotiations (including disputes over 
comparability of facilities and the requirement to negotiate in good 
faith). We agree with those commenters who believe that the use of ADR 
procedures will help resolve disputes in a timely fashion, while 
conserving Commission resources. In addition, we believe that the rapid 
resolution of disputes will speed the development of wide-area systems, 
and therefore will ultimately benefit the public. Therefore, to the 
extent that disputes cannot be resolved among the parties, we strongly 
encourage parties to use expedited ADR procedures. ADR procedures 
provide several alternative methods such as binding arbitration, 
mediation, or other ADR techniques. Because we are encouraging parties 
to use ADR procedures, we do not need to designate an arbiter to 
resolve the disputes as some commenters suggest. As several commenters 
pointed out, the choice of arbiter should be a decision left to the 
parties.
    72. We encourage parties to use ADR procedures prior to seeking 
Commission involvement and caution that entire resolution of disputes 
by the Commission will be time consuming and costly to the parties. In 
addition, we emphasize that parties who neglect their obligation to 
satisfy a reimbursement right will be subject to the full realm of 
Commission enforcement mechanisms.
4. Administration of the Cost-Sharing Plan
    73. We believe that the cost-sharing plan we have adopted for 800 
MHz SMR does not require us to designate an administrator. We believe 
that an administrator was necessary to administer the cost-sharing plan 
under the microwave relocation procedures because of the complexity of 
the plan. We do not believe that the cost-sharing plan we have adopted 
for 800 MHz SMR is as complex and therefore decline to designate a 
clearinghouse to administer the cost-sharing plan. However, we will not 
prohibit an industry supported, not-for-profit clearinghouse from being 
established for purposes of administering the cost-sharing plan under 
the 800 MHz relocation procedures.

D. BETRS Eligibility on the Upper 200 Channels

    74. As we did in our Paging Second Report and Order, 62 FR 11616 
(March 12, 1997), we do not believe it is necessary to continue 
separate primary licensing of BETRS facilities on 800 MHz SMR 
frequencies. Under the rules adopted in our CMRS Flex Report and Order, 
61 FR 45336 (August 29, 1996), all CMRS providers, including SMRs, may 
provide fixed services of the type provided by BETRS licensees. In 
addition, entities seeking to offer BETRS on 800 MHz SMR frequencies 
will be able to obtain spectrum through geographic area licensing. We 
see no basis for distinguishing BETRS from other services that use 800 
MHz SMR spectrum to provide commercial communications service to 
subscribers.
    75. As we noted in our Paging Second Report and Order, we recognize 
that BETRS primarily serves rural, mountainous, and sparsely populated 
areas that might not otherwise receive basic telephone service. 
However, according to our records, there are few BETRS facilities 
licensed on 800 MHz SMR frequencies. According to our licensing 
records, as of November 13, 1996, there were only eleven BETRS 
authorizations in the 800 MHz service, and all of them were located in 
the State of Alaska. Furthermore, our records show no BETRS facilities 
licensed in Puerto Rico. Therefore, we disagree with PRTC that 
eliminating separate primary licensing of BETRS facilities on 800 MHz 
SMR frequencies will negatively affect phone penetration in Puerto 
Rico. More importantly, concerns about the delivery of service to rural 
and other high cost areas are currently being addressed in our ongoing 
rulemaking proceeding examining universal service issues. We also note 
that BETRS has other frequencies available to it under part 22. In 
light of the limited demand for these channels by BETRS licensees, and 
the alternatives available for providing telecommunications service in 
sparsely populated areas, we conclude that continued licensing of 800 
MHz channels to BETRS on a co-primary basis is not necessary.
    76. We will, however, allow BETRS licensees to obtain new sites and 
channels in the 800 MHz band on a secondary basis. If any EA licensee 
subsequently notifies the BETRS licensee that a secondary facility must 
be shut down because it may cause interference to the EA licensee's 
existing or planned facilities, the BETRS licensee must discontinue use 
of the particular channel at that site no later than six months after 
such notice.

E. Partitioning and Disaggregation for 800 MHz and 900 MHz Licensees

1. Partitioning

a. Eligibility

    77. We adopt our tentative conclusion and further extend 
partitioning to all incumbent licensees and eligible SMR licensees on 
all SMR channel blocks. We agree with commenters that partitioning will 
provide SMR licensees with increased flexibility and result in more 
efficient spectrum management. In the broadband PCS proceeding, we 
eliminated the existing restriction that limited partitioning of 
broadband PCS licenses to only rural telcos. We concluded that allowing 
more entities to acquire partitioned broadband PCS licenses would: 
``(1) Remove potential barriers to entry thereby increasing competition 
in the PCS marketplace; (2) encourage parties to use PCS spectrum more 
efficiently; and (3) speed service to unserved and underserved areas.'' 
We conclude that the very same important goals will be met by allowing 
more open partitioning in the SMR service. Eliminating the existing 
rural telco restriction on SMR partitioning will: (1) Allow new 
entities, such as small businesses, to acquire SMR licenses and thus 
increase competition and foster the development of new technologies and 
services; (2) encourage existing SMR licensees to use their spectrum 
more efficiently; and (3) ensure the faster delivery of SMR service to 
rural areas. We also believe that allowing more flexible partitioning 
will provide an alternative to the relocation of incumbent licensees.
    78. Under our rules, SMR licensees are required to meet performance 
requirements based on substantial service, which may be fulfilled by 
providing population-based coverage. As some of the 900 MHz commenters 
noted, these requirements encourage SMR licensees to initially focus 
their attention on the more populated, urban

[[Page 41201]]

portions of their markets, in order to meet the construction 
requirements, while leaving the less-populated, rural areas unserved. 
With the present rural telco restriction in place, SMR licensees are 
not permitted to partition the more rural portions of the their markets 
to another entity, unless that entity is a qualified rural telco. In 
those cases where no rural telco is present in the market or where the 
rural telco does not desire to provide SMR service, there may be a 
delay in the delivery of service to the rural portions of the MTA. 
Allowing SMR licensees to partition portions of their markets to other 
entities more interested in providing service to those niche areas not 
only allows those other entities an opportunity to enter the SMR 
marketplace but also increases the odds that the less populated, rural 
portions of markets receive higher quality SMR service. Therefore, we 
are eliminating the existing rural telco restriction on both 800 MHz 
and 900 MHz SMR partitioning.
    79. We do not find that retaining the rural telco restriction will 
result in higher quality service to rural areas. We find that allowing 
more open partitioning in the 900 MHz SMR service will mean that 
additional, highly qualified wireless operators, including incumbent 
SMR operators, will be permitted to provide 900 MHz SMR service which 
may result in better service and increased competition which may result 
in lower prices for service. We also do not find that allowing more 
open partitioning of 900 MHz SMR licenses is inconsistent with the 
mandate of section 309(j)(3)(B) of the Communications Act to ensure 
that licenses are disseminated among a wide variety of applicants 
including rural telcos. RTG argues that partitioning is the only 
preference that has been devised to ensure that rural telcos are 
afforded economic opportunities to participate in the provision of new 
and innovative services. We disagree. Rural telcos are able to take 
advantage of the special provisions for small businesses adopted for 
the 900 MHz SMR auction. Furthermore, sections 309(j)(3) (A), (B), and 
(D) of the Communications Act direct the Commission to further the 
rapid deployment of new technologies for the benefit of the public 
including those residing in rural areas, to promote economic 
opportunity and competition, and to ensure the efficient use of 
spectrum. While encouraging rural telco participation in 900 MHz SMR 
service offerings is an important element in meeting these goals, 
Congress did not dictate that this should be the sole method of 
ensuring the rapid deployment of service in rural areas. Allowing more 
open partitioning will further the goals of section 309(j)(3) by 
allowing 900 MHz SMR licensees to partition their licenses to multiple 
entities rather than to a limited number of rural telcos. In addition, 
we find that, because they possess the existing infrastructure and 
local marketing knowledge in rural areas, rural telcos will be able to 
compete with other parties to obtain partitioned 900 MHz SMR licenses.
    80. We decline to adopt SMR WON's proposal to restrict non-
incumbent 800 MHz SMR licensees from partitioning until they have 
relocated all incumbent licensees from their band. We agree with those 
800 MHz commenters that believe that the auctions process obviates the 
need for restricting partitioning. While we acknowledge SMR WON's 
concerns that partitioning could be used as a method for avoiding 
responsibility for relocation of incumbents, we believe that such a 
restriction would unfairly discourage partitioning without any 
corresponding public interest benefit. We note that partitionees will 
be permitted to acquire partitioned license areas from EA licensees but 
will not be permitted to operate on channels that were previously 
cleared by other EA licensees until they have satisfied the relocation 
reimbursement requirements under our rules. EA licensees and 
partitionees are free to negotiate among themselves as to who will be 
responsible for paying the reimbursement costs, and we will require 
that parties seeking approval for a partitioning arrangement in the 800 
MHz SMR service certify which party will be responsible for such 
reimbursement. We believe that such a certification is a more flexible 
approach to ensuring that partitioning is not used as a means to 
circumvent our reimbursement requirements.

b. Available License Area

    81. In the broadband PCS and WCS proceedings, we allowed 
partitioning along any service area defined by the partitioner and 
partitionee. We found that, by providing such flexibility to licensees 
for determining partitioned broadband PCS license areas, we would 
permit the market to decide the most suitable services areas. We find 
that the same rationale holds true in the SMR service. Restricting the 
partitioning of SMR licenses to geopolitical boundaries, as originally 
proposed in the Second Further Notice of Proposed Rulemaking and by 
AMTA, may inhibit partitioning and may not allow licensees to respond 
to market demands for service. We find that allowing unrestricted 
partitioning of SMR licenses is preferable, as long as the parties 
submit information in their partial assignment applications that 
describes the partitioned license area.
    82. We will require that applications seeking approval to partition 
an SMR license will be required to submit, as separate attachments to 
the partial assignment application, a description of the partitioned 
service area and, where applicable, a calculation of the population of 
the partitioned service area and licensed market. The partitioned 
service area must be defined by coordinate points at every 3 degrees 
along the partitioned service area agreed to by both parties, unless 
either (1) an FCC-recognized service area is utilized (i.e., Major 
Trading Area, Basic Trading Area, Metropolitan Statistical Area, Rural 
Service or Economic Area) or (2) county lines are followed. Applicants 
need only define that portion of the partitioned service area that is 
not encompassed by an FCC-recognized service area or county line. For 
example, if the partitioned service area consisted of five counties and 
three additional townships, the applicant must only define that portion 
of the partitioned service area comprised of the additional townships. 
These geographical coordinates must be specified in degrees, minutes 
and seconds to the nearest second of latitude and longitude, and must 
be based upon the 1927 North American Datum (NAD27). Applicants may 
also supply geographical coordinates based on 1983 North American Datum 
(NAD83) in addition to those required based on NAD27. This coordinate 
data should be supplied as an attachment to the partial assignment 
application, and maps need not be supplied. In cases where an FCC 
recognized service area or county lines are being utilized, applicants 
need only list the specific area(s) (through use of FCC designations) 
or counties that make up the newly partitioned area. For example, if a 
licensee desires to partition its license only for the service area 
needed by a rural telco, it will simply provide coordinate data points 
at each 3 degree data point extending from the center of the service 
area (i.e, at the 3 degree, 6 degree, 9 degree, 12 degree, etc. azimuth 
points with respect to true north).
    83. We note that this rule will also apply to incumbent 800 MHz SMR 
licensees seeking partial assignments of license. Incumbent licensees 
are currently licensed on a site-by-site basis and currently must seek 
a partial assignment of license under our existing rules if they desire 
to assign a portion of their licensed transmitter sites to

[[Page 41202]]

another entity. Under our new rules, incumbent 800 MHz SMR licensees 
must follow the same procedures as all other licensees and must include 
the necessary description of the ``partitioned license area.'' For 
incumbent 800 MHz SMR licensees, the ``partitioned license area'' will 
mean that area encompassed by the protected service contours of all of 
the transmitter sites being assigned.
2. Disaggregation

a. Eligibility

    84. We conclude that all SMR licensees should be allowed to 
disaggregate portions of their spectrum to any party that is qualified 
for the spectrum's underlying channel block. We find that 
disaggregation will provide SMR licensees greater flexibility to manage 
their spectrum more efficiently and, in the 800 MHz band, will 
facilitate the coexistence of geographic area licensees and incumbents 
by allowing geographic licensees to subdivide their spectrum holdings 
and assign or transfer parts of their spectrum to other eligible 
entities or incumbents. We further find that disaggregation will 
increase competition by encouraging a broader range of SMR 
participants; foster a broader range of services offered by those 
participants as they seek niche markets and services; expedite the 
provision of SMR service to areas that may not otherwise receive CMRS 
service; and, allow the marketplace to determine who and by whom the 
spectrum will be used. Moreover, allowing SMR disaggregation will help 
establish regulatory symmetry with similar services, such as PCS, as 
mandated by the 1993 Budget Act. Once again, we find that allowing 
disaggregation will provide a less disruptive alternative for the 
relocation of incumbent licensees.
    85. As we did with partitioning, we decline to adopt SMR WON's 
proposal to restrict non-incumbent 800 MHz SMR licensees' ability to 
disaggregate. We agree with commenters that conclude that the market 
should determine when and how much spectrum to disaggregate.

b. Amount of Spectrum to Disaggregate

    86. We agree with commenters that we should not limit the amount of 
SMR spectrum that can be disaggregated. We find that the marketplace 
should decide the amount of SMR spectrum to be disaggregated and that 
there is no need to set a minimum disaggregation amount. As we did for 
broadband PCS and WCS, we seek to provide flexibility to the parties to 
decide the amount of spectrum they need. This will permit more 
efficient use of spectrum and deployment of a wider range of service 
offerings. Requiring a minimum disaggregation amount for SMR may 
interfere with parties intend use of spectrum and may foreclose some 
parties from using disaggregation as a means of obtaining SMR spectrum 
to provide their unique service offerings. We note that parties 
acquiring disaggregated SMR spectrum will continue to be subject to all 
of our technical and operating requirements.
1. Construction, Coverage and Channel Usage Requirements
    87. We agree that SMR licensees should not be able to use 
partitioning and disaggregation as a means of circumventing our 
performance requirements and that some version of these requirements 
should apply to parties obtaining licenses through these means. By 
adopting such requirements we seek to ensure that spectrum is used to 
the same degree that it would have been used had the partitioning or 
disaggregation transaction not taken place.
    88. Therefore, we will adopt flexible coverage and channel usage 
requirements for partitioning and disaggregation in the 800 MHz and 900 
MHz SMR services that are consistent with the underlying requirements 
in those services. We find that granting the parties flexibility to 
devise a scheme for meeting these requirements will increase the 
viability and value of partitioned licenses and disaggregated spectrum 
and will facilitate partitioning and disaggregation for the SMR 
service.
    89. With respect to incumbent licensees, we believe that it would 
be inappropriate to subject entities that obtain partitioned licenses 
or disaggregated spectrum from incumbent SMR licensees to additional 
performance requirements when no such requirements currently exist for 
these licensees. However, to prevent incumbent licensees from using 
partitioning or disaggregation as a means of circumventing our one-year 
construction requirement, we will hold partitionees and disaggregatees 
to the original construction deadline(s) for each of the partitioned 
facilities they acquire. These deadlines may vary depending on when the 
facility was originally licensed. In any case, a partitionee or 
disaggregatee that obtains a portion of an incumbent SMR licensees' 
facilities or spectrum with only a few months remaining before the 
expiration of the construction deadline, will be required to have these 
facilities constructed and providing ``service to subscribers'' by each 
individual construction deadline. Failure to meet the individual 
construction deadline for a specific facility will result in automatic 
termination of that facility's authorization. We believe that such a 
requirement is a fair balance between allowing incumbent SMR licensees 
the opportunity to utilize the helpful spectrum management tools of 
partitioning and disaggregation while ensuring continued compliance 
with our performance requirements.
    90. Geographic Area Licensees--Partitioning. Because the coverage 
requirements differ for licensees in the 800 MHz and 900 MHz bands, we 
will adopt coverage requirements that are consistent with the 
licensees' underlying requirements. In the 900 MHz band and in the 
lower 230 channels of the 800 MHz band, licensees are required to 
provide ``substantial service'' to their markets within five years of 
the grant of their initial licensees. As such, we will permit parties 
seeking to partition licenses in those bands to meet one of the 
following performance requirements. Under the first option, the 
partitioner and partitionee can each agree to meet the ``substantial 
service'' requirement for their respective portions of the market. If a 
partitionee fails to meet the ``substantial service'' requirement for 
its portion of the market, the license for the partitioned area will 
automatically cancel without further Commission action. Under the 
second option, if the original geographic area licensee certifies that 
it has already met or will meet the ``substantial service'' requirement 
for the entire market by providing coverage to at least one-third of 
the population of the entire (pre-partitioned) market within three 
years of the grant of its license and at least two-thirds of the market 
population within five years, then the partitionee not be subject to 
performance requirements except for those necessary to obtain renewal.
    91. In the upper 200 channels of the 800 MHz band, licensees must 
meet specific coverage benchmarks by providing coverage to at least 
one-third of the population of their market within three years of the 
grant of their initial license and coverage to at least two-thirds of 
the population within five years. For licensees in the upper 200 
channels of the 800 MHz band, we will adopt flexible coverage 
requirements similar to those we adopted in the broadband PCS 
proceeding. Under the first option, we will require that the 
partitionee certify that it will meet the same coverage requirement as 
the original licensee for its partitioned

[[Page 41203]]

market. If the partitionee fails to meet its coverage requirement, the 
license for the partitioned area will automatically cancel without 
further Commission action. Under the second option, the original 
licensee certifies that it has already met or will meet its three-year 
coverage requirement and that it will meet the five-year construction 
requirement for the entire geographic area market. In that case, the 
partitionee will not be subject to performance requirements except for 
those necessary to obtain renewal.
    92. Geographic Area Licensees--Disaggregation. Licensees in the 
upper 200 channels of the 800 MHz band are required to meet a channel 
usage requirement. Consistent with that rule, we will require that 
disaggregatees in the upper 200 channels of the 800 MHz band meet a 
channel usage requirement for the spectrum they acquire. However, 
consistent with our approach for partitioning and to provide 
flexibility to the parties to facilitate disaggregation in the upper 
200 channels, we will permit the parties to negotiate among themselves 
the responsibility for meeting the channel usage requirement. Each 
party may agree to separately meet its channel usage requirement for 
its portion of the disaggregated spectrum or the original licensee may 
certify that is has or will meet the channel usage requirement for the 
entire spectrum block. Similar to our approach for partitioning, one 
party's failure to meet its agreed-to channel usage requirement shall 
result in that party's license automatically reverting to the 
Commission and shall not affect the other party's license.
    93. There are no channel usage requirements in the 900 MHz SMR band 
or in the lower 230 channels of the 800 MHz band. We believe it would 
be inconsistent with our existing construction requirements to impose 
separate performance requirements on both the disaggregator and 
disaggregatee in those bands. However, we wish to ensure that parties 
do not use disaggregation to circumvent our underlying performance 
requirements. Therefore, we will adopt an approach similar to the one 
adopted for partitioning: we will retain the underlying ``substantial 
service'' requirement for the spectrum as a whole but allow either 
party to meet the requirements on its disaggregated portion. Therefore, 
a licensee in either the 900 MHz band or the lower 230 channels of the 
800 MHz band that disaggregates a portion of its spectrum may elect to 
retain responsibility for meeting the ``substantial service'' 
requirement, or it may negotiate a transfer of this obligation to the 
disaggregatee. In either case, the rules ensure that the spectrum will 
be developed to at least the same degree that was required prior to 
disaggregation.
    94. To ensure compliance with our rules, we will require that 
parties seeking Commission approval of disaggregation agreement in the 
900 MHz band or the lower 230 channels of the 800 MHz band include a 
certification as to which party will be responsible for meeting the 
applicable ``substantial service'' requirements. Parties may also 
propose to share the responsibility for meeting the requirement. As 
part of our public interest review under section 310(d), we will review 
each transaction to ensure that the party designated as responsible for 
meeting the performance requirements is bona fide and has the ability 
to meet these requirements. In the event that only one party agrees to 
take responsibility for meeting the performance requirement and later 
fails to do so, that party's license will be subject to forfeiture, but 
the other party's license will not be affected. Should both parties 
agree to share the responsibility for meeting the performance 
requirements and either party later fail to do so, both parties' 
licenses will be subject to forfeiture.
    95. We note also that disaggregatees that already hold an SMR 
license or other CMRS license in the same geographic market will be 
subject to the same performance requirements as disaggregatees who do 
not hold other licenses for disaggregated spectrum. In addition, as we 
noted above, we will require that parties to partitioning and 
disaggregation agreements involving 800 MHz licensees certify in their 
applications which party will be responsible for relocating incumbent 
licensees located in the partitioned license area or the disaggregated 
spectrum block. The parties are free to negotiate among themselves 
which party will be responsible for incumbent relocation.
2. Matters Related to Designated Entity Licensees
    96. Geographic area licensees in both the 800 MHz and 900 MHz bands 
that qualify as a ``small business'' (otherwise referred to generally 
as ``designated entity'' licensees) may receive a bidding credit to 
reduce the amount of their winning auction bid. Entities with average 
gross revenues of not more than $3 million for the preceding three 
years may receive a 35 percent bidding credit. Entities with average 
gross revenues of not more than $15 million for the preceding three 
years may receive a 25 percent bidding credit. While 900 MHz licensees 
may repay their winning auction bid pursuant to installment payments, 
pursuant to our Memorandum Opinion and Order released today, 
installment payments for 800 MHz licensees in the upper 200 channels 
have been eliminated and we decline to adopt such a provision for the 
lower 230 channels. There are two levels of installment payments 
available to small business EA licensees in the upper 200 channels 
while only one level of installment payments is available to small 
business EA licensees in the lower 230 channels. Therefore, we must 
only concern ourselves with the question of installment payments with 
respect to 900 MHz licensees.
    97. Whenever an geographic area 800 MHz or 900 MHz SMR licensee, 
that received a bidding credit at auction, transfers its entire license 
to an entity that would not have qualified for such a bidding credit or 
would have qualified for a lower bidding credit, the geographic area 
licensee is required to repay some or all of its bidding credit. If the 
transfer occurs in the first two years, 100 percent of the bidding 
credit must be repaid; if it occurs in year three, 75 percent; in year 
four, 50 percent; and in year five, 25 percent. After the fifth year, 
no unjust enrichment penalty is imposed.
    98. Similarly, if a 900 MHz geographic area licensee, that is 
paying its winning bid through installment payments, transfers its 
license to entire an entity that would not have qualified for such 
installment payments or, in the case of the upper 200 channels, for a 
less favorable installment payment plan, the geographic area licensee 
must make full payment of the remaining unpaid principal and interest 
accrued through the date of assignment or transfer. A similar rule has 
been adopted for the lower 230 channels, however, only one level of 
installment payments in available to EA licensees in the lower 230 
channels.
    99. We conclude that the above-outlined unjust enrichment 
requirements shall apply if licensee, that received one of these 
special small business benefits, partitions or disaggregates to an 
entity that would not qualify for the benefit. We will follow the 
approach adopted in both the broadband PCS and WCS proceedings and 
apply all such unjust enrichment requirements on a pro rata basis using 
population to calculate the relative value of the partitioned area and 
amount of spectrum disaggregated to calculate the relative value of the 
disaggregated spectrum. We disagree

[[Page 41204]]

with PCIA that these measures will slow the assignment process or 
encourage the filing of frivolous petitions to deny. We find that such 
measures will provide an objective method for calculating the relative 
values of partitioned areas and disaggregated spectrum. We note that 
population will be calculated based upon the latest census data. 
Parties may use the latest census data when it is available.
    100. With respect to installment payments, we will follow the 
procedures established in the broadband PCS proceeding and require that 
a 900 MHz SMR geographic area licensee, making installment payments, 
and seeking to partition or disaggregate to an entity that does not 
meet the applicable installment payment eligibility standards, make a 
payment of principal and interest calculated on a proportional basis as 
set forth above. If a geographic area licensee making installment 
payments, partitions or disaggregates to an entity that would qualify 
for less favorable installment payments, we will require the licensee 
to reimburse the government for the difference between the installment 
payment paid by the licensee and the installment payments for which the 
partitionee or disaggregatee is eligible calculated on a proportional 
basis as set forth above.
    101. We will separate the payment obligations using the same 
procedures adopted for broadband PCS. When a 900 MHz SMR geographic 
area licensee with installment payments partitions or disaggregates to 
a party that would not qualify for installment payments under our rules 
or to an entity that does not desire to pay for its share of the 
license with installment payments, we will require, as a condition of 
grant of the partial assignment application, that the partitionee/
disaggregatee pay its entire pro rata amount within 30 days of Public 
Notice conditionally granting the partial assignment application. The 
partitioner or disaggregator will receive new financing documents 
(promissory note and security agreement) with a revised payment 
obligation, based on the remaining amount of time on the original 
installment payment schedule. A default on an obligation will only 
affect that portion of the market area held by the defaulting party.
    102. Where both parties to the 900 MHz SMR partitioning or 
disaggregation arrangement qualify for installment payments under our 
rules, we will again follow the procedures established in the broadband 
PCS proceeding and permit the partitionee/disaggregatee to make 
installment payments on its portion of the remaining government 
obligation. Partitionees/disaggregatees are free, however, to make a 
lump sum payment of all or some of their pro rata portion of the 
remaining government obligation within 30 days of the Public Notice 
conditionally granting the partial assignment application. Should a 
partitionee/disaggregatee choose to make installment payments, we will 
require, as a condition to approval of the partial assignment 
application, that both parties execute financing documents (promissory 
note and security agreement) agreeing to pay the U.S. Treasury their 
pro rata portion of the balance due (including accrued and unpaid 
interest on the date the partial assignment application is filed) based 
upon the installment payment terms for which they would qualify. Each 
party will receive a license for its portion of the market area and 
each party's financing documents will provide that a default on its 
obligation would only affect their portion of the market area. These 
payments to the U.S. Treasury are required notwithstanding any 
additional terms and conditions agreed to between or among the parties.
3. Related Matters
    103. We asked commenters in the Second Further Notice of Proposed 
Rulemaking to discuss the conditions by which partitioning and 
disaggregation should be allowed for 800 MHz licensees. In addition, 
AMTA raised related matters in its Petition. We adopt the following 
rules with respect to the above-outlined matters similar to those we 
have adopted for the broadband PCS service.

a. Combined Partitioning and Disaggregation

    104. In the broadband PCS proceeding, we found that allowing 
entities to propose combined partitioning and disaggregation 
transactions would provide added flexibility and would facilitate such 
arrangements. We believe the same rationale would apply to partitioning 
and disaggregation in the SMR service. Therefore, we will allow 
licensees to propose combined partitioning and disaggregation 
transactions. We believe that the goals of providing competitive serve 
offering, encouraging new market entrants, and ensuring quality service 
to the public will be advanced by allowing such combined transactions. 
We further conclude that in the event that there is a conflict in the 
application of the partitioning and disaggregation rules, the 
partitioning rules should prevail. For the purpose of applying our 
unjust enrichment requirements and/or for calculating obligations under 
installment payment plans, when a combined 900 MHz SMR partitioning and 
disaggregation is proposed, we will use a combination of both 
population of the partitioned area and amount of spectrum disaggregated 
to make these pro rata calculations.

b. License Term and Renewal Expectancy

    105. In the broadband PCS proceeding, we concluded that entities 
acquiring a license through partitioning and disaggregation should hold 
their license for the remainder of the original licensee's license 
term. We found that this approach was consistent with the approach we 
had adopted for the Multipoint Distribution Service and was the easiest 
to administer. We found that allowing licensees to ``re-start'' the 
license term from the date of the grant of the partial assignment of 
license application could invite parties to circumvent our license term 
rules and unnecessarily delay service to the affected areas.
    106. We find the same to be true with respect to the SMR service. 
Limiting partitionees and disaggregatees in the SMR service to the 
remainder of the original licensee's license term (whether it be five 
years for incumbent licensees or ten years for geographic area 
licensees) will ensure that there will be the maximum incentive for 
parties to pursue available spectrum as quickly as practicable, thus 
expediting delivery of service to the public.
    107. We will also adopt renewal expectancy provisions for SMR 
partitionees and disaggregatees that obtain their licenses from 
geographic area licensees similar to those adopted in the broadband PCS 
proceeding. Partitionees and disaggregatees obtaining license areas or 
spectrum from geographic area licensees may earn a renewal expectancy 
on the same basis as other geographic area licensees.

c. Licensing

    108. In order to provide added flexibility, we will not adopt the 
procedures set forth in the Second Further Notice of Proposed 
Rulemaking and, instead, adopt procedures similar to those proposed by 
AMTA and those devised for broadband PCS partitioning and 
disaggregation. We will require that parties seeking approval for an 
SMR partitioning or disaggregation transaction follow the existing 
partial assignment procedures for the SMR service. Such applications 
will be placed on Public Notice and will be subject to petitions to 
deny. The licensee will be required to file an FCC Form 490 that is 
signed by both the

[[Page 41205]]

licensee and the qualifying entity. The qualifying entity will also be 
required to file an FCC Form 430 unless a current FCC Form 430 is 
already on file with the Commission. An FCC Form 600 must be filed by 
the qualifying entity to receive authorization to operate in the market 
area being partitioned or for the disaggregate spectrum and to modify 
the existing license of the qualifying entity to include the new/
additional market area being partitioned or the spectrum being 
disaggregated. Any requests for a partitioned license or disaggregated 
spectrum must contain the FCC Forms 490, 430, and 600 and be filed as 
one package under cover of the FCC Form 490. We note that the 45 MHz 
CMRS spectrum cap contained in Sec. 20.6 of the rules applies to 
partitioned license areas and disaggregated spectrum in the SMR 
service. In the context of partitioning, we will determine compliance 
with the spectrum cap based on the post-partitioning populations of 
each licensees' partitioned market. This means that neither the 
partitioner nor the partitionee may count the population in the other's 
party's portion of the market in determining its own compliance with 
the spectrum cap. Furthermore, by signing FCC Forms 490 and 600, the 
parties will certify that grant of the partial assignment application 
would not cause either party to be in violation of the spectrum 
aggregation limit contained in Sec. 20.6 of the rules.

F. Competitive Bidding Issues of Lower 80 and General Category Channels

1. Auction of Lower 80 and General Category Channels
    109. In previous proceedings, we concluded generally that we should 
use ``competitive bidding procedures to select from among mutually 
exclusive CMRS applications where we have the authority to do so and 
where we find such processing to be in the public interest.'' Upon 
consideration of the record in this proceeding, we conclude that 
auctioning the Lower 80 channels and the General Category channels 
meets the criteria set forth in section 309(j) of the Communications 
Act and will further the public interest. Nextel, AMTA, and SMR Won 
generally support competitive bidding for these channels.
    110. Southern and ITA argue that the Commission lacks the authority 
to auction this spectrum on the ground that under section 309(j) the 
Commission is obligated to use existing means (i.e. engineering 
solutions, negotiations, threshold qualifications) to avoid mutual 
exclusivity in application and license proceedings. We note as an 
initial matter that the Communications Act only requires the Commission 
to use other such existing means when it is in the public interest. 
After careful analysis of this spectrum, we conclude that the 
likelihood of mutually exclusive applications in the 800 MHz SMR band 
is considerable and that not all potential conflicts will be eliminated 
through negotiations or other existing means. We therefore conclude 
that the public interest will be served by using competitive bidding to 
license these channels.
    111. Some commenters contend that the General Category and Lower 80 
are not auctionable because the channels are heavily licensed leaving 
few or no channels or space available for new licensing. Further, these 
commenters contend that those channels that are open will be used for 
mandatory relocation of incumbents from the upper 10 MHz channels. 
These commenters also contend that there is little to be gained by 
adopting geographic licensing because geographic areas that already 
have any value are licensed and there will be no increase in spectrum 
efficiency. Further, commenters argue that because there is little open 
space and no mandatory relocation proposal from the Lower 80 or General 
Category channels, EA licensees will not be able to expand and these 
licensees could be further frustrated by relocatees from the upper 200 
channels.
    112. We reject those arguments for several reasons. We do not 
believe the purported dearth of channels in some areas or the potential 
risk of relocatees from the upper 200 channels render the competitive 
bidding process inapplicable. In this Order, we include provisions for 
licensees to aggregate licenses within a geographic area, which will 
enable them to expand the geographic coverage of their systems and 
potentially enhance the commercial viability of these licenses, as well 
as use this spectrum efficiently. As noted above, there is a high 
likelihood that mutually exclusive applications will be filed for these 
channels. The resolution of these applications by comparative hearings 
or other means will unnecessarily delay the processing of these 
applications, contrary to the public interest and to the Congressional 
objectives under section 309(j)(3). Under the licensing scheme for 
these channels, i.e., on a geographic area basis (as with the upper 200 
channels, EAs will be used for the lower 80 channels), there will be 
competitive opportunities to provide SMR service in this frequency band 
and the application process for these channels will be open to any 
qualified applicant. Furthermore, the use of competitive bidding to 
select among these applicants will ensure that the qualified applicants 
who place the highest value on the available spectrum will prevail in 
the selection process. Additionally, as we concluded in the First 
Report and Order, by using the same service area definition for the 
lower 80 and General Category channels as we used for the upper 200 
channels, we will realize greater administrative efficiency in the 
licensing of these channels.
    113. A few commenters contend that they cannot afford to 
participate in the auction. Some commenters believe that the auction 
procedure heavily favors large entities over smaller ones, that these 
larger entities will hurt competition and delay provision of services 
while the auction takes place. As noted below, to ensure small business 
participation in the Lower 80 and General Category channel auctions, 
the Commission has adopted bidding credits. Furthermore, contrary to 
claims that auctions will delay the deployment of services, we believe 
that the use of competitive bidding will enhance competition and serve 
to streamline the administrative process, thereby allowing licenses to 
provide service more quickly than alternative licensing procedures.
    114. Several commenters argue that the government should be 
concerned with the safety and welfare of citizens even when such 
concerns prevent it from raising revenues. Some commenters believe that 
this spectrum should be reserved for public safety entities and that 
PMRS licensees need access to additional spectrum. Motorola believes 
that PMRS providers play an important role in public safety and private 
industry and that PMRS's concerns should be taken into account. We 
addressed these concerns fully in the Second Further Notice of Proposed 
Rulemaking. We stated that existing licensees will not be required to 
relocate their public safety radio systems and geographic licensees 
will be required to provide protection to all co-channel systems that 
are constructed and operating within their service area. In addition, 
an advisory committee has been established to address the concerns of 
public safety users. Therefore, the Commission's rules will allow both 
the efficient use of the spectrum and the preservation of public 
safety.
2. Competitive Bidding Design

a. Bidding Methodology

    115. Based on the record in this proceeding and our successful 
experience conducting simultaneous

[[Page 41206]]

multiple round auctions for other services, we believe a simultaneous 
multiple round auction design is the preferred competitive bidding 
design for these channels. Commenters generally support the use of this 
methodology, on the grounds that there is interdependency among the 
licenses. No commenter advocated the use of sequential multiple round 
auctions. We also note, as discussed below, that we will adopt regional 
groupings for the Lower 80 and General Category EA licenses. The 
aggregation of licenses into these regional groupings creates stronger 
interdependencies between the licenses, further warranting the use of 
this auction methodology.

b. License Grouping

    116. To expedite the process of auctioning the Lower 80 and General 
Category EA licenses, we will auction these licenses using the five 
regional groups that were used for the regional narrowband PCS auction: 
Northeast, South, Midwest, Central, and West. We believe that by 
grouping the licenses and auctioning them regionally, we reduce the 
burden on small businesses which choose to participate in the auction 
process. Each entity will need to participate only in those regional 
auctions in which it is interested in winning licenses. Additionally, 
by holding regional auctions and thereby limiting the number of 
licenses available, we will decrease the administrative burden of the 
auction on the participants, and further enable the auction to conclude 
at an earlier time. Finally, we believe that this grouping will make it 
easier for incumbents to secure spectrum that complements the licenses 
they currently hold while allowing them to expand their systems.

c. Bidding Procedures

i. Bid Increments
    117. We will adopt our minimum bid increment proposal, but delegate 
authority to the Bureau to vary the minimum bid increment. While we 
believe our proposal is appropriate, our 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. Commenters generally support a 
minimum bid increment based upon a percentage of the bid from the 
previous round. E.F. Johnson, on the other hand, argues that minimum 
bid increments should be reduced or eliminated to facilitate small 
business participation in the auction. There is no evidence that a 
minimum bid increment will deter small business participation in the 
auction. Rather, as we previously noted, an appropriate minimum bid 
increment is important to the functioning of the auction as it speeds 
the process of the auction and helps to ensure that it comes to closure 
within a reasonable period of time. Moreover, as noted below, we have 
adopted provisions to encourage small business participation. We will 
follow the practice that we have used for other auctions and, 
consistent with Sec. 1.2104 of the Commission's Rules, announce by 
Public Notice prior to the auction the general guidelines for bid 
increments.
ii. Stopping Rules
    118. In view of our decision to aggregate licenses on a regional 
basis, we believe that a simultaneous stopping rule is appropriate for 
both the Lower 80 and the General Category licenses. Thus, bidding will 
remain open on all licenses in an auction until bidding stops on every 
license. Based on the success of our prior broadband PCS and 900 MHz 
SMR auctions, Nextel agrees that there should be a simultaneous 
stopping rule. AMTA and Nextel also claim that this rule is appropriate 
because of the interdependencies between the markets. SMR Won supports 
the market-by-market stopping rule, suggesting that it will deter 
speculators and reduce artificial inflation of auction prices. We 
conclude that bidding should remain open on all licenses in an auction 
until bidding stops on every license. We believe that allowing 
simultaneous closing for all licenses will afford bidders the 
flexibility to pursue back-up strategies without the risk that bidders 
will refrain from bidding until the final rounds. In any event, we will 
retain the discretion to change the stopping rules during the course of 
the auction, and delegate authority to the Bureau to exercise that 
discretion.
iii. Activity Rules
    119. In accordance with Sec. 1.2104 of the Commission's Rules and 
the guidelines we adopted in the Competitive Bidding Second Report and 
Order, we will employ the Milgrom-Wilson activity rule for both the 
Lower 80 and General Category auctions. As we noted in the Competitive 
Bidding Second Report and Order, the Milgrom-Wilson activity rule is 
the preferred activity rule where a simultaneous stopping rule is used. 
We believe that the Milgrom-Wilson approach best achieves the 
Commission's goal of affording bidders flexibility to pursue backup 
strategies, while at the same time ensuring that simultaneous auctions 
are concluded within a reasonable period of time. Specifically, under 
the Milgrom-Wilson rules, the auction is divided into three stages and 
the minimum required activity level, measured as a fraction of the 
bidder's eligibility in the current round, will increase during the 
course of the auction. For purposes of this auction, we will adopt the 
minimum required activity levels at each stage that recently were 
adopted for the D, E, and F Broadband PCS auction.
    120. As in previous auctions, we reserve the discretion to set and, 
by announcement before or during the auction, vary the level of the 
requisite minimum activity levels (and associated eligibility 
calculations) for each auction stage. We believe that retaining this 
flexibility will improve the Commission's ability to control the pace 
of the auction and help ensure that the auction is completed within a 
reasonable period of time. We delegate to the Bureau the authority to 
set or vary the minimum activity levels if circumstances warrant a 
modification. The Bureau will announce any such modification by Public 
Notice. For the purposes of this auction, we also will use the general 
transition guidelines that were used for the D, E, and F Broadband PCS 
auctions. The auction will start in Stage One and move to Stage Two 
when the auction activity level is below ten percent for three 
consecutive rounds in Stage One. The auction will move from Stage Two 
to Stage Three when the auction activity level is below ten percent for 
three consecutive rounds in Stage Two. Under no circumstances can the 
auction revert to an earlier stage. However, the Bureau will retain the 
discretion to determine and announce during the course of an auction 
when, and if, to move from one auction stage to the next.
    121. To avoid the consequences of clerical errors and to compensate 
for unusual circumstances that might delay a bidder's bid preparation 
or submission in a particular round, we will provide bidders with five 
activity rule waivers that may be used in any round during the course 
of the auction. The Bureau will retain the discretion to issue 
additional waivers during the course of an auction for circumstances 
beyond a bidder's control, and also retain the flexibility to adjust, 
by Public Notice prior to an auction, the number of waivers permitted, 
or to institute a rule that allows one waiver during a specified number 
of bidding rounds or during specified stages of the auction.
iv. Duration of Bidding Rounds
    122. We will retain the discretion to vary the duration of bidding 
rounds and

[[Page 41207]]

the intervals at which bids are accepted. In simultaneous multiple 
round auctions, bidders may need a significant amount of time to 
evaluate back-up strategies. AMTA requests that we allow only one round 
of an auction per day because many of its members who will participate 
in the auction do not have sufficient staff to monitor the auction if 
there is more than one round per day. Genesee requests that for the 
first five rounds of the auction only one round of bids per day be 
allowed. Genesee does not provide any rationale for its proposal. We do 
not believe these proposed limitations are necessary. We note that we 
have adopted regional license groupings that are intended to minimize 
for small entity participants these burdens in participating and 
monitoring the auctions. Therefore, we delegate authority to the Bureau 
to vary the bidding rounds or the interval at which bids are accepted 
in order to move the auction toward closure more quickly or as 
circumstances warrant. The Bureau will announce any changes to the 
duration of and intervals between bidding rounds, whether by Public 
Notice prior to the auction or by announcement during the auction.

d. Rules Prohibiting Collusion

    123. We adopt the rules prohibiting collusive conduct for use in 
the Lower 80 and General Category auctions. These requirements, as set 
forth in Secs. 1.2105 and 1.2107 of our Rules, operate along with 
existing antitrust laws as a safeguard to prevent collusion in the 
competitive bidding process. In addition, where specific instances of 
collusion in the competitive bidding process are alleged during the 
petition to deny process, we may conduct an investigation or refer such 
complaints to the U.S. Department of Justice for investigation. Bidders 
who are found to have violated the antitrust laws or the Commission's 
rules in connection with their participation in the auction process may 
be subject to a variety of sanctions, including the forfeiture of their 
down payment or their full bid amount, revocation of their licenses, 
and possible prohibition from participation in the auctions. Genesee 
supports our proposal on the grounds that these same rules were 
effective in the 900 MHz SMR auctions. Coral Gables, in contrast, 
requests that public safety radio service providers under part 90, or 
those proposing to provide such services, should be exempt from the 
collusion rules when they are negotiating with other public safety 
service providers. We reject Coral Gable's position. First, the 
specific needs of public safety entities are the subject of, and will 
be addressed in, a separate Commission proceeding. In addition, we 
believe that continued negotiation past the short-form filing date by 
any segment of bidders may impact the valuation of the licenses and 
jeopardize the integrity of the auction process. We note that prior to 
the short-form filing date, public safety radio service providers, like 
other auction participants, are free to negotiate with each other to 
the extent permitted by the antitrust laws.

e. Procedural and Payment Issues

i. Pre-Auction Application Procedures
    124. We will generally use the applications and payment procedures 
set forth in part 1 of our rules, with certain modifications for the 
800 MHz SMR service. A Public Notice announcing the auction will 
specify the licenses to be auctioned and the time and place of the 
auction in the event that mutually exclusive applications are filed. 
The Public Notice will also specify the method of competitive bidding 
to be used, applicable bid submission procedures, stopping rules, 
activity rules, the short-form filing deadline, and the upfront payment 
amounts.
    125. Prior to the auction, the Wireless Telecommunications Bureau 
will also provide information about incumbent licensees for applicants 
planning to participate in the auction. We encourage all potential 
bidders to examine these records carefully and do their own independent 
investigation regarding existing licensees' operations in each license 
area on which they intend to bid in order to maximize their success in 
the auction.
    126. Section 309(j)(5) provides that no party may participate in an 
auction ``unless such bidder submits such information and assurances as 
the Commission may require to demonstrate that such bidder's 
application is acceptable for filing.'' We adopt our proposal to 
require all applicants for 800 MHz SMR licenses to submit FCC Form 175 
in order to participate in the auction. As we indicated in the 
Competitive Bidding Second Report and Order, if we receive only one 
application that is acceptable for filing for a particular license, and 
thus there is no mutual exclusivity, we will issue a Public Notice 
canceling the auction for that license and establish a date for the 
filing of a long-form application.
ii. Amendments and Modifications
    127. We will apply the provisions set forth in part 1 of our rules 
governing amendments to and modifications of short-form application to 
the 800 MHz SMR service. The only commenter on this issue, Genesee, 
supports the Commission's proposal. Upon reviewing the short-form 
applications, we will issue a Public Notice listing all defective 
applications. Applicants with minor defects in their applications will 
be given an opportunity to cure them and resubmit a corrected version.
iii. Upfront Payments
    128. We will adopt our upfront payment proposal, particularly 
because the majority of commenters support it. Fresno states that the 
upfront payment should be high enough to discourage frivolous bidders 
but flexible enough to reflect the lower value of the channels. As we 
previously noted, a substantial upfront payment requirement is 
necessary to ensure that only serious qualified bidders participate in 
auctions, thereby ensuring that sufficient funds are available to 
satisfy any bid withdrawal or default payments that may be incurred. We 
thus reject Coral Gables' claim that bidders that provide public safety 
radio services under part 90 of the Commission's Rules should not be 
required to make an upfront payment or, alternatively, that they should 
have a reduced upfront payment. We believe that making these exceptions 
to the upfront payment requirement would jeopardize the integrity of 
the auction process. As Fresno suggests, we recognize the standard 
upfront payment formula may yield too high a payment as compared to the 
value of these licenses. Accordingly, we delegate authority to the 
Bureau to vary the minimum upfront payment when it determines the 
general formula of $0.02 per MHz-pop is an unreasonably high upfront 
payment. The Bureau will announce any such modification by Public 
Notice.
iv. Down Payment and Full Payment
    129. We conclude that we should require all winning bidders to 
supplement their upfront payments with down payments sufficient to 
bring their total deposits up to 20 percent of the winning bid(s). 
Genesee, the sole commenter to address this issue, supports our 
proposal. If the upfront payment already tendered by a winning bidder, 
after deducting any bid withdrawal and default payments due, amounts to 
20 percent of its winning bids, no additional deposit will be required. 
If the upfront payment amount on deposit is greater than 20 percent of 
the winning bid amount after deducting any bid withdrawal and default 
payments due, the additional monies will be refunded.

[[Page 41208]]

    130. We will require winning bidders to submit the required down 
payment to our lock-box bank within ten business days following release 
of a Public Notice announcing the close of bidding. All auction winners 
will be required to make full payment of the balance of their winning 
bids within ten business days following Public Notice that the 
Commission is prepared to award the license. The Commission generally 
will grant uncontested licenses within ten business days after 
receiving full payment.
    131. We believe that small businesses should also be subject to a 
20 percent down payment requirement. We believe that such a requirement 
is consistent with ensuring that winning bidders have the financial 
capability of building out their systems and will provide us a strong 
assurance against default. Increasing the amount of the bidder's funds 
at risk in the event of default discourages insincere bidding and 
therefore increases the likelihood that licenses are awarded to parties 
who are best able to serve the public. We also believe that a 20 
percent down payment should cover the required payments in the unlikely 
event of default. In view of our decision to defer the issue of 
installment payments to the part 1 proceeding, we will also defer our 
decision as to when small businesses must make their down payment to 
the part 1 proceeding.
v. Bid Withdrawal, Default, and Disqualification
    132. To prevent insincere bidding we will apply our general bid 
withdrawal, default, and disqualification rules, as set forth in 
Sec. 1.2104(g) of the Commission's Rules, to the Lower 80 and General 
Category auctions. Genesee, the sole commenter to address these issues, 
supports this proposal. Any bidder that withdraws a high bid before the 
Commission declares bidding closed will be required to reimburse the 
Commission in the amount of the difference between its high bid and the 
amount of the winning bid the next time the license is offered by the 
Commission if this subsequent winning bid is lower than the withdrawn 
bid. If a bidder has withdrawn a bid or defaulted, but the amount of 
the withdrawal or default payment cannot yet be determined, the bidder 
will be required to make a deposit of up to 20 percent on the amount 
bid on such licenses. When it becomes possible to calculate and assess 
the payment, any excess deposit will be refunded.
    133. In the event an auction winner defaults on its initial down 
payment, the Commission must exercise our discretion to decide whether 
to hold a new auction or offer the licenses to the second highest 
bidder. In exercising our discretion, the Commission will evaluate the 
particular facts and circumstances of the specific case. In the 
unlikely event that there is more than one bid withdrawal on the same 
licenses, we will hold each withdrawing bidder responsible for the 
difference between its withdrawn bid and the amount of the winning bid 
the next time the license is offered by the Commission.
vi. Long-Form Applications and Petitions to Deny
    134. In the Second Further Notice of Proposed Rulemaking we 
proposed to adopt the general procedures for filing long-form 
applications to the 800 MHz SMR auctions. In addition, we proposed that 
the petition to deny procedures that were adopted in the CMRS Third 
Report and Order should apply to the processing of applications for the 
800 MHz SMR service. Genesee, the sole commenter on this issue, 
supports our proposal. Therefore, we adopt our proposals regarding 
petitions to deny. A party filing a petition to deny against an 800 MHz 
SMR license application will be required to demonstrate standing and 
meet all other applicable filing requirements. The restrictions in 
Sec. 90.162 were established to prevent the filing of speculative 
applications and pleadings (or threats of the same) designed to extract 
money from 800 MHz license applicants. Thus, we will limit the 
consideration that a winning bidder or an individual or entity filing a 
petition to deny is permitted to receive for agreeing to withdraw an 
application or a petition to deny to the legitimate and prudent 
expenses of the withdrawing applicant or petitioner. We note also that 
we recently amended Sec. 90.162 to reflect the fact that discussions 
regarding withdrawal of short-form applications are subject to 
Sec. 1.2105(c) of our Rules.
vii. Transfer Disclosure Requirements
    135. In section 309(j) of the Communications Act, Congress directed 
the Commission to ``require such transfer disclosures and anti-
trafficking restrictions and payment schedules as may be necessary to 
prevent unjust enrichment as a result of the methods employed to issue 
licenses and permits.'' Therefore, we imposed a transfer disclosure 
requirement on licenses obtained through the competitive bidding 
process, whether by designated entity or not. We tentatively concluded 
in the Second Further Notice of Proposed Rulemaking that the transfer 
disclosure requirements should apply to all 800 MHz SMR licenses 
obtained through the competitive bidding process. Genesee, again the 
sole commenter on this issue, supports the Commission's tentative 
conclusion. We will adopt the transfer disclosure requirements 
contained in Sec. 1.2111(a) of our rules to auctions for the Lower 80 
and General Category. We will give particular scrutiny to auction 
winners who have not yet begun commercial service and who seek approval 
for a transfer of control or assignment of their licenses within three 
years after the initial license grant, so that we may determine if any 
unforeseen problems relating to unjust enrichment outside the 
designated entity context have arisen. These particular transfer 
disclosure requirements are in addition to the unjust enrichment 
provisions discussed infra.
3. Treatment of Designated Entities

a. Overview and Objectives

    136. In authorizing the Commission to use competitive bidding, 
Congress mandated that the Commission ``ensure that small businesses, 
rural telephone companies, and businesses owned by members of minority 
groups and women are given the opportunity to participate in the 
provision of spectrum-based services.'' The statute required the 
Commission to ``consider the use of tax certificates, bidding 
preferences and other procedures'' in order to achieve this 
congressional goal. In addition, section 309(j)(3)(B) provided that in 
establishing eligibility criteria and bidding methodologies the 
Commission shall promote ``economic opportunity and competition * * * 
by avoiding excessive concentration of licenses and by disseminating 
licenses among a wide variety of applicants, including small 
businesses, rural telephone companies, and businesses owned by members 
of minority groups and women.'' Section 309(j)(4)(A) provides that to 
promote these objectives, the Commission shall consider alternative 
payment schedules, including installment payments.
    137. We have employed a wide range of special provisions and 
eligibility criteria designed to meet the statutory objectives of 
providing opportunities to designated entities in other spectrum-based 
services. The measures considered for each service were established 
after closely examining the specific characteristics of the service and 
determining whether any particular barriers to accessing capital stood 
in the way of designated entity opportunities. For example, in 
narrowband PCS we

[[Page 41209]]

provided installment payments for small businesses and bidding credits 
for minority-owned and women-owned businesses. In 900 MHz SMR, we 
adopted bidding credits and installment payment plans for small 
businesses.
    138. In the Second Further Notice of Proposed Rulemaking, we sought 
comment on the type of designated entity provisions that should be 
incorporated into our competitive bidding procedures for the Lower 80 
and General Category channels. We requested comment on the possibility 
that, in addition to small business provisions, separate provisions for 
women- and minority-owned entities should be adopted for the Lower 80 
and General Category channels. We requested commenters to discuss 
whether the capital requirements of the 800 MHz SMR service pose a 
barrier to entry by minorities and women and whether overcoming such a 
barrier, if it exists, would constitute a compelling governmental 
interest. In particular, we sought comment on the actual costs 
associated with the acquisition, construction, and operation of an 800 
MHz SMR system with a service area based on a pre-defined geographic 
area as well as the proportion of existing 800 MHz SMR businesses that 
are owned by women and minorities. We also urged the parties to submit 
evidence about patterns or actual cases of discrimination in the 800 
MHz SMR industry or in related communications services.

b. Eligibility for Designated Entity Provisions

    139. At this time, we have not developed a record sufficient to 
sustain race-based measures in the Lower 80 and General Category 
licenses based on the standard established by the Adarand decision. In 
addition, we believe that the record is insufficient to support any 
gender-based provisions under the intermediate scrutiny standard 
established in the VMI decision. Fresno urges the Commission to design 
a regulatory scheme that will provide opportunities for businesses 
owned by women and minorities to comply with the congressional mandate 
set out in section 309(j). Fresno, however, does not provide any 
evidence of past discrimination. Conversely, Nextel states that there 
is no evidence that minorities and women have been historically 
discriminated against in the SMR industry. Based upon the record in 
this proceeding, we will adopt bidding credits solely for applicants 
qualifying as small businesses. We believe these provisions will 
provide small businesses with a meaningful opportunity to obtain 
licenses for the Lower 80 and General Category channels. Moreover, many 
women- and minority-owned entities are small businesses and will 
therefore qualify for these provisions. As such, these provisions will 
meet Congress' goal of promoting wide dissemination of licenses in this 
spectrum. We have determined that no special provisions for rural 
telephone companies are warranted but we note that rural telephone 
companies may take advantage of the geographic partitioning and 
disaggregation provisions and, to the extent that they fall within the 
definition of small businesses, they can take advantage of the 
designated entity provisions too.
i. Small Businesses Definition
    140. Based upon the record in this proceeding, we conclude that 
special provisions for small businesses are appropriate for 800 MHz SMR 
services. We will adopt a two-tiered definition of small business. We 
will define a small business as an entity that, together with its 
affiliates and controlling principals, has average gross revenues for 
the three preceding years that do not exceed $15 million; we will 
define a very small business as an entity that, together with 
affiliates and controlling principals, has average gross revenues for 
the preceding three years of that do not exceed $3 million. Bidding 
credits will be determined, as discussed infra, based upon this two-
tiered approach.
    141. In determining whether an applicant qualifies as a small 
business at any level, we will consider the gross revenues of the small 
business applicant and its affiliates. Specifically, for purposes of 
determining small business status, we will follow the procedure 
recently adopted for auctions involving other services and will 
attribute the gross revenues of affiliates of the applicant. We thus 
choose not to impose specific equity requirements on the controlling 
principals that meet our small business definition, as suggested by SMR 
WON and Genesee. We will still require, however, that in order for an 
applicant to qualify as a small business, qualifying small business 
principals must maintain ``control'' of the applicant. The term 
``control'' would include both de facto and de jure control of the 
applicant. For this purpose, we will borrow from certain SBA rules that 
are used to determine when a firm should be deemed an affiliate of a 
small business. Typically, de jure control is evidenced by ownership of 
50.1 percent of an entity's voting stock. De facto control is 
determined on a case-by-case basis. An entity must demonstrate at least 
the following indicia of control to establish that it retains de facto 
control of the applicant: (1) The entity constitutes or appoints more 
than 50 percent of the board of directors or partnership management 
committee; (2) the entity has authority to appoint, promote, demote and 
fire senior executives that control the day-to-day activities of the 
licensees; and (3) the entity plays an integral role in all major 
management decisions. While we are not imposing specific equity 
requirements on the small business principals, the absence of 
significant equity could raise questions about whether the applicant 
qualifies as a bona fide small business.
ii. Bidding Credits
    142. We believe that bidding credits are appropriate as a special 
provision for designated entities in the Lower 80 and General Category 
licenses. While bidding credits do not guarantee the success of small 
businesses, we believe that they at least provide such bidders with an 
opportunity to successfully compete against larger, well-financed 
bidders. We also conclude that it is appropriate to adopt tiered 
bidding credits for 800 MHz SMR auction participants based on the size 
of the small businesses. Such an approach, we believe, furthers our 
mandate under section 309(j) of the Communications Act to disseminate 
licenses to a variety of applicants. Consistent with the tiered small 
business definition that we adopt today, we will give small businesses 
that, together with affiliates and controlling principals, have average 
gross revenues for the preceding three years that do not exceed $3 
million, a 35 percent bidding credit. We will give small businesses 
that, together with affiliates and controlling principals, have average 
gross revenues for the preceding three years that do not exceed $15 
million, a 25 percent bidding credit. Consistent with our approach in 
the upper 200 channels, we believe that these tiered bidding credits 
take into account the difficulties smaller businesses have in accessing 
capital and their differing business strategies.
iii. Installment Payments
    143. We will defer the decision regarding whether to adopt 
installment payments in the lower 80 and General Category channels to 
our part 1 proceeding. We do not disagree with the contention of 
Genesee and AMTA that small businesses benefit from the ability to pay 
for their licenses in installments. Nonetheless, in the part 1 
proceeding, we sought comment on whether there are better alternatives 
to help small

[[Page 41210]]

businesses, such as offering higher bidding credits in lieu of 
installment payments for qualified winning bidders.
    144. Finally, we do not see a reason to adopt an alternative 
payment plan for public safety auction winners, as suggested by Coral 
Gables. Coral Gables argues that there is a greater public interest 
value to use these channels for public safety purposes and that special 
installment payment provisions should be made in the auction rules for 
public safety auction winners. We decline to provide this benefit for 
several reasons. First, Coral Gables will not be forced to relocate to 
other channels and will not be required to participate in the auction 
to retain the spectrum for which it is currently licensed. Second, we 
are granting Coral Gables' request to allow disaggregation of channels 
by geographic area license winners which should enable public safety 
entities to secure more frequencies from auction winners. Also, as 
noted above, the Commission is engaged in a separate proceeding 
dedicated to the issue of spectrum allocation for public safety 
entities.
iv. Reduced Upfront Payment
    145. In view of the favorable bidding credits adopted herein, we do 
not see a need to adopt reduced upfront payments in order to ensure 
small business participation in the auction, as advocated by Genesee. 
Rather, we believe that the standard upfront payment is appropriate for 
all participants and will help guard against defaults. In addition, 
reduced upfront payments impose heavy administrative burdens on the 
Commission and are more confusing to auction participants. We do note 
that the standard upfront payment amount of $.02/MHz-pop will be 
discounted on a uniform basis by the Bureau to account for incumbency 
on this spectrum. The Bureau will announce by Public Notice the amount 
of this discount.
v. Set-Aside Spectrum
    146. We will not adopt an entrepreneurs' block for the Lower 80 and 
General Category channels for several reasons. First, contrary to the 
contention of some commenters that an entrepreneurs' block is required 
to ensure small businesses will be able to obtain licenses, we believe 
that small businesses will have significant opportunity to compete for 
licenses given the bidding credits we adopt herein. Second, as noted by 
at least two commenters, the establishment of an entrepreneurs' block 
could unfairly exclude some incumbent operators from participation in 
the auction because some incumbents on these channels are larger 
companies. Finally, we agree with the argument of one commenter that 
adoption of an entrepreneurs' block for these channels would contravene 
the goal of regulatory parity since there is no set-aside in the 
cellular service and only one-third of the broadband PCS spectrum was 
set aside for small businesses.
vi. Unjust Enrichment Provisions
    147. To ensure that large businesses do not become the unintended 
beneficiaries of measures meant for smaller firms, we adopt unjust 
enrichment provisions similar to those adopted for narrowband PCS and 
900 MHz SMR services. No comments were received on this issue. 
Licensees seeking to transfer their licenses to entities which do not 
qualify as small businesses, as a condition to approval of the 
transfer, must remit to the government a payment equal to a portion of 
the total value of the benefit conferred by the government. The amount 
of this payment will be reduced over time as follows: a transfer in the 
first two years of the license term will result in a forfeiture of 100 
percent of the value of the bidding credit; in year three of the 
license term the payment will be 75 percent; in year four the payment 
will be 50 percent and in year five the payment will be 25 percent, 
after which there will be no payment. These assessments will have to be 
paid to the U.S. Treasury as a condition of approval of the assignment 
or transfer. Thus, a small business that received bidding credits 
seeking transfer or assignment of a license to an entity that does not 
qualify as a small business will be required to reimburse the 
government for the amount of the bidding credit before the transfer 
will be permitted.
    148. Also, if an investor subsequently purchases an interest in a 
small business licensee and, as a result, the gross revenues of the 
business exceed the applicable financial caps, the unjust enrichment 
provision will apply. We will apply these payment requirements for the 
entire license term to ensure that small businesses will look first to 
other small businesses when deciding to transfer their licenses. While 
small business licensees must abide by these unjust enrichment 
provisions when transferring their licenses to entities that would not 
qualify under our small business definitions, we will not impose a 
holding period or other transfer restrictions on small businesses.

III. Conclusion

    149. We believe that the service and auction rules we adopted 
herein in this Second Report and Order are necessary to continue our 
implementation of a new licensing scheme for the 800 MHz and 900 MHz 
SMR services. We further believe that the rules will facilitate the 
rapid implementation of wide-area licensing in the SMR service, thus 
advancing the public interest by fostering economic growth of 
competitive new services via efficient spectrum use. The rules also 
will allow the public to recover a portion of the value of the public 
spectrum and promote expeditious access to 800 MHz SMR services by 
consumers, and rapid deployment of 800 MHz SMR by existing licensees 
and potential new entrants. We also believe that the technical rules 
proposed and adopted herein strike the proper balance between the 
rights of incumbent licensees in the 800 MHz SMR spectrum and new EA 
licensees.

IV. Procedural Matters

A. Regulatory Flexibility Act: (Second Report and Order and Memorandum 
Opinion and Order on Reconsideration)

    150. As required by the Regulatory Flexibility Act, 5 U.S.C. 603 
(RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Second Further Notice of Proposed Rulemaking in PR 
Docket No. 93-144. The Commission sought written public comment on the 
proposals in the Second Further Notice of Proposed Rulemaking, 
including the IRFA. This Final Regulatory Flexibility Analysis to 
accompany final rules in both the Second Report and Order and the 
accompanying Memorandum Opinion and Order on Reconsideration conforms 
to the RFA, amended by the Contract With America Advancement Act of 
1996.
    151. Need for and Purpose of this Action: In this Second Report and 
Order, the Commission establishes a flexible regulatory scheme for the 
800 MHz Specialized Mobile Radio (SMR) service to promote efficient 
licensing and enhance the service's competitive potential in the 
commercial mobile radio marketplace. The rules adopted in the Second 
Report and Order also implement Congress's goal of regulatory symmetry 
in the regulation of competing commercial mobile radio services as 
described in sections 3(n) and 332 of the Communications Act of 1934, 
as amended, 47 U.S.C. 153(n), 332 (Communications Act), as amended by 
Title VI of the Omnibus Budget Reconciliation Act of 1993 (Budget Act).

[[Page 41211]]

The Commission also adopts rules regarding competitive bidding for the 
remaining 800 MHz SMR spectrum based on section 309(j) of the 
Communications Act, 47 U.S.C. 309(j), which delegates authority to the 
Commission to use auctions to select among mutually exclusive initial 
applications in certain services, including 800 MHz SMR.
    152. Summary of Issues Raised in Response to the Initial Regulatory 
Flexibility Analysis: No comments were submitted in response to the 
IRFA. However, there were several comments concerning the potential 
impact of some of the Commission's proposals on small entities, 
especially on certain incumbent 800 MHz SMR licensees.
    153. The Commission adopted geographic area licensing for the lower 
230 800 MHz SMR channels in order to facilitate the evolution of larger 
800 MHz SMR systems covering wider areas and offering commercial 
services to rival other wireless telephony services. Some licensees 
that were not SMR licensees opposed this plan arguing that it was 
unsuitable to the needs of smaller, private systems, which do not seek 
to cover large geographic areas in the manner of commercial service 
providers.
    154. The Commission adopted a portion of a proposal set forth by a 
number of incumbent 800 MHz SMR licensees (``Industry Proposal'') and 
allotted three contiguous 50-channel blocks from the former General 
Category block of channels. Some commenters argued that allotting such 
large contiguous blocks would not suit the needs of smaller SMR 
systems, which typically trunk smaller numbers of non-contiguous 
channels. These commenters argued that large blocks of contiguous 
channels could be prohibitively expensive to bid for at auction, 
thereby limiting the opportunities for smaller operators to take 
advantage of geographic area licensing.
    155. The Commission adopted a proposal to allow incumbent licensees 
in the lower 230 channels to make system modifications within their 
interference contours without prior Commission approval, so long as 
they do not expand the 18 dB<greek-m>V/m interference contour of their 
systems. Proponents of the Industry Proposal argued for an alternative 
plan to limit incumbent expansion rights on the lower 230 channels. The 
Industry Proposal called for the Commission to permit incumbent 
licensees in the lower 230 channels to negotiate expansion rights 
within each EA through a settlement process. The proposed settlement 
process would occur on a channel-by-channel basis prior to the auction 
of the lower 230 channels, but after incumbents on the upper 200 
channels had an opportunity to relocate or retune to the lower 230 
channels. For each channel, incumbents licensed on the channel within 
the EA would negotiate among themselves to allocate rights to the 
channel within the EA. If all incumbents on the single channel 
negotiated an agreement for use of that channel within the EA (e.g., by 
forming a partnership, joint venture, or consortium), they would then 
receive an EA license for that channel. If only one incumbent operated 
on the channel within an EA, it would receive an EA license for that 
channel automatically. If incumbents on a channel were unable to reach 
a settlement, the channel would be included in the auction of the lower 
230 channels. The Industry Proposal called for non-settling channels in 
the lower 80 channels to be auctioned in five-channel blocks and the 
150 General Category channels to be auctioned in three 50-channel 
blocks.
    156. Commenters argued, inter alia, that the Industry Proposal 
would provide significant opportunities for small businesses. Although 
commenters acknowledged that auctions are a fast and generally 
efficient means of licensing new spectrum, they argued that small 
businesses will ``have no chance of succeeding in gaining the spectrum 
they need for future growth if they must compete against larger 
entities with deeper pockets.'' The commenters contended that, in the 
case of non-SMR licensees, the provision of communications services is 
not their primary business and they will not be in the position to 
compete with commercial operators at auction.
    157. The Commission adopted rules allowing all 800 MHz SMR 
licensees to partition their market areas and to disaggregate their 
spectrum. Commenters generally supported these new rules arguing that 
partitioning and disaggregation will result in more participation in 
the marketplace by small entities and allow coalitions of smaller 
entities to bid at auction.
    158. The Commission adopted a proposal to auction the Lower 80 
channels and the General Category channels. Some commenters argued that 
there is little space in the Lower 80 and General Categories and that 
there was no mandatory relocation proposal for incumbents in these 
channels. These commenters argue that the combination of these factors 
will further frustrate incumbent licensees in these channels when 
incumbents from the Upper 200 channels are relocated. Several other 
commenters argue that they are not financially capable of participating 
in the auction of the Lower 80 channels and General Category. These 
commenters believe that the auction process favors large entities and 
that the large entities an effectively stifle competition in the 
auction process including the delaying the conclusion of the auction.
    159. The Commission adopted its proposal for a minimum bid 
increment of the greater of $.01 per MHz-pop, or 5% percent of the high 
bid from the previous round. E.F. Johnson argued that minimum bid 
increments should be reduced or eliminated to facilitate small business 
participation in the auction.
    160. The Commission adopted a two-tiered small business definition. 
In order to be eligible for designated entity provisions, an applicant 
must qualify as a ``small business,'' where an entity must have had 
average gross revenues of not more than $15 million for the preceding 
three years or as ``very small business,'' where a company must have 
had average gross revenues of not more than $3 million for the 
preceding three years.
    161. The Commission adopted bidding credit amounts that were 
tailored to the Commission's small business definition. Specifically, 
small businesses with average gross revenues of not more than $15 
million for the preceding three years will receive a 10 percent bidding 
credit and those entities with average gross revenues of not more than 
$3 million for the preceding three years will receive a 15 percent 
bidding credit. Some commenters expressed concern that the proposed 
bidding credits were too low. Coral Gables argued that the bidding 
credits for public safety entities should be set at a different level 
than non-public safety entities.
    162. The Commission did not adopt an entrepreneurs' block for the 
Lower 80 and General Category channels. Some commenters argued that by 
establishing an entrepreneurs' block, some incumbents could be unfairly 
excluded from participation in the auction because some incumbents in 
these channels are larger companies. Nextel argued that the adoption of 
an entrepreneurs' block would contravene the goal of regulatory parity 
since there is no set-aside in the cellular service and only one-third 
of the broadband PCS spectrum was set aside for small businesses.
    163. Description and Number of Small Entities Involved: The rules 
adopted will apply to current 800 MHz SMR operators and new entrants 
into the 800 MHz SMR market. Under these rules, Economic Area (EA) 
licenses will

[[Page 41212]]

be granted on a market area basis, instead of site-by-site, and 
mutually exclusive applications will be resolved through competitive 
bidding procedures. In order to ensure the more meaningful 
participation of small business entities in the auction for mutually 
exclusive geographic area 800 MHz SMR licenses, the Commission, as 
noted, has adopted a two-tier definition of small businesses. A very 
small business will be defined for these purposes as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues for the three preceding years of not more than $3 
million. A small business will be defined as an entity that, together 
with affiliates and controlling principals, has average gross revenues 
for the three preceding years of not more than $15 million. The Small 
Business Administration (SBA) has approved these definitions for 800 
MHz SMR services.
    164. The Commission anticipates that a total of 3,325 EA licenses 
will be auctioned in the lower 230 channel blocks of the 800 MHz SMR 
service. This figure is derived by multiplying the total number of EAs 
(175) by the number of channel blocks (19) in the lower 230 channels. 
The lower 80 channels were divided into 16 blocks of 5 channels each 
and the General Category channels were divided into 3 blocks of 50 
channels each. This results in 19 channels blocks available for auction 
in each of the 175 EAs. Auctions of 800 MHz SMR licenses have not yet 
been held, and there is no basis to determine the number of lower 230 
channel licenses that will be awarded to small entities. However, the 
Commission assumes, for purposes of the evaluations and conclusions in 
this Final Regulatory Flexibility Analysis, that all the auctioned 
3,325 geographic area 800 MHz SMR licenses in the lower 230 channels 
will be awarded to small entities, as that term is defined by the SBA.
    165. Summary of Projected Reporting, Recordkeeping and Other 
Compliance Requirements: Geographic area 800 MHz SMR licensees may be 
required to report information concerning the location of their 
transmission sites under some circumstances, although generally they 
will not be required to file applications on a site-by-site basis. 
Additionally, geographic area license applicants will be subject to 
reporting and recordkeeping requirements to comply with the competitive 
bidding rules. Specifically, applicants will apply for 800 MHz SMR 
licenses by filing a short-form application (FCC Form 175). Winning 
bidders will file a long-form application (FCC Form 600) at the 
conclusion of the auction. Additionally, entities seeking treatment as 
small businesses will need to submit information pertaining to the 
gross revenues of the small business applicant and its affiliates and 
controlling principals. Such entities will also need to maintain 
supporting documentation at their principal place of business.
    166. Section 309(j)(4)(E) of the Communications Act directs the 
Commission to ``require such transfer disclosures and anti-trafficking 
restrictions and payment schedules as may be necessary to prevent 
unjust enrichment as a result of the methods employed to issue licenses 
and permits.'' The Commission adopted safeguards designed to ensure 
that the requirements of this section are satisfied, including a 
transfer disclosure requirement for 800 MHz SMR licenses obtained 
through the competitive bidding process. An applicant seeking approval 
for a transfer of control or assignment of a license within three years 
of receiving a new license through a competitive bidding procedure 
must, together with its application for transfer of control or 
assignment, file with the Commission a statement indicating that its 
license was obtained through competitive bidding. Such applicant must 
also file with the Commission the associated contracts for sale, option 
agreements, management agreements, or other documents disclosing the 
total consideration that the applicant would receive in return for the 
transfer or assignment of its license.
    167. With respect to small businesses, we have adopted unjust 
enrichment provisions to deter speculation and participation in the 
licensing process by those who do not intend to offer service to the 
public, or who intend to use the competitive bidding process to obtain 
a license at a lower cost than they would otherwise have to pay and to 
later sell it at a profit, and to ensure that large businesses do not 
become the unintended beneficiaries of measures meant to help small 
firms. Small business licensees seeking to transfer their licenses to 
entities which do not qualify as small businesses (or which qualify for 
a lower bidding credit), as a condition of approval of the transfer, 
must remit to the government a payment equal to a portion of the value 
of the benefit conferred by the government.
    168. The Second Report and Order also adopts rules for 800 MHz SMR 
partitioning and disaggregation rules. These rules contain information 
requirements that will be used to determine whether the licensee is a 
qualifying entity to obtain a partitioned license or disaggregated 
spectrum. This information will be a one-time filing by any applicant 
requesting such a license. The information will be submitted on the FCC 
Form 490 (or 430 and/or 600 filed as one package under cover of the 
Form 490) which are currently in use and have already received OMB 
clearance. The Commission estimates that the average burden on the 
applicant is three hours for the information necessary to complete 
these forms. The Commission estimates that 75 percent of the 
respondents (which may include small businesses) will contract out the 
burden of responding. The Commission estimates that it will take 
approximately 30 minutes to coordinate information with those 
contractors. The remaining 25 percent of respondents (which may include 
small businesses) are estimated to employ in-house staff to provide the 
information. Applicants (including small businesses) filing the package 
under cover of FCC Form 490 electronically will incur a $2.30 per 
minute on-line charge. On-line time would amount to no more than 30 
minutes. The Commission estimates that 75 percent of the applicants may 
file electronically. The Commission estimates that applicants 
contracting out the information would use an attorney or engineer 
(average of $200 per hour) to prepare the information.
    169. Steps Taken to Minimize Any Significant Economic Burdens on 
Small Entities: Section 309(j)(3)(B) of the Communications Act provides 
that in establishing eligibility criteria and bidding methodologies the 
Commission shall, inter alia, promote economic opportunity and 
competition and ensure that new and innovative technologies are readily 
accessible by avoiding excessive concentration of licenses and by 
disseminating licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women. Section 309(j)(4)(A) provides 
that in order to promote such objectives, the Commission shall consider 
alternative payment schedules and methods of calculation, including 
lump sums or guaranteed installment payments, with or without royalty 
payments, or other schedules or methods. In awarding geographic area 
800 MHz licenses in the lower 230 channels, the Commission is committed 
to meeting the statutory objectives of promoting economic opportunity 
and competition, of avoiding excessive concentration of licenses, and 
of ensuring access to new and innovative technologies by disseminating 
licenses among a wide

[[Page 41213]]

variety of applicants, including small businesses, rural telephone 
companies, and businesses owned by members of minority groups and 
women. The Commission finds that it is appropriate to establish special 
provisions in the 800 MHz SMR rules for the lower 230 channels for 
competitive bidding by small businesses. The Commission believes that 
small businesses applying for these licenses should be entitled to 
bidding credits.
    170. In order to ensure the more meaningful participation of small 
business entities in the 800 MHz auctions, the Commission has adopted a 
two-tier definition of small businesses. This approach will give 
qualifying small businesses bidding flexibility. A small business will 
be defined as an entity that, together with its affiliates and 
controlling principals, has average gross revenues for the three 
preceding years that do not exceed $3 million. A very small business 
will be defined as an entity that, together with affiliates and 
controlling principals, has average gross revenues for the three 
preceding years that do not exceed $15 million. The Commission will 
require that in order for an applicant to qualify as a small business, 
qualifying small business principals must maintain control of the 
applicant. The Commission will establish bidding credits consistent 
with the two-tiered definition of a small business. Small businesses 
that, together with affiliates and controlling principals, have average 
gross revenues for the three preceding years that do not exceed $3 
million, will receive a 35 percent bidding credit. Small businesses 
that, together with affiliates and controlling principals, have average 
gross revenues for the three preceding years that do not exceed $15 
million, will receive a bidding credit of 25 percent.
    171. The Commission is also extending geographic partitioning and 
disaggregation to all entities eligible to be 800 MHz and 900 MHz SMR 
licensees. The Commission believes that this provision will allow SMR 
licensees to tailor their business strategies and allow them to use the 
spectrum more efficiently, will allow more entities to participate in 
the provision of SMR services, and will facilitate market entry by 
small entities that have the ability to provide service only to a 
limited population.
    172. Significant Alternatives Considered and Rejected: The 
Commission considered a number of alternative channelization plans for 
licensing the 150 General Category 800 MHz SMR channels. The three 
alternatives were: (a) a 120-channel block, a 20-channel block and a 
10-channel block; (b) six 25-channel blocks; or (c) fifteen 10-channel 
blocks.
    173. Some commenters argued that allotting large contiguous blocks 
would not suit the needs of smaller SMR systems, which typically trunk 
smaller numbers of non-contiguous channels. These commenters argued 
that large blocks of contiguous channels could be prohibitively 
expensive to bid for at auction, thereby limiting the opportunities for 
smaller operators to take advantage of geographic area licensing.
    174. In order to accommodate licensees who wanted contiguous as 
well as those that wanted large blocks of spectrum, the Commission 
adopted the Industry Proposal and alloted three contiguous 50-channel 
blocks. As for the concerns of smaller entities that such blocks may be 
too large, the Commission found that such entities will have the 
opportunity to acquire smaller amounts of spectrum compatible with 
their existing technology through the newly-created disaggregation 
rules.
    175. The Commission adopted a proposal to allow incumbent licensees 
in the lower 230 channels to make system modifications within their 
interference contours without prior Commission approval, so long as 
they do not expand the 18 dB<greek-m>V/m interference contour of their 
systems. As noted above, the Industry Proposal called for the 
Commission to permit incumbent licensees in the lower 230 channels to 
negotiate expansion rights within each EA through a settlement process. 
The Commission rejected this approach finding that it would not serve 
the public interest. The Commission found that the Industry Proposal 
would foreclose new entrants from obtaining spectrum on any of the 
lower 230 channels that are subject to a settlement. In any market 
where all of the channels in an EA were allocated by such settlements, 
the result would be that no opportunities for geographic licensing 
would be available to new entrants. The Commission also found that the 
Industry Proposal would preclude competition in the licensing process 
and restrict the number of potential applicants who can obtain 
licenses. Thus, it could yield a higher concentration of licenses than 
would result if non-incumbents were allowed to compete for the spectrum 
at the same time. The Commission also found that the Industry Proposal 
would also be inconsistent with the approach it has adopted in other 
services where it has converted from site-by-site licensing to 
geographic area licensing.
    176. The Commission adopted bidding credits qualified small 
business entities in the lower 230 channel auctions. Coral Cables 
sought to have eligibility for, and percentage of, bidding credits set 
at different levels for public safety entities. The Commission found 
that its rules were reasonable and met the concerns of commenters and 
that the bidding credits took into account the fact that different 
small businesses will pursue different strategies.
    177. The Commission declined to adopt rules to allow licensees who 
qualify as small businesses in a geographic area 800 MHz SMR license 
auction for the lower 230 channels to pay their winning bid amount in 
installments over the term of the license. The Commission found that a 
better alternative to help small businesses, as well as ensure new 
services to the public is to offer a higher level of bidding credit.
    178. Finally, the Commission declined to set aside a special block 
of 800 MHz SMR channels for entrepreneurs. The Commission found that 
small businesses will have significant opportunity to compete for 
licenses given the special bidding credit provisions it had adopted.
    179. Report to Congress: The Commission shall send a copy of this 
Final Regulatory Flexibility Analysis, along with this Second Report 
and Order, in a report to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A). A 
copy of this Final Regulatory Flexibility Analysis will also be 
published in the Federal Register.

B. Authority

    180. Authority for issuance of this Second Report and Order is 
contained in the Communications Act, sections 4(i), 7, 303(c), 303(f), 
303(g), 303(r), and 332, 47 U.S.C. 154(i), 157, 303(c), 303(f), 303(g), 
303(r), 332, as amended.

C. Ordering Clauses

    181. Accordingly, IT IS ORDERED that, pursuant to authority of 
sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303(r), and 309(j), Part 90 of the 
Commission's Rules, 47 CFR part 90 IS AMENDED as set forth below.
    182. IT IS FURTHER ORDERED that the rule changes made herein WILL 
BECOME EFFECTIVE September 29, 1997. This action is taken pursuant to 
sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303(r), and 309(j).

[[Page 41214]]

    183. IT IS FURTHER ORDERED that the Regulatory Flexibility 
Analysis, as required by section 604 of the Regulatory Flexibility Act 
is ADOPTED.
    184. IT IS FURTHER ORDERED that all waiting lists for the lower 230 
channels of 800 MHz SMR spectrum ARE ELIMINATED and all applications 
currently on waiting lists for such frequencies ARE DISMISSED, 
effective July 10, 1997.

D. Further Information

    185. For further information concerning this proceeding, contact 
Shaun A. 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.

List of Subjects in 47 CFR Part 90

    Radio, Specialized mobile radio services.

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

Rule Changes

    Part 90 of chapter I of title 47 of the Code of Federal Regulations 
is amended as follows:

PART 90--PRIVATE LAND MOBILE RADIO SERVICES

    1. The authority citation for part 90 continues to read as follows:

    Authority: 47 U.S.C. 154, 303, and 332, unless otherwise noted.

    2. Section 90.210 is amended by revising footnote 3 in the table in 
the introductory paragraph to read as follows:


Sec. 90.210  Emission masks.

* * * * *
APPLICABLE EMISSION MASKS
* * * * *
    \3\ Equipment used in this band licensed to EA or non-EA systems 
shall comply with the emission mask provisions of Sec. 90.691.
* * * * *
    3. Section 90.615 is revised to read as follows:


Sec. 90.615  Spectrum blocks available in the General Category for 800 
MHz SMR General Category.

       TABLE 1.--806-821/851-866 MHZ BAND CHANNELS (150 CHANNELS)       
------------------------------------------------------------------------
              Spectrum block                        Channel Nos.        
------------------------------------------------------------------------
D.........................................  1 through 50.               
E.........................................  51 through 100.             
F.........................................  101 through 150.            
------------------------------------------------------------------------

    4. Section 90.617 is amended by revising paragraph (d) and Table 4A 
to read as follows:


Sec. 90.617  Frequencies in the 809.750-824/854.750-869 MHz, and 896-
901/935-940 MHz bands available for trunked or conventional system use 
in non-border areas.

* * * * *
    (d) The channels listed in Tables 4A and 4B are available only to 
eligibles in the SMR category which consists of Specialized Mobile 
Radio (SMR) stations and eligible end users. The frequencies listed in 
Table 4A are available to SMR eligibles desiring to be authorized for 
EA-based service areas in accordance with Sec. 90.681. SMR licensees 
licensed on Channels 401-600 on or before March 3, 1996, may continue 
to utilize these frequencies within their existing service areas, 
subject to the mandatory relocation provisions of Sec. 90.699. This 
paragraph deals with the assignment of frequencies only in areas 
farther than 110 km (68.4 miles) from the U.S./Mexico border and 
farther than 140 km (87) miles from the U.S./Canada border. See 
Sec. 90.619 for the assignment of SMR frequencies in these border 
areas. For stations located within 113 km (70 miles) of Chicago, 
channels 401-600 will be assigned in blocks as outlined in Table 4C.

TABLE 4A.--SMR CATEGORY 806-821/851-866 MHZ BAND CHANNELS (280 CHANNELS)
------------------------------------------------------------------------
              Spectrum block                        Channel Nos.        
------------------------------------------------------------------------
A.........................................  401 through 420.            
B.........................................  421 through 480.            
C.........................................  481 through 600.            
G.........................................  201-241-281-321-361.        
H.........................................  202-242-282-322-362.        
I.........................................  203-243-283-323-363.        
J.........................................  204-244-284-324-364.        
K.........................................  205-245-285-325-365.        
L.........................................  206-246-286-326-366.        
M.........................................  207-247-287-327-367.        
N.........................................  208-248-288-328-368.        
O.........................................  221-261-301-341-381.        
P.........................................  222-262-302-342-382.        
Q.........................................  223-263-303-343-383.        
R.........................................  224-264-304-344-384.        
S.........................................  225-265-305-345-385.        
T.........................................  226-266-306-346-386.        
U.........................................  227-267-307-347-387.        
V.........................................  228-268-308-348-388.        
------------------------------------------------------------------------

* * * * *
    5. Section 90.619 is amended by revising paragraphs (a)(5) and 
Table 4A, (b)(8) Table 12, (b)(9) Table 16, (b)(10) Table 20, and 
(b)(11) Table 24 to read as follows:


Sec. 90.619  Frequencies available for use in the U.S./Mexico and U.S./
Canada border areas.

    (a) * * *
    (5) Tables 4A and 4B list the channels that are available for 
assignment for the SMR Category (consisting of Specialized Mobile Radio 
systems as defined in Sec. 90.7).
    These channels are not available for inter-category sharing.

 Table 4A.--United States-Mexico Border Area, SMR and General Categories
                 806-821/851-866 MHZ Band (95 Channels)                 
------------------------------------------------------------------------
              Spectrum block                     Offset channel Nos.    
------------------------------------------------------------------------
                   EA-Based SMR Category (83 Channels)                  
------------------------------------------------------------------------
A.........................................  398-399-400.                
B.........................................  429-431-433-435-437-439-469-
                                             471-473-475-477-479.       
C.........................................  509-511-513-515-517-519-549-
                                             551-553-555-557-559-589-591
                                             -593-595-597-599.          
G.........................................  229-272-349.                
H.........................................  230-273-350.                
I.........................................  231-274-351.                
J.........................................  232-278-352.                
K.........................................  233-279-353.                
L.........................................  234-280-354.                
M.........................................  235-309-358.                
N.........................................  236-310-359.                

[[Page 41215]]

                                                                        
O.........................................  237-311-360.                
P.........................................  238-312-389.                
Q.........................................  239-313-390.                
R.........................................  240-314-391.                
S.........................................  269-318-392.                
T.........................................  270-319-393.                
U.........................................  271-320-394.                
V.........................................  228-268-308-348-388.        
------------------------------------------------------------------------
                     General Category (12 Channels)                     
------------------------------------------------------------------------
D.........................................  275-315-355-395.            
E.........................................  276-316-356-396.            
F.........................................  277-317-357-397             
------------------------------------------------------------------------

    (b) * * *
    (8) * * *

           Table 12.--SMR and General Categories--95 Channels           
                          (Regions 1, 4, 5, 6)                          
------------------------------------------------------------------------
                                             Spectrum block Channel Nos.
------------------------------------------------------------------------
                   EA-Based SMR Category (90 Channels)                  
------------------------------------------------------------------------
A.........................................  None.                       
B.........................................  463 through 480.            
C.........................................  493 through 510, 523 through
                                             540, 553 through 570, 583  
                                             through 600.               
G through V...............................  None.                       
------------------------------------------------------------------------
                      General Category (5 Channels)                     
------------------------------------------------------------------------
D.........................................  30.                         
E.........................................  60 and 90.                  
F.........................................  120 and 150.                
------------------------------------------------------------------------

    (9) * * *

           Table 16.--SMR and General Categories--60 Channels           
                               (Region 2)                               
------------------------------------------------------------------------
              Spectrum block                        Channel Nos.        
------------------------------------------------------------------------
                       SMR Category (55 Channels)                       
------------------------------------------------------------------------
A.........................................  None.                       
B.........................................  None.                       
C.........................................  518 through 528, 536 through
                                             546, 554 through 564, 572  
                                             through 582, 590 through   
                                             600.                       
G through V...............................  None.                       
------------------------------------------------------------------------
                      General Category (5 Channels)                     
------------------------------------------------------------------------
D 18 and 36...............................                              
E.........................................  54-72-90.                   
F.........................................  None.                       
------------------------------------------------------------------------

    (10) * * *

          Table 20.--SMR and General Categories (135 Channels)          
                               (Region 3)                               
------------------------------------------------------------------------
              Spectrum block                        Channel Nos.        
------------------------------------------------------------------------
                       SMR Category (120 Channels)                      
------------------------------------------------------------------------
A.........................................  417 through 420.            
B.........................................  421 through 440, 457 through
                                             480.                       
C.........................................  497 through 520, 537 through
                                             560, 577 through 600.      
G through V...............................  None.                       
------------------------------------------------------------------------
                     General Category (15 Channels)                     
------------------------------------------------------------------------
D.........................................  38-39-40-158-159.           
E.........................................  78-79-80-160-198.           
F.........................................  118-119-120-199-200.        
------------------------------------------------------------------------

    (11) * * *

   Table 24.--(Regions 7, 8) SMR and General Categories--190 Channels   
------------------------------------------------------------------------
              Spectrum block                        Channel Nos.        
------------------------------------------------------------------------
                       SMR Category (172 Channels)                      
------------------------------------------------------------------------
A.........................................  389 through 400.            
B.........................................  425 through 440, 465 through
                                             480.                       
C.........................................  505 through 520, 545 through
                                             560, 585 through 600.      
G.........................................  155-229-269-309-349.        
H.........................................  156-230-270-310-350.        
I.........................................  157-231-271-311-351.        
J.........................................  158-232-272-312-352.        
K.........................................  159-233-273-313-353.        
L.........................................  160-234-274-314-354.        
M.........................................  195-235-275-315-355.        
N.........................................  196-236-276-316-356.        
O.........................................  197-237-277-317-357.        
P.........................................  198-238-278-318-358.        
Q.........................................  199-239-279-319-359.        
R.........................................  200-240-280-320-360.        
S.........................................  225-265-305-345-385.        
T.........................................  226-266-306-346-386.        
U.........................................  227-267-307-347-387.        
V.........................................  228-268-308-348-388.        
------------------------------------------------------------------------
                     General Category (18 Channels)                     
------------------------------------------------------------------------
D.........................................  35 through 40.              
E.........................................  75 through 80.              
F.........................................  115 through 120.            
------------------------------------------------------------------------

* * * * *
    6. Section 90.621 is amended by revising paragraphs (b) 
introductory text, (b)(1) and (b)(3) introductory text to read as 
follows:


Sec. 90.621  Selection and assignment of frequencies.

* * * * *
    (b) Stations authorized on frequencies listed in this subpart, 
except for those stations authorized pursuant to paragraph (g) of this 
section and EA-based and MTA-based SMR systems, will be afforded 
protection solely on the basis of fixed distance separation criteria. 
For Channel Blocks A, through V, as set forth in Sec. 90.917(d), the 
separation between co-channel systems will be a minimum of 113 km (70 
mi) with one exception. For incumbent licensees in Channel Blocks D 
through V, that have received the consent of all affected parties to 
utilize an 18 dB<greek-m>V/m signal strength interference contour (see 
Sec. 90.693), the separation between co-channel systems will be a 
minimum of 173 km (107 mi). The following exceptions to these 
separations shall apply:
    (1) Except as indicated in paragraph (b)(4) of this section, no 
station in Channel Blocks A through V shall be less than 169 km (105 
mi) distant from a co-channel station that has been granted channel 
exclusivity and authorized 1 kW ERP on any of the following mountaintop 
sites: Santiago Peak, Sierra Peak, Mount Lukens, Mount Wilson 
(California). Except as indicated in paragraph (b)(4) of this section, 
no incumbent licensee in Channel Blocks D through V that have received 
the consent of all affected parties to utilize an 18 dB<greek-m>V/m 
signal strength interference contour shall be less than 229 km (142 mi) 
distant from a co-channel station that has been

[[Page 41216]]

granted channel exclusivity and authorized 1 kW ERP on any of the 
following mountaintop sites: Santiago Peak, Sierra Peak, Mount Lukens, 
Mount Wilson (California).
* * * * *
    (3) Except as indicated in paragraph (b)(4) of this section, 
stations in Channel Blocks A through V that have been granted channel 
exclusivity and are located in the State of Washington at the locations 
listed below shall be separated from co-channel stations by a minimum 
of 169 km (105 mi). Except as indicated in paragraph (b)(4) of this 
section, incumbent licensees in Channel Blocks D through V that have 
received the consent of all affected parties to utilize an 18 
dB<greek-m>V/m signal strength interference contour, have been granted 
channel exclusivity and are located in the State of Washington at the 
locations listed below shall be separated from co-channel stations by a 
minimum of 229 km (142 mi). Locations within one mile of the 
geographical coordinates listed in the table below will be considered 
to be at that site.
* * * * * * *
    7. Subpart S is amended by revising the undesignated center heading 
following Sec. 90.671 to read as follows:

POLICIES GOVERNING THE LICENSING AND USE OF EA-BASED SMR SYSTEMS IN THE 
806-821/851-866 BAND

    8. Section 90.681 is revised to read as follows:


Sec. 90.681  EA-based SMR service areas.

    EA licenses in Spectrum Blocks A through V band listed in Table 4A 
of Sec. 90.617(d) are available in 175 Economic Areas (EAs) as defined 
in Sec. 90.7.
    9. Section 90.683(a) introductory text is revised to read as 
follows:


Sec. 90.683  EA-Based SMR system operations.

    (a) EA-based licensees authorized in the 806-821/851-866 MHz band 
pursuant to Sec. 90.681 may construct and operate base stations using 
any of the base station frequencies identified in their spectrum block 
anywhere within their authorized EA, provided that:
* * * * *
    10. Section 90.685 is revised to read as follows:


Sec. 90.685  Authorization, construction and implementation of EA 
licenses.

    (a) EA licenses in the 806-821/851-866 MHz band will be issued for 
a term not to exceed ten years. Additionally, EA licensees generally 
will be afforded a renewal expectancy only for those stations put into 
service after August 10, 1996.
    (b) EA licensees in the 806-821/851-866 MHz band must, within three 
years of the grant of their initial license, construct and place into 
operation a sufficient number of base stations to provide coverage to 
at least one-third of the population of its EA-based service area. 
Further, each EA licensee must provide coverage to at least two-thirds 
of the population of the EA-based service area within five years of the 
grant of their initial license. Alternatively, EA licensees in Channel 
blocks D through V in the 806-821/851-866 MHz band must provide 
substantial service to their markets within five years of the grant of 
their initial license. Substantial service shall be defined as: 
``Service which is sound, favorable, and substantially above a level of 
mediocre service.''
    (c) Channel Use Requirement. In addition to the population coverage 
requirements described in this section, we will require EA licensees in 
Channel blocks A, B and C in the 816-821/861-866 MHz band to construct 
50 percent of the total channels included in their spectrum block in at 
least one location in their respective EA-based service area within 
three years of initial license grant and to retain such channel usage 
for the remainder of the construction period.
    (d) An EA licensee's failure to meet the population coverage 
requirements of paragraphs (b) and (c) of this section, will result in 
forfeiture of the entire EA license. Forfeiture of the EA license, 
however, would not result in the loss of any constructed facilities 
authorized to the licensee prior to the date of the commencement of the 
auction for the EA licenses.
    11. Section 90.687 is revised to read as follows:


Sec. 90.687  Special provisions regarding assignments and transfers of 
authorizations for incumbent SMR licensees in the 806-821/851-866 MHz 
band.

    An SMR licensee initially authorized on any of the channels listed 
in Table 4A of Sec. 90.617 may transfer or assign its channel(s) to 
another entity subject to the provisions of Secs. 90.153 and 90.609(b). 
If the proposed transferee or assignee is the EA licensee for the 
spectrum block to which the channel is allocated, such transfer or 
assignment presumptively will be deemed to be in the public interest. 
However, such presumption will be rebuttable.
    12. Section 90.689(a) is revised to read as follows:


Sec. 90.689  Field strength limits.

    (a) For purposes of implementing Secs. 90.689 through 90.699, 
predicted 36 and 40 dB<greek-m>V/m contours shall be calculated using 
Figure 10 of Sec. 73.699 of this chapter with a correction factor of -9 
dB, and predicted 18 and 22 dB<greek-m>V/m contours shall be calculated 
using Figure 10a of Sec. 73.699 of this chapter with a correction 
factor of -9 dB.
* * * * *
    13. Section 90.693 is revised to read as follows:


Sec. 90.693  Grandfathering provisions for incumbent licensees.

    (a) General Provisions. These provisions apply to ``incumbent 
licensees'', all 800 MHz SMR licensees who obtained licenses or filed 
applications on or before December 15, 1995.
    (b) Spectrum Blocks A through V. An incumbent licensee's service 
area shall be defined by its originally-licensed 40 dB<greek-m>V/m 
field strength contour and its interference contour shall be defined as 
its originally-licensed 22 dB<greek-m>V/m field strength contour. 
Incumbent licensees are permitted to add, remove or modify transmitter 
sites within their original 22 dB<greek-m>V/m field strength contour 
without prior notification to the Commission so long as their original 
22 dB<greek-m>V/m field strength contour is not expanded and the 
station complies with the Commission's short-spacing criteria in 
Secs. 90.621(b)(4) through 90.621(b)(6). The incumbent licensee must, 
however, notify the Commission within 30 days of the completion of any 
changes in technical parameters or additional stations constructed 
through a minor modification of their license. Such notification must 
be made by submitting an FCC Form 600 and must include the appropriate 
filing fee, if any. These minor modification applications are not 
subject to public notice and petition to deny requirements or mutually 
exclusive applications.
    (c) Special Provisions for Spectrum Blocks D through V. Incumbent 
licensees that have received the consent of all affected parties to 
utilize an 18 dB<greek-m>V/m signal strength interference contour shall 
have their service area defined by their originally-licensed 36 
dB<greek-m>V/m field strength contour and its interference contour 
shall be defined as their originally-licensed 18 dB<greek-m>V/m field 
strength contour. Incumbent licensees are permitted to add, remove or 
modify transmitter sites within their original 18 dB<greek-m>V/m field 
strength contour without prior notification to the Commission so long 
as their original 18 dB<greek-m>V/m field strength contour is not 
expanded and the station complies with the Commission's short-spacing 
criteria in Secs. 90.621(b)(4) through 90.621(b)(6). The incumbent 
licensee must, however,

[[Page 41217]]

notify the Commission within 30 days of the completion of any changes 
in technical parameters or additional stations constructed through a 
minor modification of their license. Such notification must be made by 
submitting an FCC Form 600 and must include the appropriate filing fee, 
if any. These minor modification applications are not subject to public 
notice and petition to deny requirements or mutually exclusive 
applications.
    (d) Consolidated License. (1) Spectrum Blocks A through V. 
Incumbent licensees operating at multiple sites may, after grant of EA 
licenses has been completed, exchange multiple site licenses for a 
single license, authorizing operations throughout the contiguous and 
overlapping 40 dB<greek-m>V/m field strength contours of the multiple 
sites. Incumbents exercising this license exchange option must submit 
specific information for each of their external base sites after the 
close of the 800 MHz SMR auction.
    (2) Special Provisions for Spectrum Blocks D through V. Incumbent 
licensees that have received the consent of all affected parties to 
utilize an 18 dB<greek-m>V/m signal strength interference contour 
operating at multiple sites may, after grant of EA licenses has been 
completed, exchange multiple site licenses for a single license. This 
single site license will authorize operations throughout the contiguous 
and overlapping 36 dB<greek-m>V/m field strength contours of the 
multiple sites. Incumbents exercising this license exchange option must 
submit specific information for each of their external base sites after 
the close of the 800 SMR auction.
    14. Section 90.699 is revised to read as follows:


Sec. 90.699  Transition of the upper 200 channels in the 800 MHz band 
to EA licensing.

    In order to facilitate provision of service throughout an EA, an EA 
licensee may relocate incumbent licensees in its EA by providing 
``comparable facilities'' on other frequencies in the 800 MHz band. 
Such relocation is subject to the following provisions:
    (a) EA licensees may negotiate with incumbent licensees as defined 
in Sec. 90.693 operating on frequencies in Spectrum Blocks A, B, and C 
for the purpose of agreeing to terms under which the incumbents would 
relocate their operations to other frequencies in the 800 MHz band, or 
alternatively, would accept a sharing arrangement with the EA licensee 
that may result in an otherwise impermissible level of interference to 
the incumbent licensee's operations. EA licensees may also negotiate 
agreements for relocation of the incumbents' facilities within Spectrum 
Blocks A, B or C in which all interested parties agree to the 
relocation of the incumbent's facilities elsewhere within these bands. 
``All interested parties'' includes the incumbent licensee, the EA 
licensee requesting and paying for the relocation, and any EA licensee 
of the spectrum to which the incumbent's facilities are to be 
relocated.
    (b) The relocation mechanism consists of two phases that must be 
completed before an EA licensee may proceed to request the involuntary 
relocation of an incumbent licensee.
    (1) Voluntary Negotiations. There is a one year voluntary period 
during which an EA licensee and an incumbent may negotiate any mutually 
agreeable relocation agreement. The Commission will announce the 
commencement of the first phase voluntary period by Public Notice. EA 
licensees must notify incumbents operating on frequencies included in 
their spectrum block of their intention to relocate such incumbents 
within 90 days of the release of the Public Notice that commences the 
voluntary negotiation period. Failure on the part of the EA licensee to 
notify the incumbent licensee during this 90 period of its intention to 
relocate the incumbent will result in the forfeiture of the EA 
licensee's right to request involuntary relocation of the incumbent at 
any time in the future.
    (2) Mandatory Negotiations. If no agreement is reached by the end 
of the voluntary period, a one-year mandatory negotiation period will 
begin during which both the EA licensee and the incumbent must 
negotiate in ``good faith.'' Failure on the part of the EA licensee to 
negotiate in good faith during this mandatory period will result in the 
forfeiture of the EA licensee's right to request involuntary relocation 
of the incumbent at any time in the future.
    (c) Involuntary Relocation Procedures. If no agreement is reached 
during either the voluntary or mandatory negotiating periods, the EA 
licensee may request involuntary relocation of the incumbent's system. 
In such a situation, the EA licensee must:
    (1) Guarantee payment of relocation costs, including all 
engineering, equipment, site and FCC fees, as well as any legitimate 
and prudent transaction expenses incurred by the incumbent licensee 
that are directly attributable to an involuntary relocation, subject to 
a cap of two percent of the hard costs involved. Hard costs are defined 
as the actual costs associated with providing a replacement system, 
such as equipment and engineering expenses. EA licensees are not 
required to pay incumbent licensees for internal resources devoted to 
the relocation process. EA licensees are not required to pay for 
transaction costs incurred by incumbent licensees during the voluntary 
or mandatory periods once the involuntary period is initiated, or for 
fees that cannot be legitimately tied to the provision of comparable 
facilities;
    (2) Complete all activities necessary for implementing the 
replacement facilities, including engineering and cost analysis of the 
relocation procedure and, if radio facilities are used, identifying and 
obtaining, on the incumbents' behalf, new frequencies and frequency 
coordination; and
    (3) Build the replacement system and test it for comparability with 
the existing 800 MHz system.
    (d) Comparable Facilities. The replacement system provided to an 
incumbent during an involuntary relocation must be at least equivalent 
to the existing 800 MHz system with respect to the following four 
factors:
    (1) System. System is defined functionally from the end user's 
point of view (i.e., a system is comprised of base station facilities 
that operate on an integrated basis to provide service to a common end 
user, and all mobile units associated with those base stations). A 
system may include multiple-licensed facilities that share a common 
switch or are otherwise operated as a unitary system, provided that the 
end user has the ability to access all such facilities. A system may 
cover more than one EA if its existing geographic coverage extends 
beyond the EA borders.
    (2) Capacity. To meet the comparable facilities requirement, an EA 
licensee must relocate the incumbent to facilities that provide 
equivalent channel capacity. We define channel capacity as the same 
number of channels with the same bandwidth that is currently available 
to the end user. For example, if an incumbent's system consists of five 
50 kHz (two 25 kHz paired frequencies) channels, the replacement system 
must also have five 50 kHz channels. If a different channel 
configuration is used, it must have the same overall capacity as the 
original configuration. Comparable channel capacity requires equivalent 
signaling capability, baud rate, and access time. In addition, the 
geographic coverage of the channels must be coextensive with that of 
the original system.
    (3) Quality of Service. Comparable facilities must provide the same 
quality

[[Page 41218]]

of service as the facilities being replaced. Quality of service is 
defined to mean that the end user enjoys the same level of interference 
protection on the new system as on the old system. In addition, where 
voice service is provided, the voice quality on the new system must be 
equal to the current system. Finally, reliability of service is 
considered to be integral to defining quality of service. Reliability 
is the degree to which information is transferred accurately within the 
system. Reliability is a function of equipment failures (e.g., 
transmitters, feed lines, antennas, receivers, battery back-up power, 
etc.) and the availability of the frequency channel due to propagation 
characteristics (e.g., frequency, terrain, atmospheric conditions, 
radio-frequency noise, etc.) For digital data systems, this will be 
measured by the percent of time the bit error rate exceeds the desired 
value. For analog or digital voice transmissions, this will be measured 
by the percent of time that audio signal quality meets an established 
threshold. If analog voice system is replaced with a digital voice 
system the resulting frequency response, harmonic distortion, signal-
to-noise ratio, and reliability will be considered.
    (4) Operating Costs. Operating costs are those costs that affect 
the delivery of services to the end user. If the EA licensee provides 
facilities that entail higher operating cost than the incumbent's 
previous system, and the cost increase is a direct result of the 
relocation, the EA licensee must compensate the incumbent for the 
difference. Costs associated with the relocation process can fall into 
several categories. First, the incumbent must be compensated for any 
increased recurring costs associated with the replacement facilitates 
(e.g., additional rental payments, increased utility fees). Second, 
increased maintenance costs must be taken into consideration when 
determining whether operating costs are comparable. For example, 
maintenance costs associated with analog systems may be higher than the 
costs of digital equipment because manufacturers are producing mostly 
digital equipment and analog replacement parts can be difficult to 
find. An EA licensee's obligation to pay increased operating costs will 
end five years after relocation has occurred.
    (e) If an EA licensee cannot provide comparable facilities to an 
incumbent licensee as defined in this section, the incumbent licensee 
may continue to operate its system on a primary basis in accordance 
with the provisions of this rule part.
    (f) Cost-Sharing Plan for 800 MHz SMR EA licensees. EA licensees 
are required to relocate the existing 800 MHz SMR licensee in these 
bands if interference to the existing incumbent operations would occur. 
All EA licensees who benefit from the spectrum clearing by other EA 
licensees must contribute, on a pro rata basis to such relocation 
costs. EA licensees may satisfy this requirement by entering into 
private cost-sharing agreements or agreeing to terms other than those 
specified in this section. However, EA licensees are required to 
reimburse other EA licensees that incur relocation costs and are not 
parties to the alternative agreement as defined in this section.
    (1) Pro Rata Formula. EA licensees who benefit from the relocation 
of the incumbent must share the relocation costs on a pro rata basis. 
For purposes of determining whether an EA licensee benefits from the 
relocation of an incumbent, benefitted will be defined as any EA 
licensee that:
    (i) Notifies incumbents operating on frequencies included in their 
spectrum block of their intention to relocate such incumbents within 90 
days of the release of the Public Notice that commences the voluntary 
negotiation period; or
    (ii) Fails to notify incumbents operating on frequencies included 
in their spectrum block of their intention to relocate such incumbents 
within 90 days of the release of the Public Notice that commences the 
voluntary negotiation period, but subsequently decides to use the 
frequencies included in their spectrum block. EA licensees who do not 
participate in the relocation process will be prohibited from invoking 
mandatory negotiations or any of the provisions of the Commission's 
mandatory relocation guidelines. EA licensees who do not provide notice 
to the incumbent, but subsequently decide to use the frequencies in 
their EA will be required to reimburse, outside of the Commission's 
mandatory relocation guidelines, those EA licensees who have 
established a reimbursement right pursuant to paragraph (f)(3) of this 
section.
    (2) Triggering a Reimbursement Obligation. An EA licensees 
reimbursement obligation is triggered by:
    (i) Notification (i.e., files a copy of the relocation notice and 
proof of the incumbent's receipt of the notice to the Commission within 
ten days of receipt), to the incumbent within 90 days of the release of 
the Public Notice commencing the voluntary negotiation period of its 
intention to relocate the incumbent; or
    (ii) An EA licensee who does not provide notification within 90 
days of the release of the Public Notice commencing the voluntary 
negotiation period, but subsequently decides to use the channels that 
were relocated by other EA licensees.
    (3) Triggering a Reimbursement Right. In order for the EA licensee 
to trigger a reimbursement right, the EA licensee must notify (i.e., 
files a copy of the relocation notice and proof of the incumbent's 
receipt of the notice to the Commission within ten days of receipt), 
the incumbent of its intention to relocate the incumbent within 90 days 
of the release of the Public Notice commencing the voluntary 
negotiation period, and subsequently negotiate and sign a relocation 
agreement with the incumbent. An EA licensee who relocates a channel 
outside of its licensed EA (i.e., one that is in another frequency 
block or outside of its market area), is entitled to pro rata 
reimbursement from non-notifying EA licensees who subsequently exercise 
their right to the channels based on the following formula:
[GRAPHIC] [TIFF OMITTED] TR31JY97.002

Ci  equals the amount of reimbursement
Tc  equals the actual cost of relocating the incumbent
TCh  equals the total number of channels that are being relocated
Chj  equals the number of channels that each respective EA licensee 
will benefit from

    (4) Payment Issues. EA licensees who benefit from the relocation of 
the incumbent will be required to submit their pro rata share of the 
relocation expense to EA licensees who have triggered a reimbursement 
right and have incurred relocation costs as follows:
    (i) For an EA licensee who, within 90 days of the release of the 
Public Notice announcing the commencement of the voluntary negotiation 
period, provides notice of its intention to relocate the incumbent, but 
does not participate or incur relocation costs in the relocation 
process, will be required to reimburse those EA licensees who have 
triggered a reimbursement right and have incurred relocation costs 
during the relocation process, its pro rata share when the channels of 
the incumbent have been cleared (i.e., the incumbent has been fully 
relocated and the channels are free and clear).

[[Page 41219]]

    (ii) For an EA licensee who does not, within 90 days of the release 
of the Public Notice announcing the commencement of the voluntary 
negotiation period, provide notice to the incumbent of its intention to 
relocate and does not incur relocation costs during the relocation 
process, but subsequently decides to use the channels in its EA, will 
be required to submit its pro rata share payment to those EA licensees 
who have triggered a reimbursement right and have incurred relocation 
costs during the relocation process prior to commencing testing of its 
system.
    (5) Sunset of Reimbursement Rights. EA licensees who do not trigger 
a reimbursement obligation as set forth in paragraph (f)(2) of this 
section, shall not be required to reimburse EA licensees who have 
triggered a reimbursement right as set forth in paragraph (f)(3) of 
this section ten (10) years after the voluntary negotiation period 
begins for EA licensees (i.e., ten (10) years after the Commission 
releases the Public Notice commencing the voluntary negotiation 
period).
    (6) Resolution of Disputes that Arise During Relocation. Disputes 
arising out of the costs of relocation, such as disputes over the 
amount of reimbursement required, will be encouraged to use expedited 
ADR procedures. ADR procedures provide several alternative methods such 
as binding arbitration, mediation, or other ADR techniques.
    (7) Administration of the Cost-Sharing Plan. We will allow for an 
industry supported, not-for-profit clearinghouse to be established for 
purposes of administering the cost-sharing plan adopted for the 800 MHz 
SMR relocation procedures.
    14. Section 90.813 is revised to read as follows:


Sec. 90.813  Partitioned licenses and disaggregated spectrum.

    (a) Eligibility. Parties seeking approval for partitioning and 
disaggregation shall request an authorization for partial assignment of 
a license pursuant to Sec. 90.153(c).
    (b) Technical Standards. (1) Partitioning. In the case of 
partitioning, requests for authorization for partial assignment of a 
license must include, as attachments, a description of the partitioned 
service area and a calculation of the population of the partitioned 
service area and the licensed geographic service area. The partitioned 
service area shall be defined by coordinate points at every 3 degrees 
along the partitioned service area unless an FCC recognized service 
area is utilized (i.e., Major Trading Area, Basic Trading Area, 
Metropolitan Service Area, Rural Service Area or Economic Area) or 
county lines are followed. The geographic coordinates must be specified 
in degrees, minutes, and seconds to the nearest second of latitude and 
longitude and must be based upon the 1927 North American Datum (NAD27). 
Applicants may supply geographical coordinates based on 1983 North 
American Datum (NAD83) in addition to those required (NAD27). In the 
case where an FCC recognized service area or county lines are utilized, 
applicants need only list the specific area(s) (through use of FCC 
designations or county names) that constitute the partitioned area.
    (2) Disaggregation. Spectrum may be disaggregated in any amount.
    (3) Combined Partitioning and Disaggregation. The Commission will 
consider requests for partial assignment of licenses that propose 
combinations of partitioning and disaggregation.
    (c) Unjust Enrichment. (1) Installment Payments. Licensees that 
qualified under Sec. 90.812 to pay the net auction price for their 
licenses in installment payments that partition their licenses or 
disaggregate their spectrum to entities not meeting the eligibility 
standards for installment payments, will be subject to the provisions 
concerning unjust enrichment as set forth in Sec. 90.812(b).
    (2) Bidding Credits. Licensees that qualified under Sec. 90.810 to 
use a bidding credit at auction that partition their licenses or 
disaggregate their spectrum to entities not meeting the eligibility 
standards for such a bidding credit, will be subject to the provisions 
concerning unjust enrichment as set forth in Sec. 90.810(b).
    (3) Apportioning Unjust Enrichment Payments. Unjust enrichment 
payments for partitioned license areas shall be calculated based upon 
the ratio of the population of the partitioned license area to the 
overall population of the license area and by utilizing the most recent 
census data. Unjust enrichment payments for disaggregated spectrum 
shall be calculated based upon the ratio of the amount of spectrum 
disaggregated to the amount of spectrum held by the licensee.
    (d) Installment Payments. (1) Apportioning the Balance on 
Installment Payment Plans. When a winning bidder elects to pay for its 
license through an installment payment plan pursuant to Sec. 90.812, 
and partitions its licensed area or disaggregates spectrum to another 
party, the outstanding balance owed by the licensee on its installment 
payment plan (including accrued and unpaid interest) shall be 
apportioned between the licensee and partitionee or disaggregatee. Both 
parties will be responsible for paying their proportionate share of the 
outstanding balance to the U.S. Treasury. In the case of partitioning, 
the balance shall be apportioned based upon the ratio of the population 
of the partitioned area to the population of the entire original 
license area calculated based upon the most recent census data. In the 
case of disaggregation, the balance shall be apportioned based upon the 
ratio of the amount of spectrum disaggregated to the amount of spectrum 
allocated to the licensed area.
    (2) Parties Not Qualified For Installment Payment Plans. (i) When a 
winning bidder elects to pay for its license through an installment 
payment plan pursuant to Sec. 90.812, and partitions its license or 
disaggregates spectrum to another party that would not qualify for an 
installment payment plan or elects not to pay for its share of the 
license through installment payments, the outstanding balance owed by 
the licensee (including accrued and unpaid interest) shall be 
apportioned according to paragraph (d)(1) of this section.
    (ii) The partitionee or disaggregatee shall, as a condition of the 
approval of the partial assignment application, pay its entire pro rata 
amount within 30 days of Public Notice conditionally granting the 
partial assignment application. Failure to meet this condition will 
result in a rescission of the grant of the partial assignment 
application.
    (iii) The licensee shall be permitted to continue to pay its pro 
rata share of the outstanding balance and shall receive new financing 
documents (promissory note, security agreement) with a revised payment 
obligation, based on the remaining amount of time on the original 
installment payment schedule. These financing documents will replace 
the licensee's existing financing documents which shall be marked 
``superseded'' and returned to the licensee upon receipt of the new 
financing documents. The original interest rate, established pursuant 
to Sec. 1.2110(e)(3)(i) of this chapter at the time of the grant of the 
initial license in the market, shall continue to be applied to the 
licensee's portion of the remaining government obligation. We will 
require, as a further condition to approval of the partial assignment 
application, that the licensee execute and return to the U.S. Treasury 
the new financing documents within 30 days of the Public Notice 
conditionally granting the partial assignment application. Failure to 
meet this condition will result

[[Page 41220]]

in the automatic cancellation of the grant of the partial assignment 
application.
    (iv) A default on the licensee's payment obligation will only 
affect the licensee's portion of the market.
    (3) Parties Qualified For Installment Payment Plans. (i) Where both 
parties to a partitioning or disaggregation agreement qualify for 
installment payments, the partitionee or disaggregatee will be 
permitted to make installment payments on its portion of the remaining 
government obligation, as calculated according to paragraph (d)(1) of 
this section.
    (ii) Each party will be required, as a condition to approval of the 
partial assignment application, to execute separate financing documents 
(promissory note, security agreement) agreeing to pay their pro rata 
portion of the balance due (including accrued and unpaid interest) 
based upon the installment payment terms for which they qualify under 
the rules. The financing documents must be returned to the U.S. 
Treasury within thirty (30) days of the Public Notice conditionally 
granting the partial assignment application. Failure by either party to 
meet this condition will result in the automatic cancellation of the 
grant of the partial assignment application. The interest rate, 
established pursuant to Sec. 1.2110(e)(3)(i) of this chapter at the 
time of the grant of the initial license in the market, shall continue 
to be applied to both parties' portion of the balance due. Each party 
will receive a license for their portion of the partitioned market or 
disaggregated spectrum.
    (iii) A default on an obligation will only affect that portion of 
the market area held by the defaulting party.
    (iv) Partitionees and disaggregatees that qualify for installment 
payment plans may elect to pay some of their pro rata portion of the 
balance due in a lump sum payment to the U.S. Treasury and to pay the 
remaining portion of the balance due pursuant to an installment payment 
plan.
    (e) License Term. The license term for a partitioned license area 
and for disaggregated spectrum shall be the remainder of the original 
licensee's license term as provided for in Sec. 90.665(a).
    (f) Construction Requirements. (1) Requirements for Partitioning. 
Parties seeking authority to partition must meet one of the following 
construction requirements:
    (i) The partitionee may certify that it will satisfy the applicable 
construction requirements set forth in Sec. 90.665 for the partitioned 
license area; or
    (ii) The original licensee may certify that it has or will meet the 
construction requirements set forth in Sec. 90.665 for the entire 
market. In that case, the partitionee must only meet the requirements 
for renewal of its license for the partitioned license area.
    (iii) Applications requesting partial assignments of license for 
partitioning must include a certification by each geographic area 800 
MHz SMR licenses in the lower 230 channels will be awarded to small 
entities, as that term is defined by the SBA.
    (iv) Partitionees must submit supporting documents showing 
compliance with the respective construction requirements within the 
appropriate time frames set forth in Sec. 90.665.
    (v) Failure by any partitionee to meet its respective performance 
requirements will result in the automatic cancellation of the 
partitioned or disaggregated license without further Commission action.
    (2) Requirements for Disaggregation. Parties seeking authority to 
disaggregate must submit with their partial assignment application a 
certification signed by both parties stating which of the parties will 
be responsible for meeting the construction requirements for the market 
as set forth in Sec. 90.665. Parties may agree to share responsibility 
for meeting the construction requirements. Parties that accept 
responsibility for meeting the construction requirements and later fail 
to do so will be subject to license forfeiture without further 
Commission action.
    15. Section 90.901 is revised to read as follows:


Sec. 90.901  800  MHz SMR spectrum subject to competitive bidding.

    Mutually exclusive initial applications for Spectrum Blocks A 
through V in the 800 MHz band are subject to competitive bidding 
procedures. The general competitive bidding procedures provided in 47 
CFR part 1, subpart Q will apply unless otherwise indicated in this 
subpart.
    16. Section 90.902 is revised to read as follows:


Sec. 90.902  Competitive bidding design for 800 MHz SMR licensing.

    The Commission will employ a simultaneous multiple round auction 
design when selecting from among mutually exclusive initial 
applications for EA licenses for Spectrum Blocks A through V in the 800 
MHz band, unless otherwise specified by the Wireless Telecommunications 
Bureau before the auction.
    17. Section 90.903 is amended by revising paragraphs (a) and (b) 
and adding paragraph (f) to read as follows:


Sec. 90.903  Competitive bidding mechanisms.

    (a) Sequencing. The Wireless Telecommunications Bureau will 
establish and may vary the sequence in which 800 MHz SMR licenses for 
Spectrum Blocks A through V will be auctioned.
    (b) Grouping. (1) Spectrum Blocks A through C. All EA licenses for 
Spectrum Blocks A through C will be auctioned simultaneously, unless 
the Wireless Telecommunications Bureau announces, by Public Notice 
prior to the auction, an alternative competitive bidding design.
    (2) Spectrum Blocks D through V. All EA licenses for Spectrum 
Blocks D through V will be auctioned by the following Regions:
    (i) Region 1 (Northeast): The Northeast Region consists of the 
following MTAs: Boston-Providence, Buffalo-Rochester, New York, 
Philadelphia, and Pittsburgh.
    (ii) Region 2 (South): The South Region consists of the following 
MTAs: Atlanta, Charlotte-Greensboro-Greenville-Raleigh, Jacksonville, 
Knoxville, Louisville-Lexington-Evansville, Nashville, Miami-Fort 
Lauderdale, Richmond-Norfolk, Tampa-St. Petersburg-Orlando, and 
Washington-Baltimore; and, Puerto Rico and United States Virgin 
Islands.
    (iii) Region 3 (Midwest): The Midwest Region consists of the 
following MTAs: Chicago, Cincinnati-Dayton, Cleveland, Columbus, Des 
Moines-Quad Cities, Detroit, Indianapolis, Milwaukee, Minneapolis-St. 
Paul, and Omaha.
    (iv) Region 4 (Central): The Central Region consists of the 
following MTAs: Birmingham, Dallas-Fort Worth, Denver, El Paso-
Albuquerque, Houston, Kansas City, Little Rock, Memphis-Jackson, New 
Orleans-Baton Rouge, Oklahoma City, San Antonio, St. Louis, Tulsa, and 
Wichita.
    (v) Region 5 (West): The West Region consists of the following 
MTAs: Honolulu, Los Angeles-San Diego, Phoenix, Portland, Salt Lake 
City, San Francisco-Oakland-San Jose, Seattle (including Alaska), and 
Spokane-Billings; and, American Samoa, Guam, and the Northern Mariana 
Islands.
* * * * *
    (f) Duration of Bidding Rounds. The Wireless Telecommunications 
Bureau retains the discretion to vary the duration of bidding rounds or 
the intervals at which bids are accepted.
    18. Section 90.904 is revised to read as follows:

[[Page 41221]]

Sec. 90.904  Aggregation of EA licenses.

    The Commission will license each Spectrum Block A through V in the 
800 MHz band separately. Applicants may aggregate across spectrum 
blocks within the limitations specified in Sec. 20.6 of this chapter.
    19. Section 90.906 is revised to read as follows:


Sec. 90.906  Bidding application (FCC Form 175 and 175-S Short-form).

    All applicants to participate in competitive bidding for 800 MHz 
SMR licenses in Spectrum Blocks A through V must submit applications on 
FCC Forms 175 and 175-S pursuant to the provisions of Sec. 1.2105 of 
this chapter. The Wireless Telecommunications Bureau will issue a 
Public Notice announcing the availability of these 800 MHz SMR licenses 
and, in the event that mutually exclusive applications are filed, the 
date of the auction for those licenses. This Public Notice also will 
specify the date on or before which applicants intending to participate 
in a 800 MHz SMR auction must file their applications in order to be 
eligible for that auction, and it will contain information necessary 
for completion of the application as well as other important 
information such as the materials which must accompany the Forms, any 
filing fee that must accompany the application or any upfront payment 
that will need to be submitted, and the location where the application 
must be filed. In addition to identifying its status as a small 
business or rural telephone company, each applicant must indicate 
whether it is a minority-owned entity and/or a women-owned entity, as 
defined in Sec. 90.912(e).
    20. Section 90.907 is revised to read as follows:


Sec. 90.907  Submission of upfront payments and down payments.

    (a) Upfront Payments. Bidders in a 800 MHz SMR auction for Spectrum 
Blocks A through V will be required to submit an upfront payment prior 
to the start of the auction. The amount of the upfront payment for each 
license auctioned and the procedures for submitting it will be set 
forth by the Wireless Telecommunications Bureau in a Public Notice in 
accordance with Sec. 1.2106 of this chapter.
    (b) Down Payments. Winning bidders in a 800 MHz SMR auction for 
Spectrum Blocks A through V must submit a down payment to the 
Commission in an amount sufficient to bring their total deposits up to 
20 percent of their winning bids within ten (10) business days after 
the auction closes. Winning bidders will be required to make full 
payment of the balance of their winning bids ten (10) business days 
after Public Notice announcing that the Commission is prepared to award 
the license.
    21. Section 90.909 is amended by revising the section heading to 
read as follows:


Sec. 90.909  License grant, denial, default, and disqualification.

* * * * *
    22. Section 90.910 is revised to read as follows:


Sec. 90.910  Bidding credits.

    (a) A winning bidder that qualifies as a very small business or a 
consortium of very small businesses, as defined in Secs. 90.912(b)(2) 
and (b)(5), may use a bidding credit of 35 percent to lower the cost of 
its winning bid on Spectrum Blocks A through V. A winning bidder that 
qualifies as a small business or a consortium of small businesses, as 
defined in Secs. 90.912(b)(1) or (b)(4), may use a bidding credit of 25 
percent to lower the cost of its winning bid on Spectrum Blocks A 
through V.
    (b) Unjust Enrichment. (1) If a small business or very small 
business (as defined in Secs. 90.912(b)(1) and 90.912(b)(2), 
respectively) that utilizes a bidding credit under this section seeks 
to assign or transfer control of an authorization to an entity that is 
not a small business or very small business, or seeks to make any other 
change in ownership that would result in the licensee losing 
eligibility as a small business or very small business, the small 
business or very small business must seek Commission approval and 
reimburse the government for the difference between the amount of the 
bidding credit obtained by the licensee and the bidding credit for 
which the assignee, transferee, or licensee is eligible under this 
section as a condition of the approval of such assignment, transfer, or 
other ownership change.
    (2) If a very small business (as defined in Sec. 90.912(b)(2)) that 
utilizes a bidding credit under this section seeks to assign or 
transfer control of an authorization to a small business meeting the 
eligibility standards for a lower bidding credit, or seeks to make any 
other change in ownership that would result in the licensee qualifying 
for a lower bidding credit under this section, the licensee must seek 
Commission approval and reimburse the government for the difference 
between the amount of the bidding credit obtained by the licensee and 
the bidding credit for which the assignee, transferee, or licensee is 
eligible under this section as a condition of the approval of such 
assignment, transfer, or other ownership change.
    (3) The amount of payments made pursuant to paragraphs (b)(1) and 
(b)(2) of this section will be reduced over time as follows: a transfer 
in the first two years of the license term will result in a forfeiture 
of 100 percent of the value of the bidding credit (or the difference 
between the bidding credit obtained by the original licensee and the 
bidding credit for which the post-transfer licensee is eligible); in 
year three of the license term the payment will be 75 percent; in year 
four the payment will be 50 percent; and in year five the payment will 
be 25 percent, after which there will be no assessment.
    23. Section 90.911 is revised to read as follows:


Sec. 90.911  Partitioned licenses and disaggregated spectrum

    (a) Eligibility. Parties seeking approval for partitioning and 
disaggregation shall request an authorization for partial assignment of 
a license pursuant to Sec. 90.153(c).
    (b) Technical Standards. (1) Partitioning. In the case of 
partitioning, requests for authorization for partial assignment of a 
license must include, as attachments, a description of the partitioned 
service area and a calculation of the population of the partitioned 
service area and the licensed geographic service area. The partitioned 
service area shall be defined by coordinate points at every 3 degrees 
along the partitioned service area unless an FCC recognized service 
area is utilized (i.e., Major Trading Area, Basic Trading Area, 
Metropolitan Service Area, Rural Service Area or Economic Area) or 
county lines are followed. The geographic coordinates must be specified 
in degrees, minutes, and seconds to the nearest second of latitude and 
longitude and must be based upon the 1927 North American Datum (NAD27). 
Applicants may supply geographical coordinates based on 1983 North 
American Datum (NAD83) in addition to those required (NAD27). In the 
case where an FCC recognized service area or county lines are utilized, 
applicants need only list the specific area(s) (through use of FCC 
designations or county names) that constitute the partitioned area.
    (2) Disaggregation. Spectrum may be disaggregated in any amount.
    (3) Combined Partitioning and Disaggregation. The Commission will 
consider requests for partial assignment of licenses that propose 
combinations of partitioning and disaggregation.
    (c) Unjust Enrichment. (1) Bidding Credits. Licensees that 
qualified under Sec. 90.910 to use a bidding credit at auction that 
partition their licenses or

[[Page 41222]]

disaggregate their spectrum to entities not meeting the eligibility 
standards for such a bidding credit, will be subject to the provisions 
concerning unjust enrichment as set forth in Sec. 90.910(b).
    (2) Apportioning Unjust Enrichment Payments. Unjust enrichment 
payments for partitioned license areas shall be calculated based upon 
the ratio of the population of the partitioned license area to the 
overall population of the license area and by utilizing the most recent 
census data. Unjust enrichment payments for disaggregated spectrum 
shall be calculated based upon the ratio of the amount of spectrum 
disaggregated to the amount of spectrum held by the licensee.
    (d) License Term. The license term for a partitioned license area 
and for disaggregated spectrum shall be the remainder of the original 
licensee's license term as provided for in Secs. 90.629(a), 90.665(a) 
or 90.685(a).
    (e) Construction and Channel Usage Requirements--Incumbent 
Licensees. Parties seeking to acquire a partitioned license or 
disaggregated spectrum from an incumbent licensee will be required to 
construct and commence ``service to subscribers'' all facilities 
acquired through such transactions within the original construction 
deadline for each facility as set forth in Secs. 90.629 and 90.683. 
Failure to meet the individual construction deadline will result in the 
automatic termination of the facility's authorization.
    (f) Construction and Channel Usage Requirements--EA Licensees.
    (1) Licensees in Channel Blocks A, B and C. (i) Requirements for 
Partitioning. (A) The partitionee may certify that it will satisfy the 
applicable construction requirements set forth in Sec. 90.685(c) for 
the partitioned license area; or
    (B) The original licensee may certify that it has or will meet the 
three and five year construction requirements set forth in 
Sec. 90.685(c) for the entire market.
    (C) Applications requesting partial assignments of license for 
partitioning must include a certification by each party as to which of 
the above options they select.
    (D) Partitionees must submit supporting documents showing 
compliance with the respective construction requirements within the 
appropriate time frames set forth in Sec. 90.685(c).
    (E) Failure by any partitionee to meet its respective construction 
requirements will result in the automatic cancellation of the 
partitioned license without further Commission action.
    (ii) Requirements for Disaggregation. Parties seeking authority to 
disaggregate spectrum from an EA licensee in Spectrum Blocks A, B and C 
must meet one of the following channel use requirements:
    (A) The partitionee may certify that it will satisfy the channel 
usage requirements set forth in Sec. 90.685(d) for the disaggregated 
spectrum; or
    (B) The original licensee may certify that it has or will meet the 
channel usage requirements as set forth in Sec. 90.685(d) for the 
entire spectrum block. In that case, the disaggregatee must only 
satisfy the requirements for ``substantial service,'' as set forth in 
Sec. 90.685(c), for the disaggregated spectrum within five years of the 
license grant.
    (C) Applications requesting partial assignments of license for 
disaggregation must include a certification by each party as to which 
of the above options they select.
    (D) Disaggregatees must submit supporting documents showing 
compliance with the respective channel usage requirements within the 
appropriate time frames set forth in Sec. 90.685(c).
    (E) Failure by any disaggregatee to meet its respective channel 
usage requirements will result in the automatic cancellation of the 
disaggregated license without further Commission action.
    (2) Licensees in Channel Blocks D through V. (i) Requirements for 
Partitioning. Parties seeking authority to partition an EA license must 
meet one of the following construction requirements:
    (A) The partitionee may certify that it will satisfy the applicable 
construction requirements set forth in Sec. 90.685(c) for the 
partitioned license area; or
    (B) The original licensee may certify that it has or will meet the 
construction requirements set forth in Sec. 90.685(c) for the entire 
market.
    (C) Applications requesting partial assignments of license for 
partitioning must include a certification by each party as to which of 
the above options they select.
    (D) Partitionees must submit supporting documents showing 
compliance with the respective construction requirements within the 
appropriate time frames set forth in Sec. 90.685(c).
    (E) Failure by any partitionee to meet its respective construction 
requirements will result in the automatic cancellation of the 
partitioned license without further Commission action.
    (ii) Requirements for Disaggregation. Parties seeking authority to 
disaggregate must submit with their partial assignment application a 
certification signed by both parties stating which of the parties will 
be responsible for meeting the construction requirements for the market 
as set forth in Sec. 90.685. Parties may agree to share responsibility 
for meeting the construction requirements. Parties that accept 
responsibility for meeting the construction requirements and later fail 
to do so will be subject to license forfeiture without further 
Commission action.
    (g) Certification Concerning Relocation of Incumbent Licensees. 
Parties seeking approval of a partitioning or disaggregation agreement 
pursuant to this section must include a certification with their 
partial assignment of license application as to which party will be 
responsible for meeting the incumbent relocation requirements set forth 
at Sec. 90.699.
    24. Section 90.912 is revised to read as follows:


Sec. 90.912  Definitions.

    (a) Scope. The definitions in this section apply to Secs. 90.910 
and 90.911, unless otherwise specified in those sections.
    (b) Small Business; Very Small Business; Consortium of Small 
Businesses; Consortium of Very Small Businesses. (1) A small business 
is an entity that together with its affiliates and controlling 
principals, has average gross revenues that do not exceed $15 million 
for the three preceding years; or
    (2) A very small business is an entity that together with its 
affiliates and controlling principals, has average gross revenues that 
do not exceed $3 million for the three preceding years.
    (3) For purposes of determining whether an entity meets the $3 
million or $15 million average annual gross revenues size standard set 
forth in paragraph (b)(1) of this section, the gross revenues of the 
entity, its affiliates, and controlling principals shall be considered 
on a cumulative basis and aggregated.
    (4) A consortium of small business is a conglomerate organization 
formed as a joint venture between or among mutually-independent 
business firms, each of which individually satisfies the definition of 
a small business in paragraphs (b)(1) of this section. In a consortium 
of small businesses, each individual member must establish its 
eligibility as a small business, as defined in this section.
    (5) A consortium of very small business is a conglomerate 
organization formed as a joint venture between or among mutually-
independent business firms, each of which individually satisfies the 
definition of a very small business in paragraph (b)(2) of this

[[Page 41223]]

section. In a consortium of small businesses, each individual member 
must establish its eligibility as a very small business, as defined in 
this section.
    (c) Gross Revenues. Gross revenues shall mean all income received 
by an entity, whether earned or passive, before any deductions are made 
for costs of doing business (e.g., cost of goods sold). Gross revenues 
are evidenced by audited financial statements for the relevant number 
of calendar or fiscal years preceding the filing of the applicant's 
short-form application (FCC Form 175). If an entity was not in 
existence for all or part of the relevant period, gross revenues shall 
be evidenced by the audited financial statements of the entity's 
predecessor-in-interest or, if there is no identifiable predecessor-in-
interest, unaudited financial statements certified by the applicant as 
accurate. When an applicant does not otherwise use audited financial 
statements, its gross revenues may be certified by its chief financial 
officer or its equivalent.
    (d) Affiliate. (1) Basis for Affiliation. An individual or entity 
is an affiliate of an applicant if such individual or entity:
    (i) Directly or indirectly controls or has the power to control the 
applicant, or
    (ii) Is directly or indirectly controlled by the applicant, or
    (iii) Is directly or indirectly controlled by a third party or 
parties who also control or have the power to control the applicant, or
    (iv) Has an ``identity of interest'' with the applicant.
    (2) Nature of control in determining affiliation. (i) Every 
business concern is considered to have one or more parties who directly 
or indirectly control or have the power to control it. Control may be 
affirmative or negative and it is immaterial whether it is exercised so 
long as the power to control exists.

    Example for paragraph (d)(2)(i) of this section. An applicant 
owning 50 percent of the voting stock of another concern would have 
negative power to control such concern since such party can block 
any action of the other stockholders. Also, the bylaws of a 
corporation may permit a stockholder with less than 50 percent of 
the voting stock to block any actions taken by the other 
stockholders in the other entity. Affiliation exists when the 
applicant has the power to control a concern while at the same time 
another person, or persons, are in control of the concern at the 
will of the party or parties with the power of control.

    (ii) Control can arise through stock ownership; occupancy of 
director, officer, or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the 
concern, has a critical influence in or substantive control over the 
operations or management of the concern.
    (iii) Control can arise through management positions if the voting 
stock is so widely distributed that no effective control can be 
established.

    Example for paragraph (d)(2)(iii) of this section. In a 
corporation where the officers and directors own various size blocks 
of stock totaling 40 percent of the corporation's voting stock, but 
no officer or director has a block sufficient to give him/her 
control or the power to control and the remaining 60 percent is 
widely distributed with no individual stockholder having a stock 
interest greater than 10 percent, management has the power to 
control. If persons with such management control of the other entity 
are controlling principals of the applicant, the other entity will 
be deemed an affiliate of the applicant.

    (3) Identity of interest between and among persons. Affiliation can 
arise between or among two or more persons with an identity of 
interest, such as members of the same family or persons with common 
investments. In determining if the applicant controls or is controlled 
by a concern, persons with an identity of interest will be treated as 
though they were one person.
    (i) Spousal Affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States.
    (ii) Kinship Affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family member'' means father, mother, husband, wife, son, 
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father or -mother, step-brother 
or -sister, step-son or -daughter, half-brother or -sister. This 
presumption may be rebutted by showing that:
    (A) The family members are estranged,
    (B) The family ties are remote, or
    (C) The family members are not closely involved with each other in 
business matters.

    Example for paragraph (d)(3)(ii) of this section. A owns a 
controlling interest in Corporation X. A's sister-in-law, B, has a 
controlling interest in an SMR application. Because A and B have a 
presumptive kinship affiliation, A's interest in Corporation X is 
attributable to B, and thus to the applicant, unless B rebuts the 
presumption with the necessary showing.

    (4) Affiliation through stock ownership. (i) An applicant is 
presumed to control or have the power to control a concern if he/she 
owns or controls or has the power to control 50 percent or more of its 
voting stock.
    (ii) An applicant is presumed to control or have the power to 
control a concern even though he/she owns, controls, or has the power 
to control less than 50 percent of the concern's voting stock, if the 
block of stock he/she owns, controls, or has the power to control is 
large as compared with any other outstanding block of stock.
    (iii) If two or more persons each owns, controls or has the power 
to control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any 
other stock holding, the presumption arises that each one of these 
persons individually controls or has the power to control the concern; 
however, such presumption may be rebutted by a showing that such 
control or power to control, in fact, does not exist.
    (5) Affiliation arising under stock options, convertible 
debentures, and agreements to merge. Stock options, convertible 
debentures, and agreements to merge (including agreements in principle) 
are generally considered to have a present effect on the power to 
control the concern. Therefore, in making a size determination, such 
options, debentures, and agreements will generally be treated as though 
the rights held thereunder had been exercised. However, neither an 
affiliate nor an applicant can use such options and debentures to 
appear to terminate its control over another concern before it actually 
does so.

    Example 1 for paragraph (d)(5) of this section. If company B 
holds an option to purchase a controlling interest in company A, who 
holds a controlling interest in an SMR application, the situation is 
treated as though company B had exercised its rights and had become 
owner of a controlling interest in company A. The gross revenues of 
company B must be taken into account in determining the size of the 
applicant.
    Example 2 for paragraph (d)(5) of this section. If a large 
company, BigCo, holds 70% (70 of 100 outstanding shares) of the 
voting stock of company A, who holds a controlling interest in an 
SMR application, and gives a third party, SmallCo, an option to 
purchase 50 of the 70 shares owned by BigCo, BigCo will be deemed to 
be an affiliate of company A, and thus the applicant, until SmallCo 
actually exercises its options to purchase such shares. In order to 
prevent BigCo from circumventing the intent of the

[[Page 41224]]

rule, which requires such options to be considered on a fully 
diluted basis, the option is not considered to have present effect 
in this case.
    Example 3 for paragraph (d)(5) of this section. If company A has 
entered into an agreement to merge with company B in the future, the 
situation is treated as though the merger has taken place.

    (6) Affiliation under voting trusts. (i) Stock interests held in 
trust shall be deemed controlled by any person who holds or shares the 
power to vote such stock, to any person who has the sole power to sell 
such stock, and to any person who has the right to revoke the trust at 
will or to replace the trustee at will.
    (ii) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests 
held in trust will be deemed controlled by the grantor or beneficiary, 
as appropriate.
    (iii) If the primary purpose of a voting trust, or similar 
agreement, is to separate voting power from beneficial ownership of 
voting stock for the purpose of shifting control of or the power to 
control a concern in order that such concern or another concern may 
meet the Commission's size standards, such voting trust shall not be 
considered valid for this purpose regardless of whether it is or is not 
recognized within the appropriate jurisdiction.
    (7) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the 
majority or otherwise as the controlling element of the board of 
directors and/or the management of another entity.
    (8) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the 
other concern.
    (9) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern 
for contracts and business to such a degree that one concern has 
control, or potential control, of the other concern.
    (10) Affiliation under joint venture arrangements.
    (i) A joint venture for size determination purposes is an 
association of concerns and/or individuals, with interests in any 
degree or proportion, formed by contract, express or implied, to engage 
in and carry out a single, specific business venture for joint profit 
for which purpose they combine their efforts, property, money, skill 
and knowledge, but not on a continuing or permanent basis for 
conducting business generally. The determination whether an entity is a 
joint venture is based upon the facts of the business operation, 
regardless of how the business operation may be designated by the 
parties involved. An agreement to share profits/losses proportionate to 
each party's contribution to the business operation is a significant 
factor in determining whether the business operation is a joint 
venture.
    (ii) The parties to a joint venture are considered to be affiliated 
with each other.
    25. Section 90.913 is revised to read as follows:


Sec. 90.913  Eligibility for small business status.

    (a) Short-Form Applications: Certifications and Disclosure. Each 
applicant for an EA license which qualifies as a small business or 
consortium of small businesses under Secs. 90.912(b) or (c) shall 
append the following information as an exhibit to its short-form 
application (FCC Form 175):
    (1) The identity of the applicant's affiliates and controlling 
principals, and, if a consortium of small businesses (or a consortium 
of very small businesses), the members of the joint venture; and
    (2) The applicant's gross revenues, computed in accordance with 
Sec. 90.912.
    (b) Long-Form Applications: Certifications and Disclosure. In 
addition to the requirements in subpart V of this part, each applicant 
submitting a long-form application for license(s) for Spectrum Blocks A 
through V and qualifying as a small business shall, in an exhibit to 
its long-form application:
    (1) Disclose separately and in the aggregate the gross revenues, 
computed in accordance with Sec. 90.912, for each of the following: the 
applicant, the applicant's affiliates, the applicant's controlling 
principals, and, if a consortium of small businesses (or consortium of 
very small businesses), the members of the joint venture;
    (2) List and summarize all agreements or other instruments (with 
appropriate references to specific provisions in the text of such 
agreements and instruments) that support the applicant's eligibility as 
a small business, very small business, consortium of small businesses 
or consortium of very small businesses under Secs. 90.910 and 90.912, 
including the establishment of de facto and de jure control; such 
agreements and instruments include articles of incorporation and 
bylaws, shareholder agreements, voting or other trust agreements, 
franchise agreements, and any other relevant agreements (including 
letters of intent), oral or written; and
    (3) List and summarize any investor protection agreements, 
including rights of first refusal, supermajority clauses, options, veto 
rights, and rights to hire and fire employees and to appoint members to 
boards of directors or management committees.
    (c) Records Maintenance. All winning bidders qualifying as small 
businesses or very small businesses, shall maintain at their principal 
place of business an updated file of ownership, revenue and asset 
information, including any document necessary to establish eligibility 
as a small business, very small business and/or consortium of small 
businesses (or consortium of very small businesses) under Sec. 90.912. 
Licensees (and their successors in interest) shall maintain such files 
for the term of the license.
    (d) Audits. (1) Applicants and licensees claiming eligibility as a 
small business, very small business or consortium of small businesses 
(or consortium of very small businesses under Secs. 90.910 and 90.912 
shall be subject to audits by the Commission, using in-house and 
contract resources. Selection for audit may be random, on information, 
or on the basis of other factors.
    (2) Consent to such audits is part of the certification included in 
the short-form application (FCC Form 175). Such consent shall include 
consent to the audit of the applicant's or licensee's books, documents 
and other material (including accounting procedures and practices) 
regardless of form or type, sufficient to confirm that such applicant's 
or licensee's representations are, and remain, accurate. Such consent 
shall include inspection at all reasonable times of the facilities, or 
parts thereof, engaged in providing and transacting business, or 
keeping records regarding licensed 800 MHz SMR service and shall also 
include consent to the interview of principals, employees, customers 
and suppliers of the applicant or licensee.
    (3) Definitions. The terms affiliate, small business, very small 
business consortium of small businesses, consortium of very small 
businesses,

[[Page 41225]]

and gross revenues used in this section are defined in Sec. 90.912.

[FR Doc. 97-19913 Filed 7-30-97; 8:45 am]
BILLING CODE 6712-01-P