41190 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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.

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outdated regulatory regime, they will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 caseby-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 EAbased 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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

§ 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 noncontiguous 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 newlycreated 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
41192 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 nonborder 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 nonborder 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41193

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 sitebased 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

§ 90.609(b) of the rules. That rule was

designed to prevent trafficking in sitespecific 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

§ 90.609(b) in such circumstances,

licensees holding unconstructed sitespecific 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 nonSMR 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 dBμV/m

contour to define the interference

protection obligations of EA licensees

with respect to lower 230 incumbents

(discussed in § 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
41194 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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

dBμV/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 dBμV/m interference

contour. We proposed that incumbents

would not be allowed to expand beyond

the 22 dBμV/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 dBμV/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 dBμV/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 nonincumbents 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.
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 § 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 dBμV/m standard, we

recognize that the 18 dBμV/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 § IV–B–4–a, we will continue to use

the current separation tables and shortspacing rules based on the 40/22 dBμV/

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 dBμV/m standard to be beneficial to

incumbent systems seeking greater

operational flexibility. In addition, as

discussed in § IV–B–4–b, we will use

the incumbent’s 36 dBμV/m as opposed

to 40 dBμV/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 sitespecific 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
41196 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 dBμV/m contour

as the basis for determining the area in

which lower 230 incumbents could

operate. As noted in § IV–B–3–b, supra,

we have decided instead to allow all

incumbents on the lower 230 channels

to use the 18 dBμV/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 dBμV/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 cochannel separation standards based on a

36/18 dBμV/m standard rather than the

previously applicable 40/22 dBμV/m

standard. The 36 dBμV/m desired signal

strength contour is determined from the

R–6602, F(50,50) curves for Channels 7–

13 in § 73.699 of the Commission’s rules

(Figure 10), with a 9 dB correction factor

for antenna height differential. The 18

dBμV/m undesired signal strength

contour is calculated using the R–6602,

F(50,10) curves for Channels 7–13 found

in § 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 dBμV/m undesired

signal strength contour of a proposed

station does not encroach upon the 36

dBμV/m desired signal strength contour

of an existing incumbent station.

Furthermore, in the opposite situation,

EA licensees will have their 36 dBμV/

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 dBμV/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 dBμV/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 § 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 dBμV/m

standard set forth in our prior shortspacing 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 dBμV/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 § 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-
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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-tonoise 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
41198 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 nonnotifying 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:

Ci Tc

Chi

TCh

= ×

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:

$25, $100, 000 000

25

60

= ×

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 nonnotifying 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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.
41200 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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, notfor-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 coprimary 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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
41202 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 twothirds 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 aboveoutlined 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
41204 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 § 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 postpartitioning 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 § 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
41206 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 § 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-bymarket 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 § 1.2104 of

the Commission’s Rules and the

guidelines we adopted in the

Competitive Bidding Second Report and

Order, we will employ the MilgromWilson activity rule for both the Lower

80 and General Category auctions. As

we noted in the Competitive Bidding

Second Report and Order, the MilgromWilson 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 §§ 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 shortform 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.
41208 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 § 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

§ 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

§ 90.162 to reflect the fact that

discussions regarding withdrawal of

short-form applications are subject to

§ 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

§ 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 spectrumbased 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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
41210 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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).
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 noncontiguous 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 dBμV/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 twotiered 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
41212 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 dBμV/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).
41214 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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:

§ 90.210 Emission masks.

* * * * *

APPLICABLE EMISSION MASKS

* * * * * 3Equipment used in this band licensed to

EA or non-EA systems shall comply with the

emission mask provisions of § 90.691.

* * * * *

3. Section 90.615 is revised to read as

follows:

§ 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:

§ 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 § 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 § 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 § 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.

TABLE 4A.—SMR CATEGORY 806–

821/851–866 MHZ BAND CHANNELS (280 CHANNELS)—Continued

Spectrum block Channel Nos.

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:

§ 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

§ 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.
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41215

TABLE 4A.—UNITED STATES-MEXICO

BORDER AREA, SMR AND GENERAL

CATEGORIES 806–821/851–866

MHZ BAND (95 Channels)—Continued

Spectrum block Offset channel Nos.

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.

TABLE 16.—SMR AND GENERAL CATEGORIES—60 CHANNELS—Continued

(Region 2)

Spectrum block Channel Nos.

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.

TABLE 24.—(REGIONS 7, 8) SMR AND

GENERAL CATEGORIES—190 CHANNELS—Continued

Spectrum block Channel Nos.

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:

§ 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 EAbased 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 § 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 dBμV/

m signal strength interference contour

(see § 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 dBμV/m signal

strength interference contour shall be

less than 229 km (142 mi) distant from

a co-channel station that has been
41216 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 dBμV/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 cochannel 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 § 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:

§ 90.681 EA-based SMR service areas.

EA licenses in Spectrum Blocks A

through V band listed in Table 4A of

§ 90.617(d) are available in 175

Economic Areas (EAs) as defined in

§ 90.7.

9. Section 90.683(a) introductory text

is revised to read as follows:

§ 90.683 EA-Based SMR system

operations.

(a) EA-based licensees authorized in

the 806–821/851–866 MHz band

pursuant to § 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:

§ 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:

§ 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 § 90.617 may transfer or assign its

channel(s) to another entity subject to

the provisions of §§ 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:

§ 90.689 Field strength limits.

(a) For purposes of implementing

§§ 90.689 through 90.699, predicted 36

and 40 dBμV/m contours shall be

calculated using Figure 10 of § 73.699 of

this chapter with a correction factor of

¥9 dB, and predicted 18 and 22 dBμV/

m contours shall be calculated using

Figure 10a of § 73.699 of this chapter

with a correction factor of ¥9 dB.

* * * * *

13. Section 90.693 is revised to read

as follows:

§ 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

dBμV/m field strength contour and its

interference contour shall be defined as

its originally-licensed 22 dBμV/m field

strength contour. Incumbent licensees

are permitted to add, remove or modify

transmitter sites within their original 22

dBμV/m field strength contour without

prior notification to the Commission so

long as their original 22 dBμV/m field

strength contour is not expanded and

the station complies with the

Commission’s short-spacing criteria in

§§ 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

dBμV/m signal strength interference

contour shall have their service area

defined by their originally-licensed 36

dBμV/m field strength contour and its

interference contour shall be defined as

their originally-licensed 18 dBμV/m

field strength contour. Incumbent

licensees are permitted to add, remove

or modify transmitter sites within their

original 18 dBμV/m field strength

contour without prior notification to the

Commission so long as their original 18

dBμV/m field strength contour is not

expanded and the station complies with

the Commission’s short-spacing criteria

in §§ 90.621(b)(4) through 90.621(b)(6).

The incumbent licensee must, however,
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 dBμV/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

dBμV/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 dBμV/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:

§ 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

§ 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
41218 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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:

Ci Tc Chj

TCh

= ×

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

§ 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

§ 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 § 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 § 90.812(b).

(2) Bidding Credits. Licensees that

qualified under § 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 § 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 § 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 § 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

§ 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
41220 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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

§ 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

§ 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 § 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 § 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

§ 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 § 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:

§ 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:

§ 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:

§ 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-GreensboroGreenville-Raleigh, Jacksonville,

Knoxville, Louisville-LexingtonEvansville, Nashville, Miami-Fort

Lauderdale, Richmond-Norfolk, TampaSt. 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 SpokaneBillings; 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:
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 41221

§ 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 § 20.6 of this

chapter.

19. Section 90.906 is revised to read

as follows:

§ 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 § 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 womenowned entity, as defined in § 90.912(e).

20. Section 90.907 is revised to read

as follows:

§ 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

§ 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:

§ 90.909 License grant, denial, default, and

disqualification.

* * * * *

22. Section 90.910 is revised to read

as follows:

§ 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

§§ 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 §§ 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 §§ 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 § 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:

§ 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

§ 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

§ 90.910 to use a bidding credit at

auction that partition their licenses or
41222 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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 § 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

§§ 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 §§ 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 § 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 § 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

§ 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 § 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

§ 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

§ 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

§ 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 § 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 § 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

§ 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 § 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 § 90.699.

24. Section 90.912 is revised to read

as follows:

§ 90.912 Definitions.

(a) Scope. The definitions in this

section apply to §§ 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
Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations 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 predecessorin-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-inlaw, step-father or -mother, step-brother

or -sister, step-son or -daughter, halfbrother 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
41224 Federal Register / Vol. 62, No. 147 / Thursday, July 31, 1997 / Rules and Regulations

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:

§ 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

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

and gross revenues used in this section

are defined in § 90.912.

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

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 90

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

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

Facilitate Future Development of SMR

Systems in the 800 MHz Frequency

Band

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: In the First Report and Order

and Eighth Report and Order in PR

Docket No. 93–144, GN Docket No. 93–

252, and PP Docket No. 93–253, the

Commission adopted final service and

competitive bidding rules for the upper

200 channels of the 800 MHz

Specialized Mobile Radio (SMR) band.

In the Second Further Notice of

Proposed Rulemaking, the Commission

sought comment on additional service

and competitive bidding rules for the

remaining 800 MHz SMR spectrum and

the General Category channels. After

carefully reviewing the comments and

petitions the Commission received

following the issuance of the Further

Notice of Proposed Rulemaking, the

Commission addresses the Petitions for

Reconsideration in this order.

EFFECTIVE DATE: September 29, 1997.

FOR FURTHER INFORMATION CONTACT:

Shaun Maher or Michael Hamra, Policy

and Rules Branch, Commercial Wireless

Division, Wireless Telecommunications

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

Auctions and Industry Analysis

Division, Wireless Telecommunications

Bureau at (202) 418–0660.

SUPPLEMENTARY INFORMATION: This

Memorandum Opinion and Order on

Reconsideration in PR Docket No. 93–

144, GN Docket No. 93–252, and PP

Docket No. 93–253, adopted June 23,

1997, and released July 10, 1997, is

available for inspection and copying

during normal business hours in the

FCC Dockets Branch, Room 230, 1919 M

Street, NW., Washington, DC. The

complete text may be purchased from

the Commission’s copy contractor,

International Transcription Service,

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

Washington, DC 20037 (telephone (202)

857–3800).

I. Background

1. In the 800 MHz Report and Order,

61 FR 6138 (February 16, 1996), the

Commission restructured the licensing

framework that governs the 800 MHz

SMR service. For the upper 200

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

geography-based system similar to those

used in other Commercial Mobile Radio

Services (‘‘CMRS’’). The Commission

designated the upper 200 channels of

800 MHz SMR spectrum for geographic

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

channel blocks within the U.S.

Department of Commerce Bureau of

Economic Analysis Economic Areas

(‘‘EAs’’). The Commission concluded

that mutually exclusive applications for

these licenses would be awarded

through competitive bidding.

Additionally, the Commission granted

EA licensees the right to relocate

incumbent licensees out of the upper

200 channels to comparable facilities.

The Commission reallocated the 150

contiguous 800 MHz General Category

channels for exclusive SMR use.

2. The Commission also established

competitive bidding rules for the upper

200 channels of 800 MHz SMR

spectrum. Specifically, the order

provided for the award of 525 EA

licenses in the upper 200 channel block

through a simultaneous multiple round

auction. Incumbents and new entrants

may bid for all EA licenses, subject to

the CMRS spectrum cap in § 20.6 of the

Commission’s rules. The Commission

also adopted a ‘‘tiered’’ approach to

installment payments for small

businesses in the upper 200 channel

block, and allowed partitioning for rural

telephone companies.

A. Geographic Licensing in the 800 MHz

SMR Band

1. Geographic Licensing in Contiguous

Spectrum Blocks

3. In the CMRS Third Report and

Order, 59 FR 59945 (November 21,

1996), the Commission found that

licensing 800 MHz SMR spectrum in

contiguous blocks would make SMR

systems more competitive with other

CMRS systems by maximizing technical

flexibility so that, for example, it would

be possible for SMR licensees to deploy

spread spectrum and other broadband

technologies. In the 800 MHz Report

and Order the Commission concluded

that the entire upper 200 channel block

should be licensed on a contiguous

basis throughout a geographic area

because the SMR geographic license

would then be equivalent in size to the

smallest block of spectrum now

authorized for broadband PCS.

4. Commenters argue that the

Commission has not justified its

decision to group the upper 200

channels of 800 MHz SMR spectrum

into geographically licensed contiguous

blocks or adequately explained how the

need for contiguous spectrum justifies

disruption of established SMR operators

and that the Commission’s rules

impermissibly fail to mandate that

contiguous blocks of spectrum be used

to offer innovative or competitive

services. They also argue that the

Commission’s decision should be

reversed if it is based on reducing its

administrative burden. It argues that

scarcity of Commission resources

cannot justify any changes in its rules

and that geographic licensing will in

fact increase the Commission’s

administrative burden. One commenter

asserts that most incumbent licensees

span all three EA frequency blocks.

Thus, relocating most incumbents will

require that at least four applications be

filed, placed on public notice and

processed by the Commission. It also

claims that these burdens will be

exacerbated by the burdens of sitespecific licensing because the

Commission has not eliminated current

site-specific licenses.

5. Discussion: The Commission rejects

the contention that it has failed to

justify the need for licensing the upper

200 channels in contiguous blocks. In

the CMRS Third Report and Order, the

Commission determined that, where

feasible, assigning contiguous spectrum

is likely to enhance the competitive

potential of CMRS geographic providers.

In the 800 MHz Report and Order the

Commission determined that geographic

licensing and contiguous spectrum are

essential to the competitive viability of

SMR service because they will permit

use of spread spectrum and other

broadband technologies and eliminate

delays and transaction costs associated

with site-by-site licensing.

6. The Commission disagrees with

Commenters claim that geographic

licensing will have a negative impact on

existing SMR operators. The

Commission’s rules continue to protect

incumbent operators from interference.

In the upper 200 channels, the

Commission requires EA licensees to

comply with existing rules that require

minimum separation from incumbents’

facilities. Thus, an EA licensee must

either locate its station at least 113 km

(70 miles) from any incumbent’s facility,

or if it seeks to operate stations less than

113 km from an incumbent’s facility, it

must comply with the Commission’s

short-spacing rule, unless it negotiates a

shorter distance with the incumbent.

Additionally, incumbent SMRs on the