Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6079

418–2180. Questions related to the

window application filing process

should be addressed to the Audio

Services Division, (202) 418–2700.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Report

and Order, MM Docket No. 97–46,

adopted January 21, 1998, and released

January 30, 1998. The full text of this

Commission decision is available for

inspection and copying during normal

business hours in the FCC’s Reference

Center (Room 239), 1919 M Street, NW.,

Washington, DC. The complete text of

this decision may also be purchased

from the Commission’s copy contractor,

International Transcription Service,

Inc., 1231 20th Street, NW.,

Washington, DC 20036, (202) 857–3800.

List of Subjects in 47 CFR Part 73

Radio broadcasting.

Part 73 of Title 47 of the Code of

Federal Regulations is amended as

follows:

PART 73—[AMENDED]

1. The authority citation for part 73

reads as follows:

Authority: 47 U.S.C. 154, 303, 334, 336.

§ 73.202 [Amended]

2. Section 73.202(b), the Table of FM

Allotments under California, is

amended by adding Boonville, Channel

241A.

Federal Communications Commission.

John A. Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 98–2991 Filed 2–5–98; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[MM Docket No. 97–170; RM–8980]

Television Broadcasting Services; San

Bernardino and Long Beach, CA

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: This document reallots

Channel 18– from San Bernardino to

Long Beach, California, and modifies

the license of KSLS, Inc. for Station

KSCI(TV) to specify operation on

Channel 18– at Long Beach, as

requested, pursuant to the provisions of

Section 1.420(i) of the Commission’s

Rules. See 62 FR 42225, August 6, 1997.

The reallotment of Channel 18– to Long

Beach will provide the larger

community with its first local television

transmission service while retaining

local television service at San

Bernardino. Coordinates used for

Channel 18– at Long Beach are 34–11–

15 and 117–41–54. Although Long

Beach is located within 320 kilometers

(199 miles) of the United States-Mexico

border, concurrence of the Mexican

government to the reallotment of

Channel 18– from San Bernardino was

not required based upon the retention of

the existing channel and transmitter site

of Station KSCI(TV). However, as a

result of the granted reallotment request,

the Mexican government will be advised

of the change to the TV Table of

Allotments. With this action, this

proceeding is terminated.

EFFECTIVE DATE: March 16, 1998.

FOR FURTHER INFORMATION CONTACT:

Nancy Joyner, Mass Media Bureau, (202)

418–2180.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Report

and Order, MM Docket No. 97–170,

adopted January 14, 1998, and released

January 30, 1998. The full text of this

Commission decision is available for

inspection and copying during normal

business hours in the FCC’s Reference

Center (Room 239), 1919 M Street, NW.,

Washington, DC. The complete text of

this decision may also be purchased

from the Commission’s copy contractor,

International Transcription Service,

Inc., 1231 20th Street, NW.,

Washington, DC 20036, (202) 857–3800.

List of Subjects in 47 CFR Part 73

Television broadcasting.

Part 73 of Title 47 of the Code of

Federal Regulations is amended as

follows:

PART 73—[AMENDED]

1. The authority citation for part 73

reads as follows:

Authority: 47 U.S.C. 154, 303, 334, 336.

§ 73.606 [Amended]

2. Section 73.606(b), the Table of TV

Allotments under California, is

amended by removing Channel 18– at

San Bernardino, and adding Long

Beach, Channel 18–.

Federal Communications Commission.

John A. Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 98–2990 Filed 2–5–98; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 101

[ET Docket No. 95–183; PP Docket No. 93–

253; FCC 97–391]

Service and Auction Rules for the

38.6–40.0 GHz Frequency Band

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: In the Report and Order

portion of the Second Notice of

Proposed Rule Making and Report and

Order, the Commission amends rules to

facilitate more effective use of the 39

GHz band, by implementing a number

of improvements such as licensing by

Basic Trading Areas (BTAs) and

employing competitive bidding

procedures as a means for choosing

among mutually exclusive license

applicants. In addition, the Commission

concludes that the regulatory framework

for the 39 GHz band should be

expanded to include service rules for

mobile operations. Such flexibility will

promote competition by increasing both

the diversity of potential service

offerings and the number of providers

that can offer any service. Finally, the

Commission addresses those 39 GHz

applications held in abeyance pursuant

to a processing freeze.

EFFECTIVE DATE: April 7, 1998.

ADDRESSES: 1919 M Street, N.W., Room

222, Federal Communications

Commission, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: (For

service and licensing rules), Susan

Magnotti, Public Safety and Private

Wireless Division, (202) 418–0871; (for

auction rules and procedures) Christina

Eads Clearwater, Auctions and Industry

Analysis Division, (202) 418–0660.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Report and Order

portion of the Commission’s Second

Notice of Proposed Rule Making and

Report and Order in ET Docket No. 95–

183 and PP Docket No. 93–253, adopted

October 24, 1997 and released

November 3, 1997. The complete text of

the Second Notice of Proposed Rule

Making and Report and Order is

available for inspection and copying

during normal business hours in the

FCC Reference Center (Room 239), 1919

M Street, N.W., Washington D.C., and

also may be purchased from the

Commission’s copy contractor,

International Transcription Services, at

(202) 857–3800, 1231 20th Street, N.W.,

Washington, D.C. 20036.
6080 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

Synopsis of Report and Order in the

Second Notice of Proposed Rulemaking

and Report and Order

1. In the Report and Order portion of

the Second Notice of Proposed

Rulemaking and Report and Order, the

Commission amends parts 1 and 101 of

title 47, Code of Federal Regulations, to

facilitate more effective use of the 39

GHz band. The Commission implements

a number of improvements such as

licensing by Basic Trading Areas (BTAs)

and employing competitive bidding

procedures as a means for choosing

among mutually exclusive license

applicants. (Rand McNally is the

copyright owner of the Basic Trading

Area and Major Trading Area Listing,

which lists the counties contained in

each BTA, as embodied in Rand

McNally’s Trading Areas System

diskette and geographically represented

in the map contained in Rand McNally’s

Commercial Atlas & Marketing Guide.)

In addition, it concludes that its

regulatory framework should be

expanded to include service rules for

mobile operations in the 39 GHz band.

Thus, 39 GHz service providers will be

better positioned to respond to the

dictates of the marketplace. Moreover,

such flexibility will promote

competition by increasing both the

diversity of potential service offerings

and the number of providers that can

offer any service. Finally, the

Commission addresses those 39 GHz

applications held in abeyance pursuant

to the processing freeze imposed in the

Notice of Proposed Rulemaking and

Order, (NPRM and Order), 61 FR 02452

(January 26, 1996) as modified in its

subsequent Memorandum Opinion and

Order, 62 FR 14015 (March 25, 1997).

2. In the NPRM and Order, the

Commission considered permitting an

array of fixed services in the 37 GHz

band. Subsequently, Motorola and other

satellite entities expressed their interest

in this band as well, and similar

interests were expressed for other high

gigahertz bands. Accordingly, the

Commission decided to address the

36.0–51.0 GHz bands in a unified

manner, and In the Matter of Allocation

and Designation of Spectrum For FixedSatellite Services in the 37.5–38.5 GHz,

40.5–41.5 GHz, and 48.2–50.2 GHz

Frequency Bands; Allocation of

Spectrum to Upgrade Fixed and Mobile

Allocations in the 40.5–42.5 GHz

Frequency Band, Allocation of

Spectrum in the 46.9–47.0 GHz

Frequency Band for Wireless Services;

and Allocation of Spectrum in the 37.0–

38.0 GHz and 40.0–40.5 GHz for

Government Operations, IB Docket No.

97–95, Notice of Proposed Rulemaking,

FCC 97–85 (rel. March 24, 1997) (‘‘36–

51 GHz NPRM’’), Notice of Proposed

Rulemaking, 62 FR 16129 (April 4,

1997), the Commission sought comment

on its proposals for these frequency

bands. However, because the 39 GHz

band is significantly licensed and

subject to additional applications for

license, the Commission has concluded

that it is in the public interest to refine

its rules at this time to allow existing

and new licensees to maximize the array

of services they can provide to the

public. In addition to providing support

for existing services (e.g., broadband

PCS, cellular, and other commercial and

private mobile radio operations), 39

GHz band providers plan to use this

spectrum to satisfy needs for a host of

other fixed services, such as: (1)

Wireless local loops, (2) call termination

or origination services to long distance

companies, (3) connection of the

customers of a competitive access

provider (‘‘CAP’’) or a local exchange

carrier (‘‘LEC’’) to its fiber rings, (4)

connection and interconnection services

to private networks operated by

business and government as well as

other institutions, (5) Internet access,

and (6) cable headend applications. In

some cases, 39 GHz band licensees are

already using the spectrum for such

purposes.

I. Decision—Service Rules

A. Service Areas

3. The Commission adopts its

proposal in the NPRM and Order to

license new 39 GHz licenses based on

pre-defined geographic areas rather than

the applicant-defined rectangular areas

currently authorized in the 39 GHz

band. Commission-defined service areas

will foster efficient utilization of 39 GHz

spectrum in an expeditious manner and

will provide a more orderly structure for

the licensing process. The Commission

therefore rejects the suggestion by some

commenters that it continue licensing

the 39 GHz band by permitting

applicants to define their own service

areas. For those interested in tailoring a

service area to other smaller or larger

markets, the Commission notes that,

concurrently with the instant

proceeding, it is also proposing service

rules to allow partitioning and

disaggregation by 39 GHz licensees.

4. In choosing the most appropriate

definition for 39 GHz service areas, the

Commission observes that its

conclusion that this band is auctionable

(explained below in Discussion Section

A) requires it to apply the criteria of

section 309(j)(4)(C) of the

Communications Act of 1934, as

amended, (‘‘Act’’ or ‘‘Communications

Act’’). This section mandates that the

Commission consider certain factors

when establishing service areas for

auctionable services. The first of these

criteria is that the service area promote

an equitable distribution of licenses and

services among geographic areas. The

Commission believes that use of BTAs

fulfills this objective because they are

intended to represent the natural flow of

commerce, comprising areas within

which consumers have a community of

interest. As a result, the Commission

believes that BTAs are representative of

the geographic areas in which the types

of services envisioned for the 39 GHz

band are likely to be provided. The

second criterion the Commission is

required to consider is whether the

service area is appropriate to provide

economic opportunity for a wide variety

of applicants, including small

businesses, rural telephone companies,

and businesses owned by members of

minority groups and women. The

Commission believes that BTAs are

sufficiently large to accommodate the

array of services proposed for the 39

GHz band in a manner which provides

opportunities for a variety of licensees.

The BTA-sized service areas for support

spectrum will be compatible with the

primary service areas defined for

broadband PCS providers. The

Commission also believes that other

services, such as telephony, would find

sufficient population within BTAs to

support the pursuit of various business

opportunities. In addition, the

Commission believes that other services

anticipated for 39 GHz spectrum, such

as wireless local loop, competitive

access, local exchange, and Internet

access, are of a local nature for which

use of BTAs also would be appropriate.

Moreover, the Commission believes that

use of BTAs as the service area

definition for the 39 GHz band will also

satisfy the third criterion of section

309(j)(4)(C), which requires that the

Commission establish service areas in a

manner which will promote investment

in and rapid deployment of new

technologies and services. Accordingly,

the Commission agrees with the

commenters who advocate the use of

BTAs for licensing the 39 GHz band.

5. The Commission disagrees with

those commenters who contend that the

service areas for the 39 GHz band

should be based on larger geographic

areas. The Commission believe that

BTAs offer a sufficiently large service

area to allow applicants flexibility in

designing a system to maximize

population coverage and to take

advantage of economies of scale

necessary to support a successful
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6081

operation. Moreover, to the extent that

39 GHz licensees desire to provide

service over a larger geographic region,

the rules the Commission adopt today

will allow them to aggregate BTAs. The

Commission does not believe, however,

nor does the record indicate, that the

majority of licensees will seek to

provide service over vast geographic

regions. Thus, the Commission believes

that larger service areas would be

inappropriate for the 39 GHz band.

6. Finally, although GTE expressed

some concern that any Rand McNally

licensing agreement should be

reasonable, the Commission does not

believe that the existence of Rand

McNally’s copyright interest in the BTA

listings will present an impediment to

use of these areas by 39 GHz band

licensees. The Commission expects that

potential licensees and Rand McNally

will execute a licensing agreement

similar to those already undertaken in

other contexts. In particular, Rand

McNally has already licensed the use of

its copyrighted MTA/BTA listing and

maps for a number of services, such as

PCS, 800 MHz Special Mobile Radio

(SMR) service, and Local Multipoint

Distribution Service (‘‘LMDS’’), and the

company has also reached an agreement

with the American Mobile

Telecommunications Association

(‘‘AMTA’’) for a blanket copyright

license for the conditional use of

copyrighted material in the 900 MHz

SMR service. These agreements

authorize the conditional use of Rand

McNally’s copyrighted material in

connection with these particular

services, require interested persons

using the material to include a legend

on reproductions (as specified in the

license agreement) indicating Rand

McNally’s ownership, and provide for a

payment of a license fee to Rand

McNally.

7. The Commission encourages

interested parties and Rand McNally to

explore the possibility of entering into

blanket license agreements to cover the

39 GHz band. The Commission notes

that a 39 GHz BTA authorization grantee

who does not obtain a copyright license

through a blanket license agreement (or

some other arrangement) with Rand

McNally for use of the copyrighted

material may not rely on the grant of a

BTA-based authorization from the

Commission as a defense to any claim

of copyright infringement brought by

Rand McNally against such grantee. The

MTA/BTA Listings, the MTA/BTA Map

and the license agreements noted above

are available for public inspection at the

Wireless Telecommunications Bureau,

Reference Room, Room 5322, 2025 M

Street, N.W., Washington, D.C., 20554.

B. Permissible Operations in the 39 GHz

Band

8. In the NPRM and Order, the

Commission raised questions about

expanding the array of services

provided in the 39 GHz band to include

point-to-multipoint and mobile

operations. Although these services are

permitted under the Table of

Allocations for this spectrum band, the

only type of service authorized under

the Commission’s current service rules

is point-to-point operations. The 39 GHz

band is currently being licensed and

used for non-Government, terrestrialbased, fixed, point-to-point microwave

service. In addition, there are no

satellite operations in the 39 GHz band.

Accordingly, the Commission’s efforts

to improve the licensing and service

rules for non-Government service in this

band are not affected by any existing

assignments under different allocations.

The Commission takes note of the fact

that the 39 GHz band contains the

following allocations:

• Domestically, the 38.6–39.5 GHz

portion of the band is allocated for nonGovernment use to provide fixed and

mobile services and FSS (space-toEarth) on a primary basis. In addition to

these primary allocations, the 39.5–40.0

GHz portion of the band is allocated on

a shared basis between Government and

non-Government users on a primary

basis for FSS (space-to-Earth) and

Mobile-Satellite Service (‘‘MSS’’)

(space-to-Earth). Government use of

39.5–40.0 GHz is limited to military

systems.

• Internationally, the 39 GHz band is

allocated on a co-primary basis for fixed

and mobile services and FSS (space-toEarth), and on a secondary basis for use

by the Earth-Exploration Satellite

service (space-to-Earth). The 39.5–40.0

GHz portion of the band is also

allocated on a primary basis for MSS

(space-to-Earth).

9. In the NPRM and Order, the

Commission requested public comment

on whether it should also establish

service rules which would permit pointto-multipoint and mobile services.

Many parties commenting in this

proceeding have encouraged us to allow

them flexibility to determine the best

uses of the 39 GHz band; in particular,

they have requested authority to provide

point-to-multipoint and mobile service,

as the technology to provide these

services becomes available. The

Commission has considered these

comments in connection with the recent

amendment to section 303 of the

Communications Act concerning criteria

it must consider when permitting

flexible use of the electromagnetic

spectrum, which was enacted after the

NPRM and Order and after the comment

period had been completed in this

proceeding.

i. Point-to-Multipoint Operations

10. Given the fact that the 39 GHz

service is still in its early stages of

development, the Commission believes

that it is imperative that it not take any

regulatory actions that would hamper

the service’s continued development

and growth potential. The Commission

notes, as a general matter, that the type

of services proposed for the 39 GHz

band by the commenters can be offered

on both a point-to-point and point-tomultipoint basis. Although a few

commenters contend that the

Commission should defer allowing

point-to-multipoint operations in this

band until specific technical rules are

adopted to protect against interference

to point-to-point users (such as

equipment specifications), there is no

evidence in the record that point-topoint and point-to-multipoint

operations are inherently incompatible

in the same band or licensing area.

Therefore, the Commission will adopt

39 GHz rules for point-to-multipoint

operations.

ii. Mobile Operations

11. The Commission has considered

the comments of several parties

requesting that it establish rules to

permit mobile operations in this band.

Parties opposing authorization of mobile

services in the 39 GHz band argue that

there are no technical parameters to

protect both fixed and mobile

operations from mutual interference.

12. After careful review of the record

evidence, the Commission has decided

to permit implementation of mobile

operations in the 39 GHz band.

Permitting such flexibility will enable

providers to modify their offerings

quickly and efficiently to provide the

services that consumers demand and

that technology makes possible. Thus,

providers will be better positioned to

respond to the dictates of the

marketplace. Moreover, such flexibility

will promote competition by increasing

both the diversity of potential service

offerings and the number of providers

that can offer any service. Thus, the

requirements of section 303(y) are

fulfilled because both technological

development and investment therein

will be stimulated. Moreover, this broad

view of the character of 39 GHz service

comports with the development of the

industry thus far because parties are

developing a wide variety of fixed

services and some parties may be

developing, or planning to develop,
6082 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

mobile services technology capable of

operating without interference to fixed

facilities in this band. Accordingly, the

Commission is convinced that

establishing rules for mobile operations

will best serve the public interest. In

addition, the Commission observes that

in a number of other contexts it has

authorized licensees to provide both

mobile and fixed operations within the

same service—e.g., General Wireless

Commercial Services (‘‘GWCS’’), the

Commercial Mobile Radio Services

(‘‘CMRS’’), and the Interactive Video

and Data Service (‘‘IVDS’’).

13. For the most part, the objections

that have been raised to mobile

operations in this proceeding are

misplaced. Since the service is licensed

on an exclusive, area-wide basis

(whether by incumbents’ rectangular

service areas or by new licensees’

BTAs), the issue of technical

compatibility of fixed and mobile

operations within a service area is one

that can and should be resolved by the

licensee. To the extent that a licensee

has the technological wherewithal to

provide one or the other, or both, types

of services, the licensee will do so in a

manner that the market directs.

Governmental direction in this service

is unnecessary except to the extent that

the operations of one licensee may

interfere with that of another. Even if

mobile operations are not now

compatible with fixed operations within

a licensee’s service area, if adequate

protections against inter-licensee

interference are in place, a failure to

authorize mobile use in this spectrum

might delay implementation of a dual

(mobile and fixed) operation when it

does become feasible. Accordingly, the

Commission agrees that 39 GHz

licensees should have the flexibility to

provide mobile services.

14. The Commission recognizes that

inter-licensee interference issues are

magnified under this approach. For

example, a mobile unit operating in a

fixed microwave environment on the

same frequency calls for a different

interference analysis and a more

difficult resolution than the operation of

two or more fixed microwave systems

on the identical frequency in the same

vicinity. In addition, the Department of

Defense has stated that it has plans to

implement satellite downlinks at 39.5–

40.5 GHz in the future. NASA has also

identified 39.5–40.0 GHz as a possible

space research band to accommodate

future earth-to-space wideband data

requirements. Such plans, however,

should not affect the continued

development of the 39 GHz band for

non-Government use. The Commission

believes that it is likely that military

satellite systems will be able to share

with non-Government terrestrial and/or

fixed satellite systems, provided that the

Government receiving Earth stations are

limited in number. The Commission

intends to address these interference

issues in a future, separate proceeding

that will focus on developing interlicensee and inter-service standards and

criteria. Until these standards and

criteria are adopted the Commission

will not permit mobile operations in the

39 GHz band.

iii. The Balanced Budget Act

Requirements for Flexible Use

15. The Balanced Budget Act

authorizes the Commission to allocate

spectrum so as to provide flexible use,

if such use is consistent with

international agreements to which the

United States is a party and the

Commission finds that: (1) Such an

allocation would be in the public

interest; (2) such use would not deter

investment in communications services

and systems, or technical development;

and (3) such use would not result in

harmful interference among users. In the

NPRM and Order, the Commission

sought comment on whether it should

allow point-to-multipoint and mobile

operations in addition to the traditional

point-to-point services authorized in the

39 GHz band. As discussed supra, the

Commission finds that the flexible use

approach adopted herein is consistent

with the new statute. Accordingly, the

Commission will permit point-to-point,

point-to-multipoint and mobile

operations on the 39 GHz band.

However, as explained supra, the

Commission will defer mobile use until

a future rulemaking proceeding can

establish interference criteria.

Accordingly, the Commission finds, as

required by Section 303(y) of the

Communications Act, as amended by

the Balanced Budget Act, that no

harmful interference will be caused by

allowing both point-to-point and pointto-multipoint operations in the 39 GHz

band. The Commission concludes

further, based on the above-mentioned

comments in the record, that point-tomultipoint use will not deter investment

in communications services and

systems, or in technology development.

To the contrary, permitting point-tomultipoint use will stimulate creative

technology development and facilitate

investment therein. It is in the public

interest to afford 39 GHz licensees

flexibility in the design of their systems

to respond readily to consumer demand

for their services, thus allowing the

marketplace to dictate the best uses for

this band. Accordingly, the Commission

finds that the requirements of Section

303(y) of the Communications Act, as

amended, are fulfilled to justify pointto-multipoint use of the 39 GHz band as

part of a flexible use approach. While at

this time, the Commission is not

determining the specific provisions for

interference protection with regard to

mobile use, it will adopt such

requirements before permitting mobile

operations in this band.

C. Channeling Plan

16. The existing 39 GHz channeling

plan consists of fourteen paired 50 MHz

channel blocks, with a spacing of 700

MHz between the transmit and receive

frequencies. Within this framework, 39

GHz licensees have the flexibility to

subdivide their channels in the manner

they deem most appropriate to meet

service demands. The Commission will

retain its current channel plan. The

Commission concludes that adopting a

standard subchannelization plan at this

early stage in the development of the 39

GHz service would potentially hamper

licensees’ efforts to meet their customer

demands and could unnecessarily

impose technical and economic costs on

equipment users and limit the range of

services potentially available. Moreover,

given the short propagation

transmission characteristics at these

frequencies, lack of a subchannelization

plan is not likely to cause any

significant coordination problems in the

39 GHz band. Furthermore, because the

Commission anticipates that one of the

uses for the 39 GHz band is provision

of CMRS infrastructure, it is concerned

that adoption of a subchannelization

plan may frustrate such use if it is

inconsistent with the channeling plan

for particular CMRS providers. Thus,

the Commission believes that the

existing approach that allows 39 GHz

licensees to freely subdivide their

channel blocks will not only avoid this

unintended result but also facilitate the

most flexible and efficient use of 39 GHz

spectrum. As the Commission observed

in the NPRM and Order, however, the

Commission’s decision not to adopt a

standard subchannelization plan does

not preclude the industry from

developing its own voluntary standards

in this area.

D. Licensing Rules

i. Eligibility

17. In addressing the eligibility issue,

the Commission inquires whether open

eligibility poses a significant likelihood

of substantial competitive harm in

specific markets, and, if so, whether

eligibility restrictions are an effective

way to address that harm. This

approach results in reliance on
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6083

competitive market forces to guide

license assignment absent a compelling

showing that regulatory intervention to

exclude potential participants is

necessary. Such an approach is

appropriate here because it best

comports with the Commission’s

statutory guidance. When granting the

Commission authority in Section

309(j)(3) to auction spectrum for the

licensing of wireless services, Congress

acknowledged the Commission’s

authority ‘‘to [specify] eligibility and

other characteristics of such licenses.’’

However, Congress specifically directed

that the Commission exercise that

authority so as to ‘‘promot[e] * * *

economic opportunity and

competition.’’ Congress also emphasized

this pro-competitive policy in Section

257, where it articulated a ‘‘national

policy’’ in favor of ‘‘vigorous economic

competition’’ and the elimination of

barriers to market entry by a new

generation of telecommunications

providers. This approach is also

consistent with the Commission’s

analysis in Rulemaking To Amend Parts

1, 2, 21, and 25 of the Commission’s

Rules To Redesignate the 27.5–29.5 GHz

Frequency Band, To Reallocate the

29.5–30.0 GHz Frequency Band, To

Establish Rules and Policies for Local

Multipoint Distribution Service and for

Fixed Satellite Services, Petitions for

Reconsideration of the Denial of

Applications for Waiver of the

Commission’s Common Carrier Point-toPoint Microwave Radio Service Rules,

CC Docket No. 92–297, Suite 12 Group

Petition for Pioneer Preference, PP–22,

Second Report and Order, Order on

Reconsideration, and Fifth Notice of

Proposed Rulemaking, 62 FR 16514

(April 7, 1997), adopting subpart L of

part 101 of the Commission’s Rules, 47

CFR 101.1001–1112; appeal pending

sub nom. Melcher v. FCC, Case Nos. 93–

110, et al. (D.C. Cir., filed Feb. 8, 1993);

Order on Reconsideration, 62 FR 28373

(May 23, 1997). Finally, implementation

of this approach is consistent with the

court’s treatment of eligibility issues in

Cincinnati Bell Tel. Co. v. FCC, 69 F.3d

752 (6th Cir. 1995), at 760. In that

decision, the Court looked to statistical

data and general economic theory as

support for predictive judgments by the

Commission such as a finding that

eligibility restrictions are required.

18. In the case of the 39 GHz band, the

Commission determines that it is

unlikely that substantial anticompetitive

effects would result from LEC eligibility

for two primary reasons. First, increased

LEC provision of services other than

those provided in local exchange

markets, such as point-to-point

backhaul and backbone transmission,

will not diminish the generally

competitive environment in which

those services are now available.

Second, even presuming that 39 GHz

licenses will enable effective provision

of services that can compete with local

exchange service, such as wireless local

loop, incumbent LECs should have little

or no incentive to acquire those licenses

with the anticompetitive intent of

foreclosing entry by other firms and

preserving market power. An incumbent

strategy of preserving expected future

profits by buying 39 GHz licenses

cannot succeed because there are

numerous other sources of actual and

potential competition. As discussed

supra, there are many non-LEC license

holders in the 39 GHz band currently,

and these licensees will be able to

provide services that compete with

wireline local exchange. In addition, the

Commission’s overall 36–51 GHz band

plan contemplates making available

considerable additional spectrum,

including substantial unencumbered

spectrum, for flexible terrestrial use at

frequencies close to those covered by

this Order. These future licenses should

enable provision of whatever

competitive services can be provided

with the 39 GHz licenses. Further, entry

by other wireless licensees is possible as

well, such as CMRS firms now

authorized to provide fixed services.

Moreover, the Telecommunications Act

of 1996, Public Law 104–104, 110 Stat.

56 (1996), has set the stage for new

facilities-based, wireline entrants such

as interexchange carriers and

competitive LECs, and non-facilitiesbased wireline entrants utilizing the

new local competition provisions.

Finally, the Commission has now

provided for one additional potential

competitive option in every region of

the country in the form of the 1150 MHz

LMDS licensee. The Commission has

imposed an eligibility restriction

preventing in-region LECs (and cable

television companies) from acquiring

these large LMDS licenses for three

years, guaranteeing that each license

will be acquired by a firm new to

provision of local exchange in the

service area. Therefore, these licensees

also constitute potential competition for

incumbent LECs providing local

exchange services. Given all these

competitive possibilities, it is

implausible that incumbent LECs would

pursue a strategy of buying 39 GHz

licenses in the hope of foreclosing or

delaying competition, and implausible

that they would succeed if that strategy

were attempted. Therefore, the

Commission finds that LEC eligibility

for these licenses poses no likelihood of

substantial competitive harm.

19. Note that several factors, taken

together, explain the distinction

between the Commission’s resolution of

the eligibility issue here and in the case

of the 1150 MHz LMDS licenses. The

1150 MHz LMDS license blocks are

unusually large, making possible the

provision of voice, video, data, or some

combination of these services. With the

possibility of providing voice cheaply as

part of a set of services, the 1150 MHz

LMDS license is a particularly attractive

competitive option, and incumbents are

particularly likely to attempt acquisition

in order to prevent entry by new

competitors using the LMDS license. In

addition, with only one large LMDS

license available per geographic area,

anticompetitive preemption is quite

feasible and thus the risk of such

acquisition is increased. Moreover, the

39 GHz licenses being made available

within the near future (i.e., within a

similar time frame as the LMDS

spectrum) are encumbered, while LMDS

licenses are largely unencumbered.

Thus, 39 GHz licenses are less likely to

be acquired by incumbent LECs for

anticompetitive motives. Most

importantly, as noted above, given the

fact that the Commission has now

provided for an additional competitive

option by imposing the 1150 MHz

LMDS eligibility restriction, the

competitive circumstances it faces in

this proceeding differ from those it

faced in the LMDS proceeding. The

Commission’s eligibility analysis and

conclusion here, in fact, are consistent

with the Commission’s treatment of

eligibility for the small, 150 MHz, LMDS

licenses.

20. Because the Commission sees no

likely and substantial competitive harm

flowing from LEC eligibility, it rejects

the argument that LECs should be

required to certify compliance with the

‘‘Competitive Checklist’’ as a

precondition to participation in the 39

GHz auction. The Commission also

notes as a general matter that LEC

eligibility can be expected to yield

efficiency benefits if there are

complementarities between the ultimate

use(s) of 39 GHz spectrum and the

existing LEC services when offered in

the same service area. For example,

LECs might be able to achieve savings

not available to new entrants by taking

advantage of their current infrastructure,

and imposition of restrictions would

prevent realization of such savings.

Restrictions might also prevent

incumbent LECs from experimenting

with certain technology and market

combinations, and preclude or delay
6084 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

desirable entry by incumbents into new

markets.

ii. License Term

21. Under the Commission’s previous

rules, all common carrier 39 GHz

licensees who were licensed before

August 1, 1996 (i.e., those licensed

previously under part 21 of the

Commission’s Rules) were subject to a

fixed license term ending February 1,

2001, regardless of the grant date of

their individual licenses. Private carrier

39 GHz licensees authorized before

August 1, 1996 (i.e., those licensed

previously under part 94 of the

Commission’s Rules) received a fiveyear license which would run from the

date of license grant. However, both

private and common carrier licenses

granted on or after August 1, 1996, the

effective date of the Part 101 Report and

Order, have a license term not to exceed

ten years. In addition, neither the former

fixed microwave rules in Parts 21 and

94, nor the current ones in the new part

101, expressly provide for a renewal

expectancy for common carrier or

private carrier 39 GHz licensees.

22. The Commission declines to

increase the term to ten years for

incumbents who have received a shorter

period under the rules that predated

those adopted in the Part 101 Report

and Order. When it adopted the part 101

rules, the Commission decided to

conform the license terms of common

carrier and private carrier 39 GHz

licensees on a going forward basis. The

Commission did not, therefore, alter the

conditions under which incumbent

licensees had taken their licenses, and

it left in place a bifurcated approach

toward renewal that would exist until

the incumbents’ current licensing cycle

runs its course. The Commission is

unpersuaded that this approach,

adopted only a year ago, should be

altered.

iii. Performance Requirements: Renewal

and Build-out

23. The Commission noted in the

NPRM and Order that both cellular and

PCS licensees receive a renewal

expectancy, and it proposed adopting a

similar standard in this proceeding.

Commenters support adopting a renewal

expectancy for the 39 GHz service for

similar reasons, as they recognize the

benefits that such a presumption offers.

24. Incumbent 39 GHz licensees are

currently subject to the build-out

requirements of part 101 of the

Commission’s Rules, which require that

at least one link be constructed in a

licensee’s geographic service area

within eighteen months of the date of

license grant. In the NPRM and Order,

the Commission proposed new buildout requirements for incumbent 39 GHz

licensees in order to ensure that the

spectrum was being used to provide

service to the public. Because of the

Commission’s concern that such

licenses be used to provide service to

the public, the Commission solicited

comment on its proposal to allow

incumbent 39 GHz licensees to retain

their licenses only by meeting specific

construction and loading requirements.

The Commission suggested three basic

construction build-out options, each of

which depended upon a specific

number of fixed stations to be built

within the licensees’ geographic service

area. The build-out options were each

intended to ensure a minimum level of

service. While the proposals represented

a significant departure from the current

build-out rules applicable to these

licensees, in the NPRM and Order the

Commission stated that the purpose of

these proposed measures was to

minimize speculation without harming

existing 39 GHz licensees who are

responsibly developing the spectrum

they have been assigned.

25. The Commission also requested

comment on build-out requirements for

new licensees authorized pursuant to

the competitive bidding rules

promulgated herein. In the NPRM and

Order, the Commission observed that

the Communications Act requires that

any regulations implementing a

competitive bidding system include

performance requirements—such as

appropriate deadlines and penalties for

performance failures—to ensure prompt

delivery of service to rural areas, to

prevent stockpiling or warehousing of

spectrum by licensees, and to promote

investment in and rapid deployment of

new technologies and services. The

build-out requirements that apply to

other fixed, microwave services licensed

on a link-by-link basis, as well as those

requirements that apply to mobile

services, did not appear appropriate for

a fixed, geographically licensed service

like 39 GHz. Accordingly, the

Commission asked for comment on

what other methods it might employ to

ensure that licensees are using their

spectrum, servicing rural areas, and

enabling the provision of new services

to the public. The Commission

suggested that these goals might be

accomplished if it required licensees to

demonstrate substantial service in their

service areas. As the Commission noted

in the NPRM and Order, the use of a

substantial service standard has

precedent in the Commission’s Rules.

26. The performance rules the

Commission is adopting for the 39 GHz

band require each licensee to prove

substantial service in order to achieve

license renewal. The Commission

arrives at this approach based on two

factors. First, the approach satisfies the

dictates of Section 309(j)(4)(B) of the

Communications Act, which requires

the Commission to adopt effective

safeguards and performance

requirements for licensees in connection

with any competitive bidding system.

The Commission believes that the

requirements it establishes herein will

fulfill this obligation, because a license

will be assigned in the first instance

through competitive bidding, with the

result that it will be assigned efficiently

to an entity that has shown, by its

willingness to pay market value, its

willingness to put the license to its best

use.

27. Second, the approach the

Commission is taking with regard to

performance rules is also based on the

record in this proceeding, which

strongly supports giving 39 GHz

licensees a significant degree of

flexibility in meeting their performance

requirement. As described above, the

types of service available from 39 GHz

providers is tremendously varied, and

the service promises to develop in ways

the Commission cannot predict at this

time. Thus, an inflexible performance

requirement might impair innovation

and unnecessarily limit the types of

service offerings 39 GHz licensees can

provide. Permitting licensees to

demonstrate that they are meeting the

goals of a performance requirement with

a showing tailored to their particular

type of operation avoids this pitfall.

Moreover, the Commission’s examples

of presumed substantial service, based

on a specific number of links per

population standard, provides licensees

with a degree of certainty regarding

their license requirements. Accordingly,

the Commission believes that the

performance requirements it establish

herein will permit flexibility in system

design and market development, yet

provide a clear and expeditious

accounting of spectrum use by licensees

to ensure that service is indeed being

provided to the public.

28. The Commission declines to adopt

any of the build-out proposals it made

for incumbent 39 GHz licensees in the

NPRM and Order. The first option

would have required licensees to meet

a specific build-out benchmark. The

Commission has considered a number of

possibilities for such a benchmark, and

it has rejected those that appear

infeasible. The Commission’s principal

proposal fell into this category. The

Commission had proposed to require

any licensee to construct and put in

operation at least four links per 100
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6085

square kilometers of their service area

within 18 months of adoption of a

Report and Order in this proceeding.

The Commission is persuaded by

several commenters’ arguments that

such a build-out requirement would be

unduly restrictive and burdensome,

thus unnecessarily limiting licensees’

service options. For the same reasons,

the Commission rejects a variant of its

principal proposal, which would have

combined the alternatives discussed

below with an 18-month requirement to

construct a certain number of links per

100 kilometers.

29. The other two alternatives the

Commission had proposed for providing

licensees with specific build-out

benchmarks are also problematic. One

alternative provided for a specific

number of links, increasing over time,

per geographic area served by each

licensee. This alternative does not

adequately take into account the

differences among licensees. Under this

requirement, a licensee in a sparsely

populated BTA would have to build an

operation that could provide the same

level of service as a licensee of a

metropolitan BTA. Such an approach

would result in either an overly

burdensome requirement for the

licensee of the smaller market or a very

lenient and almost meaningless

requirement for the licensee of the

metropolitan BTA. Moreover, since

market size is a reasonable proxy for

gauging the appropriate comparative

levels of spectrum use, the Commission

agrees with the consensus of the

commenters that any build-out standard

should therefore be based on market

population or population density. This

approach is, in fact, an underpinning of

standards that have been adopted for

CMRS services such as PCS and SMR.

30. The second alternative would

have required licensees to construct a

specific number of link installations

based on the market’s population. In the

case of 39 GHz, however, the services to

be offered generally will be customized

for each subscriber, and, for the most

part, each subscriber will have

equipment dedicated to its location.

Moreover, 39 GHz licensees are not

likely to install equipment until they

receive an order. The Commission

further notes that some commenters

argue that adoption of a concrete

standard would discourage growth,

stymie new development, and deter

investment in the 39 GHz arena.

Accordingly, the Commission is

concerned that a requirement for a fixed

number of links may interfere with the

market decisions of a particular licensee

and its customers.

31. The Commission concludes that a

showing of substantial service, the

approach it proposed for new 39 GHz

licensees, should be applied to both

incumbent and new licensees in the

band. This approach will permit

flexibility in system design and market

development, while ensuring that

service is being provided to the public.

Although a finding of substantial service

will depend upon the particular type of

service offered by the licensee, one

example of a substantial service

showing for a traditional point-to-point

licensee might consist of four links per

million population within a service

area. This revised performance standard

should ensure that meaningful service

will be provided without unduly

restricting service offerings.

32. One of the principal problems that

commenters identified with the

Commission’s build-out proposals was

that they required too much too soon.

The Commission recognizes that

licensees must be given a reasonable

amount of time to meet a performance

requirement. Parties, particularly

incumbent licensees, also argued that

different build-out standards were

unfair and would place an unreasonable

burden on their ability to respond to

market demands. Accordingly, the

Commission has decided that in order to

impose the least regulatory burden on

licensees as possible, but to remain

consistent with the Commission’s

statutory responsibilities, it will

combine the showing traditionally

required for build-out and the showing

required to acquire a renewal

expectancy into one showing at the time

of renewal. The Commission believes

this will give licensees a sufficient

opportunity to construct their systems.

The Commission believes that applying

a similar performance requirement to all

licensees at the license renewal point

will help establish a level playing field

without compromising the goals of

ensuring efficient spectrum use and

expeditious provision of service to the

public.

33. The Commission recognizes that

existing licensees who obtained their

licenses before August 1, 1996, will

receive a somewhat shorter period from

the date of this decision to meet the

construction threshold (i.e., about four

years). Extending the build-out deadline

past renewal, however, would not be

prudent nor would it appear to be

consistent with the objectives of section

309(j) of the Communications Act.

Moreover, these incumbents already

have had at least a year, and in some

cases more than two years, in which to

set in motion their business plans. Thus,

the Commission does not believe this

approach will adversely affect

incumbent 39 GHz licensees.

34. The Commission concurs with

those commenters who advocate

adopting a renewal expectancy for all

licensees in the 39 GHz band. As with

cellular and broadband PCS licensees,

affording 39 GHz providers the

opportunity to earn a renewal

expectancy will facilitate investment for

their industry, provide stability over the

long run, and better serve the public by

reducing the possibility that proven

operators will be replaced with less

effective licensees. The Commission is

not limiting this opportunity to newly

licensed 39 GHz providers. The buildout/renewal requirements established

herein will, if met, serve to give the

incumbent licensee a renewal

expectancy as well.

iv. Spectrum Aggregation Limit

35. In the NPRM and Order, the

Commission sought general comment on

whether there should be a limit on the

aggregation of 39 GHz channels within

a single BTA. The Commission also

requested comment on whether the 39

GHz service represents a discrete

market. In the event that the

Commission concluded that this service

did constitute a discrete market, it

indicated that a spectrum aggregation

limit might be advisable to ensure that

there would be an adequate number of

licenses available to meet the needs of

broadband PCS licensees and other

competitors in the wireless marketplace.

36. The Commission agrees with those

commenters who oppose a 39 GHz

spectrum aggregation limit. The record

strongly supports the conclusion that 39

GHz licensees will participate in a

number of broad markets, consisting of

a host of short-range fixed

communications provided by many

operators who employ a range of

different, but substitutable, technologies

(both radio and wire). Therefore, the

Commission is not concerned with

guaranteeing a particular number of 39

GHz competitors or with creating

competition within the 39 GHz band.

Moreover, as the Commission noted

above, there is no evidence that the

1400 megahertz of spectrum in the 39

GHz band is particularly important for,

or unusually suited for, the creation of

competition in two markets where

market power still exists—local

telecommunications services and multichannel video program delivery.

Therefore, an aggregation limit is not

needed in order to foster competition in

these two markets. Indeed, a 39 GHz

spectrum aggregation limit that was

applicable to 39 GHz licensees might
6086 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

limit the ability of a licensee to bring

efficient competition to these markets.

37. Although the Commission

believes that some of the 39 GHz

spectrum will be used to satisfy CMRS

and private mobile radio infrastructure

needs, it is persuaded by the

commenters that a great portion of this

spectrum likely will be used to provide

other wireless services, e.g., local area

network (‘‘LAN’’)-to-LAN, local access

for long distance providers, wireless

augmentations to CAPs’ networks, and

other high capacity data transmission

networks. This is evidenced by current

39 GHz operations, which are not

supporting CMRS communications

infrastructure but generally tend to be

local private line and local bypass

services. Since this arena is already

being served by multiple providers

using a variety of technologies, it is

clear that disaggregated ownership of 39

GHz spectrum is not necessary for the

competitive provision of those services.

38. The Commission also notes that

even the current users of the 39 GHz

band are still in the early stages of

developing their services, and that the

particular uses of this spectrum are still

being defined by the marketplace. As

indicated above, 39 GHz spectrum can

be used for almost any fixed, short-range

communication—the internal parts of

almost any communications system

(mobile or fixed)—or the ‘‘last mile’’ of

any fixed system, whether for voice,

data, video, or more than one of the

foregoing. At this time, the Commission

believes that it would be inappropriate

for us to view the output of 39 GHz

spectrum as falling into any one of these

categories or to find that some limit on

spectrum aggregation in order to foster

competition in that category is

necessary. Accordingly, the Commission

does not believe that it is appropriate to

restrict the amount of 39 GHz spectrum

that may be licensed to any one service

or entity.

39. Moreover, the Commission

concludes that there may be benefits to

the public in terms of efficiencies and

types of services provided if it permits

aggregation of 39 GHz spectrum. For

example, spectrum aggregation would

allow a licensee to expand its operation

and thereby lower the per unit cost of

equipment and its per capita cost of

providing service to subscribers.

Furthermore, a 39 GHz licensee with

substantial spectrum can better compete

with established service providers who

have large transmission capacity. In

addition, the Commission concludes

that it is not likely that aggregation of 39

GHz spectrum by a single entity would

lead to undue market power. The

Commission notes that other service

providers, such as LECs and CAPs, have

some significant competitive advantages

over a competitor using only 39 GHz

spectrum, such as an established

customer base and transmission

facilities that carry much more traffic

than would be possible by a 39 GHzbased facility using only, for example,

700 MHz of spectrum. In addition, other

service providers are not precluded

from adding fiber or radio transmission

facilities to their existing networks.

Moreover, the Commission has

proposed to make available additional

spectrum enabling more parties to

compete in many of the types of services

proposed by potential 39 GHz service

providers, and it plans to consider these

proceedings in connection with the

Commission’s 36–51 GHz band plan

proceeding. Therefore, the Commission

believes that even if a single licensee

controls a significant part of the 39 GHz

band in a single BTA, it could not

control service prices or limit

competition, given the number of

providers of similar or substitutable

services and the variety of transmission

media at their disposal.

40. The Commission also does not

believe that a spectrum aggregation limit

is warranted to ensure that there is

adequate support spectrum available for

broadband PCS, cellular radio, and

other commercial and private mobile

radio operations. While the use of the 39

GHz band may help meet these needs,

such backhaul and backbone support

can also be provided by using wirebased technologies and over-the-air

spectrum outside the 39 GHz band (e.g.,

at 6, 11, 18 and 23 GHz). Given this

availability of substitutable spectrum for

backhaul and backbone support,

coupled with the aforementioned

competition that exists to 39 GHz

providers of alternative types of

services, the Commission finds that

imposing a spectrum aggregation limit

for the 39 GHz band would be contrary

to the public interest.

v. Technical Rules

a. Frequency Tolerance and Efficiency

Standard.

41. The Commission has determined

that a frequency tolerance standard is

unnecessary. The Commission’s basis

for this view stems from its desire to

provide 39 GHz licensees flexibility in

the operation of their facilities and to

avoid imposing unnecessary

regulations. In addition, the

Commission believes such a standard

could inhibit technological advances,

for equipment performance is likely to

be influenced by customer demand. For

those that might be concerned that

elimination of this standard may lead to

inter-system interference, the

Commission points to its existing out of

band emission requirements (emission

mask) contained in § 101.111 of the

rules. That rule requires frequencies

removed in various percentages from

the center frequency to be attenuated

below the mean power of the

transmitter. This means that the

frequencies at the outer edges of an

assigned 50 MHz channel or at the edge

of an aggregated group of 50 MHz

channels power levels will be

significantly reduced such that

interference to an adjacent channel

licensee is unlikely. Thus, the

Commission believes that strict

adherence to § 101.111 will be as

effective in controlling inter-system

interference as the imposition of a

frequency tolerance standard. In

addition, concerns for inter-system

interference should be further eased, as

the Commission is requiring

neighboring and adjacent channel

licensees to engage in frequency

coordination before implementation of

their planned operations.

b. Antenna Requirements.

42. There is evidence in the record

that the Commission’s proposal to

require 39 GHz licensees to employ only

Category A antennas is too restrictive

because parties are contemplating a

variety of system configurations that

would require different types of

antennas, e.g., sectorized or wide beam

units, characteristics of which would be

incompatible with the standards of a

Category A antenna. These models

represent a more cost-effective and

technically suitable alternative to

traditional narrowbeam Category A

antennas when deployed in a point-tomultipoint configuration. As the

deployment of 39 GHz facilities

increases, the Commission expects other

system configurations to be developed

in which narrowbeam antennas may not

be the optimal solution. The

Commission concludes that the need to

provide 39 GHz licensees the technical

flexibility to meet service demands

outweighs any benefits that would

ensue by adopting the requirement.

Therefore, the Commission declines to

require licensees in the 39 GHz band to

use Category A antennas initially. The

Commission concludes that 39 GHz

licensees should be given the flexibility

to employ antennas other than Category

A types, provided they do not cause

interference problems. Should the use of

an antenna other than a Category A

antenna become the source of an

interference problem, however, the

Commission will require that the

licensee immediately resolve such

interference by replacing the antenna
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6087

with a Category A model or one with

better performance characteristics. c. Frequency Coordination and Power

Flux Density (‘‘PFD’’) Limit. 43. The Commission is persuaded by

the record that adoption of a PFD limit

or field strength limit now would not

further the Commission’s goal of

facilitating the growth and development

of the 39 GHz spectrum. In this

connection, the Commission notes that

there is a lack of consensus regarding

the parameters necessary to establish a

reasonable and practical PFD or field

strength limit. As a result, the

Commission is concerned that

establishing a service area boundary

PFD or field strength limit without such

information may stifle the development

of advanced 39 GHz technology. Thus,

the Commission declines to adopt such

a standard at this time, and

consequently, it need not reevaluate the

current EIRP at this time. The

Commission concludes that it is in the

public interest to continue to use the

frequency coordination procedures

outlined in § 101.103(d) of the

Commission’s Rules. The Commission

describes these procedures, infra, as

modified to implement certain

improvements supported by the record

of this proceeding. Despite the fact that

licensees will not be able to rely on PFD

or field strength limits to avoid the

formal coordination process, the

Commission believes that its modified

coordination procedures will provide

licensees substantial flexibility in

system design while ensuring that intersystem interference will be kept to a

minimum. The Commission’s

experience with other services

employing frequency coordination

procedures shows that those services

have been successfully implemented

with little delay and rarely result in

unresolved frequency interference cases. 44. Under the Commission’s

frequency coordination procedures, 39

GHz licensees will be subject to the

requirements of § 101.103(d) of the

Commission’s Rules, with certain

modifications. As a result, they must

provide values for the appropriate

parameters listed in that subsection to

each neighboring BTA licensee

authorized to use adjacent and cochannel frequencies. Likewise, they

must provide the same information to

each potentially-affected, adjacentchannel licensee in the same BTA.

Coordinating parties also must supply

technical information related to their

subchannelization plan and system

geometry. Based on the propagation

characteristics of this spectrum,

coordination between neighboring

systems need only encompass

operations located within 16 kilometers

of BTA boundaries. Currently,

§ 101.103(d) of the Commission’s Rules

gives each party that receives a

coordination notification 30 days in

which to respond. The record in this

proceeding indicates that 30 days is an

inappropriate time frame for operations

in the 39 GHz band because licensees

often offer service that requires much

shorter installation deadlines. In order

to facilitate such rapid service

installation schedules, the Commission

will require that recipients of

coordination notifications respond

within 10 days. Each licensee must

complete this coordination process prior

to initiating service within its service

area. Finally, participating parties

should resolve any problems that

develop during this process. Only

unresolved frequency conflicts should

be reported to the Commission. In such

cases the Commission will resolve the

conflicts. The Commission believes that

the coordination approach it is adopting

does not preclude licensees from

entering into private agreements that

mitigate interference problems. These

agreements may include an arrangement

to conduct a one-time blanket

coordination as opposed to coordinating

each individual link as they are planned

for activation, or arrangements for one

party to compensate another financially

for modifying its operation to

accommodate new installations.

vi. Partitioning and Disaggregation

45. Partitioning is the assignment of

all the spectrum within specific

geographic portions of a licensee’s

service area. Disaggregation is the

assignment of discrete portions or

‘‘blocks’’ of licensed spectrum to

another entity. The Commission

concludes that partitioning and

disaggregation should be permitted in

the 39 GHz band. The Commission

further concludes that the option of

partitioning should not be limited to

rural telephone companies but should

be made available to all entities eligible

to be licensees in the 39 GHz band,

including incumbent 39 GHz licensees.

The Commission thus concurs with

commenters who support partitioning,

and notes that no parties opposed this

proposal. The Commission believes that

the availability of these options will

enhance 39 GHz licensees’ flexibility

with respect to system design and

service offerings. The Commission also

believes that partitioning and

disaggregation opportunities further the

objectives of section 309(j) of the

Communications Act by facilitating the

development of niche markets and the

arrival of new entrants, including small

businesses, rural telephone companies

and businesses owned by members of

minority groups and women. In

addition, these tools will promote

efficient use of 39 GHz spectrum.

46. As a result, 39 GHz licensees

acquiring their licenses under the new

rules established herein will be

permitted to acquire partitioned and/or

disaggregated licenses in either of two

ways: (1) They may form bidding

consortia to participate in auctions, and

then partition or disaggregate the

licenses won among consortia

participants after grant; or (2) they may

acquire partitioned or disaggregated 39

GHz licenses from other licensees

through private negotiation and

agreement either before or after the

auction. A licensee planning to partition

or disaggregate its license must first be

granted the license, and the licensee and

partitionee and/or disaggregatee will be

required to file an assignment

application. The Commission will

require that a licensee disaggregate by

frequency pairs. This requirement is

necessary for administrative purposes:

the database necessary to track

authorizations could otherwise become

too cumbersome and complex and

processing could become delayed or

prone to error.

47. Overall, the Commission believes

that partitioning and disaggregation will

promote competition in the 39 GHz

service and expedite the delivery of

service to the public, particularly in

rural areas. Moreover, partitioning and

disaggregation will help to eliminate

market entry barriers pursuant to

section 257 of the Communications Act

by creating smaller, less capital

intensive service areas that may be more

accessible to small entities. The

Commission considers partitioning and

disaggregation effectively to be types of

assignments, which will, therefore,

require prior approval by the

Commission. In authorizing partitioning

and disaggregation, the Commission

will follow existing assignment

procedures.

48. The Commission will require the

entity acquiring a license by partitioning

or disaggregation to satisfy the same

construction requirements as the initial

licensee, regardless of when its license

was acquired. Should a licensee fail to

meet the construction requirements, the

license will cancel automatically. The

cancelled license will, if it was

partitioned from a rectangular service

area, revert to the BTA licensee for that

channel (unless the forfeiting entity is

the BTA licensee for that channel). If the

forfeited license was partitioned from a

BTA, the license will be auctioned. In

addition, parties must comply with the

Commission’s current technical rules
6088 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

with respect to service area boundary

limits and protections. Coordination

and negotiation among licensees must

be maintained and applied in licensing

involving partitioned areas and

disaggregated spectrum. Finally, under

partitioning or spectrum disaggregation,

an entity will be authorized to hold its

license for the disaggregated spectrum

or partitioned area for the remainder of

the original license term. The

Commission concludes that this

approach is appropriate because the

Commission should not bestow greater

rights to a licensee receiving its

authorization pursuant to partitioning or

spectrum disaggregation than the

Commission awarded under the terms of

the original license grant.

vii. Regulatory Status

49. The Commission concludes that

39 GHz band licensees should be

permitted to serve as a common carrier

or as a private licensee. Further, those

licensees who select common carrier

regulatory status will be able to provide

private service, and those licensees who

select private service provider

regulatory status may share the use of

their facilities on a non-profit basis or

may offer service on a for-profit, private

carrier basis subject to § 101.135 of the

Commission’s Rules. Under this

scenario, licensees will elect the status

of the services they wish to offer and be

governed by the rules applicable to their

status. Although no commenters

addressed this issue, the Commission

believes this approach will promote

economic efficiencies by reducing

construction and operating costs

associated with having to provide

separate facilities. This result also is

consistent with § 101.133(a) of the

Commission’s Rules.

E. Treatment of Incumbent 39 GHz

Licensees

50. Incumbent 39 GHz licensees are

those who have been licensed under the

current fixed microwave rules in 47 CFR

Part 101, or its predecessors, parts 21

(for common carriers) or 94 (for private

carriers). Their service areas are selfdefined and generally are restricted to

point-to-point operations. Many of these

licensees have participated as

commenters in this proceeding, and

include WinStar, ART, BizTel,

Columbia, and a number of PCS

licensees.

i. Reconciling Service Areas of 39 GHz

Incumbents With BTA Service Areas of

New Licensees

51. While the Commission has

decided that BTAs are appropriate for

the new licensing system in the 39 GHz

band, it recognizes that many of the

newly-licensed BTA service areas will

be encumbered by incumbent 39 GHz

band licensees. These incumbents are

authorized in various locations

throughout the country, and their

rectangular service areas will occupy

portions of BTAs or cross BTA

boundaries. After careful consideration

of the concerns expressed by various

commenters, the Commission concludes

that the following approaches are

appropriate. 52. Where an incumbent licensee’s

rectangular service area occupies only a

portion of a BTA, the licensee’s

channels will be available for

application under the new competitive

bidding rules, but the incumbent will

retain the exclusive right to use those

channels within its rectangular service

area. The holder of the BTA

authorization thus will be required to

design its system to protect against

harmful interference to the incumbent

by complying with the Commission’s

interference protection standards. The

Commission notes that should such an

incumbent lose its authority to operate,

the BTA license holder will be entitled

to operate within the portion of the

forfeited rectangular service areas

located within its BTA, without being

subject to competitive bidding. This

approach best serves the public because

it gives the service providers an

incentive to make efficient use of

available spectrum, and it ensures that

any disruption of service will be

remedied as quickly as possible. 53. Where an authorized incumbent

licensee has a rectangular service area

covering an entire BTA, the Commission

will not make those channels available

for ‘‘overlay’’ licensing in that BTA.

Unlike the scenario described above, in

this situation a BTA will not have areas

that are currently unassigned. Since

incumbents will be required to

construct and operate pursuant to

Commission Rules, the public should be

assured of receiving service throughout

the BTA without the need to license an

alternative provider.

ii. Repacking

54. Background. In the NPRM and

Order, the Commission asked for

comment on whether incumbent

facilities should be relicensed on their

current frequency or whether incumbent

links should be ‘‘repacked’’ into a

different portion of the band than

initially occupied. There was very little

discussion by commenters on the issue

of repacking. The Commission’s general

approach up to this point has been to

refrain from repacking, if possible. The

Commission finds that repacking the 39

GHz band would cause a significant

disruption of incumbent 39 operations.

As noted throughout this proceeding,

the Commission does not intend to alter

or restrict significantly the operations of

incumbents. Moreover, the Commission

believes that it can coordinate with the

extant licenses of 39 GHz incumbents so

that they will not impair the

Commission’s new licensing system

using BTAs and 50-MHz channel

blocks. Accordingly, the Commission

does not believe that repacking is

necessary under these circumstances.

iii. Disposition of Pending 39 GHz Band

Applications

a. Background.

55. On November 13, 1995, the

Wireless Telecommunications Bureau

(‘‘Bureau’’), pursuant to delegated

authority, adopted and released an

Order (‘‘Freeze Order’’), 61 FR 8062

(March 1, 1996), announcing that the

Commission would no longer accept for

filing any new applications for 39 GHz

licenses in the Common Carrier or

Operational Fixed Point-to-Point

Microwave Radio Services, pending

Commission action on the TIA Petition.

The Freeze Order was made effective

upon its release.

56. The NPRM and Order, supra,

extended the freeze, providing that

pending applications would be

processed only if (1) they were not

mutually exclusive with other

applications at the time of the Bureau’s

Freeze Order, and (2) the 60-day period

for filing mutually exclusive

applications had expired prior to

November 13, 1995 (i.e., the

applications were ‘‘ripe’’). The NPRM

and Order further provided that those

applications that were mutually

exclusive with others as of November

13, 1995, or within the 60-day period for

filing competing applications on or after

November 13, 1995, would be held in

abeyance for processing and disposition.

In addition, amendments to these frozen

applications received on or after

November 13, 1995, were also held in

abeyance. Moreover, applications for

modification of existing 39 GHz licenses

(e.g., applications to modify existing

licenses for the purpose of changing the

height of an antenna) filed on or after

November 13, 1995, were held in

abeyance, as well as amendments

thereto that were filed on or after

November 13, 1995. Finally, no new

applications to modify existing licenses,

or amendments to pending modification

applications, were to be accepted for

filing on or after December 15, 1995,

unless they (1) did not involve any

enlargement of any portion of the

proposed area of operation, and (2) did
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not change frequency blocks, other than

to delete one or more.

57. On January 16, 1996, Commco

filed a Petition for Reconsideration and

an Emergency Request for Stay, asking

the Commission to vacate that portion of

the NPRM and Order imposing an

interim freeze on the processing of

mutually exclusive applications to

establish new facilities in the 39 GHz

band, including amendments thereto,

pending as of November 13, 1995.

BizTel, GHZ Equipment Company, Inc.

(‘‘GEC’’), and TIA filed comments in

support of the Stay Request.

Additionally, on January 16, 1996, DCT

Communications, Inc., filed a Petition

for Partial Reconsideration, requesting

that the Commission process (a) minor

amendments, at least those that

eliminate mutual exclusivity, and (b) asyet uncontested applications for which

the 60-day period for filing mutually

exclusive applications had not expired

prior to the November 13, 1995, Freeze

Order.

58. In its Memorandum Opinion and

Order, supra, the Commission

reconsidered certain aspects of the

Commission’s processing freeze and

decided to lift the processing freeze on

amendments of right filed before

December 15, 1995. Thus, all

applications that were amended to

resolve mutual exclusivity before that

date were to be processed, provided

they had completed their 60-day public

notice period as of November 13, 1995.

In addition, the Commission clarified

that applications to modify existing 39

GHz licenses and amendments thereto

were to be processed regardless of when

filed, provided they neither enlarge the

service area nor change the assigned

frequency blocks (except to delete

them). In all other respects, the

Commission’s decisions regarding the

filing and processing of 39 GHz

applications and amendments were

unaffected by the reconsideration

decision. A summary of other main

points of the decision follows: • The Commission decided to process

those amendments of right filed on or

after November 13, 1995, but before

December 15, 1995. • The Commission noted that all

other amendments filed on or after

November 13, 1995, would continue to

be held in abeyance. • The Commission affirmed its

decision to continue to hold in abeyance

all pending mutually exclusive

applications, unless the mutual

exclusivity was resolved by an

amendment of right filed before

December 15, 1995. Where the mutual

exclusivity was resolved, the

Commission expressly stated that it

would process the application provided

that the application was ‘‘ripe’’ as of

November 13, 1995—i.e., that it had

been placed on public notice and

completed the 60-day cut-off period for

filing of competing applications as of

November 13, 1995. • The Commission affirmed its

decision to hold in abeyance all

applications that had not been placed

on public notice or completed the 60-

day cut-off period as of November 13,

1995.

b. Processing of Pending Applications.

59. In view of the goals of this

proceeding, e.g., to foster competition

among different service providers, to

promote maximum efficient use of the

spectrum, and to provide efficient

service to customers by improving the

licensing procedure, the Commission

concludes that what follows is the best

approach for processing currently

pending 39 GHz license applications

that were affected by the November 13,

1995, Freeze Order and the December

15, 1995, freeze. The Commission has

processed: (1) Those 39 GHz

applications that were not mutually

exclusive as of December 15, 1995, and

that, as of November 13, 1995, had

passed the 60-day cut-off period for

filing competing applications, and (2)

applications to modify existing licenses

(‘‘modification applications’’), or

amendments to modification

applications, which do not enlarge the

service area or change frequency blocks,

except to delete them. For the reasons

that follow, the Commission has

decided to dismiss, without prejudice,

all other applications that have

remained subject to the freeze, i.e., (1)

applications that are mutually

exclusive, (2) applications that were not

yet on public notice, or for which the

60-day cut-off period had not been

completed prior to November 13, 1995,

and (3) modification applications or

amendments thereto that do not meet

the criteria set out infra, in paragraph

95. These applicants may reapply under

the new geographic area licensing rules

established in this proceeding.

i. Pending Mutually Exclusive 39 GHz

Applications.

60. PCS and other CMRS licensees,

equipment manufacturers, and the

Telecommunications Industry

Association (TIA) ask that the

Commission process 39 GHz

applications that are pending and

mutually exclusive. GTE Service

Corporation (GTE), however, urges us

either to (1) dismiss the pending 39 GHz

applications that the Commission is

holding in abeyance and open a new

application filing window for such

frequencies and licensing areas under

the new rules that the Commission

adopts in this proceeding; or (2) retain

those applications on file and permit

other interested parties to file competing

applications that will be processed

pursuant to adopted competitive

bidding procedures and corresponding

rules for 39 GHz authorizations. Some

commenters recommend a specific time

frame for allowing 39 GHz license

applicants to resolve mutual exclusivity,

i.e., between 60 days and six months

after a Report and Order is issued in this

proceeding. In its Comments filed on

March 4, 1996, Bachow and Associates,

Inc. (Bachow) asks that the Commission

dismiss, without prejudice, any

mutually exclusive applications that

remain after the time for resolving

mutual exclusivity passes.

61. Some commenters further ask that

the Commission dismiss as defective

any applications which did not limit

themselves to only one specified 39 GHz

channel as of November 13, 1995, or

which otherwise failed to satisfy the

Public Notice, Mimeo No. 44787

(released Sept. 16, 1994), that described

the processing procedures and rules

applicable to the 39 GHz band. Under

this approach, any remaining applicants

that are still subject to mutual

exclusivity would be allowed to file

amendments to reduce their proposed

service area contours or otherwise enter

into settlement agreements to resolve

their conflicts.

62. The Commission has determined

that the best approach for processing

pending mutually exclusive

applications is to dismiss them without

prejudice, and to allow these applicants

to submit new applications under the

competitive bidding rules established in

this proceeding. The Commission takes

this action because it finds that this

procedure will optimize the public

interest by promoting fair and efficient

licensing practices. As the Commission

discusses below, (‘‘Auctionability of the

39 GHz Band’’), the use of a competitive

bidding system for licensing the 39 GHz

band constitutes the best method for

choosing among mutually exclusive

applicants. Competitive bidding allows

spectrum to be acquired by the parties

who value it most highly and increases

the likelihood that innovative,

competitive services will be offered to

consumers. These benefits will be lost,

in part, if the Commission were to

process pending mutually exclusive

applications under its old rules.

Moreover, under such an approach,

those pending mutually exclusive

applications that cannot be

accommodated by the availability of

alternative frequencies would be subject

to comparative hearing (either formal or

informal). While these rules may be
6090 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

useful in other bands to address the rare

situation in which two point-to-point

links cannot be coordinated to avoid

interference, in the 39 GHz band,

applicants seek to serve geographic

areas rather than to provide service on

a single point-to-point link basis. This,

coupled with the exponential growth in

demand for 39 GHz spectrum, results in

a significant number of mutually

exclusive applications, including

‘‘daisy-chain’’ situations, among entities

seeking to acquire spectrum. Resolving

these mutually exclusive applications

through comparative hearings would be

much slower and possibly more costly,

both to the government and applicants,

than competitive bidding. 63. The Commission also finds that

those who believe that they should be

afforded the opportunity to amend their

pending applications to avoid mutual

exclusivity had ample opportunity to

file such amendments prior to the

commencement of this rule making. The

Commission is not convinced that

parties who have not already entered

such agreements will successfully

accomplish such agreements now.

Moreover, even if such agreements are

possible, the parties will have the

opportunity to accomplish similar

results through the partitioning and

disaggregation rules the Commission is

adopting today. Similarly, parties may

resolve existing conflicts by forming

joint ventures or similar arrangements to

apply for BTA licenses. If, however, the

Commission permitted pending

mutually exclusive applicants to resolve

their conflicts outside the structure of

the competitive bidding process, other

entities would be foreclosed from an

opportunity to apply for 39 GHz

spectrum under the flexible rules the

Commission adopts herein. This would

have the result of limiting the pool of

potential applicants to those who have

already filed under the current, more

restrictive rules, and may inhibit the

development of new and innovative

services in this spectrum. Accordingly,

the Commission finds that existing

applicants have a reasonable avenue of

relief for their concerns in the

procedures it adopts herein, and

accordingly denies their requests. ii. Applications Within the 60-day

Public Notice Period on November 13,

1995.

64. Some petitioners and commenters

argue that the Commission should

process the ‘‘unripe’’ applications—

those that had not passed the 60-day

public notice period as of the date of the

November 13, 1995, Freeze Order.

According to DCT, for example, all

applications that have been or should

have been placed on public notice

announcing their susceptibility to

petitions to deny as required by section

309 of the Communications Act meet

the processing requirements of the

Communications Act. DCT contends

that the disparate treatment of these

applications and those the Commission

have decided to process would only

make sense if there were no vacant

channel pairs available for a second

applicant in the same service area. DCT

and WinStar argue that under the rules,

if there were a vacant channel pair, a

second applicant would have to yield

ultimately to the first-in-time applicant

with respect to the frequencies specified

by the first-in-time applicant. 65. In the Memorandum Opinion and

Order, supra, the Commission held that

unripe applications would continue to

be held in abeyance because, until the

Commission had completed its

consideration of the record, the

Commission was not in a position to

state whether further applications may

be filed, or how the applications

presently held in abeyance would have

been treated. Having concluded here

that the 39 GHz band should be subject

to significantly different rules than the

ones used previously, the Commission

believes that the most fair and

reasonable approach with regard to

pending unripe applications is to

dismiss them and allow these applicants

to reapply under the new rules set forth

in this proceeding. Taking into account

its conclusion that these new rules

further the public interest, the

Commission believes that applying the

new 39 GHz rules to those applications

that were still subject to the possibility

of competing applications under the

former rules adequately balances the

expectations of applicants with the

public need for a better system for

licensing use of the 39 GHz band. The

Commission further believes that it has

crafted a fair approach because such

applicants will be permitted to apply for

spectrum under the new rules. iii. Modification Applications.

66. In the NPRM and Order, the

Commission stated that it would hold in

abeyance modification applications, and

any amendments thereto, that were filed

on or after November 13, 1995, the date

of the Freeze Order. The Commission

stated that no new applications to

modify existing licenses would be

accepted after December 15, 1995,

unless they did not involve any

enlargement in any portion of the

service area and did not change

frequency blocks (unless to delete one). 67. In the Memorandum Opinion and

Order, supra, the Commission clarified

that any pending modification

application or amendment thereto filed

prior to November 13, 1995, was to be

processed. Modification applications or

amendments to such applications, filed

between November 13 and December

15, 1995, which meet the criteria of

§ 101.59 of the Commission’s Rules and

which do not enlarge the applicant

licensee’s service area, were to be

accepted for filing and processed. Any

modification application, or amendment

thereto, which meets the criteria of

§ 101.61 of the Commission’s Rules

were likewise to be accepted for filing

and processed. All other modification

applications and amendments thereto

were to be held in abeyance.

68. For the same reasons that the

Commission dismisses without

prejudice the pending mutually

exclusive and unripe applications as

discussed supra, the Commission also

dismisses without prejudice any

modification application held in

abeyance pursuant to the freeze. Such

applications, if granted under the

previous rules, would frustrate the goals

underlying this proceeding by

continuing the licensing scheme which

the Commission is abandoning with this

Report and Order. As discussed supra,

the Commission must choose a point

from which its new rules will apply,

taking into account its conclusion that

these new rules are in the best interest

of the public for the development of

new services in the 39 GHz band. The

Commission believes that it is fair to

dismiss major modification applications

because such applicants will be

permitted to apply for additional

spectrum, without disadvantaging

potential new entrants, under the new

rules.

iv. Applications That Are Partially

Mutually Exclusive.

69. There are seven applications that

are partially mutually exclusive. That is,

these applications request more than

one frequency pair, some of which are

mutually exclusive with frequencies

requested in other applications and

some of which are not mutually

exclusive. Although the non-mutually

exclusive portion of these applications

was subject to processing under the

Commission’s December 15, 1995,

NPRM and Order, the mutually

exclusive portion of each of the

applications was required to be held in

abeyance. The divided status of these

applications has presented a unique

processing issue. The Commission’s

electronic process for addressing these

applications does not permit partial

grants because there is no capability for

allowing an application to remain in

pending status if final action has been

taken on a portion of it. As a result, the

Commission has not been able to

process the non-mutually exclusive

portion of these applications until it had
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6091

reached a decision regarding the

disposition of pending mutuallyexclusive applications in general. As the

Commission has now made this

determination, it will process these

applications as follows. Specifically, it

will process to completion that portion

of each of these applications that is nonmutually exclusive with other

applications. However, the Commission

will dismiss the remainder of the

application which cannot be granted

due to mutual exclusivity, consistent

with the Commission’s order herein.

II. Decision—Competitive Bidding

Issues

A. Auctionability of the 39 GHz Band

70. Background. In the NPRM and

Order, 61 FR 2465 (January 26, 1996),

the Commission proposed to use

competitive bidding to select among

mutually exclusive applications for

initial licenses in the 39 GHz band. The

Commission reconsidered its previous

decision not to license intermediate

links by competitive bidding and the

various factors that influenced its

decision. First, the Commission noted

that point-to-point microwave channels

used as part of end-to-end subscriberbased service offerings meet the

‘‘principal use’’ requirement of the

Communications Act. Second, because

BTAs are large areas, the Commission

stated that defining service areas by

BTAs likely will result in the filing of

mutually exclusive applications. Third,

the Commission noted that based upon

experience with auctions in other

services, an auction for intermediate

links within a well-defined service area

will neither significantly delay the

provision of other services, such as PCS,

to the public nor impose significant

administrative costs on the applicants or

the Commission. Fourth, the

Commission noted that by placing

licenses in the hands of those who value

this spectrum most highly, competitive

bidding will likely promote the

development and rapid deployment of

new technologies and ensure that new

and innovative technologies are readily

accessible to the American people.

Finally, the Commission noted that

some of the licensees in the 39 GHz

band have offered to sell or lease their

licenses and may never have intended

to directly serve the public, but rather

to hold their own auctions and thereby

deprive the public of the

aforementioned benefits.

71. Discussion. Upon consideration of

the record in this proceeding, the

Commission concludes that auctioning

the 39 GHz band meets the new criteria

set forth in § 309(j) of the

Communications Act, as amended by

the Balanced Budget Act of 1997

(‘‘Budget Act’’). During the pendency of

this proceeding and after comments

were received in this proceeding,

Congress enacted the Budget Act which

extended and expanded the

Commission’s auction authority. Many

commenters support the award of

unallocated spectrum through auctions

for the 39 GHz band. Using the preBudget Act criteria for auctionability of

spectrum, some commenters argued that

the 39 GHz band did not meet such

criteria because: (1) The band is being

used for providing intermediate links

and, therefore, is not principally being

used to garner compensation from

subscribers as required under the former

‘‘principal use’’ criterion of the Act; (2)

an auction of the 39 GHz band does not

promote the objectives contained in the

Act; and (3) an auction of intermediate

links could significantly delay the

development and deployment of new

products and services and impose

significant costs on licensees and the

Commission. As discussed below, as a

result of the Budget Act provisions, the

‘‘principal use’’ criterion of 309(j)(2)(A)

and ‘‘promote the objectives’’ criterion

of 309(j)(2)(B) and 309(j)(3) of the Act no

longer govern the auctionability of

electromagnetic spectrum. Thus, the

Commission does not find these

arguments to be compelling reasons not

to employ competitive bidding

procedures for 39 GHz spectrum.

72. Under the Budget Act, the

Commission’s auction authority covers

all mutually exclusive applications for

initial licenses or construction permits,

with three limited exceptions which are

not applicable in this proceeding. The

Budget Act replaced language in section

309(j)(2), formerly called ‘‘Uses to

Which Bidding May Apply,’’ which

stated the requirements for spectrum to

be auctionable (i.e., a determination that

the principle use of the spectrum will be

on a subscription basis and that

competitive bidding will promote the

objectives stated in section 309(j)(3))

with a new paragraph that expands the

Commission’s auction authority. Under

amended section 309(j) the Commission

has the authority to auction the 39 GHz

band.

73. DCT contends that using

competitive bidding procedures for this

band violates §§ 309(j)(1) and

309(j)(6)(E), because the Commission is

required to use various means to avoid

mutual exclusivity, including the use of

engineering solutions, negotiate

threshold qualifications and service

regulations, and licensing proceedings,

before turning to auctions. DCT argues

that because the NPRM and Order finds

that current point-to-point rules are

structured to avoid mutual exclusivity

through frequency coordination,

changing the rules to license by BTAs is

tantamount to adopting a licensing

system designed to encourage mutual

exclusivity. The Commission rejects

DCT’s contentions. The 39 GHz band

has been the subject of significantly

increased requests for large rectangular

service areas and multiple channels.

Frequency coordination techniques,

suitable for the level of point-to-point

spectrum demand existing prior to the

existence of emerging technologies, are

no longer adequate. The use of predefined geographic areas rather than the

applicant-defined rectangular areas

currently used as service areas furthers

the Commission’s public interest goals,

as concluded above. As the Commission

noted, supra, predetermined service

areas will provide a more orderly

structure for the licensing process and

will foster efficient utilization of the 39

GHz spectrum in an expeditious

manner. Indeed, the use of applicantdefined service areas can actually slow

the delivery of services because the

processing of each application requires

extensive analysis and review by

Commission staff.

74. Similarly, the Commission also

rejects DCT’s related contention that the

proposed auction framework for the 39

GHz band—simultaneous multiple

round bidding, the Milgrom-Wilson

activity rule and the simultaneous

stopping rule—encourages mutual

exclusivity of applications. DCT further

rejects the proposed rule that would

have limited licensees to an interest in

four channel blocks contending that the

‘‘expansion of the number of channels

which an applicant may receive from a

de facto one channel to four channels

also encourages mutual exclusivity.’’

The competitive bidding rules proposed

have been used successfully in previous

auctions and are intended to provide

flexibility to bidders to pursue different

strategies for interrelated licenses.

Finally, as noted surpa, the Commission

has decided not to place any limit on

the number of channels a licensee may

hold. The Commission rejects the

contention that this will encourage

mutual exclusivity, but rather believes

that this will best foster the creation and

deployment of new services. As

discussed below, various other auction

provisions adopted here will address

the speculative bidding concerns raised

by DCT.

75. While the Commission believes

that competitive bidding will place

licenses in the hands of those who value

them the most, various commenters

propose other methods for licensing this
6092 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

band. DCR, for example, proposes that

the Commission use the alternative

licensing proposal set forth in the

NPRM and Order. TGI proposes tight

usage requirements, e.g., existing

permittees would have six months from

completion of rule making to construct

and commence operation of their

systems. Bachow proposes that the

Commission adopt a going-forward

licensing approach that provides for,

among other things, applicant-defined

service areas in contrast to geographic

licensing; public notice and thirty-day

cut-off windows; exhaustion of

coordination efforts prior to any

auction; and reasonable build-out

requirements. Finally, Ameritech and

others state that after the Commission

has finished processing 39 GHz

amendments, there likely will be little

or no desirable spectrum for any

subsequent overlay auction of the 39

GHz channels. These commenters

recommend that, in lieu of auctions, the

Commission make the 39 GHz band

available for the licensing of point-topoint paths. While the Commission

notes these various proposals, the

Commission concludes that the Budget

Act’s amendments to section 309(j) of

the Act directs it to auction the 39 GHz

band.

76. The Commission also notes that

under the Budget Act amendments, it is

required to provide adequate time

before the issuance of bidding rules to

permit notice and comment, and after

the issuance of bidding rules to ensure

adequate time for interested parties to

assess the market and develop their

strategies or approaches as required

under section 309(j)(3)(E). The

Commission believes it has satisfied the

first requirement by seeking comment in

the NPRM and Order. As to the second

requirement, the Bureau recently

released a Public Notice announcing

general time frames for upcoming

auctions. The Commission anticipates

that the Bureau will routinely release

similar public notices in the future. The

Commission believes that the release of

such public notices combined with the

release of a Public Notice announcing

the 39 GHz auction should ensure that

interested parties have adequate time to

assess the market and develop their

strategies.

B. Competitive Bidding Design and

Procedures

i. Competitive Bidding Design

77. Background. In the NPRM and

Order, the Commission tentatively

concluded that simultaneous multiple

round auctions are appropriate for this

band. The Commission noted that

compared with other bidding

mechanisms, simultaneous multiple

round bidding will generate the most

information about license values during

the course of the auction and provide

bidders with the most flexibility to

pursue back-up strategies.

78. Discussion. Based on the record in

this proceeding and the Commission’s

successful experience conducting

simultaneous multiple round auctions

for other services, the Commission

believes a simultaneous multiple round

auction design is the preferable

competitive bidding design for the 39

GHz band. The commenters generally

support the proposal to use

simultaneous multiple round auctions

for selecting among mutually exclusive

applicants. In addition, the Commission

believes that the value of these licenses

will be significantly interdependent

because of the desirability of aggregation

across geographic regions. Under these

circumstances, simultaneous multiple

round bidding will generate more

information about license values during

the course of the auction and provide

bidders with more flexibility to pursue

back-up strategies, than if the licenses

were auctioned separately.

79. DCT, on the other hand, argues

that simultaneous multiple round

auctions give applicants only one

opportunity to file for any or all

channels and that this approach creates

an urgency to file for channels that the

applicant would not otherwise seek,

thereby fostering unnecessary creation

of mutual exclusivity. DCT’s argument

misses several points. As an initial

matter, the Commission is not proposing

to auction all of the channels at one

time but rather in a series of

simultaneous multiple round auctions

in which three channels would be

placed up for bid in each auction. See

infra. Thus, applicants will have more

than one opportunity to file for

channels. Moreover, the nature of this

auction design provides bidders with

flexibility to pursue different strategies

for interrelated licenses. Specifically, it

allows a bidder to pursue substitute

licenses in the event it fails to obtain its

first choices. In addition, the

Commission believes that the upfront

payment requirement and its

withdrawal rules provide a sufficient

deterrent against applicants seeking

licenses that they do not want or intend

to use. Notwithstanding its conclusion

regarding the use of simultaneous

multiple round bidding, the

Commission retains the discretion to

use a different methodology if that

proves to be more administratively

efficient.

ii. Applicability of Part 1, Standardized

Auction Rules

80. In the Competitive Bidding

Second Report and Order, 59 FR 22980

(May 4, 1994) as modified by the

Competitive Bidding Second

Memorandum Opinion and Order, 59

FR 44272 (August 26, 1994), the

Commission established general

competitive bidding rules for all

auctionable services, but also stated that

such rules may be modified on a

service-specific basis. These general

competitive bidding rules are contained

in part 1 of the Commission’s Rules. In

the recent Order, Memorandum Opinion

and Order and Notice of Proposed Rule

Making in WT Docket No. 97–82, 62 FR

13540 (March 21, 1997), the

Commission amended some of the part

1 provisions, and proposed further

amendments to the part 1 rules to

streamline its auction procedures.

Accordingly, for the 39 GHz band, the

Commission will follow the competitive

bidding rules contained in, or ultimately

established for, Subpart Q of part 1 of

the Commission’s Rules, as amended by

the part 1 proceedings and related

decisions, unless specifically indicated

otherwise below.

C. Bidding Issues

i. Grouping of Licenses

81. Background. The Commission

determined in the Competitive Bidding

Second Report and Order that highly

interdependent licenses should be

grouped together and put up for bid at

the same time in a multiple round

auction because such grouping provides

bidders with the most information about

the complementary and substitutable

licenses during the course of the

auction. In the NPRM and Order, the

Commission requested comment on

whether it should endeavor to have a

single auction. The Commission also

solicited comments on alternative

license groupings and requested bidders

to explain how such groupings would

benefit bidders.

82. Discussion. The Commission

believes that all 39 GHz licenses are

significantly interdependent. As a

result, the optimal grouping of the

licenses would be to put all of the

licenses up for bid at the same time in

order for bidders to have information

about the prices of complementary and

substitutable licenses during the

auction. However, due to the large

number of licenses anticipated to be

auctioned (approximately 6,900), this

approach may be burdensome for

bidders. Specifically, placing all of the

39 GHz licenses up for bid in a single

auction may overwhelm bidders with
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6093

the processing necessary to analyze

effectively and efficiently the amount of

information associated with such a large

number of licenses. The Commission

concludes that a series of simultaneous

multiple round auctions would be more

advantageous to bidders and the most

administratively feasible means of

distributing these licenses. At this time,

the Commission believes that three

channel pairs should be placed up for

bid in each auction based on its review

of the applicants’ requests for channels

in the 39 GHz band. The Commission

nonetheless reserves the discretion to

change the number of channels offered

during an auction if it is efficient and

administratively feasible to do so and

delegate such authority to the Bureau.

ii. Reserve Price or Minimum Opening

Bids

83. When licenses are subject to

auction, the recently enacted Budget Act

requires the Commission to prescribe

methods by which a reasonable reserve

price or a minimum opening bid is

established, unless a determination is

made that such an assessment is not in

the public interest. Recently, in

conjunction with the 800 MHz

Specialized Mobile Radio (‘‘SMR’’)

Service auction, the Bureau, pursuant to

the Budget Act’s provisions calling for

the establishment of reserve prices or

minimum opening bids in FCC auctions,

proposed, inter alia, a formula for

determining a reserve price or minimum

opening bid for licenses, and sought

comment on its formula and other

proposals for the auction scheduled to

begin on October 28, 1997. For the 39

GHz auction, the Commission directs

the Bureau to issue a similar public

notice proposing a method for

determining a reserve price or minimum

opening bid for 39 GHz licenses subject

to auction and seeking comment on its

proposed method and other proposals.

iii. Bid Increments

84. Background. Consistent with the

approach for previous simultaneous

multiple round auctions for other

services, in the NPRM and Order the

Commission proposed to establish

minimum bid increments for bidding in

each round of the auction based on the

same considerations given in the

Commission’s prior orders. The

Commission proposed that the bid

increment be the greater of either: (1) A

percentage of the high bid from the

previous round or (2) a fixed dollar

amount per megahertz per service area

population (‘‘MHz-pops’’). The

Commission also proposed to retain the

discretion to vary the minimum bid

increments for individual licenses or

groups of licenses at any time before or

during the course of the auction, based

on the number of bidders, bidding

activity, and the aggregate high bid

amounts.

85. Discussion. The Commission

adopts its bid increment proposals,

particularly given that no commenters

opposed them. In fact, Milliwave

supports the Commission’s proposal to

retain the discretion with respect to

bidding increments. The Commission

will follow the practice that it has used

for other auctions and delegates

authority to the Bureau to announce, by

Public Notice prior to the auction, the

general guidelines for bid increments.

iv. Stopping Rules

86. Background. When simultaneous

multiple round auctions are used, a

stopping rule must be established for

determining when the auction is over.

In simultaneous multiple round

auctions, bidding may close separately

on individual licenses, simultaneously

on all licenses, or a hybrid approach

may be used. Generally, the

Commission proposed to adopt a

simultaneous stopping rule in the 39

GHz auction in which bidding generally

remains open on all licenses until there

is no new acceptable bid for any license.

In order to move the auction toward

closure more quickly, the Commission

further proposed to retain the discretion

to declare when the auction will end, to

vary the duration of bidding rounds or

the interval at which bids are accepted.

87. Discussion. The Commission will

adopt a simultaneous stopping rule

whereby bidding will remain open on

all licenses in an auction until bidding

stops on every license. The Commission

believes that allowing simultaneous

closing for all licenses will afford

bidders flexibility to pursue back-up

strategies without running the risk that

bidders will hold back their bidding

until final rounds. As a general matter,

the auction will close after one round

passes in which no new valid bids or

proactive activity rule waivers are

submitted. In any event, the

Commission adopts its proposal to

retain the discretion to keep an auction

open even if no new acceptable bids and

no proactive waivers are submitted in a

single round. Milliwave supports the

Commission’s proposal to retain such

discretion. In the event that the

Commission exercises this discretion,

the effect will be the same as if a bidder

has submitted a proactive waiver. The

Commission also retains the discretion

to announce license-by-license closings.

88. The Commission further retains

the discretion to declare after 40 rounds

that the auction will end after some

specified number of additional rounds.

Under such an approach, bids will be

accepted only on licenses where the

high bid has increased in the last three

rounds. This will deter bidders from

continuing to bid on a few low value

licenses solely to delay the closing of

the auction. It also will enable the

Commission to end the auction when it

determines that the benefits of

terminating the auction and issuing

licenses exceed the likely benefits of

continuing to allow bidding.

v. Activity Rules

89. Background. In the Competitive

Bidding Second Report and Order, the

Commission adopted the MilgromWilson activity rule as the preferred

activity rule when a simultaneous

stopping rule is used. The MilgromWilson approach encourages bidders to

participate in early rounds by limiting

their maximum participation to some

multiple of their minimum participation

level. In the NPRM and Order, the

Commission tentatively concluded that

the Milgrom-Wilson activity rule should

be used in conjunction with the

proposed simultaneous stopping rule for

this auction. The Commission indicated

its belief that the Milgrom-Wilson

approach would best achieve the

Commission’s goals 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.

90. Discussion. In accordance with

§ 1.2104 of the Commission’s Rules and

the guidelines adopted in the

Competitive Bidding Second Report and

Order, the Commission will employ the

Milgrom-Wilson activity rule for the 39

GHz auction. Milliwave supports

adoption of this rule. DCT appears to

argue that the activity rule adds an

incentive for bidders to apply for areas

they do not intend to serve. No other

comments on this issue were received.

DCT’s argument with respect to this

activity rule is misplaced. The activity

rules do not encourage applicants to

apply for more licenses than they intend

to use, and actually has the opposite

effect. Indeed, the total number of

licenses applied for determines the

activity requirement. Therefore, the

greater the number of licenses an

applicant applies for the greater its

activity level must be in order to

maintain eligibility in the auction.

91. For the 39 GHz auction, the

Commission will generally use the

Milgrom-Wilson activity rule with some

variations. Specifically, under the

Milgrom-Wilson activity rule, the

auction is divided into three stages and

the minimum required activity level,
6094 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

measured as a fraction of the bidder’s

eligibility in the current round, will

increase during the course of the

auction. As in previous auctions, the

Commission will set, by announcement

before the auction, the minimum

required activity levels for each stage of

the auction. The Commission retains the

discretion to vary, by announcement

before or during the auction, the

required minimum activity levels (and

associated eligibility calculations) for

each auction stage. 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. The

Commission delegates 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. The auction will start in

Stage One and move to Stage Two and

then to Stage Three. The movement

from one auction stage to the next will

be dependent upon the auction activity

level. 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. However, under no

circumstances can the auction revert to

an earlier stage.

92. 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, the Commission

will (as it has in past auctions) provide

bidders with five activity rule waivers

that may be used in any round during

the course of the auction. A waiver will

preserve current eligibility in the next

round, but cannot be used to correct an

error in the amount bid. Bidders also

will be afforded an opportunity to

override the automatic waiver

mechanism when they place a bid, if

they wish to reduce their bidding

eligibility and do not want to use a

waiver to retain their eligibility at its

current level. If a bidder overrides the

automatic waiver mechanism, its

eligibility permanently will be reduced

(according to the formulas specified

above), and it will not be permitted to

regain its bidding eligibility from a

previous round. An automatic waiver

invoked in a round in which there are

no valid bids will not keep the auction

open. Bidders will have the option to

proactively enter an activity rule waiver

during the bid submission period. If a

bidder submits a proactive waiver in a

round in which no other bidding

activity occurs, the auction will remain

open. 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.

vi. Duration of Bidding Rounds

93. Background. The Commission

proposed in the NPRM and Order to

retain the discretion to vary the duration

of bidding rounds or the interval at

which bids are accepted (e.g., run more

than one round per day) in order to

move the auction toward closure more

quickly.

94. Discussion. The Commission will

retain discretion to vary the duration of

bidding rounds and the interval at

which bids are accepted. In

simultaneous multiple round auctions,

bidders may need a significant amount

of time to evaluate back-up strategies

and develop their bidding plans.

Milliwave, the sole commenter

addressing this issue, supports the

Commission’s decision. The Bureau will

announce any changes to the duration of

and intervals between bidding rounds,

either by Public Notice prior to the

auction or by announcement during the

auction.

D. Procedural and Payment Issues

i. Short-Form Applications

95. Background. In the Competitive

Bidding Second Report and Order, the

Commission determined that it should

only require a short-form application

(FCC Form 175) prior to the auction,

and that only winning bidders should

be required to submit a long-form

license application after the auction.

96. Discussion. The Commission

adopts the bidding application and

certification procedures contained in

§ 1.1205 of the Commission’s Rules, as

amended by the Part 1 proceeding. Prior

to the start of the 39 GHz auction, the

Bureau will release an initial Public

Notice announcing the auction. The

initial Public Notice will specify the

licenses to be auctioned and the

procedures for the auction in the event

that mutually exclusive applications are

filed. The Public Notice will specify the

method of competitive bidding to be

used, applicable bid submission

procedures, stopping rules, activity

rules, and the deadline by which shortform applications must be filed and the

amounts and deadlines for submitting

the upfront payment. The Commission

will not accept applications filed before

or after the dates specified in the Public

Notice. Applications submitted before

the release of the Public Notice will be

returned as premature. Likewise,

applications submitted after the

deadline specified by Public Notice will

be dismissed with prejudice as

untimely.

97. Soon after the release of the initial

Public Notice, a Bidder Information

Package will be made available to

prospective bidders. The Bidder

Information Package will contain

information about incumbent licensees

based on the Commission’s licensing

records. Bidders also should conduct

their own due diligence regarding

incumbent licensees within the 39 GHz

band.

98. All bidders will be required to

submit short-form applications on FCC

Form 175 (and FCC Form 175–S, if

applicable), by the date specified in the

initial Public Notice. Applicants are

encouraged to file Form 175

electronically. Detailed instructions

regarding electronic filing will be

contained in the Bidder Information

Package. The short-form applications

will require applicants to provide the

information required by § 1.2105(a)(2) of

the Commission’s Rules, as amended by

the Part 1 proceeding.

ii. Amendments and Modifications

99. Background. To encourage

maximum bidder participation, the

Commission proposed to provide

applicants with an opportunity to

correct minor defects in their short-form

applications prior to the auction.

Applicants whose short-form

applications are substantially complete,

but contain minor errors or defects,

would be provided the opportunity to

correct their applications prior to the

auction.

100. Discussion. The Commission

received no comments on its proposal.

Thus, the Commission will apply the

provisions set forth in Part 1 of the

Commission’s rules, including

amendments adopted in the Part 1

proceeding, governing amendments to

and modifications of short-form

applications to the 39 GHz service.

Upon reviewing the short-form

applications, the Commission 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

101. Background. As in the case of

other auctionable services, the NPRM

and Order proposed to require all
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6095

auction participants to tender in

advance to the Commission a

substantial upfront payment. The

Commission proposed to use the

standard upfront payment formula of

$2,500 or $0.02 per MHz-pop for the

largest combination of MHz-pops,

whichever is greater.

102. Discussion. The Commission

previously has determined that a

substantial upfront payment

requirement is necessary to ensure that

only serious, qualified bidders

participate in auctions and to ensure

that sufficient funds are available to

satisfy any bid withdrawal or default

payments that may be incurred. The

Commission stated in the Competitive

Bidding Second Report and Order that

as a general matter it will base upfront

payments on a formula of $0.02 per

MHz-pop for the largest combination of

MHz-pops a bidder anticipates being

active on in any single round of bidding.

The Commission also established a

minimum upfront payment of $2,500,

but indicated that the minimum amount

could be modified on a service-specific

basis. The Commission has varied the

minimum upfront payment where it

determined that it would result in too

high an upfront payment for the service.

Various commenters contend that the

formula used in the PCS context is not

appropriate for the 39 GHz band

because it results in an upfront payment

that is too high.

103. The Commission recognizes, as

indicated by commenters, that for

purposes of 39 GHz services the

Commission’s standard upfront

payment formula may yield excessively

high payment amounts relative to

license values. Upfront payments at

such levels could discourage

participation in the auction and would

be well above the amounts needed to

discourage frivolous bidding and above

what is necessary to ensure that

sufficient funds are available to satisfy

any bid withdrawal or default payments

that may be incurred. Since the

frequency range and anticipated uses of

39 GHz services are more like LMDS

than broadband PCS, the Commission

believes that it would be appropriate to

set upfront payments closer to the levels

used for LMDS than the $.02 per MHzpop used in broadband PCS. LMDS

upfront payments for 1150 MHz licenses

range from $.00078 per MHz-pop for

BTAs with population over one million

to $.00026 per MHz-pop for BTAs with

population under one hundred

thousand. Since many of the 39 GHz

licenses are heavily encumbered, it may

also be appropriate to make license-bylicense downward adjustments to the

upfront payments to account for the

reduced amount of spectrum available.

Furthermore, by waiting until after the

LMDS auction is conducted, the

Commission will have better estimates

regarding the value of 39 GHz spectrum

and be able to more accurately set the

upfront payment amounts. Therefore, to

allow the Commission sufficient time to

conduct such analysis, and to benefit

from further auction experience, the

Commission proposes not to set the

amounts of the upfront payments for 39

GHz services at this time. Instead, the

Commission delegates authority to the

Bureau to set the amounts of upfront

payments and to announce the levels by

Public Notice.

iv. Down Payment and Full Payment

104. Background. In the NPRM and

Order, the Commission tentatively

concluded that winning bidders should

be required to supplement their upfront

payments with a down payment

sufficient to bring their total deposits up

to 20 percent of their winning bid(s).

105. Discussion. We adopt the

requirement that winning bidders must

supplement their upfront payments

with a down payment sufficient to bring

their total deposits up to 20 percent of

their winning bid(s). No commenters

addressed this specific proposal. If the

upfront payment already tendered by a

winning bidder, after deducting any bid

withdrawal and default payments due,

amounts to 20 percent or more 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.

106. The Commission also will

require winning bidders to submit the

required down payment by wire transfer

to the Commission’s lock-box bank, by

a date and time to be specified by Public

Notice, generally within ten (10)

business days following release of the

Public Notice announcing the close of

bidding. All auction winners generally

will be required to make full payment

of the balance of their winning bids

within ten (10) business days following

Public Notice that the Commission is

prepared to award the license.

107. The Commission notes that it has

proposed to adopt a late fee in

§ 1.2109(a) in the Part 1 proceeding, to

permit auction winners to make their

final payments 10 business days after

the payment deadline, provided that

they also pay a late fee equal to five

percent of the amount due. While the

Commission does not adopt the

proposed late fee provision in this

proceeding, the Commission notes that

should it ultimately adopt such a

provision in the part 1 proceeding it

shall apply to the 39 GHz band.

v. Bid Withdrawal, Default, and

Disqualification

108. Background. In the Competitive

Bidding Second Report and Order, the

Commission noted the importance to

the success of the competitive bidding

process that potential bidders be

required to make a monetary payment if

they withdraw a high bid, are found not

to be qualified to hold licenses, or

default on payment of a balance due.

109. Discussion. To prevent insincere

bidding, the Commission will apply the

bid withdrawal, default and

disqualification rules found in

§§ 1.2104(g), and 1.2109 of the

Commission’s Rules, as amended by the

part 1 proceeding, to the 39 GHz

auctions. No commenters addressed this

issue. 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. The Commission will

calculate the bid withdrawal payment as

either (1) the difference between the

withdrawn bid net of bidding credit and

the subsequent winning bid net of

bidding credit, or (2) the difference

between the gross withdrawn bid and

the subsequent gross winning bid for

that license, whichever is less. No

withdrawal payment is assessed if the

subsequent winning bid exceeds the

withdrawn bid. If a winning bidder

defaults after the close of an auction, the

defaulting bidder will be required to pay

the foregoing payment plus an

additional payment of 3 percent of the

subsequent winning bid or its own

withdrawn bid, whichever is lower.

110. The Commission notes that it has

proposed to adopt guidelines for

erroneous bids in the part 1 proceeding,

based upon the rationale discussed in

the Atlanta Trunking Order. While it

does not adopt the proposed guidelines

in this proceeding, the Commission

notes that should the Commission

ultimately adopt such guidelines for

erroneous bids in the part 1 proceeding

it shall apply to the 39 GHz band.

vi. Long-Form Applications and

Petitions to Deny

111. Background. In the NPRM and

Order, the Commission stated that if the

winning bidder makes a down payment

in a timely manner, it would be required

to file a long-form application.
6096 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

112. Discussion. The Commission will

apply the part 1 long-form procedures to

the 39 GHz auction, as amended by the

part 1 proceeding. No commenters

addressed this issue. While long-form

applications may be filed either

electronically or manually, beginning

January 1, 1998, all applications must be

filed electronically. Upon acceptance for

filing of the long-form application, the

Commission will issue a Public Notice

announcing this fact and triggering the

filing window for petitions to deny. If

the Commission denies all petitions to

deny, and is otherwise satisfied that the

applicant is qualified, a Public Notice

announcing the grants will be issued.

E. Regulatory Safeguards

i. Transfer Disclosure Requirements

113. Background. In section 309(j) of

the Communications Act, Congress

directed the Commission to ‘‘require

such transfer disclosures and antitrafficking restrictions and payment

schedules as may be necessary to

prevent unjust enrichment as a result of

the methods employed to issue licenses

and permits.’’

114. Discussion. The Commission will

adopt the transfer disclosure

requirements contained in § 1.2111(a) of

the Commission’s rules, as amended by

the Part 1 proceeding, for all 39 GHz

licenses obtained through competitive

bidding. Generally, applicants

transferring their licenses within three

years after the initial license grant will

be required to file, together with their

transfer applications, the associated

contracts for sale, option agreements,

management agreements, and all other

documents disclosing the total

consideration received in return for the

transfer of its license(s).

ii. Anti-Collusion Rules

115. Background. In the Competitive

Bidding Second Report and Order, the

Commission adopted special rules

prohibiting collusive conduct in the

context of competitive bidding. The

Commission indicated that such rules

would serve the objectives of the

Omnibus Budget Reconciliation Act of

1993 (Budget Act) by preventing parties,

especially the largest firms, from

agreeing in advance to bidding strategies

that divide the market according to their

strategic interests and that disadvantage

other bidders.

116. Discussion. The Commission

adopts the rules prohibiting collusive

conduct in §§ 1.2105 and 1.2107 of the

Commission’s rules, as amended by the

Part 1 proceeding, for use in the 39 GHz

auctions. The Commission notes that it

has proposed to adopt two exceptions to

the anti-collusion rules in the

Commission’s Part 1 proceeding. While

it does not adopt the proposed

exceptions in this proceeding, the

Commission notes that whatever

exceptions to the anti-collusion rules

are ultimately adopted in the Part 1

proceeding shall apply to the 39 GHz

band. Sections 1.2105 and 1.2107 of the

Commission’s 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, the

Commission may conduct an

investigation or refer such complaints to

the United States 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 forfeiture of their

down payment or their full bid amount,

revocation of their license(s), and

possible prohibition from participating

in future auctions.

F. Treatment of Designated Entities

i. Overview and Objectives

117. 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) provides 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.’’ Finally,

Section 309(j)(4)(A) provides that to

promote these objectives, the

Commission shall consider alternative

payment schedules including

installment payments.

118. The Commission has employed a

wide range of special provisions and

eligibility criteria designed to meet the

statutory objectives of providing

opportunities to designated entities in

other spectrum-based services. The

measures considered thus far 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 the

C block broadband PCS auction, small

businesses received a 25 percent

bidding credit and all entrepreneurs’

block licensees were entitled to pay for

these licenses under an installment

plan. More recently, for the WCS

auction, the Commission adopted tiered

bidding credits of 25 percent for small

businesses and 35 percent for very small

businesses, declined to adopt

installment payments for designated

entities because of the expedited

procedures imposed by the

Appropriations Act which required

entities to make full payment on the bid

amount quickly, and adopted a tiered

definition of small and very small

businesses. For the 800 MHz SMR

auction, the Commission also adopted

tiered bidding credits of 25 percent for

small businesses and 35 percent for very

small businesses; eliminated installment

payments for the upper 200 channels

and deferred the decision on adopting

installment payments in the lower 80

and General category channels to the

outcome in the pending Part 1

proceeding; and adopted a tiered

definition of small and very small

businesses.

119. In the NPRM and Order, the

Commission sought comment on

whether the designated entity

provisions adopted for broadband PCS

should be applied here because this

spectrum may be used in support of

PCS. The Commission also sought

comments broadly on how it can best

promote opportunities for businesses

owned by minorities and women in

light of Adarand.

Commenters were encouraged to

provide the Commission with as much

evidence as possible with regard to past

discrimination, continuing

discrimination, discrimination in access

to capital, underrepresentation and

other significant barriers facing

businesses owned by minorities and

women in obtaining licenses in

communications services.

ii. Eligibility for Bidding Credits

120. At this time the Commission has

not developed a record sufficient to

sustain race-based measures in the 39

GHz band based on the standard

established by Adarand Constructors v.

Pen ̃ a. The Commission also believes

that at this time the record is

insufficient to support any gender-based

provisions under the intermediate

scrutiny standard. In addition, the
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record in this proceeding does not

demonstrate a need for special

provisions for rural telephone

companies beyond those that the

Commission adopts for small

businesses. The Commission thus will

limit eligibility for special provisions for

designated entities in the 39 GHz band

to small businesses. While DCR

supports adoption of special provisions

designed to promote opportunities for

businesses owned by minorities and

women, it contends that fashioning

provisions that can withstand the

Adarand test should not be permitted to

delay the licensing process. It notes that

such a delay would be harmful to

minority- and women-owned businesses

attempting to attract financing and

operate PCS systems. Neither DCR nor

other commenters provide evidence

with regard to past discrimination,

continuing discrimination, or other

significant barriers to minorities and

women. Based on the record in this

proceeding, the Commission intends to

adopt bidding credits for applicants

qualifying as small businesses, as

discussed infra. As there will be small

businesses with variable abilities to

access capital, the Commission will tier

the bidding credits to account for these

differences. The Commission believes

these provisions will provide small

businesses with a meaningful

opportunity to obtain licenses in the 39

GHz auction. Moreover, many minorityand women-owned entities are small

businesses and will therefore qualify for

the same special provisions that would

have applied to them under the

previous PCS rules. As such, these

provisions will meet Congress’ goal of

promoting wide dissemination of 39

GHz licenses.

a. Small Business Definition. 121.

Background. In the Competitive Bidding

Second Memorandum Opinion and

Order, the Commission stated it would

define small business eligibility on a

service-specific basis, taking into

account the capital requirements and

other characteristics of each particular

service in establishing the appropriate

threshold. In the NPRM and Order, the

Commission proposed to define small

businesses as those entities with not

more than $40 million in average annual

gross revenues for the preceding three

years. In addition, the Commission

proposed to apply the same affiliation

and attribution rules for calculating

revenues previously adopted for

broadband PCS. The Commission noted,

however, that the attribution rules for

calculating gross revenues for

broadband PCS are complex and sought

comment on substituting the ‘‘control

group’’ concept for a simpler attribution

model. The Commission asked how the

revenues of a small business entity

should be calculated. The Commission

also asked how investors should be

treated in determining the eligibility of

a small business, e.g., whether only

investors that hold ownership interests

at a certain threshold should have their

gross revenues included (e.g.,

ownership interests of five percent

would trigger attribution).

122. Discussion. As a general matter,

the Commission adopts its proposed

small business definition of an entity

with not more than $40 million in

average annual gross revenues for the

preceding three years. The Commission

concludes that this definition will

accommodate the broadest cross-section

of small businesses because it will

include, at a minimum, all entities

recognized as small businesses in the

CMRS contexts for which the

Commission has either adopted or

proposed small business definitions.

The Commission, however, rejects

DCR’s suggestion to adopt a definition

which completely mirrors the small

business definition in the broadband

PCS C block rules. Significantly, if

certain winning C block winners do not

qualify as small businesses here, they

will be able to participate in the 39 GHz

auctions even though they will not be

eligible for special provisions.

Moreover, DCR has failed to

demonstrate that control group equity

structures and affiliation rule exceptions

are warranted in the 39 GHz context. In

fact, given the broad array of services

that may be offered in the 39 GHz band,

ranging from CMRS support services to

niche service offerings, the Commission

is reluctant to adopt such complex

ownership structures absent evidence of

the same factors present in the

broadband PCS context. As discussed in

further detail, infra, the Commission is

providing bidding credits to an

additional category of small

businesses—very small businesses. A

very small business is an entity that,

together with its affiliates and persons

or entities that hold attributable

interests in such entity and their

affiliates, has average gross revenues

that are not more than $15 million for

the preceding three years.

123. In determining whether an

applicant qualifies for bidding credits as

a small business or a very small

business in the 39 GHz auction, the

Commission will consider the gross

revenues of the small business

applicant, its affiliates, and certain

investors in the applicant. Specifically,

for purposes of determining small

business status, the Commission will

attribute the gross revenues of all

controlling principals in the small

business applicant as well as the gross

revenues of affiliates of the applicant.

The Commission also chooses not to

impose specific equity requirements on

the controlling principals that meet the

small business definition. The

Commission 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, the Commission 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 the

Commission is 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. Finally, the

Commission rejects Winstar’s proposal

to adopt a high attribution standard to

determine small business status because

the absence of special provisions for

minorities and women reduces the risk

that applications falsely claiming such

status will be filed. The existence of

special small business provisions

requires adoption of the provisions set

forth herein in order to prevent their

improper use.

b. Bidding Credits. 124. Background.

In the NPRM and Order, the

Commission proposed a 10 percent

bidding credit for qualified small

businesses. The Commission stated that

the magnitude of the credit was

reasonable and equitable in view of

other proposals which will benefit

designated entities, including the

relatively small geographic licensing

areas and the availability of installment

payments. The Commission also

proposed to allow eligible entities to

apply the credit to all licenses.

However, the Commission sought
6098 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

comment on whether small businesses

should receive a larger bidding credit,

such 25 percent credit. 125. Discussion. Based upon the

record, the Commission adopts tiered

bidding credits for the 39 GHz service.

Several commenters support the

Commission’s proposal to give bidding

credits to small businesses. Some of

these commenters also express concern

that a 10 percent credit is too low. The

Commission agrees with PCS Fund’s

contention that tiered bidding credits

will promote vigorous competition not

only between small businesses and large

businesses but also between small

businesses of different economic sizes.

126. The Commission believes that a

tiered approach will encourage smaller

businesses, that may be very well-suited

to provide niche services, to participate

in the provision of services in the 39

GHz band. For example, Winstar states

that it believes that a major use of the

spectrum will be for wireless local loop

services. Microwave Partners indicates

that it is looking at the spectrum for

medical, public health and safety

related applications, such as high speed

transmission of medical data between

physicians’ offices and clinics and

hospitals, laboratories and X-ray

facilities; interactive videoconferencing

for the continuing education of all

health care personnel; and surveillance

and security monitoring of high risk

areas. The Commission recognizes that

smaller businesses have more difficulty

accessing capital and thus need a higher

bidding credit. These tiered bidding

credits are narrowly tailored to the

varying abilities of businesses to access

capital. Tiering also takes into account

that different small businesses will

pursue different strategies. Accordingly,

small businesses with average gross

revenues of not more than $40 million

for the preceding three years will

receive a 25 percent bidding credit. Very

small businesses, that is, those small

businesses with average gross revenues

of not more than $15 million for the

preceding three years, will receive a 35

percent bidding credit. Bidding credits

for small businesses are not cumulative.

c. Installment Payments.

127. Background. In the NPRM and

Order, the Commission proposed to

allow small businesses to pay off their

successful license bids in installments.

In the Competitive Bidding Second

Report and Order, the Commission

concluded that installment payments

are an effective means to address the

inability of small businesses to obtain

financing and will enable these entities

to compete more effectively for the

auctioned spectrum. Under the

Commission’s proposal, small business

licensees may elect to pay their winning

bid amount (less upfront payments) in

installments over the ten-year term of

the license, with interest charges to be

fixed at the time of licensing at a rate

equal to the rate for ten-year U.S.

Treasury obligations plus 2.5 percent.

The Commission sought comment on

these proposals. 128. The Commission also sought

comments on proposals for additional

special payment provisions to further

address the access to capital challenges

faced by small businesses. The

Commission proposed that small

business licensees be permitted to make

interest-only installment payments

during the first two years of the license

term. The Commission also proposed to

reduce down payments for small

businesses to 5 percent of the winning

bid due five days after the auction

closes and the remaining 5 percent

down payment due five days after

release of the Public Notice announcing

that the Commission is prepared to

award the license. Finally, the

Commission sought comment on

whether to offer ‘‘tiered’’ installment

payments scaled to the financial size of

a small business applicant. 129. Discussion. The Commission has

carefully considered the use of

installment payment plans for 39 GHz

licenses and has decided not to adopt its

proposal to allow small businesses to

pay for their licenses in installment

payments. First, Congress did not

require the use of installment payments

in all auctions, but rather recognized

them as one means of promoting the

various objectives of section 309(j)(3) of

the Communications Act. The

Commission continues to experiment

with different means for achieving its

obligations under the statute, and has

offered installment payments to

licensees in several auctioned wireless

services. By no means, however, has

Congress dictated that installment

payments are the only tool in assisting

small business. Indeed, the Commission

has conducted several auctions without

installment payments. The Commission

concludes that it can meet its statutory

obligations in the 39 GHz auction absent

these provisions. 130. The Commission must balance

competing objectives in section 309(j)

that require, inter alia, that it promote

the development and rapid deployment

of new spectrum-based services (i.e.,

competition) and ensure that designated

entities are given the opportunity to

participate in the provision of such

services. In assessing the public interest,

the Commission must try to ensure that

all the objectives of section 309(j) are

considered. The Commission’s

experience with the installment

payment program leads it to conclude

that installment payments may not

always serve the public interest. The

Commission is presently examining

issues relating to the administration of

installment payments in several other

proceedings. Because of the importance

of these issues, the Commission plans to

incorporate its decisions regarding

installment payments and other

financial issues into the Part 1

rulemaking.

131. Finally, as discussed infra, the

Commission has adopted enhanced

bidding credits for the 39 GHz auction.

The bidding credits adopted for small

businesses will help to promote access

to the 39 GHz band and various new

services by ensuring that small

businesses will have genuine

opportunities to participate in the 39

GHz auctions and in provision of

services. The Commission also notes

that, given the relatively large numbers

of licenses available in the 39 GHz band,

there should be opportunities for small

business participation. The Commission

has determined that, in view of the

favorable tiered bidding credits adopted

herein, it does not see the need to adopt

reduced down payments for small

businesses in order to ensure either

their access to capital or their

participation in the auction. Instead, the

Commission will require a 20 percent

down payment, the same down payment

that is required of all other 39 GHz

auction winners. Under this approach,

all winning bidders will be required to

supplement their upfront payments to

bring their total payment to 20 percent

of their winning bid within 10 business

days of the close of the auction. Prior to

licensing, they will be required to pay

the balance of their winning bid. The

Commission believes that a 20 percent

down payment is appropriate here to

ensure that all auction winners have the

necessary financial capabilities to

complete payment for the license and to

pay for the costs of constructing a

system and protect against possible

default, while at the same time not

being so onerous as to hinder growth

and diminish access.

iii. Transfer Restrictions and Unjust

Enrichment Provisions

132. Background. The Commission’s

unjust enrichment provisions are

integral to the success of the special

provisions for designated entities in the

various auctionable services. In the

Competitive Bidding Second Report and

Order, the Commission outlined unjust

enrichment provisions applicable

specifically to designated entities. The

Commission established these
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provisions to deter speculation and

participation in the licensing process by

those who do not intend to offer service

to the public, or intend to use the

Commission’s provisions to obtain a

license at a lower cost than they

otherwise would have to pay, and later

to sell it for a profit. In the NPRM and

Order, the Commission sought comment

regarding the appropriate approach to

prevent unjust enrichment.

133. Discussion. To ensure that large

businesses do not become the

unintended beneficiaries of measures

meant for smaller firms, the

Commission will adopt unjust

enrichment provisions similar to those

adopted for other services, including,

for example, narrowband PCS and 900

MHz SMR services. These rules provide

that, during the initial license term,

licensees utilizing bidding credits and

seeking to assign or transfer control of

a license to an entity that does not meet

the eligibility criteria for bidding credits

will be required to reimburse the

government for the total value of the

benefit conferred by the government,

that is, the amount of the bidding credit,

plus interest, before the transfer will be

permitted. The rules which the

Commission now adopts additionally

provide that, if a licensee applies to

assign or transfer control of a license to

an entity that is eligible for a lower

bidding credit, the difference between

the bidding credit obtained by the

assigning party and the bidding credit

for which the acquiring party would

qualify, plus interest, must be paid to

the United States Treasury as a

condition of approval of the assignment

or transfer.

134. If a licensee that utilizes bidding

credits seeks to make any change in

ownership structure that would render

the licensee ineligible for bidding

credits, or eligible only for a lower

bidding credit, the licensee must first

seek Commission approval and

reimburse the government for the

amount of the bidding credit, or the

difference between its original bidding

credit and the bidding credit for which

it is eligible after the ownership change,

plus interest. Additionally, if an

investor subsequently purchases an

interest in the business and, as a result,

the gross revenues of the business

exceed the applicable financial caps,

this unjust provision will apply. The

amount of this payment will be reduced

over time as follows: (1) 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, in

the case of very small businesses

transferring to small businesses, 100

percent of the difference between the

bidding credit received by the former

and the bidding credit received by the

latter is eligible); (2) in year three of the

license term the payment will be 75

percent; (3) in year four the payment

will be 50 percent; and (4) 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,

plus interest, before the transfer will be

permitted.

iv. Entrepreneurs’ Block

135. Background. In the Competitive

Bidding Fifth Report and Order, 59 FR

37566 (July 22, 1994), the Commission

established entrepreneurs’ blocks in

broadband PCS on which only qualified

entrepreneurs, including small

businesses, could bid. The Commission

requested comment on whether the

capital requirements of this service were

anticipated to be so substantial that the

Commission should insulate certain

blocks from very large bidders in order

to provide meaningful opportunities for

designated entities. The Commission

also requested comment on the need to

adopt an entrepreneurs’ block to ensure

that there will be adequate spectrum

available for communications links for

broadband PCS entrepreneurs’ block

licensees.

136. Discussion. No commenter

advocated the adoption of an

entrepreneurs’ block and the

Commission decides not to adopt one in

the 39 GHz service. First, the relatively

large numbers of licenses available in

the 39 GHz band should allow for

extensive small business participation.

Second, small businesses will have a

significant opportunity to compete for

licenses given the enhanced bidding

credits adopted for small businesses.

The bidding credits adopted for small

businesses will help to promote access

to the 39 GHz band and various new

services by ensuring that small

businesses will have genuine

opportunities to participate in the 39

GHz auctions and in provision of

services.

VI. Procedural Matters

A. Regulatory Flexibility Act

137. The analysis for this Report and

Order pursuant to the Regulatory

Flexibility Act, 5 U.S.C. 604, is

contained herein as follows. As required

by section 603 of the Regulatory

Flexibility Act, 5 U.S.C. 603 (RFA), an

Initial Regulatory Flexibility Analysis

(IRFA) was incorporated in the Notice of

Proposed Rule Making in this

proceeding in ET Docket No. 95–183.

The Commission sought written public

comments on the proposals in the

NPRM, including on the IRFA. The

Commission’s Final Regulatory

Flexibility Analysis (FRFA) in this

Report and Order conforms to the RFA,

as amended by the Contract With

America Advancement Act of 1996

(CWAAA), Public Law 104–121, 110

Stat. 847 (1996).

i. Need for and Purpose of This Action

138. In this Report and Order, the

Commission adopts rules and

procedures intended to facilitate the

efficient use of the 38.6–40.0 GHz

frequency band ( the ‘‘39 GHz’’ band )

and to permit different types of services

to be offered therein. The purposes of

this action are to provide support

spectrum for emerging technologies, as

well as to permit the development of

innovative point-to-point or point-tomultipoint services. The Commission

amends the rules for fixed, point-topoint microwave service in the 39 GHz

band , so as to conform the regulatory

approach toward operations in that

band with its proposals for licensing the

adjacent 37.0–38.6 GHz (37 GHz) band.

Action on the 37.0–38.6 GHz band ( the

‘‘37 GHz’’ band) has been postponed. In

this item the Commission retains the

existing channeling plan and amends

some of the existing licensing and

technical rules for the 39 GHz band in

order to improve the regulatory

environment for the development and

implementation of a broad range of

point-to-point microwave operations.

The Commission also is adopting rules

for competitive bidding for the 39 GHz

band. By these actions, the Commission

is creating a flexible regulatory vehicle

for facilitating the development of a

variety of fixed microwave operations

that will provide, inter alia,

communications infrastructure for

commercial and private mobile radio

operations and competitive wireless

local telephone service. The

Commission concludes that the public

interest is served by the geographic

licensing and competitive bidding rules

adopted herein.

ii. Summary of Issues Raised by the

Public Comments in Response to the

Initial Regulatory Flexibility Analysis

139. No comments were filed in direct

response to the IRFA. In general

comments on the NPRM, however, some

commenters raised issues that might
6100 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

affect small entities. In particular, one

commenter contended that in the

auctions for the 39 GHz band, small

entities may be at serious competitive

disadvantage vis-a-vis large, wellfinanced companies, especially if the

small businesses already expended

substantial sums on obtaining PCS

licenses. This commenter stated that if

auctions are to be utilized, small

business preferences must be designed

to provide meaningful assistance to

small business. Other commenters also

supported small business preferences in

the auctions. Various commenters

contend that the upfront payment

formula of $2,500 or $0.02 pop per MHz

as proposed is excessive and will put a

burden on small businesses. Further,

some commenters claim that the

proposed bidding credit offered to small

business entities is too low. Many

commenters support the concept of

permitting all 39 GHz licensees to

partition their licenses to any potential

licensee meeting the relevant

requirements. These commenters state

that partitioning will assist small

businesses that might be able to afford

a portion of a license.

iii. Changes Made to the Proposed Rules

Service Rules.

140. In the NPRM, the Commission

proposed a partitioning scheme with

respect to rural telephone companies.

The Commission has determined in the

Report and Order that the option of

partitioning should be made available to

all entities eligible to be licensees in the

39 GHz band. The Commission also

concluded that 39 GHz licensees should

be permitted to disaggregate their

spectrum blocks. In the NPRM the

Commission also proposed to establish

a maximum field strength limit that

would apply at the boundaries of each

service area which would provide that

licensees’ operations not exceeding this

limit would avoid the need to complete

the formal coordination process.

However, in this Report and Order the

Commission elects not to adopt a field

strength limit but will continue to use

the frequency coordination procedures

outlined in § 101.103(d) of the

Commission’s Rules. In addition, the

Commission proposed new build-out

requirements for 39 GHz licensees to

ensure that the spectrum was being used

efficiently. The Commission suggested

four construction build-out options,

each of which depended upon a specific

number of fixed stations to be built

within the licensees’ geographic area. In

this Report and Order, the Commission

concludes that a substantial service

standard is the most appropriate

benchmark for a build-out requirement

for the 39 GHz band, because it will

permit flexibility in system design and

market development, and provide a

clear and expeditious accounting of

spectrum use by licensees to ensure that

service is being provided to the public.

Auction Rules.

141. The Commission has delegated

authority to the Wireless

Telecommunications Bureau to modify

the upfront payment calculation for the

39 GHz auction if circumstances

warrant and such modification is in the

public interest. 142. The Commission in general

adopted the proposed small business

definition of an entity with not more

than $40 million in average annual gross

revenues for the preceding three years.

As discussed below, with respect to

bidding credits, the Commission created

an additional category of small

businesses—very small businesses.

These are entities with not more than

$15 million in average annual gross

revenues for the preceding three years.

In determining whether an applicant

qualifies as a small business, the

Commission will attribute the gross

revenues of all controlling principals in

the small business applicant as well as

the gross revenues of affiliates of the

applicant. No specific equity

requirements will be imposed on the

controlling principals that meet the

small business definition. However, in

order for an applicant to qualify as a

small business, qualifying small

business principals must maintain

‘‘control’’ of the applicant. The term

control will include both de facto and

de jure control of the applicant. 143. In the NPRM, the Commission

proposed a 10 percent bidding credit for

qualified small businesses. In this item,

the Commission adopts tiered bidding

credits. Tiered bidding credits will

promote vigorous competition not only

between small businesses and large

businesses but also between small

businesses of different economic sizes.

In addition, a tiered approach will

encourage smaller businesses, that may

be very well-suited to provide niche

services to participate in this auction.

Accordingly, small businesses with

average gross revenues of not more than

$40 million for the preceding three

years will receive a 25 percent bidding

credit. Smaller businesses with average

gross revenues of not more than $15

million for the preceding three years

will receive a 35 percent bidding credit.

Bidding credits for small businesses will

not be cumulative.

iv. Description and Estimate of the

Small Entities Subject to the Rules

144. The rules adopted in this Report

and Order will allow cellular, PCS, and

other small communication entities that

require support spectrum to obtain

licenses through competitive bidding.

Pursuant to 47 CFR 101.1209, the

Commission has defined ‘‘small

business entity’’ in the 39 GHz auction

as a firm that had gross revenues of less

than $40 million in the three previous

calendar years. Approval for this

regulation defining ‘‘small business

entity’’ in the context of 39 GHz was

requested from the Small Business

Administration on May 8, 1997.

a. Estimates for Cellular Licensees.

145. The Commission has not

developed a definition of small entities

applicable to cellular licensees.

Therefore, the applicable definition of

small entity is the definition under the

Small Business Administration (SBA)

rules applicable to radiotelephone

companies. This definition provides

that a small entity is a radiotelephone

company employing fewer than 1,500

persons. Since the Regulatory Flexibility

Act amendments were not in effect until

the record in this proceeding was

closed, the Commission was unable to

request information regarding the

number of small cellular businesses and

is unable at this time to determine the

precise number of cellular firms which

are small businesses.

146. The size data provided by the

SBA does not enable us to make a

meaningful estimate of the number of

cellular providers which are small

entities because it combines all

radiotelephone companies with 500 or

more employees. The Commission

therefore used the 1992 Census of

Transportation, Communications, and

Utilities, conducted by the Bureau of the

Census, which is the most recent

information available. This document

shows that only 12 radiotelephone firms

out of a total of 1,178 such firms which

operated during 1992 had 1,000 or more

employees. Therefore, even if all 12 of

these firms were cellular telephone

companies, nearly all cellular carriers

were small businesses under the SBA’s

definition. The Commission assumes,

for purposes of the evaluations and

conclusions in this FRFA, that all of the

current cellular licensees are small

entities, as that term is defined by the

SBA. Although there are 1,758 cellular

licenses, the Commission does not know

the number of cellular licensees, since

a cellular licensee may own several

licenses.

b. Estimates for Broadband PCS

Licensees.

147. The broadband PCS spectrum is

divided into six frequency blocks

designated A through F. Pursuant to 47

CFR 24.720(b), the Commission has

defined ‘‘small entity’’ in the auctions

for Blocks C and F as a firm
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6101

that had average gross revenues of less

than $40 million in the three previous

calendar years. This regulation defining

‘‘small entity’’ in the context of

broadband PCS auctions has been

approved by the SBA. 148. The Commission has auctioned

broadband PCS licenses in Blocks A

through F. The Commission does not

have sufficient data to determine how

many small businesses bid successfully

for licenses in Blocks A and B. For the

C Block auction, a total of 255 qualified

bidders participated in the auction. Of

the qualified bidders, all were

entrepreneurs—defined for this auction

as entities together with affiliates,

having gross revenues of less than $125

million and total assets of less than $500

million at the time the FCC Form 175

application was filed. Of the 255

qualified bidders, 253 were ‘‘small

businesses’’—defined for this auction as

entities together with affiliates, having

gross revenues of less than $40 million

at the time the FCC Form 175

application was filed. After a total of

184 rounds, the number of winning

bidders totalled 89, all of whom were

small business entrepreneurs, who won

a total of 493 licenses. To date, two of

the winning bidders defaulted on 18 of

the licenses. Those licenses were

reauctioned in Auction #10. For the D,

E, and F Block auction, the D and E

blocks were open to all licensees; the F

block was open to bidders who qualified

as an entrepreneur—defined for this

auction as entities, together with

affiliates, having gross revenues of less

than $125 million and total assets of less

than $500 million at the time the FCC

Form 175 application was filed. Of the

153 initial bidders for the three blocks,

105 qualified as entrepreneurs. The D,

E, and F Block auction ended with 125

bidders winning 1472 licenses and the

FCC holding 7 licenses as a result of bid

withdrawals. For the D, E, and F Block

auction, 93 of the winning bidders

qualified as small entities as defined for

that auction. Accordingly, the

Commission estimates that 48% of the

winning bidders for the auction of

broadband PCS licenses in Blocks A

through F are small businesses.

c. Estimates for Point-to-Point or Pointto-Multipoint Entities.

149. The rules adopted in this Report

and Order will apply to any current

licensee or any company which chooses

to apply for a license in the 39 GHz

band. The Commission has not

developed a definition of small entities

applicable to such licensees. The SBA

definitions of small entity for 39 GHz

band licensees are the definitions

applicable to radiotelephone companies.

The definition of radiotelephone

companies provides that a small entity

is a radiotelephone company employing

fewer than 1,500 persons. Since the

Regulatory Flexibility Act amendments

were not in effect until the record in this

proceeding was closed, the Commission

was unable to request information

regarding the potential number of small

businesses interested in the 39 GHz

frequency band and is unable at this

time to determine the precise number of

potential applicants which are small

businesses.

150. The size data provided by the

SBA does not enable us to make a

meaningful estimate of the number of

telecommunications providers which

are small entities because it combines

all radiotelephone companies with 500

or more employees. The Commission

therefore used the 1992 Census of

Transportation, Communications, and

Utilities, conducted by the Bureau of the

Census, which is the most recent

information available. This document

shows that only 12 radiotelephone firms

out of a total of 1,178 such firms which

operated during 1992 had 1,000 or more

employees. Therefore, a majority of 39

GHz entities providing radiotelephone

services could be small businesses

under the SBA’s definition.

151. However, in the NPRM, the

Commission proposed to define a small

business as an entity that, together with

affiliates and attributable investors, has

average gross revenues for the three

preceding years of less than $40 million.

The Commission has not yet received

approval by the SBA for this definition.

The Commission assumes, for purposes

of its evaluations and conclusions in

this FRFA, that nearly all of the 39 GHz

licensees will be small entities, as that

term is defined by the SBA.

v. Summary of Projected Reporting,

Recordkeeping and Other Compliance

Requirements

Service Rules.

152. There are some reporting

requirements imposed by the Report

and Order. In most instances, it is likely

that the entities filing will require the

services of persons with technical or

engineering expertise to prepare reports.

In order to facilitate operation in the 39

GHz band, the Commission is not

imposing separate regulatory burdens

that may affect small businesses.

Generally, all applicants will be

required to file applications for

authorization to construct and operate

and to adhere to the technical criteria

set forth in the final rules.

Auction Rules.

153. All license applicants will be

subject to reporting and record keeping

requirements to comply with the

competitive bidding rules. Specifically,

applicants will apply for 39 GHz license

auctions by filing a short-form

application and will file a long-form

application 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, its affiliates, and

certain investors in the applicant.

vi. Steps Taken to Minimize the

Economic Impact on Small Entities

Service Rules.

154. The Commission adopts service

and technical rules that facilitate the

accommodation of all proposed and

existing systems in the 39 GHz band.

The Commission believes these rules are

a reasonable accommodation of all

competing interests in this band,

including small entities. The plans for

the 39 GHz band provide both small

entities and larger businesses the same

opportunity to develop and operate

viable systems within the band, and

initiate competitive services.

Auction Rules.

155. Section 309 (j)(3)B) of the

Communications Act of 1934, as

amended, provides that in establishing

eligibility criteria and bidding

methodologies the Commission shall,

inter alia, ‘‘promote[e] economic

opportunity and competition and

ensur[e] that new and innovative

technologies are readily accessible to

the American people 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 * * * and

combinations of such schedules and

methods.’’ Section 309(j)(4)(D) also

requires the Commission to ‘‘ensure that

small business, 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.’’ Therefore, it is appropriate to

establish special provisions in the 39

GHz band for competitive bidding by

small businesses.

156. The Commission notes that

Congress made specific findings with

regard to access to capital in the Small

Business Credit and Business

Opportunity Enhancement Act of 1992,

that small business concerns, which

represent higher degrees of risk in
6102 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

financial markets than do large

businesses, are experiencing increased

difficulties in obtaining credit. The

Commission believes that small

businesses applying for 39 GHz band

licenses should be entitled to some type

of bidding credits. In awarding licenses,

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 variety of applicants,

including small businesses, rural

telephone companies, and businesses

owned by members of minority groups

and women. The Commission concludes

that special provisions for small

businesses are appropriate for awarding

licenses because construction of systems

may require a significant amount of

capital, and minority- and womenowned businesses will be able to take

advantage of specific provisions that the

Commission adopts for small

businesses.

157. The Commission has adopted

various special provisions to encourage

and facilitate participation by small

entities in the auctions. In particular,

small businesses with revenues of not

more than $40 million are eligible for a

25 percent bidding credit, and small

businesses with average annual gross

revenues of not more than $15 million

are eligible for a 35 percent bidding

credit on all 39 GHz licenses. These

bidding credits are not cumulative. 158. In addition, the Commission has

extended partitioning to all entities

eligible to be licensees in the 39 GHz

band. The Commission also concluded

here to allow all 39 GHz licensees to

disaggregate their spectrum blocks.

These provisions should help facilitate

market entry by small entities who may

lack the financial resources to

participate in the auction alone. These

entities will be able to participate in the

provision of services by purchasing a

portion of a license.

vii. Significant Alternatives Considered

and Rejected

Service Rules.

159. The Commission considered and

rejected several alternatives to the

licensing plan and competitive bidding

rules adopted. In response to a Petition

for Rule Making filed by the

Telecommunications Industry

Association (TIA), the Commission

initiated this proceeding. This Report

and Order does not provide direct relief

requested by TIA in particular areas. For

example, the Commission rejected the

individual link licensing alternative

which was suggested by TIA. The

Commission also considered and

rejected proposals to license spectrum

on an MTA or Rectangular Service Area

basis because it determined that BTA

licensing would further spectrum

management and better serve the 39

GHz band because the wide variety of

services proposed by commenters relate

to PCS systems or are local in nature. In

addition, BTAs which are smaller than

MTAs, will facilitate the ability of

smaller systems to participate in

geographic area licensing. Therefore,

based on the record in this proceeding,

the Commission believes that BTAs

would be more appropriate for licensing

the 39 GHz band.

160. The Commission also considered

various proposals by entities relating to

the disposition of pending 39 GHz

applications. The processing procedures

adopted are based on some proposed

alternatives. Other proposals were

rejected, such as the suggestion that the

Commission process pending mutually

exclusive applications. The Commission

determined that pending mutually

exclusive applications will be dismissed

without prejudice, and all applicants,

including small business entities, would

be permitted to submit new applications

under the competitive bidding rules

established in this proceeding. Because

applicants had ample opportunity to file

amendments prior to the onset of this

rule making, in order to avoid mutual

exclusivity, the Commission believes

the above procedure is the best

approach. The Commission also

considered various divergent proposals

made in response to the build-out plan

for incumbents and for new 39 GHz

licensees. With the goal of

accommodating various entities, the

Commission developed specific

construction requirements and

implemented a ‘‘substantial service’’

showing for these entities. By rejecting

such build-out alternatives which

required the construction of significant

amounts of links within a short time

frame, the Commission adopts an

alternative which takes into

consideration concerns raised by

commenters, including small business

entities, regarding establishing services

which are specialized and do not lend

to traditional construction requirements.

Auction Rules.

161. The Commission considered and

rejected several significant alternatives

with respect to the auction rules. The

Commission rejected the use of any type

of licensing method in favor of

competitive bidding as the method of

awarding 39 GHz licenses. The

Commission concluded that awarding

39 GHz licenses by auction meets the

congressional criteria in § 309(j) of the

Communications Act, and will likely

promote the Act’s objectives. The

Commission also rejected a sequential

or other auction design in favor of a

simultaneous multiple round auction

design because the licenses are

interdependent. As to designated

entities that may be entitled to special

provisions, the Commission determined

that based upon the record it only

would extend such special provisions to

small businesses. The Commission

rejected offering reduced upfront or

down payments and payment by

installment payments and, instead,

adopted tiered bidding credits for small

businesses. The Commission adopted a

small business definition of an entity

with not more than $40 million in

average gross revenues for the preceding

three years. The Commission held that

this definition of small business will

accommodate the broadest cross-section

of small businesses because it will

include, at a minimum, all those entities

recognized as small businesses in the

CMRS contests for which the

Commission has adopted or proposed

small businesses definitions. Since the

Commission rejected a straight acrossthe-board 10 percent bidding credit for

qualified small businesses and, based

upon the record, adopted tiered bidding

credits for the 39 GHz service, small

businesses with average gross revenues

of not more than $40 million for the

preceding three years will receive a 25

percent bidding credit and smaller

businesses with average gross revenues

of not more than $15 million for the

preceding three years will receive a 35

percent bidding credit.

viii. Report to Congress

162. The Commission shall send a

copy of this Final Regulatory Flexibility

Analysis, along with this 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. Ex Parte Rules—Non-Restricted

Proceeding

163. This is a non-restricted notice

and comment rulemaking proceeding.

Ex parte presentations are permitted

except during the Sunshine Agenda

period, provided they are disclosed as

provided in Commission Rules. See

generally 47 CFR 1.1201, 1.1203, and

1.1206(a).

C. Paperwork Reduction Act

164. Written comments by the public

on the modified information collections

are due March 9, 1998. Written
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6103

comments must be submitted by the

Office of Management and Budget

(OMB) on the proposed and/or modified

information collections on or before

April 7, 1998. In addition to filing

comments with the Secretary, a copy of

any comments on the information

collections contained herein should be

submitted to Dorothy Conway, Federal

Communications Commission, Room

234, 1919 M Street, N.W., Washington

D.C. 20554, or via the Internet to

dconway@fcc.gov and to Timothy Fain,

OMB Desk Officer, 10236 NEOB, 725—

17th Street, N.W., Washington D.C.

20503 or via the Internet to

fainlt@al.eop.gov.

D. Ordering Clauses

165. Authority for issuance of this

Report and Order and Second Notice of

Proposed Rule Making is contained in

sections 4(i), 257, 303(r), and 309(j) of

the Communications Act of 1934, as

amended, 47 U.S.C. sections 154(i), 257,

303(r), and 309(j).

166. It is ordered, that parts 1 and 101

of the Commission’s Rules are amended

as specified effective April 7, 1998. This

action is taken pursuant to sections 4(i),

303(c), 303(f), 303(g), 303(r) and 309(j)

of the Communications Act of 1934, as

amended, 47 U.S.C. §§ 154(i), 303(c),

303(f), 303(g), 303(r) and 309(j).

List of Subjects in 47 CFR Parts 1 and

101

Communications equipment, Radio.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Parts 1 and 101 of Chapter 1 of Title

47 of the Code of Federal Regulations is

amended as follows:

PART 1— PRACTICE AND

PROCEDURE

1. The authority citation for part 1

continues to read as follows:

Authority: 47 U.S.C. 151, 154, 207, 303 and

309(j), unless otherwise noted.

2. Amend § 1.2102 by adding new

paragraph (a)(10) and revising paragraph

(b)(4) introductory text to read as

follows:

§ 1.2102 Eligibility of applications for

competitive bidding.

(a) * * *

(10) Basic trading area licenses in the

38.6–40.0 GHz band.

(b) * * *

(4) Applications for channels in all

frequency bands, except those listed in

paragraph (a)(10), which are used as an

intermediate link or links in the

provision of continuous, end-to-end

service where no service is provided

directly to subscribers over the

frequencies. Examples of such

intermediate links are:

* * * * *

PART 101— FIXED MICROWAVE

SERVICES

3. The authority citation for Part 101

continues to read as follows:

Authority: 47 U.S.C. §§ 524, 303.

4. Amend § 101.13 by revising

paragraph (d) to read as follows:

§ 101.13 Application forms and

requirements for private operational fixed

stations.

* * * * *

(d) Application for renewal of station

licenses must be submitted on such

form as the Commission may designate

by public notice. Applications for

renewal must be made during the

license term and, except for renewal

applications in the 38.6–40.0 GHz band,

should be filed within 90 days, but not

later than 30 days, prior to the end of

the license term. Renewal applications

in the 38.6–40.0 GHz band must be filed

eighteen months prior to the end of the

license term. See § 101.17 for renewal

requirements for the 38.6–40.0 GHz

frequency band. When a licensee

submits a timely application for renewal

of a station license, the existing license

for that station will continue as a valid

authorization until the Commission has

made a final decision on the

application. Whenever a group of

station licenses in the same radio

service are to be renewed

simultaneously, a single ‘‘blanket’’

application may be filed to cover the

entire group if the application identifies

each station by call sign and station

location. Applicants should note also

any special renewal requirements under

the rules for such radio station(s).

* * * * *

5. Amend § 101.15 by revising

paragraph (c) to read as follows:

§ 101.15 Application forms for common

carrier fixed stations.

* * * * *

(c) Renewal of station license. Except

for renewal of special temporary

authorizations and authorizations in the

38.6–40.0 GHz band, FCC Form 415

(‘‘Application for Authorization in the

Microwave Services’’) must be filed by

the licensee between thirty (30) and

sixty (60) days prior to the expiration

date of the license sought to be renewed.

For authorizations in the 38.6–40.0 GHz

band, the licensee must file FCC Form

415 eighteen months prior to the

expiration date of the license sought to

be renewed. See § 101.17 for renewal

requirements for the 38.6–40.0 GHz

frequency band. Whenever a group of

station licenses in the same radio

service are to be renewed

simultaneously, a single ‘‘blanket’’

application may be filed to cover the

entire group if the application identifies

each station by call sign and station

location. Applicants should note also

any special renewal requirements under

the rules for each radio service. When

a licensee submits a timely application

for renewal of a station license, the

existing license continues in effect until

the Commission has rendered a decision

on the renewal application.

* * * * *

6. Add new § 101.17 to read as

follows:

§ 101.17 Performance requirements for the

38.6–40.0 GHz frequency band.

(a) All 38.6–40.0 GHz band licensees

must demonstrate substantial service at

the time of license renewal. A licensee’s

substantial service showing should

include, but not be limited to, the

following information for each channel

for which they hold a license, in each

BTA or portion of a BTA covered by

their license, in order to qualify for

renewal of that license. The information

provided will be judged by the

Commission to determine whether the

licensee is providing service which rises

to the level of ‘‘substantial.’’

(1) A description of the 38.6–40.0 GHz

band licensee’s current service in terms

of geographic coverage;

(2) A description of the 38.6–40.0 GHz

band licensee’s current service in terms

of population served, as well as any

additional service provided during the

license term;

(3) A description of the 38.6–40.0 GHz

band licensee’s investments in its

system(s) (type of facilities constructed

and their operational status is required);

(b) Any 38.6–40.0 GHz band licensees

adjudged not to be providing substantial

service will not have their licenses

renewed.

7. Amend § 101.45 by revising

paragraph (d) to read as follows:

§ 101.45 Mutually exclusive applications.

* * * * *

(d) Except for applications in the

38.6–40.0 GHz band, private operational

fixed point-to-point microwave

applications for authorization under this

Part will be entitled to be included in

a random selection process or to

comparative consideration with one or
6104 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

more conflicting applications in

accordance with the provisions of

§ 1.227.(b)(4) of this chapter.

Applications in the 38.6–40.0 GHz band

are subject to competitive bidding

procedures in §§ 101.1201–1209.

* * * * *

8. Amend § 101.51 by revising

paragraph (a) introductory text to read

as follows:

§ 101.51 Comparative evaluation of

mutually exclusive applications.

(a) In order to expedite action on

mutually exclusive applications in

services under this rules part where

neither competitive bidding nor the

random selection processes apply, the

applicants may request the Commission

to consider their applications without a

formal hearing in accordance with the

summary procedure outlined in

paragraph (b) in this section if:

* * * * *

9. Amend § 101.53 by adding new

paragraph (g) to read as follows:

§ 101.53 Assignment or transfer of station

authorization.

* * * * *

(g) Assignees receiving Commission

authority to acquire a 38.6–40.0 GHz

license pursuant to this paragraph must

meet the assignors’ construction

requirement dates. See §§ 101.63 and

101.64 of this part.

10. Amend § 101.55 by revising the

introductory text of paragraph (a) and

paragraph (b)(2) to read as follows:

§ 101.55 Considerations involving

assignment or transfer applications.

(a) Licenses not authorized pursuant

to competitive bidding procedures may

not be assigned or transferred prior to

completion of construction of the

facility. However, consent to the

assignment or transfer of control of such

a license may be given prior to the

completion of construction where:

* * * * * *

(b) * * *

(2) That have not been constructed,

unless the authorizations were granted

pursuant to a competitive bidding

procedure; or

* * * * *

11. Add § 101.56 to read as follows:

§ 101.56 Partitioned service areas (PSAs)

and disaggregated spectrum.

(a)(1) The holder of a Basic Trading

Area (BTA) authorization to provide

service in the 38.6–40 GHz band

pursuant to the competitive bidding

process may enter into agreements with

eligible parties to partition any portion

of its service area according to county

boundaries, or according to other

geopolitical subdivision boundaries.

Alternatively, licensees may enter into

agreements or contracts to disaggregate

portions of spectrum, provided acquired

spectrum is disaggregated according to

frequency pairs.

(2)(i) Contracts must be filed with the

Commission within 30 days of the date

that such agreements are reached.

(ii) The contracts must include

descriptions of the areas being

partitioned or spectrum disaggregated.

The partitioned service area shall be

defined by coordinate points at every 3

seconds along the partitioned service

area unless an FCC recognized service

area is utilized (i.e., Metropolitan

Service Area or Rural Service Area) or

county lines are followed. If geographic

coordinate points are used, they 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.

(3) Parties to partitioning and

spectrum disaggregation contracts must

file concurrently with such contracts the

following:

(i) An application FCC Form 415 for

authority to operate a 38.6–40 GHz

service facility.

(ii) Application for assignment to

operate in the market area being

partitioned or to operate in the market

area covered by the disaggregated

spectrum.

(iii) A completed FCC Form 430,

where applicable, if not already on file

at the Commission.

(b) The eligibility requirements

applicable to BTA authorization holders

also apply to those individuals and

entities seeking partitioned or

disaggregated spectrum authorizations.

(c) Subsequent to issuance of the

authorization for a partitioned service

area, the partitioned area will be treated

as a separate protected service area.

(d) When any area within a BTA

becomes a partitioned service area, the

remaining counties and geopolitical

subdivision within that BTA will be

subsequently treated and classified as a

partitioned service area.

(e) At the time a BTA is partitioned,

the Commission shall cancel the BTA

authorization initially issued and issue

a partitioned service area authorization

to the former BTA authorization holder.

(f) The duties and responsibilities

imposed upon BTA authorization

holders in this part, apply to those

licensees obtaining authorizations by

partitioning or spectrum disaggregation.

(g) The build-out requirements for the

partitioned service area or disaggregated

spectrum shall be the same as applied

to the BTA authorization holder.

(h) The license term for the

partitioned service area or disaggregated

spectrum shall be the remainder of the

period that would apply to the BTA

authorization holder.

(i) Licensees, except those using

bidding credits in a competitive bidding

procedure, shall have the authority to

partition service areas or disaggregate

spectrum.

12. Amend § 101.63 by revising

paragraphs (a) and (d) to read as follows:

§ 101.63 Period of construction;

certification of completion of construction.

(a) Except for stations licensed in the

38.6–40.0 GHz band, each station

licensed under this part must be in

operation within 18 months from the

initial date of grant. Modification of an

operational station other than one

licensed in the 38.6–40.0 GHz band

must be completed within 18 months of

the date of grant of the applicable

modification request.

* * * * *

(d) Except for stations licensed in the

38.6–40.0 GHz band, requests for

extension of time to be in operation may

be granted upon a showing of good

cause, setting forth in detail the

applicant’s reasons for failure to have

the facility operating in the prescribed

period. Such requests must be

submitted no later than 30 days prior to

the end of the prescribed period to the

Federal Communications Commission,

Gettysburg, PA 17325–7245.

* * * * *

13. Add § 101. 64 to read as follows:

§ 101.64 Service areas.

Service areas for 38.6–40.0 GHz

service are BTAs as defined below.

BTAs are based on the Rand McNally

1992 Commercial Atlas & Marketing

Guide, 123rd Edition, at pages 40–44.

Rand McNally organizes the 50 States

and the District of Columbia into 487

BTAs. The BTA Map is available for

public inspection at the Wireless

Telecommunications Bureau, Room

5322, 2025 M Street, NW., Washington,

DC. The BTA service areas are based on

the Rand McNally 1995 Commercial

Atlas & marketing Guide, 123rd Edition,

at pages 40–44, with the following

additions licensed separately as BTAlike areas: American Samoa; Guam;

Northern Mariana Islands; Mayaguez/
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6105

Aguadilla-Ponce, Puerto Rico; San Juan,

Puerto Rico; and the United States

Virgin Islands. The Mayaguez/

Aguadilla-Ponce BTA-like service area

consists of the following municipios:

Adjuntas, Aguada, Aguadilla, Anasco,

Arroyo, Cabo Rojo, Coamo, Guanica,

Guayama, Guayanilla, Hormigueros,

Isabela, Jayuya, Juana Diaz, Lajas, Las

Marias, Maricao, Maunabo, Mayaguez,

Moca, Patillas, Penuelas, Ponce,

Quebradillas, Rincon, Sabana Grande,

Salinas, San German, Santa Isabel,

Villalba, and Yauco. The San Juan BTAlike service area consists of all other

municipios in Puerto Rico.

14. Amend § 101.103 by adding

paragraphs (i)(1) and (i)(2) to read as

follows:

§ 101.103 Frequency coordination

procedures.

* * * * *

(i)(1) When the licensed facilities are

to be operated in the band 38,600 MHz

to 40,000 MHz and the facilities are

located within 16 kilometers of the

boundaries of a Basic Trading Area,

each licensee must complete the

frequency coordination process of

§ 101.103(d) with respect to neighboring

BTA licensees and existing licensees

within its BTA service area that may be

affected by its operation prior to

initiating service. In addition to the

technical parameters listed in

§ 101.103(d), the coordinating licensee

must also provide potentially affected

parties technical information related to

its subchannelization plan and system

geometry.

(2) Response to notification should be

made as quickly as possible, even if no

technical problems are anticipated. Any

response to notification indicating

potential interference must specify the

technical details and must be provided

to the licensee, either electronically or

in writing, within 10 days of

notification. Every reasonable effort

should be made by all licensees to

eliminate all problems and conflicts. If

no response to notification is received

within 10 days, the licensee will be

deemed to have made reasonable efforts

to coordinate and may commence

operation without a response. The

beginning of the 10-day period is

determined pursuant to § 101.103(d)(v).

15. Amend § 101.107 by revising the

last entry in the table and adding new

footnote 9 to read as follows:

§ 101.107 Frequency tolerance.

* * * * *

FREQUENCY TOLERANCE

[Percent]

Frequency (MHz)

All

fixed

and

based

stations

Mobile

stations

over 3

watts

Mobile

stations 3

watts

or less

* * * * *

31,300 to

40,000 6 .......... 0.03 9 0.03 0.03

* * * * *

9Equipment authorized to be operated in

the 38,600–40,000 MHz band is exempt from

the frequency tolerance requirement noted in

the above table.

16. Amend § 101.109 by adding a new

footnote 7 to the entry in the second

column for 38,600 to 40,000, and by

adding a new entry at the end of the

table to read as follows:

§ 101.109 Bandwidth.

* * * * *

Frequency band (MHz)

Maximum

authorized

bandwidth

* * * * *

38,600 to 40,000 .......................... 50 MHz 7

Above 40,000 ............................... (3)

* * * * *

7For channel block assignments in the

38,600–40,000 MHz band, the authorized

bandwidth is equivalent to an unpaired channel block assignment or to either half of a

symmetrical paired channel block assignment.

When adjacent channels are aggregated,

equipment is permitted to operate over the full

channel block aggregation without restriction.

Note to Footnote 7: Unwanted emissions

shall be suppressed at the aggregate channel

block edges based on the same roll-off rate as

is specified for a single channel block in paragraphs 101.111(a)(ii) and (iii) of this chapter.

17. Amend § 101.115 by removing the

entry for ‘‘Above 31,300’’ in the table in

paragraph (c)(2), and adding the

following entry and new footnote 14 to

read as follows:

§ 101.115 Directional antennas.

* * * * *

(c) * * *

(2) * * *

ANTENNA STANDARDS

Frequency (MHz) Category

Maximum

beamwidth to 3

dB

points(1)

(included

angles in

degrees)

Minimum

antenna

gain (dBi)

Minimum radiation suppression to angle in degrees from centerline of main beam

in decibels

5° to 10° 10° to

15°

15° to

20°

20° to

30°

30° to

100°

100° to

140°

140° to

180°

* * * * * * *

38,600 to 40,000 14 ..... A n/a 38 25 29 33 26 42 55 55

B n/a 38 20 24 28 32 35 36 36

14Stations authorized to operate in the 38,600–40,000 MHz band may use antennas other than those meeting the Category A standard. However, the Commission may require the use of higher performance antennas where interference problems can be resolved by the use of such antennas.

18. Amend § 101.147 by redesignating

paragraph (v) as (v)(1), revising newly

redesignated (v)(1) and adding new

paragraph (v)(2) to read as follows:

§ 101.147 Frequency assignments.

* * * * *

(v)(1) Assignments in the band

38,600–40,000 MHz must be according

to the following frequency plan:
6106 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

Channel group A Channel group B

Channel No. Frequency band

limits (MHz) Channel No. Frequency bandlimits (MHz)

1–A ........................................................................................................................... 38,600–38,650 1–B 39,300–39,350

2–A ........................................................................................................................... 38,650–38,000 2–B 39,350–39,400

3–A ........................................................................................................................... 38,700–38,750 3–B 39,400–39,450

4–A ........................................................................................................................... 38,750–38,800 4–B 39,450–39,500

5–A ........................................................................................................................... 38,800–38,850 5–B 39,500–39,550

6–A ........................................................................................................................... 38,350–38,900 6–B 39,550–39,600

7–A ........................................................................................................................... 38,900–38,950 7–B 39,600–39,650

8–A ........................................................................................................................... 38,950–39,000 8–B 39,650–39,700

9–A ........................................................................................................................... 39,000–39,050 9–B 39,700–39,750

10–A ......................................................................................................................... 39,050–39,100 10–B 39,750–39,800

11–A ......................................................................................................................... 39,100–39,150 11–B 39,800–39,850

12–A ......................................................................................................................... 39,150–39,200 12–B 39,850–39,900

13–A ......................................................................................................................... 39,200–39,250 13–B 39,900–39,950

14–A ......................................................................................................................... 39,250–39,300 14–B 39,950–40,000

(2) Channel Blocks 1 through 14 are

assigned for use within Basic Trading

Areas (BTAs). Applicants are to apprise

themselves of any grandfathered links

within the BTA for which they seek a

license. All of the channel blocks may

be subdivided as desired by the licensee

and used within its service area as

desired without further authorization

subject to the terms and conditions set

forth in § 101.149.

19. Add Subpart N to Section 101 to

read as follows:

Subpart N—Competitive Bidding

Procedures for the 38.6–40.0 GHz Band

101.1201 38.6–40.0 GHz subject to

competitive bidding.

101.1202 Competitive bidding design for

38.6–40.0 GHz licensing.

101.1203 Competitive bidding mechanisms.

101.1204 Bidding application procedures.

101.1205 Submission of upfront payments

and down payments.

101.1206 Long-form applications.

101.1207 Procedures for filing petitions to

deny against long-form applications.

101.1208 Bidding credits for small

businesses.

101.1209 Definitions.

Subpart N—Competitive Bidding

Procedures for the 38.6–40.0 GHz Band

§ 101.1201 38.6–40.0 GHz subject to

competitive bidding.

Mutually exclusive 38.6–40.0 GHz

initial applications are subject to

competitive bidding. The general

competitive bidding procedures found

in 47 CFR Part 1, Subpart Q will apply

unless otherwise provided in this part.

§ 101.1202 Competitive bidding design for

38.6–40.0 GHz licensing.

The following competitive bidding

procedures generally will be used in

38.6–40.0 GHz auctions. Additional,

specific procedures may be set forth by

public notice. The Commission also

may design and test alternative

procedures. See 47 CFR §§ 1.2103 and

1.2104. The Commission will employ

simultaneous multiple round bidding

when choosing from among mutually

exclusive initial applications to provide

38.6–40.0 GHz service, unless otherwise

specified by the Wireless

Telecommunications Bureau before the

auction.

§ 101.1203 Competitive bidding

mechanisms.

(a) Sequencing. The Commission will

establish and may vary the sequence in

which 38.6–40.0 GHz licenses will be

auctioned.

(b) Grouping. The Commission will

conduct a series of sequential auctions

of three channels at a time within each

BTA unless the Wireless

Telecommunications Bureau

announces, by Public Notice prior to the

auction, an alternative auction scheme.

(c) Minimum bid increments. The

Commission will, by announcement

before or during an auction, require

minimum bid increments in dollar or

percentage terms. (d) Stopping rules. The Commission

will establish stopping rules before or

during multiple round auctions in order

to terminate an auction within a

reasonable time.

(e) Activity rules. The Commission

will establish activity rules which

require a minimum amount of bidding

activity. In the event that the

Commission establishes an activity rule

in connection with a simultaneous

multiple round auction, each bidder

will be entitled to request and will be

automatically granted a certain number

of waivers of such rule during the

auction.

§ 101.1204 Bidding application

procedures.

All applicants to participate in

competitive bidding for 38.6–40.0 GHz

licenses must submit applications on

FCC Forms 175 pursuant to the

provisions of § 1.2105 of this Chapter.

The Wireless Telecommunications

Bureau will issue a public notice

announcing the availability of 38.6–40.0

GHz 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

38.6–40.0 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 need to be

submitted, and the location where the

application must be filed. In addition,

each applicant must identify its status

as a small business or rural telephone

company.

§ 101.1205 Submission of upfront

payments and down payments.

(a) Each bidder in the 38.6–40.0 GHz

auction will be required to submit an

upfront payment. This upfront payment

will be based upon a formula

established by the Wireless

Telecommunications Bureau and

announced by public notice prior to the

auction.

(b) Each winning bidder in the 38.6–

40.0 GHz auction shall make a down

payment to the Commission in an

amount sufficient to bring its total

deposits up to 20 percent of its winning

bid by a date and time to be specified

by public notice, generally within ten

business days following the close of

bidding. Full payment of the balance of

the winning bids shall be paid within

ten days after public notice announcing

that the Commission is prepared to

award the license. The grant of the

application is conditional upon receipt

of full payment. The Commission

generally will grant the license within a
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6107

reasonable period of time after receiving

full payment.

§ 101.1206 Long-form applications.

Each winning bidder will be required

to submit a long-form application.

Winning bidders must submit long-form

applications within ten (10) business

days after being notified by Public

Notice that it is the winning bidder.

Long-form applications shall be

processed under the rules contained in

parts 1 and 101 of the Commission’s

rules.

§ 101.1207 Procedures for filing petitions

to deny against long-form applications.

The applicable procedures for the

filing of petitions to deny the long-form

applications of winning bidders

contained in § 1.2108 of the

Commission’s rules shall be followed by

the applicant (see 47 CFR 1.2108).

§ 101.1208 Bidding credits for small

businesses.

(a) A winning bidder that qualifies as

a small business or a consortium of

small businesses, (as defined in

§ 101.1209(b)(1)(i) may use a bidding

credit of 25 percent to lower the cost of

its winning bid on any of the licenses

in this part. A winning bidder that

qualifies as a very small business or a

consortium of very small businesses, (as

defined in § 101.1209(b)(1)(ii) may use a

bidding credit of 35 percent to lower the

cost of its winning bid on any of the

licenses in this part.

(b) Unjust enrichment. (1) A small

business seeking transfer or assignment

of a license to an entity that is not a

small business under the definitions in

§ 101.1209(b)(1)(i) and (ii), will be

required to reimburse the government

for the amount of the bidding credit,

plus interest at the rate imposed for

installment financing at the time the

license was awarded, before transfer

will be permitted. The amount of this

penalty 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 penalty will be 75

percent; in year four the penalty will be

50 percent and in year five the penalty

will be 25 percent, after which there

will be no penalty. These penalties must

be paid back to the U.S. Treasury as a

condition of approval of the assignment

or transfer.

(2) If a small business that utilizes a

bidding credit under this section seeks

to assign or transfer control of its license

to a small business meeting the

eligibility standards for lower bidding

credits 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.

§ 101.1209 Definitions.

(a) Scope. The definitions in this

section apply to §§ 101.1201 through

101.1209, unless otherwise specified in

those sections.

(b) Small business and very small

business. (1)(i) A small business is an

entity that together with its affiliates

and persons or entities that hold

attributable interests in such entity and

their affiliates, has average gross

revenues that are not more than $40

million for the preceding three years.

(ii) A very small business is an entity

that together with its affiliates and

persons or entities that hold attributable

interests in such entity and their

affiliates, has average gross revenues

that are not more than $15 million for

the preceding three years.

(2) For purposes of determining

whether an entity meets either the small

business or very small business

definitions set forth in paragraph (b)(1)

of this section, the gross revenues of the

entity, its affiliates, persons or entities

holding interests in the entity and their

affiliates shall be considered on a

cumulative basis and aggregated.

(3) A small business consortium is a

conglomerate organization formed as a

joint venture between or among

mutually-independent business firms,

each of which individually satisfies

either definition of a small business in

paragraphs (b)(1) and (b)(2) of this

section.

(c) Rural telephone company. A rural

telephone company means a local

exchange carrier operating entity to the

extent that such entity—

(A) Provides common carrier service

to any local exchange carrier study area

that does not include either—

(i) Any incorporated place of 10,000

inhabitants or more, or any part thereof,

based on the most recently available

population statistics of the Bureau of the

Census; or

(ii) Any territory, incorporated or

unincorporated, included in an

urbanized area, as defined by the

Bureau of the Census, as of August 10,

1993;

(B) Provides telephone exchange

service, including exchange access, to

fewer than 50,000 access lines;

(C) Provides telephone exchange

service to any local exchange carrier

study area with fewer than 100,000

access lines; or

(D) Has less than 15 per cent of its

access lines in communities of more

than 50,000 on the date of enactment of

the Telecommunications Act of 1996.

(d) 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),

as evidenced by audited quarterly

financial statements for the relevant

number of calendar years preceding

January 1, 1996, or, if audited financial

statements were not prepared on a

calendar-year basis, of the most recently

completed fiscal years preceding the

filing of the applicant’s short-form

application (Form 175). For applications

filed after December 31, 1995, gross

revenues shall be evidenced by audited

financial statements for the preceding

relevant number of calendar or fiscal

years. If an entity was not in existence

for all or part of the relevant period,

gross revenues shall be evidenced by the

audited financial statements of the

entity’s predecessor-in-interest or, if

there is no identifiable predecessor-ininterest, unaudited financial statements

certified by the applicant as accurate.

(e) Affiliate. (1) Basis for affiliation.

An individual or entity is an affiliate of

an applicant or of a person holding an

attributable interest in an applicant

(both referred to herein as ‘‘the

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 that also

controls or has 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 (e)(2)(i). 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
6108 Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations

corporation may permit a stockholder with

less than 50 percent of the voting 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 where a

concern’s voting stock is so widely

distributed that no effective control can

be established.

Example for paragraph (e)(2)(iii). 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 or 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 persons with

attributable interests in 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.

Example 1. Two shareholders in

Corporation Y each have attributable

interests in the same application. While

neither shareholder has enough shares to

individually control Corporation Y, together

they have the power to control Corporation

Y. The two shareholders with these common

investments (or identity of interest) are

treated as though they are one person and

Corporation Y would be deemed an affiliate

of the applicant.

Example 2. One shareholder in

Corporation Y, shareholder A, has an

attributable interest in a SMR application.

Another shareholder in Corporation Y,

shareholder B, has a nonattributable interest

in the same SMR application. While neither

shareholder has enough shares to

individually control Corporation Y, together

they have the power to control Corporation

Y. Through the common investment of

shareholders A and B in the SMR

application, Corporation Y would still be

deemed an affiliate of the applicant.

(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, stepbrother, or -sister, step-son, or

-daughter, half brother or sister. This

presumption may be rebutted by

showing that (A) The family members are

estranged, (B) The family ties are remote, or

(C) The family members are not

closely involved with each other in

business matters.

Example for paragraph (e)(3)(ii). A owns a

controlling interest in Corporation X. A’s

sister-in-law, B, has an attributable 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 or 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 or 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 or 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 (e)(5). If company

B holds an option to purchase a controlling

interest in company A, who holds an

attributable 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 (e)(5). If a large

company, BigCo, holds 70% (70 of 100

outstanding shares) of the voting stock of

company A, who holds an attributable

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,

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 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 (e)(5). 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.
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 /Rules and Regulations 6109

(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 option is a joint

venture.

(ii) The parties to a joint venture are

considered to be affiliated with each

other.

(11) Exclusion from affiliation

coverage. For purposes of this section,

Indian tribes or Alaska Regional or

Village Corporations organized pursuant

to the Alaska Native Claims Settlement

Act (43 U.S.C. 1601 et seq.), or entities

owned and controlled by such tribes or

corporations, are not considered

affiliates of an applicant (or licensee)

that is owned and controlled by such

tribes, corporations or entities, and that

otherwise complies with the

requirements of this section, except that

gross revenues derived from gaming

activities conducted by affiliated

entities pursuant to the Indian Gaming

Regulatory Act (25 U.S.C. 2701 et seq.)

will be counted in determining such

applicant’s (or licensee’s) compliance

with the financial requirements of this

section, unless such applicant

establishes that it will not receive a

substantial unfair competitive advantage

because significant legal constraints

restrict the applicant’s ability to access

such gross revenues.

[FR Doc. 98–1731 Filed 2–5–98; 8:45 am]

BILLING CODE 6712–01–P

DEPARTMENT OF DEFENSE

48 CFR Part 246

[DFARS Case 97–D326]

Defense Federal Acquisition

Regulation Supplement; Warranties in

Weapon System Acquisitions

AGENCY: Department of Defense (DoD).

ACTION: Final rule.

SUMMARY: The Director of Defense

Procurement has issued a final rule

amending the Defense Federal

Acquisition Regulation Supplement

(DFARS) to implement Section 847 of

the National Defense Authorization Act

for Fiscal Year 1998. Section 847

repealed the requirement for contractor

guarantees on major weapon systems.

EFFECTIVE DATE: February 6, 1998.

FOR FURTHER INFORMATION CONTACT:

Rick Layser, PDUSD(A&T)DP(DAR),

IMD 3D139, 3062 Defense Pentagon,

Washington, DC 20301–3062.

Telephone (703) 602–0131. Telefax

(703) 602–0350. Please cite DFARS Case

97–D326.

SUPPLEMENTARY INFORMATION:

A. Background

Section 847 of the National Defense

Authorization Act for Fiscal Year 1998

(Pub. L. 105–85) repealed 10 U.S.C.

2403, which required contractor

guarantees on major weapon systems.

This final rule removes the DFARS

language that implemented 10 U.S.C.

2403.

B. Regulatory Flexibility Act

The final rule does not constitute a

significant revision within the meaning

of FAR 1.501 and Public Law 98–577

and publication for public comment is

not required. However, comments from

small entities concerning the affected

DFARS subpart will be considered in

accordance with 5 U.S.C. 610. Such

comments should cite DFARS Case 97–

D326 in correspondence.

C. Paperwork Reduction Act

The Paperwork Reduction Act does

not apply because the final rule imposes

no information collection requirements

that require the approval of the Office of

Management and Budget under 44

U.S.C. 3501, et seq.

List of Subjects in 48 CFR Part 246

Government procurement.

Michele P. Peterson,

Executive Editor, Defense Acquisition

Regulations Council.

Therefore, 48 CFR Part 246 is

amended as follows:

1. The authority citation for 48 CFR

Part 246 continues to read as follows:

Authority: 41 U.S.C. 421 and 48 CFR

Chapter 1.

PART 246—QUALITY ASSURANCE

2. Section 246.703 is revised to read

as follows:

246.703 Criteria for use of warranties.

(b) Cost. Contracting officers may

include the cost of a warranty as part of

an item’s price or as a separate contract

line item.

246.704 [Amended]

3. Section 246.704 is amended by

removing paragraph (1) and

redesignating paragraphs (2) through (5)

as paragraphs (1) through (4),

respectively.

246.770 through 246.770–8 [Removed].

4. Sections 246.770 through 246.770–

8 are removed.

[FR Doc. 98–2924 Filed 2–5–98; 8:45 am]

BILLING CODE 5000–04–M

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric

Administration

50 CFR Part 622

[Docket No. 961204340–7087–02; I.D.

020298B]

Fisheries of the Caribbean, Gulf of

Mexico, and South Atlantic; Coastal

Migratory Pelagic Resources of the

Gulf of Mexico and South Atlantic;

Closure

AGENCY: National Marine Fisheries

Service (NMFS), National Oceanic and

Atmospheric Administration (NOAA),

Commerce.

ACTION: Closure.

SUMMARY: NMFS closes the commercial

run-around gillnet fishery for king

mackerel in the exclusive economic