Finding Substance in the FCC's Policy of "Substantial Service"

I. INTRODUCTION 398 II. THE PROCESS OF LICENSE RENEWAL 399 III. "SUBSTANTIAL SERVICE" 401 A. History and Origin 401 B. "Substantial Service" as Applied to Commercial Radio Services 404 IV. FLEXIBLE USE: ALLOWING THE MARKET TO DETERMINE THE BEST USE FOR SPECTRUM 407 A. The FCC's Standard of Review for "Substantial Service" Cases 407 B. Examples of FCC Findings of "Substantial Service" 408 1. Serving Underrepresented Customers 408 2. Safe Harbor 409 3. A Combination of Factors 410 V. THE PROBLEMS WITH "SUBSTANTIAL SERVICE" AND POSSIBLE SOLUTIONS 411 A. Why This Policy May Be Inconsistent With the Communications Act 411 B. Why This Policy May Be Inconsistent With the Administrative Procedures Act 412 C. Solutions 414 VI. CONCLUSION 414 I. INTRODUCTION What is "service which is sound, favorable, and substantially above a level of mediocre service which just might minimally warrant renewal"? (1) It is the Federal Communication Commission's ("FCC" or the "Commission") definition of "substantial service." This Note attempts to make sense of this vaguely articulated, but significant, concept. In recent years, the Commission has aggressively moved to promote the policy of flexible use of the electromagnetic spectrum. In conjunction with this policy, the Commission has used the "substantial service" construct in a variety of contexts, including the auction of commercial radio services. An FCC license is a valuable asset, but it exists only for a limited duration. Therefore, obtaining a license renewal is vital to a licensee, especially one who has participated in an auction and made substantial investments in order to obtain the rights the license confers. The economic incentive in obtaining a renewal encourages license holders to do everything they can to ensure that they retain their licenses. This Note describes how a licensee can obtain a renewal expectation for commercial radio services and focuses in depth on the "substantial service" requirement and how this requirement is linked to the FCC's policy of flexible use. The term "substantial service" has become a common fixture in FCC renewal requirements and is identified as an important factor in the promotion of flexible spectrum use. (2) This Note addresses the meaning of flexible use and the potential problems that arise when "substantial service" requirements are used to promote flexible use. The policy of flexible use is centered on the idea of allowing licensees, rather than the FCC, to decide how to use the spectrum they are allocated. One of the most compelling arguments for this policy is that the market drives spectrum to its highest and best use. This Note examines the FCC's current practice of using "substantial service" and explores whether this policy achieves a market-based approach to regulation. This Note identifies two potential questions that arise when "substantial service" is combined with flexible use: First, is "substantial service," as applied, too ambiguous for licensees to know with certainty that their licenses will be renewed? This question is particularly important because of the substantial investment licensees make in acquiring and building out their licenses. …