Opinion ID: 184452
Heading Depth: 2
Heading Rank: 2

Heading: The Rural LEC Petitioners

Text: 52 The FCC's eligibility restriction applies to rural LECs as well. The rural telephone companies argue that including them in this restriction violates 47 U.S.C. § 309(j)(3)-(4). Section 309(j)(3)(A)-(B) states that, in designing systems of competitive bidding, the FCC shall seek to promote a series of objectives, including, inter alia, (A) the development and rapid deployment of new technologies, products, and services for the benefit of the public, including those residing in rural areas, without administrative or judicial delays (emphasis added) and (B) promoting economic opportunity and competition and ensuring 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 (emphasis added). Section 309(j)(4)(D) provides that [i]n prescribing regulations pursuant to paragraph (3), the Commission shall ... (D) 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, and, for such purposes, consider the use of tax certificates, bidding preferences, and other procedures (emphasis added). We agree that these statutory provisions evidence a particular congressional concern for rural consumers and rural LECs, but find that the FCC's decision to include rural LECs in its three-year eligibility restriction on acquisition of an in-region LMDS license ultimately does not violate section 309(j)(3)-(4). 53
54 The rural LECs argue, first, that the FCC's inclusion of rural telephone companies in its eligibility restriction contravenes the plain language of section 309(j)(3)-(4) and therefore fails under the first prong of Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). This prong of the two-part Chevron test asks only whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, of course, the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. Id. at 842-43, 104 S.Ct. at 2781. According to the rural LECs, section 309(j)(4)(D) requires the FCC to ensure through its auction rules that LMDS licenses are actually disseminated to rural telephone companies, and section 309(j)(3)(B) mandates that rural telephone companies be given the opportunity to participate in the provision of LMDS. Joint Brief of Intervenors Rural Telecommunications Group and Independent Alliance in Support of Petitioner National Telephone Cooperative Association, at 8-10 (Rural LEC Brief). We cannot see how the plain language or clear meaning of section 309(j) bars the FCC from imposing the eligibility restriction on rural LECs at issue here.a. Section 309(j)(3) 55 First, keep in mind that section 309(j)(3) grants the FCC the authority to establish eligibility restrictions on communications licenses. See 47 U.S.C. § 309(j)(3) (In identifying classes of licenses and permits to be issued by competitive bidding, in specifying eligibility and other characteristics of such licenses and permits, and in designing the methodologies for use under this subsection, the Commission shall include safeguards to protect the public interest in the use of the spectrum and shall seek to promote the purposes specified in section 151 of this title and the following objectives ....) (emphasis added); see also Cincinnati Bell, 69 F.3d at 762 (A plain reading of Section 309(j)(3)(B), which directs the FCC to promote 'economic opportunity and competition ... by avoiding excessive concentration of licenses and disseminating licenses among a wide variety of applicants,' indicates that Congress clearly conferred authority on the FCC to place restrictions and limitations on the bidding process.). 56 Second, section 309(j)(3)(B) does not state that rural telephone companies must be given the opportunity to participate in the provision of LMDS. Instead, it requires the FCC to seek to promote a number of objectives, including promoting economic opportunity and competition and ensuring 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. This provision is subject to a variety of reasonable interpretations. Most importantly, it articulates a number of potentially conflicting objectives, including both the promotion of competition and the dissemination of licenses to rural telephone companies. [O]nly the Commission may decide how much precedence particular policies will be granted when several are implicated in a single decision. MobileTel, Inc. v. FCC, 107 F.3d 888, 895 (D.C.Cir.1997). In this case, the Commission determined that allowing incumbent LECs, including incumbent rural LECs, to participate without restriction in bidding for in-region LMDS licenses would ultimately inhibit the development and use of the LMDS spectrum, whereas the FCC's eligibility restriction on rural LECs would promote economic opportunity and competition, and ... avoid excessive concentration of licenses by disseminating licenses among a wide variety of applicants. Order p 181. In addition, while section 309(j)(3)(B) calls for the wide dissemination of licenses, it lists a number of indications of diversity, rather than confining its concern to rural telephone companies. Moreover, section 309(j)(3)(B) refers to new and innovative technologies as a group, indicating that diversity within this group might be enough to meet the statute's requirements even if the licensees for one technology within this group are less diverse. Finally, as we discuss below, the FCC concluded that many rural LECs would actually to able to acquire in-region LMDS licenses under its Order. 57 b. Section 309(j)(4) 58 Section 309(j)(4)(D) does not state that the FCC must ensure through its auction rules that licenses for LMDS, which is a spectrum-based service, are actually disseminated to rural telephone companies. Instead, it insists only that rural telephone companies have the opportunity to participate in the provision of spectrum-based services and accordingly instructs the FCC to consider the use of tax certificates, bidding preferences, and other procedures (emphasis added). The meaning of opportunity in the context of section 309(j)(4)(D) is necessarily ambiguous. At the extremes, the term is capable of supporting a range of interpretations extending from the licensee guarantees that the rural LECs advocate to a regime in which there are no guarantees (and perhaps little realistic chance) that rural LECs will actually end the day with access to LMDS. Under the three-year eligibility restriction in issue, a rural LEC does have an opportunity to: (a) acquire LMDS licenses immediately in all areas but its existing service area; (b) acquire a LMDS license in its existing service area once three years have passed; (c) bid immediately for a smaller LMDS license (150 megahertz instead of 1,150 megahertz) in its service area; (d) acquire the LMDS license for its service area as long as the LEC does not provide telephone service to more than ten percent of the population within the basic trading area (BTA) assigned to each LMDS license; (e) acquire an in-region LMDS license immediately on the condition that the LEC divest its overlapping telephone interests; and (f) seek a waiver of the eligibility restriction, subsequent to the initial award of LMDS licenses, upon a showing of good cause. See Order pp 178-80, 188, 160. Moreover, section 309(j)(4)(D), like section 309(j)(3)(B), speaks of spectrum-based services as a unit, rather than stating that rural telephone companies must have access to each spectrum-based service. Finally, section 309(j)(4)(D) does not mandate that the rural LECs receive preferential treatment in the form of tax certificates, bidding preferences, and other procedures; it just instructs the FCC to consider that possibility. 59 In short, we do not believe that the present eligibility restriction violates the text or intent of section 309(j)(3)(B) or section 309(j)(4)(D) so as to violate the first prong of the Chevron test. 60 One of the rural LEC petitioners, the National Telephone Cooperative Association (NTCA), also makes a brief argument under Chevron's second prong. NTCA contends that the FCC abused its discretion by ignoring section 309(j)'s concern for rural residents and rural LECs, and the 1996 Telecommunications Act's overarching desire to foster competition. This argument is baseless for the reasons elaborated elsewhere in this opinion. The FCC's imposition of the three-year eligibility restriction on rural LECs is fully consistent with a reasonable interpretation of section 309(j), (see II.B.1.), and the Commission has clearly explained its basis for believing that this eligibility restriction will foster competition, see, e.g., Order p 162. 61 2. The Rural LECs' Argument That Including Them in the Eligibility Restriction Was Arbitrary and Capricious 62 The rural telephone companies also argue that the FCC has failed to supply a reasoned basis in the record for its decision to include the rural LECs in the LMDS eligibility restriction. They accordingly contend that the application of the in-region eligibility restriction to rural telephone companies is arbitrary and capricious, an abuse of discretion, and otherwise contrary to law. 63
64 and That the Commission's Actions Fail to Satisfy 65 the FCC's Stated Objectives 66 The rural telephone companies engage in the same error that the LECs committed: They assert that the FCC was required to establish that limiting rural telephone company participation is necessary to ensure that rural America receives LMDS at reasonable charges. Rural LEC Brief, at 13-14 (emphasis added). The rural LECs do not locate this requirement in any statute, but instead point to a statement in the FCC's Order that appears in the introduction to the Commission's explanation of its decision to impose an eligibility restriction: 67 Our overall goal in assessing the need to restrict the opportunity of any class of service providers to obtain and use spectrum to provide communications services has been to determine whether the restriction is a necessary step in ensuring that consumers will receive efficient communications services at reasonable charges. Since we are of the view that competitive markets are the most direct and reliable means for ensuring that consumers receive the benefits described in the Communications Act, we have evaluated the need for spectrum licensing restrictions in terms of whether the restrictions are necessary to promote competition in the telecommunications marketplace and whether these restrictions are otherwise consistent with our obligation to promote the public interest. 68 Order p 157 (emphasis added). We believe that the rural LECs have over-read this introductory passage, which speaks in general terms about any class of service providers, any communications service, and eligibility restrictions as a category. Id. As the FCC's Order makes clear when it begins its detailed discussion of the Commissioners' decision to impose a three-year eligibility restriction on LEC acquisition of in-region LMDS licenses, the Commission did not conclude--or believe that it needed to conclude--that imposing the eligibility restriction on rural LECs was a necessary, unavoidable step if the Commission was to ensure that rural America receives LMDS at reasonable charges. Rather, the FCC determined that: [t]he [last] element of our inquiry is whether eligibility restrictions are the best means of achieving our goal of increasing competition in the LEC and MVPD markets. We find that they are. Id. p 176 (emphasis added); see also id. p 162 ([W]e find on balance that a policy favoring restricted eligibility for a limited time would result in the greatest likelihood of increased competition in the local telephony and MVPD markets.) (emphasis added). 69 The rural LECs also argue that, even if the FCC's Order defends its eligibility restriction as the best approach rather than the necessary one, the FCC cannot rely on economic theory, its evidence indicating that LECs exercise monopoly power, and its predictive judgment as to the future behavior of markets in deciding to include the incumbent rural LECs in its eligibility restriction. Instead, the rural LECs contend, the FCC had to provide what the rural telephone companies characterize as supporting data, which would presumably contain more specific and exact factual information. Rural LEC Brief, at 15. NCCB and AT&T defeat this claim. Both cases recognize that where, as here, the FCC has to establish eligibility criteria based on how it predicts the market and regulated entities will react, complete factual support in the record for the Commission's judgment or prediction is not possible or required; 'a forecast of the direction in which future public interest lies necessarily involves deductions based on the expert knowledge of the agency.'  NCCB, 436 U.S. at 814, 98 S.Ct. at 2121 (quoting FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 29, 81 S.Ct. 435, 450, 5 L.Ed.2d 377 (1961)). When, as in this case, 'an agency is obliged to make policy judgments where no factual certainties exist or where facts alone do not provide the answer,' our role is more limited; we require only that the agency 'so state and go on to identify the considerations it found persuasive.'  AT&T, 832 F.2d at 1291 (quoting National Ass'n of Regulatory Util. Comm'rs v. FCC, 737 F.2d 1095, 1140 (D.C.Cir.1984)). 70 Here, the FCC acknowledged that absolute certainty was impossible, but presented its reasoning clearly, cogently, and based on the agency's best understanding of the available information. This explanation is too lengthy to present completely here, but the following passage from the Order summarizes many of its essential points: 71 Based on the record here, standard economic theory, our experience, an analogous situation in the cable TV industry, and our assessment of competitive and regulatory developments in the local telephony and MVPD [Multichannel Video Programming Distributor] markets, we find on balance that a policy favoring restricted eligibility for a limited time would result in the greatest likelihood of increased competition in the local telephony and MVPD markets. By restricting in-region LEC and cable companies, we ensure the entry of a new LMDS operator that could provide competition in the LEC market, the MVPD market, or both. An incumbent, on the other hand, would have a strong incentive to obtain an LMDS license in order to prevent a new entrant from obtaining the license and competing directly in the incumbent's current market. In so doing, such an incumbent will have forestalled market entry by an entity that could provide both telephony and MVPD and will have deprived consumers of an opportunity to choose between a possible two providers in each market and the lower prices for such services that consumer choice necessarily implies. Furthermore, either incumbent would have no incentive to use the LMDS spectrum to provide the service in which it has market power because this could result in lower prices for the service, and lower profits. By temporarily restricting incumbents' eligibility to acquire in-region LMDS licenses, this policy maximizes the likelihood of increasing competition in both the LEC and MVPD markets. 72 As we have unanimously observed in recent proceedings, both incumbent LECs and cable television firms currently possess substantial market power. An in-region LMDS license would be valuable to these firms not only because they could use it as other firms would, but also because, by obtaining the license, they could preserve excess profits that an independent LMDS competitor would erode.... 73 .... 74 Our concern regarding LEC and cable eligibility is educated by the substantial record collected in this proceeding on the capabilities of LMDS.... LMDS offers a significant amount of capacity, larger than currently available wireless services.... [W]e believe that the likelihood that LMDS can increase competition in either the local multichannel video or local telephone exchange markets (or both simultaneously) is high and warrants analysis in order to determine whether in-region LEC and cable TV incumbents should be permitted to acquire and hold initial licenses. 75 While all bidders in an auction for LMDS licenses can be expected to base their bids on their individual assessment of the most efficient use of the spectrum, LECs and cable companies assessing the value of in-region LMDS licenses would have the additional incentive to protect their market power and preserve a stream of future profits. 76 Order pp 162-63, 170-71. We find that this explanation is both reasonable and adequate support for the FCC's predictive judgment. 77
78 The rural LECs next argue that the FCC's Order failed to address comments in the record from the rural telephone community that contended that an in-region eligibility restriction on rural LECs would harm the ability of rural telephone companies to provide LMDS in their service areas. Rural LEC Brief, at 17. This argument is somewhat odd. One would naturally expect that an eligibility restriction on rural LEC acquisition of in-region LMDS licenses would, by its very nature, harm--to some degree--the ability of rural telephone companies to provide LMDS in their service areas; that, in fact, is the restriction's purpose. Indeed, no one, including the FCC, disputes this point, although the FCC has determined for the reasons elaborated below that ultimately the in-region restriction will have a relatively small impact on the rural LECs' ability to participate in the LMDS auction. See Order pp 179-80. We believe the real question presented here is whether the FCC can exercise its judgment that a restriction on the incumbent rural LECs is merited in order to counteract the rural LECs' present monopoly power. Moreover, while the rural LECs assert that the FCC failed to consider record evidence, they point to no evidence in the record. Instead, the portions of the record that the rural LECs cite simply assert that the eligibility restriction will harm rural LECs. See Rural LEC Brief, at 17, citing Joint Appendix, at 665-67, 672-74, 765-66, 774-76. 79 The rural LECs go on to cite the Order at paragraph 179 for the proposition that the FCC has established a standard whereby in order for a rural telephone company to be entitled to an opportunity to participate in a new service, the rural telephone company must first demonstrate that it is the only entity that can provide the service [in rural areas]. Id. Instead, however, paragraph 179 only rejects the rural LECs' contention that they are the only entities that can provide service in their service territories. It reads: 80 Commenters from the rural telephone community .... reason that unless rural telephone companies are able to participate in the LMDS market, consumers in rural areas are likely to be deprived of the benefits of this new service. We agree that it would be undesirable to impair the provision of LMDS service to rural consumers. Although we have decided to impose some short-term restrictions in LECs, including rural telephone companies, we do not believe that these restrictions, as crafted, will hinder the introduction of LMDS in rural areas. Rural LECs have not made the case that they are the only entities that can provide LMDS in their service territories. 81 Order p 179. 82 The rural LECs have mischaracterized the FCC's rationale for its Order and pointed to no record evidence that the Commission failed to consider. 83
84 Restriction Will Not Compromise Rural Telephone Company Participation in LMDS is Arbitrary and Capricious 85 As we indicated above (see II.B.2.b.), we have not been able to find (and, for the reasons discussed above, would not expect to find) any statement within the FCC's Order asserting that the eligibility restriction will have no negative effect on rural LEC participation in LMDS. Instead, the FCC's Order conclude[s] that the interests of rural telephone companies are adequately addressed by the LMDS rules we adopt herein, Order p 362, and explains the various opportunities that remain open to rural LECs. We evaluate the specific claims that the rural LECs make about that FCC conclusion in this light. 86 1. The Claim That the FCC's Conclusion That Rural Telephone Companies Will Not Trigger the Eligibility Restriction is Arbitrary and Capricious 87 The rural LECs take issue with the FCC's determination that because rural LECs are generally small, they are unlikely to have the degree of overlap with BTAs [basic trading areas] necessary ... to trigger our eligibility restriction. Id. p 180. This statement refers to the fact that the FCC's eligibility restriction only applies to a LEC if ten percent or more of the population in the BTA that the desired LMDS license covers is also within the LEC's authorized telephone service area. See id. p 188. This determination appears in the FCC's Order as one of several reasons why the FCC concluded that its restriction on rural LECs will not hinder the introduction of LMDS in rural areas. Id. p 179. The rural LECs argue that the FCC's prediction of relatively modest effects on rural LEC eligibility is arbitrary and capricious because the application of the restriction turns on the overlap between a LMDS license's BTA and a LEC's telephone service area, rather than on the size of a rural LEC. However, it is not difficult to see a logical connection between the FCC's overlap criteria and a rural LEC's size: The smaller a LEC, the less likely it is to be servicing a customer base that constitutes ten percent or more of the population within a BTA, particularly because the BTAs for LMDS licenses, which are quite large, have no necessary correlation to the boundaries of rural telephone companies' service areas. See id. pp 135, 138, 180. 88 The rural LECs also claim that the FCC's determination is arbitrary and capricious because the FCC did not conduct an analysis of the actual degree of overlap between LMDS license areas and rural telephone company service areas. Rural LEC Brief, at 19. The rural telephone companies do not claim to have the detailed information that such an analysis covering hundreds of rural LECs would require, or to have offered to collect it for the FCC; they argue, instead, that the FCC should have secured this information during its rulemaking. Given that all the data needed for an overlap analysis presumably exists--the boundaries of the BTAs for LMDS licenses and the current authorized service areas for rural LECs are both established--the FCC might profitably have undertaken such a factual investigation. However, we do not believe that the comprehensive factual analysis that the rural LECs would have liked was actually required of the FCC in this case. The FCC was entitled to conduct, and did conduct, a general analysis based on informed conjecture. Specifically, a BTA is typically constructed around an urban commercial center, where the population of the BTA will be most concentrated; BTAs are not designed to follow the same lines as rural LEC service areas. Order p 138. BTAs also tend to be quite large: The FCC divided the fifty states into only 487 BTAs. See id. p 135. The FCC accordingly drew a reasonable inference from its general knowledge that rural LECs are generally small, and concluded that rural LECs were unlikely to have the necessary overlap, although some number of rural LECs will presumably meet the overlap requirement's threshold. Id. p 180. 89 In the final analysis, the number of rural LECs that will or will not fall within the ten percent overlap rule was not the determinative issue. The FCC was operating on the premise that if a LEC services a customer base that constitutes more than a small percentage of a BTA, then the risk of impeded competition in the telephony market is great enough to warrant an in-region eligibility bar. The exact percentage of rural LECs covered under a ten percent overlap rule was not the primary question, and the precise identification of that percentage through a detailed and expensive study would not likely have led the FCC to a different conclusion about whether to impose a ten percent overlap rule. 90
91 the Adverse Impact on Rural Telephone Companies 92 Under the FCC's Order, a LEC can buy a LMDS license as long as it divests itself of any overlapping service areas or interests within ninety days. See id. p 194; see also id. p 180. The FCC observed in a footnote that: 93 Such flexibility should be particularly useful for those rural LECs that may have overlapping ownership interests in a BTA. Although we anticipate that most rural LECs would not have sufficient overlap of their authorized service area with the LMDS service area to be affected by the eligibility restrictions we are adopting, the additional flexibility to divest such overlapping ownership interests should further ameliorate any potential negative impact on these entities. 94 Id. p 194 n. 302. The rural LECs argue that, in fact, this divestiture provision will be singularly unhelpful to them because the areas rural telephone companies have a desire and ability to serve are those within and adjacent to their service area. Rural LEC Brief, at 20. 95 We do not believe that this claim renders the FCC's decision to include rural LECs in its eligibility restriction arbitrary or capricious. Some--perhaps even a large--percentage of rural LECs will not find the divestiture provision in the FCC's Order an attractive solution to all their problems. But that does not mean that the availability of this option does not increase a rural LEC's flexibility, nor does it mean that the divestiture provision will not help some rural LECs. And we see no evidence that the FCC is claiming more for its divestiture provision than that. 96
97 Partitioning Will Ensure the Dissemination of Licenses to Rural Telephone Companies is Arbitrary and Capricious 98 One of the reasons that the FCC cited in support of its conclusion that its eligibility restriction will not impede the introduction of LMDS in rural areas was that 99 to the extent any LEC is unsuccessful in the LMDS auction, it will still have the opportunity to participate--subject to the eligibility rules--by either acquiring spectrum from an LMDS licensee through the partitioning and disaggregation rules we are adopting, or by contracting (in a way that does not circumvent any applicable ownership and control requirements and does not raise competitive concerns) with the LMDS licensee to provide service in its telephone market area. 100 Order p 180. The rural LECs argue that the FCC's partitioning rules are effectively ... useless for rural LECs because if the customer base of a rural LEC constitutes more than ten percent of the population in a BTA, partitioning the BTA will not enable the LEC to avoid the FCC's ten percent overlap rule. Rural LEC Brief, at 21. We agree that the partitioning rules would be more useful to rural LECs seeking to offer in-region LMDS service if they provided a means to circumvent the ten percent overlap rule. However, that is not the purpose of the partitioning rules. Rather, the FCC intended for its partitioning rules to help rural LECs by making ownership of a LMDS service more affordable. With the assistance of these rules, a rural LEC seeking to provide LMDS service does not have to garner sufficient capital to purchase and then effectively utilize an entire LMDS license; instead, a rural LEC can buy or lease part of a LMDS license from its original owner. See Order p 141 (We determined that the issue of geographic partitioning should be considered to enable LMDS licensees to recoup some of their initial licensing and construction costs, while providing a method for entities with specific local concerns or insufficient capital to purchase rights for the entire service area, to acquire a portion of the geographic area originally licensed.); id. p 145 ([T]he nature of the LMDS cell structure makes disaggregation and partitioning powerful tools for licensees to concentrate on core areas or to deliver services to isolated complexes, such as rural towns or university campuses, that do not lie within major market areas. We further believe that disaggregation and partitioning will provide opportunities for small businesses seeking to enter the MVPD and local telephony marketplaces.); id. p 362 ([T]he degree of flexibility we will afford in the use of this spectrum, including provisions for partitioning or disaggregating spectrum, should assist in satisfying the spectrum needs of rural telephone companies at low cost.). We find the FCC's conclusion, that its partitioning rules will help rural LECs acquire LMDS licenses by making smaller, more affordable licenses potentially available, reasonable. 101 The rural LECs go on to assert that only six partitioning deals have thus far been consummated in auction-licensed services and argue, citing a trade periodical, that licensees are reluctant to enter into partitioning agreements with small and/or rural entities due to transaction costs and the difficulty of earning a profit. We reject this argument on two grounds. First, the FCC's partitioning rules at issue here govern the implementation of a new technology in a brand-new market. These are the precise sorts of circumstances in which the Commission's predictive judgment demands great deference, see NCCB, 436 U.S. at 813-14, 98 S.Ct. at 2121-22; AT&T, 832 F.2d at 1291, and in this case the FCC's Order explains the technologically-based reasons for the Commission's conclusion that partitioning will be an attractive option for LMDS licensees. The Order, for instance, observ[es] that continued technological improvements may reduce the amount of spectrum required to provide a full range of services. Order p 140. The Order also cites with approval comments in the record contend[ing] that the relatively high cost of LMDS construction and the shorter transmission paths it provides, in addition to the limitation of service to consumers within reach of cell transmitters, lend support for the Commission's proposals with regard to geographic partitioning. Id. p 143. Second, even if rural LECs will encounter difficulties in finding parties willing to contract with them for part of a LMDS license, we do not believe that this would make it arbitrary or capricious for the FCC to list its partitioning rules as one of the actions it is taking to promote LMDS service in rural areas. 102 3. The Argument That the Application of the In-Region Eligibility Restriction to Rural Telephone Companies Hinders the Rapid Deployment of LMDS to Rural America and is Arbitrary and Capricious 103
104 Conclusion That Competitive Forces Will Ensure the Provision of LMDS to Rural America 105 The rural LECs challenge the FCC's statement that we do not believe that these [eligibility] restrictions, as crafted, will hinder the introduction of LMDS in rural areas.... [I]f it is profitable to provide service in rural areas, a licensee should be willing to do so, either directly or by partitioning the license and allowing another firm to provide service. Id. pp 179-80. The rural LECs argue that such reliance on the market is outrageous in this context because, historically, rural areas have not attracted many potential competitors. Rural LEC Brief, at 25. Although the rural LECs do not assert that they will be able to provide LMDS service in rural areas at less expense than other possible providers, they claim that they have a natural interest in providing additional communications services in rural areas where they are already operating. 106 We do not find this argument persuasive. First, in making a predictive judgment about the future operation of the brand-new market in LMDS, the FCC is entitled to a very substantial measure of deference and is clearly not required to rely on the history of other markets in other technologies. See NCCB, 436 U.S. at 813-14, 98 S.Ct. at 2121-22; AT&T, 832 F.2d at 1291. Second, the rural LECs have not indicated why they would be able to provide LMDS in rural markets if provision of that service would in fact be unprofitable. They have presented no evidence and made no argument, for instance, that they would be able to provide LMDS in rural areas at less expense than potential competitors would incur. In this light, it seems perfectly sound--indeed commonsensical--for the FCC to conclude that the rural LECs can only want increased access to the rural LMDS market precisely because they think that this market will be profitable (or possibly because they want to protect their telephone monopolies). 107
108 Universal Service Principles Set Forth in Sections 309(j)(3)(A) 109 and 254(b)(3) 110 When It Imposed the Eligibility Restriction on Rural Telephone Companies 111 47 U.S.C. § 309(j)(3)(A) provides that the FCC shall seek to promote, inter alia, the development and rapid deployment of new technologies, products, and services for the benefit of the public, including those residing in rural areas, without administrative or judicial delays (emphasis added). 47 U.S.C. § 254(b)(3) provides that: 112 Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services, that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas. 113 (emphasis added). 114 We believe that the rural LECs err in their claim that the FCC's Order does not adequately consider the universal service principles set forth in these sections. To be sure, the FCC's Order does not address this issue by name; its explicit reference to the universal service goals in the context of providing LMDS to rural areas is limited to a paragraph. See Order p 271 & n.403. But the Order does make clear that the FCC did consider the substance of the universal service issue. As a key passage of the Order on rural LECs explains, the FCC Commissioners agree[d] that it would be undesirable to impair the provision of LMDS service to rural customers. Id. p 179. The Commissioners concluded, however, that the Order's eligibility restriction would not in fact hinder the introduction of LMDS in rural areas for the series of reasons discussed throughout this section. Id. In this light, the rural LECs' argument devolves into a rehashing of the contention, rejected above, that the FCC was arbitrary or capricious in disagreeing with the rural LECs' claim that the eligibility restriction will leave rural areas without LMDS service. 115
116 Coupled With the Eligibility Restriction Mean That Rural America Will Not Receive LMDS in Direct Violation of Section 309(j)(4)(B) 117 47 U.S.C. § 309(j)(4)(B) states that the Commission shall 118 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 or permittees, and to promote investment in and rapid deployment of new technologies and services. 119 (emphasis added). In its Order, the FCC decided to 120 adopt very flexible build-out requirements for LMDS. Specifically, we will require licensees to provide substantial service to their service area within 10 years. Although LMDS licensees will have incentives to construct facilities to meet the service demands in their licensed service area, we believe that minimum construction requirements can promote efficient use of the spectrum, encourage the provision of service to rural, remote, and insular areas, and prevent the warehousing of spectrum. 121 .... 122 ... [F]or an LMDS licensee that chooses to offer point-to-multipoint services, a demonstration of coverage to 20 percent of the population of its licensed service area at the 10-year mark would constitute substantial service. 123 Order pp 266, 270. The Order went on to state that: 124 We believe that these build-out provisions fulfill our obligations under Section 309(j)(4)(B). We also believe that the auction and service rules which we are adopting for LMDS, together with our overall competition and universal service policies, constitute effective safeguards and performance requirements for LMDS licensing. Because a license will be assigned in the first instance through competitive bidding, it will be assigned efficiently to a firm that has shown by its willingness to pay market value its willingness to put the license to its best use. We also believe that service to rural areas will be promoted by our proposal to allow partitioning and disaggregation of LMDS spectrum. 125 Id. p 271. 126 The rural LECs argue that these relatively undemanding performance requirements, together with the eligibility restriction on rural LECs, will hinder the delivery of LMDS to rural areas. In their view, LMDS licensees offering point-to-multipoint services will meet the requirement that they cover twenty percent of the population in their licensed service areas within ten years by serving urban areas and avoiding rural ones; once the licensees' build-out benchmarks are met, the rural LECs continue, the licensees will lack any incentive (given the high transaction and other costs associated with serving sparsely populated regions) to negotiate partitioning agreements with businesses seeking to serve rural areas. This is not an implausible scenario. However, it does not render the Commission's alternate predictive judgment unreasonable. 127 The FCC concluded, based on its prior analogous experience with Wireless Communications Services (WCS), that strict build-out requirements might discourage the acquisition of LMDS licenses, given the wide variety of services that LMDS can potentially support and the substantial uncertainties that presently exist as to the best uses for LMDS. See id. p 267. In light of this danger, the Commission decided to adopt liberal build-out requirements. 128 We agree that this decision is a reasonable interpretation of section 309(j)(4)(B), a provision that endorses three different, and potentially competing, goals. First, the FCC's reasoning was clearly in accord with section 309(j)(4)(B)'s concern that the agency promote investment in and rapid deployment of new technologies and services. 47 U.S.C. § 309(j)(4)(B). Moreover, if strict build-out requirements pose a threat to the rapid development of the LMDS spectrum, that danger will also threaten section 309(j)(4)(B)'s goal of ensur[ing] prompt delivery of service to rural areas. Id. As for section 309(j)(4)(B)'s third goal, prevent[ing] stockpiling or warehousing of spectrum by licensees or permittees, id., the FCC Commissioners decided, in their expert judgment, that this danger did not loom large enough to mandate stricter build-out requirements. They also expressly reserve[d] the right to review our liberal construction requirements in the future if we receive complaints related to Section 309(j)(4)(B), or if our own monitoring initiatives or investigations indicate that a reassessment is warranted. Order p 272.