BellSouth Corp. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 24, 1998 Decided January 8, 1999

No. 97-1630

BellSouth Corporation and

BellSouth Wireless, Inc.,

Appellants

v.

Federal Communications Commission,

and United States of America,

Appellees

U S WEST, Inc. and

Rural Telecommunications Group,

Intervenors

Consolidated with

No. 97-1630

Appeal and Petition for Review of an Order of

the Federal Communications Commission

---------

L. Andrew Tollin argued the cause for appellants/petition-

ers. With him on the briefs were Michael Deuel Sullivan,

Robert G. Kirk, Craig E. Gilmore, William B. Barfield, M.

Robert Sutherland, Jim O. Llewellyn and David G. Frolio.

Jeffrey H. Dygert, Counsel, Federal Communications Com-

mission, argued the cause for appellee. With him on the brief

were Joel I. Klein, Assistant Attorney General, U.S. Depart-

ment of Justice, Catherine G. O'Sullivan and Andrea Lim-

mer, Attorneys, Christopher J. Wright, General Counsel,

Federal Communications Commission, and Daniel M. Arm-

strong, Associate General Counsel. John E. Ingle, Deputy

Associate General Counsel, and Joel Marcus, Counsel, en-

tered appearances.

Before: Edwards, Chief Judge, Rogers and Tatel, Circuit

Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge: In 1994, the Federal Communica-

tions Commission established a 45 MHz spectrum cap on

commercial mobile radio services ("CMRS") that limited the

total amount of cellular, broadband personal communication

service ("PCS"), and specialized mobile radio ("SMR") spec-

trum that a given entity could accumulate. See 9 F.C.C.R.

7988, 7999, para. 16. Because BellSouth1 had an ownership

interest in RAM Mobile Data USA, L.P., a holder of SMR

licenses, BellSouth's combined CMRS spectrum holdings pre-

vented it from acquiring two 10 MHz PCS licenses in certain

markets without exceeding the cap. See Request for Waiver

at 1-4. BellSouth requested a waiver of the spectrum cap as

well as reconsideration of the rule on the grounds that the

cap was designed to ensure competition in voice transmission

and should apply only to "covered" SMR spectrum (i.e., SMR

__________

1 BellSouth Corporation petitions for review of the Commis-

sion's order enforcing the 45 MHz cap. BellSouth Wireless appeals

the Commission's denial of its waiver request. For ease of refer-

ence, at times we will refer to them collectively as "BellSouth."

spectrum that is interconnected with the public switched

network and devoted to real-time, two-way switched voice

service). The Commission denied both requests. On appeal,

BellSouth contends that the Commission's action was arbi-

trary because the cap is overbroad and virtually unwaivable.

We deny the petition for review and affirm the Commission's

denial of the waiver request.

I.

CMRS encompasses different types of spectrum put to a

variety of uses. It includes all mobile services commercially

offered to the public that are connected to the telephone

network, such as cellular phone service, paging, mobile data,

mobile satellite, and other wireless services. See generally

Second Report & Order, 9 F.C.C.R. 1411, 1422-42, paras. 30-

70 (1994). CMRS is composed of cellular, PCS, and SMR

spectrum. Within each of these categories, spectrum is de-

scribed as narrowband (using less than 5 MHz of spectrum)

and broadband (using more than 5 MHz of spectrum). The

narrowband/broadband distinction rests in part on whether it

is possible to accumulate enough spectrum to provide voice

communication. Entities can use CMRS spectrum to provide

voice-to-voice service, such as cellular phone or dispatch

service, as well as data-only service, such as paging.

In 1994, the Commission adopted changes to the technical,

operational, and licensing rules "to establish regulatory sym-

metry among similar mobile services." Third Report &

Order, 9 F.C.C.R. 7988, 7992, para. 1 (1994). These changes

included imposition of a 45 MHz cap on the total amount of

cellular, PCS, and SMR spectrum an entity could have in any

geographic area. Id. at 7999, para. 16. The Commission

justified the cap "as a minimally intrusive means of ensuring

that the mobile communications marketplace remains compet-

itive and retains incentives for efficiency and innovation." Id.

at 8100, para. 238; see also id. at 8104, para. 248. The

spectrum cap would prevent entities from accumulating spec-

trum and thereby "precluding entry by other service provid-

ers." Id. at 8101, para. 240. Rejecting a "case-by-case"

approach, the Commission described the cap as a "bright line

test" that would provide certainty and ease the Commission's

"administrative burden." Id. at 8104-05, para. 250.

The changing nature of the market was key to determining

the scope of the cap. The Commission first observed that

services provided on the CMRS spectrum were converging.

See id. at 8020, para. 56. The Commission explained that the

various mobile services shared the common purpose of servic-

ing customers who "need to communicate electronically on a

real-time basis (or virtually real-time basis) while they are 'on

the move.' " Id. at 8021, para. 58. Technological innovation

influenced market trends that would allow various CMRS

licensees to compete. The Commission observed that voice

communication providers had the capacity to provide data

services and that data service providers had the option, with

reconfiguration and accumulation of spectrum, to provide

voice services. See id. at 8026-35, paras. 69-77. The Com-

mission concluded that "trends in the CMRS marketplace ...

illustrate a strong potential for further competition among all

CMRS services." Id. at 8035, para. 77.

In defining the scope of the cap's coverage, the Commission

decided to exclude all terrestrial narrowband radio services.

See id. at 8111, para. 267. Because it was "highly unlikely

that one entity could ever accumulate as much as 5 MHz in

any given geographic market" and other regulatory safe-

guards existed, the Commission concluded that "there is little

risk that an entity could use narrowband allocations to exert

undue market power over CMRS as a whole." Id. The

Commission also excluded Mobile Satellite Service ("MSS")

from the cap, in view of the differences between satellite and

terrestrial service, capacity, and spectrum use that "mak[e] it

unreasonable to equate relative spectrum usage for purposes

of determining a spectrum aggregation limit." Id. at 8112,

para. 269. By contrast, while acknowledging some merit to

the view that SMR spectrum is not currently equivalent to

cellular or broadband PCS spectrum, the Commission con-

cluded that SMR would be subject to spectrum aggregation

limits. To take account of the unique nature of SMR spec-

trum, each licensee would be attributed a maximum of 10

MHz of SMR spectrum, regardless of how much spectrum

above 10 MHz it actually held, because 10 MHz constituted

the largest attainable block of contiguous SMR spectrum.

See id. at 8113-14, para. 275. The Commission specifically

recognized that "small" SMR providers, i.e. entities with

under 5 MHz of attributable SMR spectrum, would be subject

to the cap. It viewed this result as acceptable because these

entities were still eligible for up to 40 MHz of broadband PCS

spectrum, and able to acquire both a 30 MHz and a 10 MHz

PCS license in the same geographic area. See id. at 8114,

para. 275; 8109, para. 263. The Commission also placed all

SMR channels under the cap, and rejected the view that 900

channel SMR should be excluded due to its small spectrum

and narrow channel bandwidth, explaining that "high quality

mobile telephony service can be provided on 900 MHz SMR

channels and there is the possibility of aggregating up to 5

MHz of spectrum in this band, [so] there seems no compelling

reason to exclude those channels." Id. at 8116, para. 280.

The Commission reconsidered the cap following a remand

from the United States Court of Appeals for the Sixth

Circuit, in a case in which the 45 MHz cap itself was not at

issue but the attribution and eligibility rules were. See

Cincinnati Bell Tel. Co. v. FCC, 69 F.3d 752 (6th Cir. 1995).2

__________

2 The attribution rule provided that any entity with a twenty

percent ownership interest in an existing cellular provider was

deemed to be a cellular provider subject to limits on how much PCS

spectrum it could acquire. The cellular eligibility rules limited the

amount of PCS spectrum that a cellular licensee could obtain in

regions where its cellular and PCS license areas overlapped. The

Sixth Circuit held that both rules were arbitrary, concluding that:

while avoiding excessive concentration of licenses certainly is a

permissible goal under the Communications Act, simply pre-

cluding a class of potential licensees from obtaining licenses

(without a supported economic justification for doing so) solves

the problem arbitrarily. The FCC must supply a reasoned

basis for its decision. The need to avoid "excessive concentra-

tion of licenses" does not provide the requisite "reasoned

basis." Without any economic rationale, the Cellular eligibility

rules are nothing more than an arbitrary regulation....

In response to the court's holding that the attribution rule

was arbitrary because the Commission had failed to present

any support for its common sense predictive judgment about

market behavior, see 69 F.3d at 761, the Commission did two

things, see Report & Order, 11 F.C.C.R. 7824 (1996). First, it

eliminated the spectrum-specific caps,3 observing that most

commentators considered the 45 MHz cap adequate to avoid

concentration and entry barriers. See id. at 7865, para. 87.

Second, it conducted a Herfindahl-Hirschman Index analysis

to determine what level of concentration of ownership would

result in an undesirable level of competition. See id. at 7869-

73, paras. 94-102. Concluding that a spectrum cap was

needed to avoid "excessive concentration of licenses" and to

promote competition in the CMRS marketplace, id. at 7869,

para. 94, the Commission considered various hypothetical

market structures for mobile two-way voice communications

service in the same geographic area.4 It determined that the

45 MHz cap would do the trick--guard against high concen-

tration in the market, prevent licensees from gaining too

great a competitive advantage over new entrants, and further

the goal of diversity. See id. at 7873-74, paras. 101-02. The

__________

Cincinnati Bell, 69 F.3d at 764 (citations omitted).

3 The Commission had earlier imposed a cap of 25 MHz on

cellular spectrum and a cap of 40 MHz on PCS spectrum. See

Third Report & Order, 9 F.C.C.R. 7988, 8104 n.479 (1994).

4 For purposes of its HHI analysis, the Commission defined the

product market as "mobile two-way voice communications service."

11 F.C.C.R. at 7904, App. A. "Competitors" were defined as

licensees for cellular service, broadband PCS, and the largest

interconnected SMR. See id. Market share was measured in

terms of "[a]llocated spectrum," which gauges a CMRS carrier's

long-term capacity, id. at 7870, para. 96, and the "capacity" for a

geographic market was represented by licensed spectrum for

cellular service (two licenses for 25 MHz), broadband PCS (three

licenses for 30 MHz and three licenses for 10 MHz), and the largest

potential interconnected SMR provider (holding multiple licenses

for a maximum total of 10 MHz), see id. at 7870, para. 97. The

Commission compared the market concentration that would result

with and without the spectrum cap.

Commission noted that divestiture, see id. at 7876, para. 107,

and eventually disaggregation and geographic partitioning,

see id. at 7873, para. 100, would be available to allow an entity

to bid on blocks of PCS spectrum as they became available.

Shortly thereafter, BellSouth Wireless requested a waiver

of the spectrum aggregation limit.5 Explaining that RAM

Mobile (an entity in which it holds a 49% ownership interest)

had a number of 900 MHz SMR licenses, BellSouth pledged

that with those licenses RAM provided data-only services and

"does not offer now and does not intend in the future to offer

real time, two-way switched voice service given the architec-

ture of its network and the telecommunications market seg-

ments it has targeted." The spectrum cap would prevent

BellSouth from bidding on two 10 MHz packages of PCS

spectrum because its .5 MHz (or less) of SMR would take it

over the spectrum cap when added to the 25 MHz of cellular

spectrum it already held. Consequently, BellSouth proposed

that the Commission apply to the spectrum cap the distinction

it had recognized in other contexts between "covered" and

"non-covered" SMR.6 BellSouth Corporation, in turn, re-

quested reconsideration of the rule so that it would include

only "covered" SMR in the spectrum cap, asserting that this

modification would bring the Commission's spectrum cap

policy in line with other decisions in the wireless area.

__________

5 At footnote 18 of its waiver request, BellSouth suggested that

the waiver could include the condition that the .5 MHz of spectrum

not be used for "real-time, two-way switched voice service."

6 In other proceedings, the Commission had defined "covered

SMR" as spectrum devoted to licensees that offer real-time, two-

way switched voice service that is interconnected with the public

switched network. That term did not include "local SMR licensees

offering mainly dispatch services to specialized customers in a non-

cellular system configuration, ... licensees offering only data, one-

way, or stored voice services on an interconnected basis" or "any

SMR provider that is not interconnected to the public switched

network." Interconnection and Resale Obligations Pertaining to

CMRS, First Report & Order, 11 F.C.C.R. 18455, 18466, para. 19

(1996).

The FCC's response was two-fold. First, in a letter dated

August 29, 1996, the Wireless Telecommunications Bureau

denied BellSouth's request for a waiver. See Letter re:

BellSouth Wireless, Inc. Request for Waiver in Auction No.

11, 11 F.C.C.R. 9970 (1996). The Bureau stated that Bell-

South's assertion that RAM does not compete with real-time

two-way voice service was based on a misconception about the

underlying purpose of the CMRS spectrum cap; the cap in

fact arose out of concerns about excessive horizontal concen-

tration and market barriers. See id. at 9971. Additionally,

while covered versus non-covered SMR was a significant

distinction in some contexts, it was not so in the spectrum

aggregation context. See id. The Bureau also invited Bell-

South to seek to divest itself of the .5 MHz of SMR spectrum

if it wished to bid for two 10 MHz bundles of PCS or to

pursue its argument as part of a request for reconsideration

of related orders. See id. at 9972.

The Commission affirmed the Bureau's denial of a waiver,

rejecting BellSouth's arguments that the rule was in effect

unwaivable and that the Bureau had not given a "hard look"

at the waiver application. See Memorandum Opinion & Or-

der, 12 F.C.C.R. 14031 (1997). The Bureau had considered

the facts proffered, balanced them and the purposes underly-

ing the CMRS spectrum aggregation limit, and noted the

availability of alternative ways that BellSouth could obtain

relief. The Commission also declined to reconsider the cap,

rejecting BellSouth's narrow view of its purpose. The cap,

the Commission explained, was designed

to promote diversity and competition in mobile services,

by recognizing the possibility that mobile service licen-

sees might exert undue market power or inhibit market

entry by other service providers if permitted to aggre-

gate large amounts of spectrum.... Despite BellSouth's

contention to the contrary, the underlying purpose of the

spectrum cap was not limited to promoting competition

in voice services only.

Id. at 14038-39, para. 12. Further, the Commission explained

that it distinguished covered and non-covered SMR in rules

that only affected two-way voice services interconnected to

the public switched network. See id. at 14040, para. 14.

With regard to spectrum aggregation, the Commission ex-

plained that it

still concludes that SMR technology holds the potential

to permit SMR operators to offer services that are nearly

identical to those offered by both cellular and broadband

PCS providers, and thus that all SMR services regulated

as CMRS should be within the cap in order to guard

against excessive spectrum aggregation. Further, tech-

nological innovation may drive cellular, broadband PCS,

and SMR services toward a convergence of similar ser-

vice offerings designed to respond to consumer demand.

Id.

II.

In its petition and appeal to this court, BellSouth makes

two principal contentions: first, that the spectrum cap rule is

overbroad, extending beyond its purpose to assure competi-

tion in voice communications, and second, that the Commis-

sion has adopted a virtually unwaivable rule and failed to give

the waiver request a "hard look." Just as narrowband is

exempt from the cap, BellSouth contends, SMR dedicated to

data-only services should be as well. Essentially, BellSouth

maintains that the only purpose of the rule was to prevent the

exercise of market power in voice services, not non-voice

data-only services. This purpose is clear, BellSouth main-

tains, from the fact that (1) the Commission exempted nar-

rowband spectrum, which is used for non-voice services; (2)

in conducting its market analysis following the remand from

the Sixth Circuit, the Commission defined the market and

other terms such that the only economic justification for the

cap is to deter excess spectrum concentration and market

power in the voice communication market; and (3) the Com-

mission has repeatedly distinguished between covered SMR

(voice services) and non-covered SMR (non-voice services) in

regulatory decisions on the ground that the services did not

compete in the same market. Finally, BellSouth contends

that by failing to identify the standards for evaluating waiver

requests, the Commission has engaged in the type of tauto-

logical reasoning rejected by this court in WAIT Radio v.

FCC, 418 F.2d 1153, 1158 (D.C. Cir. 1969)(WAIT I). See

Pet'r's Br. at 19 ("In sum, the [Commission's] failure to cure

the overbreadth of its rule, coupled with its unwillingness to

entertain a clearly de minimis waiver was unreasoned deci-

sionmaking.").

A.

Under the Administrative Procedure Act, the court must

"hold unlawful and set aside agency action" that is "arbitrary,

capricious, an abuse of discretion, or otherwise not in accor-

dance with law." 5 U.S.C. s 706(2)(A) (1994). Thus, in

reviewing decisions of the Commission, the court

must affirm the decision if we find that it is not contrary

to law, that it is supported by substantial evidence and

based upon a consideration of the relevant factors, and if

we determine that the conclusions reached have a ration-

al connection to the facts found. 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.

Melcher v. FCC, 134 F.3d 1143, 1152 (D.C. Cir. 1998) (cita-

tions and quotation marks omitted). Although the arbitrary

and capricious standard of review is deferential, the court will

"intervene to ensure that the agency has examine[d] the

relevant data and articulate[d] a satisfactory explanation for

its action. Where the agency has failed to provide a reasoned

explanation, or where the record belies the agency's conclu-

sion, we must undo its action." Petroleum Communications,

Inc. v. FCC, 22 F.3d 1164, 1172 (D.C. Cir. 1994) (alteration in

original) (citation and quotation marks omitted). However, to

the extent that the FCC's decision is based upon a "predictive

judgment," the court's review is "particularly deferential."

Melcher, 134 F.3d at 1151. The Commission is not required

"to 'conclusively establish' the factual validity of the agency's

premises." Id. (quoting FCC v. National Citizens Comm. for

Broad., 436 U.S. 775, 796 (1978)).

Challenging the denial of a waiver is likewise not an easy

task because an applicant for waiver bears the heavy burden

on appeal to show that "the Commission's reasons for declin-

ing to grant the waiver were so insubstantial as to render

that denial an abuse of discretion." Turro v. FCC, 859 F.2d

1498, 1499 (D.C. Cir. 1988); see also Thomas Radio Co. v.

FCC, 716 F.2d 921, 924 (D.C. Cir. 1983).

B.

Central to BellSouth's challenge to the spectrum cap is its

view that the cap has one goal: to foster competition in

mobile voice-to-voice communication. With this goal as a

basis for regulation, BellSouth contends that the FCC irra-

tionally included within the CMRS spectrum cap SMR spec-

trum dedicated to data services, which, BellSouth maintains,

can have no impact on the competitive nature of the voice

communication market. Yet the Commission has taken a

different position, maintaining that it was concerned with the

effect of CMRS spectrum aggregation on the development of

market power and on the competitive market for mobile

services as a whole in light of the predicted potential for

various services along that spectrum to converge. The gen-

eral cap on CMRS spectrum thus reflects concern for the

CMRS market generally. The Commission has predicted

that mobile services will converge because of consumer de-

mands and providers' technological capabilities to offer vari-

ous voice and data services. Contrary to BellSouth's charac-

terization, which either ignores or discredits other concerns

and objectives that resulted in the spectrum cap, the Commis-

sion has consistently maintained that general spectrum ag-

gregation will enable an anticompetitive exercise of market

power absent a cap on the amount of spectrum one entity can

hold. So viewed, BellSouth's contentions about the effects of

excluding SMR spectrum used to provide data-only services

falter. To exempt SMR spectrum "dedicated" to data-only

use, as BellSouth proposes, would not prevent an entity from

accumulating spectrum and in the process, would allow that

entity to preclude others from obtaining it. The same entity

could subsequently decide to use that spectrum to provide

voice services, a change over which the Commission has

limited control. Further, even the provision of data-only

services would have an impact on the market because mobile

voice and data services are marketed to the same consumers

and, under the Commission's theory, they are converging

services.

BellSouth maintains, however, that the economic analysis

conducted by the Commission in response to the remand by

the Sixth Circuit in Cincinnati Bell demonstrates that the

Commission is only concerned with the market for voice

communication. For purposes of its economic analysis, the

Commission defined the product market as "mobile two-way

voice communications service," and competitors as "licensees

for cellular service and broadband PCS, and the largest

interconnected SMR." Report & Order, 11 F.C.C.R. 7824,

7904 (1996). For purposes of its rulemaking, however, the

Commission has viewed the market as the CMRS spectrum

as a whole, not merely the provision of certain services on

that spectrum. It was this construction of the market that

controlled when the spectrum cap was first established in the

1994 Third Report and Order. While its HHI analysis

focused on voice-to-voice communication, thus indicating that

voice communication was high on the Commission's list of

concerns, there is nothing to suggest that the Commission

abandoned its more general concern in responding to the

Sixth Circuit's direction for a "reasoned basis" and "an eco-

nomic rationale" for the Commission's attribution and eligibil-

ity rules. To the contrary, what BellSouth fails to acknowl-

edge is that the HHI market analysis, although confined to

voice communication, takes into account general spectrum

aggregation and market concentration concerns underlying

the spectrum cap.

Since its Third Report and Order, the Commission has

focused on the CMRS spectrum as a whole. It has predicted

that the services provided on the CMRS spectrum will con-

verge. Those service providers who are not already actual

competitors are certainly potential competitors. See 9

F.C.C.R. at 8003, para. 27. As a cellular licensee, BellSouth

qualifies as a competitor. Once an entity qualifies as a

competitor, the Commission is concerned with how much

spectrum that entity accumulates. In its view, market power

hinges on the amount of spectrum an entity holds. CMRS

spectrum is a finite resource and is also exclusive in that

whatever one entity holds cannot be held by another. More-

over, all the spectrum included under the cap could potential-

ly be used to provide voice services. It follows that identifica-

tion of voice communications as the product market would not

undermine the force of the Commission's conclusion that a 45

MHz cap is needed to prevent the exercise of market power.

Furthermore, the fact that the Commission has distin-

guished between voice and data uses of SMR spectrum in

other regulatory decisions7 does not, as BellSouth appears to

conclude, necessarily demonstrate that the Commission's re-

fusal to do so with regard to the spectrum cap is arbitrary

and capricious. Rather, an examination of these decisions

reveals that the Commission made the "covered"/"non-

covered" distinction primarily in addressing how a carrier

could structure its CMRS services after acquiring the spec-

trum.

For example, in CMRS Resale Order, the Commission

decided that only covered SMR providers would be required

to comply with the cellular resale obligation, which prohibits

__________

7 See Telephone Number Portability, CC Docket No. 95-116

RM 8535, FCC 98-275 (released Oct. 20, 1998); In re Application

of Motorola, Memorandum Opinion & Order, 13 F.C.C.R. 5182

(1998) (ARDIS Order); Interconnection and Resale Obligations

Pertaining to CMRS, First Report & Order, 11 F.C.C.R. 18455

(CMRS Resale Order) (1996); Interconnection and Resale Obli-

gations Pertaining to CMRS, Second Report & Order, 11 F.C.C.R.

9462 (CMRS Roaming Order) (1996); Revision of the Commis-

sion's Rules to Ensure Compatibility with Enhanced 911 Emergen-

cy Calling Systems, Report & Order, 11 F.C.C.R. 18676 (E911

Order) (1996); Telephone Number Portability, First Report &

Order, 11 F.C.C.R. 8352 (1996) (Number Portability Order).

cellular carriers from restricting resale of their services. See

11 F.C.C.R. at 18,466, para. 19. The Commission concluded

that non-covered licensees, who offer narrowband-type ser-

vices, do not compete substantially with cellular and broad-

band PCS providers, and wished only to regulate providers

with "significant potential to compete directly with cellular

and broadband PCS providers in the near term." Id. Simi-

larly, in CMRS Roaming Order, the Commission extended

the manual roaming rule only to "all CMRS licensees compet-

ing in the mass market for real-time, two-way voice services"

including covered SMR providers. 11 F.C.C.R. at 9470, para.

12. With regard to non-covered licensees, the Commission

concluded that because they "do not compete substantially

with cellular and broadband PCS providers," these providers

would not be covered. Id. at 9471, para. 14. In other

proceedings, the Commission has continued to recognize the

covered/non-covered distinction in determining how carriers

can use their spectrum. See E911 Order, 11 F.C.C.R. at

18716, para. 81; Number Portability Order, 11 F.C.C.R. at

8355, para. 4 & 8433-34, para. 156. Recently the Bureau

permitted Motorola to transfer ownership interests in certain

telecommunications holdings to the American Mobile Satellite

Corporation, see ARDIS Order 13 F.C.C.R. at 5193-94, paras.

18-21, and the Commission decided that any CMRS system

not offering two-way switched voice service would be exempt

from the requirements of number portability, see Telephone

Number Portability, CC Docket No. 95-116 RM 8535, FCC

98-275 (released Oct. 20, 1998).

The Commission can reasonably and rationally distinguish

between regulating spectrum already held and regulating the

accumulation of spectrum. As the Commission notes in its

brief, the orders BellSouth cites for the covered/non-covered

SMR distinction address the current state of the market,

while the spectrum cap is forward looking, designed to pre-

vent the exercise of market power by providers in the future.

In addition, covered and non-covered SMR are not necessari-

ly mutually exclusive over time because the distinction is

based on the services offered. Presumably, a licensee may

choose to offer services that would render it subject to the

regulations for covered SMR; thus, a built-in remedy exists

for such developments should they occur. By contrast, the

acquisition of spectrum must be limited from the outset.

Once an entity acquires the spectrum, it can exercise market

power and prevent other licensees from acquiring that spec-

trum. Although BellSouth argues that the covered/non-

covered SMR distinction should operate in the spectrum

aggregation context just as it does in the spectrum regulation

context, BellSouth has identified no parallel built-in remedy

whereby an entity can be divested of spectrum if the Commis-

sion later discovers that the market is anticompetitive. The

practical differences between regulating the use--as opposed

to the acquisition--of spectrum can reasonably render the

covered/non-covered SMR distinction inapplicable in this con-

text.

Ultimately, BellSouth's contentions fail because of its re-

stricted view of the Commission's goals and purposes that

directly contradicts the Commission's analysis. Absent a

showing that SMR spectrum dedicated to data is virtually

identical to the "narrowband" spectrum excluded from the

cap, which BellSouth failed to make in its briefs or at oral

argument, BellSouth cannot demonstrate that the Commis-

sion acted arbitrarily when it drew the line between SMR and

narrowband spectrum and included SMR in the 45 MHz cap.

The Commission's reliance on the converging nature of the

CMRS market is sufficient to justify its inclusion of all SMR

in the spectrum cap. Similarly, its explanation for the exclu-

sion of narrowband PCS from the cap, namely that it is

virtually impossible to accumulate sufficient spectrum, is ade-

quate.

C.

BellSouth's attack on the denial of its request for a waiver

of the spectrum cap fares no better. BellSouth focuses on

the fact that granting its waiver would have involved a de

minimis exception to the cap, and maintains that the RAM

spectrum was "incapable" of being used for voice communica-

tion.8 For these reasons it contends that the Commission

failed to give the requisite "hard look" at its waiver request

and that the Commission has effectively adopted a "no waiv-

er" policy for the spectrum cap. Maintaining further that the

Commission failed to articulate the standards it would apply

for waivers, BellSouth wants the court to require such articu-

lation. For the following reasons we conclude that BellSouth

has failed to show that the Commission's "reasons for declin-

ing the waiver were 'so insubstantial as to render that denial

an abuse of discretion.' " Thomas Radio Co. v. FCC, 716

F.2d 921, 924 (D.C. Cir. 1983) (quoting WAIT Radio v. FCC,

459 F.2d 1203, 1207 (D.C. Cir. 1972) (WAIT II)).

The "hard look" requirement assures that a general rule

serving the public interest for a broad range of situations will

not be rigidly applied where its application would not be in

the public interest as, for example, where an applicant "pro-

poses a new service that will not undermine the policy"

served by the rule. WAIT Radio v. FCC, 418 F.2d 1153, 1157

(D.C. Cir. 1969) (WAIT I). Therefore, when an agency

receives a request for waiver that is "stated with clarity and

accompanied by supporting data," such requests "are not

subject to perfunctory treatment, but must be given a hard

look." Id. While an agency must consider the relevant

factors, see KCST-TV, Inc. v. FCC, 699 F.2d 1185, 1191-92

(D.C. Cir. 1983), in explaining the denial of a waiver request,

"the agency is not required to author an essay for the

disposition of each application. It suffices, in the usual case,

that we can discern the why and wherefore." ICBC Corp. v.

FCC, 716 F.2d 926, 929 (D.C. Cir. 1983) (quotations omitted);

see also P&R Temmer v. FCC, 743 F.2d 918, 932 (D.C. Cir.

1984).

At the same time, an agency that is required to give a

"hard look" at a waiver request is not necessarily required to

have an existing waiver policy for all of its rules. The "strict

adherence to a general rule may be justified by the gain in

certainty and administrative ease, even if it appears to result

__________

8 Contrary to BellSouth's contentions, the record does not

confirm that SMR "dedicated" to data-only use is truly "incapable"

of being used for voice-to-voice services.

in some hardship in individual cases." Turro v. FCC, 859

F.2d 1498, 1500 (D.C. Cir. 1988); see also FCC v. WNCN

Listeners Guild, 450 U.S. 582, 601 n.44 (1981); Thomas

Radio, 716 F.2d at 925 & n.20. Rigid and consistent adher-

ence to a policy will be upheld if it is valid. See ICBC, 716

F.2d at 929.

From the outset, the Commission has characterized the

spectrum cap as a "bright line" rule. Third Report & Order,

9 F.C.C.R. 7988, 8104-05, para. 250 (1994). A spectrum cap,

unlike many other regulations, might actually require a

bright-line rule to be effective. Moreover, refusal to grant a

waiver to BellSouth does not necessarily mean that the

Commission has created a "no-waiver" policy. The Commis-

sion has consistently stated that the de minimis nature of the

excess above the cap, standing alone, would not justify a

waiver. At oral argument, the Commission explained that,

hypothetically, if a market was not adequately served by

providers, the Commission would consider permitting a carri-

er already in the market to accumulate spectrum above the

cap if it seemed that no competitor would enter the market

and use otherwise fallow spectrum. In other words, even a

bright-line rule may give way to special circumstances war-

ranting an exception in the public interest. Such circum-

stances do not arise, however, where, as here, a waiver

applicant seeks to circumvent a rule merely because it does so

only minimally.9

__________

9 To the contrary, BellSouth's situation arguably presents an

instance where the cap should apply. BellSouth is a major player

in the CMRS market, and the aggregation of CMRS spectrum,

regardless of the use to which it is put, allows BellSouth to exercise

market power. BellSouth's situation is also far less sympathetic

given the alternatives available, including divestiture of the .5 MHz

of SMR spectrum, geographic partitioning, and disaggregation of

larger spectrum blocks. Insofar as the record shows, BellSouth did

not attempt to exercise the divestiture option as the Bureau hinted

it could. Nor does BellSouth challenge the Commission's further

observations about how it might either acquire 19.5 MHz of

disaggregated PCS spectrum in the "after market" or partition its

licensing areas.

The Commission reasonably determined that the Bureau

gave BellSouth's waiver request a "hard look," explaining that

the cap was designed to prevent aggregation of spectrum as

well as spur competition and that BellSouth had alternative

ways to avoid exceeding the cap. Because BellSouth did not

explicitly present a de minimis argument in its waiver peti-

tion, the Bureau had no reason to address this argument in

its letter ruling.10 In any event, as we have explained, the de

minimis amount of excess above the cap will not suffice to

warrant a waiver. BellSouth has never explained how the

public interest would be served by granting its waiver re-

quest; instead it merely equates its own business interest

with the public interest. In the end, BellSouth's waiver

request, aside from its de minimis nature, is nothing but a

further attack on the Commission's decision to include all

SMR spectrum within the 45 MHz cap, a decision which we

have held to be reasonable.

Accordingly, we deny BellSouth's petition and affirm the

Commission's denial of the waiver request.

__________

10 Furthermore, BellSouth's contention that the Wireless Tele-

communications Bureau applied the wrong standard of review is of

no moment, given the virtual identity of material provisions of the

correct standard. The standard the Bureau should have applied

allows the Commission to grant a waiver that is founded upon an

appropriate general standard, shows special circumstances warrant-

ing a deviation from the general rule, and would serve the public

interest. See WAIT Radio, 418 F.2d at 1157-59. The standard the

Bureau used, which applies only to broadband PCS waivers, ex-

plains that a waiver will be granted upon a showing that "the

underlying purpose of the rule will not be served, or would be

frustrated, by its application in a particular case, and that grant of

the waiver is otherwise in the public interest," 47 C.F.R.

s 24.819(a)(1)(i), or that "unique facts and circumstances of a partic-

ular case render application of the rule inequitable, unduly burden-

some or otherwise contrary to the public interest," id.

s 24.819(a)(1)(ii).