# New Personal Communications Services

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-15263

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** June 24, 1994

## Text

SUMMARY: By this Memorandum Opinion and Order (MO&O) the Commission
amends certain aspects of its rules governing broadband personal
communications services (PCS). The MO&O modifies these rules to
consolidate broadband PCS into the 1850-1990 MHz band from the 1850-
1970, 2130-2150, and 2180-2200 MHz bands originally allocated. This
action will result in lower costs for the broadband PCS industry and
lower prices for consumers. This action facilitates implementation of a
broad range of new wireless services and participation in the broadband
PCS industry by small businesses, rural telephone companies, and
businesses owned by women and minorities.

EFFECTIVE DATE: July 25, 1994, except that Secs. 15.311 and
24.204(f)(1), (2), (3)(i), and (3)(ii) are effective September 22,
1994.

FOR FURTHER INFORMATION CONTACT:
Robert Pepper or Donald Gips, Office of Plans and Policy, (202) 418-
2030.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's
Memorandum Opinion and Order, adopted June 9, 1994, and released June
13, 1994. The full text of this Commission decision is available for
inspection and copying during regular business hours in the FCC
Reference Center (Room 239), 1919 M Street NW., Washington, DC. The
complete text of this decision also may be purchased from the
Commission's duplication contractor, International Transcription
Service, Inc., (202) 857-3800, 2100 M Street, NW., Suite 140,
Washington, DC 20037. The following collection of information is being
submitted to the Office of Management and Budget for review under
Section 3504(h) of the Paperwork Reduction Act (44 U.S.C. 3504(h)).
Persons wishing to comment on this collection of information should
direct their comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: Desk Officer for
Federal Communications Commission. A copy of any comments filed with
the Office of Management and Budget should also be sent to the
following address at the Commission: Federal Communications Commission,
Office of Managing Director, Paperwork Reduction Project, Washington,
DC 20554. For further information contact Judy Boley, 632-7513.
OMB Number: None.
Title: Part 24, Amendment of the Commission's Rules to Establish
New Personal Communications Services (GEN Docket No. 90-314).
Respondents: Businesses or other for profit.
Estimated annual burden and frequency of response: Five hundred and
ninety-five 30 Mhz broadband PCS licensees will need to spend
approximately 7,000 hours total at the two construction benchmarks, and
1,972 10 MHz broadband PCS licensees will need to spend approximately
2,000 hours at a single construction benchmark to verify to the
Commission that the construction requirements have been met. Total
burden-hours on all licensees will therefore be approximately 9,000.
Needs and Uses: Information received by the Commission will be used
to verify that each broadband PCS licensee has met its construction
requirements. Without this information, such verification would be
impossible.

Summary of Memorandum Opinion and Order

Introduction and Executive Summary

1. By this action, the Commission amends certain aspects of its
rules governing broadband personal communications services (PCS). It
takes this action in response to 67 petitions for reconsideration or
clarification of the rules and policies adopted in the Second Report
and Order\1\ in this proceeding.
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\1\See Second Report and Order, GEN Docket No. 90-314, 58 FR
59174 (November 8, 1993).
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2. PCS encompasses a broad range of new radio communications
services that will free individuals from the limitations of the
wireline public switched telephone network and will enable individuals
to communicate when they are away from their home or office telephones.
Broadband PCS devices are likely to be portable and have their own
unique telephone numbers. A basic feature of PCS is expected to be the
ability to communicate person-to-person, rather than station-to-
station.
3. The Commission takes this action to foster rapid creation of a
competitive market to deliver these new mobile digital voice and data
services to the American public. Personal communications needs are
changing rapidly as our society becomes more mobile and people demand
rapid communications no matter where they are or what time it is. A
competitive market is the best way to introduce broadband PCS to help
meet these demands. The Commission expects that PCS will provide a
variety of mobile services competitive with existing cellular, paging
and other land mobile services as well as new services offering
communications capabilities not currently available. These services
will be provided on an entire family of new communications devices that
will include small, lightweight multi-function portable phones,
portable facsimile and other imaging devices, new types of multi-
channel cordless phones, and advanced paging devices with two-way data
capabilities. The Commission expects that these new services and
devices will affect the future development and configuration of all
telecommunications networks by significantly improving their
flexibility and increasing the number of functions they can perform.
4. The Commission is amending the broadband PCS spectrum allocation
and regulatory structure to better achieve what have been and continue
to be its four primary goals in this proceeding: competitive delivery,
a diverse array of services, rapid deployment, and wide-area coverage.
Furthermore, the PCS rules as modified will partner with the
Commission's competitive bidding procedures to meet Congressional
objectives that include promoting economic growth and competition,
enhancing widespread access to telecommunications service offerings,
and ensuring that PCS licenses are disseminated to a wide variety of
applicants.
5. The actions the Commission is taking are designed to enable PCS
providers to compete effectively with each other and with other
wireless providers so that the American public can enjoy the greatest
benefit from the delivery of these new services. To promote competitive
delivery, the Commission has modified its band plan to ensure there is
an opportunity for a sufficient number of competitors to offer PCS
services. Further, providers will have the flexibility to determine the
amount of spectrum needed for their particular service or services.
However, the Commission has also set limits on the total amount of
spectrum that can be acquired by new entrants and by incumbent cellular
providers. This ensures that there will be a significant number of
competitors in each area.
6. The Commission purposely adopted a broad definition of PCS to
encourage a variety of firms with their own visions of PCS to bid for
various combinations of licenses and to provide a diverse array of new
services. Firms will compete not only on price, but also on quality and
the types of new products and services they offer. The Commission has
allocated spectrum both in different sized blocks and in different
sized service areas because it wants to encourage businesses to be able
to acquire the spectrum and service areas that best suit their business
plans. This additional flexibility will result in a greater diversity
of products and services for consumers.
7. Rapid deployment is important so that consumers do not have to
wait for the benefits of the new services. To ensure rapid deployment,
the Commission has allocated two different sized spectrum blocks, which
can be aggregated to form other block sizes. It has also altered the
allocation of some of the PCS spectrum to reduce the cost of moving
microwave incumbents that must be relocated. Both of these decisions
will allow more rapid introduction of service because of the reduced
costs of microwave relocation.
8. The revised bank plan also will reduce the cost of service and
equipment to consumers. In addition, the Commission has increased the
power level available for PCS service. Together with the decisions to
license some Basic Trading Areas (BTAs) and 10 MHz blocks, these
changes will make PCS service more viable in rural areas, help ensure
wide-area coverage and increase access for all Americans.
9. Many of the actions taken are directed toward ensuring that a
wide variety of applicants have an opportunity to acquire PCS licenses.
In addition to providing for different and spectrum blocks and
geographic areas, the Commission is modifying its ownership rules to
encourage participation in PCS by rural telephone companies, small
businesses and businesses owned by minorities and women.
10. The most significant of the changes involves modification of
the band plan that was adopted in the Second Report and Order. In that
Order, the Commission allocated 120 MHz of spectrum to PCS, some of
which was in the lower portion of the 2 GHz band allocated for emerging
technologies and some of which was in the upper portion of that band.
Under the revised plan, all of the 120 MHz of spectrum allocated to PCS
is located in the lower band. The previous band plan would have
required those who wished to operate in both the upper and lower bands
to utilize more expensive dual mode handsets capable of operating on
both bands. Providing PCS licenses in only the 1850-1990 MHz band will
lower costs to consumers by permitting use of a single-band handset.
Reducing the costs of equipment to customers should also increase
consumer demand and strengthen the economic viability of the PCS
providers. Placing all the licensed and unlicensed spectrum in a single
contiguous band also will decrease the cost of handsets that can
operate in both licensed and unlicensed blocks. In addition, these
changes will preserve spectrum in the upper band that is allocated
internationally for the emerging Mobile Satellite Services (MSS)
industry to provide worldwide service. Taken together, these changes
will increase the competitiveness of PCS service providers in urban,
suburban, and rural areas which should lower prices and stimulate
demand, thereby increasing investment and economic growth. Lower prices
will also enhance consumer access to PCS services.
11. Having all blocks in a single contiguous band also will
increase the value of the 10 MHz blocks. These blocks would have been
less desirable in the upper band because upper band equipment is
expected to be available from manufacturers twelve or more months after
lower bank equipment. In addition, the upper band contains a higher
concentration of microwave facilities that would have had to share
spectrum with broadband PCS licensees or be relocated from the
broadband PCS spectrum to avoid interference. This action avoids the
expense and potential delay associated with relocating the numerous
microwave links currently operating in the upper band. The change made
to the band plan also makes it more feasible to aggregate a 10 MHz
block with a 30 MHz block for a total of 40 MHz. Taken together, these
factors will reduce the time and the cost of PCS providers offering
their services to the American public. The overall allocation of 120
MHz for broadband PCS remains unchanged.
12. In the Second Report and Order, the Commission divided 120 MHz
of spectrum into seven blocks: two 30 MHz blocks, one 20 MHz block, and
four 10 MHz blocks. In this Order, the Commission is amending its band
plan to provide six blocks: three 30 MHz blocks and three 10 MHz
blocks. The Commission changed the 20 MHz block to a 30 MHz block and
eliminated one 10 MHz block primarily because it was persuaded that a
single 20 MHz block would not provide enough spectrum to support a
viable competitor to the 30 MHz PCS MTA licensees, or to the two
existing cellular licensees currently serving most areas. As a primary
goal of the proceeding was to promote competitive delivery of PCS
services, the Commission believes that it is essential to make
available an additional 30 MHz block. The Commission anticipates that
the three 10 MHz blocks will be used in a variety of ways that may
include ``niche services'' and other functions, or as an enhancement
for PCS or cellular providers that choose to purchase a 10 MHz block to
complement a 30 MHz or 25 MHz block, respectively. Thus, the revised
band plan provides for an additional competitor to cellular service and
to the other PCS providers, while also providing three 10 MHz blocks
for multiple uses.
13. In addition to modifying the band plan, the Commission also
makes significant amendments to the rules relating to participation in
PCS by holders of cellular interests. In the Second Report and Order,
the Commission recognized that unfettered participation in PCS by
cellular operators could lessen the potential competition that could
develop between PCS and cellular systems. At the same time, it
recognized that cellular licensees could foster rapid development of
PCS for a variety of reasons, including their expertise with commercial
mobile radio services. Promoting competition and providing for rapid
deployment of PCS are both among the objectives that Congress
instructed the Commission to promote in Section 309(j) of the
Communications Act, as amended by the Reconciliation Act. The
Commission has balanced those competing interests by allowing entities
with a 20 or more percent investment interest in a cellular license to
acquire a 10 MHz PCS license in the same area. The Commission adheres
to that decision. However, it has decided that as of January 1, 2000,
it will afford cellular operators the same overall 40 MHz spectrum cap
as other PCS operators, and allow them to acquire an additional 5 MHz
for a total of 15 MHz of PCS spectrum in the same service areas as
their cellular interests. Each cellular operator currently holds 25 MHz
of spectrum.
14. In Section 309(j), Congress also directed the Commission to
promote economic opportunity by disseminating licenses to a wide
variety of applicants, including small businesses, rural telephone
companies, and businesses owned by members of minority groups and women
(``designated entities''). The Commission is modifying its PCS cellular
eligibility rules to promote that goal as well. Specifically, it is
relaxing its cellular ownership attribution rules to allow designated
entities with up to a 40 percent non-controlling interest in a cellular
license to obtain a PCS license in the same area. One effect of this
change will be to allow some rural telephone companies with non-
controlling cellular interests, to provide PCS service in areas that
might otherwise not be served in a timely manner.
15. The Commission also is relaxing its cellular attribution rules
to allow any entity with up to a 40 percent non-controlling ownership
interest in a cellular license covering 10 percent or more of the
population in a PCS service area to also attain a non-controlling
investment interest in a PCS license held by a business owned by
minorities or women. While there is some risk that relaxing the
cellular eligibility rule will limit the vigor of competition in some
markets, the Commission thinks that risk is sufficiently limited where
the party holding interests in two licenses holds a minority interest
in the cellular license and the PCS license is controlled by another
entity. The Commission has concluded that it should take that risk in
order to advance the goal of promoting economic opportunity for these
groups.
16. The Commission's cellular eligibility rules balance the goals
that Congress has established--promoting competition, ensuring rapid
deployment of PCS, and providing economic opportunity for designated
entities. It has decided that limited participation by cellular
providers will serve the public interest by promoting rapid deployment
of PCS, participation by designated entities, and overall competition.
17. The Commission has made a number of minor modifications to its
rules. With these changes, it intends to proceed expeditiously toward
licensing providers of broadband personal communications services. The
following is a summary of all of the specific actions taken to promote
the goals outlined above:
a. Adopting a band plan that provides for three 30 MHz licenses
(Blocks A, B, and C) and three 10 MHz licenses (Blocks D, E, and F),
all of which are within the 1850-1990 MHz band;
b. Providing that the A and B Blocks be licensed within 51 service
areas based on the Major Trading Areas (MTAs) and that the C, D, E, and
F Blocks be licensed within 493 smaller service areas based on the
Basic Trading Areas (BTAs) set forth in the Rand McNally Commercial
Atlas & Marketing Guide (123rd ed. 1992);\2\
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\2\The current rules provide 492 service areas based upon BTAs.
In response to a request the Commission is dividing the Puerto Rico
service area into two areas.
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c. Maintaining the allocation of spectrum at 1910-1930 MHz for
unlicensed PCS devices, and committing to initiate a proceeding in the
near future to examine allocation of additional spectrum for unlicensed
PCS operations. Within this band, the Commission has adopted a 1.25 MHz
channelization scheme for isochronous (voice) devices and eliminated
channelization requirements for asynchronous (data) devices;
d. Continuing to permit all eligible entities to acquire broadband
PCS spectrum up to a cap of 40 MHz;
e. Retaining the five percent equity attribution threshold for PCS
licenses so that the same entity may not own more than five percent of
PCS licenses constituting more than 40 MHz within the same area;
f. Retaining the cellular attribution threshold of 20 percent
equity ownership of a cellular licensee and the service area overlap
test of 10 percent of the population of the relevant PCS market, so
that the same entity generally may not own more than 20 percent of the
cellular license and more than 5 percent of PCS license(s) that would
place the entity above the spectrum limit in an overlapping service
area;
g. Relaxing the eligibility rules to permit entities with
attributable interests in cellular companies whose combined cellular
geographic service areas overlap between 10 and 20 percent of the PCS
service area population to submit bids for more than 10 MHz of PCS
spectrum provided that, prior to the auction, they commit to divest
themselves of sufficient cellular interests to come into compliance
with the eligibility rules within 90 days of license grant;
h. Providing that voting stock, general partnership interests,
interlocking directorates and certain other controlling interests and
relationships will be considered in determining attributable interests
under the spectrum caps;
i. Raising from a 20 percent to a 40 percent non-controlling
interest the threshold for determining attributable cellular equity
ownership for rural telephone companies, small businesses and
businesses owned by minorities and women that are collectively termed
``designated entities'' under 47 U.S.C. 309(j);
j. Increasing from a 20 percent to a 40 percent non-controlling
interest the threshold for determining attributable cellular equity
ownership to allow non-designated entities to make non-controlling
investments in PCS licenses owned and controlled by minority- and
women-owned businesses;
k. Permitting entities with attributable cellular interests
covering 10 or more percent of the population in a PCS service area to
acquire 10 MHz of PCS spectrum within the PCS service area and, after
January 1, 2000, to acquire an additional 5 MHz for a total of 15 MHz
of PCS spectrum in their cellular service areas;
l. Relaxing construction requirements to provide that (a) 30 MHz
broadband PCS licensees must provide coverage to one-third of their
service area population within five years of initial licensing and two-
thirds within ten years and (b) 10 MHz licensees must provide coverage
to twenty five percent of their service area population within five
years of initial licensing or, submit a showing of equivalent or
substantial service;
m. Increasing the maximum power level permitted for broadband PCS
base stations to 1640 watts equivalent isotropically radiated power
(e.i.r.p.), which is equivalent to 1000 watts effective radiated power
(e.r.p.);
n. Retaining with minor amendment rules ensuring compliance with
minimum standards for exposure to radio frequency (RF) energy emitted
by PCS devices;
o. Committing to initiate a proceeding in the near future to
allocate additional spectrum for mobile satellite services (MSS) and to
work toward having additional spectrum allocated to MSS at the World
Radio Conference to be held in 1995 (WRC-95); and
p. Pledging to examine management contracts and spectrum leases in
the CMRS docket for the purpose of determining whether other interests
in PCS licenses should be limited in order to foster vigorous
competition.
18. The Commission began its investigation of broadband PCS in
1989.\3\ Since then the Commission has addressed broadband PCS in this
docket by issuing a Notice of Inquiry, holding an En Banc meeting, and
adopting a Policy Statement and Order, a Notice of Proposed Rule Making
and Tentative Decision, and a Second Report and Order;\4\ and held a
Public Forum on broadband PCS.\5\ It has also allocated 220 MHz of
spectrum between 1850 and 2200 MHz for emerging technologies that
include PCS;\6\ provided for band sharing or negotiated relocation of
microwave facilities occupying 2 GHz PCS spectrum;\7\ provided spectrum
to accommodate the existing 2 GHz facilities that relocated;\8\ and
adopted technical, licensing and auction rules for narrowband PCS.\9\
It also considered 50 pioneer's preference requests related to
broadband PCS.\10\ Finally, the Commission made recommendations and
participated in an international allocation conference at which
decisions were made that recognize and permit use of 2 GHz spectrum for
PCS.\11\ Numerous telecommunications companies and associations have
actively participated in the PCS proceedings, and over 100 companies
have applied for and received more than 220 experimental licenses to
develop and test PCS services and technologies.
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\3\Petitions for Rule Making requesting establishment of PCS
were filed by Cellular 21, Inc., in September 1989, RM-7140; and PCN
America, Inc. (PCN America), in November 1989, RM-7175.
Subsequently, in February 1991, Apple, RM-7618, proposed that 40 MHz
from the 1850-1990 MHz band be allocated for unlicensed high-speed
local-area data communications services connecting personal
computers.
\4\See GEN Docket No. 90-314; Notice of Inquiry, 5 FCC Rcd 3995
(1990); Policy Statement and Order, 56 FR 56937 (November 7, 1991);
Notice of Proposed Rule Making and Tentative Decision, 57 FR 11458
(April 3, 1992); and Second Report and Order, 58 FR 59174 (November
8, 1993).
\5\See FCC, Transcripts of PCS Public Forum, April 11-12, 1994
(Transcripts of the PCS Public Forum). The transcripts are available
for public viewing at both the FCC Reference Center and the Library,
1919 M Street, NW., Washington, DC. The transcripts also may be
purchased from the Commission's duplication contractor.
\6\See First Report and Order and Third Notice of Proposed Rule
Making, ET Docket No. 92-9, 57 FR 49020 (October 29, 1992).
\7\See ET Docket No. 92-9; First Report and Order and Third
Notice of Proposed Rule Making, 57 FR 49020 (October 29, 1992);
Second Report and Order, 58 FR 49220 (September 22, 1993); Third
Report and Order and Memorandum Opinion and Order, 58 FR 46547
(September 2, 1993); Memorandum Opinion and Order, 59 FR 19642
(April 25, 1994), petition for further recon. pending.
\8\See Second Report and Order, ET Docket No. 92-9, 58 FR 49220
(September 22, 1993).
\9\See First Report and Order, GEN Docket No. 90-314 and ET
Docket No. 92-100, 58 FR 42681 (August 11, 1993) (initial narrowband
rules); Memorandum Opinion and Order, GEN Docket No. 90-314 and ET
Docket No. 92-100, 59 FR 14115 (March 25, 1994) (adopting certain
narrowband PCS rule amendments on reconsideration); Third Report and
Order, PP Docket No. 93-253, FCC 93-98, released May 10, 1994
(design of narrowband auctions).
\10\See Third Report and Order, GEN Docket No. 90-314, 59 FR
9419 (February 28, 1994), recon. pending, appeal pending sub nom.
Pacific Bell v. FCC, No. 94-1148 (D.C. Cir., filed March 1, 1994).
The Commission intends to address shortly the petitions for
reconsideration of its pioneer's preference decisions.
\11\A worldwide allocation for PCS was discussed at the 1992
International Telecommunication Union (ITU) World Administrative
Radio Conference (WARC-92) in Torremolinos, Spain. The conference
decided to maintain primary fixed and mobile allocations at 2 GHz in
Region II (which includes the United States), and to make additional
primary mobile-satellite service allocations in the 1930-2010 and
2120-2200 MHz bands. It added a footnote stating that future public
land mobile telecommunications systems, similar in concept to PCS,
are expected to use the 1885-2025 MHz and 2110-2200 MHz bands on a
worldwide basis. See Report, GEN Docket No. 89-554, 56 FR 31095
(July 9, 1991); ITU, Final Acts of the World Administrative Radio
Conference for Dealing with Frequency Allocations in Certain Parts
of the Spectrum (Malaga-Torremolinos, 1992).
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19. On August 10, 1993, the President signed the Omnibus Budget
Reconciliation Act of 1993 (Reconciliation Act),\12\ which amended
Sections 3(n), 309(j) and 332 of the Communications Act of 1934, as
amended (Communications Act). Section 309(j) for the first time
authorized the Commission to select licensees by competitive bidding
and establishes objectives for the bidding process, including rapid
deployment of new technologies, promotion of economic opportunity,
competition and public access, wide dissemination of licenses, and
efficient use of the spectrum. The Reconciliation Act also amended
Sections 3(n) and 332 to provide that PCS is a mobile service and to
establish a new framework for regulatory treatment of mobile services.
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\12\Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-
66, Title VI, Secs. 6002(b)(2) (A), (B), 107 Stat. 312, 392 (1993).
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20. On September 23, 1993, shortly after the Reconciliation Act was
enacted, the Commission adopted the Second Report and Order
establishing regulations and policies for broadband PCS that are under
review here. In the Second Report and Order, the Commission enumerated
goals of competitive delivery, diversity of services, speed of
deployment, and wide-area service. The Commission took a number of
actions to help meet these goals.
Specifically, the Commission:
a. Defined PCS as ``radio communications that encompass mobile and
ancillary fixed communication that provide services to individuals and
businesses and can be integrated with a variety of competing
networks'';
b. Allocated spectrum at 2 GHz for PCS, including 120 MHz of
spectrum for licensed broadband PCS and 40 MHz for unlicensed PCS
devices;
c. Provided for two 30 MHz licenses and one 20 MHz license in the
``lower'' band of the emerging technologies spectrum, and four 10 MHz
licenses in the ``upper'' band, in each geographic area;
d. Provided that the two 30 MHz licenses would be authorized within
51 service areas based on the Rand McNally Major Trading Areas (MTAs)
and that the 20 MHz and 10 MHz licenses would be authorized within 492
service areas based on the Rand McNally Basic Trading Areas (BTAs);
e. Established eligibility requirements that limit entities with
certain cellular interests to 10 MHz of PCS spectrum where there is
significant overlap between a PCS service area and the cellular service
area (i.e., 10 percent or more of the PCS service area population);
f. Limited broadband PCS licensees to 40 MHz of spectrum, and
established certain licensing and renewal mechanisms;
g. Established a maximum power level of 100 watts e.i.r.p. for PCS
base stations, and adopted technical specifications to avoid harmful
interference to other operations while leaving maximum technical
flexibility to permit development of new technologies;
h. Adopted rules to minimize radio frequency (RF) exposure risk;
and
i. Noted an intent to continue participating in international
efforts to provide standards and consistent spectrum allocations for
international deployment of worldwide terrestrial mobile and global
satellite services.
21. In related proceedings, the Commission provided a transition
plan to govern PCS licensees sharing their authorized spectrum with
existing 2 GHz fixed microwave facilities or relocating those
facilities to other spectrum;\13\ determined that broadband PCS
presumptively will be classified as a commercial mobile radio service
(CMRS) under Section 332 of the Communications Act as amended by the
Reconciliation Act;\14\ and found that broadband PCS is within the
Commission's competitive bidding authority, when it adopted generic
competitive bidding rules and procedures.\15\ With regard to
competitive bidding for broadband PCS licenses, the Commission proposed
to set aside two blocks of spectrum--the 20 MHz block (Block C) and a
10 MHz block (Block D)--that would be reserved for bidding purposes to
``designated entities'', (small businesses, rural telephone companies
and businesses owned by members of minority groups and women), and
proposed other measures to ensure economic opportunity for designated
entities.\16\ These proposals remain pending. The proposed set-aside
and other outstanding issues concerning broadband PCS auctions will be
decided in a forthcoming Order (in PP Docket No. 93-253) addressing
competitive bidding rules.
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\13\See First Report and Order and Third Notice of Proposed Rule
Making, ET Docket No. 92-9, 57 FR 49020 (October 29, 1992).
\14\See Second Report and Order, GN Docket No. 93-252, 59 FR
18493 (April 19, 1994) (CMRS Second Report and Order), recon.
pending.
\15\See Second Report and Order, PP Docket No. 93-253, FCC 94-
61, released April 20, 1994.
\16\See PP Docket No. 93-253; Notice of Proposed Rule Making, 58
FR 53489 (October 15, 1993); Second Report and Order, FCC 94-61,
released April 20, 1994.
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22. In response to the Second Report and Order, 67 parties filed
petitions requesting reconsideration or clarification. Of the 67
petitions, 58 primarily addressed issues relating to licensed PCS
services and 9 primarily addressed issues relating to unlicensed PCS
operations. The petitioners collectively request reconsideration of the
spectrum allocation and frequency block plan, eligibility and
attribution matters, construction requirements, technical standards,
microwave interference criteria, power limits, radio frequency (RF)
hazard requirements, and matters related to unlicensed PCS devices. The
Commission received comments addressing the petitions for
reconsideration from 44 parties and replies from 54 parties.
23. On March 17, 1994, the Commission established an intra-agency
task force to coordinate the reconsideration of PCS policies and rules.
On April 11 and 12, 1994, the task force conducted a series of public
panel discussions on PCS issues. The panelists included potential PCS
service providers, technical experts, members of the financial
community, economists and representatives of designated entities. The
presentations of the panelists and transcripts of the panel discussions
were placed in the record of this proceeding, and 30 interested parties
filed statements in the record responding to the panel discussions.

Spectrum Issues and Service Areas

24. Allocation, Block Plan, and Service Areas. In the Second Report
and Order, the Commission allocated 120 MHz for licensed PCS and 40 MHz
for unlicensed PCS from the 220 MHz of emerging technologies spectrum.
Specifically, (lower band) 1850-1890 MHz and 1930-1970 MHz, and the
(upper band 2130-2150 MHz and 2180-2200 MHz, were allocated for
licensed PCS; and the 1890-1930 MHz band was allocated for unlicensed
PCS devices. In addition, 60 MHz remained in reserve for future
allocations to emerging technologies such as MSS or other applications.
The frequency plan for licensed PCS included two 30 MHz frequency
blocks, one 20 MHz block, and four 10 MHz blocks. Service areas were
defined based on Rand McNally's ``Major Trading Areas'' (MTAs) and
``Basic Trading Areas'' (BTAs). The two 30 MHz blocks were in the lower
band and licensed on an MTA basis; the 20 MHz block also was in the
lower band, but licensed on a BTA basis; and the four 10 MHz blocks
were in the upper band and licensed on a BTA basis.
25. Twenty-eight parties argued for reconsideration of various
aspects of the allocation and frequency block plan adopted in the
Second Report and Order. In general, the petitioners address: (1)
alternatives for the PCS frequency block plan, including the number of
PCS providers, PCS service areas, and issues relating to the
aggregation or subdivision of PCS spectrum; (2) whether spectrum should
be designated for private PCS use; and (3) the impact of the PCS
allocation on the international allocations for mobile satellite
service (MSS).
26. In response to these filings, the Commission is revising the
band plan to move the 10 MHz blocks from the upper band to the lower
band, increase the size of 20 MHz block to 30 MHz, and reduce the
number of 10 MHz blocks from four to three. The revised band plan is
depicted in Appendix D, ``Broadband PCS Band Plan,'' and detailed in
the following table.

----------------------------------------------------------------------------------------------------------------
Frequency block Amount of spectrum Geographic scope Frequency range
----------------------------------------------------------------------------------------------------------------
A....................... 30 MHz................. MTA.................... 1850-1865/1930-1945 MHz
B....................... 30 MHz................. MTA.................... 1870-1885/1950-1965 MHz
C....................... 30 MHz................. BTA.................... 1895-1910/1975-1990 MHz
D....................... 10 MHz................. BTA.................... 1865-1870/1945-1950 MHz
E....................... 10 MHz................. BTA.................... 1885-1890/1965-1970 MHz
F....................... 10 MHz................. BTA.................... 1890-1895/1970-1975 MHz
Unlicensed.............. 20 MHz................. Nationwide............. 1910-1930 MHz
----------------------------------------------------------------------------------------------------------------

27. This plan provides for three large blocks and three small ones.
This will allow potential licensees to aggregate varying amounts of
spectrum in different geographic areas depending on their individual
business plans. The three large 30 MHz blocks ensure that these
licensees have sufficient spectrum to begin service rapidly. The three
small 10 MHz licenses will allow the provision of services that might
not require a full 30 MHz, or for aggregation with a 30 MHz PCS license
or an existing cellular license. As noted above, moving the 10 MHz
blocks from the upper band to the lower band provides a number of
important procompetitive benefits: consumer equipment costs will be
significantly lower, costs of relocating incumbent fixed microwave
links will be significantly reduced for new PCS entrants, the ability
to aggregate spectrum will be increased, and valuable spectrum will be
preserved that can be used to provide mobile satellite service on a
worldwide basis. This revised plan reduces the amount of spectrum for
unlicensed devices, but will increase the ability of new consumer
equipment to work on both a licensed and unlicensed basis, increasing
the utility of the devices for consumers. The improvement in this band
plan will increase competition, lower equipment costs and provide other
benefits. As a result, consumers will receive lower-cost and higher-
quality service.
28. The Commission initially authorized 10 MHz blocks in the upper
PCS band. Many parties, however, argue that the upper band blocks would
be of little value in the near term because equipment would not be
developed for this spectrum for a year or more. In addition, handsets
that can bridge the upper and lower bands are predicted to cost about
25 percent more and to be bulkier than handsets operating only on the
lower frequencies. In addition, dual mode handsets would be heavier and
have shorter battery life. Several parties argued that dual band
handsets were essential to the success of upper band service because
PCS operators would be likely to aggregate upper and lower band
spectrum and consumers would want to be able to receive service on both
bands, both to permit roaming across geographic areas and to facilitate
changing service providers. These parties contended that the higher
costs, delay, and other limitations associated with the upper band
presented serious impediments to achieving the goals of fostering a
competitive market, rapid deployment, opportunities for designated
entities, and fostering a wide diversity of services. Upon
reconsideration, the Commission concludes that MSS and PCS services can
both be accommodated by using only lower band spectrum for licensed and
unlicensed PCS services.
29. Moving licensed PCS from the upper band to the lower band
provides a number of procompetitive benefits. First, the cost of
interoperability between licensed and unlicensed PCS will be reduced.
As noted above, equipment costs to consumers are predicted to be
reduced by 25 percent. Moreover, under the revised plan, manufacturers
will concentrate on a single band with uniform frequency spacing, which
should result in greater economies of scale in manufacturing that
reduce consumer equipment prices. This additional cost for
interoperability between bands was not evident to the Commission when
it made its earlier decision. Increased interoperability has the
additional benefit of reducing lock-in costs for consumers, giving them
greater ability to switch providers, and thereby resulting in a more
competitive market. Because of the less expensive handsets and the
ability to combine adjacent blocks, aggregation is much more desirable.
This will benefit all new providers, including designated entities,
because they will be able to reduce costs and compete more effectively.
Furthermore, there appear to be a number of different potential uses
for the 10 MHz blocks: innovative niche services that are unlikely to
be provided initially on the 30 MHz blocks, aggregation with the 30 MHz
blocks, aggregation with other 10 MHz blocks, service extensions for
incumbent cellular providers, and opportunities for designated entities
to provide service with lower capital cost. Moving the 10 MHz blocks
from the upper band to the lower band will enhance the value of some,
if not all, of these uses and allow licensees to decide the most
valuable use for the spectrum.
30. Second, the cost and time required to relocate incumbent fixed
microwave links should be significantly less in the lower band because
the number of microwave links in the upper band is higher than the
number in the lower band. While the bandwidth used by the upper band
microwave incumbents is much less, making it easier to find some clear
spectrum immediately, the ultimate requirement to clear the spectrum
would result in significantly higher costs for PCS licensees.
31. Third, equipment should be available for the lower band at an
earlier date. Manufacturers have spent significant time and resources
developing lower band equipment but the record indicates that they have
not done much work on developing equipment for the upper band. As a
result, some parties assert that the availability of upper band
equipment trails the availability of lower band equipment by about one
year. Time to market is a critical factor in the rollout of PCS
services that will compete against existing cellular and enhanced
specialized mobile radio (ESMR) entities. Thus, earlier equipment
availability is a significant factor in developing a competitive PCS
service.
32. Fourth, many cellular companies have expressed a desire to
operate PCS systems both outside and inside their current cellular
service areas. By moving the PCS spectrum to the lower band, PCS and
cellular providers will have the ability to provide service over a
large geographic area even though they desire (or are required) to have
different amounts of PCS spectrum in different areas. This capability
could lower costs to the benefit of consumers because cellular
companies will be able to compete using PCS spectrum inside and outside
of their service areas.
33. Finally, moving all the PCS spectrum to the lower band will
better meet the needs of the emerging MSS industry. The Commission
believes that this action will increase the value of the unlicensed
spectrum because interoperability with licensed PCS will increase.
34. Accordingly, the Commission finds that moving all of the PCS
spectrum to the lower band will increase competition, reduce both
consumer equipment and system costs, and increase equipment
functionality. This new band plan has significant industry support, as
evidenced by numerous recent filings submitted in the record by a
variety of interests supporting the proposal to move all of the PCS
spectrum to the lower band.
35. In developing the original plan, the Commission concluded that
10 MHz blocks could support viable and competitive PCS services through
the use of advanced digital techniques, such as Code Division Multiple
Access (CDMA) and Time Division Multiple Access (TDMA), and
microcellular technology. It also stated that some types of PCS
operations would require more than 10 MHz of spectrum. In addition, the
Commission recognized that initially PCS is required to share spectrum
with fixed microwave operations and therefore the full amount of
spectrum will not be available initially in many locations. The
Commission also stated that some types of PCS operations would require
more than 10 MHz of spectrum. In addition, the Commission recognized
that initially PCS is required to share spectrum with fixed microwave
operations and therefore the full amount of spectrum will not be
available initially in many locations. The Commission concluded that 20
and 30 MHz frequency blocks were needed to support the rapid
development and implementation of the fullest range of PCS services and
also permitted most licensees to aggregate up to 40 MHz of broadband
PCS spectrum in each service area, except that cellular licensees were
limited to 10 MHz where their cellular geographic service area (CGSA)
overlapped with the PCS service area. For these reasons, the Commission
concluded that the combination of 10, 20, and 30 MHz licenses would
allow users to acquire the amount of spectrum appropriate for their
applications.
36. In the Second Report and Order, the Commission allocated two 30
MHz blocks, one 20 MHz block and four 10 MHz blocks. Its intent was to
encourage participation of as many viable new PCS entrants as possible
while maintaining sufficient spectrum to ensure the viability of both
MSS and unlicensed devices. Based on the reasoning presented below, and
on information provided by the petitioners and other responding
parties, including presentations made by industry experts as its panel
discussions, the Commission finds that its goals will be better served
by two modifications to the band plan: (a) An increase in the size of
the 20 MHz block to 30 MHz; and (b) a reduction in the number of 10 MHz
blocks from four to three. Overall, the total amount of spectrum
allocated for licensed PCS remains unchanged.
37. One of the goals in this proceeding is to stimulate competition
in the wireless and wireline industries, thus reducing costs and
improving quality for consumers. In so doing, the Commission must
balance two objectives. First, the Commission wants to maximize the
number of opportunities for new viable competitors to emerge. It also
wants to allow market forces to guide how many competitors survive. The
Commission has endeavored to provide as many opportunities as possible
to aggregate blocks into viable service offerings to ensure that
several strong competitors emerge to provide service. Its desire to
maximize competition must be tempered, however, because (1) spectrum is
limited and (2) for new entrants to be viable sufficient spectrum must
be provided to begin service quickly with reasonable upfront capital
costs. The Commission believes that the combination of microwave
incumbents occupying part of this spectrum and economies of scale lead
to the conclusion that the set of three 30 MHz blocks will support the
rapid introduction of competitive PCS services whereas 20 MHz blocks
could lead to PCS service start-up delays or a reduction in the number
of viable competitors.
38. The Commission believes that its new band plan is superior to
uniform 20 MHz blocks, as advocated by several petitioners. The
combination of three 30 MHz blocks and three 10 MHz blocks allows the
aggregation of a variety of license sizes that could not occur with
uniform 20 MHz blocks.\17\ As a result, the Commission finds that the
allocation of six 20 MHz blocks would not provide as many benefits as
either the allocation adopted in the Second Report and Order on the
modified plan it adopts in this order and it might lead to fewer new
service providers with sufficient spectrum to provide service quickly.
It also rejects the plan of twelve 10 MHz blocks, because such an
arrangement might seriously delay the implementation of PCS, since the
process of aggregating so many spectrum blocks could be time consuming
and costly. It also could dramatically increase complexity and
transaction costs at and after the auction. Finally, the Commission
believes that dividing the spectrum into 40 MHz blocks would be
inefficient for many applications and would foreclose innovative niche
services.
---------------------------------------------------------------------------

\17\It also believes that fewer new viable PCS competitors might
emerge under the six blocks of 20 MHz plan, given a spectrum
aggregation limit of 40 MHz and the head start of cellular
incumbents.
---------------------------------------------------------------------------

39. The record indicates significant concern that a 20 MHz block
may not provide sufficient spectrum to enable a PCS provider to compete
effectively with other PCS licensees operating on 30 MHz spectrum
blocks or with other commercial mobile radio service providers. Some
parties argue that 20 MHz will provide sufficient capacity in the long
run, while others feel that with only 20 MHz, there could be a
significantly larger portion of each service area where the licensee
has no usable spectrum due to the presence of microwave incumbents. The
presence of fixed microwave links requires that, on the average, a
licensee with 20 MHz initially will have to relocate more microwave
links than a 30 MHz license before PCS service can begin, which could
significantly delay the commencement of service and increase the
upfront cost of initiating service. In addition, certain parties state
that the ability of a microwave incumbent to delay or extract a premium
for relocating its link because its microwave path fully blocks service
diminishes significantly with a 30 MHz spectrum block. While incumbent
microwave links are 20 MHz wide, the Commission feels that the
advantages of being able to work around specific links with a 30 MHz
block outweigh the additional transaction costs which result from not
matching the incumbent fixed microwave assignments identically.
40. Other parties support the notion that a 30 MHz block will help
new PCS entrants compete more effectively with existing wireless and
wireline providers. The Commission also believes that limiting one
licensee to 20 MHz could be a disadvantage for future competition. The
ability to provide a complete package of mobile voice and data services
could become a significant competitive advantage in the future. Such a
package of wireless services, however, may require more than 20 MHz of
spectrum. Other services may require less spectrum and are better
suited to the 10 MHz blocks.
41. Due in large part to these concerns, the investment community
has stated that financing would be much more difficult to obtain for
the licensees on the 20 MHz block than on the other blocks. These
handicaps are of particular concern to us because the 20 MHz block was
proposed to be reserved for designated entities.\18\ The competitive
handicaps of a 20 MHz block relative to 30 MHz blocks would not have
served the goal of providing a viable competitive opportunity for
designated entities.
---------------------------------------------------------------------------

\18\In the Notice of Proposed Rule Making in the competitive
bidding proceeding, PP Docket No. 93-253, the Commission indicated
that it would consider setting aside Blocks C and D for small
businesses, rural telephone companies, and businesses owned by
minorities or women. Reconciliation Act Sec. 6002(a), 107 Stat. at
389. See H.R. Rep. No. 103-213, 103d Cong., 1st Sess. at 482-484
(1993) (Conference Report); H.R. Rep. No. 103-111, 103d Cong., 1st
Sess. at 255 (1993).
---------------------------------------------------------------------------

42. Increasing the third license from a 20 MHz block to a 30 MHz
block appears to eliminate any competitive disadvantages stemming from
the band plan. The A, B and C blocks each will have a roughly
equivalent portion of its service area completely blocked by incumbent
microwave users in any geographic area. As a result, the costs and
delay due to incumbent relocation should be similar on each of the
blocks. This change should also reduce the difficulty faced by the C
block licensee in obtaining financing. The Commission concludes,
therefore, that three equal sized 30 MHz blocks will facilitate
competition and the rapid development and implementation of the fullest
range of PCS services and ensure that PCS is more fully competitive
with other mobile radio services. Accordingly, the Commission is
changing the single 20 MHz license to a 30 MHz license. Providing a
combination of 30 MHz and 10 licenses MHz provides the benefits of 40
MHz licenses, without restricting the options of firms nor affecting
competition.
43. Consistent with its decision to formulate a flexible definition
of PCS, the Commission allocated four 10 MHz blocks in the Second
Report and Order that could serve a variety of needs. The Commission
continues to believe that 10 MHz blocks, both on their own and in
combination with the 30 MHz blocks or with each other, are useful to
support a variety of PCS services. Throughout this proceeding, several
parties have indicated that 10 MHz blocks would be suitable for
providing services ranging from specialized or ``niche'' applications
to services comparable to those now provided by cellular systems. In
addition, the 10 MHz blocks will be beneficial both for cellular
licensees, who have limited eligibility for PCS participation in
region, and possibly also for augmenting SMR. Finally, commenters
discussed the desire to aggregate the 10 MHz blocks with the larger
blocks in order to increase capacity for PCS services in heavy demand
areas.
44. For these reasons, the Commission believes that public interest
is best served by continuing the allocation of licenses on 10 MHz
channel blocks in addition to the 30 MHz licenses. The number of 10 MHz
blocks must be limited to three for any given area, however, because of
the need to reserve spectrum for other uses such as MSS. Allowing the
flexibility to aggregate spectrum blocks of different sizes will help
ensure that efficient providers succeed. The Commission believes that
120 MHz will provide sufficient spectrum to promote competition rapidly
and that flexibility in the provision of service will provide
incentives for efficient use of the spectrum.
45. In sum, the Commission believes that a band plan that provides
for three 30 MHz licenses and three 10 MHz licenses, all in the lower
band, compared to the earlier plan, will better ensure that PCS
services are available promptly and competitively to the American
public.
46. A number of petitioners request clarification of, or changes
to, the policies regarding the aggregation or subdivision of PCS
spectrum and PCS service areas. In the Second Report and Order, the
Commission limited any party's ability to aggregate PCs spectrum to an
attributable interest in 40 MHz. Companies that were deemed to hold
attributable interests in cellular license(s) covering 10 percent or
more of the population in a PCS service area were limited to holding a
single 10 MHz PCS license in that area. The Commission did not address
the issue of whether it would allow disaggregation of spectrum.
47. The Commission believes that the 40 MHz limit for PCS spectrum
is appropriate. No new information has been presented to indicate that
each licensee in a market would require more than 40 MHz to provide
broadband PCS service. Although at least one party argued that this
limit should be amended to allow greater aggregation in rural areas,
the Commission does not believe that greater aggregation is needed. In
particular, the demand in rural areas is expected to be sufficiently
low that there should be no need for more than 40 MHz by any one
provider. If demand in rural areas is not sufficient to meet than 40
MHz of spectrum to one entity, it would be preferable to have
additional competitors serve these customers rather than to license
more than 40 MHz of spectrum to one entity.
48. One of the goals in this proceeding is to promote competitive
delivery of wireless services. As a result, the Commission feels that
not only is an overall cap on PCS spectrum important to prohibit
excessive spectrum aggregation, but that a comparable separate limit
should be placed on cellular providers since they already hold 25 MHz
of clear spectrum and already have a large number of existing wireless
customers. To ensure competitive parity, cellular carriers will be
subject to an overall spectrum cap of 35 MHz for their combined PCS and
cellular spectrum. The Commission is persuaded by the argument, raised
by a number of parties, that because of cellular's ``headstart'' in the
wireless telephone market, existing infrastructure and large base of
customers, cellular carriers might be able to dominate the wireless
market if they receive more than 10 MHz of PCS spectrum. It also
recognizes that new entrants face a possibly lengthy process to
relocate existing microwave users so they can use all of their
spectrum. Cellular carriers already have 25 MHz of clear spectrum in
operation whereas new entrants may have to relocate microwave users to
gain access to that much spectrum, even if they acquire 40 MHz at the
auction. In addition, the Commission is concerned that additional
spectrum acquired by cellular entities may reduce the amount of
spectrum available to new entrants and increase the costs to new
entrants. To promote the ability of new entrants to acquire spectrum
and rapidly begin service as strong competitors to in-region cellular
carriers, the Commission has decided to continue to permit cellular
carriers to acquire and hold only a single 10 MHz license in any PCS
service area where they are considered in-region. However, because the
market advantages enjoyed by cellular carriers should decrease as
competitive PCS offerings are implemented, cellular carriers will be
allowed to acquire an additional 5 MHz after January 1, 2000. This will
allow cellular carriers to acquire the same total amount of spectrum
(40 MHz) as other entities. Limiting in-region cellular carriers to 10
MHz of PCS spectrum for five years will not disadvantage them relative
to the new entrants who must contend with microwave relocation over
their entire spectrum block(s) and do not necessarily have an
established customer base or comparable infrastructure advantages.\19\
---------------------------------------------------------------------------

\19\Because the Commission is prohibiting spectrum
disaggregation until the year 2000, cellular entities will have an
opportunity to acquire 5 MHz of additional spectrum at that time.
---------------------------------------------------------------------------

49. The Commission rejects the contention that the aggregation
limit be raised to 45 MHz to permit cellular entities to acquire an
additional 20 MHz. If such aggregation to 45 MHz through the
disaggregation of 30 MHz blocks were allowed, the number of full
service competitors could be reduced to the detriment of realizing the
goals defined for PCS. If the Commission were to allow aggregation to
45 MHz through the aggregation of 10 MHz blocks, there would not be
enough blocks to assure both full cellular participation and the
participation of other parties who desire 10 MHz licenses. The
Commission concludes that 40 MHz remains an appropriate limit on PCS
spectrum because it protects the competitive structure, provides
sufficient spectrum for efficient provision of wireless services, and
encourages a wide diversity of firms to participate in the industry.
Furthermore, the Commission is seeking comment in another proceeding as
to whether and how the aggregation limit may be applied uniformly to
all mobile communications providers. Extending the PCS spectrum
aggregation limit to include other mobile services, such as SMR and
wide-area SMR services, is beyond the scope of this proceeding. The
Commission therefore intends to address issues relating to spectrum
aggregation across other commercial mobile radio services in a separate
proceeding.\20\
---------------------------------------------------------------------------

\20\See Further Notice of Proposed Rule Making, GN Docket No.
93-252, FCC 94-100, released May 20, 1994.
---------------------------------------------------------------------------

50. Although, as stated above, the Commission believes that
spectrum disaggregation should be permitted, there is concern that
there may initially be anticompetitive incentives to disaggregate
spectrum. Two or three entities might purchase a viable 30 MHz license
and disaggregate it to reduce the number of new entrants. Thus,
disaggregation of spectrum by any licensee will be permitted only after
that licensee meets the five year construction requirement. The five
year point will allow the PCS market to take shape. Entities desiring
to use small amounts of spectrum before the prohibition on
disaggregation ends can either purchase the 10 MHz blocks of spectrum
if they wish to provide service using less than 30 MHz or enter into
joint ventures or resale arrangements to facilitate their access to
spectrum. The Commission expects to conduct a further proceeding to
specify the rules for spectrum disaggregation, which will also explore
the possibility of permitting disaggregation for other commercial
mobile radio services.
51. The Commission agrees with the suggestions of the petitioners
and responding parties that PCS entities should eventually be permitted
to disaggregate spectrum. It feels that, in the future, disaggregation
will complement the three 30 MHz and three 10 MHz channel plan by
allowing subdivision of spectrum blocks where service providers find
that economic or other conditions warrant it. Allowing spectrum
disaggregation, even if it is prohibited until the first construction
benchmark, will provide appropriate incentives for service providers to
conserve their use of spectrum and to invest in spectrum conserving
technologies. Because PCS licensees have paid for the use of the
spectrum and have the ability to sell it in the future, they should be
especially sensitive to the value of the resource they are using and
will be motivated to ensure that it is used in the most valuable way.
52. In determining the appropriate placement of the 10 MHz blocks
within the lower band, the Commission seeks to promote the development
of an efficient market structure and to ensure that no subset of
license has any inherent competitive disadvantage due to placement of
licenses in the band plan. In particular, the benefits of aggregating
the 30 MHz blocks with the 10 MHz blocks must be compared to the
benefits of aggregating the 10 MHz blocks themselves. Interspersing the
10 MHz blocks between each 30 MHz block facilitates aggregation to 40
MHz by allowing combination of each contiguous 30 MHz and 10 MHz
license pair. This also facilitates relocations of the existing fixed
microwave operations by matching fixed microwave channels with PCS
channels. This will keep to a minimum the number of parties responsible
for each relocation which will reduce relocation negotiation, timing
and costs. On the other hand, keeping all 10 MHz licenses contiguous
would allow more efficient aggregation of these licenses as a
substitute strategy for obtaining one of the three 30 MHz blocks. The
Commission concludes that interspersing the 10 MHz licenses between the
30 MHz licenses to permit efficient aggregation up to 40 MHz should the
market favor that outcome is the best approach. Recognizing that
aggregation of the 10 MHz licenses may be attractive to some parties,
however, the Commission is also making two of the 10 MHz licenses
contiguous so as to permit this aggregation to 20 MHz, should some
parties favor 20 MHz over 30 MHz.
53. In the Second Report and Order, the Commission specified that
the two 30 MHz blocks would be licensed on an MTA basis and that the 20
MHz block and four 10 MHz blocks would be licensed on a BTA basis. It
adopted this plan to promote the rapid deployment and ubiquitous
coverage of PCS and felt that these areas would follow the natural flow
of commerce.
54. The Commission has decided to retain the geographic license
areas definitions for PCS licenses adopted in the Second Report and
Order. It rejects the arguments that all licenses should have the same
geographic scope and rejects any attempt at re-drawing the boundaries
along cellular MSA/RSA lines.
55. The Commission rejects the use of cellular MSA/RSA boundaries
for a number of reasons. The ten-year history of the cellular industry
provides evidence generally that these service areas have been too
small for the efficient provision of regional or nationwide mobile
service. The large transaction costs to aggregate MSAs and RSAs that
have been incurred over the past ten years in the cellular industry
have frequently been directed towards geographic aggregation to provide
wider service areas for consumers and to lower costs of providing
service. Rather than forcing replication of this costly and time-
consuming process, the Commission is beginning with larger service
areas, which it expects to minimize the need for costly post-auction
transactions. The Commission also hopes to spur market competition from
new PCS providers by starting with larger initial geographic service
areas to alleviate the cellular headstart advantage. It realizes that
the MTA and BTA license boundaries do not coincide with existing
cellular license boundaries, but feels that the costs imposed by these
different license boundaries will be outweighed by the benefits of
larger initial service areas. The Commission is cognizant of problems
created by overlaps between the PCS and cellular service areas, and
intends to provide some relief from these problems.
56. The Commission also rejects the suggestion that all licenses
should have the same geographic scope whether MTAs, BTAs, or Department
of Commerce Economic Areas. While identical geographic areas may impose
more initial competitive parity, the Commission does not believe that
this will maximize competitiveness and participation in the provision
of PCS services. Licensing all blocks on an MTA basis might increase
competitiveness with cellular, but it would limit the ability of
cellular companies and designated entities to participate in the
provision of PCS. Cellular companies could be restricted because of
overlaps with MTAs that might not occur with BTAs. Designated entities
are likely to be better able to finance the construction of PCS across
a BTA than an MTA. Thus, by licensing some blocks on a BTA basis, the
Commission complies with Congress' directive that it prescribe area
designations that promote economic opportunity for a wide variety of
applicants, including small businesses, rural telephone companies, and
businesses owned by members of minority groups and women.
57. The Commission therefore continues to feel that a combination
of MTA and BTA licenses will give licensees the opportunity to select
and combine service areas and promote broad participation in the
provision of PCS services by firms of various sizes. Licensing two of
the 30 MHz blocks on an MTA basis will permit these licensees to
operate in large service areas which will facilitate interoperability
and roaming across wide geographic areas. Licensing the third 30 MHz
block on a BTA basis will not preclude such efficiencies because of the
ability to aggregate licenses geographically. In addition, in much the
same way as the variety of spectrum block sizes allows various
strategies, the variety of geographic sizes will allow firms to
determine the optimal geographic strategy they wish to pursue. This
will also help to meet the statutory objectives of disseminating
licenses to a wide variety of licensees. In addition, allocating four
of the six licenses on a BTA basis addresses the concern the rural
buildout would not occur with MTA licenses.
58. Finally, with regard to the Puerto Rico service area, the
Commission will provide two separate BTA service areas in Puerto Rico,
one for Mayaguez/Aguadilla-Ponce and the other for San Juan. This
action recognizes the difficulties created by the mountain range
separating these two areas. No parties opposed this request, and the
Commission finds this adjustment to be in the public interest.
59. The Commission agrees with the parties which oppose permitting
geographic partitioning at this time, since there is a significant risk
that partitioning can be used to circumvent construction requirements.
While there may be efficiency enhancing geographic partitions, much of
the benefit can be obtained through other arrangements that do not
raise the same concerns about circumvention of the construction rules.
On balance, the Commission concludes that it should not adopt a policy
allowing general geographic partitioning, but should rather recognize
that the balance may be different for particular groups of service
providers, such as rural telephone companies or to create PCS ownership
opportunities for companies owned by minorities or women. Therefore,
the Commission will consider the issue of geographic partitioning for
rural telephone companies and other designated entities in its
forthcoming Order, to adopt specific competitive bidding rules for
broadband PCS in PP Docket No. 93-253. There the Commission will
address other designated entity preferences and will rely on the record
in both proceedings in making final determinations on this matter.
Also, the Commission will address whether it should recover the
unserved PCS areas at the end of the ten-year construction period, in a
later proceeding after it has had an opportunity to assess the scope of
system build-outs.
60. In developing a band plan for PCS, the Commission has had to
weigh the spectrum requirements of licensed PCS with the amount of
spectrum allocated for unlicensed PCS. For reasons described above, the
new band plan moves all of licensed PCS to the lower band. As a result
of this change, the amount of spectrum available for the operation of
unlicensed PCS devices has been reduced from 40 to 20 MHz. This is the
amount of spectrum originally proposed for unlicensed devices. Despite
having less spectrum available for unlicensed PCS devices in the near
term, the Commission believes that the new band plan will have an
overall positive effect for consumers in terms of the diversity and
utility of unlicensed devices available on the market, as well as the
rapid deployment of competitive licensed PCS Services.
61. One reason the Commission reaches this conclusion is that even
without this change it is unlikely that the 20 MHz reallocated to
licensed from unlicensed would have been used in the near term for
unlicensed. The spectrum at 1890 to 1910 MHz was regarded as less
desirable than the 20 MHz retained for unlicensed PCS at 1910-1930 MHz
because it contains significantly more microwave incumbents. The
Commission's expectation was that unlicensed devices first would
operate on the 1910-1930 MHz spectrum because the cost of clearing this
spectrum is significantly less. Licensed PCS providers, by contrast,
provide ample evidence in the record that they are ready to begin the
relocation of microwave incumbents in the lower band and provide
service in the near term and can use the spectrum from 1890-1910 MHz
rapidly. Thus, consumers are more likely to obtain immediate benefits
if the Commission allocates this spectrum to licensed PCS rather than
for unlicensed PCS devices.
62. Another benefit of the new band plan is that the licensed and
unlicensed PCS spectrum will be located in close proximity on the lower
band. Consumers will have more choices for equipment that operates on
both unlicensed and licensed PCS bands, and will not have to buy
higher-priced equipment that operates on both the lower and upper PCS
bands to have available the full array of service options with a single
piece of equipment. Finally, the Commission intends that the initial 20
MHz allocation for unlicensed PCS devices meet the near term spectrum
requirements for unlicensed devices. To consider the long-term spectrum
requirements of unlicensed PCS devices, the Commission intends to issue
a Notice of Proposed Rule Making in the near future to identify
additional spectrum for unlicensed PCS devices.
63. For the reasons set forth above, therefore, the Commission
concludes that consumers and manufacturers of equipment intended for
use on the unlicensed band will benefit from the new band plan. This
does not diminish the concern that there be sufficient spectrum
allocated for unlicensed PCS devices to accommodate expected demand,
and therefore as noted above, the Commission is committed to
instituting a further rule making for this purpose to meet the long
term requirements for unlicensed PCS devices, including those potential
unlicensed uses that may not be accommodated readily in the initial 20
MHz allocation.
64. Private Use. The Commission agrees with the parties who argue
that both commercial PCS service and unlicensed PCS devices will be
able to meet many of the communications requirements of private
entities. The PCS licensees will be permitted to tailor specific
service applications to the particular needs of individual
organizational customers. Any such service applications, of course,
must be consistent with policies established for the regulation of
commercial mobile radio services under Title II of the Communications
Act.\21\ Such applications could include the use of dedicated capacity.
Where such arrangements might not be satisfactory, entities desiring
spectrum solely for internal private use could, of course, bid for
licensed PCS spectrum individually or as a group intending to share the
licensed facilities. Companies that value private use of the spectrum
highly could win a license at auction; otherwise they could contract
with a licensee to provide the services they need, or procure such
services from resellers. Moreover, as many commenters argue, the
Commission believes that setting aside spectrum for private interests
would not help to achieve the goals set forth for PCS, and at the same
time, could detrimentally affect competitive service provision and the
efficient allocation of scarce spectrum resources. Also, the extent to
which additional spectrum is required for private and public safety use
is being considered in a separate proceeding that addresses allocation
of spectrum below 5 GHz transferred from Federal government use.\22\
Accordingly, the Commission will not set aside a portion of the
spectrum allocated to PCS exclusively for private PCS operations.
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\21\See CMRS Second Report and Order, 9 FCC Rcd at 1439 n.130:
The terms and conditions for different classes of customers may,
of course, vary. Whether such differences are lawful would be a
question of whether there is unreasonable discrimination under
Section 202(a) of the [Communications] Act. In the case of
individualized or customized service offerings made by CMRS
providers to individual customers, the Commission intends to
classify and regulate such offerings as CMRS, regardless of whether
such offerings would be treated as common carriage under existing
case law, if the service falls within the definition of CMRS.
\22\See Notice of Inquiry, ET Docket No. 94-32, 59 FR 25589 (May
17, 1994). This proceeding addresses, inter alia, a Petition for
Rule Making filed by the Coalition of Private Users of Emerging
Multimedia Technologies (COPE) for the development of an ``Advanced
Private Communications Service,'' using 75 of the 200 MHz to be
transferred to the Commission's jurisdiction from Federal government
spectrum in compliance with the terms of the Omnibus Budget
Reconciliation Act of 1993.
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65. Mobile Satellite Services (MSS) Issues. The Commission
recognizes the potential value of MSS as a service provider to rural
areas that may not be economically served by PCS. It has thus given the
petitions of MSS interests, including the various alternatives they
suggest, careful consideration. Having been instrumental in obtaining
the international MSS allocations at WARC-92, the Commission would not
wish unnecessarily to reduce its flexibility to implement those
allocations in the U.S. On the other hand, the large potential value of
PCS, which is a matter of record in this proceeding, must be
recognized. It should be noted that these MSS bands are also allocated
internationally to fixed and mobile services. PCS, as it has been
broadly defined, within the international definition of fixed and
mobile services and is thus consistent with international agreements on
the use of this spectrum. Because spectrum is a limited resource, the
Commission finds that to satisfy the goal of allocating sufficient
spectrum for a competitive PCS service, it must allocate to PCS a
portion of the spectrum internationally designated for MSS. The
Commission believes that the new plan it is adopting today strikes an
appropriate balance between these two services and will provide maximum
benefits to U.S. consumers.
66. The Commission disagrees with the assertion of several parties
that they were provided insufficient notice and opportunity for comment
on the possibility that the Commission might allocate a portion of the
internationally designated MSS spectrum to PCS. The PCS Notice sought
comment on a wide range of allocation options for licensed PCS ranging
from three to five spectrum blocks of from 20 to 40 MHz each. Several
of the possible combinations of block size and number of blocks would
require the use of spectrum in the bands designated internationally for
MSS, and at least one option (i.e., five blocks of 40 MHz each) would
require virtually all of that spectrum. The Commission specifically
called attention to the fact that some of these options would
necessarily require the use of spectrum in other emerging technologies
bands, and it did not exclude emerging technologies bands that had been
designated internationally for worldwide or Region II MSS. Thus,
contrary to petitioners' contentions, the Commission believes that
parties were given adequate notice of the possibility that the final
PCS allocation could include some or even all of the internationally
allocated MSS spectrum in these bands.
67. Under the new band plan, the entire allocation to broadband PCS
is located in the 1850-1990 MHz band. The 2180-2200 MHz band, which was
allocated to PCS in the Second Report and Order has been returned to
reserve status for future allocation potentially to MSS, as requested
by the MSS interests. The new band plan, however, removes an equal
amount of spectrum from potential consideration for MSS in the band
1970-1990 MHz band, 10 MHz of which can be used for Region II MSS
service. The Commission believes that its new band plan accommodates
the future potential of MSS more fully than its original plan and
therefore addresses the concerns of a majority of the MSS industry.
68. By shifting the PCS allocation out of the 2180-2200 MHz band
the Commission has preserved the option of allocating some or all of
that spectrum to MSS in the future. This preserves 50 MHZ of the 60 MHz
allocated worldwide and thus fits more closely with the international
agreements. Twenty MHz of this worldwide MSS spectrum is paired with
spectrum inside the current broadcast auxiliary band. In the future,
this spectrum could potentially be reallocated for MSS use on a shared
basis, if feasible, or exclusively, if suitable replacement spectrum
could be found for broadcast auxiliary service. The commission intends
to initiate a proceeding to investigate these additional allocation
possibilities in the near future, with the purpose of accommodating MSS
operations within the remaining internationally designated bands, while
at the same time maintaining sufficient spectrum for broadcast
auxiliary use. It also intends to pursue additional international
allocations for MSS at WRC-95.\23\
---------------------------------------------------------------------------

\23\See Preparation for International Telecommunication Union
World Radio Communication Conferences, IC Docket No. 94-31, FCC 94-
96, released May 5, 1994.
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Ownership Rules and Cellular Eligibility

69. In the Second Report and Order, the Commission recognized that
permitting cellular licenses to participate in PCS could foster rapid
development of PCS by taking advantage of cellular providers'
expertise, economies of scope between PCS and cellular service, and
existing infrastructures. The Commission also recognized that new
entrants would foster competition and expressed concern about potential
anticompetitive conduct by parties with cellular and PCS interests in
the same geographic area. To balance these competing interests,
cellular licensees were permitted to obtain PCS licenses outside of
their cellular service areas, but restricted them each to one 10 MHz
PCS license within their respective cellular service areas.
70. For the purposes of its PCS rules, the Commission defined an
attributable cellular interest as ownership of 20 or more percent of a
cellular license. If an entity has attributable cellular interests in a
license or licenses individually or jointly covering 10 or more percent
of the population in a PCS service area, then that entity would be
restricted to one 10 MHz PCS license in that area. If an entity holds
interest of less than 20 percent in a cellular license, these interests
are not considered attributable and the population covered by that
cellular license area is not counted towards the 10 percent population
threshold. If an entity holds attributable cellular interests, i.e.,
interests of 20 percent or more, in licenses that individually or
jointly cover less than 10 percent of the population in a PCS service
area, that entity may hold licenses for up to 40 MHz of PCS spectrum in
that PCS service area. Entities that have attributable interests that
put them over the 10 percent population overlap threshold in a PCS
service area are deemed ``in market'' cellular entities and as such may
only hold 10 MHz of PCS spectrum in that PCS service area.
71. The 20 percent attribution rule applies on a cumulative basis
to all parties with ownership interests in cellular operations. Thus,
for example, if four participants in a PCS venture each have an
ownership interest of 5 percent in the same cellular licensee serving
more than 10 percent of the population of a BTA, the PCS venture in
which they all have an interest is deemed to have a 20 percent cellular
ownership interest and is restricted to one 10 MHz frequency block in
that BTA. However, if the four parties to a PCS application each own 5
percent interests in four different cellular licensees, each of which
serves 10 or more percent of the BTA, together they are not restricted
to one MHz block because they do not exceed the 20 percent attribution
threshold as to any single cellular license. Therefore, in the latter
instance, the parties are permitted to purchase a full 40 MHz PCS
spectrum block.
72. Twenty-four parties petitioned for reconsideration of various
aspects of the cellular eligibility rules and general attribution
standard used for invoking the PCS ownership limits. The petitioners
addressed: (1) eligibility of cellular licensees; (2) the 20 percent
attribution standard; (3) the 10 percent population standard; (4) post-
auction compliance by cellular licensees with the ownership
restrictions; (5) exemptions from the eligibility restrictions for
certain cellular providers; and (6) the interests that should be deemed
attributable for purposes of calculating ownership and control of a PCS
or cellular license.
73. Eligibility of Cellular Licensees for PCS Licenses. Six parties
advocate eliminating all eligibility restrictions on cellular
providers. Fourteen parties agree with the concept that there should be
some restrictions on cellular participation in PCS. These latter
parties' positions range from agreeing with the standards of the Second
Report and Order to arguing for different measures of both coverage and
ownership to favoring different standards entirely, but these parties
all accept the idea that there should be limitations on cellular
entities holding PCS licenses.
74. The Commission has decided to retain restrictions on cellular
participation in PCS. In making this decision, the Commission is aware
of the benefits that the cellular industry has to offer PCS, including
capital, economies of scope, and experience and expertise in the
provision of mobile communications services. For this reason, the
Commission will continue to allow cellular participation in PCS. In
addition, the Commission will make some changes in the specific
standards of the Second Report and Order, but it remains convinced that
restrictions on in-market cellular providers are necessary to achieve
its goal of maximizing the number of new viable and vigorous
competitors. In reaching this conclusion the Commission does not assume
that in-market cellular providers will engage in illegal
anticompetitive behavior; the goal in crafting these rules should not
be to prevent anticompetitive behavior which may or may not
materialize, but rather, to promote competition. The Commission
concludes that the public interest would be best served by maximizing
the number of viable new entrants in a given market.
75. Finally, while some petitioners point out that SMR and MSS
providers are not subject to the same eligibility restrictions as
cellular providers, only one affirmatively requests that the
eligibility restrictions of the Second Report and Order be extended to
wide-area SMR services. The Commission feels that imposing eligibility
restrictions is beyond the scope of this proceeding. It is, therefore,
addressing in another proceeding the eligibility of wide-area SMRs and
other commercial radio services to participate in PCS.
76. Attribution Rules. In the Notice of Proposed Rule Making in
this proceeding, the Commission noted its expectation that PCS and
cellular licensees serving the same area will compete on price and
quality of service. If therefore stated that competitive benefits might
be reduced if cellular licensees are permitted to acquire PCS licenses
within their service areas and proposed an outright prohibition on
cross-ownership of PCS licenses by entities with cellular interests,
except that ownership interests of less than one percent (or less than
five percent for publicly traded companies) would not be considered. In
the Second Report and Order, the Commission found this approach too
restrictive. Although the Commission still sought to avoid the
potential for undue market power by entities with significant existing
market share, it balanced that goal against recognition of the
expertise that cellular licensees would bring the PCS markets. It also
noted that many entities possess non-controlling interests in cellular
licensees exceeding 5 percent but, due to the non-controlling nature of
their equity interests, create little potential four anti-competitive
behavior.
77. The Commission therefore adopted a simple, bright-line 20
percent cross-ownership attribution standard, pursuant to which
entities with 20 percent or greater ownership of a cellular operator
were limited to one 10 MHz BTA license for broadband PCS in the same
region as their attributable cellular interests. It did not distinguish
between different types of ownership such as voting and non-voting
stock and general and limited partnership interests. The Commission
noted, however, that while a clear 20 percent ownership threshold may
be more administratively efficient, a concern remained that some
parties with cellular ownership interests will use the rules as an
opportunity to control local cellular licensees while retaining less
than 20 percent ownership. Since such occurrences would undermine the
intent to limit cellular ownership in PCS, the Commission said that it
would review carefully this decision, and it explicitly put parties on
notice that it would reconsider this limit if its intent to ensure
competition between cellular and PCS would be undermined under the
ownership rules adopted in the Second Report and Order.
78. With respect to ownership interests in multiple PCS licensees
in a single market, the Commission adopted a 5 percent attribution
threshold for purposes of the 40 MHz PCS spectrum limit and for
purposes of determining cellular ownership in a PCS licensee. It stated
that PCS ownership interests of 5 percent or more will be attributed to
the holder of the interest. In adopting this standard, the Commission
cited similar market-based concerns, noting its desire to ``ensure that
[no entity] is able to exert undue market power through partial
ownership in multiple PCS licensees in a single service area.'' The 5
percent threshold is consistent with the ownership thresholds applied
to cellular and broadcast licensees. The Commission did not find any
potential advantages possessed by any existing PCS licensees inasmuch
as there are no such licensees. Similarly, it did not discuss the need
to accommodate settlements among PCS licensees resulting in non-
controlling interests of between 5 and 20 percent because there are no
such settlements in the PCS context. The Commission therefore adopted
this 5 percent limit for application to PCS multiple ownership, whereas
it appeared too restrictive in the cellular-PCS cross-ownership context
given the realities of existing historical cellular settlements.
79. Twelve parties petitioned for reconsideration of the cellular
ownership attribution standard. The petitioners recommend the following
alternatives: (1) raising the 20 percent level of permissible ownership
in cellular licensees; (2) attribution based on control rather than
ownership; (3) applying an affiliation standard like that in the
Commission's telco-cable cross-ownership rules; (4) applying an
attribution standard based on the rules used to enforce the alien
ownership restrictions under Section 310 of the Communications Act; and
(5) applying the same attribution rules to PCS as those applied to
broadcast interests.
80. The Commission continues to believe that the PCS and cellular
ownership attribution decisions adopted in the Second Report and Order,
with certain modifications, are appropriate and strike a reasonable
balance between promoting vigorous competition and the advantages of
allowing experienced mobile communications operators such as cellular
licensees to participate as PCS licensees. The Commission disagrees
with those parties which suggest the same 20 percent attribution limits
should apply to cellular/PCS cross-ownership and to PCS multiple
ownership. Generally, the 5 percent standard for all cross-ownership
situations would be preferable, to maximize competition. The Commission
is adopting an attribution threshold of 5 percent for multiple PCS
ownership purposes to prevent any party from exerting market power
through substantial partial ownership in multiple PCS licensees in the
same service area. There is no countervailing reason to risk reducing
competition by raising this 5 percent limit for PCS multiple ownership
limits. Moreover, the 5 percent threshold is consistent with ownership
thresholds applied to cellular and broadcasting.
81. Such a strict rule for PCS/cellular cross-ownership, however,
would not recognize the history of cellular licensing. The 20 percent
ownership attribution standard for cellular operators was adopted, in
part, because settlements during the initial phase of cellular
licensing resulted in partial and often non-controlling interests in
those licensees. In light of this history, it would be unfair and
unduly restrictive to place the same 5 percent limit on cellular/PCS
cross-ownership. For this reason, the Commission decided to allow a 20
percent cellular ownership interest. Further, the Commission believes
that given the nature of these settlement agreements, permitting this
level of ownership will not decrease the incentives for competition.
Therefore, divestiture to a lower level of ownership will not be
required. The 20 percent standard permits many entities with partial,
non-controlling cellular interests to participate in PCS. In adopting
the 20 percent standard, the Commission recognized that participation
by cellular operators in PCS would offer benefits that include
promoting early development of PCS by taking advantage of cellular
providers' expertise and permitting attainment of economies of scope
between PCS and cellular service and existing infrastructure. The
Commission is therefore making an exception to its usual treatment of
cross-ownership for purposes of cellular-PCS cross-ownership.
82. The Commission disagrees with those entities that argue for a
higher cellular ownership attribution threshold such as 35 percent and
believes that 20 percent is the proper standard. A higher attribution
threshold (i.e., above 20 percent) for all incumbent cellular entities
would tend to suppress competition, because the licensee would have
economic incentives not to compete vigorously against competitors in
which it holds a substantial equity interest. These standards, with
exceptions discussed below related to certain designated entities,
remain appropriate, and accordingly the Commission affirms them.
83. The Commission's goals here include ensuring that the holder of
the PCS license has strong incentives to compete against the cellular
licensees in the same geographic market. A PCS licensee that has a
large equity stake (i.e., more than 20 percent) in a cellular license
in the same area has less incentive to compete vigorously against its
own equity interest in a cellular provider, even though it may not
exercise legal control over the cellular licensee. The attribution
rules provide the right balance between maximizing competition and
allowing cellular entities to bring their expertise to PCS. The
Commission therefore will not adopt a rule that would require finding
that a party had a ``controlling interest'' in a cellular licensee
before it would be prohibited from investing in a PCS licensee in the
same area. Such a rule could substantially delay the licensing of PCS
and would not serve the goal of promoting vigorous competition between
PCS and cellular licensees in the same area. The Commission believes
that the bright-line rules being adopted will result in a faster, less
burdensome licensing process.
84. The Commission also rejects the suggestion that it prohibit all
``affiliations'' between cellular and PCS licensees in the same market,
along the lines of its telco-cable cross-ownership rules. These rules,
which are even more restrictive than the broadcast attribution rules,
would not provide the flexibility to recognize the history of
settlement agreements in cellular licensing and would not allow us to
draw on the experience and expertise provided by cellular providers who
have low equity stakes. They also might have the effect of restricting
contracts between PCS licensees and companies financing their equipment
and the build-out of their PCS systems, which could seriously impair
rapid investment in and deployment of PCS systems.
85. The Commission also disagrees that the alien ownership rules
provide a clearer guide than the present attribution standards. Because
the alien ownership restrictions set forth in section 310(b) of the
Communications Act were created specifically to avoid an undue
concentration of foreign influence in the direction of entities
involved in communications, the attribution thresholds defined in that
section are more complicated than the 5 percent/20 percent bright-line
thresholds adopted here. Further, unlike the rules in the broadcast
context, the Commission will not allow use of a ``multiplier'' in the
case of multi-tiered entities; the interest of the subsidiary is
attributed in full to the parent. The Commission agrees, however, that
both voting and non-voting stock should be included in determining
percentage of ownership of PCS and cellular entities.
86. In determining attributable interests for the purposes of both
the 20 percent cellular/PCS cross-ownership rule and the 5 percent PCS/
PCS multiple ownership rule, the Commission agrees with some of the
commenting parties that some clarifications and modifications to the
attribution rules are warranted. The attribution rules must be simple
for applicants to understand because they are essential to enforcement
of the PCS spectrum cap and the PCS/cellular cross-ownership rules. In
the Second Report and Order, the Commission stated that it would
consider all equity ownership, including voting and non-voting stock
and limited partnership interests, in calculating the percentages of
attributable ownership interest in a PCS or cellular licensee. It
explained that it would count these interests even if they did not
confer on the holder meaningful participation, because the public
interest would best be served by a ``bright-line'' test. The Commission
continues to believe that the ownership rules should be clear and easy
to administer, and, to that end, it will provide further clarification
about which of the ownership rules from the broadcast regime will be
applied to PCS. The Commission declines to adopt the full panoply of
attribution rules that it applies in the broadcast and in the telco/
cable contexts because it believes that the restrictions being adopted
will be sufficient to prevent undue influence and preserve competition.
87. The Commission clarifies that, for purposes of these ownership
rules, controlling interests per se are attributable. As in other
contexts, ``control'' means not only majority equity ownership, but
includes any general partnership interest, or any means of actual
working control over the operation of the licensee, in whatever manner
exercised. The Commission will rely on existing case law for making
control determinations where such issues arise.
88. The Commission also clarifies that PCS equity investments of 5
percent or more, and cellular equity investments of 20 percent or more,
also are attributable. These equity interests are attributable because
they support the goals of developing a competitive PCS service and
reducing the incentive for any entity to retard the capability of the
new PCS licensee to compete with the cellular or any other PCS licensee
in which the entity has an attributable interest. Specifically, the
following equity investments will be counted: voting stock, non-voting
stock, and limited partnership interests.\24\ The percentage of
ownership interest in a limited partnership will be based on the
partner's economic interest in the partnership. Therefore, the
Commission will assess the percentage of the partner's capital
contribution as well as the percentage of profits and losses allocated
to the partner. As noted above, general partnership interests are
deemed attributable regardless of equity percentage because of the
control conferred on general partners by the nature of their interest.
The following investments are not attributable for multiple or cross-
ownership purposes: debt interests, including loans secured by the
equipment used in the licensed system, and equity interests below the
20 percent and 5 percent thresholds. These interests are of less
consequence to or independent of the entity's performance and therefore
provide little incentive to delay or dilute the participation of the
new PCS license in the market. In addition, consistent with other
multiple- and cross-ownership attribution standard, convertible debt
instruments or options with rights of conversion to equity interests
shall not be attributed unless and until conversion is effected.
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\24\Thus, in a stock company, PCS and cellular interests of 5 or
20 percent, respectively, of the total outstanding stock as well as
interests of 5 or 20 percent, respectively, of the outstanding
voting stock will be attributable.
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89. The Commission also clarifies that the interests of a cellular
or PCS licensee, or entity in control of a licensee, are attributed to
the officers and directors of that entity. The Commission remains
concerned about the ability of such individuals to exert influence over
companies in which they have significant managerial responsibility.
Therefore, if an officer of a company wishes to invest in a PCS market,
he or she may only do so if this company itself could make the same
investment in compliance with its rules.
90. The Commission also will not allow an exemption for minority
investors in companies controlled by a single majority shareholder.
Although these rules are used in the broadcast area to exempt from
attribution entities not believed to be able to exercise control over a
licensee, in the context of PCS not allowing use of a ``multiplier''
serves the goal of maximizing competition. These rules will help ensure
against undue influence, short of control, by minority stockholders and
distant stockholders in parent or intermediate corporations.
91. Through an ongoing proceeding concerning multiple ownership of
CMRS licensees, the Commission will address whether it should change
its rules to restrict or attributable resale, management agreements or
other ownership arrangements that could confer possible anticompetitive
incentives on parties with multiple CMRS interests. This proceeding
will examine whether and to what extent such arrangements could be used
to exert control over more spectrum than is permitted under the PCS
spectrum cap (40 MHz) or the proposed CMRS spectrum cap.
92. Attribution Rules for Certain Designated Entities. The
Commission agrees that relaxing the cellular eligibility restrictions
is appropriate for designated entities. It recognizes that many
designated entities are merely passive investors in cellular operators
and, because of their size, are unlikely to influence pricing
decisions. In addition, the Commission seeks to address Congress' goal
of encouraging the participation of designated entities in the auction
process and in the provision of spectrum-based services. The Commission
believes that designated entities which have some interests in cellular
operations may be especially effective PCS competitors because of their
cellular experience. This will help ensure that service is brought
quickly to underserved areas and that designated entities become viable
competitors. In particular, it believes that rural telephone companies
and some small cellular companies, due to their existing
infrastructure, are uniquely positioned rapidly to introduce PCS
services into their service areas or adjacent areas. However,
designated entities are not entirely exempted from the cellular
eligibility rules, because such an exemption could foreclose
competition from a new PCS entrant. To the extent that designated
entities are involved in the control of cellular services, there is
potential for some of these parties to compete less vigorously in the
nascent PCS industry. In balancing these interests, the Commission
concludes that increasing the cellular attribution threshold for
designated entities from 20 percent to 40 percent, if non-controlling,
would be appropriate and would further the Congressional mandate noted
above. Accordingly, the Commission will permit a designated entity to
hold a non-controlling equity interest of up to 40 percent in a
cellular licensee without being subject to the cellular PCS eligibility
restrictions.
93. The Commission has decided to increase the cellular attribution
threshold from 20 percent to 40 percent for any entity proposing to
invest in businesses controlled by members of minority groups and/or
women. An entity may hold up to a 40 percent interest in cellular
licensees before its cellular interest will be deemed attributable, but
must limit its participation in a PCS licensee controlled by women or
minority group members to a non-controlling interest. This action will
encourage entities with attributable cellular interests to make non-
controlling investments in businesses owned by minorities and/or women,
furthering Congress' objective of ensuring the participation of these
entities in the competitive bidding process by encouraging an
alternative source of financing. The record indicates that the main
challenge that minorities and women face when seeking to participate in
telecommunications licensing is ready access to capital. Investments by
cellular providers in these designated entities should increase the
entities changes for success in the actions and later in service
competition by providing access to capital and valuable industry
experience.
94. The Commission is not granting a blanket exemption to in-region
cellular parties with 40 percent or greater equity or control to
participate in consortia that include designated entities. Such an
exemption would allow a cellular entity to control a cellular license
and create the potential for the entity to influence the PCS licensee
to compete less vigorously. The potential for a cellular entity to
exercise undue influence over the PCS licensee, especially absent
limits on the control exercised by the cellular carrier over the
designated entity and its own cellular license, is too great, given the
superior knowledge and experience of cellular providers. Therefore, the
Commission has relaxed the cellular attribution standard to permit
entities that hold up to 40 percent non-controlling equity in cellular
licensees in the same service area to make non-controlling investments
in PCS licensees controlled by woman- or minority-owned businesses.
Because their investment will be non-controlling in both the PCS and
cellular license, the threat to competition is diminished. This relaxed
standard encourages availability of capital to PCS businesses owned by
women and minorities, yet guards against the dominance of these
designated entities by entities which also control a cellular license
in the same service area.
95. The Commission will not exempt non-wireline cellular carriers
from the PCS attribution rules, since this action, which was considered
in the Second Report and Order, could impair successful achievement of
the goal of creating the maximum number of new competitors.
96. These important modifications will increase the efficacy of our
cellular eligibility rules by guarding against the improper exercise of
market power by cellular providers through controlling interest in PCS
systems overlapping their cellular coverage areas. These changes will
better address concerns regarding reduced competition without
unnecessarily restricting the ability of cellular providers to
participate in PCS, and will provide further incentives for investment
in and participation by designated entities in PCS.
97. Population Standard. When the Commission adopted regulations
restricting the eligibility of certain cellular licensees to hold PCS
licenses within their cellular service areas, it noted assertions that
cellular operators might have unfair competitive advantages over PCS
licensees. On the other hand, it also noted the valuable contributions
that the expertise of cellular providers could provide to the PCS
industry. Finally, the Commission noted that, because of different
geographic licensing boundaries for cellular and PCS, there was a
potential for excluding cellular providers from PCS markets even though
the degree of overlap was minimal. The Commission decided that such an
exclusion was neither fair nor desirable for maximizing competition. In
resolving these conflicting interests, the Commission adopted the 20
percent ownership attribution rule to define cellular ownership for
purposes of the PCS rules. For entities at or exceeding 20 percent
ownership, it applied a 10 percent population coverage overlap test to
determine whether the cellular licensee would be restricted to a single
10 MHz PCS license.
98. The Commission has decided to retain the 10 percent population
overlap threshold adopted in the Second Report and Order. The goal is
to provide for entry into the PCS market for the maximum number of
viable competitors. The Commission remains concerned about the
potential for cellular operators to exercise market power and to reduce
the number of viable competitors in the PCS market. The Commission
believes that the 10 percent population overlap figure is justified and
should foster robust competition and prevent competitive abuse.
Balancing the potential benefits of the participation in PCS of
cellular providers and the potential harms of reduced competition, the
Commission is convinced that the 10 percent coverage threshold is
appropriate. This limit ensures the opportunity for the emergence of
the maximum number of competitors that the market will support for 90
percent of the population. Increasing this limit beyond 10 percent
would create greater risk that consumers would be denied the benefit of
vigorously competing service providers. This threshold is also an
important means of encouraging new entrants in each area, thereby
enhancing competition. On balance, the Commission concludes that the 10
percent population coverage threshold promotes competition among
licensees serving a significant percentage of the population, while
providing some recognition of the overlaps that will result from the
different licensing areas for PCS and cellular. In addition, as
discussed below, divestiture will be allowed for those entities with
CGSA/PCS service area population overlaps between 10 and 20 percent. In
reaffirming the 10 percent threshold, the Commission rejects proposals
to adopt a national population measure or to use a multiplier formula.
99. The Commission does not believe that a national population test
would achieve the goal of providing the maximum number of new
competitors in each market. PCS is being licensed on a local and
regional, not national basis. A cellular entity which operates in one
city but has no presence in another city would be a new competitor in
the latter city. The Commission seeks to encourage that entity's PCS
participation in the second city, because of the likelihood that the
experience and economics it brings from its cellular business will
stimulate PCS development in the market and promote vigorous
competition to other PCS licensees.
100. The Commission does not believe that this ``effective POP''
attribution rule, based on a figure reached by multiplying the
percentage overlap of the population in the PCS and cellular service
areas by the percentage ownership in the cellular provider, would
achieve the goal of maximizing the number of new competitors. Under
this rule, an entity could have a majority equity interest in cellular
licenses covering 40 percent of the population in that service area and
remain eligible for 40 MHz of PCS spectrum. This would result in fewer
competitive choices for 40 percent of the consumers in that market.
This would not achieve the goal of maximizing competitive choices for
as many consumers as possible.
101. Post-Auction Divestiture. The Commission concludes that it
would be reasonable to permit incumbent cellular operators, in certain
defined circumstances, to divest their cellular interests in order to
become PCS licensees. These operators could become eligible for 40 MHz
of PCS spectrum by either reducing population overlap or ownership
levels to below the standards discussed above. Either could be
accomplished before the auction, but that would involve selling the
cellular interests on an assumption that the operator would be the
successful bidder for a 30 MHz license.
102. Further, the Commission believes that allowing unlimited
divestiture of the cellular interest after the auction raises concerns
that abuses could occur during or after the bidding process. If
afforded an unlimited opportunity to divest, cellular operators with
significant areas of overlap could have incentives to use the bidding
process to forestall licensing of new competitors in the market,
because the cellular operator would be in control of both a cellular
system and one of the three or four possible 30 MHz broadband PCS
licenses. There are instances, however, in which such abuses are
unlikely to occur. A cellular operator with less than 20 percent
population coverage in the PCS service areas would have little
incentive to risk incurring penalties for abusing the bidding process
when PCS offers greater potential to serve the entire MTA or BTA. These
cellular operators have more to gain by broadening their customer base
by offering competitive PCS services in place of their overlapping
cellular interests in excess of 10 percent than they do by abusing the
bidding process to forestall competition. Operators with population
overlaps in excess of 20 percent have increasingly greater incentives
not to start competitive PCS businesses.
103. It is appropriate to allow cellular operators to divest
themselves of attributable cellular interests that do not comply with
the cellular/PCS cross ownership restriction after winning more than 10
MHz of PCS spectrum in the PCS auctions, provided that the divestiture
occurs within the short time frame set forth below. However, because a
cellular operator with significant overlaps may have incentives to
delay the rapid introduction of PCS service, the Commission will permit
cellular divestiture only for cellular operators that serve less than
20 percent of the PCS service area. If the overlap consists of several
cellular licenses, the incumbent may sell some of the licenses and keep
others if the result is in compliance with the attribution and
population overlap thresholds. This will help achieve the goals of
rapid introduction of PCS service and competitive delivery because
those entities with cellular operations near a PCS service area may be
able to combine the operation into a single efficient operation that
would benefit consumers.
104. The Commission has decided to allow the post-auction partial
sale of attributable cellular interests so that entities may come into
compliance with the cellular eligibility rules. Procedurally, it will
require that a PCS applicant that meets the criteria for post-auction
divestiture submit with the PCS license application (short-form) a
statement that, if successful in obtaining more than 10 MHz of
spectrum, it will come into complete compliance with the cellular/PCS
cross-ownership restriction within 90 days of the PCS license grant. If
more than 10 MHz is obtained, the long-form application for PCS
licensing must be accompanied by a signed statement from the applicant
that the cellular property causing the applicant to be in excess of the
10 percent population overlap, or enough equity to bring the entity
into compliance with the attribution threshold, will be divested within
90 days of the PCS license grant to bring ownership interest below the
permitted attributable ownership limits. If the PCS applicant is
otherwise qualified, the PCS application will be granted subject to a
condition that the PCS licensee come into compliance with the PCS/
cellular cross-ownership rule within 90 days of grant.
105. As a condition of its PCS license, within 90 days of PCS
license grant the PCS licensee must certify to the Commission that the
applicant and all parties to the application have come into compliance
with the PCS-cellular cross-ownership rules. If the PCS licensee fails
to submit this certification within 90 days, the Commission will invoke
the condition on the PCS license, cancelling it immediately and
retaining all monies tendered. In addition, the Commission may
investigate whether the certifications on divestiture are evidence of
misrepresentations that call into question the party's qualification to
hold its cellular license. The PCS licensee may divest the prohibited
interest to an interim independent trustee if a buyer has not been
secured in the required time frame as long as the applicant has no
interest in or control of the trustee, and the trustee may dispose of
the license as it sees fit.

Construction Requirements

106. In the Second Report and Order, the Commission stated its
expectations that broadband PCS would be a highly competitive industry
and that licensees would have the incentive to construct facilities to
meet the demand for service in their licensed areas. The Commission
concluded that specific channel loading requirements are unnecessary;
however, it required licensees to meet specified construction
benchmarks to ensure efficient spectrum utilization and service to the
public. Specifically, it required licensees to offer service to one-
third of the population in their service area within five years of
licensing, two-thirds of the population in their service area within
seven years, and 90 percent of the population within ten years. The
Commission stated that failure to meet these requirements would result
in forfeiture of the license and the licensee would be ineligible to
regain it.
107. The Commission believes that PCS will be a highly competitive
service and that licensees will have incentives to construct facilities
to meet the service demands in their licensed service areas. Further,
it believes that the use of competitive bidding for PCS licensing and
the restrictions on the amount of spectrum that a licensee may control
in a geographic area will limit the likelihood that spectrum will be
warehoused. Nevertheless, the Commission continues to believe that
minimum construction requirements are necessary to ensure that PCS
service is made available to as many communities as possible and that
the spectrum is used effectively. The Reconciliation Act amendments
require the Commission to impose performance requirements, but the
Commission believes that relaxation of the requirements is desirable to
ensure an economical deployment of the service to promote opportunities
for PCS ``niche'' services, and to facilitate a competitive market.
108. Accordingly, the construction requirements are amended as
follows. All 30 MHz broadband PCS licensees will be required to
construct facilities that provide coverage to one-third of the
population of their service area within five years of initial license
grant and to two-thirds of the population of their service area within
ten years. The 10 MHz licensees will be required to meet a single
construction requirement of providing coverage to one-fourth of the
population of their service area within five years; or alternatively,
they may submit an acceptable showing to the Commission demonstrating
that they are providing substantial service. The Commission recognizes
that these requirements are less than the requirement for narrowband
PCS licensees, but it believes that this difference is appropriate
given the higher expected construction costs involved for broadband
PCS. Moreover, since licensees must purchase their licenses, they will
have added economic incentives to construct their systems as rapidly as
possible and introduce service to a significant percentage of the
population. In this regard, the Commission also believes that these
relaxed construction requirements may increase the viability and value
of some broadband licenses, especially those in less densely populated
service areas. Finally, since most areas are already served by cellular
and SMR providers, it is unnecessary to require PCS licensees to
provide identical or similar services to areas where it is uneconomic
to do so. With regard to the 10 MHz licensees, the reduced construction
requirement will make these licenses more attractive to applicants
intending to provide residential, cutting-edge niche services or
services to business and educational campuses where the population may
be small except during business or school hours.
109. At the five-year benchmark the Commission will require all
licensees, and again at the 10-year benchmark for 30 MHz licensees, to
file a map and other supporting documentation showing compliance with
the construction requirements. Licensees failing to meet the population
coverage requirements described above will be subject to the license
forfeiture penalties adopted in the Second Report and Order. Even with
these requirements, factors such as incumbent microwave operation or
sparse population density in some instances could make compliance
difficult. In instances where the circumstances are unique and the
public interest would be served, the Commission will consider waiving
the requirements on a case-by-case basis. These revised construction
requirements will ensure efficient spectrum utilization and promote
significant nationwide coverage without imposing substantial cost
penalties on licensees that serve less densely populated areas. In this
regard, the Commission believes that these changes generally address
the concerns of those parties that suggested lowering the construction
requirements for designated entities or for BTA service areas.
110. The Commission also recognizes the desirability of encouraging
more than one provider to serve a divers

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-15263. Public record. Not legal advice.