Implementation of Sections 3(n) and 332 of the Communications ActRegulatory Treatment of Mobile Services

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20, 22, and 90

[GN Docket No. 93-252, FCC 94-191]

Implementation of Sections 3(n) and 332 of the Communications

Act--Regulatory Treatment of Mobile Services

AGENCY: Federal Communications Commission.

ACTION: Second further notice of proposed rulemaking.

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SUMMARY: The Commission has adopted a Second Further Notice of Proposed

Rulemaking (Second Further Notice) in response to a Congressional

mandate directing the agency to implement sections 2(n) and 332 of the

Communications Act of 1934 as amended by title VI, section 6002(b) of

the Omnibus Budget Reconciliation Act of 1993. The intended effect of

this Second Further Notice is to implement this legislation by

soliciting comment on conforming the Commission's technical,

operational, and licensing rules for commercial mobile radio service

providers, including licensees in services formerly classified as

private.

DATES: Comments must be filed on or before August 9, 1994, and reply

comments must be filed on or before August 19, 1994.

ADDRESSES: Federal Communications Commission, 1919 M Street NW.,

Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Office of Plans and Policy Contact: Greg Rosston, (202) 418-2030.

Common Carrier Bureau Contact: Leila Brown, (202) 418-1300.

SUPPLEMENTARY INFORMATION: This is the text of the Commission's Second

Further Notice of Proposed Rulemaking, GN Docket No. 93-252, FCC 94-

191, adopted July 18, 1994, and released July 20, 1994 (Second Further

Notice). This Notice is available for inspection and copying during

normal business hours in the FCC Public Reference Center, Room 239,

1919 M Street NW., Washington, DC. The complete text may be purchased

from the Commission's copy contractor, International Transcription

Service, Inc. 2100 M Street NW., suite 140, Washington DC 20037, (202)

857-3800.

Second Further Notice of Proposed Rulemaking

A. Introduction

1. In a prior Further Notice of Proposed Rulemaking in this docket

58 FR 53169, October 14, 1993, the Commission requested comment on

whether it should establish a general cap on the amount of commercial

mobile radio service (CMRS) spectrum for which an entity may be

licensed in a particular geographic market. The purpose of that

proposal is to ensure that no CMRS provider will exert market power by

controlling large amounts of spectrum in a given geographic market.

Additionally, the Spectrum Cap Notice sought comment on rules for

administering a spectrum cap, if the Commission adopted a spectrum

aggregation limit. The Spectrum Cap Notice invited comments on whether

the Commission should apply personal communications services (PCS)

spectrum aggregation and cellular-PCS cross ownership attribution

standards, adopted in the Broadband PCS Order, to a general CMRS

spectrum cap.

2. On June 13, 1994, the Commisson released an Order reconsidering

and clarifying the rules for broadband PCS. The Broadband PCS

Reconsideration Order retained certain limitations on the amount of PCS

spectrum that can be obtained in any geographic service area.

Generally, an entity may acquire attributable interests in a maximum of

40 MHz of licensed broadband PCS spectrum. Parties with attributable

cellular interests, however, may obtain only 10 MHz of licensed

broadband PCS spectrum if the population in the cellular service area

overlaps 10 percent of the population in the relevant PCS market. In

addition, after January 1, 2000, entities with attributable cellular

interests may acquire an additional 5 MHz of broadband PCS spectrum,

for a total of 15 MHz of PCS spectrum in their cellular service areas.

The Broadband PCS Reconsideration Order also specified certain

interests that the Commission would consider attributable interests in

order to determine the maximum amount of PCS spectrum for which an

entity may be licensed.

3. On June 29, 1994, the Commission adopted an Order establishing

competitive bidding procedures for broadband PCS. The Commission

adopted a ``Competitive Opportunity Plan'' in the Broadband PCS Auction

Rules Order, under which ``entrepreneurs' blocks'' are established as a

means of fulfilling the statutory mandate to ensure that businesses

owned by minorities or women (or both), small businesses, and rural

telephone companies are provided with full opportunities to participate

in providing broadband PCS services. The Competitive Opportunity Plan,

inter alia, establishes installment payment plans for applicants

eligible for entrepreneurs' block licenses, and also establishes a

system of bidding credits for small businesses and businesses owned by

minorities or women (or both).

4. The purposes of this Second Further Notice is to explore whether

the Commission should consider additional non-equity relationships to

be attributable interests for purposes of applying the 40 MHz

limitation on PCS spectrum, the PCS-cellular cross-ownership rules, or

a more general CMRS spectrum cap. In addition, we seek comment

regarding whether any attribution rules we adopt in this proceeding

should apply differently depending on whether the applicant or licensee

involved is a designated entity. We also seek comment regarding how

much non-equity relationships should be construed in the context of

determining whether the designated entity has de facto and de jure

control of the licensee. Finally, commenters should address how such

relationships in the designated entity context balance the need to

allow designated entities to attract needed expertise, capital and

infrastructure while avoiding the creation of fronts or shams.

B. Discussion.

5. One of the purposes of this proceeding is to examine resale

agreements, management contracts, joint marketing agreements, and other

similar arrangements for the purpose of determining whether these

arrangements should be treated as attributable interests in applying

the PCS spectrum aggregation cap, the PCS-cellular cross-ownership

restrictions, or a general CMRS spectrum cap. We recognize at the

outset that any agreement that confers on a party other than the

licensee de facto control over an FCC-licensed facility will be

considered an attributable interest. Therefore, commenters should

address whether there are relationships, not included in the PCS

attribution rules, that do not rise to the level of control, but

nonetheless should be considered attributable because these interests

may affect the incentive or ability of PCS and other CMRS licensees to

compete vigorously in the marketplace, or because they may affect the

number of effective competing providers or the independence of pricing

decisions by service providers.

6. Management Agreements: We request comment on whether management

agreements or similar arrangements that do not confer de facto control

on a party other than the licensee should be considered attributable

interests. We are concerned, for example, that a management agreement

may permit the manager access to market sensitive information (e.g.,

business plans, customer lists, product and service development,

marketing strategies); if the manager is also a licensee offering a

competing service, access to this information might enable it to impede

vigorous competition. We also seek comment regarding the issue of

whether such management agreements, although not amounting to de facto

control, may involve levels of integration between the managed licensee

and the manager's company which have the effect of reducing competitive

choices in the marketplace or of creating a sham or front corporation

to take advantage of designated entity provisions.

7. By way of background, we note that we have established several

criteria that we have determined to be probative with regard to the

issue of whether a licensee, through management agreements or other

means, and in contravention of our rules, has relinquished control of

and responsibility for its licensed facilities. These criteria, first

articulated in Intermountain, include the following questions:

Does the license have unfettered use of all facilities and

equipment? If the licensee retains such use, this will support a

finding that the licensee has not relinquished control to a third party

through a management agreement or other arrangement.

Has the licensee relinquished control of daily operations?

Retention of such control by the licensee contributes to a finding that

the licensee has not relinquished control over the licensed facilities.

Does the licensee determine and carry out policy

decisions, including the preparation and filing of applications with

the Commission? If it is demonstrated that the licensee has retained

control of policy decisions, this serves as another contributing factor

in determining that the licensee has not relinquished control of its

licensed facilities to a third party.

Is the licensee is charge of employment, supervision, and

dismissal of personnel? Retention of control over such personnel

matters would tend to support a conclusion that the licensee has not

relinquished control to a third party through a management agreement or

other arrangement.

Is the licensee in charge of the payment of financing

obligations, including expenses arising out of operation of the

licensed facilities? If the licensee has retained responsibility for

such expenses, such retention of control will be taken into account in

determining whether the licensee has relinquished control of its

facilities to a third party.

Does the licensee receive monies and profits derived from

operation of the licensed facilities? Again, the role of the licensee

with regard to receipt of profits and other monies is one of the

determining factors with regard to whether the licensee has

relinquished control of its facilities to a third party through a

management agreement or other arrangement.

In this proceeding our purpose is to examine whether management

agreements which do not involve any relinquishment of control under the

Intermountain test still should be deemed to confer attributable

interests to the managing party under the agreement. We seek comment on

this issue.

8. In particular, commenters should address the following

questions. First, could management agreements be structured in such a

way that the manager's access to the type of information described in

the preceding paragraph would not necessarily have any adverse effect

on competition? Commenters should address the specific components of

such management agreements, and discuss how these components would

protect against anti-competitive effects. Commenters also should

address whether examination of such management agreements would require

an unreasonable expenditure of Commission staff and other resources and

whether there are effective alternatives to such a review procedure

that would address our concern.

9. Second, should a management agreement be treated as an

attributable interest in all cases, including the PCS spectrum

aggregation cap, the PCS-cellular cross-ownership restrictions, and any

overall CMRS spectrum aggregation cap the Commission may establish in

this docket? In addressing this question, commenters should explore any

factors and considerations that would support a conclusion that

treatment of a management agreement as an attributable interest would

be necessary or appropriate in certain of these cases, but not in

others.

10. Third, if we conclude that management agreements or similar

arrangements should be treated as attributable interests, what

administrative rules would be necessary to enforce such a rule? Would

reporting requirements be necessary to enable the Commission to record

and monitor instances in which CMRS licensees enter into management

agreements for the operation of their systems? For example, in the SMR

industry, some private radio licensees have entered into agreements

that permit a third party manager to use the system's entire capacity.

Although we have reclassified interconnected wide area SMRs as CMRS,

SMRs licensed as of August 10, 1993 will continue to be regulated as

PMRS during the transition period and SMRs that are not interconnected

will remain PMRS. We seek comment on how we should treat such

arrangements for purposes of attribution.

11. Finally, if we conclude that management agreements or similar

arrangements should be treated as attributable interests, how should

our rules apply in the case of designated entities? Specifically, we

seek comment regarding the following issues: Are there policies or

other considerations that would warrant applying management contract

attribution rules differently in the case of designated entities?

Should management agreements be attributable for purposes of

application of the 10 percent cap relating to entrepreneurs' block

licenses? Should management contracts affect eligibility for provisions

provided for designated entities?

12. Resale. Similarly, we request comment on whether any resale

agreements should be considered an interest attributable to a reseller

in the context of a PCS spectrum aggregation cap, PCS-cellular cross-

ownership restrictions, or a general CMRS spectrum cap. The Commission

has defined resale as an ``activity wherein one entity subscribes to

the communications services and facilities of another entity and then

reoffers communications service to the public (with or without `adding

value') for profit.'' We have required cellular licensees to provide

resale, except that a cellular licensee may restrict resale by a

facilities-based competitor after the competitor has been licensed for

five years. We note that resellers of commercial mobile radio services

have been classified as CMRS providers, and they may offer services

that compete with other commercial mobile radio services.

13. In most instances, we are not concerned that a reseller could

exercise effective control over the spectrum on which it provides

service or have the ability to reduce the amount of service provided

over that spectrum because other resellers could enter into such resale

arrangements. Under these circumstances, we see no reason to attribute

the spectrum of the underlying service provider to resellers for

purposes of spectrum caps. Some parties, however, have expressed

concern that resale agreements may be used to circumvent the spectrum

caps. In the context of common carrier regulation, it seems unlikely

that any resale agreement short of a transfer of control could reduce

the quantity of service available to the public. As a result, we

currently do not think that resale agreements should be considered

attributable interests, but we invite comments from parties that

believe there are competitive concerns.

14. Joint Marketing Agreements. We also request comment on whether

joint marketing agreements should constitute an attributable interest

in the contest of a PCS spectrum aggregation cap, PCS-cellular cross-

ownership restrictions, or a general CMRS spectrum cap. Under a joint

marketing agreement, two or more CMRS providers would pool their

resources to market their services to consumers. One aspect of this

joint venture may be to market the services of various CMRS providers

under a common name. We believe that such joint ventures may be

beneficial to both licensees and consumers because of the savings that

could be realized by pooling resources for advertising and direct

sales. These savings could then be passed on to the consumer.

15. The Commission previously examined whether to limit various

joint ventures in the context of our broadcast ownership rules. In that

context, the Commission examined joint advertising sales, shared

technical facilities, and joint programming arrangements (or ``time

brokerage''). We noted that such joint ventures are not precluded by

any Commission rule or policy so long as the Commission's ownership

rules are not violated and the participating licensees maintain

ultimate control over their facilities. The Commission did not impose

any additional restrictions on operational joint venture arrangements,

but noted that all broadcast licensees are subject to compliance with

the antitrust laws and maintenance of editorial control. The

Commission, however, did limit time brokerage arrangements in the same

local market so that:

Where an individual or entity owns or has an attributable

interest in one or more stations in a market, time brokerage of any

other station in that market form more than 15 percent of the

brokered station's broadcast hours per week will result in counting

the brokered station toward the brokering licensee's permissible

ownership totals under the revised local ownership rules.

16. As explained in Radio Ownership Rules, our rules or policies do

not prohibit joint marketing ventures so long as a licensee maintains

de facto control over the licensed facilities and complies with the

antitrust laws. In the context of CMRS or PCS joint ventures, we need

not concern ourselves with programming diversity because CMRS providers

are, by definition, common carriers and have no control over content.

We believe that there may be benefits to consumers from these joint

marketing ventures. We are concerned, however, that such arrangements

may provide competitors access to information, or have other

anticompetitive effects, that could impede vigorous competition.

Therefore, commenters should address whether a licensee who enters into

a joint marketing venture with one or more licensee whose geographic

market area have an overlap of 10 percent of the population should have

the interest of the other joint venture licensees attributed to it for

purposes of the PCS aggregations limits, the cellular-PCS cost-

ownership rules, or a general CMRS spectrum cap. In addition, if the

Commission finds such arrangements to be attributable interests,

commenters should address whether we should adopt different rules

relating to designated entities.

C. Procedural Matters

A. Ex Parte Rules--Non-Restricted Proceeding

17. This is a non-restricted notice and comment rule making

proceeding. Ex parte presentations are permitted except during the

Sunshine Agenda period, provided that they are disclosed as provided in

the Commission's rules. See generally 47 CFR Secs. 1.1202, 1.1203,

1.1206(a)

B. Initial Regulatory Flexibility Analysis

18. As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. Sec. 601 et seq. (1981), the Commission has prepared an Initial

Regulatory Flexibility Analysis (IRFA) of the expected impact of the

policies and rules proposed in this Further Notice on small entities.

The IFRA is contained in Appendix A to this Further Notice. The Acting

Secretary shall cause a copy of this Further Notice, including the

IRFA, to be sent to the Chief Counsel for Advocacy of the Small

Business Administration in accordance with Section 603(a) of the

Regulatory Flexibility Act.

C. Comment Period

19. Interested persons may file comments in this proceeding on or

before August 9, 1994, and reply comments on or before August 19, 1994.

For filing requirements, see generally 47 CFR Secs. 1.415, 1.419. To

file formally in this proceeding, participants must file an original

and four copies of all comments, reply comments, and supporting

materials. If you want each Commissioner to receive a personal copy of

your comments, you must file an original and nine copies. Send comments

and reply comments to the Office of the Secretary, Federal

Communications Commission, Washington, DC 20554. In addition,

commenters are requested to submit courtesy copies to the Chief, Mobile

Services Division, Common Carrier Bureau, 1919 M Street, NW., room 644,

Washington, DC 20554, and to the Deputy Chief, Land Mobile and

Microwave Division, Private Radio Bureau, 2025 M Street, NW., room

5202, Washington, DC 20554. Comments and reply comments will be

available for public inspection during regular business hours in the

FCC Reference Center (room 239) at the Commission's headquarters at

1919 M Street, NW., Washington, DC 20554.

D. Further Information

20. For further information regarding this Further Notice, contact

Greg Rosston at (202) 418-2030 (Office of Plans and Policy) or Leila

Brown at (202) 418-1300 (Common Carrier Bureau, Mobile Services

Division).

Initial Regulatory Flexibility Act Analysis

As required by Section 603 of the Regulatory Flexibility Act, the

Commission has prepared an Initial Regulatory Flexibility Analysis

(IRFA) of the expected impact of these proposed policies and rules on

small entities. Written public comments are requested on the IRFA.

A. Reason for Action

This rule making proceeding was initiated to seek comment with

regard to whether management agreements and resale arrangements should

be treated as attributable interests for purposes of application of the

Commission's rules relating to (1) the personal communications service

(PCS) spectrum aggregation cap; (2) the PCS-cellular cross-owner-ship

restrictions; (3) any overall commercial mobile radio service (CMRS)

spectrum aggregation cap the Commission may establish in this docket;

and (4) control of a designated entity.

B. Objectives

The principal objective of the Further Notice is to promote

vigorous competition in the CMRS marketplace through the development of

attribution rules that prevent any CMRS licensee from gaining an unfair

competitive advantage.

C. Legal Basis

The proposed action is authorized under the Omnibus Budget

Reconciliation Act of 1993, Pub. L. No. 103-66, Title VI, Sec. 6002(b),

and Sections 3(n), 4(i), 303(r), 309, 332(c), and 332(d) of the

Communications Act of 1934, 47 U.S.C. Secs. 153(n), 154(i) and 303(r),

309, 332(c), and 332(d), as amended.

D. Reporting, Recordkeeping, and Other Compliance Requirements

The proposals under consideration in the Further Notice may impose

certain new reporting and recordkeeping requirements on mobile services

licensees.

E. Federal Rules Which Overlap, Duplicate, or Conflict With These Rules

None.

F. Description, Potential Impact, and Number of Small Entities Involved

Many small entities could be affected by the proposals contained in

the Further Notice. Dependent on the final resolution of the issues,

regulations affecting the licensing, recordkeeping, and reporting

obligations of numerous mobile services providers may be changed. The

full extent of these changes cannot be predicted until various other

issues raised in the proceeding (e.g., whether a CMRS spectrum cap will

be established by the Commission) have been resolved. After evaluating

the comments filed in response to the Further Notice the Commission

will examine further the impact of all rule changes on small entities

and set forth its findings in the Final Regulatory Flexibility

Analysis.

G. Significant Alternatives Minimizing the Impact on Small Entities

Consistent With the Stated Objectives

The Further Notice solicits comment on a variety of alternatives.

Any additional significant alternatives presented in the comments will

also be considered.

H. IRFA Comments

We request written public comment on the foregoing Initial

Regulatory Flexibility Analysis. Comments must have a separate and

distinct heading designating them as responses to the IRFA and must be

filed by the deadlines provided in paragraph 13 of the Further Notice.

List of Subjects in 47 CFR Part 20, 22, and 90

Mobile radio service, Radio.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 94-18110 Filed 7-22-94; 8:45 am]

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