Interconnection and Resale Obligations

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 22

[CC Docket No. 94-54; FCC 96-263]

Interconnection and Resale Obligations

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission, on an interim basis, extends to cellular,

broadband personal communications services (PCS) and certain

specialized mobile radio (SMR) providers its rule under which cellular

licensees are currently prohibited from restricting resale of their

service. The Commission also eliminates an exception to the current

rule under which cellular licensees are permitted to restrict resale by

competing fully operational cellular licensees in the same geographic

market. The action is needed to promote the development of competition

in these services.

[[Page 38400]]

EFFECTIVE DATE: September 23, 1996.

FOR FURTHER INFORMATION CONTACT: Jeffrey Steinberg, 202-418-1310.

SUPPLEMENTARY INFORMATION: This is a synopsis of the First Report and

Order in CC Docket No. 94-54, FCC 96-263, adopted June 12, 1996, and

released July 12, 1996. The complete text of this First Report and

Order is available for inspection and copying during normal business

hours in the FCC Reference Center (Room 239), 1919 M Street, N.W.,

Washington, D.C., and also may be purchased from the Commission's copy

contractor, International Transcription Service, at (202) 857-3800,

2100 M Street, N.W., Suite 140, Washington, D.C. 20037.

Synopsis of the First Report and Order

The Commission adopts a transitional rule concerning the

obligations of certain commercial mobile radio services (CMRS)

providers to permit the unrestricted resale of their services. The

Commission initiated this proceeding in a Notice of Proposed Rulemaking

and Notice of Inquiry (59 FR 35664, July 13, 1994) that addressed a

broad array of CMRS regulatory issues, including resale. The Commission

refined its proposal concerning resale in a Second Notice of Proposed

Rulemaking in this proceeding (60 FR 20949, April 28, 1995).

2. Based on the record established in this proceeding, the

Commission first concludes that, under current market conditions,

restrictions on resale by cellular, broadband PCS, and certain

specialized mobile radio (covered SMR) providers will inhibit the

development of competition in these services. Covered SMR providers are

800 MHz and 900 MHz SMR licensees that either hold geographic area

licenses or have obtained extended implementation authorizations, and

that offer real-time, two-way switched voice service that is

interconnected with the public switched network. Thus, the Commission

prohibits such providers from forbidding or unreasonably restricting

the resale of their services during a transitional period. The

Commission is not persuaded, however, that the resale rule should be

extended to include CMRS carriers other than cellular, broadband PCS

and covered SMR providers, although the Commission will consider on a

case-by-case basis complaints alleging that other CMRS carriers'

practices concerning interstate resale are unreasonable.

3. Furthermore, the Commission concludes that once broadband PCS

licensees have built out their networks and are competing with cellular

carriers, market forces will eliminate the need for explicit resale

regulation. Therefore, the Commission will sunset the resale rule

adopted in this decision, effective five years after the last group of

initial licenses for currently allotted broadband PCS spectrum is

awarded.

4. The Commission also eliminates an exception to its existing rule

that permits a cellular licensee to restrict resale by the other

cellular licensee in the same geographic area after expiration of the

other licensee's five year build-out period. The Commission concludes

that this exception is unnecessary to encourage build-out because most

cellular build-out periods ended several years ago, and that its

elimination will further promote the procompetitive goals of the First

Report and Order.

Procedural Matters; Ordering Clauses

Final Regulatory Flexibility Analysis

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

U.S.C. Sec. 603 (RFA), an Initial Regulatory Flexibility Analysis

(IRFA) was incorporated in the Second Notice of Proposed Rulemaking in

this proceeding (Second NPRM). The Commission sought written public

comments on the proposals in the Second NPRM, including on the IRFA.

The Commission's Final Regulatory Flexibility Analysis (FRFA) in this

Report and Order conforms to the RFA, as amended by the Contract With

America Advancement Act of 1996, Public Law No. 104-21, 110 Stat. 847

(1996).

I. Need for and Purpose of this Action

In this decision, the Commission, on an interim basis, extends its

rule under which cellular licensees are currently prohibited from

restricting resale of their service to broadband personal

communications services (PCS) and certain geographic area specialized

mobile radio (SMR) providers. The Commission also eliminates an

exception to the current rule under which cellular licensees are

permitted to restrict resale by competing fully operational cellular

licensees in the same geographic market. The purposes of this action

are to help bring the benefits of competition to the market for these

services while the market is in transition to a fully competitive

state, as well as to help jump start competition by allowing new

entrants to enter the marketplace quickly by reselling their

competitors' services while they build out their facilities.

II. Summary of Issues Raised by the Public Comments in Response to the

Initial Regulatory Flexibility Analysis

No comments were filed in direct response to the IRFA. In general

comments on the Second NPRM, however, some commenters raised issues

that might affect small entities. In particular, some commenters argued

that the obligation to permit unrestricted resale would make it

difficult for some providers, especially paging, narrowband PCS, public

coast service, and other small providers, to manage their capacity and

to earn a reasonable return on their investment. The Commission

determined that these objections were not well founded because the

resale rule does not prevent carriers from pricing their services so as

to earn a return on their investment or from including provisions in

their contracts to protect themselves against stranded capacity.

III. Changes Made to the Proposed Rules

In the Second NPRM, the Commission proposed to extend the resale

rule to all commercial mobile radio services (CMRS) providers. However,

the Commission here determines instead to apply the rule only to

cellular, broadband PCS and certain SMR providers because it has

concluded that application of the resale rule to other CMRS providers

will not promote the public interest at this time. The Commission also

determines to sunset application of the resale rule to affected

cellular, broadband PCS and SMR providers in approximately five years

because by that time the development of competition is expected to

render the rule unnecessary. In light of this sunset decision, the

Commission does not adopt its proposal to allow providers subject to

the rule to restrict resale by their fully operational facilities-based

competitors, and it further eliminates the existing exception between

competing cellular licensees in order to maintain regulatory parity and

because it has determined that the exception no longer serves a useful

purpose.

IV. Description and Estimate of the Small Entities Subject to the Rules

The rule adopted in this Report and Order will apply to providers

of cellular, broadband PCS, and geographic area 800 MHz and 900 MHz

specialized mobile radio services, including licensees who have

obtained extended implementation authorizations in the 800 MHz or 900

MHz SMR services, either by waiver or under Section 90.629 of the

Commission's Rules. However, the rule will apply to SMR

[[Page 38401]]

licensees only if they offer real-time, two-way voice service that is

interconnected with the public switched network.

A. Estimates for Cellular Licensees

The Commission has not developed a definition of small entities

applicable to cellular licensees. Therefore, the applicable definition

of small entity is the definition under the Small Business

Administration (SBA) rules applicable to radiotelephone companies. This

definition provides that a small entity is a radiotelephone company

employing fewer than 1,500 persons.\1\ Since the Regulatory Flexibility

Act amendments were not in effect until the record in this proceeding

was closed, the Commission was unable to request information regarding

the number of small cellular businesses and is unable at this time to

determine the precise number of cellular firms which are small

businesses.

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\1\ 13 CFR Sec. 121.201, Standard Industrial Classification

(SIC) Code 4812.

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The size data provided by the SBA does not enable us to make a

meaningful esimate of the number of cellular providers which are small

entities because it combines all radiotelephone companies with 500 or

more employees.\2\ We therefore used the 1992 Census of Transportation,

Communications, and Utilities, conducted by the Bureau of the Census,

which is the most recent information available. This document shows

that only 12 radiotelephone firms out of a total of 1,178 such firms

which operated during 1992 had 1,000 or more employees.\3\ Therefore,

even if all 12 of these firms were cellular telephone companies, nearly

all cellular carriers were small businesses under the SBA's definition.

We assume, for purposes of our evaluations and conclusions in this

FRFA, that all of the current cellular licensees are small entities, as

that term is defined by the SBA. Although there are 1,758 cellular

licenses, we do not know the number of cellular licensees, since a

cellular licensee may own several licenses.

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\2\ U.S. Small Business Administration 1992 Economic Census

Employment Report, Bureau of the Census, U.S. Department of

Commerce, SIC Code 4812 (radiotelephone communications industry data

adopted by the SBA Office of Advocacy).

\3\ U.S. Bureau of the Census, U.S. Department of Commerce, 1992

Census of Transportation, Communications, and Utilities, UC92-S-1,

Subject Series, Establishment and Firm Size, Table 5, Employment

Size of Firms: 1992, SIC Code 4812 (issued May 1995).

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B. Estimates for Broadband PCS Licensees

The broadband PCS spectrum is divided into six frequency blocks

designated A through F. Pursuant to 47 CFR 24.720(b), the Commission

has defined ``small entity'' in the auctions for Blocks C and F as a

firm that had average gross revenues of less than $40 million in the

three previous calendar years. This regulation defining ``small

entity'' in the context of broadband PCS auctions has been approved by

the SBA.4

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\4\ See Implementation of Section 309(j) of the Communications

Act--Competitive Bidding, PP Docket No. 93-253, Fifth Report and

Order, 9 FCC Rcd 5532, 5581-84 (1994).

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The Commission has auctioned broadband PCS licenses in Blocks A, B,

and C. We do not have sufficient data to determine how many small

businesses bid successfully for licenses in Blocks A and B. There were

89 winning bidders that qualified as small entities in the Block C

auction. Based on this information, we conclude that the number of

broadband PCS licensees affected by the rule adopted in this Report and

Order includes the 89 winning bidders that qualified as small entities

in the Block C broadband PCS auction.

At present, no licenses have been awarded for Blocks D, E, and F of

broadband PCS spectrum. Therefore, there are no small businesses

currently providing these services. However, a total of 1,479 licenses

will be awarded in the D, E, and F Block broadband PCS auctions, which

are scheduled to begin on August 26, 1996. Eligibility for the 493 F

Block licenses is limited to entrepreneurs with average gross revenues

of less than $125 million. However, we cannot estimate how many of

these licenses will be won by small entities, nor how many small

entities will win D or E Block licenses. Given the facts that nearly

all radiotelephone companies have fewer than 1,000 employees and that

no reliable estimate of the number of prospective D, E, and F Block

licensees can be made, we assume, for purposes of our evaluations and

conclusions in this FRFA, that all of the licenses will be awarded to

small entities, as that term is defined by the SBA.

C. Estimates for SMR Licensees

Pursuant to 47 CFR 90.814(b)(1), the Commission has defined ``small

entity'' in auctions for geographic area 800 MHz and 900 MHz SMR

licenses as a firm that had average gross revenues of less than $15

million in the three previous calendar years. This regulation defining

``small entity'' in the context of 800 MHz and 900 MHz SMR has been

approved by the SBA.5

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\5\ See Amendment of Parts 2 and 90 of the Commission's Rules to

Provide for the Use of 200 Channels Outside the Designated Filing

Areas in the 896-901 MHz and the 935-940 MHz Bands Allotted to the

Specialized Mobile Radio Pool, PR Docket No. 89-583, Second Order on

Reconsideration and Seventh Report and Order, 11 FCC Rcd 2639, 2693-

702 (1995); Amendment of Part 90 of the Commission's Rules to

Facilitate Future Development of SMR Systems in the 800 MHz

Frequency Band, PR Docket No. 93-144, First Report and Order, Eighth

Report and Order, and Second Further Notice of Proposed Rulemaking,

11 FCC Rcd 1463 (1995).

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The rule adopted in this Report and Order applies to SMR providers

in the 800 MHz and 900 MHz bands that either hold geographic area

licenses or have obtained extended implementation authorizations. We do

not know how many firms provide 800 MHz or 900 MHz geographic area SMR

service pursuant to extended implementation authorizations, nor how

many of these providers have annual revenues of less than $15 million.

Since the Regulatory Flexibility Act amendments were not in effect

until the record in this proceeding was closed, the Commission was

unable to request information regarding the number of small businesses

in this category. We do know that one of these firms has over $15

million in revenues. We assume, for purposes of our evaluations and

conclusions in this FRFA, that all of the remaining existing extended

implementation authorizations are held by small entities, as that term

is defined by the SBA.

The Commission recently held auctions for geographic area licenses

in the 900 MHz SMR band. There were 60 winning bidders who qualified as

small entities in the 900 MHz auction. Based on this information, we

conclude that the number of geographic area SMR licensees affected by

the rule adopted in this Report and Order includes these 60 small

entities.

No auctions have been held for 800 MHz geographic area SMR

licenses. Therefore, no small entities currently hold these licenses. A

total of 525 licenses will be awarded for the upper 200 channels in the

800 MHz geographic area SMR auction. However, the Commission has not

yet determined how many licenses will be awarded for the lower 230

channels in the 800 MHz geographic area SMR auction. There is no basis

to estimate, moreover, how many small entities within the SBA's

definition will win these licenses. Given the facts that nearly all

radiotelephone companies have fewer than 1,000 employees and that no

reliable estimate

[[Page 38402]]

of the number of prospective 800 MHz licensees can be made, we assume,

for purposes of our evaluations and conclusions in this FRFA, that all

of the licenses will be awarded to small entities, as that term is

defined by the SBA.

D. Estimates for Resellers

We were unable to obtain reliable data regarding the number of

entities that resell services covered by the rule adopted in this

Report and Order, or how many of these are small entities. Since the

Regulatory Flexibility Act amendments were not in effect until the

record in this proceeding was closed, the Commission was unable to

request information regarding the number of small businesses in this

category. We note, however, that resellers are included among the 1,178

radiotelephone firms described in the 1992 Census data discussed above,

12 of which had 1,000 or more employees. Given the facts that nearly

all radiotelephone companies have fewer than 1,000 employees and that

no reliable estimate of the number of resellers can be made, we assume,

for purposes of our evaluations and conclusions in this FRFA, that all

resellers are small entities, as that term is defined by the SBA.

V. Summary of Projected Reporting, Recordkeeping and Other Compliance

Requirements

The rule adopted in this Report and Order imposes no reporting or

recordkeeping requirements. The rule also requires no affirmative

compliance action by any entity to which it applies. Rather, the rule

operates as a negative prohibition forbidding restrictions on the

resale of service. Therefore, the only compliance costs likely to be

incurred are administrative costs to ensure that an entity's practices

are in compliance with the rule.

VI. Steps Taken to Minimize the Economic Impact on Small Entities

The Commission determines not to apply its resale rule to CMRS

providers other than those classified as cellular, broadband PCS and

certain SMR. Many of the providers that are thereby excluded from the

rule are small entities, including paging, narrowband PCS, air-ground,

public coast service, and non-covered SMR providers. In addition, the

Commission's decision to sunset the resale rule five years after it

awards the last group of initial licenses for currently allotted

broadband PCS spectrum will reduce the impact of the rule on small

entities by limiting the period of time for which such entities are

subject to that rule. By prohibiting restrictions on resale during a

transitional period, the Commission's decision benefits small entities

that are resellers or that will use resale while they are building out

their facilities.

VII. Significant Alternatives Considered and Rejected

The Commission considered and rejected several significant

alternatives. The Commission rejected the alternative of extending the

resale rule to all CMRS providers because it determined that such a

rule is unnecessary at this time to promote competition or the

availability of socially useful offerings in services other than

cellular, broadband PCS, and geographic area SMR. At the same time, the

Commission rejected the alternative of extending an interim resale rule

to a universe less than all cellular, broadband PCS, and covered SMR

providers because it concluded that a more limited rule would not

adequately promote its competitive and social ends and would be

inconsistent with the principle of regulatory parity. The Commission

rejected the alternative of continuing the resale rule indefinitely

because it determined that the rule would be unnecessary once broadband

PCS licensees are fully operational as facilities-based competitors to

cellular providers. Finally, the Commission rejected the alternative of

allowing providers to restrict resale by their facilities-based

competitors because in the short term such an exception would defeat

the purpose of allowing new entrants to use resale to help them enter

the market more quickly, and in the long term the sunset of the resale

rule as a whole would render the exception irrelevant.

VIII. Report to Congress

The Commission shall send a copy of this Final Regulatory

Flexibility Analysis, along with this Report and Order, in a report to

Congress pursuant to the Small Business Regulatory Enforcement Fairness

Act of 1996, 5 U.S.C. 801(a)(1)(A).

List of Subjects

47 CFR Part 20

Communications common carriers, Federal Communications Commission.

47 CFR Part 22

Communications common carriers, Federal Communications Commission.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Parts 20 and 22 of Chapter I of Title 47 of the Code of Federal

Regulations are amended as follows:

PART 20--COMMERCIAL MOBILE RADIO SERVICES

1. The authority citation for Part 20 continues to read as follows:

Authority: Sections 4, 303 and 332, 48 Stat. 1066, 1092, as

amended; 47 USC 154, 303, and 332, unless otherwise noted.

2. Section 20.3 is amended by adding the following definition in

alphabetical order to read as follows:

Sec. 20.3 Definitions.

* * * * *

Incumbent Wide Area SMR Licensees. Licensees who have obtained

extended implementation authorizations in the 800 MHz or 900 MHz

service, either by waiver or under Section 90.629 of these rules, and

who offer real-time, two-way voice service that is interconnected with

the public switched network.

* * * * *

3. New Sec. 20.12 is added to read as follows:

Sec. 20.12 Resale.

(a) Scope of section. This section is applicable only to providers

of Broadband Personal Communications Services (Part 24, Subpart E of

this chapter), providers of Cellular Radio Telephone Service (Part 22,

Subpart H of this chapter), providers of Specialized Mobile Radio

Services in the 800 MHz and 900 MHz bands that hold geographic area

licenses (included in Part 90, Subpart S of this chapter) and offer

real-time, two-way voice service that is interconnected with the public

switched network, and Incumbent Wide Area SMR Licensees.

(b) Resale. Each carrier subject to this section must permit

unrestricted resale of its service. This paragraph shall cease to be

effective five years after the last group of initial licenses for

broadband PCS spectrum in the 1850-1910 and 1930-1990 MHz bands is

awarded.

PART 22--PUBLIC MOBILE SERVICES

1. The authority citation for Part 22 continues to read as follows:

Authority: Sections 4, 303, and 332, 48 Stat. 1066, 1082, as

amended; 47 USC 154, 303, and 332, unless otherwise noted.

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Sec. 22.901 [Amended]

2. Section 22.901 is amended by removing paragraph (e).

[FR Doc. 96-18603 Filed 7-23-96; 8:45 am]

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