# The Future Development of SMR Systems in the 800 MHz Frequency Band

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URL: https://www.frixlaw.com/law-library/documents/fr%3A96-3509

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** February 16, 1996
- **Citation:** 61 FR 6138

## Text

FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 90

[PR Docket No. 93-144; PP Docket No. 93-253; FCC 95-501]

The Future Development of SMR Systems in the 800 MHz Frequency
Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: In this First Report and Order in PR Docket No. 93-144, and
Eighth Report and Order in PP Docket No. 93-253, the Commission adopts
final service and competitive bidding rules for the ``upper 10 MHz
block'' of 800 MHz Specialized Mobile Radio (SMR) spectrum and adopts
rules which streamline the licensing process for SMR services in the
800 MHz band.
In this First Report and Order (``First R&O''), the Commission
designates a portion of 800 MHz SMR spectrum for wide-area licensing
using license areas defined by the Economic Areas (EAs) established by
the U.S. Department of Commerce Bureau of Economic Analysis. Under this
wide-area licensing plan the Commission has allocated three channel
blocks, one 120-channel block, one 60-channel block, and one 20-channel
block.
In this Eighth Report and Order (``Eighth R&O''), the Commission
reiterated that competitive bidding is an appropriate licensing tool
for the 800 MHz SMR service. The Commission also adopts specific
auction rules for the upper 10 MHz block, including rules pertaining to
competitive bidding design, license grouping, bidding procedures, and
treatment of ``designated entities'' (that is, small businesses,
businesses owned by minorities and/or women, and rural telephone
companies). The intended effect of this action is to facilitate future
deployment of SMR systems in the 800 MHz band through licensing
procedures and the use of competitive bidding.

EFFECTIVE DATE: March 18, 1996.

FOR FURTHER INFORMATION CONTACT: David Furth or Lisa Warner at (202)
418-0620.

SUPPLEMENTARY INFORMATION: This First Report and Order in PR Docket No.
93-144, and this Eighth Report and Order in PP Docket No. 93-253,
adopted December 15, 1995, and released December 15, 1995, is available
for inspection and copying during normal business hours in the FCC
Dockets Branch, Room 230, 1919 M Street N.W., Washington, D.C. The
complete text may be purchased from the Commission's copy contractor,
International Transcription Service, Inc., 2100 M Street, N.E., Suite
140, Washington, D.C. 20037 (telephone (202) 857-3800).
Synopsis of First Report and Order and Eighth Report and Order:

I. Background

1. The Commission's current rules for the 800 MHz Specialized
Mobile Radio (SMR) service were designed primarily to license dispatch
radio systems on a transmitter-by-transmitter basis in local markets.
In recent years, however, some SMR licenses have been authorized
through waivers and extended implementation rules to expand the
geographic scope of their services and aggregate large numbers of
channels to provide service more directly comparable to that provided
by cellular operators and that envisioned for Personal Communications
Services (PCS). While the 800 MHz SMR rules have proven sufficiently
flexible to permit such expansion, the licensing process remains
cumbersome because of the need to license each SMR transmitter site
individually. In May 1993, the Commission adopted a Notice of Proposed
Rule Making in PR Docket No. 93-144, 58 FR 33062 (June 15, 1993)
(``Notice''), proposing wide-area licensing of the 800 MHz SMR service.
In August of 1993, Congress amended the Communications Act of 1934 to
modify the regulatory treatment of mobile services. In the Second
Report and Order in GN Docket No. 93-252, 59 FR 18493 (April 19, 1994)
(``CMRS Second R&O''), the Commission reclassified all mobile services
into two statutorily-defined categories: commercial mobile radio
services (CMRS) and private mobile radio services (PMRS). The
Commission concluded that all SMR systems providing or authorized to
provide interconnected service would be reclassified as CMRS.
2. In the Third Report and Order in GN Docket No. 93-252, 59 FR
59945 (November 21, 1994) (``CMRS Third R&O''), the Commission
concluded that 800 MHz SMR licensees either compete or have the
potential to compete with other CMRS providers. As a result, the
Commission determined that the technical and operational requirements
for the 800 MHz SMR service should be made comparable, to the extent
feasible, to those applicable to other CMRS providers. In this
connection, the Commission concluded that: (1) wide-area licensing
should be implemented in the 800 MHz SMR service; and (2) licensing of
the 800 MHz SMR spectrum should be accomplished through competitive
bidding procedures.
3. On October 20, 1994, the Commission adopted a Further Notice of
Proposed Rule Making in PR Docket No. 93-144, 59 FR 60111 (November 22,
1994) (``Further Notice''), proposing a new framework for licensing of
800 MHz SMR systems. Specifically, the Commission proposed to assign 10
MHz of SMR spectrum (consisting of 200 contiguous channels) in defined
market-based service areas to facilitate the development of wide-area,
multi-channel SMR systems, while the remaining 4 MHz of spectrum
(consisting of 80 non-contiguous

[[Page 6139]]
channels) would be designated for continued licensing on a local basis
to accommodate the needs of smaller SMR systems primarily seeking to
provide local, more dispatch-oriented service.

II. First Report and Order

A. Wide-Area SMR Licensing in the 800 MHz Band

1. Spectrum Designated for Wide-Area Licensing
4. In the CMRS Third R&O, the Commission determined that assigning
contiguous spectrum, where feasible, is likely to enhance the
competitive potential of wide-area SMR providers. The Commission
indicated its belief that contiguous spectrum is essential to the
competitive viability of a wide-area SMR system, because it permits use
of spread spectrum and other broadband technologies that are available
to other CMRS providers but unavailable to systems operating on non-
contiguous spectrum. In the Further Notice, the Commission proposed to
designate the upper 10 MHz block of 800 MHz SMR spectrum for wide-area
SMR licensing.
5. In the First R&O, the Commission concludes that the 800 MHz SMR
spectrum most suitable to be designated primarily for wide-area use is
the upper 10 MHz block, as it is the only contiguous SMR spectrum in
the 800 MHz band. The Commission further concludes that the entire 10
MHz block should be used, rather than a portion thereof, because it is
equivalent in size to the smallest amount of spectrum presently
authorized for broadband PCS.
2. Service Areas
6. In the CMRS Third R&O, the Commission concluded that the use of
service areas based on Rand McNally Major Trading Areas (MTAs),
identical to those adopted for broadband PCS, would be preferable for
wide-area licensing of the 800 MHz SMR service. The Commission noted
that allowing licensees to operate over MTAs as opposed to smaller
areas, such as Rand McNally Basic Trading Areas (BTAs), would enhance
their ability to invest in technology and to re-use channels more
effectively.
7. In this First R&O, the Commission determines that, despite its
previous conclusion in the CMRS proceeding that MTAs appear to be the
most suitable building blocks for 800 MHz SMR licensees seeking to
construct wide-area systems, a broad range of commenters expressed
support for Economic Areas (EAs) established by the U.S. Department of
Commerce Bureau of Economic Analysis rather than MTAs. The Commission
agrees with the majority of commenters that EAs reflect the actual
coverage provided by 800 MHz SMR systems and concludes that use of EAs
will further the public interest because it will result in the
dissemination of licenses among a variety of applicants as anticipated
by Section 309(j) of the Communications Act. The Commission further
concludes that use of these smaller geographic areas ultimately will
result in a more diverse group of prospective bidders, because small
and medium-sized operatives will have incentives to seek EA licenses.
8. Thus, 800 MHz SMR wide-area licenses in the upper 10 MHz block
will be based on the 172 EAs covering the continental United States and
Alaska, and three additional licensing regions covering the five U.S.
possessions, Guam, Northern Marina Islands, Puerto Rico, U.S. Virgin
Islands, and American Samoa.
3. EA Spectrum Blocks
9. In the CMRS Third R&O, the Commission observed that most
commenters agreed that wide-area SMR systems must have the ability to
use (and reuse) a large number of channels, preferably on contiguous
frequencies, to compete successfully with cellular and broadband PCS.
Based on the record established earlier in the 800 MHz SMR proceeding
and the comments submitted in the CMRS proceeding, the Further Notice
proposed to divide the upper 10 MHz block of 800 MHz SMR spectrum into
four blocks of 2.5 MHz, corresponding to 50 channels per block, under
the Commission's existing frequency allocation rules. In addition, the
Commission chose not to propose to issue a single license covering the
entire 10 MHz upper block of 800 MHz SMR spectrum because it determined
that a single 10 MHz license would preclude licensing of multiple wide-
area licensees in each market.
10. In this First R&O, the Commission concludes that dividing the
upper 10 MHz block into multiple spectrum blocks is both feasible and
desirable. The Commission concludes that allocating varying size blocks
will accomplish its goal of creating opportunities for wide-area SMR
providers with differing spectrum needs. Thus, the Commission adopts a
licensing plan which allocates one 120-channel block, one 60-channel
block, and one 20-channel block for each EA. The Commission believes
that these channel block sizes will provide opportunities for a variety
of licensees of different sizes to participate in the provision of
wide-area service.
4. 800 MHz SMR Spectrum Aggregation Limit
11. In the CMRS Third R&O, the Commission concluded that a 45 MHz
limit on aggregation of broadband PCS, cellular, and SMR spectrum,
combined with existing service-specific caps for cellular and PCS, was
sufficient to maintain a competitive CMRS market. In light of this
conclusion, in the Further Notice, the Commission concluded that an
additional aggregation limit within the 800 MHz SMR service was
unnecessary.
12. The Commission concludes in this First R&O that allowing
unrestricted aggregation of 800 MHz SMR spectrum would not impede CMRS
competition. The Commission expresses concern that limiting aggregation
of 800 MHz SMR spectrum may result in a competitive disadvantage to SMR
licensees as potential competitors to broadband PCS and cellular
providers. Thus, the Commission further concludes that SMR licensees
will be permitted to seek and (if they are the high bidders for all EA
licenses) obtain all three of the EA licenses in a particular license
area. The Commission reiterates, however, that even though it has
declined to adopt a spectrum aggregation limit specific to the 800 MHz
SMR service, such licensees remain subject to the 45 MHz CMRS spectrum
aggregation limit and to the competitive component of the public
interest standard.
5. Licensing in Mexican and Canadian Border Areas
13. In the Further Notice, the Commission tentatively concluded
that attempting to create different allocations in border areas would
be administratively unworkable, and, thus, proposed to license wide-
area spectrum blocks on a uniform basis without distinguishing border
from non-border areas. The Commission further proposed to license the
channels in border areas not contained in the wide-area spectrum block
on a channel-by-channel basis under the same rules it ultimately adopts
for the lower 80 channels in non-border areas.
14. The Commission concludes that EA spectrum blocks should be
licensed on a uniform basis, without distinguishing border from non-
border areas. EA licenses will be entitled to use any available border
area channels within their spectrum blocks, subject to international
assignment and coordination of such channels. The Commission also
concludes that the limited channel availability and other operating
restrictions in the border areas are matters to be assessed by EA

[[Page 6140]]
applicants in their valuation of EA spectrum blocks for competitive
bidding purposes. The Commission, however, defers a decision regarding
treatment of 800 MHz SMR channels licensed in border areas, but not
included within the EA spectrum blocks, until the resolution of the
Second Further Notice of Proposed Rule Making in PR Docket No. 93-144.

B. Rights and Obligations of EA Licensees

1. Operational Flexibility
15. In the Further Notice, the Commission tentatively concluded
that wide-area SMR licensees in the 800 MHz band should be authorized
to construct stations at any available site and on any available
channel within their respective spectrum blocks. In addition, the
Commission proposed to allow wide-area licensees to ``self-coordinate''
system modifications within their service areas--that is, to add,
subtract, move, and otherwise modify their base station facilities
without prior Commission consent, provided they notify the Commission
of the coordinates and certify compliance with its co-channel
interference protection and emission requirements.
16. The Commission concludes that grant of EA licenses will provide
licensees with: (1) the right to construct at any available site within
the EA, and to add, subtract, or move site locations within the EA
during the license term, on a ``self-coordinated'' basis; and (2) the
right to use any available spectrum within the EA licensee's designated
spectrum block on a self-coordinated basis, including full discretion
over channelization of available spectrum within the block (provided
that emission mask requirements are met, and co-channel interference
protection is afforded to incumbent licensees and co-channel EA
licensees in neighboring EAs). The Commission further concludes that
simplified initial licensing and subsequent system modification
substantially will reduce the existing administrative burden on both
SMR licensees and the Commission, and will establish greater
consistency with its cellular and PCS licensing rules.
2. Spectrum Management Rights--Acquisition and Recovery of Channels
Within Spectrum Blocks
17. In the Further Notice, the Commission recognized that the
operational flexibility afforded to wide-area 800 MHz SMR licensees
would be limited by the large number of systems already authorized and
operating in the band, particularly in major markets. The Commission
noted that even if wide-area licensees do not immediately obtain clear
spectrum comparable to its allocations for cellular or broadband PCS,
wide-area licensing should confer other valuable rights that would
enhance a licensee's ability to establish wide-area service. Thus, the
Commission proposed to assist wide-area licensees in consolidating
spectrum within their respective blocks by providing that (1) if an
incumbent fails to construct, discontinues operations, or otherwise has
its license terminated by the Commission, the spectrum covered by the
incumbent's authorization automatically reverts to the wide-area
licensee; and (2) if a wide-area licensee negotiates to acquire an
incumbent system by assignment or transfer, the assignment or transfer
presumptively will be considered in the public interest.
18. In this First R&O, the Commission concludes that an EA licensee
has the right to use any spectrum within the EA block that is recovered
by the Commission. In addition, the Commission determines that
assignments from incumbents operating in an EA spectrum block to the
respective EA licensee generally will be presumed to be in the public
interest. The Commission concludes that granting these rights to EA
licensees will give them greater flexibility in managing their
spectrum, establish greater consistency with its cellular and PCS
rules, and reduce regulatory burdens on both licensees and the
Commission with respect to future management of the spectrum within the
wide-area blocks. The Commission also eliminates all waiting lists for
SMR Category channels within the upper 10 MHz block, and dismisses all
applications on such waiting lists. The Commission determines that
continuing such lists would be inconsistent with the wide-area
licensing scheme it has adopted.
19. With respect to the impact of these rights on the finders'
preference program, the Commission concludes that successful applicants
for a finders' preference program will be considered an ``incumbent''
within the meaning of the rules adopted in the First R&O. In addition,
the Commission no longer will accept finders' preference requests
following the adoption of this First R&O. As a result, the EA licensee
will have the exclusive right to recover unconstructed or non-
operational channels on blocks for which it is licensed.
3. License Term and Renewal Expectancy
20. In the CMRS Third R&O, the Commission determined that every
Part 90 licensee that is reclassified and treated as a CMRS licensee
when its current license term expires thereafter shall have a ten-year
license term and be afforded a renewal expectancy, provided it is able
to demonstrate that it: (1) has provided ``substantial'' service during
the license term; and (2) has complied with applicable Commission rules
and policies, and the Communications Act. Furthermore, the Commission
determined that ``grandfathered'' Part 90 licensees, because they
retain their ``private'' status until August 10, 1996, would not be
afforded either the ten-year license term or the renewal expectancy
during the statutory transition period.
21. In this First R&O, the Commission determines that EA licenses
should be granted for a ten-year license term. In addition, EA
licensees generally will be afforded a renewal expectancy as determined
in the CMRS Third R&O.

C. Treatment of Incumbent Systems

1. Mandatory Relocation
22. In the Further Notice, the Commission tentatively concluded
that incumbent SMR systems should not be subject to mandatory
relocation to new frequencies pursuant to Nextel's band-clearing
proposal. The Commission also expressed concern that mandatory
relocation could impose significant costs and disruption on incumbent
licensees.
23. The Commission concludes in this First R&O that, based on the
record in this proceeding, a smooth and expedient transition to the new
licensing framework for 800 MHz SMR service cannot be accomplished
without some form of mandatory relocation. Thus, the Commission has
created a two-phase mandatory relocation mechanism under which there is
a fixed one-year period for voluntary negotiations between EA licensees
and incumbents and a two-year period for mandatory negotiations. Under
this mechanism, if an EA licensee and an incumbent licensee fail to
reach an agreement by the conclusion of the mandatory negotiation
period, then the EA licensee may request involuntary relocation of the
incumbent's system provided that it: (1) guarantees payment of all
costs of relocating the incumbent to a comparable facility; (2)
completes all activities necessary for placing the new facilities into
operation, including engineering and frequency coordination, if
necessary; and (3) builds and tests the

[[Page 6141]]
new system. Specifically, any relocation of an incumbent must be
conducted in such a fashion that there is a ``seamless'' transition
from the incumbent's ``old'' frequency to its ``relocated'' frequency
(that is, there is no significant disruption in the incumbent's
operations). In connection with this mandatory relocation mechanism, EA
licensees will be required to notify incumbents operating on
frequencies included in their spectrum block of their intention to
relocate such incumbents within 90 days of the release of the Public
Notice commencing the voluntary negotiation period. If an applicant
does not receive timely notification of relocation, the EA licensee
loses the right to require that incumbent to relocate.
24. The Commission also initiates a partial lifting of the freeze
on acceptance of new applications for SMR and General Category channels
to permit those assignments and transfers of control that involve
modifications to licensed facilities, provided such assignments and
transfers are designed to accommodate market-driven, voluntary
relocation arrangements between incumbents and potential EA applicants,
and do not change the 22dBu service contour of the facilities to be
relocated. This option is not available for purposes of relocating
incumbents from one part of the upper 10 MHz block to another.
Moreover, potential EA applicants and relocating incumbents utilizing
this option must be completely unaffiliated. Processing of these
assignments and transfers will continue until the date the Commission
releases the Public Notice announcing the upper 10 MHz auction.
2. Incumbent Operation Flexibility
25. In the Further Notice, the Commission tentatively concluded
that in those situations in which incumbents are allowed to continue
operating on already-licensed facilities, incumbent systems should not
be allowed to expand beyond their existing service areas on those
channels designated for wide-area licensing, without the consent of the
wide-area licensee.
26. The Commission concludes that allowing non-EA licensees to
expand their systems at will after wide-area licensing has occurred
would diminish substantially the value of the EA license and would
create continuing uncertainty for EA applicants and licensees alike.
The Commission recognizes, however, that there may be circumstances in
which an EA licensee should be required to permit incumbents to make
minor alterations to their service areas to preserve the viability of
their systems. Thus, the Commission granted operational flexibility to
incumbent SMR licensees to add, subtract, or move site locations within
their current 22 dBu contours, on a ``self-coordinated'' basis. The
incumbent must, however, still comply with the short-spacing criteria
in Section 90.621(b) of the Commission's rules, even if its
modifications do not extend its 22 dBu interference contour. Incumbent
licensees will be required to notify the Commission of any changes in
technical parameters or additional stations constructed, including
agreements with an EA licensee to expand beyond their signal strength
contour, through a minor modification of their license.

D. Co-channel Interference Protection

1. Incumbent SMR Systems
27. In the CMRS Third R&O, the Commission concluded that, as a
general matter, it would retain its existing co-channel protection
rules for CMRS licensees. Under the current rules, a wide-area licensee
would be required to afford protection to incumbents, either by
locating its stations at least 113 km (70 mi) from the facilities of
any incumbent, or by complying with the co-channel separation standards
set forth in its ``short-spacing'' rule if it seeks to operate stations
located less than 113 km (70 mi) from an incumbent licensee's
facilities.
28. In this First R&O, the Commission determines to require EA
licensees to afford interference protection to incumbent SMR systems,
as provided in Section 90.621 of the Commission's rules. As a result,
an EA licensee will be able to satisfy its co-channel protection
obligations with respect to incumbents in one of three ways: (1) by
locating its stations at least 113 km (70 miles) from any incumbent's
facilities; (2) by complying with the short-spacing rule if it seeks to
operate stations less than 113 km from an incumbent's facilities; or,
(3) by negotiating an even shorter distance with the incumbent
licensee. The Commission concludes that these requirements will ensure
adequate protection of incumbent operations, without hampering the
ability of EA licensees to construct stations throughout their
authorized service areas. The Commission believes that this rule will
afford maximum flexibility to EA licensees, allow incumbents to fill in
``dead spots,'' and protect incumbent licensees from actual
interference.
2. Adjacent EA Licensees
29. In the CMRS Third R&O, the Commission concluded that the co-
channel interference protection obligations of geographic-area
licensees with respect to other geographic-area licensees would be
similar to those imposed in the cellular and PCS services. In the
Further Notice, the Commission tentatively concluded, therefore, that
wide-area SMR licensees in the 800 MHz band should not be allowed to
exceed a signal level of 22 dBuV/m at their service area boundaries
(unless they negotiate a different signal strength limit with all
potentially affected adjacent licensees).
30. In this First R&O, the Commission prohibits EA licensees from
exceeding a signal level of 40 dBuV/m at their service area boundaries,
unless all bordering EA licensees agree to a higher field strength. The
Commission requires coordination of frequency use between co-channel
adjacent EA licensees and all other affected parties. This approach
provides EA licensees with a signal strength level sufficient to
operate their systems up to the borders of their EAs, while also
providing protection to adjacent operations. As an exception to this
requirement, when a single entity obtains licenses for adjacent EAs on
the same spectrum block, it will not be required to coordinate its
operations in this manner.
3. Emission Masks
31. To protect against adjacent channel interference, the
Commission has emission mask rules in most mobile radio services to
restrict transmitter emissions on the spectrum adjacent to the
licensee's assigned channel. In the CMRS Third R&O, the Commission
affirmed its out-of-band emission rules for CMRS services and
determined that out-of-band emission rules should apply only where
emissions have the potential to affect other licensees' operations.
With respect to licensees that have exclusive use of a block of
contiguous channels, the Commission concluded that out-of-band emission
rules would be applied only to the extent necessary to protect
operations outside of the licensee's authorized spectrum.
32. The Commission concludes that out-of-band emission rules should
apply only to the ``outer'' channels included in an EA license and to
spectrum adjacent to interior channels used by incumbents. The
Commission believes that these channels alone have the potential to
affect operations outside of the EA licensee's authorized bandwidth.
The Commission also believes that this requirement will facilitate dual
mode

[[Page 6142]]
SMR/cellular operation, similar to that in the PCS/cellular context,
which ultimately will add capacity to the systems operated by the EA
licensees.

E. Construction Requirements

1. EA Licensees
33. In the CMRS Third R&O, the Commission determined that the
record in the CMRS proceeding generally supported use of longer
construction periods, combined with interim coverage requirements, to
ensure that wide-area CMRS licensees provide service to portions of
their service area before the construction period expires. In the
Further Notice, the Commission noted that such an approach has been
used for cellular service and recently was adopted for both broadband
and narrowband PCS. In the Further Notice, the Commission tentatively
concluded that wide-area SMR licensees should have five years to
construct their systems.
34. In this First R&O, the Commission concludes that EA licensees
should have a five-year construction period. While this construction
period is shorter than that imposed for PCS systems, we agree with the
majority of commenters that it is the most appropriate time period for
the 800 MHz SMR service. In addition, given the substantial
construction of 800 MHz SMR systems (including wide-area systems) to
date, the ten-year construction period applicable to PCS appears
excessive for the service. Although a five-year construction period may
give some EA licensees more time to construct certain facilities than
otherwise might have been allowed, the Commission believes that EA
licensees should have this flexibility. Furthermore, the Commission
believes that use of competitive bidding to select geographic-area
licensees provides ample incentives for rapid system construction,
since this permits license winners to recover their bidding expenses.
2. Extended Implementation Authority
35. The Commission noted in the Further Notice that some existing
SMR licensees have been granted extended implementation periods of up
to five years to construct their systems, pursuant to either a waiver
of its construction and loading rules or Section 90.629 of its Rules.
The Commission's rules require SMR licensees with extended
implementation authority to submit annual certifications of compliance
with their yearly station construction commitments. Moreover, if the
Commission concludes, at any time, that the licensee has failed to meet
such construction commitments, it may terminate extended implementation
authority and give the licensee six months from the termination date to
complete construction of the system.
36. Following the Commission's adoption of the Further Notice, some
SMR licensees filed requests for extended implementation authority,
which remain pending. With respect to two such requests filed by
Chadmoore and PCC Management Corp., the Wireless Telecommunications
Bureau (``Bureau'') released a Public Notice seeking comment on whether
the requests should be granted. In its extended implementation
authority request, Chadmoore sought three years to construct a non-
contiguous ``wide-area'' SMR system that will extend from the
southeastern United States through the upper Midwest and use new
technology. Chadmoore argued that grant of its extended implementation
request was warranted on four grounds: (a) Chadmoore's principals have
demonstrated expertise in SMR sales and service; (b) Chadmoore
previously has demonstrated its ability to acquire and construct those
licenses granted to SMR ``investors;'' (c) Chadmoore's proposal would
assist those licensees ``who have, as yet, not constructed'' their
stations, and who are in danger of losing their investment once their
already extended deadline has expired; and, (d) grant of Chadmoore's
proposal would promote competition in the SMR equipment manufacturing
market. Similarly, PCC sought a period of three years to construct a
regional, and ultimately nationwide, network of SMR systems. PCC's
proposed system would include 2,181 channels, 849 conventional channels
and 269 trunked channels, encompassing 1,118 licenses. PCC argued that
grant of its extended implementation request was warranted for the
following reasons: (a) climatic conditions for the region(s) in which
the SMR systems are located preclude construction during certain
seasons of the year; (b) grant of PCC's proposal would assist licensees
who have not yet constructed their authorized facilities; (c) PCC's
implementation plan would result in a more cost-effective build-out for
the stations included in its proposal; and (d) grant of PCC's proposal
would facilitate the implementation of an integrated nationwide
network.
37. The Commission initially established extended implementation
authority for SMRs to facilitate construction of wide-area systems. In
the First R&O, the Commission concludes that the availability of
extended implementation authority in the 800 MHz SMR service is no
longer necessary. In fact, the Commission is concerned that both
existing and future grants of extended implementation authority would
be contrary to the underlying goals of this proceeding. Specifically,
the Commission believes that allowing licensees to retain extended
implementation authority of up to five years after adoption of the
wide-area licensing approach detailed in this First R&O would impinge
upon the construction requirements imposed on EA licensees. Thus, the
Commission believes that it is necessary not only to cease acceptance
of requests for extended implementation authority but also to
accelerate the termination date of existing implementation periods so
that EA licensees will not be unnecessarily hampered in their efforts
to comply with the construction requirements associated with their
authorizations.
38. In addition, several licensees and commenters contend that such
extended implementation grants have resulted in spectrum warehousing.
To address these spectrum warehousing concerns, the Commission will
require all incumbent 800 MHz SMR licensees who have received extended
implementation authority to demonstrate that allowing them extended
time to construct their facilities is warranted and furthers the public
interest. Specifically, a licensee seeking to retain extended
implementation authority must: (a) indicate the duration of its
extended implementation period (including commencement and termination
date); (b) provide a copy of its implementation plan, as originally
submitted and approved by the Commission, and any Commission-approved
modifications thereto; (c) demonstrate its compliance with Section
90.629 of its rules if authority was granted pursuant to that
provision, including confirmation that it has filed annual
certifications regarding fulfillment of its implementation plan; and
(d) certify that all facilities covered by the extended implementation
authority proposed to be constructed as of the adoption date of this
First R&O are fully constructed and that service to subscribers has
commenced as defined in the CMRS Third R&O. These showings must be
submitted within 90 days from the effective date of this First R&O. The
Commission notes that all of the information to be included in the
showing presently is required by Section 90.629 of its Rules. The
Commission delegated to the Bureau the authority to review and take
appropriate action upon such showings.
39. If a licensee's extended implementation authority showing is
approved by the Bureau, such licensee

[[Page 6143]]
will be afforded a construction period of two years or the remainder of
its current extended implementation period, whichever is shorter. The
Commission recognizes that some licensees were initially granted
extended implementation periods which exceed this two-year period. In
those instances where a licensee demonstrates that it has fully
complied with the requirements of Section 90.629 of the Commission's
rules and that its system cannot reasonably be completed within the
two-year period, the Commission will entertain requests for the minimum
period of time necessary to complete implementation of the licensee's
proposal provided that the licensee explains why the two-year period is
an insufficient amount of time. The Commission anticipates that such
explanation would entail the same type of public interest showing
associated with a request for waiver of the Commission's rules under
Section 1.3 of the rules.
40. Upon the termination of this two-year period, authorizations
for facilities that remain unconstructed will cancel automatically. If
a licensee either fails to submit the showing described above within
the designated time frame or submits an insufficient or incomplete
showing, such licensee will have six months from the last day on which
it could timely file such a showing or six months from the denial of
its request to construct the remaining facilities covered under its
implementation plan. After this six-month period, authorizations for
facilities still unconstructed will cancel automatically.
41. With respect to pending requests for extended implementation
authority, the Commission determines that grant of these requests would
conflict with its goal of uniformly implementing wide-area licensing.
It also reiterates that parties that remain interested in obtaining
extended implementation authority are free to apply for an EA license
under the Commission's new rules.
3. Interim Coverage Requirements
42. In the CMRS Third R&O, the Commission concluded that 800 MHz
wide-area SMR licensees should be subject to interim coverage
requirements that are similar to those in the cellular and PCS rules.
In the Further Notice, the Commission proposed that geographic-area
licensees be required to provide coverage to one-third of the
population within their license area within three years of initial
license grant, and to two-thirds of the population by the end of their
five-year construction period.
43. In the CMRS Third R&O, the Commission noted that any interim
coverage requirements for wide-area SMR systems must account for the
fact that geographic-area licensees may be required to provide co-
channel protection to incumbent systems within their service area. In
the Further Notice, the Commission indicated its belief that when a
licensee acquires a wide-area license, it assumes the responsibility of
obtaining the right to use sufficient spectrum to provide coverage if
such spectrum is not already available. The Commission further
indicated its expectation that coverage be achieved directly by
constructing facilities on available spectrum authorized to the wide-
area licensee or acquiring such spectrum through buy-outs of incumbent
licensees within its authorized spectrum block. To the extent that the
Further Notice could be read to propose that coverage could be met
through use of resale or similar agreements, the Commission clarifies
its intention that the wide-area licensee is free to engage in resale
activities, but must satisfy its construction requirements through use
of its facilities and not capacity acquired from others through resale.
44. The Commission will require EA licensees to provide coverage to
one-third of the population of their respective EAs within three years
of initial license grant and to two-thirds by the end of their five-
year construction period. This requirement is consistent with the
Commission's 900 MHz SMR rules. Unlike its approach in the 900 MHz SMR
context, the Commission is not adopting a ``substantial service''
benchmark for the upper 10 MHz block as an alternative to the
population coverage criteria. Given the already extensive licensing in
the upper 10 MHz block, the Commission believes it is unlikely that an
EA licensee could provide substantial service without buying incumbent
systems or relocating incumbents. Similarly, the Commission did not
adopt a ``substantial service'' standard in the Multipoint Distribution
Service (MDS) because of extensive incumbent presence in that spectrum.
4. Channel Use Requirement
45. Given the extensive licensing of the upper 10 MHz block, the
Commission shares the concern of several commenters that interim
coverage requirements alone may not ensure efficient spectrum use
unless a channel use requirement is added. Specifically, the Commission
is concerned that an EA licensee potentially could satisfy the interim
coverage requirements by constructing only one channel in its spectrum
block. This would result in inefficient use of 800 MHz SMR spectrum,
for which there is great demand. In addition, unlike the 900 MHz SMR
service and other lightly encumbered auctionable services, the
substantial incumbent presence in the 800 MHz SMR service presents the
potential for a bidder who is incapable of building out a wide-area
system to participate in the auction solely to restrict a competing
incumbent licensee's ability to expand. Accordingly, the Commission
will require EA licensees to construct 50 percent of the total channels
included in their spectrum blocks in at least one location in their
respective EAs within three years of initial license grant. Although
the Commission does not impose an additional channel use requirement at
the fifth year, EA licensees nonetheless are required to maintain their
compliance with the initial channel usage requirement for the remainder
of their construction period.
5. Non-compliance With Interim Coverage Requirements
46. The Commission concluded that an EA licensee's failure to meet
either the three-year or five-year coverage requirements or the channel
usage requirement will result in forfeiture of the entire EA license.
Forfeiture of the EA license, however, will not result in the loss of
any constructed facilities authorized to the licensee prior to the
auction.

F. EA License Application Issues

1. Initial Eligibility
47. In the CMRS Third R&O and the Further Notice, the Commission
tentatively concluded that the initial application process for wide-
area SMR licenses should be open to any qualified applicant. The
Commission also sought comment on whether it was necessary to restrict
eligibility for EA licenses to incumbent licensees (or to restrict
eligibility based on other criteria) if competitive bidding procedures
are used in the upper 10 MHz block.
48. In this First R&O, the Commission concludes that restrictions
on eligibility for EA licenses are not warranted, except that EA
applicants will be presumptively classified as CMRS, and therefore will
be required to comply with the alien ownership requirements specified
in Section 310 of the Act. The Commission has adopted specific
provisions in the service rules for the upper 10 MHz block to address
these concerns, e.g., imposition of construction periods combined with

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interim coverage and channel use requirements. Moreover, the Commission
believes that the competitive bidding process itself will deter
speculation by those not genuinely interested in providing service to
the public. In addition, the Commission believes that open eligibility
for the EA licensees will be pro-competitive and potentially will
result in a diverse group of entities providing wide-area SMR service
in the upper 10 MHz block.
49. With respect to foreign ownership, all applicants will be
subject to Section 310(b) of the Communications Act, except to the
extent they have received waiver of preexisting ownership interests. In
the CMRS docket, the Commission established specific procedures for
private mobile services licensees reclassified as CMRS to file waiver
petitions to retain existing foreign ownership interests. Thus, any
reclassified private mobile services licensees that have levels of
alien ownership or control that would be prohibited when these
licensees assume CMRS status must already have filed a petition seeking
to have such interests grandfathered.
2. Regulatory Classification of EA Licensees
50. In the CMRS Second R&O, the Commission determined that SMR
licensees would be classified as CMRS if they offered interconnected
service and as PMRS if they did not offer such service. In the Further
Notice, the Commission indicated its view that most, if not all, EA
licensees will be classified as CMRS, because they are likely to
provide interconnected service as part of their service offering. As a
result, the Commission proposed to classify all EA licensees
presumptively as CMRS providers. The Commission also proposed that EA
applicants or licensees who do not intend to provide CMRS service would
be able to overcome this presumption by demonstrating that their
service does not fall within the CMRS definition. The Commission
further proposed that the statutory grandfathering period also would
apply with respect to the operation of this presumption. As a result,
entities licensed in the SMR service as of August 10, 1993, would not
be subject to CMRS regulation, other than foreign ownership
restrictions, until August 10, 1996.
51. The Commission reiterates its conclusion that EA licensees will
be classified presumptively as CMRS providers. The Commission also
concluded that EA applicants and licensees, like other CMRS providers
(such as broadband PCS applicants and licensees), will be able to
overcome this presumption if they demonstrate that their service does
not fall within the CMRS definition provided in Section 332(d)(1) of
the Communications Act.

G. Redesignation of Other 800 MHz Spectrum--General Category Channels
and Inter-Category Sharing

52. Currently, 800 MHz SMR systems may be licensed on the General
Category channels or licensed under its inter-category sharing rules on
100 channels in the Industrial/Land Transportation and Business
Categories (collectively, ``Pool Channels''). In the Further Notice,
the Commission indicated that although it believes that SMR licensees
with existing operations on the General Category or Pool Channels
should be allowed to operate on such channels, the Commission also
believes that some restriction on future SMR applications for General
Category or Pool Channels might be appropriate.
1. General Category Channels
53. In the Further Notice, the Commission asked commenters to
address whether the entire General Category or some portion thereof
should be designated for future licensing exclusively to SMR
applicants. The Commission's licensing records indicate that the
overwhelming majority of General Category channels are used for SMR as
opposed to non-SMR service. As a result, the Commission concludes that
the demand for additional spectrum by SMR providers is significantly
greater than the demand by non-SMR services. In addition, given the
already extensive licensing on the upper 10 MHz block and the mandatory
relocation established in this First R&O, as part of its wide-area
licensing for the 800 MHz SMR service, the Commission expects that
demand for additional SMR spectrum will increase, as EA licensees seek
frequencies for relocation of incumbents. The Commission believes that
by prohibiting SMR eligibility on the Pool Channels it will relieve
much of the pressure on such frequencies. The Commission concludes that
the most efficient use of the General Category channels is to
redesignate them exclusively for SMR use.
2. Inter-Category Sharing
54. In the Further Notice, the Commission noted that the Pool
Channels are intended for non-commercial internal use by Business and
Industrial/Land Transportation licensees, and their availability for
SMR licensees was to be on a limited basis only. After the release of
the Further Notice, the Bureau placed a freeze on inter-category
sharing.
55. The Commission is concerned that continuing to allow SMR
applications for the Pool Channels could cause a scarcity of
frequencies for PMRS uses. Specifically, if these channels remain
available to SMR licensees, but are not subject to auctions, demand for
the channels by SMR applicants seeking to avoid auctions may render
them unavailable to other eligible Part 90 services. Thus, the
Commission revises current eligibility rules for inter-category sharing
of the Pool Channels to eliminate the risk of SMR encroachment on
spectrum allocated for PMRS purposes. SMR licensees no longer will be
eligible to apply for Pool Channels on an inter-category sharing basis.
56. In light of its elimination of SMR eligibility for the Pool
Channels, the Commission concludes that non-SMR licensees no longer
will be eligible for SMR channels, including the General Category
channels. With respect to the upper 10 MHz block, the Commission
concludes that non-SMR incumbent licensees, like SMR incumbent
licensees, will receive the operational rights extended to incumbents
and will be subject to the mandatory relocation mechanism.

III. Eighth Report and Order

A. Auctionability of the Upper 10 MHz Block of 800 MHz SMR Spectrum

57. Section 309(j) of the Communications Act, permits auctions only
where: (1) mutually exclusive applications for initial licenses or
construction permits are accepted for filing by the Commission; (2) the
principal use of the spectrum will involve or is reasonably likely to
involve the receipt by the licensee of compensation from subscribers in
return for enabling those subscribers to receive or transmit
communications signals; and, (3) the objectives set forth in Section
309(j)(3) would be promoted.
58. In the Second Report and Order in PP Docket No. 93-253, 59 FR
22980 (May 4, 1994) (Competitive Bidding Second R&O), the Commission
concluded that SMR as a class of service, including 800 MHz SMR, would
satisfy the Section 309(j) criteria for auctionability. The Commission
noted that its rules explicitly contemplate and expect that SMR
licensees will provide service to eligible subscribers for
compensation. The Commission concluded that the use of competitive
bidding will speed the development and rapid deployment of SMR service,
including service in rural areas, with minimal administrative or
judicial

[[Page 6145]]
delays, as required by Section 309(j)(3)(A). The Commission also
determined that competitive bidding would promote the objectives of
Section 309(j)(3)(C) in the SMR service by recovering for the public a
portion of the value of SMR spectrum made available for commercial use,
and avoiding unjust enrichment.
59. In the CMRS Third R&O, the Commission concluded that it
generally should use competitive bidding procedures to select among
mutually exclusive CMRS applications where it has the authority to do
so and where the Commission find such processing to be in the public
interest. The Commission specifically concluded that competitive
bidding procedures should be used to select between mutually exclusive
initial applications in the 800 MHz SMR service. The Commission also
concluded that, because the number of mutually exclusive applications
in future licensing in the 800 MHz SMR service may be considerable, the
use of competitive bidding will ensure that the qualified applicants
who place the highest value on the available spectrum will prevail in
the selection process.
60. The Commission reiterates its conclusion that competitive
bidding is an appropriate licensing tool for the 800 MHz SMR service.
The Commission emphasizes that the use of auctions will apply only to
issuance of initial licenses in the upper 10 MHz block, the EA
licenses. These EA licenses previously have not been issued by the
Commission, and include certain rights and obligations that previously
were not granted to or required of licensees. Significantly, its
granting of these EA licenses does not affect rights afforded to
licensees under existing authorizations, because incumbent licensees
will be able to continue to operate their systems. Even though
incumbents will be subject to mandatory relocation under certain
circumstances, their existing operations will be protected.
Furthermore, auctions will be used only in the event that there are
competing applications for the same EA license.
61. The Commission concludes that use of competitive bidding in the
upper 10 MHz block is authorized by Section 309(j) of the
Communications Act. The Commission affirmed its previous conclusion
that 800 MHz SMR, as a service, satisfies the criteria set forth by
Congress for determining when competitive bidding should be used. SMR
licenses are used to provide service to subscribers for compensation,
so a precondition to competitive bidding under Section 309(j)(2)(A) is
met. Moreover, competitive bidding will further the public interest
requirements of Section 309(j)(3), by promoting rapid development of
service, fostering competition, recovering a portion of the value of
the spectrum for the public, and encouraging efficient spectrum use.
Where competitive bidding is utilized, a diverse group of entities,
including incumbent licensees and potential new entrants, will be able
to participate in the auction process, because the Commission has
decided not to restrict eligibility for these EA licenses, an outcome
which furthers the goals of Section 309(j)(3)(B) of the Communications
Act.
62. Additionally, the Commission believes that competitive bidding
procedures will minimize administrative or judicial delays in
licensing, particularly when compared to other licensing alternatives--
comparative hearings, lotteries (which specifically are prohibited
since the 800 MHz SMR service is auctionable), or first-come, first-
served procedures. The Commission employed first-come, first-served
procedures in the 800 MHz SMR service prior to its implementation of
the Budget Act. The Commission's experience is that such procedures
have resulted in processing delays. By contrast, the Commission expects
that use of competitive bidding will allow interested parties to obtain
expeditious access to 800 MHz SMR spectrum and to use such spectrum
efficiently. The Commission concludes that this result furthers both
Section 309(j)(3)(A) and Section 309(j)(3)(D) of the Communications
Act.
63. The Commission disagrees with those commenters who argue that
the Commission's competitive bidding authority does not extend to
existing services. Section 309(j) of the Communications Act does not
distinguish between new services (such as PCS) and existing services in
terms of whether initial licenses in a given service should be subject
to competitive bidding. Accordingly, the Commission concludes that its
determination that the 800 MHz SMR service is auctionable is fully
consistent with Section 309(j) of the Communications Act.

B. Competitive Bidding Methodology for Upper 10 MHz Block

1. Competitive Bidding Design
64. Simultaneous Multiple Round Auctions. Based on the record in
this proceeding and the Commission's successful experience conducting
simultaneous multiple round auctions for other CMRS services (e.g.,
narrowband and broadband PCS), the Commission believes a simultaneous
multiple round auction is the most appropriate competitive bidding
design for the 10 MHz upper block of 800 MHz SMR spectrum. The
Commission has developed and successfully conducted auctions with
software capable of handling numerous licenses in a simultaneous
multiple round auction. Thus, this methodology will afford the
Commission administrative convenience and enable it to hold an auction
quickly and efficiently. For certain bidders, the value of these
licenses will be significantly interdependent because of the
desirability of aggregation across geographic regions. Given this high
degree of interdependency among licenses, the Commission rejects SBA's
suggestion that single round sealed bidding is a more appropriate
competitive bidding design for licensing the upper 10 MHz SMR spectrum
blocks. The Commission believes that simultaneous multiple round
bidding will generate more information about license values during the
course of the auction and provide bidders with more flexibility to
pursue back-up strategies, than if the licenses were auctioned
separately or through sealed bidding. As the Commission decided in the
900 MHz SMR service, the Bidder Information Package for the 10 MHz
upper block licenses will provide all the information about incumbent
licensees that is available in its licensing records as of 60 days
prior to the filing deadline for participation in the auction. In this
connection, upon release of the Public Notice announcing the date of
the auction for the upper 10 MHz block of 800 MHz SMR spectrum, all
pending applications for frequencies within this spectrum will be
returned without prejudice to the applicants. These applicants then
will be able to seek licenses for these frequencies through the
competitive bidding process. In addition, the Commission encourages all
potential bidders to examine these records carefully and do their own
independent investigation regarding existing licensees' operations in
each EA in which they intend to bid in order to maximize their success
in the auction. The Commission will hold a seminar for prospective
bidders to acquaint them with this competitive bidding design. The
Commission will announce the date and location for such seminar by
Public Notice. The Commission concludes, therefore, that simultaneous
multiple round bidding is most likely to award licenses to the bidders
who value them the most highly and to provide bidders with the greatest
likelihood of obtaining the license

[[Page 6146]]
combinations that best satisfy their service needs.
65. Stopping Rules. The Commission will adopt a simultaneous
stopping rule for the upper 10 MHz block 800 MHz SMR auction. The
simultaneous stopping rule is designed to allow bidders to decide how
long the auction will run, based on bidding strategy and demand for
each license. Under a simultaneous stopping rule, bidding will remain
open on all licenses in an auction until bidding stops on every
license. In this Eighth R&O, the Commission concludes that the
substitutability between licenses within the same EA and the ability to
pursue back-up strategies support the use of a simultaneous stopping
rule.
66. As a result, the upper 10 MHz block 800 MHz SMR auction will
close after one round passes in which no new valid bids or proactive
activity rule waivers are submitted. The Commission retains the
discretion to keep the auction open even if no new acceptable bids and
no proactive waivers are submitted in a single round. In the event that
the Commission exercise this discretion, the effect will be the same as
if a bidder has submitted a proactive waiver. The Commission also
retains the discretion to announce market-by-market closings.
67. The Commission further retains the discretion to declare after
40 rounds that the auction will end after some specified number of
additional rounds. Bids will be accepted only on licenses where the
high bid has increased in the last three rounds. This will deter
bidders from continuing to bid on a few low value licenses solely to
delay the closing of the auction. It also will enable the Commission to
end the auction when it determines that the benefits of terminating the
auction and issuing licenses exceed the likely benefits of continuing
to allow bidding. The Commission will announce by Public Notice the
number of remaining rounds and other final bidding procedures. In this
Eighth R&O, the Commission delegates authority to the Bureau to issue
such Public Notices.
68. Activity Rules. In the Further Notice, the Commission proposed
that if simultaneous multiple round auctions are used for the upper 10
MHz block, the Commission would use activity rules the same as or
similar to those used in simultaneous multiple round bidding for MTA-
based PCS licenses. The Commission has used the Milgrom-Wilson activity
rule to award broadband and narrowband PCS licenses. In the Competitive
Bidding Fifth R&O, the Commission permitted broadband PCS bidders one
``automatic'' waiver from the activity rule during each stage of an
auction. An automatic waiver is exercised by the Commission if a bidder
fails to bid and fails to submit a ``proactive'' waiver, unless the
bidder chooses to override the automatic waiver process to
intentionally decrease eligibility: a ``proactive'' waiver is one which
can be submitted by the bidder when it chooses not to bid in a round
and wishes to maintain its current eligibility level. With respect to
broadband PCS auctions, the Commission initially determined that only
proactive waivers, and not automatic waivers, would keep an auction
open. In that context, however, the Commission later modified the rule
by retaining the discretion to keep an auction open even if no new
acceptable bids and no proactive waivers are submitted in a single
round. The Commission will employ the Milgrom-Wilson activity rule in
conjunction with the simultaneous stopping rule. Under the Milgrom-
Wilson approach, the minimum activity level, measured as a fraction of
the bidder's eligibility in the current round, increases during the
course of the auction. The three-stage Milgrom-Wilson approach
encourages bidders to participate in early rounds by limiting their
maximum participation to some multiple of their minimum participation
level.
69. Absent waivers, a bidder's eligibility (in terms of activity
units) in the current round is determined by the bidder's activity
level and eligibility in the previous round. In the first round,
however, eligibility is determined by the bidder's upfront payment and
is equal to the upfront payment divided by $0.02 per activity unit.
70. In each round of Stage I, a bidder who wishes to maintain its
current eligibility must be active on licenses encompassing at least
one-half (50 percent) of the activity units for which it currently is
eligible. Failure to maintain the requisite activity level will result
in a reduction in the amount of activity units upon which a bidder will
be eligible to bid in the next round of bidding (unless an activity
rule waiver is used). During Stage I, if bidding activity is below the
required minimum level, eligibility in the next round will be
calculated by multiplying the current round activity by two.
Eligibility for each applicant in the first round of the auction is
determined by the amount of the upfront payment received and the
licenses identified in its auction application. In each round of Stage
II, a bidder who wishes to maintain its current eligibility in the next
round is required to be active on at least 75 percent of the activity
units for which it is eligible in the current round. During Stage II,
if activity is below the required minimum level, eligibility in the
next round will be calculated by multiplying the current round activity
by four-thirds (\4/3\). In each round of Stage III, a bidder who wishes
to maintain its current eligibility must be active on licenses
encompassing at least 95 percent of the activity units for which it is
eligible in the current round. In Stage III, if activity in the current
round is below 95 percent of current eligibility, eligibility in the
next round will be calculated by multiplying the current round activity
by twenty nineteenths (\20/19\). The Commission reserve the discretion
to set and, by announcement before or during the auction, vary the
requisite minimum activity levels (and associated eligibility
calculations) for each auction stage. Retaining this flexibility will
improve the Commission's ability to control the pace of the auction and
help ensure that the auction is completed within a reasonable period of
time.
71. As in prior auctions, the Commission will determine the
transition from one stage to the next in the 800 MHz SMR auction by the
aggregate level of bidding activity, subject to its discretion. The
transition rule also may be defined in terms of the ``auction activity
level''--the sum of activity units of those licenses whose high bid
increased in the current round, as a percentage of the total activity
units of all licenses in that auction. The auction will start in Stage
I and move to Stage II when the auction activity level is below ten
percent for three consecutive rounds in Stage I. The auction will move
from Stage II to Stage III when the auction activity level is below
five percent for three consecutive rounds in Stage II. In no case can
the auction revert to an earlier stage. The Commission retains the
discretion, however, to determine and announce during the course of an
auction when, and if, to move from one auction stage to the next. These
determinations will be based on a variety of measures of bidder
activity including, but not limited to, the auction activity level
defined above, the percentage of licenses (measured in terms of
activity units) on which there are new bids, the number of new bids,
and the percentage increase in revenue.
72. To avoid the consequences of clerical errors and to compensate
for unusual circumstances that might delay a bidder's bid preparation
or submission on a particular day, the Commission will provide bidders
with five activity rule waivers that may be used in any round during
the course of the auction.

[[Page 6147]]
If a bidder's activity level is below the required activity level a
waiver automatically will be applied. That is, if a bidder fails to
submit a bid in a round, and its activity level from any ``standing''
high bids (i.e., high bids at the end of the bid withdrawal period in
the previous round) falls below its required activity level, a waiver
automatically will be applied. A waiver will preserve current
eligibility in the next round, but cannot be used to correct an error
in the bid amount. An activity rule waiver applies to an entire round
of bidding and not to a particular EA service area.
73. Bidders will be afforded an opportunity to override the
automatic waiver mechanism when they place a bid, if they wish to
reduce their bidding eligibility and do not want to use a waiver to
retain their eligibility at its current level. If a bidder overrides
the automatic waiver mechanism, its eligibility permanently will be
reduced, and it will not be permitted to regain its bidding eligibility
from a previous round. An automatic waiver invoked in a round in which
there are no valid bids will not keep the auction open. Bidders will
have the option to enter a ``proactive'' waiver during the bid
submission period. If a bidder submits a proactive waiver in a round in
which no other bidding activity occurs, the auction will remain open.
74. The Commission retains the discretion to issue additional
waivers during the course of an auction for circumstances beyond a
bidder's control. The Commission also retains the flexibility to
adjust, by Public Notice prior to an auction, the number of waivers
permitted, or to institute a rule that allows one waiver during a
specified number of bidding rounds or during specified stages of the
auction. In this Eighth Report and Order, the Commission delegated to
the Bureau the discretion to issue additional waivers or restrict the
use of such waivers.
2. License Grouping
75. In the Further Notice, the Commission tentatively concluded
that if simultaneous multiple round auctions were used for the 800 MHz
SMR wide-area spectrum blocks, the wide-area licenses covering these
spectrum blocks should be auctioned simultaneously, because of the
relatively high value and significant interdependence of the licenses.
76. The Commission believes that the licenses for the upper 10 MHz
band are significantly interdependent. The Commission believes that
grouping interdependent licenses and putting them up for bid at the
same time will facilitate awarding licenses to bidders who value them
most highly by providing bidders with information about the prices of
complementary and substitutable licenses during the course of an
auction. Because potential bidders may be interested in aggregating
spectrum across geographic areas as well as across spectrum blocks, the
Commission disagrees with Cellcall's suggestion to auction each
geographic area individually. As a result, the Commission concludes
that all EA licenses for the upper 10 MHz block should be auctioned
simultaneously. The Commission further concludes that holding a single
auction for all 176 EAs in the 800 MHz SMR band will be the fairest,
fastest, and most efficient means of distributing these licenses.
3. Bidding Issues for Upper 10 MHz Block of 800 MHz SMR Spectrum
77. Bidding Procedures. In the Further Notice, the Commission
proposed that if simultaneous multiple round auctions are used for
wide-area SMR licenses, the Commission would use the same or similar
bidding procedures to those used in simultaneous multiple round bidding
for broadband PCS licenses. The Commission adopts the same bidding
procedures used for MTA-based PCS licenses. Under these procedures,
bidders will be able to submit bids via remote bidding, using special
bidding software, or via telephone. The Commission has established a
schedule of fees that participants in the competitive bidding process
will be assessed for certain on-line computer services, bidding
software, and for Bidder Information Packages. In addition, bidders
will be permitted to bid electronically only if they have filed a
short-form application electronically. Bidders who file their short-
form manually may bid only telephonically. When submitting bids
telephonically, bidders may utilize the Internet to learn the round-by-
round results of the auction. Online services such as CompuServe,
Prodigy, and America Online provide Internet access at a reasonable
cost. Bidders also may, at negligible cost, use a computerized bulletin
board service, accessible by telephone lines, from which auction
results can be downloaded to a personal computer. The Commission
intends to hold a seminar for prospective bidders to acquaint them with
these bidding procedures.
78. Bid Increments. In the Further Notice, the Commission proposed
that if simultaneous multiple round auctions are used for the upper 10
MHz block, the Commission would use the same or similar procedures for
bid increments as those used in simultaneous multiple round bidding for
MTA-based PCS licenses.
79. The Commission will announce, by Public Notice prior to the
auction, the general guidelines for bid increments. The Commission
retains the discretion to set and, by announcement before or during the
auction, vary the minimum bid increments for individual licenses or
groups of licenses over the course of the auction.
80. Duration of Bidding Rounds. In simultaneous multiple round
auctions, the Commission recognize that bidders may need a significant
amount of time to evaluate back-up strategies and develop their bidding
plans. The Commission delegated to the Bureau the discretion to vary
the duration of the bidding rounds or the interval at which bids are
accepted (e.g., to run more than one round per day) in order to move
the auction to closure more quickly. The Bureau will announce any
changes to the duration of and intervals between bidding rounds, either
by Public Notice prior to the auction or by announcement during the
auction.
4. Procedural and Payment Issues
81. Pre-Auction Application Procedures. In the Competitive Bidding
Second R&O, the Commission determined that it should require only a
short-form application (FCC Form 175) prior to auction, and that only
winning bidders should be required to submit a long-form license
application (FCC Form 600) after the auction. In this connection, the
Commission determined that such a procedure would fulfill the statutory
requirements and objectives and adequately protect the public interest.
In the Further Notice, the Commission proposed to treat all wide-area
applicants as initial applicants for public notice, application
processing, and competitive bidding purposes, regardless of whether
they already are incumbent licensees in the 800 MHz band. In addition
in the Further Notice, the Commission proposed to require applicants
for wide-area SMR licenses to file an initial ``short-form''
application in order to qualify for competitive bidding.
82. The Commission will extend the pre-auction application
procedures established in the Competitive Bidding Second R&O to the
competitive bidding process for the upper 10 MHz block. With respect to
the definition of ``initial'' application in the upper 10 MHz block of
800 MHz SMR spectrum, the Commission believes that the most appropriate
basis for this determination is an evaluation of the nature of the EA
license. As EA licensees will gain use of

[[Page 6148]]
a large geographic area and the freedom to locate base stations
anywhere within that larger geographic region, they differ from the
existing 800 MHz SMR licensees that essentially are confined to smaller
geographic areas, are site-specific, and do not encompass a large
number of frequencies. Accordingly, the Commission will treat all EA
applicants as initial applicants for public notice, application
processing, and auction purposes, regardless of whether they already
are incumbent operators.
83. Prior to the start of the 800 MHz SMR auction, the Commission
will release an initial Public Notice announcing the auction. The
initial Public Notice will specify the licenses to be auctioned and the
time and place of the auction in the event that mutually exclusive
applications are filed. The Public Notice will specify the method of
competitive bidding to be used, applicable bid submission procedures,
stopping rules, activity rules, the deadline by which short-form
applications must be filed, and the amounts and deadlines for
submitting upfront payments. The Commission will not accept
applications filed before or after the dates specified in the Public
Notice. Applications submitted before the release of the Public Notice
will be returned as premature. Likewise, applications submitted after
the deadline specified by the Public Notice will be dismissed, with
prejudice, as untimely.
84. Soon after the release of the initial Public Notice, a Bidder
Information Package will be made available to prospective bidders. The
Bidder Information Package for the 800 MHz SMR service will contain
information on the incumbents occupying blocks on which bidding will be
available.
85. Section 309(j)(5) provides that no party may participate in an
auction ``unless such bidder submits such information and assurances as
the Commission may require to demonstrate that such bidder's
application is acceptable for filing.'' Moreover, ``[n]o license shall
be granted to an applicant selected pursuant to this subsection unless
the Commission determines that the applicant is qualified pursuant to
Section 309(a), Section 308(b), and Section 310'' of the Communications
Act. As the legislative history of Section 309(j) makes clear, the
Commission may require that bidders' applications contain all
information and documentation sufficient to demonstrate that the
application is not in violation of the Commission's rules, and the
Commission will dismiss applications not meeting those requirements
prior to the auction.
86. Thus, all bidders will be required to submit short-form
applications on FCC Form 175 (and FCC Form 175-S, if applicable), by
the date specified in the initial Public Notice. Applicants are
encouraged to file FCC Form 175 electronically. Detailed instructions
regarding electronic filing will be contained in the Bidder Information
Package. Those applicants filing manually will be required to submit
one paper original and one diskette original of their application, as
well as two diskette copies. In addition, applicants filing manually
will not be permitted to bid electronically. The short-form
applications will require applicants to provide the information
required by Section 1.2105(a)(2) of the Commission's rules.
Specifically, each applicant will be required to specify on its FCC
Form 175 application certain identifying information, including its
status as a designated entity, its classification (i.e., individual,
corporation, partnership, trust, or other), the EAs and spectrum blocks
for which it is applying, and, assuming that the licenses will be
auctioned, the names of persons authorized to place or withdraw a bid
on its behalf. The Commission requests applicants indicate their
designated entity status in order to assist us in analyzing the
applicant pool and the auction results to determine whether the
Commission has accomplished substantial participation by minorities,
women, small businesses, and rural telephone companies. In this
connection, the Commission notes that Section 309(j) of the
Communications Act requires us to prepare a report on the participation
of designated entities in the auction and in the provision of spectrum-
based services.
87. As the Commission indicated in the Competitive Bidding Second
R&O, if it receives only one application that is acceptable for filing
for a particular license, and thus there is no mutual exclusivity, the
Commission will issue a Public Notice cancelling the auction for this
license and establishing a date for the filing of a long-form
application, the acceptance of which will trigger the procedures
permitting petitions to deny. If no petitions to deny are filed, the
application will be grantable after 30 days. By ensuring that bidders
and license winners are serious, qualified applicants, these rules will
minimize the need to re-auction licenses and will prevent delays in the
provision of 800 MHz SMR service to the public. In response to those
commenters concerned about the ability of unsuccessful bidders to
participate in geographic-area licensing, the Commission reiterated its
decision in the First R&O that incumbents, post-auction, will be able
to trade-in their multiple licenses for a single authorization in a
particular area, provided certain conditions are satisfied.
88. Amendments and Modifications. The Commission will adopt the
following procedures for amendments to and modifications of short-form
applications in the 800 MHz SMR service. Upon reviewing the short-form
applications, the Commission will issue a Public Notice listing all
defective applications, and applicants with minor defects will be given
an opportunity to cure them and resubmit a corrected version. By the
resubmission date, all applicants will be required to submit an upfront
payment to the Commission, as discussed below, to the Commission's
lock-box by the date specified in the Public Notice, which should be no
later than 14 days before the scheduled auction. After the Commission
receives from its lock-box bank the names of all applicants who have
submitted timely upfront payments, the Commission will issue a second
Public Notice announcing the names of all applicants that have been
determined to be qualified to bid. An applicant who fails to submit a
sufficient upfront payment to qualify it to bid on any license being
auctioned will not be identified on this Public Notice as a qualified
bidder. Each applicant listed on this Public Notice will be issued a
bidder identification number and further information and instructions
regarding auction procedures.
89. On the date set for submission of corrected applications,
applicants that on their own have discovered minor errors in their
applications (e.g., typographical errors, incorrect license
designations, etc.) will be permitted to file corrected applications.
The Commission also will waive the ex parte rules as they apply to the
submission of amended short-form applications for the 800 MHz SMR
auctions, to maximize applicants' opportunities to seek Commission
staff advice on making such amendments. Applicants will not be
permitted to make any major modifications to their applications,
including, but not limited to, changes in license areas and changes in
control of the applicant, or additions of other bidders into the
bidding consortia, until after the auction. Applicants also may modify
their short-form applications to reflect formation of consortia or
changes in ownership at any time before or during an auction, provided
such changes will not result in a change in de jure or de facto control
of the applicant,

[[Page 6149]]
and provided that the parties forming consortia or entering into
ownership agreements have not applied for licenses in any of the same
geographic license areas, i.e., EAs. In addition, applications that are
not signed will be dismissed as unacceptable for filing, as will
applications in which no market designations are made.
90. In addition, a single member of a bidding consortium may
withdraw from a consortium only in a particular EA(s), but otherwise
remain in the consortium for purposes of bidding on all other markets
specified on the short-form application. However, such arrangements to
assign the member's interests in particular licenses to other
consortium members after the auction must be disclosed on an original
or amended short-form application, and a request to transfer or assign
the license also must be filed in conjunction with the long-form
application.
5. Upfront Payments
91. In the Competitive Bidding Second R&O, the Commission
established a minimum upfront payment of $2,500 and stated that this
amount could be modified on a service-specific basis. In the Further
Notice, the Commission proposed to require 800 MHz SMR auction
participants to tender in advance to the Commission a substantial
upfront payment, $0.02 per activity unit for the largest combination of
activity units on which a bidder anticipates bidding in any round, as a
condition of bidding in order to ensure that only serious, qualified
bidders participate in auctions, and to ensure payment of the monetary
assessment in the event of bid withdrawal or default. The Commission
also sought comment on the upfront payment formula and minimum upfront
payment most appropriate for the 800 MHz SMR service.
92. The Commission adopts the standard $0.02 per activity unit
formula to calculate the upfront payment. The Commission also adopts a
minimum upfront payment of $2,500 for the 800 MHz SMR service. In the
initial Public Notice issued prior to the auction, the Commission will
announce population information corresponding to each license and the
upfront payment amount for each EA license. In general, population
coverage for each channel block in each EA will be based on a formula
that takes into account the presence of incumbent licensees.
93. Upfront payments will be due by a date specified by Public
Notice, but generally no later than 14 days before a scheduled auction.
Each qualified bidder will be issued a bidder identification number and
further information and instructions regarding the auction procedures.
During the auction, bidders will be required to provide their bidding
identification numbers when submitting bids.
6. Down Payments and Full Payments
94. Down Payments. In the Competitive Bidding Second R&O, the
Commission generally required successful bidders to tender a 20 percent
down payment on their bids to discourage default between the auction
and licensing, and to ensure payment of the monetary assessment if such
default occurs. In the Further Notice, the Commission proposed to
require the winning bidders for 800 MHz SMR licenses to supplement
their upfront payments with a down payment sufficient to bring their
total deposits up to 20 percent of their winning bid(s).
95. The Commission concludes that winning bidders must supplement
their upfront payments with a down payment sufficient to bring their
total deposits up to 20 percent of their winning bid(s). If the upfront
payment already tendered by a winning bidder, after deducting any bid
withdrawal and default payments due, amounts to 20 percent or more of
its winning bids, no additional deposit will be required. If the
upfront payment amount on deposit is greater than 20 percent of the
winning bid amount after deducting any bid withdrawal and default
payments due, the additional monies will be refunded. If a bidder has
withdrawn a bid or defaulted, but the amount of the payment cannot yet
be determined, the bidder will be required to make a deposit of 20
percent of the amount bid on such licenses. When it becomes possible to
calculate and assess the payment, any excess deposit will be refunded.
Upfront payments will be applied to such deposits, and to bid
withdrawal and default assessments due, before being applied toward the
bidder's down payment on licenses the bidder has won and seeks to
acquire.
96. The Commission also will require winning bidders to submit the
required down payment by cashier's check or wire transfer to its lock-
box bank by a date and time to be specified by Public Notice, generally
within five business days following the close of bidding. The
Commission will hold the down payment until the high bidder is awarded
the license and has paid the remaining balance due on such license, or
until the winning bidder is found unqualified to be a licensee or has
defaulted, in which case it will be returned, less applicable monetary
assessments. All auction winners generally will be required to make
full payment of the balance of their winning bids within five business
days following Public Notice that the Commission is prepared to award
the license. The Commission generally will grant uncontested licenses
within ten business days after receiving full payment. During the
period that deposits are held pending the ultimate award of the
license, the interest that accrues, if any, will be retained by the
U.S. Treasury.
97. Long-Form Applications. The Commission will follow these
procedures if the winning bidder makes the down payment in a timely
manner: A long-form application filed on FCC Form 600 must be filed by
a date specified by Public Notice, generally within ten business days
after the close of bidding. After the Commission receives the winning
bidder's down payment and long-form application, the Commission will
review the long-form application to determine if it is acceptable for
filing. Upon acceptance for filing of the long-form application, the
Commission will issue a Public Notice announcing this fact, triggering
the filing window for petitions to deny. If the Commission denies all
petitions to deny, and otherwise is satisfied that the applicant is
qualified, the license(s) will be granted to the auction winner.
98. Petitions to Deny and Limitations on Settlements. A party
filing a petition to deny against an 800 MHz SMR application will be
required to demonstrate standing and meet all other applicable filing
requirements. The restrictions in Section 90.162 were established to
prevent the filing of speculative applications and pleadings (or
threats of the same) designed to extract money from 800 MHz SMR
applicants. Thus, the Commission will limit the consideration that an
applicant or petitioner is permitted to receive for agreeing to
withdraw an application or petition to deny to the legitimate and
prudent expenses of the withdrawing applicant or petitioner.
99. With respect to petitions to deny, the Commission need not
conduct a hearing before denying an application if it determines that
an applicant is not qualified and no substantial and material issue of
fact exists concerning that determination. In the event the Commission
identifies substantial and material issues of fact, Section 309(i)(2)
of the Communications Act permits the submission of all or part of
evidence in written form in any hearing and allows employees other than
administrative law judges to preside over the taking of written
evidence.

[[Page 6150]]

100. Bid Withdrawal, Default, and Disqualification. In the Further
Notice, the Commission proposed to adopt bid withdrawal, default, and
disqualification rules for the 800 MHz SMR service, based on the
procedures established in its general competitive bidding rules.
101. The Commission believes that forfeiture of the entire upfront
payment is too extreme for the bidder who withdraws only one bid. Since
commenters have not stated why the 800 MHz SMR service differs in this
respect from the narrowband and broadband PCS services, there is no
justification for departing from the already tested narrowband and
broadband PCS withdrawal, default, and disqualification assessments.
Therefore, the Commission believes applying Section 1.2104(g)(1) of its
Rules to the 800 MHz SMR auction is more equitable and is consistent
with its practice in prior auctions. Section 1.2104(g)(1) provides that
any bidder that withdraws a high bid during an auction before the
Commission declares bidding closed will be required to reimburse the
Commission in the amount of the difference between its high bid and the
amount of the winning bid the next time the license is offered by the
Commission, if this subsequent winning bid is lower than the withdrawn
bid.
102. If a license is re-offered by auction, the ``winning bid''
refers to the high bid in the auction in which the license is re-
offered. If a license is re-offered in the same auction, the winning
bid refers to the high bid amount, made subsequent to the withdrawal,
in that auction. If the subsequent high bidder also withdraws its bid,
that bidder will be required to pay an assessment equal to the
difference between its withdrawn bid and the amount of the subsequent
winning bid the next time the license is offered by the Commission. If
a license which is the subject of withdrawal or default is not re-
auctioned, but instead is offered to the highest losing bidders in the
initial auction, the ``winning bid'' refers to the bid of the highest
bidder who accepts the offer. Losing bidders will not be required to
accept the offer, i.e., they may decline without penalty. The
Commission wish to encourage losing bidders in simultaneous multiple
round auctions to bid on other licenses, and therefore the Commission
will not hold them to their losing bids on a license for which a bidder
has withdrawn a bid or on which a bidder has defaulted.
103. After bidding closes, the Commission will apply Section
1.2104(g)(2) of its Rules to assess a defaulting auction winner an
additional payment of three percent of the subsequent winning bid or
three percent of the amount of the defaulting bid, whichever is less.
The additional three percent payment is designed to encourage bidders
who wish to withdraw their bids to do so before bidding ceases. The
Commission will hold deposits made by defaulting or disqualified
auction winners until full payment is made. In the unlikely event that
there is more than one bid withdrawal on the same license, the
Commission will hold each withdrawing bidder responsible for the
difference between its withdrawn bid and the amount of the winning bid
the next time the licenses are offered for auction by the Commission.
104. These payment requirements will discourage default and ensure
that bidders meet all eligibility and qualification requirements. If a
default or disqualification involves gross misconduct,
misrepresentation or bad faith by an applicant, the Commission may
declare the applicant and its principals ineligible to bid in future
auctions, and may take any other action that it deems necessary,
including institution of proceedings to revoke any existing licenses
held by the applicant.
105. If the EA license winner defaults, is otherwise disqualified
after having made the required down payment, or the license is
terminated or revoked, then the Commission will re-auction the license.
If the default occurs within five business days after the bidding has
closed, the Commission retains the discretion to offer the license to
the second highest bidder at its final bid level, or if that bidder
declines the offer, to offer the license to other bidders (in
descending order of their bid amounts) at the final bid levels. If only
a short time has passed since the initial auction, the Commission may
choose to offer the license to the highest losing bidders if the cost
of running another auction exceeds the benefits.
7. Regulatory Safeguards
106. Rules Prohibiting Collusion. The Commission's rules prevent
parties from agreeing in advance to bidding strategies that divide the
market according to their strategic interests and/or disadvantage other
bidders. Bidders will be required to (i) disclose all parties with whom
they have entered into any agreement that relates to the competitive
bidding process, and (ii) certify they have not entered into any
explicit or implicit agreements, arrangements, or understandings with
any parties, other than those identified, regarding the amount of their
bid, bidding strategies, particular properties on which they will or
will not bid or any similar agreement.
107. The Commission will subject 800 MHz SMR licensees to the
reporting requirements and rules prohibiting collusion embodied in
Sections 1.2105 and 1.2107 of the Commission's rules. Bidders will be
required by Section 1.2105(a)(2) to identify on their FCC Form 175
applications all parties with whom they have entered into any
consortium arrangements, joint ventures, partnerships or other
agreements or understandings which relate to the competitive bidding
process. If parties agree in principle on all material terms, those
parties must be identified on the short-form application, even if the
agreement has not been reduced to writing. Only at such level of
agreement can it be fairly stated that the parties have entered into a
bidding consortium or other joint bidding arrangement. If the parties
have not agreed in principle by the short-form filing deadline, an
applicant would not include the names of those parties on its
application, and may not continue negotiations with those parties.
Bidders will be required to certify that they have not entered and will
not enter into any explicit or implicit agreements, arrangements or
understandings with any parties, other than those identified, regarding
the amount of their bid, bidding strategies or the particular
properties on which they will or will not bid. In this connection, any
communications between EA bidders and incumbent licensees should take
place prior to the deadline for filing FCC Form 175 applications.
108. After the FCC Form 175 filing deadline, applicants may not
discuss the substance of their bids or bidding strategies with bidders,
other than those identified on their FCC Form 175 application, that are
bidding in the same license areas, i.e., EAs. This prohibition on
discussions extends to providing indirect information that affects bids
or bidding strategy. For example two applicants not listed on each
other's FCC Form 175 applications for the 800 MHz SMR auctions may not
discuss bids or bidding strategies with each other if they are bidding
for licenses in any of the same EAs, even if they are not bidding for
the same spectrum blocks.
109. Section 1.2105(c) of the Commission's rules, however, provides
certain exceptions to the rule prohibiting discussions with other
applicants after the filing of the short-form application. First,
applicants may make agreements to bid jointly for licenses, so long as
the applicants have not applied for licenses in any of the same license
areas. Second, an applicant

[[Page 6151]]
may modify its short-form application to reflect formation of bidding
agreements or changes in ownership at any time before or during the
auction, as long as the changes do not result in change of de jure or
de facto control of the applicant, and the parties forming the bidding
agreement have not applied for licenses in any of the same license
areas. Finally, a holder of a non-controlling attributable interest in
an applicant may acquire an ownership interest in, or enter into a
bidding agreement with other applicants in the same license area, if
(1) the owner of the attributable interest certifies that it has not
communicated and will not communicate bids or bidding strategies of
more than one of the applicants in which it holds an attributable
interest or with which it has a bidding agreement; and (2) the
arrangements do not result in any change of control of the applicant.
However, once the short-form application has been filed, a party with
an attributable interest in once bidder may not acquire a controlling
interest in another bidder bidding for licenses in any of the same
license areas.
110. Where the applicant does not meet one of these exceptions, it
may not discuss matters relating to bidding with other applicants. Even
when an applicant has withdrawn its application after the short-form
filing deadline, the applicant may not enter into a bidding agreement
with another applicant bidding on authorizations in the license areas
from which the first applicant withdrew.
111. If an applicant has the high bid for a license, Section
1.2107(d) of the Commission's rules requires the applicant to include
with its long-form application a detailed explanation of the terms and
conditions and parties involved in any bidding consortia, joint
venture, partnership or other agreement or arrangement it had entered
into relating to the competitive bidding process prior to the time
bidding was completed. Under the Commission's rules prohibiting
collusion, the term ``applicant'' includes the entity submitting the
application, owners of 5 percent or more of the entity, and all
officers and directors of such entity.
112. The Commission noted that even where the applicant discloses
parties with whom it has reached on agreement on the short-form
application, thereby permitting discussions with those parties, the
applicant nevertheless is subject to existing antitrust laws. As
discussed in the Competitive Bidding Fourth Memorandum Opinion & Order
in PP Docket No. 93-253, 59 FR 53364 (October 24, 1994) (``Competitive
Bidding MO&O''), under the antitrust laws, the parties to an agreement
may not discuss bid prices if they have applied for licenses in the
same license area. In addition, agreements between actual or potential
competitors to submit collusive, non-competitive or rigged bids are per
se violations of Section One of the Sherman Antitrust Act. Further,
actual or potential competitors may not agree to divide territories
horizontally in order to minimize competition, regardless of whether
they split a license area in which they both do business, or whether
they merely reserve one license area for one and another for the other.
113. The Commission noted that where specific instances of
collusion in the competitive bidding process are alleged during the
petition to deny process, the Commission may conduct an investigation
or refer such complaints to the United States Department of Justice for
investigation. Bidders who are found to have violated the antitrust
laws, in addition to any penalties they incur under the antitrust laws,
or who are found to have violated the Commission's rules in connection
with their participation in the auction process may be subject to a
variety of sanctions, including forfeiture of their down payment or
their full bid amount, revocation of their license(s), and may be
prohibited from participating in future auctions.
114. Transfer Disclosure Requirements. In Section 309(j)(4)(E) of
the Communications Act, Congress directed the Commission to ``require
such transfer disclosures and anti-trafficking restrictions and payment
schedules as may be necessary to prevent unjust enrichment as a result
of the methods employed to issue licenses and permits.'' In the
Competitive Bidding Second R&O, the Commission adopted safeguards
designed to ensure that the requirements of Section 309(j)(4)(E) are
satisfied. The Commission decided that it was important to monitor
transfers of licenses awarded by competitive bidding to accumulate the
necessary data to evaluate its auction designs and to judge whether
``licenses [have been] issued for bids that fall short of the true
market value of the license.'' Therefore, the Commission imposed a
transfer disclosure requirement on licenses obtained through the
competitive bidding process, whether such licenses were held by a
designated entity or not. The Commission proposed in the Further Notice
to adopt the transfer disclosure requirements of Section 1.2111(a) of
its Rules to all 800 MHz SMR licenses obtained through the competitive
bidding process.
115. The Commission believes that a three-year holding period is
unnecessary. In other auctionable services, the Commission has required
holding periods only in limited circumstances. For example, the
Commission's broadband PCS rules require those successful bidders
benefitting from special provisions for designated entities to hold
their licenses for a certain period of time and restrict the type of
transfers and assignments of such licenses during that time. The
Commission is not adopting special provisions for designated entities
on the upper 10 MHz block of 800 MHz SMR spectrum. When the Commission
has not established special provisions for designated entities in other
auctionable services, the Commission generally has required only
disclosure of certain information regarding transfers or assignments
within the first three years after initial license grant. The
Commission concludes that this is the most appropriate course of action
here. Thus, the Commission will apply Section 1.2111(a) to all 800 MHz
SMR licenses obtained through the competitive bidding process.
Generally, licensees transferring their licenses within three years
after the initial license grant will be required to file, together with
their transfer applications, the associated contracts for sale, option
agreements, management agreements, and all other documents disclosing
the total consideration received in return for the transfer of their
licenses. The Commission will give particular scrutiny to auction
winners who have not yet begun commercial service and who seek approval
for a transfer of control or assignment of their licenses within three
years after the initial license grant, so that the Commission may
determine if any unforeseen problems relating to unjust enrichment have
arisen.
116. Performance Requirements. The Communications Act requires the
Commission to ``include performance requirements, such as appropriate
deadlines and penalties for performance failures, to ensure prompt
delivery of service to rural areas, to prevent stockpiling or
warehousing of spectrum by licensees or permittees, and to promote
investment in and rapid deployment of new technologies and services.''
In the Competitive Bidding Second R&O, the Commission decided it was
unnecessary and undesirable to impose additional performance
requirements, beyond those already provided in the service rules, for
all auctionable services. In the Further Notice, the Commission did not
propose

[[Page 6152]]
to adopt any additional performance requirements for competitive
bidding purposes.
117. The service rules for the upper 10 MHz block contain specific
performance requirements, such as the requirement to construct within a
specific period of time, channel construction requirements, and interim
coverage requirements. Because the failure to meet these requirements
will result in automatic cancellation of the EA license, the Commission
believes this is a sufficient incentive to promote prompt service and
prevent spectrum warehousing. Thus, the Commission will not adopt any
performance requirements for the 800 MHz SMR service beyond those
required by Section 90.685 of the Rules.
8. Treatment of Designated Entities
118. Overview, Objectives, and the Impact of Adarand Constructors
v. Pena. The Communications Act provides that, in developing
competitive bidding procedures, the Commission shall consider various
statutory objectives and consider several alternative methods for
achieving them. Specifically, the statute provides that in establishing
eligibility criteria and bidding methodologies the Commission shall
``promot[e] economic opportunity and competition and ensur[e] that new
and innovative technologies are readily accessible to the American
people by avoiding excessive concentration of licenses and by
disseminating licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women.'' Small businesses, rural
telephone companies and businesses owned by minorities and/or women are
collectively referred to as ``designated entities.'' Section
309(j)(4)(A) provides that in order to promote the Communications Act's
objectives, the Commission shall ``consider alternative payment
schedules and methods of calculation, including lump sums or guaranteed
installment payments, with or without royalty payments, or other
schedules or methods * * * and combinations of such schedules and
methods.'' The Communications Act also requires the Commission to
``ensure that small businesses, rural telephone companies, and
businesses owned by members of minority groups and women are given the
opportunity to participate in the provision of spectrum-based
services.''
119. To meet the statutory objectives of providing opportunities
for designated entities, the Commission has employed a wide range of
special provisions and eligibility criteria in other spectrum-based
services. The measures adopted thus far for each service were
established after closely examining the specific characteristics of the
service and determining whether any particular barriers to accessing
capital impeded opportunities for designated entities. After examining
the record in the Competitive Bidding proceeding in PP Docket 93-253,
the Commission established provisions to enable designated entities to
overcome the barriers to accessing capital in each particular service.
Moreover, these provisions were designed to increase the likelihood
that designated entities who win licenses in the auctions become strong
competitors in the provision of wireless services.
120. Impact of Adarand Constructors, Inc. v. Pena. In the broadband
PCS docket, the Commission determined that, on separate entrepreneurs'
blocks, the bidding credits would vary according to the type of
designated entity that applied (i.e., a small business would receive a
10 percent bidding credit, a business owned by minorities or women
would receive a 15 percent bidding credit, and a small business owned
by women or minorities would receive an aggregated bidding credit of 25
percent), and all entrepreneurs' block licensees would be eligible for
varying degrees of installment payments. The Commission adopted special
provisions for businesses owned by members of minority groups or women
and analyzed their constitutionality using the ``intermediate
scrutiny'' standard of review articulated in Metro Broadcasting v. FCC,
because, as in Metro Broadcasting, the proposed provisions involved
Congressionally-mandated benign race- and gender-conscious measures.
121. After the release of the Further Notice, the Supreme Court
decided Adarand Constructors, Inc. v. Pena, which overruled Metro
Broadcasting ``to the extent that Metro Broadcasting is inconsistent
with'' the holding in Adarand that ``all racial classifications . . .
must be analyzed by a reviewing court under strict scrutiny.'' As a
result of the Adarand decision, the constitutionality of any federal
program that makes distinctions on the basis of race must serve a
compelling governmental interest and must be narrowly tailored to serve
that interest. In this connection, the Bureau issued a Public Notice
requesting further comment on the effect of the decision in Adarand on
the proposals made in the Further Notice in order to supplement the
record in the 800 MHz SMR proceeding.
122. Special Provisions for Designated Entities. In instructing the
Commission to ensure the opportunity for designated entities to
participate in auctions and provision of spectrum-based services,
Congress was well aware of the problems that designated entities would
have in competing against large, well-capitalized companies in auctions
and the difficulties these bidders encounter in accessing capital. For
example, the legislative history accompanying Congress's grant of
auction authority states generally that the Commission's regulations
``must promote economic opportunity and competition,'' and ``[t]he
Commission will realize these goals by avoiding excessive concentration
of licenses and by disseminating licenses among a wide variety of
applicants, including small businesses and businesses owned by members
of minority groups and women.'' The House Report states that the House
Committee was concerned that, ``unless the Commission is sensitive to
the need to maintain opportunities for small businesses, competitive
bidding could result in a significant increase in concentration in the
telecommunications industries.'' More specifically, the House Committee
was concerned that adoption of competitive bidding should not have the
effect of ``excluding'' small businesses from the Commission's
licensing procedures, and anticipated that the Commission would adopt
regulations to ensure that small businesses would ``continue to have
opportunities to become licensees.''
123. Consistent with Congress's concern that auctions not operate
to exclude small businesses, the provisions relating to installment
payments clearly were intended to assist small businesses. The House
Report states that these related provisions were drafted to ``ensure
that all small businesses will be covered by the Commission's
regulations, including those owned by members of minority groups and
women.'' It also states that the provisions in Section 309(j)(4)(A)
relating to installment payments were intended to promote economic
opportunity by ensuring that competitive bidding does not inadvertently
favor incumbents with deep pockets ``over new companies or start-ups.''
124. In addition, with regard to access to capital, Congress
previously made specific findings in the Small Business Credit and
Business Opportunity Enhancement Act of 1992, that ``small business
concerns, which represent higher degrees of risk in financial markets
than do large businesses, are

[[Page 6153]]
experiencing increased difficulties in obtaining credit.'' As a result
of these difficulties, Congress resolved to consider carefully
legislation and regulations ``to ensure that small business concerns
are not negatively impacted'' and to give priority to passage of
``legislation and regulations that enhance the viability of small
business concerns.''
125. In the 800 MHz SMR service, as in other auctionable services,
the Commission is committed to meeting the statutory objectives of
promoting economic opportunity and competition, of avoiding excessive
concentration of licenses, and of ensuring access to new and innovative
technologies by disseminating licenses among a wide variety of
applicants, including small businesses, rural telephone companies, and
businesses owned by members of minority groups and women. Accordingly,
in balancing the objectives set forth in the Communications Act, the
Further Notice proposed bidding credits and a tax certificate program
for businesses owned by women and minorities and installment payments
for small businesses on all 800 MHz SMR channel blocks in each MTA.
126. The Commission concludes that special provisions for small
businesses are appropriate for the 800 MHz SMR service because build-
out of an EA license may require a significant amount of capital.
Although the Commission believes that the 800 MHz SMR service is less
capital intensive than PCS, the Commission also believes that it is
more capital-intensive than the 900 MHz SMR service. The Commission
further believes that small entities may be disadvantaged in their
efforts of acquiring 800 MHz SMR licenses if required to bid against
existing large companies. For instance, if one or more of these big
firms targets a market for strategic reasons, there is almost no
likelihood that it could be outbid by a small business. The Commission
will address this potential outcome in two ways. First, for the upper
10 MHz block, the Commission will adopt the same ``tiered'' installment
payments approach adopted in the 900 MHz SMR service. Specifically,
licensees who qualify for installment payments will be entitled to pay
their winning bid amount in quarterly installments over the term of the
license, with interest charges to be fixed at the time of licensing at
a rate equal to the rate for ten-year U.S. Treasury obligations plus
2.5 percent. Small businesses with gross revenues less than $15 million
will be required to pay interest only for the first two years of the
license term at the same interest rate as set forth above. Interest
will accrue at the Treasury note rate plus 2.5 percent. Small
businesses with gross revenues less that $3 million will be able to
make interest-only payments for five years. Interest will accrue at the
Treasury note rate without the additional 2.5 percent. Timely payment
of all quarterly installments will be a condition of the license grant,
and failure to make such timely payment will be grounds for revocation
of the license. As the Commission have noted previously, allowing
installment payments reduces the amount of private financing needed by
prospective small business licensees and therefore mitigates the effect
of limited access to capital by small businesses. In determining
eligibility for these installment payment plans, the Commission will
not attribute gross revenues of investors that hold less than a 20
percent interest in the applicant, but the Commission will include the
gross revenues of the applicant's affiliates and investors with
ownership interests of 20 percent or more in the applicant. As has been
the case in prior auctions where special provisions for small
businesses have been made, it also is the Commission's expectation that
a qualifying small business or principals of a qualifying small
business will retain de facto and de jure control of the applicant. In
determining attribution when 800 MHz SMR licensees are held indirectly
through intervening corporate entities, the Commission will use the
same multiplier employed for the 900 MHz SMR service.
127. Second, the Commission has proposed additional special
provisions for small businesses seeking licenses for the lower 80 and
General Category channels in the Second Further Notice of Proposed Rule
Making in PR Docket No. 93-144, because the Commission believes that
most, if not all, of the incumbent licensees relocated will qualify as
small businesses under its proposed definition, and the lower 80 and
General Category channels will be the spectrum to which they most
likely will be relocated. This approach is consistent with the
Commission's approach in the broadband PCS context in which the
Commission designated certain frequency blocks as ``entrepreneurs'
blocks'' and restricted eligibility based on size limitations. The
Commission also believes that the service areas and spectrum blocks for
the upper 10 MHz block the Commission adopted in the First R&O will
permit operators of smaller SMR systems to participate in the upper 10
MHz block auction.
128. At this time the Commission concludes that there is an
insufficient record to support the adoption of special provisions
solely benefitting minority- and women-owned businesses (regardless of
size) for the upper 10 MHz block auction. The Commission notes,
however, that in the Second Further Notice of Proposed Rule Making, the
Commission is seeking comment on this issue with respect to the lower
80 and General Category channels. Moreover, the Commission believes
that most minority- and women-owned businesses will be able to take
advantage of the installment plan described above. The Commission
expects that the vast majority of minority- and women-owned businesses
will be able to qualify as small businesses under any definition the
Commission adopts.
129. Partitioning. In the Further Notice, the Commission did not
propose any special provisions for rural telephone companies, on the
basis that: (1) they, like other wireline carriers, then were
ineligible to hold SMR licenses; (2) even if wireline entry into SMR
was permitted, the Commission questioned whether special bidding
provisions would be necessary to ensure the participation of rural
telephone companies in the provision of SMR service given the
relatively modest build-out costs involved to serve rural areas; and
(3) in view of the fact that rural telephone companies may use their
existing infrastructure to support integrated 800 MHz SMR service in
their rural service areas, the Commission anticipated that they would
have ample opportunity to participate in 800 MHz SMR.
130. Since adoption of the Further Notice, rural telephone
companies have gained eligibility to hold SMR licenses. Thus, the
Commission concludes that rural telephone companies will be permitted
to acquire partitioned EA licenses in either of two ways: (1) They may
form bidding consortia to participate in auctions, and then partition
the licenses won among consortia participants; and (2) they may acquire
partitioned 800 MHz SMR licenses from other licensees through private
negotiation and agreement either before or after the auction. Each
member of a consortium will be required to file a long-form
application, following the auction, for its respective mutually agreed-
upon geographic area. Partitioned areas must conform to established
geo-political boundaries (such as county lines), and each area must
include all portions of the wireline service area of the rural
telephone company applicant that lie within the EA service area. The
Commission also will use the definition for rural telephone companies
used in its

[[Page 6154]]
broadband PCS and 900 MHz SMR rules. Thus, rural telephone companies
will be defined as ``local exchange carriers having 100,000 or fewer
access lines, including all affiliates.'' In the Second Further Notice
of Proposed Rule Making, the Commission seeks comment on its proposal
to extend the partitioning option to SMR licensees generally.
131. Set-Aside Spectrum. In the Further Notice, the Commission
expressed its concern, based on its experience with PCS, that
designated entities may have difficulties competing for 800 MHz SMR
licenses against large firms with significant financial resources. The
Commission tentatively concluded, however, that it would not be
feasible to designate a wide-area spectrum block as an entrepreneurs'
block because the large number of incumbents already licensed
throughout the spectrum designated for wide-area licensing make it
virtually impossible to identify a suitable block.
132. The Commission does not adopt an entrepreneurs' block in the
upper 10 MHz block of 800 MHz SMR spectrum. The Commission concluded
that an entrepreneur's block in this portion of 800 MHz SMR spectrum is
not feasible, given the substantial number of licensees already
licensed on such spectrum. However, the Commission is interested in
ensuring that small businesses have a meaningful opportunity to
continue to participate in the provision of 800 MHz SMR service. Thus,
in the Second Further Notice of Proposed Rule Making the Commission
seeks additional comment on whether designation of an entrepreneurs'
block for other 800 MHz spectrum would be feasible.

IV. Procedural Matters and Ordering Clauses

A. Final Regulatory Flexibility Analysis

133. With respect to this First Report and Order and Eighth Report
and Order, pursuant to the Regulatory Flexibility Act of 1980, an
Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the
Further Notice of Proposed Rule Making in PR Docket No. 93-144. Written
comments on the IRFA were requested. The Commission's final analysis is
as follows:
Need for and purpose of the action. The rule making proceeding has
implemented Sections 332 and 3(n), respectively, of the Communications
Act of 1934, as amended. The rules adopted herein will carry out
Congress's intent to establish a consistent framework for all
commercial mobile radio services (CMRS).
Issues raised in response to the IRFA. No comments were submitted
in response to the IRFA.
Significant alternatives considered and rejected. All significant
alternatives have been addressed in the First Report and Order in PR
Docket No. 93-144, the Third Report and Order in GN Docket No. 93-252,
and the Eighth Report and Order in PP Docket No. 93-253.

B. Paperwork Reduction Act

SUMMARY: The Federal Communications Commission, as part of its
continuing effort to reduce paperwork burden, invites the general
public and other Federal agencies to take this opportunity to comment
on the following proposed and/or continuing information collections, as
required by the Paperwork Reduction Act of 1995, Public Law 104-13.
Comments are requested concerning (a) whether the proposed collection
of information is necessary for the proper performance of the functions
of the Commission, including whether the information shall have
practical utility; (b) the accuracy of the Commission's burden
estimates; (c) ways to enhance the quality, utility, and clarity of the
information collected; and (d) ways to minimize the burden of the
collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology.

DATES: Written comments should be submitted on or before April 16,
1996. If you anticipate that you will be submitting comments b

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-3509. Public record. Not legal advice.