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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A97-19913

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 31, 1997
- **Citation:** 62 FR 41190

## Text

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[PR Docket No. 93-144; FCC 97-223]

Future Development of SMR Systems in the 800 MHz Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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

SUMMARY: This Second Report and Order resolves issues raised in the
Second Further Notice of Proposed Rulemaking and completes the process
by establishing technical and operational rules for the lower 230 800
MHz channels. Specifically, this order establishes the U.S. Department
of Commerce Bureau of Economic Analysis Economic Areas (EAs) as the
relevant geographic service area for licensing these channels and
defines the rights of incumbent SMR licensees already operating on the
lower 230 channels. It also provides further details concerning the
mandatory relocation rules adopted in the 800 MHz Report and Order, and
establishes rules for partitioning and disaggregation of EA licenses.
Coupled with the rules adopted in the 800 MHz Report and Order, the
decisions reached in this order complete the process of converting to
new rules for the 800 MHz SMR service and enable us to commence
geographic area licensing of the service. These rule revisions not only
eliminate a cumbersome and outdated regulatory regime, they will
promote competition and provide SMR licensees with flexibility to
deploy multiple technologies in response to a changing marketplace, and
they further the Congressionally mandated goal of establishing
regulatory symmetry between 800 MHz SMR licensees and other competing
providers of Commercial Mobile Radio Services (CMRS).

EFFECTIVE DATE: September 29, 1997.

FOR FURTHER INFORMATION CONTACT: Shaun Maher or Michael Hamra, Policy
and Rules Branch, Commercial Wireless Division, Wireless
Telecommunications Bureau at (202) 418-0620 or Alice Elder, Auctions
and Industry Analysis Division, Wireless Telecommunications Bureau at
(202) 418-0660.

SUPPLEMENTARY INFORMATION: This Second Report and Order in PR Docket
No. 93-144, GN Docket No. 93-252, and PP Docket No. 9-253, adopted June
23, 1997, and released July 10, 1997, is available for inspection and
copying during normal business hours in the FCC Dockets Branch, Room
230, 1919 M Street, NW., Washington, DC. The complete text may be
purchased from the Commission's copy contractor, International
Transcription Service, Inc., 2100 M Street, NW., Suite 140, Washington,
DC 20037 (telephone (202) 857-3800).

I. Background

1. As described in the 800 MHz Report and Order in PR Docket 93-
144, 61 FR 6138 (February 16, 1996), the Commission formerly used a
site-by-site licensing approach for 800 MHz SMR channels, which were
primarily used to provide dispatch radio service. In recent years,
however, a number of SMR licensees have expanded the geographic scope
of their services, aggregated channels, and developed digital networks
to enable them to provide a type of service comparable to that provided
by cellular and Personal Communications Service (PCS) operators. This
trend led us to rethink our site-by-site licensing procedures, which
were very cumbersome for systems comprised of several hundred sites
because licensees were required to receive individual Commission
approval for each site. We were concerned that site-by-site licensing
procedures also impaired an SMR licensee's ability to respond to
changing market conditions and consumer demand. We concluded that
granting licenses through waivers and other case-by-case mechanisms was
administratively burdensome and had resulted in a licensing regime that
lacked uniformity. Accordingly, we initiated this proceeding to
transition to a geographic area licensing approach for the 800 MHz SMR
service. At the same time, we emphasized the need to consider the
interests of incumbent SMR licensees, many of whom continue to provide
traditional dispatch service and do not seek to develop services
comparable to cellular or PCS.
2. In the 800 MHz Report and Order, the Commission established an
EA-based licensing procedure for the upper 200 channels in the 800 MHz
SMR band. That procedure will enable an EA licensee to, among other
things, construct facilities at any available site within its EA and to
add, remove or relocate sites within the EA without prior Commission
approval. The new rules also give the EA licensee flexibility to
determine the channelization of available spectrum within the
authorized channel block, the right to use any spectrum within its EA
block that is recovered by the Commission from an incumbent licensee
(i.e., the incumbent's license is terminated for some reason), and
establishes a presumption that assignments from incumbents to the
relevant EA licensee are in the public interest. In addition, the 800
MHz Report and Order adopted a 10-year license term, and a five-year
construction period with three-year and five-year coverage requirements
for EA licensees on the upper 200 channels. We also created a mechanism
for relocation of incumbent licensees on the upper 200 channels,
delineated the parameters of unrelocated incumbents' expansion rights,
and reallocated the former General Category channels to the 800 MHz SMR
service. Finally, we established competitive bidding procedures for 525
EA licenses in the upper 200 channel block.
3. In the Second Further Notice of Proposed Rulemaking, in PP
Docket 93-253, 61 FR 6212 (February 16, 1996), we sought comment on
additional service rules for the upper 200 channels, and on instituting
geographic area licensing for the lower 230 800 MHz SMR channels. With
respect to the upper 200 channels, we asked commenters to address
whether EA licensees should be permitted to partition and disaggregate
their spectrum blocks. We also proposed additional procedures and
clarifications regarding mandatory relocation of incumbent licensees
from the upper 200 channels. With respect to the lower 230 channels, we
proposed geographic area licensing procedures and auction rules similar
to those adopted for the upper 200 channels. We declined to propose a
mandatory relocation plan for incumbents on the lower 230 channels,
however, and we proposed to adopt operating parameters for incumbents
that would give them a reasonable opportunity to expand their
businesses. We further proposed to establish competitive bidding rules
for licensing the General Category and lower 80 channels with special
provisions to encourage participation by designated entities in the
auction of that spectrum.
4. Sixty-five parties filed initial comments and fifty-eight
parties filed reply comments in response to the Second Further Notice
of Proposed Rulemaking. Numerous written ex parte presentations also
have supplemented the record. Notably, in reply comments, AMTA, SMR WON
and Nextel offered a proposal (``Industry Proposal'') for licensing the
lower 230 channels through a pre-auction process that would allow
incumbents to obtain rights to unlicensed spectrum through settlement
agreements with one another. The parties submit that the Industry
Proposal represents a consensus of the SMR industry and takes into
account

[[Page 41191]]

the interests of wide-area licensees as well as site-by-site
incumbents.

II. Discussion

A. Service Rules for the Lower 230 Channels

1. Geographic Area Licensing
5. We adopt geographic area licensing for the lower 230 channels.
Geographic area licensing will increase the flexibility afforded to
licensees to manage their spectrum, and will reduce administrative
burdens and operating costs by allowing licensees to modify, move, or
add to their facilities within specified geographic areas without need
for prior Commission approval. Geographic area licensing will also
ensure that licensees on these channels have operational flexibility
similar to that afforded to SMR licensees on the upper 200 channels as
well as to cellular and PCS licensees.
6. We reject the view that the heavy use of the lower 230 channels
by incumbents renders geographic area licensing impractical. To the
contrary, incumbents benefit from geographic area licensing because it
will make it far easier for them to fill in gaps in their current
systems, make modifications to meet shifting market demands, and expand
into unserved areas. Even where a licensee's ability to expand is
limited by the presence of adjacent systems, geographic licensing is
preferable to site-specific licensing because it affords the same
degree of protection from interference but allows licensees greater
flexibility within their existing service areas. We also do not agree
with the view that the prospective relocation of SMR incumbents from
the upper 200 channels to the lower 230 is an obstacle to geographic
licensing. Upon moving to the lower 230 channels, relocated licensees
will be able to take advantage of the flexibility in our rules to the
same extent as other licensees.
7. We also disagree with UTC and other commenters who contend that
geographic area licensing is inappropriate because of the presence of
non-SMRs on the lower 230 channels. While non-SMR operators may not
require geographic licenses to operate systems designed for internal
communications, geographic area licensing remains the most efficient
and logical licensing approach for the majority of licensees in the
band. We are not persuaded that we should forego the benefits of
geographic licensing to accommodate the interests of a small minority
of systems. In any event, systems that are not SMR systems will remain
fully protected under our geographic licensing rules. In addition, non-
SMRs can obtain spectrum to suit their internal communications needs by
forming joint bidding consortia or by entering into partitioning and
disaggregation agreements with EA licensees.
2. Service Areas
8. We adopt EAs as the basis for geographic licensing of the lower
230 channels. EAs are generally recognized by the SMR industry as being
optimally sized for geographic licensing in this band, because EAs
approximate the coverage of most SMR systems except the largest wide-
area operations. As we stated in the 800 MHz Report and Order, EAs will
encourage a diverse group of prospective bidders, because they are
small enough that licensees seeking to serve small markets can bid on
areas they wish to serve, but are large enough that they can also form
the basis for wide-area systems. By encouraging more diverse bidders in
the auction, we believe we will fulfill the mandate of section
309(j)(3)(B) & (4)(C) of the Communications Act to disseminate licenses
among a wide variety of applicants and to ensure economic opportunities
for a wide variety of applicants. In addition, having the same
geographic area licenses for the upper 200 and lower 230 channels makes
it easier for licensees to develop systems that use both upper 200 and
lower 230 channels in a common licensing area.
3. Channel Blocks

a. Lower 80 Channels

9. We adopt our proposal to license the lower 80 channels in five-
channel blocks. The non-contiguous nature of these channels makes it
impractical to impose any other channel plan. This approach will also
provide opportunities for incumbents and applicants that base their
systems on trunking of non-contiguous channels, in keeping with the
mandate of section 309(j)(4)(C) of the Communications Act to make
equitable distribution of licenses and provide economic opportunities
for a wide variety of entities. Furthermore, we find that this will be
the less disruptive method for smaller incumbent licensees since they
have acquired their channels in five channel increments. Therefore, we
will license the lower 80 channels in sixteen five-channel blocks as
set forth in Sec. 90.617(d) of our rules.

b. General Category Channels

10. We understand the needs of those providers who want contiguous
spectrum to implement frequency re-use technology, and those that want
non-contiguous spectrum because the spectrum is highly encumbered, or
because it suits their current technology. If we were to adopt very
large contiguous blocks of spectrum we would preclude smaller entities
from participating in the auction because presumably bigger blocks of
spectrum would require larger bids to acquire than smaller blocks of
spectrum. On the other hand, if we were to auction EAs on a channel-by-
channel basis, as suggested by Fresno, it would be difficult to
accumulate contiguous spectrum and would require all licensees
interested in accumulating spectrum to keep track of 150 auctions at
one time. If one entity wanted to acquire five channel blocks in three
EAs, the licensee would have to potentially keep track of 450
simultaneous auctions.
11. To accommodate licensees who want contiguous as well as those
licensees that want large blocks of spectrum, we will adopt the
Industry Proposal and allot three contiguous 50-channel blocks. We
expect a significant amount of the former General Category channels to
continue to be used for traditional SMR systems and retaining the
contiguity of these channels will permit alternative offerings that may
require multiple, contiguous channels. In addition, we find that
allotting 50 channel blocks will allow bidders to aggregate even larger
contiguous blocks of spectrum. We find that adopting such a channel
plan strikes a balance between licensees with different spectrum
allocation needs and allows licensees with different goals to pursue
spectrum in the General Category. Once again, this fulfills the mandate
of section 309(j)(4)(C) of the Communications Act that we distribute
licenses in such a way so as to ensure economic opportunities for a
wide variety of entities. While we do not adopt Fresno's or Sierra's
proposals, small system licensees will have the opportunity to acquire
smaller amounts of spectrum compatible with their existing technology
through the newly-created disaggregation rules we adopt herein.
Meanwhile licensees seeking to deploy contiguous spectrum technology
will have the opportunity to acquire a 100 or 150 channel block of
contiguous spectrum. Adopting this channel plan addresses the competing
demands of trunked systems and wide-area systems that require
contiguous spectrum.
4. Channel Aggregation Limits
12. We conclude that no aggregation limit is necessary for the
lower 230 channels. In both the CMRS Third Report and Order and the 800
MHz

[[Page 41192]]

Report and Order, we observed that the 800 MHz SMR service is just one
of many competitive services in the CMRS marketplace. If a single
licensee were to acquire all 230 channels in a single market, it would
hold an aggregated 11.5 MHz of spectrum, not all of which would be
contiguous. Even if a single licensee combined this spectrum with
spectrum from the upper 200 channels, it would fall well short of the
45 MHz spectrum cap, and would have less spectrum than PCS and cellular
providers in the same market. The total potential aggregation of
spectrum in the 800 MHz SMR service, combined with the General
Category, is 21.5 MHz of spectrum, not all of which is contiguous. We
do not believe that this level of aggregation would enable an SMR
licensee to have an anticompetitive effect on the CMRS market.
Moreover, we are concerned that limiting the ability of SMR providers
to aggregate spectrum could handicap their efforts to compete with
other services. As a practical matter, the presence of numerous
incumbents on the lower 230 channels reduces the likelihood that
significant aggregation of this spectrum will occur. However, we
conclude that the marketplace, not our rules, should determine whether
these channels will be used on an aggregated or disaggregated basis.
13. We also decline to limit SMR applicants on the lower 230
channels to obtaining one channel block at a time. This is inconsistent
with our approach to licensing of other CMRS, including cellular, PCS,
900 MHz SMR, and the upper 200 channels in the 800 MHz band. In
addition, the use of competitive bidding to resolve mutually exclusive
geographic area licenses on the lower 230 channels provides a strong
incentive for licenses to utilize the channels.
5. Licensing in the Mexican and Canadian Border Areas
14. In the 800 MHz Report and Order, we acknowledged that in the
Canadian and Mexican border areas, some upper 200 channels would not be
available or would be subject to power and height restrictions.
Nevertheless, we did not distinguish between border and non-border
areas for the upper 200 channels in our EA licensing plan, because we
concluded that EA applicants could best determine the effect of such
restrictions on the value of the spectrum. We adopt the same approach
for the lower 230 channels as well. Thus, EA licensees on the lower 230
channels of EAs that are adjacent to Canada or Mexico will be entitled
to use any available channels within their spectrum blocks, except
where use of such channels is restricted by international agreement.
15. In addition, we clarify that SMR and General Category channels
assigned to non-SMR pools in the border areas are not available for use
by EA licensees in those regions. Thus, non-SMR licensees operating on
those channels in border areas may continue to operate and will not be
subject to relocation. Moreover, EA licensees must afford full
interference protection to non-SMR licensees operating on these
channels. We admonish potential applicants for EA licenses to carefully
evaluate these limitations on spectrum availability when determining
their bidding strategies for blocks of spectrum adjacent to the Mexican
and Canadian borders.
16. Finally, we note that there are some non-SMR channels in the
non-border areas that in the Canadian and Mexican border areas are
available soley to SMR eligibles. These channels will be associated
with specific SMR and General Category spectrum blocks in these border
areas. Prospective bidders on EAs near the Canadian and Mexican borders
should be aware that these channels, which are not available to them
anywhere else except in the border regions, will be assigned for their
use in the Canadian and Mexican border regions. EA licensees must also
afford full interference protection to non-SMR licensees operating in
adjacent areas on these channels.
6. Construction and Coverage Requirements for the Lower 230
Channels

a. Requirements for EA Licensees

17. We adopt the construction requirements proposed in the Second
Further Notice of Proposed Rulemaking for the lower 230 channels. We
believe that adoption of such flexible construction requirements will
enhance the rapid deployment of new technologies and services and will
expedite service to rural areas. We disagree with those commenters that
contend that adoption of stricter construction requirements for the
lower 230 channels will better serve the public interest. We find that
more flexible construction requirements will allow EA licensees in the
encumbered lower 230 channels to respond to market demands for service
and thus eliminate the need for an EA licensee to meet construction
requirements based on population alone. We disagree with those
commenters that believe that strict construction requirements are
necessary to deter speculation and warehousing. We believe that, by
participating in the auction, licensees will have shown that they are
genuinely interested in acquiring spectrum to utilize and not
warehouse. At the same time, we continue to believe that licensees
should be held to some type of construction requirement in order to
encourage expedited construction and foster service to rural areas.
Therefore, EA licensees in the lower 230 channel blocks, just as their
counterparts in the upper 200 channels, will be required to provide
coverage to one-third of the population within three years of the
license grant, and to two-thirds of the population within five years of
the license grant. However, in the alternative, EA licensees in the
lower 230 channel block may provide ``substantial service'' to the
geographic license area within five years of license grant.
``Substantial service'' will be defined as service that is sound,
favorable, and substantially above a level of mediocre service, which
would barely warrant renewal. For example, a licensee may demonstrate
that it is providing a technologically innovative service or that it is
providing service to unserved or underserved areas. This flexibility
will allow EA licensees to expedite service to rural areas that may
have a higher service demand than a heavily populated urban area with
less demand. As we proposed in the Second Further Notice of Proposed
Rulemaking, we will not adopt a channel usage requirement for licensees
in the lower 230 channel block. In addition, we decline to adopt PCIA's
proposal to require that construction requirements be met on a ``per-
channel'' basis. We believe EA licensees should have the flexibility to
respond to market-based demands for service and that adopting a ``per-
channel'' construction requirement would greatly interfere with
licensees' ability to respond to such demands.
18. The failure to meet these performance requirements will result
in automatic termination of the geographic area license. This is
consistent with our rules for broadband PCS, 900 MHz SMR services,
Multipoint Distribution Services (MDS), and most recently for paging.
We will individually license any incumbent facilities that were
authorized, constructed, and operating at the time of termination of
the geographic area license.

b. Requirements for Site-Based Licensees

19. As a result of our decision to convert to EA-based licensing of
the lower 230 channels, the only instances in which future site-based
applications will be necessary are those few instances where site
approval continues

[[Page 41193]]

to be required, e.g., for sites at environmentally sensitive locations
that require Commission approval under NEPA. In such instances, we will
require incumbent licensees to construct facilities and commence
service within 12 months in accordance with our proposal. EA licensees
that are required to seek separate approval for environmentally
sensitive locations within their geographic areas will be permitted to
include those sites in their geographic area license and will not be
subject to the 12 month construction deadline.
20. We also take this opportunity to clarify two points. First, we
note the applicability of the 12-month construction requirement to
incumbents on the lower 230 channels holding site-based authorizations
with construction periods that have not yet expired. In general, SMR
licensees with site specific authorizations have 12 months from the
grant date to complete construction and commence service, unless the
authorization is part of a system that has received an extended
implementation grant. Pursuant to the new rules we adopt herein,
interior sites added within an incumbent's existing footprint will not
be subject to construction requirements because they do not require
separate authorizations.

c. Transfers and Assignments of Unconstructed Site-Specific Licenses

21. We agree with SMR WON and Digital that temporary waiver of our
restrictions against assignment or transfer of unconstructed site-
specific SMR licenses would facilitate the relocation process and
geographic licensing. We believe that there is good cause to support
waiver of the rule in this case. The special circumstances that exist
with this innovative approach to licensing support temporary waiver of
Sec. 90.609(b) of the rules. That rule was designed to prevent
trafficking in site-specific licenses and spectrum warehousing by
taking back unused spectrum. However, in this proceeding, we seek to
encourage rapid migration of incumbents, preferably through voluntary
negotiations, from the upper 200 channels to lower band 800 MHz
channels. If we were to rigidly apply Sec. 90.609(b) in such
circumstances, licensees holding unconstructed site-specific licenses
on the lower channels would not be able to transfer their
authorizations for relocation purposes unless they had constructed them
first. Therefore, it is more efficient to waive the rule and allow
licensees who have unconstructed lower channels suitable for relocation
of upper channel incumbents to transfer them without prior
construction, so that the relocated licensees can construct facilities
suitable to their needs.
22. In addition, relaxing our transfer restrictions facilitates
geographic licensing of the lower channels themselves. We expect that
in many instances, incumbents on the lower channels will bid for EA
licenses on those channels to consolidate their existing holdings.
However, because we are adopting new channel blocks for geographic
licensing, particularly in the General Category, incumbents may find it
advantageous to their bidding strategy to modify their holdings in
advance of the auction through transfers or channel swaps. In addition,
allowing transfer of unconstructed as well as constructed spectrum
provides an opportunity for new entrants to position themselves for the
auction by acquiring existing licenses in areas where they intend to
bid.
23. Therefore, to facilitate relocation and geographic licensing,
we will temporarily waive the prohibition on assignment or transfer of
unconstructed authorizations on the lower 80 and General Category
channels. Thus, licensees on these channels may apply to transfer or
assign their authorizations regardless of construction. Where
unconstructed spectrum is transferred, the assignee or transferee will
be subject to the same construction deadline as the transferor/
assignor. We will, however, allow licensees with extended
implementation authority to apply their system-wide construction
deadlines to licenses acquired by transfer that are within their pre-
existing footprint. This waiver will remain in effect until six months
after the conclusion of the upper band EA auction. We believe this
period will provide sufficient time for licensees to identify suitable
lower band spectrum for transfer as part of voluntary relocation
agreements, and for potential bidders in the lower band auction to
negotiate transfers as part of their pre-auction strategy.
24. We will extend this waiver to all holders of unconstructed
spectrum on the lower 80 and General Category channels, including both
SMR and non-SMR licensees. We will also allow these licensees to
transfer or assign their authorizations to any eligible entity.
Although Nextel argues that such transfers should be allowed only if
they are between wide-area SMR incumbents and EA licensees, we believe
such restrictions are unnecessary and unduly restrictive. First, we see
no reason to allow only wide-area licensees to transfer unconstructed
spectrum. The purpose of this policy is to facilitate the rapid
assignment of all lower band spectrum--not just spectrum held by wide-
area licensees--to those who are most likely to use it. Similarly, we
will not restrict holders of unconstructed spectrum to dealing with EA
licensees. Although we expect that many transfers will in fact be to EA
licensees, we do not believe that incumbents should be prevented from
negotiating transfers to other parties who value the spectrum. In any
event, such a restriction would prevent incumbents from negotiating
transfers prior to the conclusion of the auction because EA winners
will not be identified until then.
25. We recognize that relaxing transfer restrictions makes it more
difficult to take action against speculators who have not constructed
facilities on their spectrum but instead have sought to warehouse
spectrum for profit. However, we believe that the benefits of this
approach for relocation and future geographic licensing in this service
outweigh the potential cost. First, not all 800 MHz licensees who have
failed to construct are necessarily speculators: our application freeze
and uncertainty caused by the lengthy pendency of this proceeding have
also made it difficult for legitimate licensees to develop their
systems. Moreover, even in the case of licensees who acquired spectrum
through application mills, allowing unconstructed spectrum to be
transferred rapidly and efficiently to those who value it most allows
development of the service to proceed and provides potential benefits
to prospective bidders in the auction. This approach will also not
compromise the objectives of geographic area licensing: because only
currently licensed spectrum can be transferred, there is no impact on
unlicensed spectrum that will be awarded to EA licensees. In addition,
EA licensees are not obliged by this policy to negotiate with
incumbents they believe have no intention of constructing facilities;
if an incumbent fails to construct and commence operations within the
period required by its license, the unused spectrum reverts to the EA
licensee.

B. Rights and Obligations of EA Licensees in the Lower 230 Channels

1. Operational Restrictions
26. Except for using the 18 dBV/m contour to define the
interference protection obligations of EA licensees with respect to
lower 230 incumbents (discussed in Sec. IV-B-3-b, infra.), we will
apply the same operational rules to EA licensees on the lower 230
channels that are applicable to the upper 200 channels. No commenter
has suggested that EA licensees on the lower 230 channels should not
have the right to

[[Page 41194]]

modify their facilities without prior Commission approval, and we see
no reason to treat the lower 230 channels differently in this regard.
We also adopt the same notification requirements applicable to the
upper 200 channels with respect to system additions, deletions, and
modifications.
2. Spectrum Management Rights--Acquisition and Recovery of Channels
Within Spectrum Blocks
27. In light of our decision to extend EA licensing to the lower
230 channels, we adopt the same rules for these channels with respect
to recovery of unused spectrum and transfers and assignments of
spectrum from incumbents to EA licensees. For the same reasons, we
dismiss all wait-listed applications for these channels. Our action
today will not apply to any application that is currently pending that
includes a request for waiver of the processing freeze. We shall
resolve those applications by separate action.
3. Treatment of Incumbents

a. Mandatory Relocation of Lower Channel Incumbents

28. We will not adopt mandatory relocation procedures for either
SMR or non-SMR incumbents on the lower 230 channels. The record
supports our tentative conclusion that requiring incumbents to migrate
off this spectrum would be impractical because there is no identifiable
alternative spectrum to accommodate such migration. In addition, it is
likely that many of the incumbents who will operate on these channels
will have relocated from the upper 200 channels, and we have already
determined that such relocatees should not be required to relocate more
than once. Therefore, EA licensees on the lower 230 channels will not
have the right to move incumbents off of their spectrum blocks unless
the incumbent voluntarily agrees to move.

b. Incumbent Operations

i. Expansion and Flexibility Rights of Lower Channel Incumbents
29. In the Further Notice of Proposed Rulemaking in this
proceeding, we recognized that the geographic licensing scheme we
designed for the upper 200 channels could result in some incumbent
licensees remaining in this channel block, despite our mandatory
relocation provisions. To avoid interference between these incumbent
licensees and the new EA licensees in the upper 200 channel block, we
concluded in our 800 MHz Report and Order that it was necessary to
limit the ability of incumbent licensees to expand their systems after
geographic licensing had occurred. At the same time, we concluded that
incumbents should be afforded operational flexibility to add sites or
make system modifications within those areas already licensed to them.
We concluded that, for the upper 200 channel block, incumbent licensees
would be allowed to make modifications within their current 22
dBV/m interference contour and would be allowed to add new
transmitters in their existing service areas without prior notification
to the Commission. However, incumbents would 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.
30. In the Second Further Notice of Proposed Rulemaking, we
acknowledged that transitioning to a geographic licensing scheme in the
lower 230 channels raises similar issues with respect to the rights of
incumbents. We proposed to limit expansion rights of incumbent SMR
licensees in the lower 230 channels in the same manner as we did in the
upper 200 channel block. Under our proposal, incumbent licensees on the
lower 230 channels would be allowed to modify or add transmitters in
their existing service area without prior notification to the
Commission, so long as they did not expand their 22 dBV/m
interference contour. We proposed that incumbents would not be allowed
to expand beyond the 22 dBV/m contour and into the geographic
area licensee's territory without obtaining the prior consent of the
geographic area licensee or unless the incumbent is the geographic area
licensee for the relevant channel. We sought comment on this proposal
and asked commenters to discuss whether a basis other than the 22
dBV/m interference contour should be used to determine an
incumbent's service area.
31. We agree with the supporters of the Industry Proposal that the
public interest would be served by giving incumbents on the lower 230
channels some flexibility to expand beyond their 22 dBV/m
contours. However, we decline to adopt the Industry Proposal in its
entirety. The settlement concept would, in essence, allow incumbents to
divide all remaining unlicensed spectrum on the lower 230 channels
among themselves, with no opportunity for new entrants to obtain or
even compete for such spectrum. As set forth below, this raises both
statutory and policy concerns that prevent us from endorsing the
proposal.
32. First, by restricting the settlement process to incumbents, the
Industry Proposal would foreclose new entrants from obtaining spectrum
on any of the lower 230 channels that are subject to a settlement among
incumbents. In any market where all of the channels in an EA were
allocated by such settlements, the result would be that no
opportunities for geographic licensing would be available to new
entrants. The Industry Proposal would also preclude competition in the
licensing process and restrict the number of potential applicants who
can obtain licenses. Thus, it could yield a higher concentration of
licenses than would result if non-incumbents were allowed to compete
for the spectrum at the same time. We conclude that allowing only
incumbent licensees to obtain rights to an entire EA while foreclosing
opportunities for new entrants would be at odds with our goals of
promoting economic competition in the 800 MHz SMR service and avoiding
an undue concentration of licenses. The approach we adopt herein,
unlike the Industry Proposal, would encourage participation of new
entrants, including small businesses, and, therefore, promote vigorous
economic competition and avoid excessive concentration of licenses.
33. Furthermore, the Industry Proposal provides no method for the
Commission to recover a portion of the value of public spectrum
pursuant to section 309(j)(3)(C) of the Communications Act. Instead,
incumbent licensees who negotiate expansion rights among themselves
could obtain a windfall by obtaining rights to an entire EA without
having to pay for such expanded rights. We disagree with commenters who
attempt to justify this potential windfall by arguing that the proposed
settlement procedure complies with the directive in section
309(j)(6)(E) for the Commission to avoid mutual exclusivity through
``engineering solutions, negotiation, threshold qualifications, service
regulations, and other means'' section 309(j)(6)(E) requires us to
adopt such methods where we find them to be ``in the public interest.''
We do not believe it is in the public interest to ``resolve'' the
competing claims of incumbents and non-incumbents for spectrum by
establishing a settlement mechanism that is limited to incumbents and
excluding non-incumbents from the process.
34. The Industry Proposal would also be inconsistent with the
approach we have adopted in other services where we have converted from
site-by-site licensing to geographic area licensing.

[[Page 41195]]

In our 900 MHz SMR proceeding and our recent paging proceeding, for
example, we adopted similar rules for licensing on a geographic basis
while protecting the existing operations of incumbent operators. In
neither instance did we give incumbents the unrestricted right to
obtain available spectrum through a pre-auction settlement process that
excluded non-incumbents. We also rejected this and similar alternatives
for the upper 200 channels of the 800 MHz band. For all of these
reasons, we conclude that the Industry Proposal would not serve the
public interest.
35. While we reject the specific settlement procedure described in
the Industry Proposal, we note that many of the positive aspects of the
proposal can still be accomplished through the auction process we are
establishing for the lower 230 channels. For example, incumbents on
these channels are free to enter into partnerships, joint ventures, or
consortia for purposes of applying for EA licenses on the lower 230
channels in the areas where they currently operate. Incumbents may also
negotiate transfers, swaps, partitioning arrangements, or similar
agreements with respect to spectrum that is currently licensed to them.
In some instances, taking these steps may result in only one entity
applying for a given EA license. Where that occurs, no auction will be
necessary because there will be no mutually exclusive applications to
resolve. At the same time, providing all parties, incumbents and non-
incumbents alike, with the opportunity to compete for EA licenses will
ensure that the spectrum is awarded to the party that values it the
most.
36. We also conclude that while geographic licensing is appropriate
for the lower 230 channels, some additional flexibility is appropriate
for incumbents on these channels to facilitate modifications and
limited expansion of their systems. First, allowing incumbent licensees
on the lower 230 channels such flexibility will facilitate the
relocation of incumbent licensees on the upper 200 channels. Licensees
who are faced with relocation will have a significant incentive to
relocate rapidly and voluntarily if they know they will have greater
flexibility to modify and expand their systems on the channels to which
they are relocating. This will promote our objectives for enabling EA
licensees on the upper 200 channels to make flexible use of their
spectrum, while also protecting the interests of incumbents who
relocate.
37. In addition, affording greater flexibility to lower 230
incumbents is appropriate because these channels are subject to an
application freeze and geographic licensing of these channels will not
occur until after the upper 200 channel auction is concluded and
incumbents have had an opportunity to relocate to the lower channels.
Because the upper 200 channels will be licensed first, EA winners on
these channels will obtain the ability to expand within their
geographic areas earlier than lower channel licensees. Allowing lower
channel incumbents limited flexibility to expand prior to the auction
will help to compensate for the fact that upper 200 licensees will
obtain the benefits of geographic licensing sooner.
38. Therefore, we adopt our proposal to allow incumbents on the
lower 230 channels to make system modifications within their
interference contours without prior Commission approval. Incumbent
licensees who currently utilize the 40 dBu signal strength contour for
their service area contour and 22 dBu signal strength contour for their
interference contour will be permitted to utilize their existing 18 dBu
signal strength contour for their interference contour as long as they
obtain the consent of all affected parties to do so. See Sec. IV-B-4-a.
Thus, an incumbent licensee, with the concurrence of all affected
incumbents, that desires to make modifications to its existing system
will be able to make such modifications such as adding new
transmitters, and altering its coverage area, so long as such incumbent
does not expand the 18 dBu interference contour of its system.
Moreover, licensees who do not receive the consent of all incumbent
affected licensees, will be able to make similar modifications within
their 22 dBu signal strength interference contour. Licensees that do
not desire to make modifications may also continue to operate with
their existing systems. We find that this approach will not only enable
incumbents to fill in ``dead spots'' in coverage or to reconfigure
their systems to increase capacity, but will also allow for some
incremental expansion of their systems.
39. In the 800 MHz Report and Order, some commenters stated that
smaller SMR entities only need to make smaller incremental changes to
their service areas to better serve their customers. We believe that
adopting the 18 dBu standard will allow such entities to make the
incremental changes they desire. At the same time, we find that the 18
dBu standard is superior to the Industry Proposal because it preserves
opportunities for new entrants in areas that are currently unserved and
that are not reasonably proximate to existing facilities. The 18 dBu
standard is more flexible than the 22 dBu standard and will thereby
increase opportunities for lower 230 incumbents to modify their
existing operations to meet technological changes and market demands
for service. This additional flexibility will also facilitate the
relocation of incumbent SMR licensees from the upper 200 to the lower
230 channels by providing these licensees with more flexibility to
modify their existing systems than they would possess if they remained
on the upper 200 channels.
40. Because our prior rules governing separation of 800 MHz
facilities are based on a 40/22 dBV/m standard, we recognize
that the 18 dBV/m standard adopted here may have little
practical significance in portions of the United States areas where
incumbents are already operating in close proximity to one another,
e.g., most markets east of the Mississippi. Therefore, as discussed in
Sec. IV-B-4-a, we will continue to use the current separation tables
and short-spacing rules based on the 40/22 dBV/m ratio to
define the interference protection rights of incumbents against other
incumbents, except where incumbents consent to the use of a more
relaxed standard. In less densely populated areas, however, we expect
the 18 dBV/m standard to be beneficial to incumbent systems
seeking greater operational flexibility. In addition, as discussed in
Sec. IV-B-4-b, we will use the incumbent's 36 dBV/m as opposed
to 40 dBV/m contour as the basis for protection from
interference by adjacent EA licensees.
ii. Converting Site-Specific Licenses to Geographic Licenses
41. We will allow lower 230 channel incumbents to combine their
site-specific licenses into single geographic licenses as proposed.
This option will provide incumbents with the same flexibility and
reduced administrative burden that geographic licensing affords to EA
licensees, and will simplify the licensing process for the Commission.
Because we have adopted the 18 dBu contour rather than the 22 dBu
contour, where the incumbent licensee has obtained the consent of all
affected parties, as the benchmark for defining an incumbent licensee's
protected service area, we will use the contiguous and overlapping 18
dbu contours of the incumbent's previously authorized sites to define
the scope of the incumbent's geographic license. Therefore, after the
auction of the lower 230 channels has been completed, incumbents in the
lower 230 channels may convert their current multiple site licenses to
a single

[[Page 41196]]

license. Incumbents seeking such reissued licenses must make a one-time
filing of specific information for each of their external base station
sites to update our database. Such filings should be made on FCC Form
600 and should include a detailed map of the area the system will
cover. We also will require evidence that such facilities are
constructed and placed in operation. Once the geographic license has
been issued, facilities that are later added or modified that do not
extend the licensees' 18 dBu interference contour will not require
prior approval or subsequent notification under this procedure. Such
facilities should not receive interference because they will be
protected by the presence of the licensee's external co-channel
stations. Licensees who do not receive the consent of all affected
parties may also follow the same process utilizing their 22 dBu signal
strength interference contour, rather than the 18 dBu contour.
4. Co-Channel Interference Protection

a. Incumbent SMR Systems

42. Our interference protection proposals in the Second Further
Notice of Proposed Rulemaking assumed that we would use the 22
dBV/m contour as the basis for determining the area in which
lower 230 incumbents could operate. As noted in Sec. IV-B-3-b, supra,
we have decided instead to allow all incumbents on the lower 230
channels to use the 18 dBV/m contour as the basis for
modifying and expanding their systems, provided that they obtain the
consent of all co-channel incumbents potentially affected by the use of
this standard. Because the 18 dBV/m standard gives incumbents
greater flexibility to expand, we must apply stricter interference
protection criteria to EA licensees to ensure that they do not
interfere with incumbent operations. Specifically, we will require EA
licensees either: (1) to locate their stations at least 173 km (107
miles) from the licensed coordinates of any incumbent, or (2) to comply
with co-channel separation standards based on a 36/18 dBV/m
standard rather than the previously applicable 40/22 dBV/m
standard. The 36 dBV/m desired signal strength contour is
determined from the R-6602, F(50,50) curves for Channels 7-13 in
Sec. 73.699 of the Commission's rules (Figure 10), with a 9 dB
correction factor for antenna height differential. The 18 dBV/
m undesired signal strength contour is calculated using the R-6602,
F(50,10) curves for Channels 7-13 found in Sec. 73.699 of the
Commission's rules (Figure 10a), with a 9 dB correction factor for
antenna height differential. In PR Docket No. 93-60, the Commission
determined that a protection ratio of 18 dB would result in co-channel
station spacings that provide reasonable protection from co-channel
interference and, at the same time, provide for efficient reuse of
valuable spectrum. Thus, EA licensees are required to ensure that the
18 dBV/m undesired signal strength contour of a proposed
station does not encroach upon the 36 dBV/m desired signal
strength contour of an existing incumbent station. Furthermore, in the
opposite situation, EA licensees will have their 36 dBV/m
desired signal strength contour protected with an 18 dB ratio, since
the undesired signal strength contour limit for incumbents that have
reached consent of all other affected parties shall be 18 dBV/
m.
43. We emphasize that this revised interference standard protects
incumbents only against EA licensees, not against other incumbents. As
noted above, incumbents who seek to use the 18 dBV/m standard
must obtain the consent of other affected incumbents to do so. In the
absence of such consent, the protection that one incumbent must afford
another continues to be governed by Sec. 90.621(b) of the Commission's
rules, i.e., incumbents must locate their stations at least 113 km (70
miles) from the facilities of any other incumbent or comply with the
co-channel separation standards based on the 40/22 dBV/m
standard set forth in our prior short-spacing rules.

b. Adjacent EA Licensees

44. We adopt the same interference protection standards for the
lower 230 channels that we previously adopted for the upper 200
channels. Thus, EA licensees on the lower 230 channels must limit their
signal strength at their EA borders to 40 dBV/m, unless
affected adjacent EA licensees agree to higher signal strength. We
emphasize that this rule applies only to resolving interference issues
between EA licensees. Thus, an EA licensee who complies with this rule
may nevertheless be required to limit its operations further in order
to comply with the rules governing protection of incumbents (see
Sec. IV-B-4-a, infra).

c. Emission Masks

45. In response to a request for reconsideration from Ericcson,
again supported by Motorola, we are further modifying our emission mask
rule for the upper 200 channels in the accompanying Memorandum Opinion
and Order. We conclude that this rule, as modified, should also be
applied to the lower 230 channels. Use of a common emission standard
throughout the 800 MHz SMR band will facilitate use of common equipment
and make it easier for licensees to combine upper 200 and lower 230
channels in their systems. As in the case of the upper 200 channels,
application of the emission mask rule to the lower 230 channels will
apply only to ``outer'' channels used by the licensee, i.e., to
channels that are creating out-of-band emissions that affect another
licensee. Thus, the emission mask rules do not apply to ``interior''
channels in a spectrum block that do not create out-of-band emissions
outside that block or on channels in the block that are used by
incumbents.
5. Regulatory Classification of EA Licensees on the Lower 230 Channels
46. We adopt our proposal with respect to SMR applicants who obtain
EA licensees on the lower 230 channels, but modify it with respect to
non-SMR applicants for EA licenses. We anticipate that most applicants
for EA licenses on these channels will be SMR applicants who seek to
provide interconnected service, thus meeting the statutory definition
of CMRS. Therefore, we will presumptively classify SMR winners of EA
licenses as CMRS providers. However, we will allow SMR applicants and
licensees to overcome this presumption by demonstrating that their
service does not meet the CMRS definition. This is consistent with our
approach to broadband PCS and other services. We reject Genesee's
contention that we have illegitimately used CMRS classification as a
basis for auctioning the lower 230 channels. In fact, the issue of
regulatory classification under section 332 of the Act is irrelevant to
the issue of auctionability, which turns on the factors enumberated in
section 309(j) of the Act. We address the issue of auctionability
elsewhere in this order and decline to revisit it here.
47. In the Memorandum Opinion and Order adopted today, we determine
that non-SMRs as well as SMRs will be eligible to obtain EA licenses on
the 150 General Category channels. While we expect most EA licenses to
be sought by SMR providers, we agree with E.F. Johnson that where an EA
license is obtained by a non-SMR operator, the CMRS presumption is
inapplicable. Thus, in the event that EA licenses are awarded to Public
Safety, Industrial/Land Transportation, or Business licensees, such
licensees will be classified as PMRS providers. Although Business Radio
licensees below 800 MHz may be classified as CMRS, Business Radio
licensees above 800 MHz are precluded from providing for-

[[Page 41197]]

profit service, and therefore are classified as PMRS.

C. Relocation of Incumbents From the Upper 200 Channels

1. Comparable Facilities
48. We adopt our proposed definition of ``comparable'' facilities,
with certain clarifications discussed below. In general, we define
comparable facilities as facilities that will provide the same level of
service as the incumbent's existing facilities. We also agree with
commenters that being provided with comparable facilities requires that
the change be transparent to the end user to the fullest extent
possible. However, our definition does not require an EA licensee to
upgrade the incumbent's facilities. As we proposed, EA licensees will
not be required to replace existing analog equipment with digital
equipment when there is an acceptable analog alternative that satisfies
the comparable facilities definition. Thus, under these circumstances
the cost obligation of the EA licensee will be the minimum cost the
incumbent would incur if it sought to replace, but not upgrade, its
system.
49. We agree with many of commenters' suggestions for further
refining the factors that are used to define comparable facilities. We
conclude that the determination of whether facilities are comparable
should be made from the perspective of the end user. To this end, we
identify four factors--system, capacity, quality of service, and
operating costs--that are relevant to this determination. We emphasize
that these factors are only relevant to determining what facilities the
EA licensee must provide to meet the requirements for mandatory
relocation; we reiterate that incumbents and EA licensees are free to
negotiate any mutually agreeable alternative arrangement.

a. System

50. To meet the comparable facilities requirement, an EA licensee
must provide the relocated incumbent with a comparable system. We
believe the term ``system'' should be defined functionally from the end
user's point of view, i.e., a system is comprised of base station
facilities that operate on an integrated basis to provide service to a
common end user, and all mobile units associated with those base
stations. System comparability includes stations licensed on a
secondary, non-protected basis. An incumbent that is licensed on a
secondary basis at the time of notification must receive at least the
equivalent type of license. We agree with SMR WON that this definition
can include multiple-licensed facilities that share a common switch or
are otherwise operated as a unitary system, provided that an end user
has the ability to access all such facilities. However, our definition
does not extend to facilities that are operationally separate. For
example, if a subscriber on one system has the ability to roam on a
neighboring system, we would not define the two facilities as part of a
common ``system.'' In addition, our definition does not include managed
systems that are comprised of individual licenses. We also agree with
SMR WON and AMTA that a ``system'' may cover more than one EA if its
existing geographic coverage extends beyond the EA borders. We reject
Nextel and Pittencrief's suggestions that we define ``system'' more
narrowly. In our view, a narrower definition would impair the
flexibility of incumbents to continue meeting their customer's needs.

b. Capacity

51. To meet the comparable facilities requirement, an EA licensee
must relocate the incumbent to facilities that provide equivalent
channel capacity. We define channel capacity as the same number of
channels with the same bandwidth that is currently available to the end
user. For example, if an incumbent's system consists of five 50 kHz
(two 25 kHz paired frequencies) channels, the replacement system must
also have five 50 kHz channels. If a different channel configuration is
used, it must have the same overall capacity as the original
configuration. We agree with commenters that comparable channel
capacity requires equivalent signaling capability, baud rate, and
access time. In addition, the geographic coverage of the channels must
be coextensive with that of the original system.

c. Quality of Service

52. Comparable facilities must provide the same quality of service
as the facilities being replaced. We define quality of service to mean
that the end user enjoys the same level of interference protection on
the new system as on the old system. In addition, where voice service
is provided, the voice quality on the new system must be equal to the
current system. Finally, we consider reliability of service to be
integral to defining quality of service. We measure reliability as the
degree to which information is transferred accurately within the
system. Reliability is a function of equipment failures (e.g.
transmitters, feed lines, antennas, receivers, battery back-up power,
etc.) and the availability of the frequency channel due to propagation
characteristics (e.g. frequency, terrain, atmospheric conditions,
radio-frequency noise, etc.) For digital data systems, this will be
measured by the percent of time the bit error rate exceeds the desired
value. For analog or digital voice transmissions, we will measure the
percent of time that audio signal quality meets an established
threshold. If analog voice system is replaced with a digital voice
system the resulting frequency response, harmonic distortion, signal-
to-noise ratio, and reliability will be considered.

d. Operating Costs

53. Another factor in determining whether facilities are comparable
is operating costs. We define operating costs as costs that affect the
delivery of services to the end user. If the EA licensee provides
facilities that entail higher operating cost than the incumbent's
previous system, and the cost increase is a direct result of the
relocation, the EA licensee must compensate the incumbent for the
difference. We anticipate that costs associated with the relocation
process will fall into several categories. First, the incumbent must be
compensated for any increased recurring costs associated with the
replacement facilitates (e.g. additional rental payments, increased
utility fees). Second, increased maintenance costs must be taken into
consideration when determining whether operating costs are comparable.
For example, maintenance costs associated with analog systems may be
higher than the costs of digital equipment because manufacturers are
producing mostly digital equipment and analog replacement parts can be
difficult to find.
54. While we conclude that EA licensees should be responsible for
increased operating costs caused by relocation, we note that
identifying whether increased costs are attributable to relocation
becomes more difficult over time. Therefore, we will not impose this
obligation indefinitely, but will end the EA licensee's obligation to
pay increased costs five years after relocation has occurred. We
believe this appropriately balances the interests of EA licensees and
relocated incumbents.
2. Cost-Sharing

a. Sharing Relocation Costs on a Pro Rata Basis

55. We adopt an approach that is similar to our PCS microwave
relocation rules. We conclude that, absent an

[[Page 41198]]

agreement among EA licensees who are prepared to relocate the
incumbent, all EA licensees who benefit from the relocation of the
incumbent must share the relocation costs on a pro rata basis. Although
several commenters believe that the Commission should adopt detailed
rules for sharing relocation costs among multiple EA licensees, we do
not believe that detailed rules are necessary since all EA licensees
will be licensed at approximately the same time. However, we do not
believe that all EA licensees will notify incumbents of their intention
to relocate within 90 days of the release of the Public Notice
announcing the commencement of the voluntary negotiation period because
they may not be ready or capable of relocating an incumbent and,
therefore will not participate in the relocation process. Those non-
notifying EA licensees, however may subsequently determine that those
channels relocated out of their EA by other EA licensees are necessary
for their use. Therefore, EA licensees who relocate the incumbent will
obtain a right to reimbursement from non-notifying EA licensees who
want to benefit from the relocation. We believe that allowing all EA
licensees who relocate the incumbent a right to reimbursement is
necessary to avoid a ``free-rider'' problem by those EA licensees who
did not provide notification, but subsequently benefit from the
relocation. We also believe that reimbursement rights will ensure that
the incumbent is relocated as a whole and not on a piece-meal basis.
56. The pro rata formula will be based on the number of channels
being relocated out of each EA. Several commenters support this
proposal, because the relocation process is likely to involve multiple
EA licensees and one incumbent. The pro rata formula requires those EA
licensees who participate in the relocation process to share the costs
for relocating those channels that are located in a non-notifying
licensee's EA. Therefore, the cost-sharing formula will determine the
costs for relocating the incumbent's system out of each EA. We believe
that determining the relocation costs for each EA will allow those EA
licensees who participate in the relocation process to easily determine
their cost obligation and their reimbursement share from later entrant
EA licensees who did not participate. We believe that such a formula
will negate the need for a complicated plan. The new formula is:
[GRAPHIC] [TIFF OMITTED] TR31JY97.000

Ci equals the amount of reimbursement
Tc equals the actual cost of relocating the incumbent
TCh equals the total number of channels that are being relocated
Chj equals the number of channels that each respective EA licensee
will benefit from

57. We believe the formula provides an effective and
straightforward means of determining a participating EA licensee's cost
obligation and the reimbursement shares for later entrant EA licensees.
This formula is essential to make cost-sharing administratively
feasible and fair for those EA licensees who participate in the
relocation process and those who choose not to.
58. The formula is similar to the formula adopted for sharing the
relocation costs of microwave incumbents, but it does not take into
account depreciation for the costs of reimbursing EA licensees who
participated in the relocated process. Instead, non-notifying EA
licensees who subsequently decide to use the channels or area of their
EA that an incumbent was relocated out of must fully reimburse those
participating EA licensees prior to testing. Similar to our decision in
the microwave relocation proceeding, EA licensees who relocate channels
that benefit other EA licensees and are fully outside of their market,
should be entitled to full reimbursement of compensable costs for
relocating that portion of the incumbent that are either fully outside
their market area or licensed EA. However, because we realize that a
non-notifying EA licensee may not decide to use those channels or serve
the area of their EA that was once occupied by an incumbent, we
conclude that ten years from the date of the Public Notice commencing
the voluntary negotiation period, reimbursement rights will sunset.
59. The following is an example of how the formula will work: In
October 1997, EA licensees A, B, and C each notify the incumbent in a
timely manner that they are prepared to relocate the incumbent. EA
licensee D does not provide notification to the incumbent. The
incumbent decides to compel simultaneous negotiations among EA
licensees A, B, and C. As a result, EA licensees A, B, and C fully
relocate the incumbent. The total costs for relocating the incumbent is
$100,000. There were 60 channels that EA licensees A, B, C, and D can
use as a result of the relocation. The channels located in each EA are
as follows: EA A has 25 channels; EA B has 15 channels; EA C has 10
channels; and EA D has 10 channels. For this example, we will calculate
the formula for determining the costs share of EA licensee B. As a
result, Chj=25, because that is the number of channels that EA licensee
B will benefit from. The total number of channels that were relocated
is 60 and, therefore TCh=60. In addition, Tc equals $100,000, because
that is the total costs of relocating the incumbent. The calculation of
licensee B's reimbursement payment is as follows:
[GRAPHIC] [TIFF OMITTED] TR31JY97.001

Thus, licensee B pays $25,000. Licensee A would pay $41,666.66,
licensee C would pay $16,666.66 and licensee D would pay $16,666.66.
Therefore, licensee D will be obligated to reimburse licensees A, B,
and C $16,666.66 if licensee D subsequently decides to use the channels
in EA D. This amount must be equally divided among EA licensees A, B,
and C. All three licensees will trigger a right to reimbursement from
licensee D and will have the right to collect their share of the costs
prior to licensee D commencing with testing.
60. We decline to adopt the proposals of commenters that would
allow EA licensees who relocate the incumbent to step into the shoes of
the incumbent. We realize that not all EA licensees will provide
notice, even though there are sufficient incentives to do so. However,
we do not believe it would be appropriate to allow an EA licensee who
is prepared to relocate the incumbent to succeed to all of the rights
and obligations of that incumbent. In essence, succeeding to the rights
and obligations of the incumbent would allow EA licensees to attain a
de facto license for parts of an EA that they were not the high bidder
for at auction. Therefore, we believe that all EA licensees who benefit
initially or subsequently from the relocation of an incumbent should
share the costs of the relocation on a pro rata basis. To accomplish
this, EA licensees who relocate the incumbent will obtain a right to
reimbursement from non-notifying EA licensees who subsequently decide
to use the channels that were relocated. Therefore, we have designed a
two-step process that will allow a participating EA licensee to obtain
a reimbursement right and collect the initial costs for relocating
channels outside of their EA.

b. Triggering a Reimbursement Right

61. Commenters, although supportive of the Commission's proposal to
allow EA licensees who negotiate a relocation

[[Page 41199]]

agreement the right to reimbursement from EA licensees who benefitted,
did not specifically address how such right should be created. We
believe that a right to reimbursement can easily be triggered by the
procedures we adopted in the First Report and Order.
62. In the First Report and Order, we developed a notification
procedure that requires an EA licensee to file a copy of the relocation
notice and proof of the incumbent's receipt of the notice to the
Commission within ten days of receipt. Because notification affects an
EA licensee's right to relocate an incumbent, we believe that such
notification should also be the first step in triggering an EA
licensee's reimbursement right. We believe the second step of
triggering a reimbursement right is signing a relocation agreement with
the incumbent. Thus, if an EA licensee timely notifies an incumbent of
its intention to relocate, and subsequently negotiates and signs a
relocation agreement with the incumbent, the EA licensee will have
triggered its right to reimbursement from EA licensees who benefitted.
63. In addition, because notification is the first step in
establishing a reimbursement right for an EA licensee, we believe that
such notification should also establish an obligation for those EA
licensees who benefited from the relocation. We believe that an EA
licensee who is sincere about using the channels in its EA will provide
notice to the incumbent of its intention to relocate the incumbent. We
agree with AMTA that EA licensees who do not participate in the
relocation process should be prohibited from invoking mandatory
negotiations or any of the provisions of the Commission's mandatory
relocation guidelines.
64. Therefore, if an EA licensee timely notifies an incumbent of
its intention to relocate, but during the voluntary negotiation period
decides not to participate in the relocation process, such EA licensee
will be obligated to reimburse those EA licensees who have triggered a
reimbursement right. EA licensees who do not provide notice to the
incumbent, but subsequently decide to use the channels in the EA will
be required to reimburse, outside of the Commission's mandatory
relocation guidelines, those EA licensees who have established a
reimbursement right. We believe that this procedure strikes a fair
balance between EA licensees who relocate incumbents and those EA
licensees who decide not to relocate incumbents.

c. Compensable Costs

65. We agree with those commenters who believe that premium
payments should not be reimbursable and therefore adopt our proposal
that reimbursable costs will be limited to the actual costs of
relocating the incumbent. We believe that EA licensees who have an
incentive to be first to market will have a need to accelerate the
relocation process. We agree with those commenters that believe other
EA licensees will not receive the same advantage and therefore should
not be required to contribute to premium payments. Therefore, we
conclude that reimbursement rights will only apply to actual relocation
costs.
66. In the Second Further Notice of Proposed Rulemaking, we
tentatively concluded that actual relocation costs will include, but
not be limited to: SMR equipment; towers and/or modifications; back-up
power equipment; engineering costs; installation; system testing; FCC
filing costs; site acquisition and civil works; zoning costs; training;
disposal of old equipment; test equipment; spare equipment; project
management; and site lease negotiation. Commenters generally supported
the list proposed, but were concerned that the list did not address
other cost factors related to relocation. We agree with those
commenters who argue that there are other factors related to the
relocation process and therefore conclude that this list should be
illustrative, and not exhaustive. However, because we want to encourage
a fast relocation process free of disputes, we believe that the bulk of
compensable costs should be tied as closely as possible to actual
equipment costs. Based on this goal, we believe that subsequent EA
licensees should only be required to reimburse EA relocators for
incumbent transaction expenses that are directly attributable to the
relocation, subject to a cap of two percent of the ``hard costs''
involved. Hard costs are defined as the actual costs associated with
providing a replacement system, such as equipment and engineering
expenses. This restriction on the reimbursement of transaction fees
corresponds to the restriction we adopted with respect to PCS
reimbursement of incumbent transaction expenses for cost-sharing during
any time period--voluntary, mandatory, or involuntary. Therefore, we
adopt the same restriction for purposes of this cost-sharing plan.
However, EA licensees are not required to pay for transaction costs
incurred by EA licensees during the voluntary or mandatory periods once
the involuntary period is initiated, or for fees that cannot be
legitimately tied to the provision of comparable facilities.
67. In addition, we believe that actual costs should also include
costs directly related to a seamless transition. In the First Report
and Order, we concluded that during the involuntary negotiation period,
the EA licensee must conduct the relocation in such a fashion that
there is a ``seamless'' transition from the incumbents ``old''
frequency to its ``new'' frequency. We agree with ITA and SMR Systems
that it may be necessary to operate the old system and the new system
simultaneously to ensure a seamless transition. We want to encourage EA
licensees and incumbents to exercise flexibility when negotiating a
relocation agreement, but we also want to ensure that the incumbent is
made whole, and is relocated without a substantial disruption in
service. We also recognize that alternative means may be agreed upon to
avoid a substantial disruption in service. Therefore, we will require
that any costs directly associated with a seamless transition will be
considered actual costs and, therefore reimbursable.

d. Payment Issues

68. We partially agree with Genessee and conclude that
reimbursement payments should be due when the frequencies of the
incumbent have been cleared. We also agree with Fresno that an EA
licensee may choose not to use the frequencies in a particular EA.
Therefore, it is the EA licensee who must, within 90 days of the
release of the Public Notice announcing the commencement of the
voluntary negotiation period, decide whether they intend to participate
in the mandatory relocation process.
69. We believe that an EA licensee who provides notification is
sincere of its intention to use the frequencies in the EA and
therefore, concluded supra, that once an EA licensee notifies an
incumbent of its intention to relocate the incumbent, the EA licensee
will be obligated to pay its share of reimbursement. However, EA
licensees who have triggered an obligation should not be required to
submit payment until the channels they have been licensed for are
available for use. Therefore, we conclude that payments will not be due
until the incumbent has been fully relocated and the frequencies are
free and clear. We believe this procedure strikes a clear balance
between those EA licensees who negotiate a relocation agreement and
those EA licensees who want the use of the frequencies, but decide not
to negotiate a relocation agreement.

[[Page 41200]]

70. Because non-notifying EA licensees will not receive the benefit
of the Commission's relocation guidelines, they will be required to
reimburse those EA licensees who have triggered a reimbursement right.
Therefore, we conclude that non-notifying EA licensees who subsequently
decide to use the channels, should be required to submit payment to
those EA licensees who have triggered a reimbursement right prior to
commencing testing of their system. We believe this strikes a fair
balance between the EA licensee who has benefited a non-notifying EA
licensee and the non-notifying EA licensees right to use those channels
within its licensed EA. In addition, we believe that this will create
an incentive for both parties to expedite negotiations among
themselves.
3. Resolution of Disputes that Arise During Relocation
71. Commenters strongly support the Commission's proposal to use
ADR procedures when disputes arise as to the amount of reimbursement
required and the relocation negotiations (including disputes over
comparability of facilities and the requirement to negotiate in good
faith). We agree with those commenters who believe that the use of ADR
procedures will help resolve disputes in a timely fashion, while
conserving Commission resources. In addition, we believe that the rapid
resolution of disputes will speed the development of wide-area systems,
and therefore will ultimately benefit the public. Therefore, to the
extent that disputes cannot be resolved among the parties, we strongly
encourage parties to use expedited ADR procedures. ADR procedures
provide several alternative methods such as binding arbitration,
mediation, or other ADR techniques. Because we are encouraging parties
to use ADR procedures, we do not need to designate an arbiter to
resolve the disputes as some commenters suggest. As several commenters
pointed out, the choice of arbiter should be a decision left to the
parties.
72. We encourage parties to use ADR procedures prior to seeking
Commission involvement and caution that entire resolution of disputes
by the Commission will be time consuming and costly to the parties. In
addition, we emphasize that parties who neglect their obligation to
satisfy a reimbursement right will be subject to the full realm of
Commission enforcement mechanisms.
4. Administration of the Cost-Sharing Plan
73. We believe that the cost-sharing plan we have adopted for 800
MHz SMR does not require us to designate an administrator. We believe
that an administrator was necessary to administer the cost-sharing plan
under the microwave relocation procedures because of the complexity of
the plan. We do not believe that the cost-sharing plan we have adopted
for 800 MHz SMR is as complex and therefore decline to designate a
clearinghouse to administer the cost-sharing plan. However, we will not
prohibit an industry supported, not-for-profit clearinghouse from being
established for purposes of administering the cost-sharing plan under
the 800 MHz relocation procedures.

D. BETRS Eligibility on the Upper 200 Channels

74. As we did in our Paging Second Report and Order, 62 FR 11616
(March 12, 1997), we do not believe it is necessary to continue
separate primary licensing of BETRS facilities on 800 MHz SMR
frequencies. Under the rules adopted in our CMRS Flex Report and Order,
61 FR 45336 (August 29, 1996), all CMRS providers, including SMRs, may
provide fixed services of the type provided by BETRS licensees. In
addition, entities seeking to offer BETRS on 800 MHz SMR frequencies
will be able to obtain spectrum through geographic area licensing. We
see no basis for distinguishing BETRS from other services that use 800
MHz SMR spectrum to provide commercial communications service to
subscribers.
75. As we noted in our Paging Second Report and Order, we recognize
that BETRS primarily serves rural, mountainous, and sparsely populated
areas that might not otherwise receive basic telephone service.
However, according to our records, there are few BETRS facilities
licensed on 800 MHz SMR frequencies. According to our licensing
records, as of November 13, 1996, there were only eleven BETRS
authorizations in the 800 MHz service, and all of them were located in
the State of Alaska. Furthermore, our records show no BETRS facilities
licensed in Puerto Rico. Therefore, we disagree with PRTC that
eliminating separate primary licensing of BETRS facilities on 800 MHz
SMR frequencies will negatively affect phone penetration in Puerto
Rico. More importantly, concerns about the delivery of service to rural
and other high cost areas are currently being addressed in our ongoing
rulemaking proceeding examining universal service issues. We also note
that BETRS has other frequencies available to it under part 22. In
light of the limited demand for these channels by BETRS licensees, and
the alternatives available for providing telecommunications service in
sparsely populated areas, we conclude that continued licensing of 800
MHz channels to BETRS on a co-primary basis is not necessary.
76. We will, however, allow BETRS licensees to obtain new sites and
channels in the 800 MHz band on a secondary basis. If any EA licensee
subsequently notifies the BETRS licensee that a secondary facility must
be shut down because it may cause interference to the EA licensee's
existing or planned facilities, the BETRS licensee must discontinue use
of the particular channel at that site no later than six months after
such notice.

E. Partitioning and Disaggregation for 800 MHz and 900 MHz Licensees

1. Partitioning

a. Eligibility

77. We adopt our tentative conclusion and further extend
partitioning to all incumbent licensees and eligible SMR licensees on
all SMR channel blocks. We agree with commenters that partitioning will
provide SMR licensees with increased flexibility and result in more
efficient spectrum management. In the broadband PCS proceeding, we
eliminated the existing restriction that limited partitioning of
broadband PCS licenses to only rural telcos. We concluded that allowing
more entities to acquire partitioned broadband PCS licenses would:
``(1) Remove potential barriers to entry thereby increasing competition
in the PCS marketplace; (2) encourage parties to use PCS spectrum more
efficiently; and (3) speed service to unserved and underserved areas.''
We conclude that the very same important goals will be met by allowing
more open partitioning in the SMR service. Eliminating the existing
rural telco restriction on SMR partitioning will: (1) Allow new
entities, such as small businesses, to acquire SMR licenses and thus
increase competition and foster the development of new technologies and
services; (2) encourage existing SMR licensees to use their spectrum
more efficiently; and (3) ensure the faster delivery of SMR service to
rural areas. We also believe that allowing more flexible partitioning
will provide an alternative to the relocation of incumbent licensees.
78. Under our rules, SMR licensees are required to meet performance
requirements based on substantial service, which may be fulfilled by
providing population-based coverage. As some of the 900 MHz commenters
noted, these requirements encourage SMR licensees to initially focus
their attention on the more populated, urban

[[Page 41201]]

portions of their markets, in order to meet the construction
requirements, while leaving the less-populated, rural areas unserved.
With the present rural telco restriction in place, SMR licensees are
not permitted to partition the more rural portions of the their markets
to another entity, unless that entity is a qualified rural telco. In
those cases where no rural telco is present in the market or where the
rural telco does not desire to provide SMR service, there may be a
delay in the delivery of service to the rural portions of the MTA.
Allowing SMR licensees to partition portions of their markets to other
entities more interested in providing service to those niche areas not
only allows those other entities an opportunity to enter the SMR
marketplace but also increases the odds that the less populated, rural
portions of markets receive higher quality SMR service. Therefore, we
are eliminating the existing rural telco restriction on both 800 MHz
and 900 MHz SMR partitioning.
79. We do not find that retaining the rural telco restriction will
result in higher quality service to rural areas. We find that allowing
more open partitioning in the 900 MHz SMR service will mean that
additional, highly qualified wireless operators, including incumbent
SMR operators, will be permitted to provide 900 MHz SMR service which
may result in better service and increased competition which may result
in lower prices for service. We also do not find that allowing more
open partitioning of 900 MHz SMR licenses is inconsistent with the
mandate of section 309(j)(3)(B) of the Communications Act to ensure
that licenses are disseminated among a wide variety of applicants
including rural telcos. RTG argues that partitioning is the only
preference that has been devised to ensure that rural telcos are
afforded economic opportunities to participate in the provision of new
and innovative services. We disagree. Rural telcos are able to take
advantage of the special provisions for small businesses adopted for
the 900 MHz SMR auction. Furthermore, sections 309(j)(3) (A), (B), and
(D) of the Communications Act direct the Commission to further the
rapid deployment of new technologies for the benefit of the public
including those residing in rural areas, to promote economic
opportunity and competition, and to ensure the efficient use of
spectrum. While encouraging rural telco participation in 900 MHz SMR
service offerings is an important element in meeting these goals,
Congress did not dictate that this should be the sole method of
ensuring the rapid deployment of service in rural areas. Allowing more
open partitioning will further the goals of section 309(j)(3) by
allowing 900 MHz SMR licensees to partition their licenses to multiple
entities rather than to a limited number of rural telcos. In addition,
we find that, because they possess the existing infrastructure and
local marketing knowledge in rural areas, rural telcos will be able to
compete with other parties to obtain partitioned 900 MHz SMR licenses.
80. We decline to adopt SMR WON's proposal to restrict non-
incumbent 800 MHz SMR licensees from partitioning until they have
relocated all incumbent licensees from their band. We agree with those
800 MHz commenters that believe that the auctions process obviates the
need for restricting partitioning. While we acknowledge SMR WON's
concerns that partitioning could be used as a method for avoiding
responsibility for relocation of incumbents, we believe that such a
restriction would unfairly discourage partitioning without any
corresponding public interest benefit. We note that partitionees will
be permitted to acquire partitioned license areas from EA licensees but
will not be permitted to operate on channels that were previously
cleared by other EA licensees until they have satisfied the relocation
reimbursement requirements under our rules. EA licensees and
partitionees are free to negotiate among themselves as to who will be
responsible for paying the reimbursement costs, and we will require
that parties seeking approval for a partitioning arrangement in the 800
MHz SMR service certify which party will be responsible for such
reimbursement. We believe that such a certification is a more flexible
approach to ensuring that partitioning is not used as a means to
circumvent our reimbursement requirements.

b. Available License Area

81. In the broadband PCS and WCS proceedings, we allowed
partitioning along any service area defined by the partitioner and
partitionee. We found that, by providing such flexibility to licensees
for determining partitioned broadband PCS license areas, we would
permit the market to decide the most suitable services areas. We find
that the same rationale holds true in the SMR service. Restricting the
partitioning of SMR licenses to geopolitical boundaries, as originally
proposed in the Second Further Notice of Proposed Rulemaking and by
AMTA, may inhibit partitioning and may not allow licensees to respond
to market demands for service. We find that allowing unrestricted
partitioning of SMR licenses is preferable, as long as the parties
submit information in their partial assignment applications that
describes the partitioned license area.
82. We will require that applications seeking approval to partition
an SMR license will be required to submit, as separate attachments to
the partial assignment application, a description of the partitioned
service area and, where applicable, a calculation of the population of
the partitioned service area and licensed market. The partitioned
service area must be defined by coordinate points at every 3 degrees
along the partitioned service area agreed to by both parties, unless
either (1) an FCC-recognized service area is utilized (i.e., Major
Trading Area, Basic Trading Area, Metropolitan Statistical Area, Rural
Service or Economic Area) or (2) county lines are followed. Applicants
need only define that portion of the partitioned service area that is
not encompassed by an FCC-recognized service area or county line. For
example, if the partitioned service area consisted of five counties and
three additional townships, the applicant must only define that portion
of the partitioned service area comprised of the additional townships.
These geographical coordinates must be specified in degrees, minutes
and seconds to the nearest second of latitude and longitude, and must
be based upon the 1927 North American Datum (NAD27). Applicants may
also supply geographical coordinates based on 1983 North American Datum
(NAD83) in addition to those required based on NAD27. This coordinate
data should be supplied as an attachment to the partial assignment
application, and maps need not be supplied. In cases where an FCC
recognized service area or county lines are being utilized, applicants
need only list the specific area(s) (through use of FCC designations)
or counties that make up the newly partitioned area. For example, if a
licensee desires to partition its license only for the service area
needed by a rural telco, it will simply provide coordinate data points
at each 3 degree data point extending from the center of the service
area (i.e, at the 3 degree, 6 degree, 9 degree, 12 degree, etc. azimuth
points with respect to true north).
83. We note that this rule will also apply to incumbent 800 MHz SMR
licensees seeking partial assignments of license. Incumbent licensees
are currently licensed on a site-by-site basis and currently must seek
a partial assignment of license under our existing rules if they desire
to assign a portion of their licensed transmitter sites to

[[Page 41202]]

another entity. Under our new rules, incumbent 800 MHz SMR licensees
must follow the same procedures as all other licensees and must include
the necessary description of the ``partitioned license area.'' For
incumbent 800 MHz SMR licensees, the ``partitioned license area'' will
mean that area encompassed by the protected service contours of all of
the transmitter sites being assigned.
2. Disaggregation

a. Eligibility

84. We conclude that all SMR licensees should be allowed to
disaggregate portions of their spectrum to any party that is qualified
for the spectrum's underlying channel block. We find that
disaggregation will provide SMR licensees greater flexibility to manage
their spectrum more efficiently and, in the 800 MHz band, will
facilitate the coexistence of geographic area licensees and incumbents
by allowing geographic licensees to subdivide their spectrum holdings
and assign or transfer parts of their spectrum to other eligible
entities or incumbents. We further find that disaggregation will
increase competition by encouraging a broader range of SMR
participants; foster a broader range of services offered by those
participants as they seek niche markets and services; expedite the
provision of SMR service to areas that may not otherwise receive CMRS
service; and, allow the marketplace to determine who and by whom the
spectrum will be used. Moreover, allowing SMR disaggregation will help
establish regulatory symmetry with similar services, such as PCS, as
mandated by the 1993 Budget Act. Once again, we find that allowing
disaggregation will provide a less disruptive alternative for the
relocation of incumbent licensees.
85. As we did with partitioning, we decline to adopt SMR WON's
proposal to restrict non-incumbent 800 MHz SMR licensees' ability to
disaggregate. We agree with commenters that conclude that the market
should determine when and how much spectrum to disaggregate.

b. Amount of Spectrum to Disaggregate

86. We agree with commenters that we should not limit the amount of
SMR spectrum that can be disaggregated. We find that the marketplace
should decide the amount of SMR spectrum to be disaggregated and that
there is no need to set a minimum disaggregation amount. As we did for
broadband PCS and WCS, we seek to provide flexibility to the parties to
decide the amount of spectrum they need. This will permit more
efficient use of spectrum and deployment of a wider range of service
offerings. Requiring a minimum disaggregation amount for SMR may
interfere with parties intend use of spectrum and may foreclose some
parties from using disaggregation as a means of obtaining SMR spectrum
to provide their unique service offerings. We note that parties
acquiring disaggregated SMR spectrum will continue to be subject to all
of our technical and operating requirements.
1. Construction, Coverage and Channel Usage Requirements
87. We agree that SMR licensees should not be able to use
partitioning and disaggregation as a means of circumventing our
performance requirements and that some version of these requirements
should apply to parties obtaining licenses through these means. By
adopting such requirements we seek to ensure that spectrum is used to
the same degree that it would have been used had the partitioning or
disaggregation transaction not taken place.
88. Therefore, we will adopt flexible coverage and channel usage
requirements for partitioning and disaggregation in the 800 MHz and 900
MHz SMR services that are consistent with the underlying requirements
in those services. We find that granting the parties flexibility to
devise a scheme for meeting these requirements will increase the
viability and value of partitioned licenses and disaggregated spectrum
and will facilitate partitioning and disaggregation for the SMR
service.
89. With respect to incumbent licensees, we believe that it would
be inappropriate to subject entities that obtain partitioned licenses
or disaggregated spectrum from incumbent SMR licensees to additional
performance requirements when no such requirements currently exist for
these licensees. However, to prevent incumbent licensees from using
partitioning or disaggregation as a means of circumventing our one-year
construction requirement, we will hold partitionees and disaggregatees
to the original construction deadline(s) for each of the partitioned
facilities they acquire. These deadlines may vary depending on when the
facility was originally licensed. In any case, a partitionee or
disaggregatee that obtains a portion of an incumbent SMR licensees'
facilities or spectrum with only a few months remaining before the
expiration of the construction deadline, will be required to have these
facilities constructed and providing ``service to subscribers'' by each
individual construction deadline. Failure to meet the individual
construction deadline for a specific facility will result in automatic
termination of that facility's authorization. We believe that such a
requirement is a fair balance between allowing incumbent SMR licensees
the opportunity to utilize the helpful spectrum management tools of
partitioning and disaggregation while ensuring continued compliance
with our performance requirements.
90. Geographic Area Licensees--Partitioning. Because the coverage
requirements differ for licensees in the 800 MHz and 900 MHz bands, we
will adopt coverage requirements that are consistent with the
licensees' underlying requirements. In the 900 MHz band and in the
lower 230 channels of the 800 MHz band, licensees are required to
provide ``substantial service'' to their markets within five years of
the grant of their initial licensees. As such, we will permit parties
seeking to partition licenses in those bands to meet one of the
following performance requirements. Under the first option, the
partitioner and partitionee can each agree to meet the ``substantial
service'' requirement for their respective portions of the market. If a
partitionee fails to meet the ``substantial service'' requirement for
its portion of the market, the license for the partitioned area will
automatically cancel without further Commission action. Under the
second option, if the original geographic area licensee certifies that
it has already met or will meet the ``substantial service'' requirement
for the entire market by providing coverage to at least one-third of
the population of the entire (pre-partitioned) market within three
years of the grant of its license and at least two-thirds of the market
population within five years, then the partitionee not be subject to
performance requirements except for those necessary to obtain renewal.
91. In the upper 200 channels of the 800 MHz band, licensees must
meet specific coverage benchmarks by providing coverage to at least
one-third of the population of their market within three years of the
grant of their initial license and coverage to at least two-thirds of
the population within five years. For licensees in the upper 200
channels of the 800 MHz band, we will adopt flexible coverage
requirements similar to those we adopted in the broadband PCS
proceeding. Under the first option, we will require that the
partitionee certify that it will meet the same coverage requirement as
the original licensee for its partitioned

[[Page 41203]]

market. If the partitionee fails to meet its coverage requirement, the
license for the partitioned area will automatically cancel without
further Commission action. Under the second option, the original
licensee certifies that it has already met or will meet its three-year
coverage requirement and that it will meet the five-year construction
requirement for the entire geographic area market. In that case, the
partitionee will not be subject to performance requirements except for
those necessary to obtain renewal.
92. Geographic Area Licensees--Disaggregation. Licensees in the
upper 200 channels of the 800 MHz band are required to meet a channel
usage requirement. Consistent with that rule, we will require that
disaggregatees in the upper 200 channels of the 800 MHz band meet a
channel usage requirement for the spectrum they acquire. However,
consistent with our approach for partitioning and to provide
flexibility to the parties to facilitate disaggregation in the upper
200 channels, we will permit the parties to negotiate among themselves
the responsibility for meeting the channel usage requirement. Each
party may agree to separately meet its channel usage requirement for
its portion of the disaggregated spectrum or the original licensee may
certify that is has or will meet the channel usage requirement for the
entire spectrum block. Similar to our approach for partitioning, one
party's failure to meet its agreed-to channel usage requirement shall
result in that party's license automatically reverting to the
Commission and shall not affect the other party's license.
93. There are no channel usage requirements in the 900 MHz SMR band
or in the lower 230 channels of the 800 MHz band. We believe it would
be inconsistent with our existing construction requirements to impose
separate performance requirements on both the disaggregator and
disaggregatee in those bands. However, we wish to ensure that parties
do not use disaggregation to circumvent our underlying performance
requirements. Therefore, we will adopt an approach similar to the one
adopted for partitioning: we will retain the underlying ``substantial
service'' requirement for the spectrum as a whole but allow either
party to meet the requirements on its disaggregated portion. Therefore,
a licensee in either the 900 MHz band or the lower 230 channels of the
800 MHz band that disaggregates a portion of its spectrum may elect to
retain responsibility for meeting the ``substantial service''
requirement, or it may negotiate a transfer of this obligation to the
disaggregatee. In either case, the rules ensure that the spectrum will
be developed to at least the same degree that was required prior to
disaggregation.
94. To ensure compliance with our rules, we will require that
parties seeking Commission approval of disaggregation agreement in the
900 MHz band or the lower 230 channels of the 800 MHz band include a
certification as to which party will be responsible for meeting the
applicable ``substantial service'' requirements. Parties may also
propose to share the responsibility for meeting the requirement. As
part of our public interest review under section 310(d), we will review
each transaction to ensure that the party designated as responsible for
meeting the performance requirements is bona fide and has the ability
to meet these requirements. In the event that only one party agrees to
take responsibility for meeting the performance requirement and later
fails to do so, that party's license will be subject to forfeiture, but
the other party's license will not be affected. Should both parties
agree to share the responsibility for meeting the performance
requirements and either party later fail to do so, both parties'
licenses will be subject to forfeiture.
95. We note also that disaggregatees that already hold an SMR
license or other CMRS license in the same geographic market will be
subject to the same performance requirements as disaggregatees who do
not hold other licenses for disaggregated spectrum. In addition, as we
noted above, we will require that parties to partitioning and
disaggregation agreements involving 800 MHz licensees certify in their
applications which party will be responsible for relocating incumbent
licensees located in the partitioned license area or the disaggregated
spectrum block. The parties are free to negotiate among themselves
which party will be responsible for incumbent relocation.
2. Matters Related to Designated Entity Licensees
96. Geographic area licensees in both the 800 MHz and 900 MHz bands
that qualify as a ``small business'' (otherwise referred to generally
as ``designated entity'' licensees) may receive a bidding credit to
reduce the amount of their winning auction bid. Entities with average
gross revenues of not more than $3 million for the preceding three
years may receive a 35 percent bidding credit. Entities with average
gross revenues of not more than $15 million for the preceding three
years may receive a 25 percent bidding credit. While 900 MHz licensees
may repay their winning auction bid pursuant to installment payments,
pursuant to our Memorandum Opinion and Order released today,
installment payments for 800 MHz licensees in the upper 200 channels
have been eliminated and we decline to adopt such a provision for the
lower 230 channels. There are two levels of installment payments
available to small business EA licensees in the upper 200 channels
while only one level of installment payments is available to small
business EA licensees in the lower 230 channels. Therefore, we must
only concern ourselves with the question of installment payments with
respect to 900 MHz licensees.
97. Whenever an geographic area 800 MHz or 900 MHz SMR licensee,
that received a bidding credit at auction, transfers its entire license
to an entity that would not have qualified for such a bidding credit or
would have qualified for a lower bidding credit, the geographic area
licensee is required to repay some or all of its bidding credit. If the
transfer occurs in the first two years, 100 percent of the bidding
credit must be repaid; if it occurs in year three, 75 percent; in year
four, 50 percent; and in year five, 25 percent. After the fifth year,
no unjust enrichment penalty is imposed.
98. Similarly, if a 900 MHz geographic area licensee, that is
paying its winning bid through installment payments, transfers its
license to entire an entity that would not have qualified for such
installment payments or, in the case of the upper 200 channels, for a
less favorable installment payment plan, the geographic area licensee
must make full payment of the remaining unpaid principal and interest
accrued through the date of assignment or transfer. A similar rule has
been adopted for the lower 230 channels, however, only one level of
installment payments in available to EA licensees in the lower 230
channels.
99. We conclude that the above-outlined unjust enrichment
requirements shall apply if licensee, that received one of these
special small business benefits, partitions or disaggregates to an
entity that would not qualify for the benefit. We will follow the
approach adopted in both the broadband PCS and WCS proceedings and
apply all such unjust enrichment requirements on a pro rata basis using
population to calculate the relative value of the partitioned area and
amount of spectrum disaggregated to calculate the relative value of the
disaggregated spectrum. We disagree

[[Page 41204]]

with PCIA that these measures will slow the assignment process or
encourage the filing of frivolous petitions to deny. We find that such
measures will provide an objective method for calculating the relative
values of partitioned areas and disaggregated spectrum. We note that
population will be calculated based upon the latest census data.
Parties may use the latest census data when it is available.
100. With respect to installment payments, we will follow the
procedures established in the broadband PCS proceeding and require that
a 900 MHz SMR geographic area licensee, making installment payments,
and seeking to partition or disaggregate to an entity that does not
meet the applicable installment payment eligibility standards, make a
payment of principal and interest calculated on a proportional basis as
set forth above. If a geographic area licensee making installment
payments, partitions or disaggregates to an entity that would qualify
for less favorable installment payments, we will require the licensee
to reimburse the government for the difference between the installment
payment paid by the licensee and the installment payments for which the
partitionee or disaggregatee is eligible calculated on a proportional
basis as set forth above.
101. We will separate the payment obligations using the same
procedures adopted for broadband PCS. When a 900 MHz SMR geographic
area licensee with installment payments partitions or disaggregates to
a party that would not qualify for installment payments under our rules
or to an entity that does not desire to pay for its share of the
license with installment payments, we will require, as a condition of
grant of the partial assignment application, that the partitionee/
disaggregatee pay its entire pro rata amount within 30 days of Public
Notice conditionally granting the partial assignment application. The
partitioner or disaggregator will receive new financing documents
(promissory note and security agreement) with a revised payment
obligation, based on the remaining amount of time on the original
installment payment schedule. A default on an obligation will only
affect that portion of the market area held by the defaulting party.
102. Where both parties to the 900 MHz SMR partitioning or
disaggregation arrangement qualify for installment payments under our
rules, we will again follow the procedures established in the broadband
PCS proceeding and permit the partitionee/disaggregatee to make
installment payments on its portion of the remaining government
obligation. Partitionees/disaggregatees are free, however, to make a
lump sum payment of all or some of their pro rata portion of the
remaining government obligation within 30 days of the Public Notice
conditionally granting the partial assignment application. Should a
partitionee/disaggregatee choose to make installment payments, we will
require, as a condition to approval of the partial assignment
application, that both parties execute financing documents (promissory
note and security agreement) agreeing to pay the U.S. Treasury their
pro rata portion of the balance due (including accrued and unpaid
interest on the date the partial assignment application is filed) based
upon the installment payment terms for which they would qualify. Each
party will receive a license for its portion of the market area and
each party's financing documents will provide that a default on its
obligation would only affect their portion of the market area. These
payments to the U.S. Treasury are required notwithstanding any
additional terms and conditions agreed to between or among the parties.
3. Related Matters
103. We asked commenters in the Second Further Notice of Proposed
Rulemaking to discuss the conditions by which partitioning and
disaggregation should be allowed for 800 MHz licensees. In addition,
AMTA raised related matters in its Petition. We adopt the following
rules with respect to the above-outlined matters similar to those we
have adopted for the broadband PCS service.

a. Combined Partitioning and Disaggregation

104. In the broadband PCS proceeding, we found that allowing
entities to propose combined partitioning and disaggregation
transactions would provide added flexibility and would facilitate such
arrangements. We believe the same rationale would apply to partitioning
and disaggregation in the SMR service. Therefore, we will allow
licensees to propose combined partitioning and disaggregation
transactions. We believe that the goals of providing competitive serve
offering, encouraging new market entrants, and ensuring quality service
to the public will be advanced by allowing such combined transactions.
We further conclude that in the event that there is a conflict in the
application of the partitioning and disaggregation rules, the
partitioning rules should prevail. For the purpose of applying our
unjust enrichment requirements and/or for calculating obligations under
installment payment plans, when a combined 900 MHz SMR partitioning and
disaggregation is proposed, we will use a combination of both
population of the partitioned area and amount of spectrum disaggregated
to make these pro rata calculations.

b. License Term and Renewal Expectancy

105. In the broadband PCS proceeding, we concluded that entities
acquiring a license through partitioning and disaggregation should hold
their license for the remainder of the original licensee's license
term. We found that this approach was consistent with the approach we
had adopted for the Multipoint Distribution Service and was the easiest
to administer. We found that allowing licensees to ``re-start'' the
license term from the date of the grant of the partial assignment of
license application could invite parties to circumvent our license term
rules and unnecessarily delay service to the affected areas.
106. We find the same to be true with respect to the SMR service.
Limiting partitionees and disaggregatees in the SMR service to the
remainder of the original licensee's license term (whether it be five
years for incumbent licensees or ten years for geographic area
licensees) will ensure that there will be the maximum incentive for
parties to pursue available spectrum as quickly as practicable, thus
expediting delivery of service to the public.
107. We will also adopt renewal expectancy provisions for SMR
partitionees and disaggregatees that obtain their licenses from
geographic area licensees similar to those adopted in the broadband PCS
proceeding. Partitionees and disaggregatees obtaining license areas or
spectrum from geographic area licensees may earn a renewal expectancy
on the same basis as other geographic area licensees.

c. Licensing

108. In order to provide added flexibility, we will not adopt the
procedures set forth in the Second Further Notice of Proposed
Rulemaking and, instead, adopt procedures similar to those proposed by
AMTA and those devised for broadband PCS partitioning and
disaggregation. We will require that parties seeking approval for an
SMR partitioning or disaggregation transaction follow the existing
partial assignment procedures for the SMR service. Such applications
will be placed on Public Notice and will be subject to petitions to
deny. The licensee will be required to file an FCC Form 490 that is
signed by both the

[[Page 41205]]

licensee and the qualifying entity. The qualifying entity will also be
required to file an FCC Form 430 unless a current FCC Form 430 is
already on file with the Commission. An FCC Form 600 must be filed by
the qualifying entity to receive authorization to operate in the market
area being partitioned or for the disaggregate spectrum and to modify
the existing license of the qualifying entity to include the new/
additional market area being partitioned or the spectrum being
disaggregated. Any requests for a partitioned license or disaggregated
spectrum must contain the FCC Forms 490, 430, and 600 and be filed as
one package under cover of the FCC Form 490. We note that the 45 MHz
CMRS spectrum cap contained in Sec. 20.6 of the rules applies to
partitioned license areas and disaggregated spectrum in the SMR
service. In the context of partitioning, we will determine compliance
with the spectrum cap based on the post-partitioning populations of
each licensees' partitioned market. This means that neither the
partitioner nor the partitionee may count the population in the other's
party's portion of the market in determining its own compliance with
the spectrum cap. Furthermore, by signing FCC Forms 490 and 600, the
parties will certify that grant of the partial assignment application
would not cause either party to be in violation of the spectrum
aggregation limit contained in Sec. 20.6 of the rules.

F. Competitive Bidding Issues of Lower 80 and General Category Channels

1. Auction of Lower 80 and General Category Channels
109. In previous proceedings, we concluded generally that we should
use ``competitive bidding procedures to select from among mutually
exclusive CMRS applications where we have the authority to do so and
where we find such processing to be in the public interest.'' Upon
consideration of the record in this proceeding, we conclude that
auctioning the Lower 80 channels and the General Category channels
meets the criteria set forth in section 309(j) of the Communications
Act and will further the public interest. Nextel, AMTA, and SMR Won
generally support competitive bidding for these channels.
110. Southern and ITA argue that the Commission lacks the authority
to auction this spectrum on the ground that under section 309(j) the
Commission is obligated to use existing means (i.e. engineering
solutions, negotiations, threshold qualifications) to avoid mutual
exclusivity in application and license proceedings. We note as an
initial matter that the Communications Act only requires the Commission
to use other such existing means when it is in the public interest.
After careful analysis of this spectrum, we conclude that the
likelihood of mutually exclusive applications in the 800 MHz SMR band
is considerable and that not all potential conflicts will be eliminated
through negotiations or other existing means. We therefore conclude
that the public interest will be served by using competitive bidding to
license these channels.
111. Some commenters contend that the General Category and Lower 80
are not auctionable because the channels are heavily licensed leaving
few or no channels or space available for new licensing. Further, these
commenters contend that those channels that are open will be used for
mandatory relocation of incumbents from the upper 10 MHz channels.
These commenters also contend that there is little to be gained by
adopting geographic licensing because geographic areas that already
have any value are licensed and there will be no increase in spectrum
efficiency. Further, commenters argue that because there is little open
space and no mandatory relocation proposal from the Lower 80 or General
Category channels, EA licensees will not be able to expand and these
licensees could be further frustrated by relocatees from the upper 200
channels.
112. We reject those arguments for several reasons. We do not
believe the purported dearth of channels in some areas or the potential
risk of relocatees from the upper 200 channels render the competitive
bidding process inapplicable. In this Order, we include provisions for
licensees to aggregate licenses within a geographic area, which will
enable them to expand the geographic coverage of their systems and
potentially enhance the commercial viability of these licenses, as well
as use this spectrum efficiently. As noted above, there is a high
likelihood that mutually exclusive applications will be filed for these
channels. The resolution of these applications by comparative hearings
or other means will unnecessarily delay the processing of these
applications, contrary to the public interest and to the Congressional
objectives under section 309(j)(3). Under the licensing scheme for
these channels, i.e., on a geographic area basis (as with the upper 200
channels, EAs will be used for the lower 80 channels), there will be
competitive opportunities to provide SMR service in this frequency band
and the application process for these channels will be open to any
qualified applicant. Furthermore, the use of competitive bidding to
select among these applicants will ensure that the qualified applicants
who place the highest value on the available spectrum will prevail in
the selection process. Additionally, as we concluded in the First
Report and Order, by using the same service area definition for the
lower 80 and General Category channels as we used for the upper 200
channels, we will realize greater administrative efficiency in the
licensing of these channels.
113. A few commenters contend that they cannot afford to
participate in the auction. Some commenters believe that the auction
procedure heavily favors large entities over smaller ones, that these
larger entities will hurt competition and delay provision of services
while the auction takes place. As noted below, to ensure small business
participation in the Lower 80 and General Category channel auctions,
the Commission has adopted bidding credits. Furthermore, contrary to
claims that auctions will delay the deployment of services, we believe
that the use of competitive bidding will enhance competition and serve
to streamline the administrative process, thereby allowing licenses to
provide service more quickly than alternative licensing procedures.
114. Several commenters argue that the government should be
concerned with the safety and welfare of citizens even when such
concerns prevent it from raising revenues. Some commenters believe that
this spectrum should be reserved for public safety entities and that
PMRS licensees need access to additional spectrum. Motorola believes
that PMRS providers play an important role in public safety and private
industry and that PMRS's concerns should be taken into account. We
addressed these concerns fully in the Second Further Notice of Proposed
Rulemaking. We stated that existing licensees will not be required to
relocate their public safety radio systems and geographic licensees
will be required to provide protection to all co-channel systems that
are constructed and operating within their service area. In addition,
an advisory committee has been established to address the concerns of
public safety users. Therefore, the Commission's rules will allow both
the efficient use of the spectrum and the preservation of public
safety.
2. Competitive Bidding Design

a. Bidding Methodology

115. Based on the record in this proceeding and our successful
experience conducting simultaneous

[[Page 41206]]

multiple round auctions for other services, we believe a simultaneous
multiple round auction design is the preferred competitive bidding
design for these channels. Commenters generally support the use of this
methodology, on the grounds that there is interdependency among the
licenses. No commenter advocated the use of sequential multiple round
auctions. We also note, as discussed below, that we will adopt regional
groupings for the Lower 80 and General Category EA licenses. The
aggregation of licenses into these regional groupings creates stronger
interdependencies between the licenses, further warranting the use of
this auction methodology.

b. License Grouping

116. To expedite the process of auctioning the Lower 80 and General
Category EA licenses, we will auction these licenses using the five
regional groups that were used for the regional narrowband PCS auction:
Northeast, South, Midwest, Central, and West. We believe that by
grouping the licenses and auctioning them regionally, we reduce the
burden on small businesses which choose to participate in the auction
process. Each entity will need to participate only in those regional
auctions in which it is interested in winning licenses. Additionally,
by holding regional auctions and thereby limiting the number of
licenses available, we will decrease the administrative burden of the
auction on the participants, and further enable the auction to conclude
at an earlier time. Finally, we believe that this grouping will make it
easier for incumbents to secure spectrum that complements the licenses
they currently hold while allowing them to expand their systems.

c. Bidding Procedures

i. Bid Increments
117. We will adopt our minimum bid increment proposal, but delegate
authority to the Bureau to vary the minimum bid increment. While we
believe our proposal is appropriate, our experience with other

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A97-19913. Public record. Not legal advice.