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

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[PR Docket No. 93-144; GN Docket No. 93-252; PP Docket No. 93-253; FCC

97-224]

Facilitate Future Development of SMR Systems in the 800 MHz

Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In the First Report and Order and Eighth Report and Order in

PR Docket No. 93-144, GN Docket No. 93-252, and PP Docket No. 93-253,

the Commission adopted final service and competitive bidding rules for

the upper 200 channels of the 800 MHz Specialized Mobile Radio (SMR)

band. In the Second Further Notice of Proposed Rulemaking, the

Commission sought comment on additional service and competitive bidding

rules for the remaining 800 MHz SMR spectrum and the General Category

channels. After carefully reviewing the comments and petitions the

Commission received following the issuance of the Further Notice of

Proposed Rulemaking, the Commission addresses the Petitions for

Reconsideration in this order.

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 Memorandum Opinion and Order on

Reconsideration in PR Docket No. 93-144, GN Docket No. 93-252, and PP

Docket No. 93-253, 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. In the 800 MHz Report and Order, 61 FR 6138 (February 16, 1996),

the Commission restructured the licensing framework that governs the

800 MHz SMR service. For the upper 200 channels, the Commission

replaced site-and frequency-specific licensing with a geography-based

system similar to those used in other Commercial Mobile Radio Services

(``CMRS''). The Commission designated the upper 200 channels of 800 MHz

SMR spectrum for geographic licensing, and created 120-, 60- and 20-

channel blocks within the U.S. Department of Commerce Bureau of

Economic Analysis Economic Areas (``EAs''). The Commission concluded

that mutually exclusive applications for these licenses would be

awarded through competitive bidding. Additionally, the Commission

granted EA licensees the right to relocate incumbent licensees out of

the upper 200 channels to comparable facilities. The Commission

reallocated the 150 contiguous 800 MHz General Category channels for

exclusive SMR use.

2. The Commission also established competitive bidding rules for

the upper 200 channels of 800 MHz SMR spectrum. Specifically, the order

provided for the award of 525 EA licenses in the upper 200 channel

block through a simultaneous multiple round auction. Incumbents and new

entrants may bid for all EA licenses, subject to the CMRS spectrum cap

in Sec. 20.6 of the Commission's rules. The Commission also adopted a

``tiered'' approach to installment payments for small businesses in the

upper 200 channel block, and allowed partitioning for rural telephone

companies.

A. Geographic Licensing in the 800 MHz SMR Band

1. Geographic Licensing in Contiguous Spectrum Blocks

3. In the CMRS Third Report and Order, 59 FR 59945 (November 21,

1996), the Commission found that licensing 800 MHz SMR spectrum in

contiguous blocks would make SMR systems more competitive with other

CMRS systems by maximizing technical flexibility so that, for example,

it would be possible for SMR licensees to deploy spread spectrum and

other broadband technologies. In the 800 MHz Report and Order the

Commission concluded that the entire upper 200 channel block should be

licensed on a contiguous basis throughout a geographic area because the

SMR geographic license would then be equivalent in size to the smallest

block of spectrum now authorized for broadband PCS.

4. Commenters argue that the Commission has not justified its

decision to group the upper 200 channels of 800 MHz SMR spectrum into

geographically licensed contiguous blocks or adequately explained how

the need for contiguous spectrum justifies disruption of established

SMR operators and that the Commission's rules impermissibly fail to

mandate that contiguous blocks of spectrum be used to offer innovative

or competitive services. They also argue that the Commission's decision

should be reversed if it is based on reducing its administrative

burden. It argues that scarcity of Commission resources cannot justify

any changes in its rules and that geographic licensing will in fact

increase the Commission's administrative burden. One commenter asserts

that most incumbent licensees span all three EA frequency blocks. Thus,

relocating most incumbents will require that at least four applications

be filed, placed on public notice and processed by the Commission. It

also claims that these burdens will be exacerbated by the burdens of

site-specific licensing because the Commission has not eliminated

current site-specific licenses.

5. Discussion: The Commission rejects the contention that it has

failed to justify the need for licensing the upper 200 channels in

contiguous blocks. In the CMRS Third Report and Order, the Commission

determined that, where feasible, assigning contiguous spectrum is

likely to enhance the competitive potential of CMRS geographic

providers. In the 800 MHz Report and Order the Commission determined

that geographic licensing and contiguous spectrum are essential to the

competitive viability of SMR service because they will permit use of

spread spectrum and other broadband technologies and eliminate delays

and transaction costs associated with site-by-site licensing.

6. The Commission disagrees with Commenters claim that geographic

licensing will have a negative impact on existing SMR operators. The

Commission's rules continue to protect incumbent operators from

interference. In the upper 200 channels, the Commission requires EA

licensees to comply with existing rules that require minimum separation

from incumbents' facilities. Thus, an EA licensee must either locate

its station at least 113 km (70 miles) from any incumbent's facility,

or if it seeks to operate stations less than 113 km from an incumbent's

facility, it must comply with the Commission's short-spacing rule,

unless it negotiates a shorter distance with the incumbent.

Additionally, incumbent SMRs on the

[[Page 41226]]

upper 200 channels also have the operational flexibility to add

transmitters in their existing coverage area, without prior

notification to the Commission, so long as their 22 dBu interference

contours are not exceeded. The Commission cannot agree with the

contention that competition and innovation will be increased by

allocation of spectrum resources via a blanket regulatory prescription

rather than through individual market participants' decisions. In the

800 MHz Report and Order, the Commission stated that its goal was to

provide regulatory symmetry and operational flexibility that will allow

SMR providers to use new technologies and compete with other CMRS

providers. By giving licensees flexibility to use spectrum on either a

contiguous or non-contiguous basis, the Commission gives SMR operators

more ways to provide service and more ways to compete with other CMRS

providers.

7. The Commission also rejects the claim that geographic licensing

will increase its administrative burden. Under the Commission's site-

specific licensing rules, it has received and processed approximately

6,000 applications for individual SMR licenses and modifications a

year, and in some years, as many as 20,000 applications. By contrast,

geographic licensing of the upper 200 channels will be accomplished by

issuing 525 EA licenses, and virtually eliminating the need for

subsequent modifications of any license unless it is transferred or

partitioned. Moreover, licensees will no longer be required to file an

application for each base station; geographic licensees will be able to

construct base-stations in pre-defined areas without the Commission's

prior approval. These changes represent dramatic reductions in

administrative burden for both licensees and the Commission. In this

connection, the Commission rejects commenter's claim that reducing its

administrative costs is an invalid basis for adopting new rules. While

the Commission's rule changes are driven by numerous considerations

other than administrative cost, e.g., promoting more efficient spectrum

use and creating a regulatory framework that will allow 800 MHz SMR

operators to compete more effectively with other CMRS providers, the

Commission considers improving its efficiency and reducing its cost to

be valid public interest considerations.

2. Size of EA Spectrum Blocks

8. Background. In the 800 MHz Report and Order, the Commission

concluded that dividing the upper 200 channels into various-sized

channel blocks would create opportunities for SMR providers with

differing spectrum needs. The Commission rejected proposals to assign

the upper 200 channels in five- and/or ten-channel blocks, concluding

instead that allocating one 120-channel block, one 60-channel block,

and one 20-channel block for licensing on an EA basis would equitably

balance the interests of all potential and existing licensees.

9. Commenters argue that the record does not support the

Commission's decision to group currently allocated channels into

contiguous blocks. They contend that the aggregation of 20, 60, and 120

contiguous channels restricts the number of small business entities

that can compete effectively at auction because relocation channels

will either be unavailable or impracticably costly and that the cost of

relocating 20 or more channels will be prohibitive for small business.

10. Commenters claim that smaller channel blocks would require an

EA applicant desiring adjacent channels to bid more aggressively, and

thus the public would receive more value for the spectrum. They also

argue that 5-channel geographic licenses would facilitate bidding for

designated entities such as small businesses.

11. Discussion. The Commission rejects commenters' argument that

the public interest would be better served by five-channel spectrum

blocks. The Commission stated in the 800 MHz Report and Order, that the

use of such small spectrum blocks make it more difficult to obtain

sufficient spectrum to establish a viable and competitive wide-area

system, and to use broadband technologies such as CDMA and GSM. The

Commission also rejects the claim that the aggregation of 20, 60, and

120 channels will reduce opportunities for small businesses. Under

Commission rules, small businesses may form coalitions to raise needed

capital and finance any desired relocations. The Commission has adopted

provisions in its auction rules enabling small businesses to receive

bidding credits.

12. The Commission also rejects Commenter's claim that five-channel

blocks would increase spectrum valuation. The Commission's geographic

licensing system is designed to enhance the competitive potential of

the 800 MHz SMR operators. To accomplish this, the Commission has

tailored the channel blocks to the needs of various users by creating

large, medium and small channel blocks and by placing these blocks to

accommodate the spectrum needs of different-sized SMR providers. As the

Commission recognized in the 800 MHz Report and Order, placing the 120-

channel block closest to the cellular spectrum allocation will assist

operators in providing wide-area service by facilitating dual-mode

operation. Placing the 20-channel block in the portion of spectrum

nearest to the lower 80 SMR channels will allow small to medium-sized

operators to expand capacity while minimizing costs and disruption to

existing customers. Similarly, the Commission expects that in many EA's

medium-sized SMR operators or consortia of smaller SMR operators may

find the 60-channel block suitable to their needs.

13. The Commission similarly is not persuaded by the claim that

allocating spectrum in five-channel blocks will reduce the burdens of,

and number of entities involved in, relocation negotiations. To the

contrary, the Commission's relocation mechanism provided for cost

sharing and collective negotiations so that relocation can efficiently

occur. Additionally, the Commission notes that in the lower 80

channels, where the current five-channel blocks are non-contiguous and

interleaved with blocks of non-SMR channels, it is adopting the

proposal to license in five-channel blocks.

3. 800 MHz SMR Spectrum Aggregation Limit

14. Background. In the CMRS Third Report and Order, the Commission

adopted a 45 MHz limit on aggregation of broadband PCS, cellular, and

SMR spectrum. It concluded that in light of the broadband CMRS spectrum

cap, no separate limitation was necessary on aggregation of spectrum in

the upper 200 channel block. In the 800 MHz Report and Order, the

Commission reasoned that the 800 MHz SMR service is one of many

competitive services within the CMRS marketplace, and that allowing

unrestricted aggregation of SMR spectrum would not impede CMRS

competition so long as 800 MHz SMR licensees were subject to the 45 MHz

CMRS spectrum aggregation limit.

15. Petitions. Commenters argue that the Commission has failed to

consider that its actions will increase the current state of

concentration in the SMR industry. Accordingly, the Commission must

limit EA licensees to something less than the entire 200 channels to

ensure a wide variety of applicants. One commenter suggests that the

Commission prohibit any EA licensee from acquiring more than one third

of the Upper 200 channels in any EA, thus, providing adequate

opportunities for designated entities while avoiding excessive

concentration of licenses.

[[Page 41227]]

Commenters also argue that unlimited spectrum aggregation is critical

to regulatory parity because an SMR operator aggregating all 200

channels in a market would still operate on only 10 MHz of spectrum, as

compared to the 25 MHz for cellular and 30 MHz for A, B and C block PCS

licensees.

16. Discussion. The Commission sees no need to adopt a spectrum

aggregation limit for the upper 200 channels beyond the CMRS spectrum

aggregation limit set forth in 47 CFR 20.6. Market forces--not

regulation--should shape the developing CMRS marketplace, and the

Commission is unpersuaded that further constraints on SMR providers'

ability to acquire spectrum are necessary. In fact, the proposed

restriction could handicap all SMR providers--including small

businesses, rural telephone companies and women-owned and minority-

owned businesses--by limiting their ability to compete with cellular

and broadband PCS. The Commission has determined that the relevant

market for examining concentration of SMR licenses is the CMRS market

as a whole, not SMR only. Thus, even if one licensee were to acquire

all 10 MHz of spectrum in an EA, this would not be sufficient to have

an anti-competitive effect on the relevant market.

4. Licensing in Mexican and Canadian Border Areas

17. Background: In the 800 MHz Report and Order, the Commission

determined that EA licenses would be made available without

distinguishing border from non-border areas. Thus, the Commission

determined that EA licensees can use available border area channels

within their spectrum blocks, subject to international assignment and

coordination. Although, reduced channel availability and operating

restrictions may reduce values of border area EA licenses, the

Commission concluded that EA applicants would consider such factors

when bidding on such licenses. The Commission also noted that EA

licensees could privately negotiate with other licensees to acquire

additional SMR spectrum in border areas.

18. Petitions. Petitioners seek clarification of the Commission's

border area licensing plan. They note that in border areas some of the

upper 200 channels are assigned to non-SMR categories. They seek

clarification that these channels are not subject to EA licensing and

that incumbent licensees are not subject to mandatory relocation.

Petitioners note that in many EAs adjacent to either the Canadian or

Mexican borders, no frequencies are available for SMR use in the 120-

channel, and 60-channel blocks, and few are available in the 20-channel

block and are concerned that bidders will be unaware of this and may

overvalue the spectrum.

19. Discussion. The Commission clarifies that non-SMR channels in

the border area are not subject to EA licensing and thus are unaffected

by this rulemaking. The Commission further clarifies that non-SMR

channels that have been allocated to SMR eligibles in border areas, but

to non-SMR eligibles elsewhere in the country, have been allocated to

the upper 200 channel EA licensees on a pro rata basis. Prospective

bidders 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. Most importantly,

EA licensees must afford full interference protection to non-SMR

licensees operating in adjacent areas on these channels.

20. The Commission notes that its rules already specify which

channels are available for EA licensing in the border regions. The

Commission believes that license applicants are best situated to decide

whether reduced channel availability in border areas affects the value

of particular licenses. Nonetheless, to help alleviate ITA's concern

about applicant awareness, the Commission will also provide information

regarding channel availability border area in the auction bidders

package.

B. Rights and Obligations of EA Licensees

1. Spectrum Management Rights

21. Background. In the 800 MHz Report and Order, the Commission

determined that if an SMR incumbent fails to construct, discontinues

operations, or otherwise has its license terminated by the Commission,

the licensed spectrum automatically reverts to the EA licensee. The

Commission thus eliminated all waiting lists for SMR category channels

within the upper 200 channel block and terminated its finder's

preference program for the 800 MHz SMR service. Finally, the Commission

created a presumption that permanent transfers and assignments between

an EA licensee and incumbents operating within its spectrum block would

serve the public interest. The Commission reasoned that this would give

EA licensees more flexibility to manage their spectrum, be more

consistent with their cellular and PCS rules, and reduce regulatory

burdens on both licensees and the Commission.

22. Petitions. Petitioner claims that the Commission's approach to

spectrum management violates Congressional intent and its goal of

regulatory symmetry by disadvantaging non-EA winning SMR licensees vis-

a-vis EA licensees. They argue, that incumbents are disadvantaged

because they will be restricted from expanding on wide-area blocks and

that the Commission's construction requirements favor EA licensees over

incumbents. One petitioner claims that the Commission violated section

553(b) of the Administrative Procedure Act by failing to give notice of

the elimination of the finder's preference program. It also argues that

the Commission should temporarily retain the finder's preference

program so that all persons knowing of unconstructed or discontinued

facilities can request a finder's preference, take the channels, and

provide balance among those applying for the wide-area SMR frequency

blocks.

23. Discussion. The Commission rejects the claim that it has

violated Congressional intent by conferring spectrum management rights

on EA licensees, including the right to recover spectrum lost by

incumbents who cease operations or violate its rules. The contention

that these rules discriminate against incumbent licensees is without

merit. Incumbents retain all of the rights to operate that they held

under their pre-existing licenses. Thus, incumbents who operate in

compliance with the Commission's rules are not affected by the spectrum

recovery rule, while incumbents who cease operations or violate the

Commission's rules would lose their spectrum rights under either the

old rules or the new rules. The only difference in the Commission's new

rules is that they have provided for unused spectrum to revert to the

EA licensee rather than to be relicensed by the Commission. This

procedure does not discriminate against incumbents: any incumbent who

seeks the ``superior'' spectrum management rights of an EA license has

the same opportunity to obtain it as any other applicant: by bidding

for the EA license through the auction process.

24. The Commission also rejects the claim that it gives no notice

of the possible elimination of the finder's preference program. Such

notice was inherent in the Commission's proposal that rights to

unconstructed or non-operational channels would automatically revert to

the EA licensee. The elimination of the Commission's finder's

preference program was thus both necessarily implicit in and a

[[Page 41228]]

logical outgrowth of, the Commission's proposals.

25. Finally, the Commission declines to retain the finders

preference program, even on a temporary basis. The Commission's move to

geographic licensing makes the finder's preference program unnecessary

because EA licensees will have incentive to identify and make use of

unused spectrum within their blocks. Additionally, the finder's

preference program is inconsistent with the Commission's objective of

assigning spectrum through geographic licensing because it would

perpetuate site-by-site licensing.

2. Treatment of Incumbent Systems

a. Mandatory Relocation of Incumbents From the Upper 200 Channels

26. Background. In the 800 MHz Report and Order, the Commission

adopted a mandatory relocation mechanism for incumbents on the upper

200 channels. In order to minimize the impact on existing licensees,

the Commission adopted two key provisions: (1) If an EA licensee is

unable or unwilling to provide an incumbent licensee with ``comparable

facilities,'' such an incumbent would not be subject to mandatory

relocation; and (2) any incumbent that is relocated from the upper 200

channels, either voluntarily or involuntarily, will not be required to

relocate again if the Commission adopts its geographic area licensing

proposal for the lower 80 and General Category channels.

27. Petitions. Several petitioners challenge the Commission's

decision to authorize mandatory relocation of incumbent SMR licensees.

They argue that the Commission's licensing framework does not require

mandatory relocation, and that relocations should occur through private

negotiations between EA licensees and incumbents. Other petitioners

object that there are no alternative channels on which to relocate

incumbents. Still, other commenters are concerned that mandatory

relocation will reduce the amount of competitive service offered to the

public and thus be harmful to end users and subscribers. These

petitioners argue that requiring relocation of an incumbent's entire

system effectively excludes most bidders from the auction, including

small businesses. Another petitioner adds that the public interest is

not served by displacing existing SMRs so other SMRs can provide the

same service. And, another argues that the Commission has behaved

inconsistently with respect to 800 MHz and paging services, two

comparably encumbered frequency bands, because they have concluded that

``alternative'' spectrum for relocation exists in the 800 MHz band but

does not exist in the paging bands.

28. Discussion. In the 800 MHz Report and Order, the Commission

concluded that while voluntary negotiations are important and to be

encouraged, mandatory relocation is necessary to achieve the transition

to geographic area licensing and to enhance the flexibility of EA

licensees on the upper 200 channels. The Commission rejects

petitioners' contention that the Commission could accomplish these

goals by relying on voluntary negotiations alone. While the Commission

expects most relocation to occur through voluntary negotiations, it is

concerned that EA licensees will be unable to realize the potential of

their spectrum without some mandatory mechanism in the event voluntary

negotiations prove unsuccessful. The Commission reaffirms its

conclusion that a narrowly tailored mandatory relocation mechanism is

necessary to the achievement of the goals of this proceeding.

29. The Commission also rejects the argument that relocation should

not be required because EA licensees will provide the same service as

incumbents who are relocated. The Commission expects that EA licensees

will use their spectrum to provide a wide variety of services. While

some of these services may be of the same type provided by incumbents

who are relocated, the ability to clear contiguous spectrum will give

EA licensees operational flexibility to provide new and innovative

services that were far more difficult to develop under site-by-site,

channel-by-channel licensing rules. Thus, relocation will not merely

replace one SMR licensee with an identical licensee, but will allow

both parties to move towards more efficient use of the spectrum.

30. Many petitioners who challenge the Commission's adoption of

mandatory relocation argue it will harm incumbent licensees,

particularly small system operators. The Commission disagrees with this

view. The Commission's rules do not require any incumbent to relocate

unless the EA licensee provides comparable facilities and a seamless

transition. Moreover, the rules the Commission is adopting for the

lower 80 and General Category channels provide positive incentives for

small businesses who relocate, including bidding credits. Bidding

credits assist small business in obtaining licenses and thus, provide

small business with an incentive to relocate to the lower channels. In

addition, because the Commission is allowing incumbents on the lower

channels to operate within their 18 dBu contours, incumbents on these

channels (including incumbents who relocate from the upper 200

channels) will have greater operational flexibility and protection from

interference than incumbents on the upper 200 channels.

31. Some petitioners argue that the Commission's mandatory

relocation rules make relocation impractical for all but a few large

SMR operators who have spectrum on the lower 80 and General Category

channels that can be used for relocation. Even if this is so, the

Commission does not agree with petitioners that this is an argument

against mandatory relocation: the Commission considers it preferable to

allow relocation where it is feasible rather than to prohibit it

because it is not feasible in every instance. Moreover, the Commission

disagrees with the premise that small businesses will be discouraged

from participating in the upper 200 channel auction because of the

practical difficulty of relocating incumbents. Many of those small

businesses may themselves be incumbents who choose to bid (individually

or in combination with other small incumbents) for the upper 200

channel blocks rather than relocate. In addition, small businesses may

develop business strategies that do not depend on relocation, e.g.,

entering into partitioning agreements with incumbents or providing

niche services on available channels. The Commission believes that

market forces should be relied upon for these types of decisions.

32. Finally, the Commission rejects the claim that its decision

conflicts with its decision not to adopt mandatory relocation in the

Commission's recently completed paging rulemaking. The Commission's

adoption of geographic licensing rules in paging did not require

relocation because paging channels are technically identical to one

another and paging technology is generally consistent and compatible

regardless of the channel used. Thus, there is no advantage in spectrum

efficiency to be gained from encouraging paging incumbents in a

particular band to migrate to another band. In contrast, the 800 MHz

SMR allocation is a mixture of contiguous and non-contiguous channels,

which has led to the development of sometimes incompatible

technologies. Relocation is therefore beneficial because it creates

incentives for SMR providers to operate on the spectrum most suitable

for their particular technologies.

[[Page 41229]]

b. Mandatory Relocation Implementation Issues

i. Pre-Auction Negotiations

33. Background: In the CMRS Third Report and Order, the Commission

suspended acceptance of new 800 MHz applications pending adoption of

new 800 MHz service and auction rules. On October 4, 1995, the Wireless

Bureau imposed a similar freeze on new applications for the General

Category channels. Under both of these freezes, assignment and transfer

of control applications continued to be processed if the location of

the licensed facilities remained unchanged.

34. In the 800 MHz Report and Order, the Commission partially

lifted the freeze on new applications for SMR and General Category

channel licenses. Specifically, the Commission allowed filing of new

applications to permit assignments and transfers of control involving

modifications to licensed facilities that were intended to accommodate

market-driven, voluntary relocation arrangements between incumbents and

potential EA applicants; and (1) would not change the 22 dBu service

contour of the facilities relocated, (2) the assignment or transfers

would relocate a licensee out of the upper 200 channels block, and (3)

the potential EA applicant and relocating incumbent(s) were

unaffiliated. The Commission took these actions to begin the relocation

process and thus ease the transition to a wide-area licensing scheme

for the upper 200 channels.

35. Petitions. Petitioner requests two modifications of the

Commission's partial lifting of the application freeze. First, it asks

that the Commission ``clarify'' that only incumbent 800 MHz SMR

licensees be treated as ``potential EA applicants.'' It argues that

absent this restriction, anyone could negotiate with an incumbent and

avoid the licensing freeze--regardless of eligibility or intent to bid

in the auctions. Petitioner believes that the ability to participate in

pre-auction settlements should ``travel with the license.'' Second, the

petitioner requests that prior to the auction the Commission accept

only those applications that facilitate relocation of incumbents off

the upper 200 channels, as opposed to moves from one upper 200 channel

to another. Petitioner argues that allowing incumbents to move within

the upper 200 channels could be used by potential EA applicants for

anti-competitive purposes. Such a limitation on pre-auction settlements

would prejudice incumbent licensees without lower band channels to

trade and may reduce the number of auction participants for certain

channels and satisfy Congressional intent that the Commission use

negotiations to avoid mutual exclusivity in application and licensing

procedures.

36. Discussion. The Commission goal in partially lifting the freeze

was to facilitate the voluntary relocation of incumbents off of the

upper 200 channels. In order to facilitate this goal, the Commission

believes that anyone who intends to bid in the upper 200 auction should

be able to use this procedure to obtain spectrum that could be used for

relocation of incumbents. While the Commission anticipates that most

bidders for EA licenses will themselves be incumbents, it is possible

that non-incumbents will bid as well. Therefore, the Commission

declines to limit the filing of new applications to incumbent 800 MHz

SMR licensees as requested. The Commission is concerned that such a

restriction could arbitrarily limit the flexibility of participants in

pre-auction negotiations.

37. The Commission agrees that new applications should only be

accepted if they facilitate relocation of incumbents off of the upper

200 channels. In order for the auction of the upper 200 channels to

occur, bidders must have certainty regarding the channels that are

currently licensed to incumbents. Continuing to accept applications for

new authorizations on the upper 200 channels would deprive bidders of

such certainty and delay the auction process. In addition, the

Commission sees no relocation benefit to allowing licensees to acquire

new spectrum on the upper 200 channels prior to the auction. Therefore,

pre-auction applications will be accepted for relocation purposes only

on the lower 230 channels, and only if they meet the conditions

specified in the 800 MHz Report and Order. The Commission notes,

however, that this policy only applies to initial applications for new

spectrum, not to transfers and assignments of existing authorizations,

which have never been subject to the 800 MHz licensing freeze.

Therefore, incumbents may continue to transfer and assign existing

authorizations on either the upper 200 channels or the lower 230

channels.

ii. Relocation Negotiations

38. Background. To encourage negotiation between EA licensees and

incumbents the Commission adopted a multi-phase, post-auction

relocation mechanism in the 800 MHz Report and Order. In the initial

one-year voluntary period, the EA licensee and incumbents may negotiate

any mutually agreeable relocation agreement. If no agreement is

reached, the EA licensee may initiate a two-year mandatory negotiation

period, during which the parties are required to negotiate in ``good

faith.'' If the parties still fail to reach an agreement, the EA

licensee may then initiate involuntary relocation of the incumbent's

system. However, such relocation must be to comparable facilities and

must be seamless, i.e., without any significant disruption in the

incumbent's operations.

39. Petitions. Several commenters argue that the Commission's

phased negotiation plan does not serve the public interest and object

to the one-year voluntary period and two year mandatory period. They

argue that the Commission recently recognized the advantages of a two-

year voluntary period and have no compelling reason to deviate from

this precedent and that a two-year voluntary period gives incumbents

the flexibility in timing their relocation and minimizes the adverse

impact of relocation on existing SMR service subscribers.

40. Some commenters argue that the Commission should reduce the

mandatory negotiation period to one year, because the 800 MHz

relocation process will be less complex than that faced by PCS

licensees and 2 GHz microwave incumbents. Others support the adopted

relocation process of one-year voluntary and two-year mandatory

negotiation periods, although they want relocation safeguards to apply

to all incumbents, including non-SMR licensees.

41. Commenters complain that the Commission's rules do not require

EA licensees to begin negotiations at any particular time and do not

require an EA licensee to relocate incumbents during the initial year.

It is argued that EA licensees should be required to notify the

incumbent that mandatory negotiations have begun, lest an EA licensee

wait out the voluntary period and then declare later that mandatory

negotiations have begun, leaving incumbents unprepared. Another argues

that the EA licensee must show that it has made a bona fide attempt to

negotiate during the voluntary period.

42. Commenters also complain that the Commission has not explained

how disputes over whether negotiations have been conducted in ``good

faith'' are to be adjudicated. They also argue that since the

Communications Act authorizes the Commission neither to reject nor

delegate its authority to resolve licensing disputes, the Commission

must either (1) expeditiously resolve these disputes or (2) reject

mandatory frequency relocation and let the market determine whether

frequency relocation

[[Page 41230]]

will occur. They also ask that the Commission allow incumbents to

decide who will retune end-user equipment. They note that hundreds of

thousands of mobile units and control stations are included in

incumbent SMR systems. Thus, it is concerned that the Commission's

requirement that EA licensees build and test the new [relocated] system

could be read to permit or require that EA licensees intervene in

relations between an incumbent and its customers.

43. Discussion: The Commission agrees with commenters that the

mandatory negotiations period be limited to one year. The Commission

agrees that such a reduction will serve the public interest by

facilitating the clearing of incumbents from the EA blocks so that the

EA licensees can implement their wide-area systems. Moreover, this

reduction will minimize the period during which incumbents will

experience uncertainty concerning relocation. Finally, the Commission

notes that this approach is consistent with its recent decision in PCS

to adopt a one-year voluntary period and a one-year mandatory period

for the C, D, E, and F blocks.

44. The Commission rejects the proposal that we extend voluntary

negotiations to two years. A one-year voluntary period and a one-year

mandatory period balances the desirability of giving parties

flexibility to negotiate voluntarily with the need to ensure that

relocation, where feasible, occurs expeditiously. The Commission sees

no need to extend the voluntary period for an additional year. The

Commission finds that petitioners have not supported their claims that

another year of voluntary negotiations would ``minimize the adverse

impact'' of relocation. In fact, although the voluntary period has not

yet commenced, incumbents and potential EA licensees can begin

voluntary negotiations at any time, thus affording themselves more than

a year to reach a voluntary agreement. The Commission finds that it

would not serve the public interest to delay for another year. Finally,

the Commission notes that in recent decisions they have reduced

voluntary negotiation periods to one year.

45. In response to the argument that the Commission has not

explained how disputes over good faith will be resolved, the Commission

notes that in this case as in all others, licensees may bring

infractions of the Commission's rules to its attention. Nevertheless,

the Commission strongly encourage parties to use expedited alternative

dispute resolution procedures, such as binding arbitration, mediation

or other alternative dispute techniques. Further, since relocation

agreements are pursuant to private contracts, the Commission

anticipates that parties will pursue common law contract remedies in

the court of competent jurisdiction if alternative dispute resolution

is not successful.

46. Finally, the Commission clarifies that its relocation rules are

not intended to require the mandatory disclosure of incumbents'

proprietary information or customer lists. Incumbents must cooperate

with the EA licensees and facilitate the testing of their relocated

equipment, but incumbents need not disclose competitively sensitive

information.

iii. Notice

47. Background. In the 800 MHz Report and Order, the Commission

recognized that incumbents need prompt information about the EA

licensees' relocation plans. As such, the Commission required EA

licensees within 90 days of the release of the Public Notice commencing

the voluntary negotiation period to notify incumbents operating in

their spectrum block of their intent to relocate such incumbents.

Moreover, if an incumbent does not receive timely notice of the EA

licensees intent to relocate, the EA licensee can no longer require

that incumbent to relocate.

48. Because such notice affects an EA licensee's relocation rights,

the Commission decided that the EA licensee must file a copy of the

relocation notice and proof of the incumbent's receipt of the notice

within ten days of such receipt, or the Commission will presume that

the incumbent was not notified of the intended relocation. An incumbent

licensee notified of intended relocation will be able to require joint

negotiations with all notifying EA licensees. These requirements should

ensure that possible relocation will be properly noticed and

coordinated.

49. Petitions. Commenters ask the Commission to amend its notice

rule to recognize proof of an attempt to notify at the address in the

Commission's database as proper notice and that the Commission clarify

that any EA licensees relocation notice informs the incumbent that it

could be relocated out of any EA license block on which its SMR system

is operating--even those not licensed to the EA licensee providing

notice. Otherwise any EA licensee's failure to provide notice could

provide the incumbent a defense to the relocation of part of its system

(and, thus, the entire system).

50. Discussion. The Commission's rules already require licensees to

update its data base with their current address. The Commission thus

agrees that proof of an attempt to notify at the address in its

database constitutes sufficient evidence of notice. The Commission also

agrees that notice by an EA licensee shall constitute notice with

respect to the incumbent's entire system, including portions of the

system outside the EA licensees' own spectrum block.

c. Incumbent Operational Flexibility

51. Background. In the 800 MHz Report and Order the Commission

declined to allow non-EA licensees to expand their systems at will

after geographic licensing has occurred because such expansion would

devalue geographic licenses by creating continuing uncertainty about

the amount of spectrum available under the EA license. The Commission

recognized, however, that incumbents should be allowed to make minor

alterations to their service areas to preserve the viability of their

systems. Thus, in the 800 MHz Report and Order, the Commission

concluded that incumbent licensees on the upper 200 channels should be

allowed to make modifications within their current 22 dBu interference

contour without prior notice to the Commission. The Commission reasoned

that this would increase incumbents' operational flexibility without

significantly affecting the EA licensee's wide-area system in the same

market. The Commission stated, however, that incumbents must still

comply with its short-spacing criteria even if the modifications do not

extend their 22 dBu interference contours. Finally, the Commission also

decided to allow 800 MHz SMR incumbents who are not relocated to

convert their current site-by-site licenses to a single license

authorizing operations throughout the contiguous and overlapping

service area contours of the incumbent's constructed multiple sites.

52. Petitions. Commenters asked that the Commission clarify that

the rule allowing incumbents to modify their systems within existing 22

dBu contours does not apply to aggregate 22 dBu contours but must be

applied on a channel-specific basis. For example, if an incumbent is

operating on more than one station within a geographic area, petitioner

contends that the incumbent should not be allowed to use a channel

licensed at one station at a site inside the 22 dBu contour of another

station if that channel is not licensed at both sites. Thus, an

incumbent would be allowed to re-use a channel throughout

[[Page 41231]]

the composite 22 dBu contour only of those stations on which that

channel is licensed.

53. One commenter supports the Commission's decision to permit

incumbent licensees to convert their current site-by-site licenses to a

single license, but argues that incumbent licensees might abuse the

procedure by filing spurious requests that would enable unaffiliated

systems to obtain a single geographic license. Commenter proposed that

the Commission allow affected EA licensees to oppose such requests.

54. Discussion. The Commission clarifies that the rule allowing

incumbents to modify their systems within their existing 22 dBu

contours will be applied on a channel-specific basis. The Commission is

concerned that by allowing incumbents to unilaterally redeploy channels

to sites where they were not previously authorized would create

continuous uncertainty for EA licensees as to which channels they could

use at particular locations. Thus, an incumbent may use a channel

within the 22 dBu contour of all facilities authorized on that channel,

but may not redeploy the channel to another facility (or within the 22

dBu contour of such a facility) where that channel is not previously

authorized, unless the EA licensee agrees to the change. The Commission

emphasizes, however, that incumbents and EA licensees may negotiate

alternative arrangements with respect to the deployment of channels for

their respective systems.

55. The Commission rejects the request to allow EA licensees to

formally oppose incumbent requests to convert multiple site-by site

licenses to a single geographic license. The Commission does not

believe this process will be susceptible to abuse by incumbents, as

Nextel contends. Converting site-by-site licenses to a geographic

license will not in any way expand the spectrum rights of incumbents;

it is simply an administrative vehicle for simplifying the licensing

process. In addition, the Commission is requiring incumbents seeking

geographic licenses to show that their facilities are constructed and

operational, and that no other licensee would be able to use the

channels within the designated geographic area.

3. Co-Channel Interference Protection

a. Incumbent SMR Systems

56. Background. In the CMRS Third Report and Order, the Commission

retained most of its existing co-channel protection rules for CMRS

licensees, including its existing station-specific interference

criteria for 800 MHz SMR co-channel stations.

57. In the 800 MHz Report and Order, the Commission concludes that

EA licensees on the upper 200 channels must afford interference

protection to incumbent SMR systems as provided in Sec. 90.621 of the

Commission's rules. As a result, an EA licensee must either (1) locate

its stations at least 113 km (70 miles) from any incumbent's

facilities; (2) comply with the Commission's short-spacing rule; or (3)

negotiate with the incumbent licensee if it wishes to operate closer

than these rules allow. The Commission concluded that these

requirements will adequately protect incumbents while EA licensees to

build stations in their authorized service areas. The Commission

believes that the short-spacing rule provides flexibility to EA

licensees, allows incumbents to fill in ``dead spots,'' and protects

incumbent licensees from actual interference.

58. Petitions. Commenters argue that the Commission's decision

improperly gives geographic licensees more rights than incumbent

licensees. They believe that the Commission's proposal will preclude

affected parties from equitably balancing one operator's desire to

expand against another operator's desire to obtain full value for an

existing investment. Another commenter requests that the Commission

require EA licensees to file an application for each proposed station

and serve a copy on any incumbent within 70 miles of the proposed

station. It claims that some authorized wide-area licensees have

violated the Commission's rules when selecting co-channel station

locations. Additionally, it argues that the Commission should not

proceed until it reviews its database of currently authorized wide-area

stations, confirm those authorizations comply with the Commission's

interference protection rules, and cancel any wide-area authorizations

which were erroneously granted.

59. Consumers also request clarifications of certain aspects of the

interference protection rules. Consumers asks the Commission to clarify

that the full primary co-channel protection standards of Sec. 90.621(b)

must be afforded by non-border area EA auction winners to co-channel I/

LT category licensees. They also ask that the Commission clarify that

EA licensees operating in California and the Pacific Northwest must

comply with the unique co-channel interference protection rules

applicable to certain transmitter sites in mountainous areas of

California and Washington state.

60. Discussion. The Commission disagrees that it must give

incumbent and EA licensees identical co-channel protection rights. In

other auctions, incumbents obtained the benefits of being geographic

area providers by obtaining geographic area licenses. To protect

incumbents who do not want to provide service in a predetermined

geographic area, the Commission has maintained the technical co-channel

interference standards under which such incumbents were originally

licensed. These measures give incumbents the flexibility provided in

their original license. The Commission also permits them to freely add

sites within their existing 22 dBu interference contour.

61. The Commission also declines to adopt the suggestion that it

require EA licensees to file applications on a per-site basis. Such a

procedure is counterproductive to the Commission's goal of providing EA

licensees additional operational flexibility, and would reintroduce

some of the administrative burdens associated with site-by-site

licensing.

62. Finally, as requested by commenters, the Commission clarifies

that (1) full primary co-channel protection pursuant to the standards

of Sec. 90.621(b) must be afforded to co-channel I/LT category

licensees by non-border area EA licensees and (2) the EA licensees must

comply with co-channel separation rules in Sec. 90.621(b) for

designated transmitter sites in California and Washington.

b. Adjacent EA Licensees

63. Background. In the CMRS Third Report and Order, the Commission

concluded that the co-channel interference protection between

geographic area licensees would be similar to those in the cellular and

PCS services, which impose interference protection criteria for border

areas in Commission-defined service areas. In the 800 MHz Report and

Order, the Commission determined that 40 dBuV/m is an appropriate

measure for the desired signal level at the service border area. Thus,

the Commission prohibited EA licensees from exceeding a signal level of

40 dBuV/m at their service area boundaries, unless the bordering EA

licensee(s) agree to a higher field strength.

64. Petitions. One commenter claims that the Commission should

replace the 40 dBuV/m signal level standard with a 22 dBu standard as

proposed. It also claims that the Commission should adopt a stricter

protection standard because entities operating at a signal level of 40

dBuv/m at the same

[[Page 41232]]

geographic boundary will interfere with one another. It further argues

that under the proposal, resulting ``dead spots'' at borders could be

resolved by negotiations between operators.

65. Discussion. The Commission rejects the suggestion that it

replace the 40 dBuV/m signal level standard with a 22 dBu standard. The

Commission's approach here is consistent with its approach in setting

signal strength thresholds in PCS and cellular services. In all three

instances, the Commission has used a threshold that allows the

geographic area licensee to deliver a reliable signal throughout its

licensing area. While the commenter is correct that this could lead to

interference between adjacent licensees operating at full power at a

common service area border, the Commission's experience has shown that

actual interference is uncommon because not all licensees extend

coverage to their licensing area borders. Moreover, the Commission has

found that in those instances where actual interference does occur,

adjacent licensees can and do resolve these situations by mutual

agreement. If the Commission were to use the 22 dBu standard, on the

other hand, an EA licensee seeking to provide reliable coverage at the

border of its licensing area would require the consent of the adjacent

EA licensee even if the adjacent licensee was not operating close

enough to the border to suffer actual interference. The Commission

believes such a requirement would be unnecessarily restrictive.

4. Emission Masks

66. Background. In the CMRS Third Report and Order, the Commission

affirmed its out-of-band emission rules for CMRS services and decided

that out-of-band emission rules should apply only if emissions could

potentially affect other licensees operations. Moreover, the Commission

decided to apply out-of-band emission rules to licensees having

exclusive use of a block of contiguous channels only if needed to

protect operations outside of the licensee's authorized spectrum. In

the 800 MHz Report and Order, the Commission decided to apply out-of-

band emission rules only to the ``outer'' channels included in an EA

license and to spectrum adjacent to interior channels used by

incumbents. The Commission also adopted and modified a proposed

emission mask rule to maintain the existing level of adjacent channel

interference protection.

67. Petitions. Commenters supports the emission mask rule described

in Sec. 90.691, but believes that it should also apply to any non-EA

800 MHz part 90 CMRS system. They propose to amend Sec. 90.210 of the

Commission's rules by adding the following sentence to footnote 3:

``Equipment used in this band by non-EA systems shall comply with this

section or the emission mask provisions of Section 90.691.''

68. Discussion. The Commission agrees with petitioners that its

Sec. 90.691 emission mask rules should also apply to non-EA 800 MHz

part 90 CMRS systems, and thus it will adopt the proposed change to

Sec. 90.210 of the Commission's rules. By making this change, the

Commission will provide incumbent licensees who do not submit a winning

bid in the auction process the opportunity to use the more flexible

emission mask that it has adopted for EA licensees. Moreover, it will

aid CMRS operators who are operating on non-SMR pool channels to have

the same capabilities as those operating in the SMR category. Thus, the

Commission amends Sec. 90.210 by adding the suggested sentence to

footnote 3.

C. Construction Requirements

1. EA Licensees

69. Background. In the 800 MHz Report and Order, the Commission

adopted a five-year construction requirement for EA-based licensees

beginning when the license issues and applying to all of the licensee's

stations within the EA spectrum block, including any stations

previously subject to an earlier construction deadline. The Commission

recognized that it had adopted a ten-year period adopted for PCS

systems, but concluded that the already-substantial construction of 800

MHz systems made a five-year period sufficient. Moreover, the

Commission recognized that geographic-area licensees that have invested

in existing systems or that have incurred bidding costs must construct

facilities and provide service promptly, to recover these costs.

70. Petitions. A petitioner argues that EA licensees should not be

able to obtain an additional five years to construct facilities

previously subject to earlier construction deadlines and that the

Commission's approach rewards spectrum warehousing and is inconsistent

with regulatory symmetry because prior construction deadlines were

issued on a site-specific basis. Other petitioners believe that the

Commission's construction requirements discriminate between EA

licensees and non-EA licensees and that the Commission's rationale for

a five-year construction period is flawed because it rested, in part,

on an order finding that a two-year construction period was sufficient

for existing SMRs.

71. Finally, the petitioner argues that 50 percent minimum channel

use should be required at more than a single location within the EA or

otherwise, a licensee could meet this requirement by building a multi-

channel facility in a rural portion of an EA and avoid serving a

metropolitan area. They contend that this would enable EA licensees to

avoid constructing true wide-area systems and to warehouse spectrum.

72. Discussion. The Commission declines to reconsider its five-year

construction deadline. The Commission is unpersuaded by the unsupported

assertion that a five-year construction period for EA licensees does

not serve the public interest and that its EA construction requirements

will allow those who warehouse to be unjustly enriched at auction. To

the contrary, the auctions process requires licensees to purchase the

rights to, and thereby compensate the American taxpayer for, the

spectrum that they use. Thus, the Commission's auction rules discourage

speculation and spectrum warehousing. Moreover, the Commission does not

agree that its five-year construction requirement will result in or

reward spectrum warehousing. The five-year requirement assures that

geographic licensees promptly build out and provide service.

73. The Commission also rejects claims that it has acted

discriminatorily by adopting a two year construction requirement for

site-by-site licenses and a five-year build out for EA licensees.

Further, the Commission rejects the claim that its rationale for

granting EA licensees a five-year build out period, while limiting

existing site licensees to an additional two years, is flawed. The

Commission imposes a two-year build out period on site licensees

because, by definition, they are seeking authority to build and operate

a particular site. EA licensees, in contrast, will be building multiple

sites throughout their licenses entire geographical area and thus

require a longer build out period. Moreover, the competitive bidding

process provides incentives for EA licensees to build out quickly, and

thus reduces the likelihood that a longer construction period would

lead to spectrum warehousing.

74. Finally, the Commission rejects the proposed expansion of the

50 percent channel use requirement because it finds that its concerns

are too speculative, and its suggested approach too rigid. It would be

economically irrational for a licensee to construct multiple channels

in areas where there is limited demand while leaving areas

[[Page 41233]]

where demand is greatest covered by only a single channel. Moreover,

licensees should have the flexibility to determine how best to provide

services in response to consumer demand. The Commission does not

believe that it should micromanage how the EA licensee chooses to

provide service.

2. Extended Implementation Authority

a. Dismissal of Pending Extended Implementation Requests

75. Background. In the 800 MHz Report and Order, the Commission

stopped accepting requests for extended implementation authority,

accelerated the termination date of pending extended implementation

periods, and dismissed pending requests for extended implementation

authority. The Commission reasoned that retaining extended

implementation authority for up to five years would impede EA licensees

construction efforts, and that parties still wanting extended

implementation could apply for EA licenses under the Commission's new

rules.

76. Petitions. A Commenter seeks reconsideration of the

Commission's dismissal of pending requests for extended implementation

and its decision to reduce previously granted construction periods from

five to two years. They argue that eliminating existing extended

implementation periods unfairly harms incumbent SMR providers. They

also argue that eliminating extended implementation authority is an

unlawful deprivation of the property interest which it contends it has

in its FCC licenses and the continuation of those licenses, and argues

that to deny or revoke such a license without cause violates the

licensee's due process rights.

77. The commenter also claims that eliminating extended

implementation periods will harm the public and the CMRS industry by

excluding small and mid-sized SMR providers from the CMRS marketplace.

They argue that small SMR providers may lack the resources to acquire

spectrum for their current markets at auction. It asserts that

eliminating extended implementation compounds this problem by stranding

investment in SMR systems whose construction periods will be cut short.

78. Finally, another commenter argues that the Commission has

recognized that public safety agencies need extended implementation

because complex government funding mechanisms impede rapid deployment

of public safety systems. It argues that extended implementation should

be available to public safety systems in the General Category. Still,

another commenter argues that extended implementation should be

available for all private radio licensees in the General Category,

because problems such as budgetary constraints affect the I/LT and

Business users as much as Public Safety licensees.

79. Discussion. The Commission rejects the claim that eliminating

extended implementation interferes with legitimate business

expectations. First, these licensees have already been given

significant time to complete construction. Second, upon adequate

rejustification, licensees will have up to two years to complete build

out of their systems. Far from being a ``drastic change'' that will

strand investment, as contended, this is an equitable transition to a

more efficient method of providing service and using spectrum. Finally,

one commenter's reliance on the public interest analysis in the OVS

NPRM, 61 FR 10496 (March 14, 1996), is also misplaced. While, the OVS

proceeding did acknowledge a strong public interest in establishing a

level of certainty in business plans, the Commission did not suggest

that a licensees' business expectations were entitled to absolute

protection, nor did the Commission imply that these expectations would

always dictate the course of future regulation.

80. The claim of a property interest in its license is also without

merit. Both section 301 of the Communications Act and relevant case law

establish that licensees have no ownership interest in their FCC

licenses. Moreover, the Commission does not agree that ending extended

implementation will decrease competition. To the contrary, competitive

bidding, which allocates resources to those who value them most, is a

more efficient and competitive method than the Commission's prior rules

for licensing spectrum on an extended basis. The Commission also

disagrees that terminating extended implementation will limit small

business participation. To the contrary, the Commission has adopted

special provisions, such as bidding credits, in order to assist small

businesses at auction.

Finally, the Commission notes that it only curtailed extended

implementation for SMR licensees. Thus, non-SMR licensees with existing

extended implementation grants are not affected by this proceeding. In

addition, non-SMR licensees on 800 MHz channels that are not subject to

EA licensing (i.e. Business, I/LT and Public Safety channels may still

obtain extended implementation authority under Sec. 90.629).

b. Rejustification of Extended Implementation Authority

82. Background. In the 800 MHz Report and Order, the Commission

required incumbent 800 MHz licensees with extended implementation

grants to submit showings rejustifying the need for extended time to

construct their facilities. The Commission provided that if the Bureau

approved a licensee's showing, the licensee would receive a

construction period of two years or the remainder of its current

extended implementation period, whichever was shorter. Licensees making

an insufficient or incomplete showing would have six months to

construct the remaining facilities covered under their implementation

plans.

83. Petitions: Several petitioners seek reconsideration or

clarification of the extended implementation rejustification procedures

adopted in the 800 MHz Report and Order. One petitioner argues that

wide-area systems that received extended implementation via waiver

should not be required to submit rejustification showings because their

waivers were predicated on the existence of underlying constructed

analog facilities. Another asks that the Commission delineate the

evidence that a licensee must provide to rejustify its extended

implementation grant. Petitioners also ask that the Commission clarify

whether licensees who received license grants in the processing of the

800 MHz SMR backlog in October 1995 are eligible for extended

implementation.

84. Discussion. In the 800 MHz Report and Order, the Commission

specified that all licensees with extended implementation grants would

be required to file rejustification showings, regardless of whether

they sought extended implementation under Sec. 90.629 to construct new

systems or had obtained waivers to reconfigure existing high-power

analog systems into low-power digital systems within the existing

analog footprint. One petitioner argues that licensees who are

converting their systems should be exempt from the rejustification

requirement because they are not seeking to occupy previously

unlicensed spectrum. The Commission disagrees. The waivers that were

granted to licensees to convert existing analog facilities gave them

considerable latitude to redeploy channels throughout the aggregate

footprint of their systems, in effect allowing them to obtain new

spectrum (i.e., spectrum on additional channels) within their existing

footprints. In order to provide EA licensees with reasonable certainty

regarding what spectrum is available to

[[Page 41234]]

them, the Commission believes it is necessary that these licensees be

subject to the same timetable for constructing their systems and

returning unconstructed channels as licensees who received extended

implementation grants to build entirely new systems. Therefore, the

Commission denies the request for reconsideration.

85. Since the filing of the petitions for reconsideration, the

Wireless Bureau has solicited and received rejustification showings

from 37 licensees, and has acted on the showings in a recent order. The

Commission also notes that prior to the filing of these showings, the

Bureau issued a Public Notice describing the information to be provided

in the rejustifications and clarifying that licensees who obtained

license grants in the October 31, 1995 Bureau Public Notice, and who

had extended implementation requests associated with such applications,

could treat such requests as granted for purposes of the

rejustification filing requirement. Therefore, the Commission dismisses

two petitioners' reconsideration requests as moot.

D. EA License Initial Eligibility

86. Background. In the 800 MHz Report and Order, the Commission

concluded that restrictions on EA licensee eligibility were not

warranted, except for foreign ownership restrictions required by

section 310(b) of the Communications Act.

87. Petitions. A petitioner argues that the Commission's relocation

requirements have created a de facto eligibility limitation. According

to the petitioner, if EA licensees must relocate incumbent licensees

onto ``comparable facilities,'' then only entities having sufficient

``comparable spectrum'' to offer to incumbents can become EA licensees,

and it contends that this relocation requirement will reduce the number

and quality of auction participants and the amount of revenue raised.

It therefore argues that the Commission should limit eligibility for

wide-area licenses on the upper 200 channels to applicants who do not

currently hold any wide-area SMR authorizations. It argues that this

eligibility restriction will create more competition for EA

authorizations and will increase the number of wide-area CMRS service

providers.

88. Discussion. The Commission rejects the suggested eligibility

limitation because it confuses protecting individual competitors with

promoting competition. In many instances, the proposal would preclude

entities from bidding to obtain geographic area licenses that encompass

spectrum they are already using. Such a restriction would be

inefficient and contrary to the goals of this proceeding. By contrast,

open eligibility for EA licensees is pro-competitive because it enables

the market, not regulation, to determine who values the spectrum the

most.

E. Redesignation of Other 800 MHz Spectrum--General Category Channels

and Inter-Category Sharing

1. General Category Channels

89. Background. In the Commission's 800 MHz Report and Order, the

Commission redesignated the General Category channels exclusively for

SMR use. The Commission's licensing records showed that there are three

times as many SMR licensees in the General Category as any other type

of part 90 licensee. The Commission concluded that SMR providers'

demand for additional spectrum significantly exceeds the demand of non-

SMR services. Moreover, the Commission anticipated that SMR providers'

demand for this spectrum would be increased by geographic area

licensing of the upper 200 channels and its mandatory relocation

policy.

90. Petitions. A number of petitioners challenge the Commission's

decision to reclassify the General Category based on its finding that

SMR licensees outnumber non-SMR licensees on these channels. Some

commenters argue that many of these licensees are speculators who have

not constructed and are not using the spectrum. Others contend that the

SMR licensing freeze and the elimination of intercategory sharing have

artificially increased SMR demand for General Category channels and

argue that the Commission has arbitrarily reversed its prior treatment

of the General Category without adequate explanation. They note that in

the Competitive Bidding Second Report and Order, 59 FR 26741 (May 24,

1994), the Commission declined to subject the General Category to

competitive bidding, whereas it has now determined that the General

Category should be reclassified and subject to auction. It contend that

the pattern of licensing on the General Category channels has not

changed dramatically since the Competitive Bidding Second Report and

Order was adopted, and that the Commission therefore has no basis for

treating it differently now.

91. Some petitioners also argue that reclassifying the General

Category will harm non-SMR operations on General Category channels by

stranding existing investment in internal communications systems. They

contend that it will have to re-engineer its nationwide network if the

General Category is redesignated. Another adds that the Commission's

decision will make American industry less competitive internationally

by limiting its flexibility and that denying public safety operators

access to General Category channels will jeopardize police and

ambulance communications systems. It adds that redesignating the

General Category channels will harm non-SMR licensees whose needs

cannot be met by commercial carriers and that redesignation of the

General Category channels will not facilitate relocation from the upper

200 channels, because it will make it more difficult to accommodate the

relocation of non-SMR incumbents currently operating on those channels.

One petitioner argues that a reallocation of the General Category

channels is ill-advised unless the Commission identifies additional

spectrum to accommodate private systems.

92. Discussion. In the 800 MHz Report and Order, the Commission

concluded based on comments in the proceeding and on its licensing

records that the primary demand for General Category channels came from

SMR operators. Petitioners' arguments do not persuade the Commission

that this conclusion was incorrect. Petitioners concede that SMR

licensees far outnumber non-SMR licensees on these channels. Moreover,

at the time the Commission froze General Category licensing in 1995, it

noted that the number of SMR applications for these channels had risen

markedly. Even if some of this increased licensing activity was

attributable to speculation, as petitioners contend, the Commission

believes that such activity is itself an indication that demand for the

spectrum exists. The Commission also anticipates that with the advent

of geographic area licensing on the upper 200 channels, there will be

substantial demand for General Category channels among legitimate small

SMR operators, including incumbents who relocate from the upper 200

channels. Based on these factors, and on the fuller record relating to

800 MHz developed in this proceeding, the Commission believes that it

was fully justified in reaching a different conclusion with respect to

the General Category from that reached in the earlier Competitive

Bidding Second Report and Order.

93. The Commission believes, however, that petitioners have raised

valid concerns with respect to the interests of non-SMR licensees

operating on the General Category channels. As several petitioners

note, the Commission's decision in the 800 MHz Report and Order, to

reclassify the

[[Page 41235]]

General Category as SMR-only would preclude non-SMRs from seeking

additional authorizations on these channels to expand their systems. On

reconsideration, the Commission sees no reason why non-SMRs should not

continue to be eligible for licensing in the General Category. By

allowing non-SMRs to obtain spectrum in this band, the Commission gives

non-SMRs more options and greater flexibility for continued growth of

their systems.

94. While the Commission concludes that non-SMRs should continue to

be eligible for General Category licensing, the Commission emphasizes

that this in no way affects its decision to license General Category

channels geographically, with competing applications resolved through

competitive bidding. The Commission has not altered its conclusion in

the 800 MHz Report and Order, that General Category channels are used

primarily for subscriber-based services, and thus are subject to

competitive bidding under section 309(j). Moreover, competitive bidding

will further the public interest by encouraging efficient spectrum use,

promoting competition, recovering portions of the value of the spectrum

for the public and promote the rapid deployment of service. The

Commission rejects petitioners' view that this approach will harm the

interests of non-commercial licensees by requiring them to compete for

spectrum with commercial systems. To the contrary, there are several

ways in which non-SMRs can benefit from the Commission's geographic

licensing rules. For example, non-commercial operators may not only

apply individually for geographic area licenses, but may also

participate in joint ventures (with other non-commercial operators or

with commercial service providers) or obtain spectrum through

partitioning and disaggregation to meet their spectrum needs. The

Commission also expects that geographic area licensing of SMR and

General Category spectrum will free up non-SMR spectrum in the 800 MHz

band, providing more options for non-commercial operators where

availability of General Category spectrum is limited. Finally, the

Commission is continuing with its initiatives to provide sufficient

spectrum for non-commercial operations through its Refarming proceeding

and its participation in the Public Safety Wireless Activity Committee.

2. Inter-Category Sharing

95. Background. Prior to the 800 MHz Report and Order, the Wireless

Bureau imposed a freeze on applications for intercategory sharing among

800 MHz Industrial/Land Transportation (I/LT), Business, and Public

Safety channels (collectively, ``Pool Channels''). This freeze was

intended to stem the increase in intercategory applications for Public

Safety channels by I/LT and Business licenses whose own channels were

subject to increased demand from SMR applicants. In the 800 MHz Report

and Order, the Commission eliminated intercategory sharing by SMR

licensees on all of the Pool Channels. The Commission also concluded

that non-SMR licensees would no longer be eligible for intercategory

sharing on SMR channels.

96. Petitions. Petitioners representing I/LT and Business Radio

operators oppose the elimination of intercategory sharing to the extent

that it prevents them from obtaining spectrum where channels in their

own pools are unavailable. They argue that the intercategory sharing

freeze has harmed the wireless industry by prohibiting licensees from

expanding in areas lacking I/LT or Business channels and that utilities

and pipelines need intercategory sharing to expand their radio systems

to meet current communications requirements. They add that commercial

demand for 800 MHz spectrum has made it virtually impossible for

private system operators to obtain channels in their own pools.

97. In contrast, one commenter defends the current freeze on

intercategory sharing with respect to Public Safety channels and

opposes any effort to reopen these channels to non-Public Safety

applicants. It argues that because of the limited availability of

Business and I/LT channels and the Commission's proposals for

geographic licensing of the General Category, a lifting of the

intercategory freeze would cause more Business and I/LT entities to

seek Public Safety channels as a ``safe harbor.'' It argues therefore,

that a permanent bar on non-public safety applications in the Public

Safety pool is needed to ensure that such channels will be available

for current and future public safety use.

98. Discussion. The Commission will retain the current prohibitions

on intercategory sharing between SMR and non-SMR channels. By

prohibiting SMRs from applying for Pool Channels, the Commission

preserves the availability of those channels for non-commercial and

public safety uses. Similarly, eliminating intercategory sharing for

SMR-only channels ensures that they will be available exclusively for

licensing to SMR operators. In addition, the Commission believes that

the concerns of ITA and others regarding the availability of spectrum

for I/LT and Business systems are sufficiently addressed by its

decision to restore non-SMR eligibility for General Category channels.

F. Auctionability

99. Background. In the 800 MHz Report and Order, the Commission

reiterated its conclusion that competitive bidding is an appropriate

licensing mechanism for the 800 MHz SMR service. The Commission

concluded that the 800 MHz SMR service satisfies the criteria set forth

by Congress for determining when competitive bidding should be used. It

noted that competitive bidding will further the public interest

requirements of the Communications Act by promoting rapid deployment of

services, fostering competition, recovering a portion of the value of

the spectrum for the public, and encouraging efficient spectrum use.

The Commission further noted that where competitive bidding is used, a

diverse group of applicants including incumbent licensees and potential

new entrants into this service will be able to participate in the

auction process because it has decided not to restrict eligibility for

EA licenses. Finally, the Commission adopted special provisions for

small businesses seeking EA licenses.

100. Petitions. Several petitioners once again request that the

Commission use procedures other than competitive bidding to license 800

MHz SMR. In essence, petitioners contend that this band does not fit

within the congressional criteria for auctions because (i) Congress did

not intend for the 800 MHz SMR band to be auctioned; (ii) the

competitive bidding design for the upper 10 MHz channels of the 800 MHz

SMR band does not promote the objectives contained in section 309(j) of

the Communications Act; and (iii) the Commission has failed to consider

alternative licensing mechanisms which avoid mutually exclusive

applications.

101. Discussion. The Commission reaffirms its conclusion that

competitive bidding is an appropriate tool to resolve mutually

exclusive license applications for the upper 10 MHz channels of the 800

MHz SMR service. Moreover, the criteria for auctionability set forth in

section 309(j) of the Communications Act are met. The Commission has

fully considered the issues raised here by petitioners both in the 800

MHz Report and Order and the Competitive Bidding Second Report and

Order. The Commission continues to believe that competitive bidding is

appropriate for the upper 10 MHz of the 800 MHz SMR spectrum and that

employing this

[[Page 41236]]

procedure strikes a reasonable balance in protecting the public

interest in the use of the spectrum while promoting the objectives

specified in the Communications Act.

102. The Commission disagrees with petitioners' contention that

Congress did not intend that the upper 10 MHz of the 800 MHz SMR

spectrum be auctioned. Those petitioners contend that Congress intended

auctions to be used for the licensing of new services and not for

currently allocated services, such as the upper 10 MHz of the 800 MHz

SMR. The Commission disagrees with this position because section 309(j)

of the Communications Act does not distinguish between new services and

existing services in terms of whether initial licenses in a given

service should be subject to competitive bidding. Furthermore, there is

nothing in the legislative history to indicate that Congress intended

to limit the applicability of auctions to new services. As the

Commission noted in the Competitive Bidding Second Report and Order,

the principal use of 800 MHz SMR is to provide service to eligible

subscribers for compensation. The Commission concludes that the use of

competitive bidding in the upper 10 MHz block is fully consistent with

section 309(j) of the Communications Act and its legislative history.

103. In the Competitive Bidding Second Report and Order, the

Commission concluded that its auction designs are calculated to meet

the policy objective of introducing new technologies to the public.

Several petitioners contend that the competitive bidding procedures for

the upper 10 MHz of the 800 MHz SMR do not promote the section 309(j)

objectives. One petitioner contends that the Commission's auctioning

policies do not ensure that winning bidders will employ advanced

technologies to serve the public. However, no commenter raises any new

arguments that persuade the Commission to change its conclusion that

making the 800 MHz SMR spectrum available for public use through

auctioning will lead, most efficiently and effectively, to the

deployment of new technologies and services to the public. As the

Commission noted in the Competitive Bidding Eight Report and Order, it

believes that competitive bidding furthers the public interest by

promoting rapid development of service, fostering competition,

recovering a portion of the value of the spectrum for the public and

encouraging efficient spectrum use.

104. The Commission does not agree with the contention of some

petitioners that the administrative procedures associated with

licensing through auctions are not as efficient as site-specific

licensing. The Commission previously addressed the advantages to both

the Commission and licensees of geographic area licensing. Petitioners

do not raise any new arguments that would persuade the Commission to

reconsider the adoption of EA licensing for the 800 MHz SMR service.

The Commission again emphasizes that geographic area licensing offers a

flexible licensing scheme that eliminates the need for many of the

complicated and burdensome licensing procedures that hampered SMR

development in the past.

105. In response to requests by petitioners, the Commission

considers yet again whether auctioning allows for the dissemination of

licenses among a wide variety of entities in the 800 MHz SMR spectrum.

Several petitioners, for example, believe that auctioning will lead to

the concentration of licenses in the hands of a few operators in each

market to the detriment of small businesses. The Commission disagrees

with the contention that small businesses will not be able to

participate in these auctions. The auction rules for the upper 800 MHz

SMR include small business provisions such as bidding credits and other

measures that are intended to meet the statutory objective of providing

opportunities for small businesses in the upper 10 MHz channels of the

800 MHz SMR service. The results of prior auctions demonstrate that

these provisions have ensured small businesses participation in other

auctionable services. The Commission further notes that because the 800

MHz SMR service falls within the definition of the Commercial Mobile

Radio Services (CMRS), it is subject to the 45 MHz aggregate spectrum

cap on CMRS. The spectrum cap has been placed on CMRS licensees in

order to promote and preserve competition in the CMRS marketplace by

limiting the number of licenses any one entity can acquire.

106. The Commission has further considered various alternative

licensing procedures for the 800 MHz SMR band as requested by several

petitioners. These petitioners contend that section 309(j)(6)(E) of the

Communications Act prohibits the Commission from conducting an auction

unless it first attempts alternative licensing mechanisms to avoid

mutual exclusivity. In the course of this proceeding, the Commission

has evaluated the appropriateness of other licensing mechanisms for the

upper 800 MHz SMR, but concluded those methods are not in the public

interest. The Commission has found that ``first-come, first-served''

licensing in the 800 MHz service leads to processing delays. For the

upper channels of the 800 MHz SMR frequency band, the use of

competitive bidding is the most appropriate licensing procedure because

the Commission anticipates a considerable number of applications for

these licenses and competitive bidding will allow the most expeditious

access to the spectrum if any of these applications is mutually

exclusive. Therefore, the Commission rejects once again other licensing

procedures for the upper 800 MHz SMR spectrum. In doing so, the

Commission must emphasize that it has made every effort to include the

SMR industry in the decision-making process to make certain that the

concerns of the industry and, particularly, incumbents are addressed by

the Commission.

G. Bidding Issues

1. Bid Increment

107. Background. In the 800 MHz Report and Order for the upper 10

MHz block, the Commission adopted the same procedures for bid

increments as those used in auctions for MTA-based PCS licenses. The

Commission also indicated that it would retain the discretion to set

and, by announcement before or during the auction, vary the minimum bid

increments for individual licenses or groups of licenses over the

course of the auction.

108. Petitions. One petitioner supports a minimum bid increment but

believes that tying the minimum bid to the absolute minimum bid

establishes an artificial value for each license rather than allowing

the marketplace to determine the value of the licenses. Instead,

petitioner supports a five percent minimum bid increment because it

will ensure active participation by bidders without requiring a

disparate increase from one round to the next.

109. Discussion. After considering the record, the Commission

modified its rules to delegate authority to the Bureau to set

appropriate bid increments. The Commission's experience with other

auctions indicates that flexibility is necessary to set appropriate

bidding levels to account for the pace of the auction, the needs of the

bidders, and the value of the spectrum. While the Commission believes

that a bid increment of $0.02 MHz-pop is appropriate here, it will

delegate authority to the Bureau to vary the minimum bid increment over

the course of the auction as it deems necessary.

[[Page 41237]]

The Bureau will announce by Public Notice prior to the auction the

general guidelines for bid increments.

2. Upfront Payment

110. Background. In the 800 MHz Report and Order, the Commission

determined that the upfront payment for the upper 800 MHz SMR service

should be $0.02 per MHz-pop, with a minimum payment of $2500. The

Commission indicated that in the initial Public Notice, it would

announce population information and upfront payments corresponding to

each EA license. Further, the Commission notes that population coverage

for each channel block in each EA will be based on a formula that takes

into account the presence of incumbent licenses.

111. Petitions. Petitioners request the Commission to set a lower

upfront payment contending that $0.02 per MHz-pop is too high given the

value of these licenses and that the Commission reconsider its decision

to use upfront payments that take into account the presence of

incumbent licenses because of the uncertainty that results from ongoing

channel relocation by incumbents. Petitioner believes that prospective

bidders would be better served by being advised that the band in

heavily encumbered, by being provided with either a list of those

incumbents or information as to how that information may be obtained.

112. Discussion. The Commission reaffirms its upfront payment

formula of $0.02 MHz-pop and uniform discounting for incumbency. The

Commission also reaffirms a minimum upfront payment of $2500 and

believes that it is necessary to set an adequate upfront payment to

ensure participation by qualified bidders. However, as commenters

suggest, the Commission recognizes that for purposes of these

particular licenses the standard upfront payment formula may yield

higher payment as compared to the values of the license. The Commission

will modify its rules to delegate authority to the Bureau to vary the

minimum upfront payment when it determines that the standard $0.02 per

MHz-pop formula would result in an unreasonably high upfront payment.

In determining an appropriate upfront payment, the Bureau may take into

account such factors as the population and the approximate amount of

usable spectrum in each EA. The Bureau will announce any such

modification by Public Notice.

3. Activity Rules

113. Background. In the 800 MHz Report and Order, the Commission

adopted the three-stage Milgrom-Wilson activity rule in conjunction

with the simultaneous stopping rule. The Commission noted that an

activity rule ensures that an auction will close within a reasonable

period of time by requiring a bidder to remain active throughout the

auction. The Commission further noted that under the Milgrom-Wilson

approach, bidders are required to declare their maximum eligibility in

terms of MHz-pops, and to make an upfront payment equal to $0.02 per

MHz-pop. The Commission also notes that the population calculation in

each EA will be discounted to take into consideration the presence of

incumbent licensees.

114. Petitions. Petitioner requests the Commission to reconsider

the decision to adjust the bidding unit of an EA based on the

occupation of channel blocks by incumbents unless the incumbent has

constructed facilities. It contends that the allowance of a downward

adjustment irrespective of whether facilities have been constructed

unjustly enriches those entities holding unconstructed authorizations.

115. Discussion. The Commission affirms its decision to use a

three-stage Milgrom-Wilson activity rule for the upper 10 MHz channels

of the 800 MHz SMR service. The Commission also reaffirms the use of a

uniform discount on the upfront payment to take into consideration the

presence of incumbent licenses. The Commission disagrees with the

recommendation that a downward adjustment should be made for

constructed facilities only. This proposal would require the Commission

to make an unsupported assumption that none of the entities holding

unconstructed authorizations ever intend to build out their systems.

H. Treatment of Designated Entities

1. Bidding Credits

116. Background. In the 800 MHz Report and Order, the Commission

does not adopt bidding credits for designated entities participating in

the auctions for the upper 10 MHz channels of the 800 SMR service.

Bidding credits initially had been proposed for businesses owned by

women and minorities. As a result of the Supreme Court's decision in

Adarand, in the 800 MHz Report and Order the Commission concluded there

was an insufficient record to support the adoption of special

provisions solely benefitting minority-and women-owned business

(regardless of size) for the upper 10 MHz block auction.

117. Petitions. Petitioners request that the Commission provide

bidding credits to small businesses in order to provide these entities

with a meaningful opportunity to obtain licenses in the 800 MHz SMR

service auction.

118. Discussion. In this instance, the Commission grants

petitioners' request and will provide bidding credits to small

businesses. The Commission notes that in the 800 MHz Report and Order,

it concluded that special provisions for small businesses are

appropriate for the 800 MHz SMR service. The Commission also recognizes

that smaller businesses have more difficulty accessing capital and thus

may need a higher bidding credit. Accordingly, the Commission will

adopt tiered bidding credits that are narrowly tailored to the varying

abilities of businesses to access capital. Tiering also takes into

account that different small businesses will pursue different

strategies. In determining eligibility for these bidding credits, the

Commission will employ the same tiered definitions of small businesses

as used in the 800 MHz Report and Order to determine eligibility for

installment payments in the upper 10 MHz, with an adjustment to reflect

the unavailability of installment payment plans for the 800 MHz SMR

services. Accordingly, a small business with average gross revenues

that do not exceed $15 million will be eligible for a bidding credit of

25 percent. A small business having revenues that do not exceed $3

million will be eligible for a bidding credit of 35 percent. Revenues

will be defined as average gross revenues for the last three years

including affiliates. These are the same levels of bidding credits used

in the WCS auction.

2. Installment Payments

119. Background. In the 800 MHz Report and Order, the Commission

adopted rules which provided small businesses participating in this

auction with tiered installment payment plans. The Commission noted

that it adopts the same tiered installment payment approach as in the

900 MHz SMR auction.

120. Petitions. Petitioner requests that the Commission eliminate

all installment payment plans for the upper 200 channels on the basis

of its belief that in prior auctions, the availability of installment

payments has encouraged speculation and warehousing. Another petitioner

disagrees, stating that installment payments are the only means by

which independent, incumbent SMR operators will be able to participate

in the auctions. One petitioner believes that the tiered approach to

installment payments is insufficient to ensure meaningful participation

by small businesses, and

[[Page 41238]]

as an alternative asks for 50 percent bidding credits.

121. Discussion. As petitioned, the Commission will not adopt

installment payments for the upper 200 channels. While the Commission

disagrees with the petitioner's contention that installment payments

encourage speculation and warehousing of spectrum, its experience with

the installment payment program leads the Commission to conclude that

installment payments may not always serve the public interest. The

Commission has found, for example, that obligating licensees to pay for

their licenses as a condition of receipt requires greater financial

accountability from applicants. Currently, in several proceedings the

Commission is reviewing a number of issues related to administration of

installment payment programs. Nonetheless, given that applications for

new 800 MHz SMR licenses have not been accepted since 1994, the

Commission's priority is to facilitate the licensing of the upper 200

channels without further delay. Therefore, the Commission believes that

the public interest is best served by going forward with the auction

for the upper 200 channels without extending installment payments to

small businesses while it considers installment payment issues

generally.

122. The Commission disagrees with petitioner's contention that

installment payments are the only means by which small SMR operators

will be able to participate in auctions. The Commission notes that in

other auctions in which installment payments were not available, small

businesses were the high bidders on a significant number of licenses.

Further, section 309(j)(4) requires the Commission to consider

alternative methods to allow for dissemination of licenses among a wide

variety of applicants, including small businesses. To encourage small

business participation, the Commission has raised the bidding credits

available to small businesses and very small businesses to 25 percent

and 35 percent respectively. The Commission believes that higher

bidding credits will both fulfill the mandate of section 309(j)(4)(D)

to provide small business with the opportunity to participate in

auctions and ensure that new services are offered to the public without

delay.

123. In view of the Commission's decision here, all winning bidders

will be required to supplement their upfront payments with down

payments sufficient to bring their total deposits to 20 percent of

their winning bid(s). Consistent with the Commission's determination in

the Second Report and Order, it will allow bidders up to ten days

following the close of the auction to make their down payments.

3. Attribution of Gross Revenues of Investors and Affiliates

124. Background. In the 800 MHz Report and Order, the Commission

adopts a definition of small business which included attributing the

gross revenues of investors owning 20 percent or more in the applicant.

In light of the pending petitions for reconsideration, the Commission,

on its own motion, retains jurisdiction to reconsider the attribution

rule.

125. Discussion. In determining eligibility for small business

provisions, the Commission will modify its attribution rule to

substitute the ``controlling principal'' concept for the attribution

model as it recently did for auctions involving other services.

Specifically, the Commission will eliminate the rule attributing the

revenues of certain investors. The Commission will only attribute the

gross revenues of all controlling principals in the small business

applicant as well as the gross revenues of the affiliates of the

applicant. The Commission will require that in order for an applicant

to qualify as a small business, qualifying small business principals

must maintain both de jure and de facto control of the applicant.

Typically, de jure control is evidenced by ownership of 50.1 percent of

an entity's voting stock. De facto control is determined on a case-by-

case basis. An entity must demonstrate at least the following indicia

of control to establish that it retains de facto control of the

applicant: (1) The entity constitutes or appoints more than 50 percent

of the board of directors or partnership management committee; (2) the

entity has authority to appoint, promote, demote and fire senior

executives that control the day-to-day activities of the licensee; and

(3) the entity plays an integral role in all major management

decisions. This simplified procedure was adopted for auctions involving

other services. The Commission believes this modification of its

attribution rule will enhance the opportunity for a wide variety of

applicants to obtain licenses. Specifically, the Commission will follow

the attribution rules discussed in the Lower 80 and General Category

licenses section of the Second Report and Order in section 2(a), Small

Business Definition.

II. Ordering Clauses

126. It is ordered that, pursuant to the authority of sections

4(i), 302, 303(r), and 332(a)(2) of the Communications Act of 1934, as

amended, 47 U.S.C. 154(i), 302, 303(r), and 332(a), the rule changes

specified in the related final rule (FCC 97-223) published elsewhere in

this issue of the Federal Register are adopted.

127. It is further ordered that the rule changes set forth in FCC

97-223 will become effective September 29, 1997.

128. It is further ordered that the referenced Petitions for

Reconsideration are granted to the extent discussed herein, and are

otherwise denied.

List of Subjects in 47 CFR Part 90

Radio, Specialized mobile radio services.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97-19914 Filed 7-30-97; 8:45 am]

BILLING CODE 6712-01-P