Digital Audio Radio Service in the 2310-2360 MHZ Frequency Band

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 25 and 87

[IB Docket No. 95-91; GEN Docket No. 90-357; FCC 97-70]

Digital Audio Radio Service in the 2310-2360 MHZ Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final Rule.

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

SUMMARY: After carefully reviewing the comments and information the

Commission received following issuance of the Notice of Proposed

Rulemaking, concerning service and licensing rules for the Digital

Audio Radio Service (DARS) in the 2310-2360 MHZ frequency bands, the

Commission reached the following conclusions. The Commission will

license satellite DARS. Opponents of the new service have not shown

that its potential adverse impact on local radio service outweighs its

potential benefits. Based on the record, the Commission finds that an

economically viable satellite DARS system will require at least 12.5

MHz of spectrum. Although the Commission has allocated 50 MHz of

spectrum for satellite DARS in the S-band (2310-2360 MHz), recently

enacted legislation directs the Commission to reallocate 25 MHz of that

spectrum for any services consistent with the international allocation

and to assign licenses for that 25 MHz by auction. Accordingly, in this

proceeding the Commission will designate only two licenses for

satellite DARS in the 25 MHz that remains in the part of the S-band

allocated for satellite DARS. The Commission will award both satellite

DARS licenses using competitive bidding, as it proposed in the NPRM, to

resolve mutual exclusivity among the current applicants, under the

auction rules they adopt today. The Commission also adopts service

rules for satellite DARS licensees, including milestone requirements.

Three of the four DARS applicants applied for pioneer's preferences.

However, following unanimous recommendations from a panel of satellite

experts that no pioneer's preferences be granted for satellite DARS all

three applicants have withdrawn their applications. The intended effect

of this action is to establish rules and policies for the DARS service

in the 2310-2360 MHz frequency band.

EFFECTIVE DATE: The new and amended rules in Sections 25.144, 25.201,

25.202, 25.214 and 87.303 shall become effective April 10, 1997; the

new rules in Sections 25.401, 25.402, 25.403, 25.404, 25.405, and

25.406 shall become effective March 11, 1997.

FOR FURTHER INFORMATION CONTACT: Rosalee Chiara at (202) 418-0754 or

Ron Repasi at (202) 418-0768 with the International Bureau or Amy

Zoslov or Christina Eads Clearwater at (202) 418-0660 with the Wireless

Telecommunications Bureau.

SUPPLEMENTARY INFORMATION: This is a summary of the Report and Order

and Memorandum Opinion and Order and Further Notice of Proposed

Rulemaking in IB Docket No. 95-91; GEN Docket No. 90-357; RM No. 8610;

PP-24; PP-86; and PP-87, FCC No. 97-70 (adopted and released March 3,

1997). The complete text of the Report and Order and Memorandum Opinion

and Order and Further Notice of Proposed Rulemaking is available for

inspection and copying during normal business hours in the FCC

Reference Center (Room 239), 1919 M Street, N.W., Washington, D.C. and

also may be purchased from the Commission's copy contractor,

International Transcription Services (202) 857-3800, 2100 M Street,

N.W., Suite 140, Washington, D.C. 20037.

Synopsis of the Report and Order and Memorandum Opinion and Order

and Further Notice of Proposed Rulemaking

1. The Commission will summarize the background in this proceeding,

which is described in greater detail in the NPRM, 60 FR 35166, (July 6,

1995) and in prior orders. Satellite CD Radio, Inc. (CD Radio)

initiated this proceeding in 1990 by filing a petition to allocate

spectrum for satellite DARS and an application to provide the service.

In February 1992, the World Administrative Radio Conference (WARC-92)

adopted international frequency allocations for Broadcasting Satellite

Service (BSS) (sound)(the international term for satellite DARS).

Internationally, this band is also allocated on a primary basis to

radiolocation services and fixed and mobile terrestrial services. In

November 1992, the Commission established a proceeding to allocate

satellite DARS spectrum domestically and announced a December 15, 1992

cut-off date for satellite DARS license applications to be considered

with CD Radio's. Of the six license applicants that filed before the

cut-off; four remain: CD Radio, Primosphere Limited Partnership

(Primosphere), Digital Satellite Broadcasting Corporation (DSBC) and

American Mobile Radio Corporation (AMRC). In January 1995, the

Commission allocated the 2310-2360 MHz band for satellite DARS on a

primary basis.

2. In the June 1995 NPRM, the Commission posed many questions about

satellite DARS. The Commission requested detailed information on the

new service's potential economic impact on terrestrial broadcasters.

The NPRM asked about the most appropriate service design and regulatory

classification. The Commission sought comment on what public interest

obligations to impose and queried whether providers should be permitted

to offer ancillary services. The NPRM proposed three possible licensing

options and rules to allow expeditious licensing after an option was

chosen. After the NPRM was released, the Appropriations Act directed

the Commission to reallocate spectrum at 2305-2320 MHz and 2345-2360

MHz for all services consistent with international allocations and to

award licenses in that portion of the band using competitive bidding.

As a consequence, the licenses designated pursuant to this order will

be in the spectrum between 2320 and 2345 MHz.

3. In the NPRM and in prior orders, the Commission discussed the

benefits of satellite DARS proffered by the proponents. These include

introduction of a new radio service to the public, a national

distribution of radio programming to all areas, including underserved

and unserved areas and population groups, the creation of jobs and the

promotion of technological development in the satellite and receiver

industries, and the improvement of U.S. competitiveness in the

international economy. The Commission sought comment on its tentative

conclusion that satellite DARS offers substantial public benefits.

4. The Commission also invited detailed comment and information on

the economic impact of satellite DARS on existing radio broadcasters.

It acknowledged the high level of concern that terrestrial broadcasters

have expressed about satellite DARS. In addition to three associations

of broadcasters, more than one hundred terrestrial radio station owners

or operators have submitted individual letters opposing satellite DARS.

5. Recognizing the significant public value of terrestrial radio

service, the Commission must weigh the potential public interest

benefits of satellite DARS against its potential adverse impact on

terrestrial radio. This impact is relevant ``to the extent that [it]

would predictably lead to serious loss of important services to

consumers, taking into account the potential for future enhancements of

terrestrial broadcasting by the introduction of new technologies.'' In

the NPRM, the Commission emphasized

[[Page 11084]]

that, pursuant to Section 7 of the Communications Act, opponents of a

new technology, such as satellite DARS, bear the burden of

demonstrating that it is inconsistent with the public interest. The

Commission has previously noted that, ``[t]he public interest in this

regard is the provision of services of value to the listening public

and includes the protection of competition, not competitors.''

6. Satellite DARS can offer high-quality radio signals to listeners

who currently receive few terrestrial radio signals. Commenters

disagree concerning how many people are underserved by local radio. One

respondent submitted a county-based analysis of listening diaries

contending that only 6,100 people in the U.S. aged 12 and over receive

less than six radio signals. However, that study defined a station as

``covering'' a U.S. county if even one diary recorded having received

its signal. Given that AM signals travel long distances at night and

that such skywave signals fluctuate significantly even when usable, the

Commission believes that such diary evidence may not accurately

indicate the size of the population that receives radio signals.

7. One study indicates that 722,102 persons (0.3% of the U.S.

population) are covered by no FM stations, 2.4 million persons (1.0% of

the U.S. population) are covered by one or fewer FM stations, and 22

million persons (8.9% of the U.S. population) are covered by five or

fewer FM stations. The NAB criticized this study, however, because it

does not include AM radio stations, even though more than 40% of all

radio stations are AM stations and even though AM signals often travel

much further than FM signals at night. AM signals, due to limited

bandwidth and greater susceptibility to noise and interference, do not

provide as high fidelity sound as FM signals. Thus, FM signal quality

may be closer to the quality of that satellite DARS would provide.

While the Commission is unable to estimate an exact figure for the

number of potential radio listeners who are currently underserved, it

finds that the record is sufficient to indicate that a significant

number of persons in the U.S. receive few high-quality audio signals.

Satellite DARS offers the substantial benefit of providing these

persons with many additional high-quality audio signals.

8. It is the Commission's view that satellite DARS will

particularly benefit communities where terrestrial broadcast service is

less abundant. The record shows that counties with smaller populations

have fewer radio stations and that smaller markets have fewer radio

formats. The 33.2% of the U.S. population living in the top ten radio

markets have access to an average of 26 formats, while the 18% of the

U.S. population living in radio markets ranked 100-261 have access to

an average of only 14.9 formats. Persons living outside these 261

ranked markets are likely to have still fewer radio formats available.

Given that each satellite DARS applicant proposes to provide 20 or more

channels nationwide, satellite DARS would significantly reduce the

proportional discrepancy in the geographic distribution of radio

service.

9. Moreover, satellite DARS can provide new services that local

radio inherently cannot provide. With its national reach, satellite

DARS could provide continuous radio service to the long-distance

motoring public, persons living in remote areas, and may offer new

forms of emergency services.

10. Satellite DARS may also be able to foster niche programming

because it can aggregate small, nationally dispersed listener groups

that local radio could not profitably serve. Commenters suggest that

satellite DARS could fulfill a need for more educational programming,

rural programming, ethnic programming, religious programming, and

specialized musical programming. One nationally representative survey

found that 10-27% of the respondents indicated a strong interest in

accessing programming formats that are not widely available. Evidence

from a survey by the National Endowment for the Arts suggests that

niche marketing opportunities exist for some of the less popular radio

formats.

11. The Commission believes that licensees will have an incentive

to diversify program formats and thereby provide valuable niche

programming. The Commission recognizes that satellite DARS licensees

are likely to provide the programming that is most profitable.

Nonetheless, given that the Commission anticipates each satellite DARS

licensee will control more than 20 channels, each licensee will have an

incentive to diversify programming so that one channel will not

directly compete with another channel that the licensee itself

controls. The Commission has noted the importance of this incentive,

particularly with respect to entertainment programming, in other

proceedings.

12. In the NPRM, the Commission tentatively concluded that

implementation of satellite DARS would foster the development of new

technology. NAB has argued that U.S. implementation of satellite DARS

is not necessary to advance satellite DARS technology. While this may

be true, the Commission nevertheless believes that U.S. implementation,

by providing large-scale market-based consumer feedback and increased

economic incentives for further technological advances, would foster

faster and more customer oriented development.

13. The Commission concludes that licensing operators to provide

satellite DARS will yield substantial benefits to consumers. The

Commission now evaluates whether opponents have met their burden of

showing that these benefits are outweighed by the potential harm to

listeners from potential loss of terrestrial service resulting from

increased competition from satellite DARS.

14. In the NPRM, the Commission sought comment on the effect of

satellite DARS on terrestrial radio listenership. The Commission

explicitly requested commenters to consider the characteristics of

satellite DARS that distinguish it from terrestrial radio. Commenters

often failed to do so. Instead, several commenters implicitly assumed

that satellite DARS' effect on local radio would be similar to the

effect from competition generated by new local radio stations. Given

the distinguishing features of satellite DARS--it is a national

service, it will require new and relatively costly equipment, and it

may be offered via paid subscription--the Commission finds that the

effect of satellite DARS on terrestrial radio is likely to be

significantly smaller than the effect of additional terrestrial radio

stations.

15. For example, one commenter includes a consumer survey which

suggests that satellite DARS would cause a decline of 11.6% in

terrestrial radio listenership. The appropriate interpretation of this

figure is not clear, however, because the survey did not take into

account the potential cost to the consumer of satellite DARS equipment,

and the subscription fee included in the survey was only half of what

one satellite DARS applicant (CD Radio) has proposed. Moreover, the

survey failed to consider the possible introduction of terrestrial DARS

in assessing consumer interest in satellite DARS. For these reasons the

Commission believes that this survey may overestimate the likely

decline in terrestrial radio listenership. And yet even in this survey

80% of respondents indicated that they would not reduce the time they

spend listening to terrestrial radio if satellite DARS was available.

However, the Commission realizes that surveys of predicted

[[Page 11085]]

consumer response to a new and untried service may be somewhat

unreliable.

16. By analogy, the diffusion of other new services and

technologies may provide valuable perspective on the time period in

which satellite DARS' may affect terrestrial radio listenership. In

1994, six years after their introduction, CD players were in just 3.2

percent of all automobiles. This experience is recent, involves high-

quality audio service and roughly comparable equipment costs, and

relates to automobiles, perhaps the most likely market for satellite

DARS receivers. On the other hand, for the first few years after CD

players' introduction there were significant technical problems with

their operation in automobiles, and CD players are less convenient to

operate than radios. These factors may have reduced the rate at which

CD players were installed in cars. Nonetheless, CD players offer a

useful example by which to evaluate the penetration profile for

satellite DARS receivers. Given anticipated satellite launch dates for

satellite DARS applicants (1998-1999) and the example of the diffusion

of CD players, the Commission believes it is reasonable to project that

by about 2005 the over-all penetration rate of satellite DARS receivers

in radio listening environments may not be significantly greater than

4%.

17. Estimating listening time diversion depends on the share of

listening time allocated to satellite DARS when the listener has a

choice between satellite DARS and terrestrial radio. Drawing an analogy

with the diffusion of cable services indicates that established

programming loses audience share relatively slowly. In 1984, about a

decade after the introduction of premium cable services and the

development of 24 to 36 channel cable TV systems, cable channels

attracted 14% of television viewing time. After another decade, the

share of cable channels in television viewing time rose to 30%. An

important weakness in this analogy is that the difference between cable

programming and network programming during this period is probably

significantly greater than will be the difference between satellite

DARS programming and terrestrial radio programming. Nonetheless, the

Commission believes that owners of satellite DARS receivers will

continue to allocate a significant share of their listening time to

terrestrial radio in order to hear music or news of local interest.

Even with rapid, further penetration of satellite DARS receivers, the

Commission expects that satellite DARS' share of radio listening time

will grow relatively slowly over decades.

18. In the NPRM, the Commission asked parties to consider

advertising revenues that terrestrial radio might lose because of

satellite DARS. The record indicates two possible causes of terrestrial

radio revenue loss: competition with satellite DARS for advertising

dollars and competition with satellite DARS for listeners' attention.

19. While the Commission recognizes that satellite DARS has

significant competitive advantages in offering advertising to a

national audience with satellite DARS receivers, several factors may

limit the possible significance to terrestrial radio of such additional

competition. First, at this time, only one out of the four satellite

DARS applicants has indicated an intention to implement its system on a

non-subscription, advertiser-supported basis. Second, a large share of

the national radio audience is not likely to have satellite DARS

receivers, at least for a significant period of time. Third, national

advertising revenue amounts to only 18% of terrestrial radio

advertising revenue and is on average less important for small-market

stations than for large-market stations. Local advertising revenue is

much more important than national advertising revenue for terrestrial

radio's viability and prevalence, and, at this time, the Commission has

no evidence that satellite DARS would be able to compete for local

advertising revenue.

20. More important to terrestrial radio is possible competition

with satellite DARS for listener attention because this new offering

could reduce the size of the local listening audience available for

terrestrial radio stations to sell. The Commission recognizes that a

decrease in the audience size could lead to some reduction in

terrestrial station revenues. As discussed above, however, the

Commission believes the reduction would be modest, although the record

leaves room for significant uncertainty.

21. Commenters have not fully analyzed the relationship between

reductions in listenership and reductions in revenue. The Commission

does not necessarily agree with those commenters who assert that

terrestrial radio station revenue will fall one-for-one with any fall

in listenership. Because the price of local radio advertising may rise,

the effect on local radio revenue may be smaller than the effect on

listenership. However, regardless of the precise relationship, the

Commission does assume that a decrease in listenership will lead to a

decrease in advertising revenues, if other variables are held constant.

22. In the NPRM, the Commission asked questions about the impact of

satellite DARS on the financial viability of local broadcast stations.

In general, the Commission encourages competition for the provision of

telecommunications services wherever possible and removes barriers for

new competitors. Commenters differ sharply on the effect of satellite

DARS on the profitability of terrestrial stations, with estimates of

the reduction in terrestrial stations' profitability spanning 2.1-3.5%

to 52%-122%. The wide range of these estimates do not allow the

Commission to judge the effect of satellite DARS on terrestrial

stations' profitability. The Kagan Study, by focusing on historical

indicators of revenue and profitability and not considering the time

path for satellite DARS diffusion, likely overestimates the potential

impact of satellite DARS on terrestrial stations profitability. The MTA

Study's audience diversion figures are lower than what the Commission

believes, and the Commission questions the relevance of their use of

the ratio of satellite DARS receiver owners to the total U.S.

population, given that segments of the population, such as infants, are

not potential satellite DARS owners. The Commission also finds their

revenue loss projections to be unsubstantiated and unconvincing.

23. The record supports a finding that the impact of satellite DARS

would likely be greater on small-market terrestrial stations than

large-market terrestrial stations. This result is not surprising

because it is likely that the introduction of a 30-channel satellite

DARS system could divert a larger share of the audience in a market

with only 6 stations than in a market with 60 stations. Nonetheless,

the record does not establish that any predicted reduction in station

profitability would harm overall station viability.

24. In fact, the record suggests that profitability figures may be

a weak indicator of radio station viability. The wide range in the

audience size distribution for existing radio stations suggests that

most radio stations could remain viable given plausible audience

reductions due to satellite DARS. Despite evidence that a large

percentage of radio stations are experiencing losses, there is also

evidence that overall the industry is very healthy. The value of radio

station purchases in 1996 was 315% higher than in 1995 and radio

station values as a multiple of cash flow also rose sharply. Factors

such as debt financing and start-up costs may explain

[[Page 11086]]

why radio stations would stay in business while reporting losses.

25. The concern about licensing satellite DARS focuses on its

impact on the provision of locally oriented radio service. Satellite

DARS proponents argue that the ability to offer local content will give

terrestrial broadcasters a competitive advantage. Terrestrial

broadcasters argue that providing local content is a public service

that depends, in effect, on cross-subsidization from more profitable

programming.

26. The Commission concludes that the record lacks systematically

sampled, quantitative evidence about the listening time, revenue base,

and profitability of local content. Nonetheless, if local content were

relatively unprofitable for every station, one would expect competition

among terrestrial stations to result in minimal local programming on

most stations. Yet the record indicates that such analysis is not

necessarily accurate; despite vigorous competition among stations, some

stations provide much local programming, while others provide

relatively little. Competition from satellite DARS may create

incentives for at least some terrestrial stations to increase their

emphasis on local programming in order to attempt to differentiate

their service from satellite DARS. It is unclear the degree to which

that might affect overall station profits.

27. In sum, although healthy satellite DARS systems are likely to

have some adverse impact on terrestrial radio audience size, revenues,

and profits, the record does not demonstrate that licensing satellite

DARS would have such a strong adverse impact that it threatens the

provision of local radio service.

28. The Commission also notes that revenue of terrestrial radio is

projected to grow at a real (inflation adjusted) rate of about 4% per

year. Such projected revenue should mitigate, at least to some extent,

the eventual impact on terrestrial stations of satellite DARS. The

Commission also notes that recently, it implemented provisions of the

Telecommunications Act of 1996 and repealed all terrestrial radio

national ownership limits and significantly relaxed local ownership

limits. These changes should lead to reduced operating costs and

increased profits for terrestrial station owners that take advantage of

the new rules. The Commission expects any possible impact of satellite

DARS on terrestrial radio's revenue to be relatively small and to occur

over a long period of time. The Commission rejects as unnecessary a

proposed phase-in and evaluation period for satellite DARS. The

Commission concludes that opponents of satellite DARS have not shown

that its potentially adverse impact on local radio outweighs its

potential benefits to the American radio listener.

29. There is uncertainty inherent in any attempt to predict the

impact of satellite DARS on the terrestrial radio industry. The

technologies, structure, and regulation of the communications industry

are changing dramatically. Developments in the next decade may

significantly change the market for both satellite DARS and terrestrial

broadcasting. Although opponents of satellite DARS have not shown that

it will have a sudden and dramatic adverse impact on terrestrial

broadcasting, the Commission cannot entirely rule out the possibility

of a major adverse impact. The Commission emphasizes that it remains

committed to supporting a vibrant and vital terrestrial radio service

for the public. Accordingly, the Commission will continue to monitor

and evaluate the potential and actual impact of satellite DARS,

particularly in small radio markets, so that it will be able to take

any necessary action to safeguard the important service that

terrestrial radio provides.

30. In addition, the Commission continues to support the efforts of

industry committees studying technical standards that would allow

terrestrial radio broadcasters to convert to digital transmissions.

When it appears that a viable system has been designed, the Commission

will act expeditiously to consider changes to its rules to allow AM and

FM licensees to offer digital sound. The Commission also remains open

to considering other ways to encourage the continued viability of

terrestrial radio if the adverse impact of satellite DARS on

terrestrial radio proves to be substantially greater than expected.

31. On February 17, 1995, Underripe National Radio Sales, Inc.

(Underripe) filed a petition for reconsideration of the Commission's

domestic Report and Order, 10 FCC Rcd 2310 (1995), 60 FR 8309 (February

14, 1995) (``Allocation Order''). Underripe claims that satellite DARS

could have an adverse impact on existing radio services and that,

therefore, the Commission should not allow satellite DARS operations

until terrestrial DARS is licensed. Underripe also suggests a number of

guidelines it believes the Commission should adopt with respect to

licensing and service rules for satellite DARS. The Commission denies

the petition for the reasons given above. That is, the record evidence

indicates that the public interest would be served by permitting an

innovative new technology and service, satellite DARS, to become

available as a competitive choice for consumers. The Commission notes

that the petition does not contain any analysis which would undermine

those reasons.

32. The Consumer Electronics Manufacturers Association (CEMA)

argues in an ex parte submission, based on its preliminary draft report

on various digital audio radio technology test results, that satellite

DARS cannot be successfully provided at 2.3 GHz. Specifically, CEMA

argues that ``S-band operations suffer from a significant and startling

level of signal blockage,'' that to provide satellite DARS using S-band

frequencies will require hundreds or thousands of gap fillers and that

satellite DARS in the S-Band has ``no likelihood for nationwide

commercial acceptance.''

33. The Commission has decided nevertheless to license DARS in the

S-Band. CEMA's testing of signal propagation focused on terrestrial

technologies; CEMA tested only one generic satellite technology and did

not test any of the system designs of the four satellite DARS

applicants. Nor does CEMA comment on any of the specific proposals

submitted by the four DARS applicants. In addition, CEMA offers no new

relevant information. It has been widely known and discussed in the

record that DARS providers will need to rely on terrestrial repeaters

and gap fillers. As with all new services, the FCC cannot prove or

disprove viability. Only the market place can make this determination.

CEMA's assertion that satellite DARS is not commercially viable in the

S-Band is belied by the interest of many DARS investors who apparently

have concluded that a viable satellite DARS service can be offered in

the S-Band.

34. Moreover, CEMA's recommendation that the FCC consider other

spectrum options for satellite DARS, such as the L-Band, is beyond the

scope of this proceeding. The 2310-2360 MHz band [S-Band] was allocated

for satellite DARS internationally at WARC-92 and domestically in 1995.

Frequencies in the L-Band, 1452-1492 MHz were considered and rejected.

In the domestic Allocation Order the Commission noted that ``commenters

strongly favored [S-Band] over, for example, the 1.5 GHz band [L-

Band]'' in part because the U.S. Government and U.S. commercial mobile

aeronautical telemetry (MAT) already operates in the L-Band and it

would be very difficult for them to relocate entire operations to the

S-band. Satellite DARS cannot share with MAT systems in the same

frequency band in the same coverage

[[Page 11087]]

area. And even if L-Band had been available, no persuasive evidence

suggests that it is significantly better spectrum in which to receive

satellite DARS signals. For the reasons stated above, the Commission

finds CEMA's argument against proceeding to license satellite DARS

applicants in the S-Band unpersuasive.

35. In the NPRM, the Commission proposed three options for

licensing satellite DARS systems. Under Option One, the Commission

would have assigned the entire 50 MHz of spectrum allocated for

satellite DARS to the four pending applicants, giving each 12.5 MHz, or

10 MHz, if the Commission determined that the lower 10 MHz of the band

should not be assigned at the time of its Order due to international

coordination constraints. Option Two was to designate less than the

full amount of useable spectrum for satellite DARS and to award the

remaining spectrum to new applicants. Option Two proposed licensing the

four applicants and assigning them each a band segment of less than 10

MHz of spectrum. If either of the two band segments (one for pre-cut

off applicants and one for new applicants) could not accommodate all

applicants, the Commission would resolve mutual exclusivity via

competitive bidding. Option Three was to reopen the cut-off for

satellite DARS applications and allow additional applicants to file

proposals for all of the useable DARS spectrum.

36. In light of the recent legislation directing the Commission to

conduct an auction for use of 25 MHz of the S-band spectrum previously

allocated solely to DARS, the Commission cannot adopt any of the three

licensing options exactly as proposed in the NPRM. After enactment of

that legislation and the ensuing WCS Order, only 25 MHz remains

exclusively for DARS. The licensing plan the Commission adopts today

for that remaining spectrum is a logical outgrowth of Option Two,

modified in light of the comments received in this proceeding and the

recent legislation. In determining how many licenses may be awarded for

use of the remaining DARS spectrum and how those licenses should be

assigned, the Commission must first determine how much spectrum each

satellite DARS licensee will require to operate an economically viable

satellite DARS system.

37. In the Allocation Order, the Commission found that, based on

the information available at that time, satellite DARS was the best use

of all of the 50 MHz of spectrum assigned to U.S. satellite DARS by

WARC-92. The Commission requested comment on a number of issues in the

NPRM to help it determine the best way to make individual satellite

DARS frequency assignments. Specifically, the Commission sought comment

on the following: the amount of spectrum and number of channels

required for a satellite DARS system to be economically viable; the

number of competitors that are necessary to ensure sufficient

competition in satellite DARS; the possible number of channels per MHz

capable of being delivered via satellite to a mobile user; alternative

band plans that could be adopted for satellite DARS; possible uses for

spectrum that is not licensed for satellite DARS, and, whether the

proposal to license less than 50 MHz of spectrum would create a

mutually exclusive situation among the four current applicants. Based

on comments the Commission received on these specific issues, it

concludes that 12.5 MHz of spectrum is necessary to offer enough

channels for an economically viable satellite DARS system. In addition,

in light of the recent legislation opening 25 MHz of spectrum for use

by additional services, the Commission concludes that two licenses can

be awarded.

38. While the Commission is not sure of the optimal amount of

spectrum necessary for satellite DARS, its goal is to try to determine

spectrum block sizes and geographic areas that are most closely suited

to provide for efficient provision of the most likely expected use. In

this case, because this is a satellite service, the license areas

should be nationwide and the Commission has evaluated the evidence

about the minimum spectrum block sizes necessary to economically

provide satellite DARS. The Commission begins its analysis of

determining how much spectrum a single satellite DARS provider will

require by considering what the record reveals about how many channels

are necessary to operate an economically viable satellite DARS system.

Because satellite DARS is a new service, there is an inevitable

uncertainty about what precise configuration of channels will best

satisfy consumer demand. The record contains no conclusive evidence

establishing a specific minimum number of channels needed for a viable

DARS system. The Commission will rely on the representations of the

applicants which are based on their own market research. The record

indicates that a range of channels from 19 to 44 is needed for a viable

service.

39. The applicants appear to base their estimated channel

requirements on a cable television model in which operators bundle

large and diverse packages of channels. The conclusion drawn from the

cable television model is that no single channel attracts a large

viewing audience, but subscribers value the service because they watch

a few channels regularly and occasionally enjoy sampling a wider range

of available programming. While the record does not show exactly how

many channels a satellite DARS operator must offer to be economically

viable, the cable television analogy demonstrates that some critical

mass of channels is needed to provide sufficient programming diversity

for consumers with diverse tastes.

40. More direct support for the satellite DARS applicants'

projections can be found by examining digital audio services packaged

with video services and delivered via cable or satellite. Two such

nationwide subscription services are Digital Music Express (DMX),

offered via cable, and the Primestar direct-to-home video satellite

service, a DBS service. Those services each began with roughly 30

channels, but have chosen to increase the number of channels to 60.

According to CD Radio, both are now expanding again to offer up to 120

channels. The Commission presumes that the satellite DARS applicants

would not undertake the risk and expense of implementing satellite

systems if the number of channels they propose were not enough to

provide a viable service.

41. The satellite DARS applicants calculate that 12.5 MHz of

spectrum would be necessary to offer a range of 19 to 44 CD quality

audio channels. They contend that 12.5 MHz of spectrum is necessary to

support a single viable satellite DARS system. Others commenters

disagree. NAB, for instance, proposes that the satellite DARS spectrum

be divided into 5 MHz band segments. DSBC and Primosphere counter that

NAB's proposed spectrum plan would support a viable satellite DARS

system only if at least three or more 5 MHz blocks can be aggregated.

AMRC adds that it would be impossible to deliver enough high quality

channels in 5 MHz of spectrum to attract a viable audience.

42. A band plan introduced by Cracker Barrel in its reply comments

maintains that by using Time Division Multiplexing (TDM) technology, 30

channels of CD quality audio can be accommodated in 8.32 MHz, or 32

channels of CD quality audio could be provided in 8.32 MHz using Code

Division Multiplicity (CDM) technology, and thus six operators

(presumably six economically viable systems) could be

[[Page 11088]]

accommodated in the 50 MHz initially allocated for satellite DARS.

Cracker Barrel also contends that if all satellite DARS providers use

the same error correction rates, then as many as eight satellite DARS

licensees could be accommodated in the 50 MHz (i.e., each with a 6.25

MHz assignment) and each could offer at least 30 channels of CD quality

audio. Cracker Barrel contends that its band plan does not require use

of regional spot beams or a higher order modulation constellation to

gain additional channels per MHz of spectrum. It asserts that by using

\1/3\ rate or \1/2\ rate FEC as opposed to \1/4\ rate as originally

proposed by CD Radio and Primosphere, the bandwidth requirement for a

32 or 30 channel CD quality system could be reduced from 12.5 MHz to

8.32 MHz and 6.25 MHz respectively.

43. Satellite DARS applicants assert that Cracker Barrel's

assumptions used to derive spectrum requirements do not include

techniques to overcome multipath fading present in a mobile environment

and do not adequately address the associated limitations on satellite

power, weight, launcher capacity, international coordination, or system

cost. CD Radio asserts that 12.5 MHz of bandwidth is necessary for its

satellite DARS system to provide 33 channels of CD quality audio using

a spatially diverse architecture, CDM, and \1/2\ rate FEC, which is

capable of operating at power flux-density levels that will make

coordination with adjacent countries feasible. CD Radio indicates that

it has changed to CDM to provide increased resilience to fading and

noise. It concedes that, if it did not employ spatial diversity and

instead used a single satellite, it would be possible to transmit

approximately twice as many channels in a given amount of spectrum.

However, CD Radio maintains that spatial diversity is key to providing

high quality audio in a mobile environment. CD Radio contends that

abandoning the use of spatial diversity would reduce sound quality,

increase fading and blockage, and prove commercially unacceptable to

its consumers. While the company notes that these problems could be

addressed by increasing satellite power significantly, it points out

that any such increase would only add to existing coordination

difficulties with adjacent countries.

44. Primosphere maintains that, in the case of CDM technology, even

though a signal is coded so that it can be selected from the other

signals simultaneously sharing the channel, simultaneous channels can

interfere with each other when orthogonality is lost. This sets an

effective limit on the number of CDM channels that can occupy a given

channel. DSBC asserts that reducing the bandwidth from 12.5 MHz to 10

MHz, or to 8.32 MHz as proposed by Cracker Barrel, while maintaining

channel capacity would require greater received signal power (at least

40% more) since the primary coding for a 10 MHz system is much less

robust in correcting errors than that found in a 12.5 MHz system. An

increase in signal power would increase coordination difficulties with

adjacent countries and add cost to satellite DARS receivers and space

stations.

45. The Commission concludes, based on the current record, that

each DARS licensee will require at least 12.5 MHz to successfully

implement an economically viable satellite DARS system. The Commission

believes that licensing less than 12.5 MHz would be insufficient to

provide a critical mass of channels required for economic viability and

could lead to significant power and cost constraints. The Commission

does not find the contrary assertions by NAB and Cracker Barrel

persuasive. Moreover, the applicants' successful efforts to increase

the spectrum efficiency of their proposals supports their estimate of

12.5 MHz as the minimum amount of spectrum needed. Comparing the

channel and associated spectrum requirements of the applicants'

original proposals with their existing comments, the Commission

calculates that, on average, the applicants have increased the number

of channels they propose to provide by seven, despite an average

decrease in proposed spectrum use of 14 MHz. The applicants' efforts to

improve their spectrum efficiency should not be treated as a detriment.

DARS applicants may participate in the WCS auction to acquire

additional spectrum if they desire it.

46. While the Commission recognizes that further technological

advances may result in even greater increases in spectrum efficiency,

none of the commenters addressing this issue have demonstrated that

they can provide a more spectrum efficient, economically viable, high

quality DARS system in less than 12.5 MHz and using current state-of-

the-art in satellite technology. The above discussion is indicative of

the trade-offs between bandwidth and power that satellite DARS

applicants have weighed in their choice of transmission schemes and

technology. Because each satellite DARS licensee will be limited to a

bandwidth of 12.5 MHz, the trade-offs between increased power and

channel capacity is particularly critical to overall satellite system

design. The Commission will not attempt to impose its judgments in this

regard on the satellite DARS licensees and will allow licensees to use

the technology, channeling plans, modulation schemes, and multiple

entry techniques of their choice within their 12.5 MHz band segment.

47. Based on the recent legislation passed by Congress directing

the Commission to reallocate and auction the 2305-2320 MHz and 2345-

2360 MHz bands, the Commission is licensing only the 2320-2345 MHz

portion of the 2310-2360 satellite DARS band exclusively for satellite

DARS. However, before satellite DARS service can be offered to the

public, the Commission will require satellite DARS licensees to

complete detailed frequency coordination with existing operations in

adjacent countries to prevent the potential for unacceptable

interference. The goal of the coordination process is to reach

agreement with affected users on an operating arrangement which

harmonizes the use of the radio frequency spectrum.

48. In the NPRM, the Commission discussed potential issues that

might arise during coordination of U.S. satellite DARS systems with

existing operations in adjacent countries. Based on that the Commission

knew then about the relatively large number of fixed Canadian

terrestrial stations licensed in the 2310-2320 MHz band and tentatively

concluded that the lowest 10 MHz in the 2310-2360 MHz band would be

difficult to coordinate for satellite DARS. Indeed, one option in the

NPRM proposed to license only spectrum above 2320 MHz for satellite

DARS ``[t]o alleviate the potentially difficult and lengthy

coordination'' posed by the presence of the nearly 200 Canadian

terrestrial stations between 2310 and 2320 MHz. This option would seek

to avoid requiring one satellite DARS licensee to be subject to

coordination with a greater number of fixed terrestrial systems than

other licensees. The Commission requested comment on its tentative

conclusion.

49. In the NPRM the Commission also observed that the upper portion

of the 2310-2360 MHz band would likely present other potential

obstacles to coordination with adjacent countries. For example, it

cited a CD Radio study showing that Canada generally licenses its

Mobile Aeronautical Telemetry (MAT) operations between 2350 and 2360

MHz. Despite the operation of MAT above 2350 MHz, however, certain of

the satellite DARS applicants maintained that the uppermost spectrum in

the DARS band should be assigned to the first licensee that met its

[[Page 11089]]

milestone requirements. Based on this proposal, it appeared to the

Commission that the satellite DARS applicants did not expect sharing

with MAT operations of adjacent countries to be an insurmountable

hurdle. The Commission requested specific comment on whether its

different assessment was correct. Although the question of whether to

reserve the entire S-band (2310-2360 MHz) exclusively for satellite

DARS has been determined by the recent Congressional legislation,

discussed above, the Commission discusses below terrestrial operations

in the S-band that may affect future satellite DARS coordination.

50. The Commission initiated formal negotiations with the Canadian

Administration after release of the NPRM. The Commission used the

information from these recent meetings to re-assess the current

operating environment in the 2310-2360 MHz band. In meetings with

Canada following release of the NPRM, International Bureau staff

learned that the number of fixed terrestrial systems in the lower

portion of the band has not changed significantly since the Commission

accepted satellite DARS applications for filing. However, Canada

informed the Commission's staff that Canadian MAT systems are currently

licensed and operating at frequencies throughout the S-band from

2329.25-2390 MHz. Upon receipt of this new information from Canada, the

Commission forwarded it to the applicants and entered it into the

public record so that the applicants' technical experts and others

could provide comment.

51. The Fixed Service. The applicants recognize that detailed

coordination with foreign systems is unavoidable. Coordination between

satellite DARS and Fixed Service systems (FS) is required because the

power levels at which the applicants propose to operate their systems

to achieve sufficient quality service in a mobile environment are

higher than the thresholds levels which have triggered on-going

bilateral coordination with adjacent countries. Detailed coordination

would therefore be necessary with every FS station that is within the

satellite DARS transmitting antenna gain contour unless the power

levels of the proposed satellite DARS systems is reduced or measures

are taken by the fixed terrestrial service to mitigate unacceptable

interference from satellite DARS (e.g., re-pointing the receive antenna

sufficiently away from the geostationary satellite orbit or upgrading

receiver equipment).

52. According to the international allocation, adjacent countries

are free to license additional fixed and mobile terrestrial systems on

frequencies between 2300-2483.5 MHz. The Commission has confirmed that

Canada, alone, has licensed and will continue to license FS systems

throughout the 2310-2360 MHz band. Currently, approximately 20% of the

total number of systems licensed in Canada are above 2320 MHz.

53. Mobile Aeronautical Telemetry. The threshold power levels

necessary to protect foreign MAT systems are expected to be similar to

the levels which the U.S. has established in the 1435-1525 MHz band (L-

band) to safeguard its MAT systems. The U.S. quantified its need to

protect its MAT systems from interference in the L-band in detailed

studies which it presented to numerous International Telecommunication

Union-Radiocommunication Sector Study Groups. These studies show that

it would not be feasible for a satellite service to share with MAT on a

co-coverage, co-frequency basis. Indeed, the U.S. has taken necessary

steps to relocate its own S-band MAT operations to frequencies above

2360 MHz, recognizing that co-frequency, co-coverage operation of

satellite DARS and MAT is not practical. Many of these U.S. MAT

operations were relocated entirely from S-band to L-band.

54. The Commission now knows that some of the MAT assignments in

Canada are used to control remotely piloted vehicles (RPVs) which

require reception at the aircraft as well as at land based stations. In

addition, some Canadian MAT systems are operating within a hundred

miles of the U.S./Canada border, making them even more susceptible to

interference from U.S. satellite DARS. Although five of the 12 MAT

frequency assignments in Canada lie below 2345 MHz, at least three of

those assignments are repeated on center frequencies above 2345 MHz.

This may indicate that there is some flexibility in the MAT operations

that will help the coordination efforts in the 2320-2345 MHz band.

55. In the NPRM, the Commission solicited comment on three pending

requests for pioneer's preferences filed by CD Radio, DSBC, and

Primosphere. No comments were filed on any of the satellite DARS

pioneer's preference requests. On September 20, 1995, in compliance

with new pioneer's preference rules, CD Radio, DSBC, and Primosphere

each filed a supplement to their respective requests.

56. By letter dated August 30, 1996, the Commission's Office of

Engineering and Technology and the International Bureau requested that

a specially convened panel of four satellite technology experts

(``Panel'') review the three satellite DARS pioneer's preference

requests and recommend to the Commission whether each of the requests

should be granted. In a report dated November 18, 1996, the Panel

unanimously recommended that no pioneer's preference be awarded. The

Panel concluded that none of the applicants had demonstrated a seamless

satellite DARS service and found that no award of a pioneer's

preference could be justified on technical design grounds. On November

19, 1996, the Commission issued a Public Notice, Report No. SPB-67,

Mimeo No. 70798 requesting comments on the Panel report by December 3,

1996.

57. Following the release of the Panel's report, all three

pioneer's preference applicants withdrew their requests. Accordingly,

the Commission does not consider whether to award any pioneer's

preferences for satellite DARS. While the Commission does not need to

discuss the Panel's recommendations and report, the Commission commends

the members of the Panel for their remarkable dedication and hard work

during the several weeks in which they volunteered their expertise.

58. In light of the withdrawal of each request for pioneer's

preference, and having determined that each DARS licensee will require

12.5 MHz, the Commission must now determine whether to reopen the 25

MHz of spectrum that remains allocated primarily for satellite DARS to

new applicants or allow only the existing applicants to resolve their

mutually exclusive applications. Commenters urging reopening the cutoff

for satellite DARS applications contend that it is necessary to ensure

true competition and greater program diversity. Cracker Barrel, for

example, asserts that it would be interested in filing an application

advocating a different transmission technology that it claims will

allow more operators in less spectrum. It states that because the cut-

off was three years ago, the Commission cannot be sure it has the best

proposals before it. It also claims that the satellite DARS proceeding

was ``out of order'' because applications were accepted before service

rules were established. Because of this situation, Cracker Barrel

complains it did not learn of the licensing process until the June 1995

NPRM and thus it missed the 1992 cut-off. Cracker Barrel argues that

the Commission has discretion under the public interest standard to

reopen a cut-off in a given proceeding.

59. Similarly, NAB asserts that technology has changed since the

[[Page 11090]]

Commission opened and closed the application window for DARS. It states

that licensing multiple applicants will bring more program diversity

and more business capabilities to the service. It also argues that any

equities favoring the current applicants do not justify preserving the

cut-off. NAB, like Cracker Barrel, argues that the available spectrum

can support additional operators.

60. Others, particularly the four current applicants, argue that

the cut-off should stand. CD Radio asserts that reopening would be

unlawful, inequitable, and unwise. It argues that cutoffs are reopened

only in extraordinary circumstances that are absent here. CD Radio and

AMRC also stress that reopening would ignore the equities favoring the

current applicants, including the significant time and money invested

to establish satellite DARS. Citizens for a Sound economy, a non-

applicant, added that reopening the cut-off could discourage future

research and development of new services by allowing new applicants a

``free ride'' on the current applicants' investments.

61. Primosphere argues that cut-offs are key to a successful

satellite policy. They bring finality and certainty to satellite

proceedings by limiting the universe of applicants, allowing them to

prepare their cases against a limited set of opponents and expediting

inherently complex and costly development of new services. Similarly,

DSBC argues that reopening the cutoff would contravene decades of

satellite procedure. It states:

Unlike its process in other services, the Commission invites

applicants for new satellite services to submit their applications

prior to the adoption of the technical and operational rules and

often prior to a final decision on the threshold question of whether

proceeding to authorize any one in the service is in the public

interest. The Commission repeatedly has concluded that the technical

complexity and the extraordinary lead time required uniquely in the

satellite services requires this previously unprecedented approach.

The purpose of this approach, DSBC explains, is to guarantee long-

term industry involvement in identifying the best use of spectrum and

most efficient technology, thereby expediting new services. DSBC argues

that satellite companies invest enormous amounts of time and money to

develop new technologies and services, in reliance on the finality and

certainty afforded by cutoffs and licensing rounds. Absent cutoffs,

these parties would lack the incentive to risk the substantial

resources required to develop and offer new satellite services to the

public.

62. The Commission agrees with those commenters that assert that

the Commission has authority to reopen cut-offs and that doing so in

some circumstances has several important advantages, including allowing

for new competitors to emerge. But the Commission concludes that in

this case, compelling policy reasons unique to satellite services

militate against reopening the cut-off for satellite DARS license

applications for the two licenses available.

63. Sound satellite licensing policy and precedent, and the

equities of this particular proceeding support the use of cut-offs in

here. In this satellite proceeding, as in others, applicants require

some measure of certainty to justify the inherently long-term

investment of resources required by complex and lengthy international

allocation and coordination procedures that must be completed prior to

inauguration of service. This unique feature of satellite services,

combined with the need to most expeditiously provide new services to

the public, outweigh any benefits that would accrue from accepting

additional applications. Cut-off procedures provide a greater measure

of certainty. Given these unique factors in licensing satellite

services, the Commission regularly establishes cut-offs, accepts

applications and creates processing groups before service rules are

adopted or even before specific operating frequencies are established.

The Commission then relies heavily on the applicants to help develop

service rules that allow them to share spectrum and expeditiously

develop and deliver their new services to the public. The Commission

relies heavily on applicants to assist the U.S. in international fora

to obtain spectrum allocations and expects them to participate in the

time consuming process of ITU notification and coordination. All of

this activity requires significant expenditure of time and money by the

applicants. Once the Commission adopts rules, it will permit applicants

to amend their proposals to reflect compromises. This process expedites

a complex and inherently risky venture, allowing license applicants to

begin construction of their facilities immediately upon the grant of a

license. The assertion by those opposing cut-offs that the Commission

does not accept applications before adopting service rules in other,

very different types of services, does not justify reopening the cut-

off in this satellite proceeding.

64. Reopening the cut-off in this case will not necessarily advance

DARS technology. There is no reason to assume that applicants will

implement outmoded technology or spend hundreds of millions of dollars

to construct inefficient satellite systems. Furthermore, in any

satellite service rulemaking proceeding, the Commission always gives

pending applicants the opportunity to amend their applications to

conform to the final rules. In reviewing applications for space station

facilities, the Commission requires that proposals reflect ``state-of-

the-art'' technology at the time of license grant. In fact, CD Radio

had amended its application substantially since 1990 and will have the

opportunity to do so again to reflect the adopted rules. Although

Cracker Barrel claims that its proposal could use less spectrum than

that proposed by CD Radio, the Commission concludes, as discussed

previously, that its proposal would not accommodate certain innovations

such as spatial diversity.

65. Since CD Radio filed its original application in 1990, steps to

implement the service have been well publicized. Both the government

and the private sector worked to identify appropriate spectrum for

satellite DARS at WARC-92. Shortly after WARC-92, the Commission

announced its intention to allocate spectrum domestically and to accept

applications for operations in the S-band to be considered in

conjunction with CD Radio's. Since 1992, only one entity, Cracker

Barrel, has indicated interest in filing an application to provide

satellite DARS.

66. Neither Cracker Barrel nor other commenters have presented

compelling arguments to justify reopening the previously established

cut-off for satellite DARS license applications. No commenter

advocating reopening has shown any persuasive reason to depart from the

satellite cut-off policy and precedent.

67. Consistent with the conclusion not to reopen the cut-off in

this proceeding, the Commission notes that existing Commission rules

preclude satellite DARS applicants from effecting a substantial change

in beneficial ownership if they want to maintain their pre-cut-off

status. Section 25.116 of the rules provides that any amended

application substantially changing an applicant's ownership will be

considered a newly filed application and thus would not fall within

cut-off protection unless the applicant requests and is granted an

exemption by the Commission.

68. The Commission proposed in its NPRM to authorize specific

satellite DARS frequency assignments upon grant of satellite DARS

authorizations to begin construction. There were mixed

[[Page 11091]]

reactions to its approach. Primosphere, asserts that the Commission

should initiate international coordination in conjunction with all

licensed satellite DARS systems and should assign specific frequency

blocks following the conclusion of this coordination. DSBC proposes to

permit licensees to select the frequency band it would like to employ

at the time it certifies it has met the first milestone. This is

similar to CD Radio's initial proposal that each licensee notify the

Commission of the specific frequency assignment it is using at the same

time it certifies to the Commission it has met the milestone and

launched its first spacecraft. These alternative methods have one

commonality; the exclusive frequency assignment for each satellite DARS

licensee will not be known before and during the early stages of the

coordination process. Indeed, it was necessary to initiate the

coordination process with the ITU for each current satellite DARS

system as though each system would operate over the entire 2310-2360

MHz band. Until specific frequency assignments are issued, coordination

with adjacent countries for each satellite DARS system is burdensome

for both the Commission and the licensees.

69. As discussed above, there is sufficient spectrum in the S-band

to license only two satellite DARS systems. Dividing the available 25

MHz of spectrum into four equal segments among the four applicants

would result in exclusive frequency assignments of only 6.25 MHz for

each satellite DARS applicant. Because the Commission has found that a

viable and competitive satellite DARS service will require 12.5 MHz, it

can license only two systems. The 2320-2345 MHz band that will remain

allocated for satellite DARS will be divided into two equal 12.5 MHz

segments (2320-2332.5 MHz and 2332.5-2345 MHz). We will award the two

licenses for satellite DARS by using competitive bidding to resolve

mutual exclusivity. Satellite DARS applicants that are winning bidders

will have 30 days following the conclusion of the auction in which to

amend their applications to conform with the satellite DARS service

rules adopted today.

70. Using the calculation methods provided in the comments, the

satellite DARS licensees will be able to provide 19 to 44 channels of

CD quality audio per system in the authorized 12.5 MHz of spectrum.

Sufficient spectrum is available for two spatially diverse systems.

Although the Commission decides not to reopen the processing round for

satellite DARS, the Commission is not by its action today excluding all

other potential DARS providers. Indeed, it may be possible to lease

channels or purchase advertising time from the licensed satellite DARS

providers.

71. CD Radio had proposed that satellite DARS system operators be

permitted temporarily to occupy frequency assignments other than their

own, provided that their transmissions can be reconfigured to return to

and thereafter use only their own frequency assignment upon launch of

the satellite operated by the licensee assigned to the temporary

frequency. DSBC objected to this proposal, arguing that while temporary

use by the first operator(s) might avoid having frequencies lie fallow

for a short time, prescribing temporary use may be disruptive and

contrary to the public interest. It asserted that the temporary

operator could be faced with reducing its services, discontinuing its

service to its customers, or seeking to utilize frequencies that are

rightfully assigned to another licensee once the temporary spectrum is

no longer available for use. Primosphere, supports CD Radio's original

proposal to authorize interim frequency assignments.

72. Upon review of the record, the Commission has decided not to

authorize interim operations. The Commission has concluded that 12.5

MHz is necessary to implement a viable satellite DARS service. Nothing

in the comments indicates that additional spectrum, or an interim

assignment, is necessary to implement a viable system. Conversely, the

Commission finds that an interim assignment could be disruptive and

contrary to public interest because of possible service interruption or

reduction. The Commission therefore adopts its original proposal not to

authorize interim frequency assignments.

73. Although spectrum constraints limit the Commission to licensing

just two satellite DARS systems at this time, its licensing approach

nonetheless provides the opportunity for a competitive DARS service.

The Commission's goal is to create as competitive a market structure as

possible, while permitting each DARS provider to offer sufficient

channels for a viable service. In the NPRM, the Commission pointed out

that ``satellite DARS will face competition from terrestrial radio

services, CD players in automobiles and homes, and audio services

delivered as part of cable and satellite services,'' and asked whether

these delivery media, coupled with fewer than four DARS providers,

could ensure an effectively competitive audio services market.

74. Other audio delivery media are not, of course, perfect

substitutes for satellite DARS. These media and satellite DARS all

differ with respect to the programming menu (terrestrial radio can

provide local programming and satellite DARS cannot), the sound

quality, the cost of equipment, and the presence or absence of a

subscription fee, but they all can provide music. The availability of

these media, terrestrial radio in particular, varies across populated

areas. Given the conclusion that satellite DARS can provide new and

valuable service to the public, and given the overall competitive

environment within which it will operate, the Commission is satisfied

that licensing two satellite DARS providers will serve the public

interest. The Commission agrees with commenters, that there should be

more than one satellite DARS license awarded. Licensing at least two

service providers will help ensure that subscription rates are

competitive as well as provide for a diversity of programming voices.

The two DARS licensees will compete against each other for satellite

DARS customers and will face additional competitive pressure from the

other aural delivery media mentioned above. Accordingly, eligible

auction participants may acquire only one of the two licenses being

auctioned. One license will be for the use of spectrum between 2320 and

2332.5 MHz and the other for 2332.5 though 2345 MHz.

75. Satellite DARS licensees' authority to operate will be

conditioned upon completion of their international coordination

obligations. As discussed above, and as the Commission indicated in the

NPRM, both Canada and Mexico have allocated the 1452-1492 MHz frequency

band (L-band) for DARS. Since U.S. satellite DARS systems will operate

exclusively in the 2320-2345 MHz frequency band (S-band), coordination

between U.S. satellite DARS and Digital Audio Broadcasting systems of

adjacent countries is not necessary. The Commission indicated in the

NPRM that the L-band is used extensively for U.S. Government and

commercial mobile aeronautical telemetry operations. Coordination

between Canadian terrestrial DARS and U.S. mobile aeronautical

telemetry systems at L-band has proven to be challenging.

76. Adjacent countries do, as discussed above, operate terrestrial

fixed point-to-point, fixed point-to-multipoint, and mobile

aeronautical telemetry systems throughout the S-band. U.S. satellite

DARS systems will

[[Page 11092]]

be required to coordinate with these terrestrial systems currently

operating in the 2320-2345 MHz band. Satellite DARS licensees must

submit appropriate Appendix 3 material according to the International

Radio Regulations to formally complete the international coordination

process. This Appendix 3 material will contain the final configurations

of the satellite DARS systems.

77. In the NPRM, the Commission sought comment on whether satellite

DARS licensees should have the flexibility to determine their own

regulatory classification depending on the service they are providing

or whether there are reasons to justify mandating a particular type of

service. The Commission tentatively concluded that there was no reason

to require that satellite DARS providers be licensed as common carriers

or as broadcasters. The Commission raised a related question, pursuant

to a suggestion by the NAB, whether the Commission should require that

all licensees offer subscription service and asked for comment on the

legal, policy and practical implications of such a requirement.

78. Commenters addressing these questions fall into two general

groups. Those supporting implementation of satellite DARS, including

the incumbent applicants, advocate that licensees be permitted to

determine their own regulatory classification in order to tailor

services to meet customer requirements and to respond to market

demands. These commenters also emphasize the extremely high costs of

constructing and launching a satellite system and state that licensees

cannot afford to be restricted to purely subscription service. They

state that they must be allowed to choose their own mix of subscription

and advertising. One commenter suggests that satellite DARS licensees

be limited to national advertising and be prohibited from accepting

local or regional ads. Media Access Project argues that satellite DARS

should be classified as broadcasting because the providers use public

spectrum and thus should be subject to public interest requirements.

79. Commenters opposing satellite DARS argue that the service

should be required to operate on a subscription only basis. NAB, for

example, states that although satellite DARS would not be common

carriage or broadcasting, providers should be required to restrict

their service to subscription offerings in order to lessen the

potential adverse impact on terrestrial broadcasters. NAB recognizes

that DBS operators have been given the option to offer service as a

broadcaster or by subscription but argues that treating satellite DARS

like DBS in this regard is not warranted because the services operate

in different competitive markets, with DBS subject to much more

competition and not able to affect broadcasters as significantly as

DARS.

80. The record supports a conclusion that satellite DARS licensees

should be able to tailor their services to meet customer needs and that

mandating a particular regulatory classification is unwarranted. There

is no compelling evidence in the record that would militate in favor of

requiring a broadcast classification and in fact it appears that the

current applicants favor subscription service. Nor does satellite DARS

appear to be a common carrier service because much of the programming

offered would be subject to the editorial control of the provider. The

services proposed by three of the applicants will be neither broadcast

or common carrier. Flexibility for licensees to meet market demands is

crucial and it may be that the viability of a satellite DARS service

will depend on offering a mix of advertiser supported and subscription

service. The Commission finds that a requirement that satellite DARS be

entirely subscription is unwarranted. Mandating that providers charge

for their services is not in the public interest and raises significant

legal questions if done for the purpose of economic protectionism as

advocated by several commenters.

81. The Commission's NPRM requested comment on a wide variety of

questions regarding the advisability of public interest obligations in

the context of this service. The Commission asked, for example, if all

satellite DARS providers, including those not operating as

broadcasters, should be subject to similar requirements. The Commission

solicited comment on the Commission's authority to impose such

obligations on non-broadcasters. The Commission requested information

on the cost of complying with public interest obligations, and on

whether the costs could be so significant as to hamper implementation

of the service. Finally, the Commission asked about the types of

obligations that apply to terrestrial broadcasters, which offerings

would not be included by service providers in an unregulated

environment, and whether these requirements increased or decreased

profitability.

82. Commenters were divided on whether the Commission should adopt

public interest programming obligations for satellite DARS providers.

In general, pending satellite DARS applicants proposing non-broadcast

service cautioned against imposing obligations. For example, DSBC

states that public interest programming obligations are not necessary

to ensure diverse public oriented programming. It asserts that the

economic and distribution structure of satellite DARS makes it good

business to offer programming that regular broadcasters would not offer

absent incentives. AMRC also expresses concern that many of the

suggested service rules would not result in better service to the

public but instead would make service impossible. Primosphere, the only

applicant clearly proposing to operate as a broadcaster, states the

Commission should strike a balance between ensuring that the public

interest is served and assuring that timely introduction of service is

not impeded. A non-applicant states that the Commission is not in a

position to determine which services should be offered in light of

rapidly changing technology and potential consumer services. Although

arguing against mandatory offerings, many of the current applicants

state that they plan to include public interest programming in their

services.

83. Media Access Project (``MAP'') urges that the Commission

classify satellite DARS as broadcasting to trigger defined statutory

public service obligations. In the absence of such a classification,

MAP argues that broadcasters' obligations are appropriate. NAB states

that imposing public interest obligations on DARS providers will, to

some extent, compensate for the loss in local programming that it

claims will inevitably result from implementing the service. Individual

broadcasters assert that DARS providers will not keep their promises to

provide niche programming but instead will offer mainstream services

that will compete directly with terrestrial offerings.

84. In response to the request for proposals for possible public

service rules, NAB suggested that satellite DARS licensees be held to a

``promises v. performance'' standard, similar to that formerly required

of terrestrial broadcasters. Under this concept, operators would

provide the Commission with a list of programming they propose to offer

and to specifically describe ethnic or niche offerings included. They

would then be subject to a periodic public interest review to determine

if they have made good on their promises and to justify any substantial

variations from their proposals.

85. Bonneville International Corp., a company holding broadcast

licenses, advocates requiring that music

[[Page 11093]]

programmed channels carry news, information, public service

announcements and public service programming. Several commenters urge

that satellite DARS providers be required to comply with Equal

Employment Opportunity requirements. National Public Radio advocates

either a specific reservation of channel capacity for noncommercial or

educational programming or a commitment to provide a minimum amount of

educational cultural, and informational programming to unserved or

underserved areas. The suggestion is supported by the Minority Media

and Telecommunications Council which states that satellite DARS

licensees should be required to set aside channels for noncommercial

public access and for minority entrepreneurial access. One commenter, a

terrestrial radio station operator advocated that satellite DARS meet

certain requirements for each different programming signal offered and

for each different community served. NAB points out that there are

certain types of local public interest programming that a national

service like satellite DARS can neither provide nor replace.

Entertainment Communications advocates a requirement that satellite

DARS licensees serve ``niche'' audiences.

86. As explained above, in allocating spectrum and adopting service

rules for the satellite DARS service, the Commission has relied on the

representations of satellite DARS applicants that they will provide

audio programming to audiences that may be unserved or underserved by

currently available audio programming. Thus, applicants have proposed

new choices in audio programming which may be beneficial for the mobile

public and for unserved and underserved communities, particularly in

rural or remote areas. The Commission also has considered whether it is

appropriate to apply to DARS public interest requirements similar or

analogous to those that govern terrestrial radio broadcasters.

87. With regard to non-programming obligations, the Commission

concludes that satellite DARS licensees must comply with the

Commission's equal employment opportunity requirements. The rationale

behind these requirements is a belief that a licensee can better

fulfill the needs of the community, whether local or national, if it

makes an effort to hire a diverse staff, including minorities and

women. This rationale applies with equal force to satellite DARS. The

Commission notes that no commenters opposed the imposition of EEO

requirements. The Commission has a pending rulemaking proposing

revision to its EEO rules. Licensees in this service will be required

to comply with the current rule and with any changes adopted when the

rulemaking is completed.

88. With regard to programming obligations, the Commission agrees

with some of the commenters that satellite DARS service is likely to

provide a new forum for political debate in this country. To ensure

that there is fair treatment of federal political candidates that may

seek to use this new forum, the Commission believes that satellite DARS

licensees, whether they operate on a broadcast or subscription basis,

should comply with the same substantive political debate provisions as

broadcasters. These provisions are the federal candidate access

provision, Section 312(a)(7), and the equal opportunities provision,

Section 315. As the Supreme Court stated in upholding Section 312(a)(7)

against constitutional attack, these political broadcast provisions

``make a significant contribution to freedom of expression by enhancing

the ability of candidates to present, and the public to receive,

information necessary for the effective operation of the democratic

process.''

89. While the Commission is not adopting additional public interest

programming obligations at this time, it reserves the right to do so.

Licensees are specifically on notice that the Commission may adopt

public interest requirements at a later date. If additional public

interest obligations are found to be warranted, one option would be to

adopt rules similar to those Congress enacted for DBS providers,

including a 4-7% set-aside of capacity for noncommercial educational

and informational programming. Another option would be to hold

satellite DARS licensees to a `promise vs. performance' standard.

90. In the NPRM, the Commission discussed the possibility of

satellite DARS providers offering non-DARS, or ancillary, services. The

Commission sought comment on what restrictions, if any, should apply to

such services and on how to monitor compliance with any restrictions.

In response, commenters favored allowing provision of ancillary

services. Current satellite DARS applicants urged that the Commission

allow flexibility to provide such services. Other commenters stated

that allowing ancillary services will promote full and efficient use of

the spectrum and could lower the price of DARS service, particularly in

the early stages as satellite DARS is established.

91. Some commenters suggested particular services that would be

complementary. For example, Ford Motor Co. suggested allowing data

services. Radio Order Corp. urges the Commission to allow song related

voice messaging that would permit the listener to access information on

a particular song during the uninterrupted music. The USDA/Forest

Service National Weather Program suggests that satellite DARS providers

could dedicate a channel to broadcasting potentially life-saving forest

fire and emergency information.

92. The applicants have proposed a mix of ancillary services. The

Commission agrees with the commenters who argue that allowing

flexibility consistent with the allocation will allow providers to

tailor service offerings to meet consumer needs. Because the United

States successfully obtained an international allocation for satellite

DARS at WARC-92, the Commission would be concerned about any use of the

spectrum that is inconsistent with the international allocation.

93. The NPRM contained no specific proposal for satellite DARS

service area requirements. It did, however, ask whether to require

satellite DARS systems to provide 50-state coverage or 50-state plus

Puerto Rico/Virgin Islands coverage, as the Commission does in the

fixed-satellite service. The Commission noted that two satellite DARS

applications propose service solely to the 48 contiguous states of the

United States (CONUS). Two other applicants propose coverage of the

CONUS, Alaska, Hawaii, Puerto Rico and the Virgin Islands.

94. CD Radio and Primosphere assert that the Commission should not

mandate that first generation satellite DARS systems provide service

beyond the CONUS. Primosphere adds that requiring full 50-state

coverage would require the use of satellite spot beams and additional

spacecraft power. Primosphere also noted that most 12-14 GHz (Ku-band)

and DBS licensees provide CONUS only coverage. CD Radio asserted that

the service area is market-driven and that other applicants propose to

serve Alaska, Hawaii, Puerto Rico, and the Virgin Islands CD Radio

indicates also that its second generation design will include an

expanded service area.

95. One benefit of a satellite system is its ability to provide

nation-wide service. The Commission recognizes that 50-state coverage

is not mandatory for all satellite services and a service area

requirement beyond full CONUS coverage may not be practical for first

generation satellite DARS systems. All of the pending applications for

satellite

[[Page 11094]]

DARS propose at least full CONUS coverage, however, and there appears

to be support for such a minimum requirement. Accordingly, the

Commission concludes that satellite DARS licensees' systems must

provide, at a minimum, full CONUS coverage. The Commission strongly

encourages coverage to other areas or territories of the United States

where practical to do so for first generation systems.

96. A concern identified in the NPRM was that satellite DARS

signals be available to listeners, especially mobile ones, at every

location nationwide. The Commission noted the service link margin is

related to the percentage of service availability. The Commission also

noted that there was significant comment on the pending satellite DARS

applications which questioned the appropriate service link margin

necessary for reception in a mobile environment. The Commission

therefore proposed in the NPRM that satellite DARS applicants be

required to identify the service link margin for their systems and

demonstrate that their systems are capable of providing that service

link margin in a mobile environment, under clear sky conditions, to the

geographic areas they will serve. The Commission also sought comment on

whether a specific value should be used to define an adequate service

link margin for the specified service areas in urban and suburban

environments and, if so, what that value is and analysis to support

that value. Technical analyses were not included in initial comments to

demonstrate that a particular service link margin would be necessary

for mobile reception in urban and suburban environments.

97. Pending applicants assert that satellite DARS operators will

have an incentive to provide sufficient margin to deliver the highest

quality audio and still permit low-cost manufacture of receiver

equipment. Noting also that the amount of service link margin chosen by

satellite operators is affected by a variety of factors, such as use of

modulation and access techniques, satellite diversity, transmission

schemes, intended audience, and use of terrestrial repeaters, it would

be difficult for satellite operators to define one specific value that

should be used. The Commission therefore will not require that

satellite DARS licensees be capable of providing a specific value of

service link margin for a given geographic area and withdraws its

proposal regarding service link margin. The Commission will only

require satellite DARS applicants to provide the information on their

service link budgets that is already required by Section 25.114(c)(9)

of its rules.

98. In general, it is the Commission's policy to avoid mandating

the use of one form of technology. The Commission concludes it is

appropriate to follow that policy here because it will allow

flexibility for satellite DARS licensees in designing their satellite

DARS systems, and will promote innovative system designs. Indeed, in

the NPRM, the Commission proposed to allow licensees to use the

channelling plans, modulation schemes and multiple entry techniques of

their choice. One of the underlying reasons for proposing a band

segment approach to licensing the satellite DARS spectrum was to avoid

imposing complex sharing arrangements among satellite DARS licensees

that may result due to the diversity in the proposed satellite DARS

designs. The diverse modulation and channelling techniques proposed in

the pending satellite DARS applications, however, led it to seek

comment in the NPRM on the issue of receiver inter-operability and

standards for satellite and terrestrial DARS.

99. The Commission indicated its concern that licensing diverse

satellite DARS systems could increase the cost of manufacturing a

receiver that is compatible with all competing satellite DARS

technologies and terrestrial formats. The Commission therefore proposed

that each applicant demonstrate that its satellite DARS system is

capable of remotely tuning its individual mobile, fixed, and/or

portable receivers across the allocated bandwidth 2310-2360 MHz. This

rule would have been necessary if the Commission were to license more

than one band segment to a particular satellite DARS licensee, (whether

as an interim assignment or in the event that a license is dismissed

and the spectrum is re-divided pro-rata) but in view of its conclusion

to license only two satellite DARS systems through competitive bidding,

and not to permit interim frequency assignments, such a provision is no

longer required. The Commission adopts, however, the principle behind

the proposed rule that satellite DARS licensees are required to design

a receiver which would accommodate all satellite DARS providers. By

promoting receiver inter-operability for satellite DARS, the Commission

is encouraging consumer investment in satellite DARS equipment and

creating the economies of scale necessary to make satellite DARS

receiving equipment affordable. This rule also will promote competition

by reducing transaction costs and enhancing consumers' ability to

switch between competing DARS providers. The Commission declines to

adopt a specific standard for satellite DARS receiver designs, though.

This will allow licensees the flexibility to determine the most cost

effective way to meet the receiver-interoperability requirements. The

Commission does not mandate that satellite DARS receivers be capable of

receiving terrestrial broadcasting formats. Terrestrial and satellite

DARS are at different developmental stages and the Commission does not

want to impede implementation of either service.

100. Parties contend that Commission adoption of a single,

industry-developed transmission standard for satellite DARS will keep

receiver costs down, minimize design complexity, and encourage

competition in the marketing of receivers. The Electronic Industry

Association (EIA) maintains further that satellite DARS receivers

should be designed so that consumers can seamlessly switch between

satellite and terrestrial based DARS systems.

101. Satellite DARS applicants share different views regarding the

Commission's role in the process of receiver development. CD Radio

asserts that receiver inter-operability is in the clear economic

interests of all satellite DARS providers and it expects that its

receiver will be fully tunable in the sense that the consumer can

select the service provider of their choice. AMRC contends that

creation of a common receiver capable of tuning in the entire DARS band

is important in promoting consumer acceptance of the technology. Given

the market incentive for receiver compatibility, DSBC asserts that it

is likely that a compatible receiver standard for satellite DARS will

be developed without regulatory intervention. Primosphere adds that it

is committed to working with the appropriate industry organizations to

develop a common receiver standard and therefore Commission action is

not necessary. In a related matter, CD Radio seeks confirmation from

the Commission that consumers may rely on the authorization of a

satellite DARS provider and need not obtain any additional license or

registration for receive-only earth stations used to obtain the

service.

102. As an alternative to this Commission mandating standards the

Commission will require that a satellite DARS applicant, in its

application, certify that its satellite DARS system will include a

receiver design that will permit users to access all licensed DARS

systems that are operational or under construction. Satellite DARS

licensees, during the construction of their satellite systems, will

have an opportunity to

[[Page 11095]]

work among themselves toward a final receiver design. The Commission

agrees with commenters that it is in the interest of the satellite DARS

licensees, and consumers, for the licensees to come to agreement on a

single DARS receiver design. The Commission also agrees with commenters

that, alternatively, a single transmission standard would be in the

interest of the satellite DARS providers and consumers, independent of

whether it is developed by the Commission or by industry, but it will

not mandate use of a certain technology. If satellite DARS licensees

redesign their systems to use conforming transmission technology,

receiver complexity would be minimized and receiver costs would be

lowered correspondingly. The Commission believes that, at the very

least, consumers should be able to access the services from all

licensed satellite DARS systems and the rule on receiver inter-

operability accomplishes this. The Commission also agrees with CD Radio

that it is unnecessary for satellite DARS consumers to file for a

license for their receive-only terminals. Indeed, the Commission has

not licensed receive-only earth stations for years in an effort to

deregulate such operations.

103. Terrestrial broadcast and satellite DARS services are at

different stages of development, however, and the Commission does not

intend to add delay to the progress of the satellite service with

further regulatory intervention by requiring that receivers be tunable

to terrestrial broadcast signals. Testing and evaluation of proposed

digital audio radio technologies has been on-going since 1991. The

Commission urges satellite DARS licensees to take this information into

account before they finalize their system and receiver designs. The

comments indicate that satellite DARS licensees will continue to

participate in the industry groups related to their service and the

Commission has good reason to believe that this is sufficient to

facilitate the design of a state-of-the-art satellite DARS receiver.

104. The applicants propose various coding rates to produce near

compact disc (CD) quality audio. Some applicants propose to use

variable data rates to transmit a mix of audio formats where the

bandwidth necessary to produce one CD quality channel, for example,

would be used to provide several high quality channels at data rates

which are lower than those necessary to produce CD quality. The

Commission tentatively concluded that the use of variable data rates

would promote efficient use of the spectrum and that satellite DARS

licensees should be permitted to implement a mix of programming formats

at variable data rates. The Commission reflected this in its proposal

to require satellite DARS licensees to identify which coding scheme and

coding rate(s) they plan to implement on their satellite DARS systems

and require those satellite DARS systems which intend to offer audio

formats other than CD quality to be capable of transmitting lower

quality audio at lower data rates. The Commission proposed to refrain

from requiring a particular level of audio quality or other quality for

satellite DARS and sought comment on its tentative conclusions. The

Commission adopts, today, a rule that is consistent with its proposal

for variable data rates.

105. Comments generally support the Commission proposal to allow

use of variable data rates depending on the programming being offered

and not to define a particular level of quality for DARS based on data

rates. CD Radio asserts that satellite DARS licensees should be

permitted to rely on market preferences to determine the data rates to

use for particular formats and to determine the quality of the service.

AMRC agrees with the Commission proposal because it intends to include

some non-CD quality channels in its system. In this respect, CD Radio

proposed a modification to the original proposal that would require a

satellite DARS applicant to identify the compression rate it will use

to transmit audio programming whether CD or other quality. The

Commission adopts this proposal and extend it to require licensees to

identify the compression rates used for non-audio formats.

106. In the NPRM, the Commission proposed to adopt financial

qualifications and milestone requirements for satellite DARS licensees.

Because of the decision to auction licenses, financial qualifications

are unnecessary. However, the Commission believes that strict adherence

to satellite construction and operational milestones will assure that

licensees are proceeding with their proposals and spectrum is used

efficiently. Because of the long lead time necessary for satellite

construction, the Commission proposed that satellite DARS licensees

begin construction of their space stations within one year, launch and

begin operating their first satellite within four years, and begin

operating their entire system within six years. The Commission also

proposed that licensees file annual reports on the status of their

systems. The current applicants support the rules proposed in the NPRM.

Accordingly, the Commission adopts the requirements as proposed.

107. In the NPRM, the Commission proposed that licenses for

satellite DARS space segment facilities would be issued for ten years.

The Commission also noted that licensees choosing to operate as

broadcasters would be limited by statute to a shorter term. Adoption of

the original proposal would place DARS licensees that choose to be

broadcasters at a disadvantage by giving them a shorter term. In

addition, two different terms could cause confusion if an operator

decided to change the mix of services it offered and might hamper the

flexibility the Commission intended that licensees should have in

choosing formats. Accordingly, because the Communications Act limits

broadcast license terms to eight years, the Commission has determined

that all satellite DARS license terms should be eight years. The

license term will commence when each satellite is launched and put into

operation. In addition, as proposed in the NPRM, individual satellite

DARS receivers will not be licensed.

108. As one of the pending satellite DARS applicants indicates,

satellite systems are a collection of technical trade-offs between

satellite power, number of channels, data rates, service link margin

and bandwidth. Therefore, the greater the flexibility in the

Commission's technical rules, the greater the flexibility satellite

DARS licensees will have in designing their systems in such a way as to

meet their business plans and marketing goals. The technical rules

adopted today will offer satellite DARS licensees sufficient

flexibility to make necessary trade-offs and to implement systems that

are viable and competitive.

109. The Commission proposed in the NPRM not to apply power flux-

density (pfd) limits on satellite DARS networks and it believes the

record supports its tentative decision. While initially CD Radio

maintained that coordination of satellite DARS systems with adjacent

countries would be facilitated if all systems were required to meet a

pfd level at the Earth's surface of -139 dB(W/m2/4 kHz), CD Radio

now contends that it is not necessary for the Commission to re-open the

issue of required pfd limits since it will be part of the coordination

process. Others agree. DSBC, for instance, maintains that experience

has shown that the flexibility in the international coordination

process is far superior to the rigidity of pfd limits. Accordingly,

Satellite DARS licenses will be conditioned on the completion of

[[Page 11096]]

international coordination with adjacent countries.

110. It is clear that each satellite DARS licensee will need to

operate its satellite(s) at a pfd level that is high enough to provide

sufficient service availability and yet low enough to coordinate with

terrestrial services in adjacent countries. Coordination with adjacent

countries becomes an important issue because the pfd values

characteristic of proposed satellite DARS systems exceed the threshold

levels that have been identified by foreign administrations to protect

their existing terrestrial services. The discussion of coordination,

above, provides satellite DARS applicants with a detailed understanding

of the coordination issues in the 2320-2345 MHz band. The applicants

are in a better position than the Commission to make necessary power

trade-offs to implement their satellite DARS systems. Moreover, since

the Commission is licensing satellite DARS providers in two separate

frequency assignments, the failure of one licensee to complete

coordination with adjacent countries in a timely fashion will not delay

the coordination of the other licensee's system. In light of the above,

adoption of a specific pfd limit is unnecessary. Satellite DARS

applicants are reminded, however, that they are required to identify in

their modified satellite DARS system applications the pfd at the

Earth's surface from their spacecraft according to Section

25.114(c)(11) of the Commission's rules.

111. Satellite licensees are required to suppress out-of-band and

spurious emissions from their space stations to the levels specified in

Section 25.202(f) of the Commission's Rules. The Commission indicated

in the NPRM that techniques such as spectral shaping, coding, offset

quadraphase modulation and filtering, would be useful in mitigating

out-of-band emissions. The Commission sought comment, however, on

whether the out-of-band emission limits in Section 25.202(f) would be

sufficient to protect radiocommunication services in bands adjacent to

the 2310-2360 MHz band, particularly deep space operations below 2310

MHz and U.S. MAT operations above 2360 MHz.

112. Cornell University asserts in its comments that the Arecibo

Observatory in Puerto Rico, which it operates for the National Science

Foundation in the 2370-2390 MHz band, would require greater protection

from satellite DARS than that which is currently required by Section

25.202(f). Specifically, Cornell requests that, as a minimum, the

Commission require the out-of-band emission limits of Section

25.202(f)(3) for satellite DARS emissions beyond the 2370 MHz band

edge. It requests that a rule for spurious emissions, consistent with

those being considered by ITU-R Task Group 1/3 be applied to satellite

DARS as well. This would require an additional 9 dB of attenuation

below the out-of-band emission limits required by Section 25.202(f).

113. Cornell's calculations assume that a satellite DARS licensee

will be authorized to operate at a center frequency of 2355 MHz with a

bandwidth of 8 MHz. Considering that satellite DARS systems will be

licensed below 2345 MHz, and that the Commission is not requiring the

provision of satellite DARS to Puerto Rico and the Virgin Islands,

which offers further protection to the Arecibo Observatory, attenuation

of out-of-band emissions beyond the limits already required by Section

25.202(f) may not be necessary. It would be premature for the

Commission to require satellite DARS licensees to meet the spurious

emission limits which are currently in place as ``design guidelines''

and which may be reviewed again by ITU-R Study Groups. The TG 1/3

Recommendation that Cornell cites in its comments is a draft

Recommendation and the issue of spurious emissions will not be

finalized until the 1999 international Radiocommunication Assembly.

114. The Commission therefore will only require satellite DARS

licensees to meet out-of-band and spurious emission limits which are

contained in Section 25.202(f) of the Commission's Rules. Satellite

DARS licensees should, however, take cognizance of the TG 1/3 ``design

guidelines'' and the Arecibo deep space operations in the 2370-2390 MHz

when designing, constructing and operating their space stations. In a

related matter, the pending satellite DARS applicants assert that they

can each operate without causing harmful interference to one another.

Since the pending satellite DARS applicants propose a band segment

licensing approach, the Commission presumes that the out-of-band

emission limits of Section 25.202(f) would provide for interference-

free, intra-service satellite DARS operation. The issue of out-of-band

emission limits to protect satellite DARS receivers is addressed in the

Wireless Communication Services proceeding.

115. The Commission sought comment in the NPRM on a suitable

location for satellite DARS telemetry beacons. The Commission proposed

in the NPRM that each system operator reduce its bandwidth occupancy by

0.1 MHz to create two 0.2 MHz assignments adjacent to the edges of the

satellite DARS band for location of telemetry beacons. The Commission

also proposed an alternative location for all satellite DARS telemetry

beacons at the lower edge of the 2310-2360 MHz band, considering the

tentative conclusion not to immediately license the lower 10 MHz for

satellite DARS. The alternative proposal would put fewer constraints on

the satellite DARS licensees (i.e., they would no longer have to reduce

their bandwidth occupancy to accommodate telemetry beacons), but the

Commission indicated that further constraints would be placed on any

future licensee of the lower portion of the band. The Commission

requested comment on its proposals for satellite DARS telemetry beacons

and it requested comment on alternative locations.

116. In its comments, DSBC suggests that, alternatively, the 3697-

3699 MHz band would be suitable for satellite DARS telemetry beacons.

It contends that the 3697-3699 MHz band could readily be coordinated

for satellite DARS telemetry beacons thereby retaining the total DARS

band for service links. CD Radio, in its comments, proposes a

modification to the satellite DARS telemetry beacon proposal in the

NPRM. According to CD Radio's proposal, satellite DARS licensees may

reduce their assigned bandwidth occupancy to provide telemetry beacons.

No other alternatives were identified for the location of satellite

DARS telemetry beacons.

117. The Commission adopts its original proposal to locate

telemetry beacons for satellite DARS in the satellite DARS band, with

minor modification. No parties supported the proposal made by DSBC.

Further, DSBC provided no supporting information in its comments to

assess the impact of satellite DARS telemetry beacons in the 3697-3699

MHz band on the Radiolocation and Aeronautical Radionavigation users of

the band. DSBC indicates that Intelsat and Inmarsat and numerous other

non-U.S. satellite systems make use of all or large portions of this

band. These satellite systems, however, are not located in the

geostationary orbit between 80 deg. and 110'' W.L., where the satellite

DARS applicants propose to locate their satellites. CD Radio, on the

other hand, supports the operation of satellite DARS telemetry beacons

within the satellite DARS service link spectrum. CD Radio's proposal is

more flexible than the proposal in the NPRM because it does not mandate

an amount of spectrum by which each satellite DARS licensee must reduce

its bandwidth to accommodate telemetry beacons (i.e.,

[[Page 11097]]

0.1 MHz). The Commission therefore modifies its original proposal to

require satellite DARS licensees to accommodate telemetry beacons for

their systems within their exclusively licensed bandwidth but allow

each licensee the flexibility to determine the appropriate amount of

spectrum necessary for its telemetry beacons.

118. Cross polarized signals are orthogonal signals as seen by the

receiver. This technique is used extensively in the fixed-satellite

service because it facilitates reuse of frequencies to accommodate

multiple signals, thereby promoting efficient use of the spectrum. In

the NPRM the Commission indicated that the record was insufficient for

it to analyze the benefits of potential capacity increases, if any,

that may result from use of cross-polarized transmissions for satellite

DARS. The Commission proposed, however, that satellite DARS licensees

be permitted to reach agreement with other satellite DARS licensees to

transmit on cross-polarized frequencies in frequency assignments of

other licensees. The parties who reach such agreements would be

required to apply to the Commission for approval of the agreement.

Commission approval would be conditioned on the outcome of coordination

with other administrations.

119. The satellite DARS applicants generally support this proposal.

CD Radio asserts that a licensee should at least be permitted to

transmit cross-polarized signals within its own frequency assignment.

AMRC contends that the use of cross polarization techniques is still

untested in the S-band and the availability of such techniques for DARS

licensees should not be assumed. However, to the extent that cross

polarization techniques become feasible, the Commission should allow

its use to expand program offerings. The Commission believes that its

proposed rule for cross polarization leaves open the possibility for

satellite DARS operators to use this technique, when proven feasible,

to meet future market demands for their service. The Commission

received no comment in opposition to its proposal for use of cross-

polarized frequencies and it adopts its original proposal, without

modification.

120. In the NPRM the Commission indicated that modification to Part

87 of its rules (Aviation Services) would be consequential to the

licensing of satellite DARS systems in the 2310-2360 MHz band. The

Commission recognized that the mobile and radiolocation services are

currently allocated on a primary basis in the 2310-2360 MHz band until

January 1, 1997 or until the first broadcasting-satellite (sound)

system is operating and affecting or be affected by the mobile and

radiolocation services in those service areas, whichever date is later.

Further, its Allocation Order warned that the BSS(sound) and

complementary terrestrial broadcasting service, during their

implementation, should take cognizance of the expendable and reusable

launch vehicle frequencies 2312.5, 2332.5 and 2352.5 MHz to minimize

the impact on this mobile service use to the extent possible.

121. The Commission proposed modification of Section 87.303, in

Appendix II of the NPRM, to align Part 87 with Parts 2 and 25 of its

Rules. The Commission recommended authorization of new primary

assignments for mobile telemetry and telecommand operations, pursuant

to Section 87.303, above 2360 MHz. The NPRM indicated that there was

support from the aeronautical community to reaccommodate existing

aeronautical telemetry users of the 2310-2390 MHz band to the 2360-2390

MHz band. The Commission proposed modification to Section 87.303 to

assign telemetry and associated telecommand operations in fully

operational or expendable and re-usable launch vehicles above 2360 MHz.

Moreover, the Commission suggested that any other telemetry use of the

band 2310-2390 MHz would be secondary to launch vehicle use.

122. As discussed, supra, co-frequency, co-coverage operation of

satellite DARS and MAT is not possible and it would not be practical to

license MAT systems in the satellite DARS band on a co-primary basis.

There was no opposition to the proposal to modify Section 87.303. Only

DSBC and AFTRCC commented with modifications to the proposal to clarify

the status of telemetry use of the 2310-2390 MHz band. Consistent with

its original proposal, footnote US328 to Part 2 of the Rules, and the

developments in the remainder of the 2310-2360 MHz band, the Commission

modifies Section 87.303 as it pertains to the 2320-2345 MHz band. The

Commission therefore adopts the modified Section 87.303 contained

below.

123. In addition to satellite DARS space stations providing service

downlinks in the 2320-2345 MHz band, feeder link earth stations for

each satellite DARS system will be required to uplink programming

information to the space station(s). The Commission recognized in the

NPRM that feeder link networks are essential to deliver service to the

end user and that ample contiguous spectrum is necessary to implement a

viable satellite DARS system. The Commission also recognized that

satellite DARS feeder link earth stations will be few in number (i.e.

one, or possibly two for redundancy, per licensee) and will operate at

fixed locations. Therefore, the Commission will authorize satellite

DARS feeder link networks in fixed-satellite service (FSS) frequency

allocations.

124. The Commission indicated, however, that it would not authorize

satellite DARS feeder link networks in the conventional FSS 4/6 GHz (C-

band) and 12/14 GHz (Ku-band) frequency bands which are already

congested with U.S. fixed-satellite service networks. The Commission

tentatively concluded that this would not be an efficient use of the

FSS spectrum or the geostationary orbit. Additionally, the Commission

recognized in the NPRM that the pending satellite DARS applicants

propose feeder link operations in FSS bands other than the conventional

4/6 and 12/14 GHz bands. This is consistent with its tentative

conclusion. Moreover, the Commission understands that feeder link

requirements for each satellite DARS system may increase or decrease

depending on the amount of satellite DARS service link spectrum that is

exclusively licensed to each applicant, and on the final configuration

of the satellite DARS systems. For these reasons the Commission sought

comment on possible alternative non-congested FSS frequency bands that

would be suitable for satellite DARS feeder link operations in the

event that the frequency bands originally proposed by the applicants

are not available.

125. Licensing service link spectrum in the 2320-2345 MHz band

without designating spectrum for feeder link networks would result in

the Commission licensing an incomplete satellite DARS system. The

satellite DARS systems cannot operate without sufficient feeder link

spectrum. The Commission therefore will permit satellite DARS feeder

link networks in the FSS frequency bands 7025-7075 MHz and 6725-7025

MHz (101 deg. W.L. orbital location only), consistent with the

requirements identified in the current applications. The Commission

will license satellite DARS feeder link Earth stations according to

existing regulations for FSS Earth stations.

126. According to the proposals in the pending applications, the

feeder link spectrum requirements for three of the four applicants can

be accommodated in the 7025-7075 MHz band. Since satellite DARS systems

will be operating space stations in the geostationary orbit,

[[Page 11098]]

this 50 MHz of spectrum can be reused by satellite DARS licensees in

the uplink direction, given sufficient orbital separation between the

space stations. The Commission believes that an orbital separation of

at least two degrees between satellite DARS space stations is

obtainable. Primosphere and CD Radio propose in their applications to

use the 7025-7075 MHz band. Though AMRC proposes to use the 6530-6545

MHz band for its feeder links, it proposed no alternative bands. The

Commission believes that AMRC's feeder link spectrum requirements, too,

can be accommodated in the 7025-7075 MHz band.

127. The fourth applicant, DSBC, proposes in its application to use

the 6500-6855 MHz band for its feeder links. DSBC has a greater

spectrum requirement than the other applicants because it proposes a

system which uses multiple spot beams. Spot beams allow for greater

frequency reuse of the service link spectrum but the amount of feeder

link spectrum required is proportionately greater. The Commission notes

also that DSBC has requested the 101 deg. W.L. orbital position which

is allocated to the U.S. in accordance with the international FSS

allotment plan. The spectrum in the 6725-7025 MHz allotment band is

contiguous with the 7025-7075 MHz band. By combining the 300 MHz of

spectrum from the allotment plan with the 50 MHz between 7025-7075 MHz,

350 MHz of spectrum could be available to implement a satellite DARS

system at 101 deg. W.L. which uses a multiple spot beam configuration.

Moreover, this proposal would be a more efficient use of the FSS

allotment plan by using it to its fullest.

128. The 6725-7025 MHz allotment and 7025-7075 MHz bands are

currently lightly used in the U.S. by the fixed-satellite service, in

contrast to the conventional 4/6 GHz and 12/14 GHz bands. Indeed, the

WRC-95 designated these frequency bands for NGSO MSS feeder link use

because, globally, they are currently lightly used by the FSS. Though

NGSO MSS feeder link networks are planned to operate in these frequency

bands and these bands are used in the U.S. for broadcast auxiliary and

Electronic News Gathering (ENG), the Commission believes, for the

reasons stated herein, that satellite DARS feeder links can share the

6725-7025 MHz allotment and 7025-7075 MHz bands with existing and

planned co-primary users.

129. Regarding the sharing situation in the U.S. with broadcast

auxiliary and ENG use of the bands, the Commission identified in the

NPRM the sharing issues that satellite DARS operators would have to

address. Initially, commenters maintained that bands allocated for

broadcast auxiliary are heavily used for ENG, inter-city relays and

studio-to-transmitter links, and that use of the 7 GHz band for

satellite DARS feeder link operations would not be feasible. Joint

Comments from broadcasters assert, however, that satellite DARS feeder

links could share the 7 GHz band with broadcast operations under

certain conditions. The National Association of Broadcasters (NAB)

maintains that satellite DARS feeder link use of the 7 GHz band would

be possible only in small markets, noting that ENG may move from the 2

GHz band to the 7 GHz band thereby crowding the 7 GHz band. CD Radio

contends that, even in light of the mobile nature of ENG operations in

the 7 GHz band, a carefully engineered and coordinated satellite DARS

uplink may well be able to co-exist with these broadcast facilities.

130. Most of the conditions for sharing the 7 GHz band identified

by the broadcasters in their Joint Comments are typically negotiated

during the domestic licensing process between satellite licensees and

broadcasters. The results of this domestic coordination would be

reflected in the satellite DARS earth station application to

demonstrate that Earth station operations would not affect other co-

primary users of the band. Satellite DARS feeder link networks will be

authorized as a fixed-satellite service in the 6725-7025 MHz allotment

and 7025-7075 MHz bands on a co-primary basis, but Earth station

operations are expected to be coordinated with pre-existing users of

the spectrum before they will be licensed to operate. The Commission

will authorize satellite DARS feeder link Earth stations only after the

applicant demonstrates that coordination with potentially affected

users in the band, including co-primary broadcast users, has been

successfully completed.

131. Certain of the conditions proposed by the broadcasters would

not be imposed on satellite DARS operators after the earth station

licensing process is completed. For instance, satellite DARS feeder

links would not be required to accept interference received from

existing and planned TV broadcast auxiliary stations once the earth

stations are licensed. Moreover it would be premature for the

Commission to identify and adopt ``keep out zones'' for satellite DARS

earth stations, for example in areas near major sporting arenas and

around existing 7 GHz television broadcast auxiliary receive sites, as

proposed by broadcasters in their comments. This detailed frequency

coordination exercise will be conducted between the satellite DARS

licensees and broadcasters during the domestic licensing process and in

parallel with the construction and deployment of the satellite DARS

systems. Nevertheless, the fact that the Joint Commenters identified

conditions that would facilitate sharing in the 7 GHz band is an

indication that a workable solution can be realized for satellite DARS

feeder link networks to operate in the bands shared with broadcast

facilities.

132. The Commission also identified the sharing issues regarding

satellite DARS feeder links and planned feeder link networks for NGSO

MSS systems in the NPRM. NGSO MSS feeder link networks will be

transmitting in the downlink direction in the 7 GHz band while

satellite DARS feeder links will be transmitting in the uplink

direction in the same band (i.e., NGSO MSS feeder links will be

operating ``reverse band''). Coordination between the transmitting

satellite DARS earth stations and receiving NGSO MSS feeder link earth

stations, and between receiving DARS space stations and transmitting

NGSO MSS space stations is therefore required. Primosphere asserts that

because satellite DARS feeder link earth stations do not have

significant geographic limitations on where they can be located, it is

not expected that coordinated use of the 7 GHz band with NGSO MSS

feeder link earth stations will be difficult. DSBC adds that there are

no apparent problems with satellite DARS feeder link band proposals

even in light of WRC-95 proposals for NGSO MSS feeder links.

133. Loral Qualcomm Partnership (LQP) asserts that any satellite

DARS feeder link assignment in the 7 GHz band should be required to

operate within the sharing criteria adopted at WRC-95 for sharing

between GSO FSS and NGSO MSS feeder link networks. The Commission

expects satellite DARS feeder link networks, and NGSO MSS feeder link

networks, to operate according to WRC-95 decisions. The Commission

believes that, based on WRC-95 decisions, geostationary satellite DARS

feeder links and NGSO MSS feeder links can co-exist in the 7 GHz band.

There will be relatively few feeder link earth stations for both

services and sufficient distance can be maintained between the

transmitting feeder link earth stations for satellite DARS and the

receiving earth stations of NGSO MSS feeder links networks.

Additionally, according to WRC-95 decisions, transmitting NGSO MSS

feeder link space stations must meet power flux density limits at the

[[Page 11099]]

geostationary orbit to protect receiving space stations in the 7 GHz

band. The domestic coordination process, in accordance with Section

25.130 of the Rules, will facilitate feeder link Earth station

licensing of both satellite DARS and NGSO MSS systems.

134. Two 12.5 MHz DARS licenses will be granted for use of the

spectrum at 2320-2332.5 MHz, and 2332.5-2345 MHz, respectively. As

discussed above, since the Commission is not opening the filing cut-

off, the four applicants are the only eligible parties for these

licenses. Accordingly, as all four applicants' proposals cannot be

accommodated, it adopts rules to assign the licenses to two of these

applicants through use of competitive bidding.

135. The Commission has authority under Section 309(j) of the

Communications Act of 1934, as amended (``Communications Act''), to

employ auctions to choose among mutually exclusive applications for

initial licenses where the principal use of the spectrum is likely to

involve the licensee receiving compensation from subscribers.

Specifically, the Communications Act permits auctions where: (1)

mutually exclusive applications for initial license or construction

permits are accepted for filing by the Commission; (2) the principal

use of the spectrum will involve, or is reasonably likely to involve,

the receipt by the licensee of compensation from subscribers in return

for enabling those subscribers to receive or transmit communication

signals utilizing the licensed frequencies; and (3) the public interest

objectives of Section 309(j) would be served by subjecting mutually

exclusive applications in the service to competitive bidding.

136. In the NPRM, the Commission recognized that mutual exclusivity

could arise if it decided not to make the entire 50 MHz of allocated

spectrum available for satellite DARS licensing. The Commission also

tentatively concluded that the principal use of the spectrum will be to

provide subscription-based services. The Commission further concluded

that using competitive bidding to assign DARS licenses would fulfill

the public interest obligations mandated by statute.

137. Some commenters contend that the Commission is not authorized

to auction DARS licenses because they believe the applications on file

are not mutually exclusive. The pending applicants argue that the

Commission has a statutory obligation to avoid mutual exclusivity,

citing Section 309(j)(6)(E) of the Communications Act. CD Radio and

American Mobile Radio Corporation (AMRC) also allege that the use of

auctions to resolve applications filed before the Commission was

granted competitive bidding authority is not warranted.

138. Based upon a review of the record in this proceeding, the

Commission disagree with these commenters. As the Commission stated in

the NPRM, with respect to the ``principal use'' requirement of Section

309(j), auctions are authorized if at least a majority of the use of

the spectrum is likely to be for subscription-based services. In making

this determination, the Commission looks to classes of licenses and

permits rather than individual licenses. Given that three of the four

current applicants propose to provide subscription-based service, the

Commission concludes that the principal use of the satellite DARS

spectrum is likely to involve the licensee receiving compensation from

subscribers. The Commission notes, however, that its ``principal use''

determination does not in any way preclude satellite DARS licensees

from providing any amount of non-subscription service, and they are not

precluded from recovering auction costs, as well as the costs of

construction, launch, and operation from sources other than

subscribers, such as advertising.

139. The Commission also expects that the amended applications to

be filed for the satellite DARS licenses will raise mutual exclusivity.

While eligibility for this license is limited to the four existing

applicants, the Commission expects that each of these applicants will

file amended applications to participate in the auction for the two

licenses in view of their continued interest, as expressed in this

proceeding, in providing satellite DARS. In the event the Commission

receives only one acceptable amended application for each of the

licenses, the Wireless Telecommunications Bureau will issue a public

notice cancelling the auction and establishing a date for the filing of

an amended long-form application that complies with the service and

technical rules adopted herein.

140. The Commission turns now to the issue of whether using

competitive bidding to assign the satellite DARS licenses will promote

the public interest objectives set forth in Section 309(j)(3) of the

Communications Act. These objectives are:

(A) The development and rapid deployment of new technologies,

products, and services for the benefit of the public, including those

residing in rural areas, without administrative or judicial delays;

(B) Promoting economic opportunity and competition and ensuring

that new and innovative technologies are readily accessible to the

American people by avoiding excessive concentration of licenses and by

disseminating licenses among a wide variety of applicants, including

small businesses, rural telephone companies, and businesses owned by

members of minority groups and women;

(C) Recovery for the public of a portion of the value of the public

spectrum made available for commercial use and avoidance of unjust

enrichment through the methods employed to award uses of that resource;

and

(D) Efficient and intensive use of the electromagnetic spectrum.

The Commission concludes that using competitive bidding procedures

to award the DARS licenses will further these objectives. Using

competitive bidding for satellite DARS, a new national satellite

service, does not present the same complexities and difficulties

inherent in any consideration of using auctions for transnational

systems. The complex and difficult issues involved in using competitive

bidding to award licenses for global systems are described in the

Commission's recent Little LEO NPRM 61 FR 69062 (December 31,1996).

Satellite DARS is a domestic service. In fact, other countries will use

different frequency bands for satellite DARS service. This unique

situation offers the Commission the opportunity to provide the public

with the advantages of competitive bidding without the significant

disadvantages involved in using auctions to license transnational

services.

141. In general, paying for spectrum provides incentives for the

licensee to construct quickly in order to obtain a return on its

investment. The Commission therefore concludes that, in this particular

set of circumstances, an auction for the satellite DARS licenses is

likely to promote the rapid deployment of service because the party

that is in the best position to deploy satellite DARS technologies and

services is also likely to be the highest bidder. The Commission

further believes that adopting competitive bidding procedures to award

satellite DARS licenses is the most efficient mechanism for ensuring

that satellite DARS is offered to the public in the most expeditious

manner possible. Use of competitive bidding, as compared to other

licensing methods, will speed the development and deployment of

satellite DARS service to the public with

[[Page 11100]]

minimal administrative or judicial delays, and encourage efficient use

of the spectrum as required by Section 309(j)(3)(A) and (D) of the

Communications Act. Based on its experience with DBS, for example, the

Commission believes that the satellite DARS auction could be concluded

in a matter of days and it could move forward expeditiously with

licensing. Additionally, competitive bidding will recover a portion of

the value of the spectrum, as envisioned in Section 309(j)(3)(C).

142. As discussed infra, the Commission has not adopted special

provisions for small businesses and other designated entities because

of the extremely high implementation costs associated with satellite-

based services and the lack of sufficient evidence in the current

record to support the adoption of designated entity provisions.

However, this does not mean either that the Commission has ignored

Congress' mandate to offer designated entities the opportunity to

participate in competitive bidding, that designated entities will be

unable to participate in the DARS industry or that auctions of DARS

spectrum will not promote many of the objectives of Section 309(j).

Based upon prior experience with respect to other satellite-based

services, it is likely that a wide variety of businesses, including

designated entities, will be involved in various sectors of this

industry as non-licensed operators, programmers, and equipment

suppliers.

143. Moreover, the Commission disagrees with commenters' arguments

that it is inappropriate to use competitive bidding procedures to

select from mutually exclusive applications that were filed before the

Commission was granted competitive bidding authority. The Commission

observes that Section 6002 of the Omnibus Budget Reconciliation Act of

1993 (``1993 Budget Act'') specifically grants the Commission the

discretion to decide whether to employ either lotteries or auctions to

choose between mutually exclusive applications filed before July 26,

1993. In this regard, the Commission believes that, in balancing the

advantages and disadvantages of using a lottery or an auction to award

the DARS licenses, the public interest is best served by its use of

competitive bidding. As discussed supra, the Commission believes that

an auction will ensure that the licenses are awarded to the party that

values it most highly, thereby maximizing efficient use of the spectrum

and facilitating the expeditious delivery of service to the public.

This is especially true with regard to nationwide licenses because the

winning bidders at the auction will likely be the parties that have

made the greatest commitment to satellite DARS and are best prepared to

begin construction of a nationwide system. Finally, use of auctions to

assign the DARS licenses will advance the goals of Section 309(j)(3)(C)

of the Communications Act by enabling the Commission to recover for the

public a portion of the value of the spectrum and avoid unjust

enrichment to license winners.

144. In sum, the Commission concludes that it has the authority to

award DARS licenses by means of competitive bidding. The Commission

further concludes that the use of competitive bidding to assign DARS

spectrum will promote the rapid deployment of DARS and the efficient

use of DARS spectrum most effectively. The Commission will therefore

award two 12.5 MHz DARS licenses by means of competitive bidding.

145. In the NPRM, the Commission proposed that a simultaneous

multiple round auction be used to award DARS licenses if the Commission

determined that competitive bidding procedures should be implemented.

In a simultaneous multiple round auction, in every round, a bidder may

bid on any of the licenses for which it is eligible. The auction does

not close until bidding has ceased on all licenses. In the Competitive

Bidding Second Report and Order, 59 FR 24947 (May 13, 1994), the

Commission concluded that this method ensures that interdependent

licenses will be awarded to the bidders who value them most highly by

generating the most information about license values and providing

bidders with the greatest degree of flexibility to pursue back-up

strategies. In the NPRM, the Commission said that if it employs

competitive bidding for DARS licensing, it would conduct it ``pursuant

to the general framework adopted in the Second Report and Order, the

Commission's rules, and consistent with other Commission proceedings

where auctions have been employed.'' There were no comments on the

Commission's proposed auction design or bidding procedures for DARS.

146. In view of the fact that the two DARS licenses are

substitutable and these licenses will be significantly interdependent,

the Commission concludes that a simultaneous multiple round auction

design is the appropriate auction methodology. This auction methodology

will generate valuable information about the licenses during the course

of the auction. In addition, as noted below, consistent with the rules

for other auctionable services, the Commission adopts bidding

procedures to ensure that the auction proceeds at a rapid pace.

147. The Commission observes that a multiple round electronic

auction generally will provide bidders useful information about other

bidders' valuations. Bidders will be able to observe who is willing to

bid on a license at each announced price. Providing this information

may enable bidders to refine their estimates of the license value,

thereby reducing the tendency of bidders for licenses with uncertain

value to shade down their bids to avoid the ``winner's curse.'' Because

of the Commission's discretion to adjust the length of bidding rounds

in an electronic auction and the other auction design features

described below, the Commission expects the auction to proceed rapidly.

The Commission will provide for on-site electronic bidding because of

the limited number of eligible participants and the anticipated rapid

auction pace. The Commission reserves the option, however, to offer

remote bidding where bidders can place their bids by computer from any

location.

148. Consistent with the rules adopted in other services, the

Commission concludes that the Wireless Telecommunications Bureau should

have discretion to establish, raise and lower minimum bid increments

during the course of the DARS auction. The Commission believes that

this discretion over minimum bid increments is necessary to ensure that

it can efficiently control the pace of the auction. The Commission

anticipates using larger percentage minimum bid increments early in the

auction and reducing the minimum increment percentage as bidding

activity falls. The Commission also believes that the efficiency of the

auction may be enhanced by limiting jump bidding, i.e., bidding above

the minimum accepted bids. Therefore, the Wireless Telecommunications

Bureau will announce by Public Notice prior to auction the specific bid

increment that generally will be used, and will also retain the

discretion to establish and change maximum bid increments during the

course of the auction. Where a tie bid occurs, the high bidder will be

determined by the order in which the bids were received by the

Commission.

149. To maximize the amount of information generated during the

course of an auction and to ensure that the auction closes in a

reasonable amount of time, the Commission will require a bidder to be

active on one license in each round of the auction or use an

[[Page 11101]]

activity rule waiver, as defined below. To be active in the current

round, a bidder must submit an acceptable bid in the current round or

have the high bid from the previous round. A bidder who is not active

in a round and has no remaining activity rule waivers will no longer be

eligible to bid on the license being auctioned. Bidders will not be

permitted to be active on more than one license in a single round. The

Commission sees no efficiency-enhancing reason to permit such bidding

because the service rules allow only one license to be acquired per

bidder. Moreover, experience in previous auctions has raised concerns

that such bidding could be used to signal or engage in other forms of

anticompetitive strategic bidding. The Commission delegates to the

Wireless Telecommunications Bureau the authority to determine and

announce by Public Notice bid withdrawal procedures for the DARS

auction.

150. The Commission concludes that a minimum opening bid would help

ensure that the auction proceeds quickly and would increase the

likelihood that the public receives fair market value for the spectrum.

The Commission will therefore establish a minimum opening bid for this

spectrum, the amount of which will be announced by the Wireless

Telecommunications Bureau by Public Notice. The Commission observes

that this approach is consistent with its approach in the DBS context.

The Wireless Telecommunications Bureau will determine the amount of the

minimum opening bid using all available information and taking into

consideration the uncertainty as to the value of the spectrum.

151. To make allowance for unusual circumstances that might delay a

bidder's bid preparation or submission in a particular round, the

Commission will provide bidders with a limited number of waivers of the

above-described activity rule. The Commission believes that some waiver

procedure is needed because the Commission does not wish to end a

bidder's participation due to an accidental act or circumstances not

under the bidder's control. The Commission will provide bidders with

three activity rule waivers that may be used in any round during the

course of the auction. A waiver will preserve eligibility in the next

round. Waivers may be applied automatically by the Commission or

invoked proactively by bidders. If a bidder is not active in a round, a

waiver will be applied automatically. An automatic waiver applied in a

round in which there are no new valid bids will not keep the auction

open. A proactive activity rule waiver is a waiver invoked by a bidder

during the bid submission period. If a bidder submits a proactive

waiver in a round in which no other bidding activity occurs, the

auction will remain open.

152. The Commission will retain the discretion to issue additional

waivers during the course of an auction for circumstances beyond a

bidder's control or in the event of a bid withdrawal, as discussed

below. The Commission will also retain the flexibility to adjust, by

Public Notice prior to an auction, the number of waivers permitted.

153. A stopping rule specifies when an auction is over. The auction

will close after one round passes in which no new valid bids or

proactive activity rule waivers are submitted. The Commission retains

the discretion, however, to keep the auction open even if no new valid

bids and no proactive waivers are submitted. In the event that the

Commission exercises this discretion, the effect will be the same as if

a bidder had submitted a proactive waiver. This will help ensure that

the auction is completed within a reasonable period of time, because it

will enable the Commission to utilize larger bid increments, which

speed the pace of the auction, without risking premature closing of the

auction.

154. In the NPRM, the Commission proposed to adopt the short-form

application procedures, upfront payment requirements, public notice

procedures, and default and disqualification provisions set forth in

Subpart Q of Part 1 of the Commission's rules.

155. The Commission received no comments addressing these

proposals. Because there only are four applicants eligible in this

auction, all of whom previously filed applications for DARS licenses,

the Commission will not use its short-form application requirement (FCC

Form 175) and adopts a new rule for the DARS auction. Specifically, it

will require these applicants to supplement their previously-filed

applications within five days of the publication of this Report & Order

in the Federal Register. The supplemental information must be certified

and include the following: 1. Applicant's name; 2. Mailing Address (no

Post Office boxes); 3. City; 4. State; 5. ZIP Code; 6. Auction Number

15; 7. FCC Account Number; 8. Person(s) authorized to make or withdraw

a bid (list up to three individuals); 9. Certifications and name and

title of person certifying the information provided; 10. Applicant's

contact person and such person's telephone number, E-mail address and

FAX number; 11. Signature and date. In keeping with previous practice,

the Commission also retains discretion to implement or modify certain

other procedures prior to the DARS auction, including rules governing

the payment requirements.

156. As discussed below, the Commission will require applicants to

submit to the Commission an upfront payment prior to commencement of

the DARS auction. In addition, each auction winner will be required to

submit an amount sufficient to bring its total deposit up to 20 percent

of its winning bid within ten (10) business days of the announcement of

the winning bidder. The winning bidder also will be required to

supplement its application in accordance with Part 25 of the

Commission's Rules. This procedure will constitute the ``long-form

application'' process referred to in the general auction rules. The

winning bidder will be required to file such information by a date

specified by Public Notice, generally within 30 business days after the

close of bidding. After receiving the winning bidder's long-form

application and verifying receipt of the bidder's 20 percent down

payment, the Commission will announce the application's acceptance for

filing, thus triggering the filing window for petitions to deny. If,

pursuant to Section 309(d) of the Communications Act, the Commission

dismisses or denies any and all petitions to deny, the Commission will

issue an announcement to this effect, and the winning bidder will then

have ten (10) business days to submit the balance of its winning bid.

If the bidder fails to submit the balance of the winning bid or the

license is otherwise denied, the Commission will assess a default

payment as set forth below and re-auction the license among the other

existing applicants. If no petitions to deny are filed, the Commission

will issue a public notice conditionally granting the licenses pending

final payment.

157. In the NPRM the Commission proposed an upfront payment

requirement of $0.02 per MHz-pop to ensure that only serious, qualified

bidders participate at auction. Initially, the commenters did not

address the proposed upfront payment provisions. In various recent ex

parte filings, however, the eligible applicants claim that an upfront

payment based on $0.02 per MHz-pop is too high and is not needed to

ensure that only serious, qualified bidders participate at auction. The

Commission concludes that its proposed up-front payment of $0.02 per

MHz-pop may be too high here. The

[[Page 11102]]

Commission observes that the eligible applicants in this auction have

demonstrated a continued interest in providing DARS and have already

expended significant resources towards this end. Accordingly, the

Commission believes a more modest upfront payment for the auction of

the DARS licenses is appropriate. The Commission believes that a

payment that takes into consideration the valuation of similarly

auctioned satellite spectrum (such as DBS) would be appropriate. The

Commission therefore delegates authority to the Wireless

Telecommunications Bureau and the International Bureau to determine an

appropriate calculation for the upfront payment and announce it by

Public Notice.

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

Commission determined that bid withdrawal, default and disqualification

provisions were needed to discourage insincere bidding. The Commission

observed that insincere bidding, whether frivolous or strategic,

distorts the price information generated by the auction process and

reduces its efficiency. Accordingly, the Commission adopts the bid

withdrawal, default and disqualification provisions as set forth in

Sections 1.2104(g) and 1.2109 of the Commission's rules. Pursuant to

these rules, any bidder who withdraws a high bid during an auction

before the Commission declares bidding closed will be required to

reimburse the Commission in the amount of the difference between its

high bid and the amount of the winning bid the next time the license is

offered by the Commission, if this subsequent winning bid is lower than

the withdrawn bid. If a license is reoffered by auction, the ``winning

bid'' refers to the high bid in the auction in which the license is

reoffered. If a license is reoffered in the same auction, the winning

bid refers to the high bid amount in that auction, made subsequent to

the withdrawal. If the subsequent high bidder also withdraws its bid,

that bidder will be required to pay an amount equal to the difference

between its withdrawn bid and the amount of the subsequent winning bid

the next time the license is offered by the Commission. If a license

which is the subject of withdrawal or default is not re-auctioned, but

is instead offered to the highest losing bidders in the initial

auction, the ``winning bid'' refers to the bid of the highest bidder

who accepts the offer. Losing bidders would not be required to accept

the offer, i.e., they may decline without additional payment. The

Commission wishes to encourage losing bidders in simultaneous multiple

round auctions to bid on other licenses, and therefore the Commission

will not hold them to their losing bids on license for which another

bidder has withdrawn a bid or on which another bidder has defaulted.

159. After bidding closes, a defaulting auction winner (i.e., a

winner who fails to remit the required down payment within the

prescribed time, fails to pay for a license, or is otherwise

disqualified) will be assessed the difference between its high bid and

the amount of the winning bid the next time the license is offered by

the Commission, if this subsequent winning bid is lower than the high

bid, plus an additional payment of three percent of the subsequent

winning bid or three percent of the amount of the defaulting bid, if

the defaulting bid was less. The additional three percent payment is

designed to encourage bidders who wish to withdraw their bids to do so

before bidding ceases. The Commission believes that these additional

payments will adequately discourage default and ensure that bidders

have adequate financing and that they meet all eligibility and

qualification requirements.

160. In addition, if withdrawal, default or disqualification

involves gross misconduct, misrepresentation or bad faith by an

applicant, the Commission retains the option to declare the applicant

and its principals ineligible to bid in future auctions, or to take any

other action it deems necessary, including institution of proceedings

to revoke any existing licenses held by the applicant.

161. The Commission notes that DARS licensees, like other satellite

licensees, will be subject to rule 25.118, which prohibits transfers or

assignments of licenses except upon application to the Commission and

upon a finding by the Commission that the public interest would be

served thereby. Even after DARS licenses are granted, one licensee will

not be permitted to acquire control of the other remaining satellite

DARS license. This prohibition on transfer of control will help assure

sufficient continuing competition in the provision of satellite DARS

service.

162. As it stated in the NPRM, the Commission believes that it is

necessary to adopt a rule prohibiting collusive conduct in connection

with the satellite DARS auction. However, the Commission believes that

a modified rule is warranted because there are a limited number of

identified eligible participants for the satellite DARS action and thus

the additional safeguards associated with an auction with many more

bidders are absent here. Specifically, the Commission will not adopt

any exceptions to the general anti-collusion rule. As noted above, in

lieu of short-form applications, the eligible DARS applicants will be

required to supplement their pending applications with certain

information within five days of the publication date of this Order. At

that time, all applicants will be prohibited from cooperating,

collaborating, discussing or disclosing in any manner the substance of

their bids or bidding strategies, or discussing or negotiating

settlement agreements with other bidders.

163. Due to the fact that this is a closed auction with a fixed

number of eligible applicants, the Commission has determined that none

of the three exceptions to its general collusion rules prohibiting

discussions with other applicants will apply. Therefore, the applicants

will not be permitted to enter into consortia or any type of joint

bidding arrangement at any time since cooperation and collaboration are

prohibited under the anti-collusion rule. Nor will they be able to

enter into settlement arrangements following the filing of their

supplemental information. Given the limited number of applicants (four)

and available licenses (two), this is not the type of situation the

Commission contemplated when it expressed its desire to preserve

``efficiency enhancing bidding consortia'' so as to possibly reduce

entry barriers for smaller firms. The universe of bidders here is

already established and very small. In this situation, the Commission

believes that allowing any joint bidding arrangements among this

limited group will merely serve to undercut the competitiveness of the

auction process and limit the number of bidders for each license. In

this vein, the Commission also concludes that the other exceptions to

the collusion rule designed to allow bidders to combine or obtain

additional capital from one another during an auction are inapplicable

or unnecessary here. These applicants have been preparing and

developing this service for years, and this will be a very short

auction. Thus, any additional capitalization requirements are likely to

already have been met or should be after the auction. The Commission

believes that the five-day window is sufficient to enable the

applicants to conclude any settlement discussions, given the fact that

the parties have had significant time prior to the adoption of this

Order to reach a settlement. After this five-day period, all

negotiations (if any) must cease. This

[[Page 11103]]

rule is both fair to the four applicants, who had time to negotiate

settlements and raise capital, while helping to ensure the

competitiveness of the auction and the post-auction market. All

applicants will be prohibited from cooperating, collaborating,

discussing or disclosing in any manner the substance of their bids or

bidding strategies with other bidders five days after publication of

this report and order in the Federal Register.

164. Finally, in adopting these rules for the DARS auction, the

Commission also reminds the eligible bidders that allegations of

collusion may be investigated by the Commission or referred to the U.S.

Department of Justice for investigation. Bidders who are found to have

violated the antitrust laws or the Commission's Rules while

participating in an auction may be subject to forfeiture of their down

payment or their full bid amount, as well as revocation of their

license, and may be prohibited from participating in future auctions.

165. In the NPRM, the Commission asked commenters to discuss

whether special provisions should be adopted to enable small

businesses, businesses owned by minorities and women, and rural

telephone companies (rural telcos) (collectively referred to as

``designated entities'') to participate at auction and in the provision

of DARS.

166. The Commission received no comments addressing this issue. In

an ex parte filing, CD Radio proposes that entrepreneurs and small

businesses (as defined in the rules for broadband PCS C and F blocks)

be afforded an installment payment plan. CD Radio claims, among other

things, that failure to adopt such financing incentives would put

pressure on the small business applicants to sell their ``place in

line'' to large companies and encourage transfers and possible unjust

enrichment of speculative applicants. The Commission first notes that

the legislative history of the designated entity provisions shows that

Congress did not necessarily intend for special measures in services

such as DARS, as demonstrated by the following reference: ``[t]he

characteristics of some services are inherently national in scope, and

are therefore ill-suited for small businesses.'' Moreover, the

Commission previously concluded that, because of the extremely high

implementation costs associated with satellite-based services, no

special provisions for designated entities would be made. In part, this

conclusion was reached because it was unclear whether small businesses

could attract the capital necessary to implement and provide satellite-

based services. Second, pursuant to Section 309(j), the purpose of such

provisions is to attract the participation of a wide variety of small

business applicants. In view of the fact that this is a closed auction

with a fixed number of eligible applicants, this purpose of attracting

a wide-array of applicants will not be served here. Third, the record

is lacking in support for what the appropriate small business threshold

is in the DARS context and whether any of the four applicants,

including CD Radio, would qualify as a small business. In the DBS

context, the Commission did not provide for designated entity

provisions, primarily due to the high implementation costs and the lack

of interest expressed by the potential beneficiaries, i.e., small

businesses, businesses owned by minorities and women, and rural

telecos. In this connection, the Commission notes that CD Radio's

proposal is not supported by the ex parte filings of other potential

applicants who arguably would fall within the definitions of

entrepreneur and small business proposed by CD Radio. In contrast to CD

Radio's proposal, in its ex parte filing, DSBC states that, ``[s]o long

as the auction is limited to the four pending applicants, the

Commission need not employ bidding credits or installment payments, or

identify designated entities, to level the playing field among this

group of potential licensees.'' Likewise, in its ex parte filing,

Primosphere similarly states that ``[t]here should be no bidding

preferences'' and ``[a]ll four applicants should be treated equally.''

167. The Commission is, therefore, not convinced that in order to

promote the objectives of Section 309(j)(3)(B) ensuring that new and

innovative technologies are readily accessible to the American people

and the dissemination of licenses among a wide variety of applicants,

including small businesses, it needs to provide designated entity

provisions, such as the financial incentives requested by CD Radio.

Moreover, it concludes that the present record is insufficient to

support either race-based rules under the strict scrutiny standard, or

to support gender-based rules under the intermediate scrutiny standard

that currently applies to those rules. Accordingly, the Commission is

not adopting designated entity provisions for DARS.

168. The Commission believes that the foregoing decision and

licensing plan best serves the public interest in assuring that the

spectrum in question is most efficiently utilized while allowing the

implementation of new, innovative services.

169. Accordingly, it is ordered that Part 25 of the Commissions

rules are hereby amended as set forth below.

170. Accordingly, it is ordered that Parts 25 and 87 of the

Commissions rules are hereby amended as set forth below, and the new

and amended rules in Sections 25.144, 25.201, 25.202, 25.214 and 87.303

shall become effective April 10, 1997, except that the new rules in

Sections 25.401, 25.402, 25.403, 25.404, 25.405, and 25.406 shall

become effective March 11, 1997. The Commission finds good cause to

make the auction rules for satellite DARS (Subpart F of Part 25)

effective immediately upon publication in the Federal Register. These

rules will allow the four pending applicants to amend their

applications, which have been pending for more than four years, and to

participate in the auction for this new service, for which spectrum was

allocated two years ago. Immediate application of the rules governing

the auction procedures will therefore expedite the DARS auction and the

introduction of service to the public, including those residing in

rural areas, in accordance with Section 309(j)(3)(A) of the

Communications Act. In addition, the Commission notes that the pending

applicants have made substantial financial investment in anticipation

of the licensing of DARS. Finally, it is important that the DARS

auction take place prior to the Wireless Communications Service

(``WCS'') auction, which Congress had mandated begin no later than

April 15, 1997. According to the applicants, their several years of

planning and financial investment would be undermined if a WCS auction

winner were to enter the DARS market first. The DARS applicants also

contend that they may need WCS spectrum for auxiliary support of DARS

operations, that they need time to assess these auxiliary needs, but

that their efforts will be frustrated if WCS is auctioned first.

Accordingly, the Commission finds that further deferral of the DARS

auction and licensing procedures by a delay in the effective date, for

purposes of providing adequate notice to the affected parties, would be

impracticable, unnecessary and contrary to the public interest.

171. The Final Regulatory Flexibility analysis is included as

follows:

Final Regulatory Flexibility Analysis of Report and Order and

Memorandum Opinion and Order and Further Notice of Proposed Rulemaking

As required by Section 603 of the Regulatory Flexibility Act (RFA),

5 U.S.C. Sec. 603, the Commission incorporated and sought comment on an

[[Page 11104]]

Initial Regulatory Flexibility Analysis (IRFA) in Establishment of

Rules and Policies for the Digital Audio Radio Satellite Service in the

2310-2360 MHz Frequency Band, 11 FCC Rcd 1 (1995) (NPRM). The

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

Report and Order and Memorandum Opinion and Order and Further Notice of

Proposed Rulemaking (Order) conforms to the RFA, as amended by the

Small Business Regulatory Enforcement and Fairness Act of 1996

(SBREFA).

A. Need for and Purpose of This Action

In this Order, the Commission promulgates rules and assigns

licenses for satellite Digital Audio Radio Service (DARS). The

objective in this proceeding is to help establish a new service to

provide continuous nationwide radio programming with compact disc

quality sound. This new service has the potential to increase the

variety of programming available to the listening public by offering

new niche channels. Satellite DARS also promises to serve listeners in

areas of the country that have been underserved by terrestrial radio.

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

Initial Regulatory Flexibility Analysis

No comments were filed in direct response to the IRFA. The

Commission received numerous comments on the wide variety of licensing

and other issues raised by the NPRM, none of which were directly

related to the treatment of small entities. Although not directed to

the IRFA, three entities proposing to provide satellite DARS have filed

ex parte comments concerning the issue of whether the Commission should

employ special auction provisions to aid small businesses. These

comments are addressed in Section V of this analysis.

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

The Commission has not developed its own definition of ``small

entity'' for purposes of licensing satellite delivered services.

Accordingly, the Commission relies on the definition of ``small

entity'' provided under the Small Business Administra

This text is long and has been trimmed here. Open the source document for the complete record.