Rules and Policies for Local Multipoint Distribution Service and for Fixed Satellite Services

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 101

[CC Docket No. 92-297; FCC 98-77]

Rules and Policies for Local Multipoint Distribution Service and

for Fixed Satellite Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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

SUMMARY: This action amends the rules to adopt partitioning and

disaggregation rules for the Local Multipoint Distribution Service

(LMDS). This action will encourage spectrum efficiency and the more

rapid deployment of service to the public. The effect of these rules is

to provide LMDS licensees greater flexibility to respond to marketplace

demands.

EFFECTIVE DATE: May 28, 1998.

FOR FURTHER INFORMATION CONTACT: Susan Magnotti of the Public Safety

and Private Wireless Division, Wireless Telecommunications Bureau at

202-418-0680 or via email at [email protected].

SUPPLEMENTARY INFORMATION:

1. This is a summary of the Commission's Fourth Report and Order to

allow partitioning and disaggregation for LMDS spectrum.

2. On March 11, 1997, the Commission adopted the Second Report and

Order (Second Report and Order), 62 FR 23148; April 29, 1997, Order on

Reconsideration, and Fifth Notice of Proposed Rule Making (Fifth NPRM),

62 FR 16514; April 7, 1997, wherein it established service rules to

govern licensing of LMDS and competitive bidding rules to select among

mutually exclusive LMDS applications. The Commission concluded that its

actions would open the door for new broadband wireless services and

that LMDS spectrum could be used to provide competition to both local

exchange carriers (LECs) and cable television systems. It envisioned

that our LMDS service and licensing rules would foster the future

growth of this new service and permit LMDS licensees to satisfy a broad

array of their customer's communications needs. In addition, the

Commission permitted partitioning and disaggregation by LMDS licensees

to encourage spectrum efficiency and the more rapid deployment of

service, and to leave the decision of determining the correct size of

licenses to the licensees and the marketplace. It concluded that

allowing partitioning and disaggregation for LMDS spectrum would create

powerful tools for licensees to concentrate on core areas or to deliver

services outside of the major market areas. The Commission further

found that LMDS partitioning and disaggregation would provide

opportunities for small businesses seeking to enter the multipoint

video distribution and local telephony marketplaces.

3. In the Fifth NPRM, the Commission sought comment on specific

procedural, administrative and operational rules to govern LMDS

partitioning and disaggregation. It sought comment on how rights and

obligations of LMDS licensees would be affected if such licensees were

permitted to avail themselves of the partitioning and disaggregation

options. It also sought comment on whether there are any technical or

regulatory constraints unique to the LMDS service that would render any

aspects of partitioning and disaggregation impractical or

administratively burdensome. In this connection, the Commission noted

that it had recently adopted specific procedures for partitioning and

disaggregation in the broadband Personal Communications Services (PCS)

and sought comment on whether such procedures would be appropriate for

LMDS. A total of five comments and five reply comments were received in

response to the Fifth NPRM.

A. Available License Area

4. Background. In the Fifth NPRM, the Commission tentatively

concluded that parties to a LMDS partitioning agreement should be

afforded flexibility in defining partitioned license areas. It sought

comment on this tentative conclusion and, in particular, asked whether

there are any technical or other issues unique to LMDS that would

dictate a different approach.

5. Discussion. We conclude that LMDS licensees should have broad

flexibility in defining partitioned license areas. As we noted in the

Fifth NPRM, such an approach is consistent with our treatment of

partitioning in other services, particularly broadband PCS. In

addition, we believe that allowing LMDS licensees to partition their

service areas along any boundaries they wish will enhance their ability

to respond quickly to consumer demands. In this connection, we agree

with CellularVision USA, Inc. (CellularVision) that such an approach

will allow LMDS licensees to consider unique geographical or market

characteristics when designing their business plans. We also are

concerned that requiring LMDS partitioned areas to be based upon a

uniform standard, such

[[Page 26503]]

as geopolitical boundaries or county lines, might unnecessarily

restrict LMDS partitioning opportunities. For example, Hardin predicts

that LMDS operations will most likely consist of cell sites with a

small range. In this context, Hardin contends that partitioning based

upon a minimum standard, such as geopolitical boundaries or county

lines, would not accommodate small-scale partitioning options which may

be desirable for LMDS spectrum. We also previously concluded that LMDS

has the capacity to meet the more circumscribed needs of smaller

operators and niche markets. We find that permitting partitioning into

smaller units will further assist small operators to meet their

business goals and will encourage the development of niche markets and

innovative service offerings. Thus, we believe that more flexible

partitioning will better serve the interests of LMDS licensees and the

public.

6. As we have in all other contexts in which we have permitted

partitioning, we will require that parties seeking approval to

partition an LMDS license submit a description of the partitioned

service area. The partitioned service area must be defined by

coordinate points at every 3 degrees along the partitioned service area

agreed to by both parties, unless either (1) an FCC-recognized service

area is utilized (i.e., Metropolitan Statistical Area, Rural Service

Area or Economic Area) or (2) county lines are followed. If the

partitioned service area includes an FCC-recognized service area or

county and additional areas, applicants are required to identify the

FCC-recognized service areas or county and give the aforementioned

coordinate data for the additional areas. These geographical

coordinates must be specified in degrees, minutes and seconds to the

nearest second of latitude and longitude. For areas located in the

coterminous United States and Alaska the geographical coordinates must

be based upon the 1983 North American Datum (NAD83). For locations in

areas such as Hawaii, Puerto Rico, the South Pacific Islands, etc. the

geographical coordinates must be based upon the World Geodetic System

of 1984 (WGS84). This coordinate data should be supplied as an

attachment to the assignment application, but maps need not be

supplied. In cases where an FCC recognized service area or county lines

are being utilized, applicants must list the specific area(s) (through

use of FCC designations) or counties that comprise the partitioned

area.

B. Disaggregation Standards

7. Background. In conjunction with the general rule permitting

disaggregation of LMDS spectrum in the Second R&O, the Commission did

not propose any restrictions on the amount of spectrum that licensees

could disaggregate. In the Fifth NPRM, it nonetheless requested comment

as to whether there should be spectrum limits on disaggregation. The

Commission asked commenters to indicate any unique characteristics of

LMDS which would warrant such limitations.

8. Discussion. We conclude that no minimum or maximum limits should

be imposed on disaggregation of LMDS spectrum. We agree with

commenters' arguments that we should establish similar rules in LMDS

for disaggregation as we established for other wireless services such

as broadband PCS. We also agree with WebCel that regulatory parity will

be achieved by adopting a similar disaggregation rule for all wireless

services. As with partitioning, we believe that permitting market

forces to determine whether and how much spectrum is disaggregated will

ensure that LMDS licensees are able to use their spectrum more

efficiently and to respond quickly to customer demand. In addition, we

believe that affording LMDS licensees this flexibility will facilitate

participation by small businesses in the provision of LMDS.

9. Based on our review of the record, we are not persuaded that

there should be any restrictions on the amount of spectrum that LMDS

licensees can disaggregate. We disagree with Texas Instruments'

argument that LMDS licensees cannot provide competition to LECs and

cable television operators unless they are required to retain a

substantial portion of their spectrum. To the contrary, we find that

requiring LMDS licensees to retain a substantial portion of their

spectrum could potentially exclude small businesses from entering the

LMDS marketplace. We believe that such a result would ultimately limit,

rather than encourage, competition. We also disagree with Texas

Instruments' contention that LMDS has unique characteristics warranting

a requirement that a licensee retain a predominant share of its LMDS

spectrum. Texas Instruments argues that we should follow the example of

our decision in the direct broadcast satellite (DBS) proceeding. In the

DBS R&O, 60 FR 65587; December 20, 1995, we required that DBS

licensees, after 5 years from date of license grant, use a predominant

share of their authorized spectrum for DBS service. Texas Instruments

argues that we should adopt a similar requirement for LMDS licensees

with the majority of LMDS spectrum remaining with the original licensee

and being used to provide LMDS. We disagree that LMDS licensees should

be required to retain a certain amount of their spectrum. In the DBS

R&O, we required licensees to use a portion of their spectrum to

provide DBS service to ensure that this spectrum is used principally

for DBS service. We enacted this restriction to ensure the viability of

the DBS service and to carry out the international allocation of this

spectrum for DBS use. By contrast, there are no similar unique

characteristics of LMDS, particularly in light of the fact that LMDS

licensees can provide a wide array of terrestrial services. The fact

that licensees have the freedom under our rules to use their spectrum

for different applications makes it potentially constraining to adopt a

minimum disaggregation standard. Therefore, we find there is no public

interest reason to restrict the amount of LMDS spectrum that can be

disaggregated.

C. Combined Partitioning and Disaggregation

10. Background. In the Fifth NPRM, the Commission tentatively

concluded that combined partitioning and disaggregation should be

permitted to provide LMDS licensees with the additional flexibility

they need to respond to market forces and service demands. With

combined partitioning and disaggregation, it contemplated that an

entity would have the flexibility to obtain a portion of Block A or

Block B spectrum in only a portion of the original licensee's BTA.

11. Discussion. We conclude that permitting combined partitioning

and disaggregation will afford interested parties flexibility to

provide a variety of service offerings, including those of particular

interest to niche markets. We believe that this approach will further

our regulatory goals of facilitating the provision of competitive

service offerings, encouraging new market entrants, and promoting

quality service to the public.

12. While several parties agree that combined partitioning and

disaggregation should be permitted, WebCel and Alcatel contend that

such an approach could be problematic. WebCel expresses concern

regarding the potential administrative burdens associated with

processing numerous partitioning and disaggregation requests. WebCel

argues that such an approach would create the potential for a large

number of applications overwhelming the Commission's processing

resources and delaying delivery of LMDS service

[[Page 26504]]

to the public. We are unpersuaded by WebCel's speculative concern. We

note that while this potential also theoretically exists in the other

wireless services for which we have adopted partitioning and

disaggregation rules, our experience has shown that we have been able

to handle the partitioning and disaggregation applications without any

resulting undue delay in the delivery of new services. In addition, we

believe that any administrative burden of processing partitioning and

disaggregation applications will be lessened by implementation of the

Universal Licensing System (ULS) for wireless services, including LMDS,

which is already partially on-line accepting electronically-filed

applications. We expect that the electronic filing and mapping

capabilities of the ULS will ultimately allow for the expeditious

processing of LMDS partitioning and disaggregation applications.

13. Alcatel argues that it is unclear how LMDS licensees are to

conduct frequency coordination for partitioned and disaggregated

licenses. Accordingly, Alcatel seeks clarification as to the frequency

coordination obligations of LMDS partitionees and disaggregatees. We

clarify that all LMDS licensees, including partitionees and

disaggregatees, are required to comply with the frequency coordination

provisions set forth in Sec. 101.103 of the Commission's Rules. We

adopted this approach in the Second R&O and herin we do not provide an

exception for partitioning and disaggregation. We further note that the

identity of neighboring LMDS licensees should be readily available in

the Commission's database, particularly with the implementation of ULS.

Thus, we conclude that the concerns expressed by WebCel and Alcatel do

not present sufficient reasons for not permitting combined partitioning

and disaggregation.

D. Construction Requirements

14. Background. LMDS licensees must provide ``substantial service''

to their service area within ten years. In the Fifth NPRM, the

Commission proposed that, for partitioned LMDS licenses, the

partitionee must certify that it will satisfy the same construction

requirements as the original licensee. The partitionor and partitionee

would therefore be required to meet separate substantial service

requirements for their respective portions of the partitioned service

area. For disaggregation, the Commission proposed that the parties

would be required to submit a certification, signed by both the

disaggregator and disaggregatee, stating whether one or both of the

parties will retain responsibility for meeting the substantial service

requirement for the service area. It proposed that, if one party takes

responsibility for meeting the performance requirement, then actual

performance by that party would be taken into account in a renewal

proceeding at the end of the license term, but such performance would

not affect the status of the other party's license. If the parties

agreed to share the responsibility for meeting the performance

requirement, then the performance of each of the parties would be taken

into account in their respective renewal proceedings.

15. Discussion Partitioned Licenses. We conclude that the public

interest would be furthered by adopting an approach analogous to that

used in other contexts, particularly broadband PCS, rather than

adopting our proposal for partitioning. In other wireless services, we

have allowed licensees the flexibility to negotiate which party will be

responsible for meeting the applicable construction requirements. In

each of those cases, our goal has been to ensure that licensees had the

flexibility to structure their business plans while ensuring that

partitioning not be used as a vehicle to circumvent the applicable

construction requirements. We have allowed parties to partitioning

agreements in other wireless services the flexibility to choose between

two options for satisfying the construction requirements. For example,

we allow broadband PCS licensees the option of either agreeing to meet

the construction requirements for their respective portions of the

partitioned market or for the original licensee to certify that it had

or would meet the five- and ten-year construction requirements for the

entire market. We adopted this second option to allow parties the

flexibility to agree that one party would take responsibility for

meeting the construction requirement for the entire licensed area.

Similarly, we believe that parties interested in entering into LMDS

partitioning arrangements should be afforded the same flexibility.

Under the first option, the partitionor and partitionee would each

certify that it will independently satisfy the substantial service

requirement for its respective partitioned area. If a licensee fails to

meet its substantial service requirement during the relevant license

term, the non-performing licensee's authorization would be subject to

cancellation at the end of the license term. Under the second option,

the partitionor certifies that it has met or will meet the substantial

service requirement for the entire market. If the partitionor fails to

meet the substantial service standard during the relevant license term,

however, only its license would be subject to cancellation at the end

of the license term. The partitionee's license would not be affected by

that failure.

16. As indicated in the Second R&O, the availability of

partitioning will promote and facilitate smaller-scale service

offerings and market niches to develop which would be appropriate for

smaller operators who could not manage an entire BTA. Our decision to

offer two options is based on our belief that LMDS licensees may be

motivated to enter into partitioning arrangements for different reasons

and under various circumstances. For example, as discussed by DBC, a

LMDS licensee might be motivated to partition its license in order to

reduce its construction costs. In that case, the original licensee

would have less population to cover in order to meet its substantial

service requirement. Thus, it may find the first option most attractive

for its purposes. Under another scenario, a LMDS licensee that has met

or is close to meeting its substantial service requirement may be

approached by another entity interested in serving a niche market in a

portion of the service area. Under these circumstances, the second

option may seem most attractive to the parties. We believe that the

partitioning rules for LMDS should address both of these scenarios. We

further believe that in both contexts partitioning cannot be used to

circumvent the LMDS construction requirements. In any event, we note

that we will examine each situation on a case-by-case basis when the

licensees file their renewal applications and will be able to address

any abuses of the partitioning options in that context.

17. In addition, pursuant to CellularVision's request, we clarify

if a partitionor and partitionee elect to meet the substantial service

for their respective partitioned areas, then we would make an

independent assessment of the construction efforts of the partitionor

and partitionee based on the partitioned area, population served, and

actual service provided. We acknowledge CellularVision's observation

that the service offering provided by a partitionee might be quite

different than that provided by the original licensee.

18. Disaggregated Licenses. As we proposed in the Fourth NPRM, 61

FR 44177; August 28, 1996, we establish

[[Page 26505]]

two options for disaggregating licensees. This approach is consistent

with what we have done in other wireless contexts. We believe that it

would be appropriate for either the disaggregator or the disaggregatee

to assume full responsibility for construction within the shared

service area, because service would be offered over the relevant

population, even if not on the entire spectrum. As DBC points out in

its comments, supra, we agree that this option could encourage a LMDS

licensee to make some of its spectrum available to others. Accordingly,

we will permit two options for meeting the construction requirements by

disaggregators and disaggregatees. Under the first option, the

disaggregator and disaggregatee would certify that they each will share

responsibility for meeting the substantial service requirement for the

geographic service area. If parties choose this option, both parties'

performance will be evaluated at the end of the relevant license term

and both licenses could be subject to cancellation. The second option

would allow the parties to agree that either the disaggregator or the

disaggregatee would be responsible for meeting the substantial service

requirement for the geographic service area. If parties choose this

option, and the party responsible for meeting the construction

requirement fails to do so, only the license of the nonperforming party

would be subject to cancellation.

19. We continue to believe that these build-out provisions fulfill

our obligations under Section 309(j)(4)(B). We also believe that the

auction and service rules which we are adopting for LMDS, together with

our overall competition and universal service policies, constitute

effective safeguards and performance requirements for LMDS licensing.

We believe that service to rural areas will be promoted by our proposal

to allow partitioning and disaggregation of LMDS spectrum. The options

established herein are intended to provide the greatest possible

flexibility to licensees and partitionees while ensuring that rural and

niche market areas receive LMDS services. Accordingly, we continue to

reserve the right to impose additional, more stringent construction

requirements on LMDS licensees in the future in the event of actual

anticompetitive or rural service problems and if more stringent

construction requirements can effectively ameliorate those problems.

E. License Term and Renewal Expectancy

20. Background. LMDS licenses are granted for ten-year terms. In

addition, an LMDS licensee involved in a comparative renewal proceeding

may qualify for a renewal expectancy if the licensee demonstrates that

it has provided substantial service during its license term, and that

it has substantially complied with the Communications Act and

applicable Commission rules and policies. In the Fifth NPRM, the

Commission sought comment on whether our LMDS rules should provide that

parties obtaining LMDS licenses for partitioned areas or disaggregated

spectrum hold their license for the remainder of the original

licensee's ten-year term. It noted that, in the Broadband PCS R&O, 62

FR 696, January 6, 1997, the Commission found that allowing parties

acquiring licenses through partitioning and disaggregation to ``re-

start'' the license term from the date of the grant of the assignment

application could allow parties to circumvent our rules regarding

license terms and unnecessarily delay service to the public. It also

sought comment on whether LMDS partitionees and disaggregatees should

be afforded the same renewal expectancy as other LMDS licensees.

21. Discussion. We find that LMDS partitionees and disaggregatees

should hold their licenses for the remainder of the original licensee's

ten-year term. This approach is supported by the commenters and is

consistent with our action in other wireless services. We see no reason

to adopt a different approach for LMDS. As we did with licensees in

other wireless services, we believe that LMDS licensees would have less

of an incentive to fully utilize their available spectrum if they were

permitted to wait until the end of their license term to partition a

portion of their market or disaggregate a portion of their spectrum to

another entity that would receive a full ten year license term. By

limiting the license term for LMDS partitionees and disaggregatees, we

believe that there will be maximum incentive for parties to quickly

utilize their spectrum and expedite the delivery of LMDS services to

the public.

22. In addition, we will permit partitionees and disaggregatees to

obtain a renewal expectancy on the same basis as other licensees. All

licensees meeting the substantial service requirement will be deemed to

have met this facet of the renewal expectancy requirement regardless of

which of the construction options the licensees chose. CellularVision

asks that we clarify whether LMDS partitionees and disaggregatees may

seek a renewal expectancy that is based upon their reduced license

period. CellularVision maintains that it would be inequitable, for

example, to require a LMDS partitionee with a three-year initial

license term to meet the same level of substantial service to obtain a

renewal expectancy as the original licensee. We decline to recognize a

``scaled-down'' substantial service construction requirement for

partitionees and disaggregatees. Rather, we believe that parties

interested in availing themselves of the partitioning and/or

disaggregation opportunities should factor in their ability to meet the

substantial service requirement when determining the timing of such

transactions. We believe that the provisions we have made for

construction options for partitioned and disaggregated licenses provide

appropriate flexibility, while ensuring that a reasonable standard of

service will be provided to the public and that licensees will not be

able to bypass our construction requirements. Moreover, we will address

each situation on a case-by-case basis taking into account the amount

of time the licensee has had to employ its service along with other

factors.

F. Competitive Bidding Issues

23. Background. When the Commission adopted the Fifth NPRM, the

competitive bidding rules for LMDS included installment payments and

bidding credits for qualified entities. It also adopted rules to

prevent unjust enrichment by such entities that seek to transfer

licenses obtained through use of these special provisions to an entity

that would not have qualified for them. Subsequent to our adoption of

the Fifth NPRM, the Commission eliminated installment payments for

LMDS. Therefore, the proposals in the Fifth NPRM concerning whether

partitionees and disaggregatees should be able to qualify for

installment payments and how to apportion the remaining government

obligation between the parties are now moot.1 We note,

however, that three levels of bidding credits are available to LMDS

applicants. In the Fifth NPRM, the Commission sought comment on how to

calculate unjust enrichment payments for LMDS licensees that are

awarded bidding credits and subsequently partition or disaggregate to a

larger business. It asked commenters to address whether the unjust

enrichment payments should be calculated on a proportional basis, using

population of the partitioned area and amount of

[[Page 26506]]

spectrum disaggregated as the objective measures.

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

\1\ We therefore do not need to consider the alternative

proposals set forth by CellularVision and DBC concerning the

handling of installment payments with respect to LMDS partitioning

and disaggregation. See CellularVision Comments at 11-13; DBC Reply

Comments at 5-6.

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

24. Discussion. We recently adopted a provision in Part 1 of the

Commission's Rules for all auctionable services that follows the

approach set forth in the Fifth NPRM for calculating unjust enrichment

payments in the context of partitioning and disaggregation. Thus, we

will follow the uniform procedure set forth in Part 1 of our Rules and

calculate unjust enrichment based on population for partitioned areas

and on the amount of spectrum for disaggregated spectrum. We note that

population will be calculated based upon the latest available census

data. We have consistently adopted this approach for other wireless

services, and we agree with WebCel that this approach provides an

objective means of calculating unjust enrichment payments in the

context of partitioning and disaggregation. For purposes of applying

our unjust enrichment requirements when a combined partitioning and

disaggregation is proposed, we will use a combination of both

population of the partitioned area and amount of spectrum disaggregated

to make these pro rata calculations.

G. Licensing

25. Background. Because partitioning and disaggregation involves

the assignment of a portion of a licensee's service area or spectrum to

another entity, in the Fifth NPRM the Commission proposed to treat the

partitioning and disaggregation of LMDS licenses as assignments

requiring its prior approval. It proposed to follow the existing

assignment procedures set forth in Part 101 of our rules for purposes

of reviewing LMDS partitioning and disaggregation transactions.

26. Discussion. We adopt the procedures set forth in our Fifth NPRM

for review and approval of LMDS partitioning and disaggregation

transactions. We agree with CellularVision that all LMDS partitioning

and disaggregation agreements should be subject to our formal

assignment process. We decline to adopt WebCel's proposal that we

permit parties to enter into agreements to partition and disaggregate

without prior Commission approval so long as notification is given to

the Commission by the original LMDS licensee upon consummation of the

transaction. Under WebCel's proposal, the original licensee would

retain an ownership interest in the license and would continue to be

responsible for compliance with the Commission's rules, maintaining

records as to the spectrum allocated and geographic areas served by the

different parties, and engaging in frequency coordination among all

LMDS license holders within its BTA. WebCel states that this model

would operate like a ``landlord-tenant-subtenant'' relationship. By

contrast, we consider partitioning and disaggregation transactions to

be partial assignments of license, for which Commission review and

approval is necessary under Section 310(d) of the Communications

Act.2 Although arrangements such as that proposed by WebCel

might be permissible, we note that the Commission requires that the

licensee remain in control of its license, and for this determination,

the Commission relies on the test announced in Intermountain Microwave.

As a result, any arrangement that would result in a licensee losing

control of its license pursuant to the Intermountain Microwave indicia

would be inconsistent with our requirements for licensee

responsibility.

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

\2\ 47 U.S.C. 310(d). We note that we recently determined that

we would forbear from applying our procedures for reviewing pro

forma transfers of control and assignments of license involving

wireless telecommunications carriers and we decided to allow these

carriers to simply notify the Commission after the pro forma

transaction has been consummated. See Federal Communications Bar

Association's Petition for Forbearance from Section 310(d) of the

Communications Act Regarding Non-Substantial Assignments of Wireless

Licenses and Transfers of Control Involving Telecommunications

Carriers, Memorandum Opinion and Order, FCC 98-18 (February 4,

1998). However, partitioning and disaggregation transactions are not

pro forma in nature and, therefore, the rationale we followed in

that proceeding would not apply here.

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

27. WebCel's proposal also does not offer procedures for reviewing

transactions where licensees desire to assign a portion of their market

or spectrum outright to another entity and do not wish to hold the

assigned portion. We thus believe that adoption of Webcel's approach

would run counter to our goal of providing LMDS licensees with

flexibility to structure partitioning and disaggregation transactions

to meet their specific business plans. We conclude that WebCel's

proposed model is not an appropriate construct for characterizing

partitioning and disaggregation transactions. For these reasons, we

will not adopt the alternative proposal suggested by WebCel. The

procedures we adopt herein correspond to the procedures we have adopted

for reviewing partitioning and disaggregation transactions in other

wireless services. We find that adoption of similar partitioning and

disaggregation procedures for all wireless services will provide

regulatory parity, will permit our processing staff to develop common

forms and procedures for reviewing all partitioning and disaggregation

applications, and will streamline and expedite the review of such

applications.

28. We will require that parties seeking approval for an LMDS

partitioning or disaggregation transaction follow the existing

assignment procedures set forth in Part 101 of our Rules. Such

applications will be placed on Public Notice and will be subject to

petitions to deny. The LMDS licensee will be required to file an FCC

Form 702 that is signed by both the licensee and the partitionee or

disaggregatee. The partitionee or disaggregatee will also be required

to file an FCC Form 430 to demonstrate its qualifications, unless a

current FCC Form 430 is already on file with the Commission.

H. Other Matters

29. Background. In our Second R&O, we determined that two LMDS

licenses, one for 1150 MHz and one for 150 MHz, would be awarded for

each Basic Trading Area (BTA) and adopted an eligibility restriction

that prohibits incumbent LECs and incumbent cable companies from

obtaining an attributable interest in in-region 1,150 MHz LMDS licenses

for three years. We stated, however, that incumbent LECs and incumbent

cable companies could obtain LMDS licenses at auction and use

partitioning as a means to divest an overlapping portion of the BTA to

comply with the eligibility restrictions. In its comments, WebCel

argues that the Commission should reconsider this action and should not

permit incumbent LECs and cable companies to use partitioning as a

means of curing eligibility problems.

30. Discussion. We decided the issue of whether we should permit

incumbent LECs and cable companies to use partitioning to come into

compliance with the eligibility restrictions in our Second R&O. The

purpose of our Fifth NPRM was not to revisit this issue but to decide

the mechanics of implementing partitioning and disaggregation for LMDS.

Therefore, we find that, while they were styled as ``Comments,'' a

portion of WebCel's pleading is actually an untimely-filed petition for

reconsideration of the eligibility rules from our Second R&O. We agree

with Bell Atlantic, RTG and Sprint that this portion of WebCel's

Comments should not be considered in this phase of the proceeding. In

this connection, we addressed WebCel's arguments in the Third Order on

Reconsideration in this proceeding and affirmed the divestiture

provision.

[[Page 26507]]

31. We conclude that the rules we adopt herein will provide LMDS

licensees with the flexibility to structure partitioning and

disaggregation agreements which meet their business needs. We have

followed the general framework for partitioning and disaggregation that

we have previously adopted for other wireless services in an effort to

create regulatory parity among all licensees. As with the other service

and licensing rules we have adopted for LMDS, we believe that this

action will result in more efficient use of spectrum, will increase

opportunities for small businesses and other entities to enter the LMDS

marketplace, and will speed service to unserved areas.

I. PROCEDURAL MATTERS

A. Regulatory Flexibility Act

32. The Final Regulatory Flexibility Analysis pursuant to the

Regulatory Flexibility Act, 5 U.S.C. 604, is contained in the

attachment.

B. Ordering Clauses

33. Accordingly, it is ordered that, pursuant to the authority of

Sections 4(i), 303(g), 303(r), and 332(a) of the Communications Act of

1934, as amended, 47 U.S.C. 154(i), 303(g), 303(r), and 332(a),

Sec. 101.1111 of the Commission's Rules, 47 CFR 101.1111, is amended as

set forth in the rule changes attachment.

34. It is further ordered that the rule change adopted herein shall

become effective July 13, 1998. This action is taken pursuant to

Sections 4(i) and 303(r) of the Communications Act of 1934, as amended,

47 U.S.C. 154(i) and 303(r).

35. It is further ordered that the Director, Office of Public

Affairs, shall send a copy of this Fourth Report and Order, including

the Final Regulatory Flexibility Analysis, to the Chief Counsel for

Advocacy of the Small Business Administration, in accordance with

Section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601(a).

List of Subjects in 47 CFR Part 101

Communications equipment, Radio.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Part 101 of title 47 of the Code of Federal Regulations is amended

as follows:

PART 101--FIXED MICROWAVE SERVICES

1. The authority citation for part 101 continues to read as

follows:

Authority: 47 U.S.C. 154, 303.

2. Section 101.1111 is revised to read as follows:

Sec. 101.1111 Partitioning and disaggregation.

(a) Definitions.--Disaggregation. The assignment of discrete

portions or ``blocks'' of spectrum licensed to a geographic licensee or

qualifying entity.

Partitioning. The assignment of geographic portions of a licensee's

authorized service area along geopolitical or other boundaries.

(b) Eligibility. (1) Parties seeking approval for partitioning and

disaggregation shall request an authorization for partial assignment of

a license pursuant to Sec. 101.53. Parties shall submit the forms set

forth in Sec. 101.15(e).

(2) Licensees may apply to partition their licensed geographic

service area or disaggregate their licensed spectrum at any time

following the grant of their licenses.

(c) Technical Standards.--(1) Partitioning. In the case of

partitioning, requests for authorization for partial assignment of a

license must include, as an attachment, a description of the

partitioned service area. The partitioned service area shall be defined

by coordinate points at every 3 degrees along the partitioned service

area unless an FCC recognized service area is utilized (i.e., Major

Trading Area, Basic Trading Area, Metropolitan Service Area, Rural

Service Area or Economic Area) or county lines are followed. The

geographic coordinates must be specified in degrees, minutes, and

seconds to the nearest second of latitude and longitude and must be

based upon the 1983 North American Datum (NAD83). In the case where an

FCC recognized service area or county lines are utilized, applicants

need only list the specific area(s) (through use of FCC designations or

county names) that constitute the partitioned area. In such

partitioning cases where an unjust enrichment payment is owed the

Commission, the request for authorization for partial assignment of a

license must include, as an attachment, a calculation of the population

of the partitioned service area and the licensed geographic service

area.

(2) Disaggregation. Spectrum may be disaggregated in any amount.

(3) Combined Partitioning and Disaggregation. The Commission will

consider requests for partial assignment of licenses that propose

combinations of partitioning and disaggregation.

(d) License Term. The license term for a partitioned license area

and for disaggregated spectrum shall be the remainder of the original

licensee's license term as provided for in Sec. 101.67 of this chapter.

(e) Construction Requirements. Applications requesting approval for

partitioning or disaggregation must include a certification by each

party that it will satisfy the construction requirement set forth in

Sec. 101.1011 of this chapter. Failure by a party to meet its

respective construction requirement will result in the automatic

cancellation of its license without further Commission action.

Note: The following attachment will not appear in the Code of

Federal Regulations.

Attachment--Final Regulatory Flexibility Analysis

As required by Section 603 of the Regulatory Flexibility Act

(RFA), 5 U.S.C. 603, an Initial Regulatory Flexibility Analysis

(IRFA) was incorporated in the Fifth Notice of Proposed Rule Making

(Fifth NPRM) in CC Docket No. 92-297. The Commission sought written

public comment on the proposals in the Fifth NPRM, including the

IRFA. The Commission's Final Regulatory Flexibility Analysis in this

Fourth Report and Order (Fourth R&O) conforms to the RFA, as amended

by the Contract With America Advancement Act of 1996.

A. Need for and Purpose of This Action

In the Fourth R&O, the Commission modifies the Local Multipoint

Distribution Service (LMDS) rules to permit partitioning and

disaggregation for all licensees. With more open partitioning and

disaggregation, additional entities, including small businesses, may

participate in the provision LMDS without needing to acquire

wholesale an existing license (with all of the bundle of rights

currently associated with the existing license). Acquiring ``less''

than the current license will presumably be a more flexible and less

expensive alternative for entities desiring to enter these services.

B. Summary of Issues Raised in Response to the Initial Regulatory

Flexibility Analysis

None of the commenters submitted comments that were specifically

in response to the IRFA.

C. Description and Number of Small Entities Involved

The rules adopted in the Fourth R&O will affect all small

businesses which avail themselves of these rule changes, including

small businesses that will obtain LMDS licenses through auction and

subsequently decide to partition or disaggregate, and small

businesses who may acquire licenses through partitioning and/or

disaggregation.

The Commission has not developed a definition of small entities

applicable to LMDS. In the Second Order on Reconsideration, the

Commission adopted criteria for defining small businesses for

purposes of determining eligibility for special provisions such as

bidding credits. The Commission has adopted a three-tier definition

of small businesses: businesses with gross annual revenues of not

more than

[[Page 26508]]

$15 million, businesses with gross annual revenues of more than $15

million but not more than $40 million and businesses with gross

revenues of more than $40 million but not more than $75 million. We

will use these definitions for estimating the potential number of

entities choosing to partition or disaggregate or who may acquire

licenses through partitioning and disaggregation that are small

businesses.

It is not possible to predict how many LMDS licensees meeting

one of the above definitions will be successful at auction and

subsequently decide to partition or disaggregate. The Commission

plans to issue 2 licenses each for 493 Basic Trading Areas (BTAs).

Thus, 986 licenses will be made available for authorization. It is

expected that a significant number of successful bidders in the LMDS

auction will satisfy one of the above definitions. There is only one

company, CellularVision USA, Inc. (CellularVision), that is

currently providing LMDS video services. Although the Commission

does not collect data on annual receipts, it is assumed that

CellularVision is a small business under all of the above outlined

definitions. Similarly, it is not possible to determine how many of

those entities obtaining licenses through partitioning and

disaggregation will meet one of the above definitions. However, it

is expected that many entities meeting one of the above definitions

will use partitioning and disaggregation as a means to obtain LMDS

licenses at lower costs.

D. Summary of Projected Reporting, Recordkeeping and Other

Compliance Requirements

The rules adopted in the Fourth R&O will impose reporting and

recordkeeping requirements on small businesses seeking licenses

through partitioning and disaggregation. The information

requirements will be used to determine whether the licensee is a

qualifying entity to obtain a partitioned license or disaggregated

spectrum. This information will be given in a one-time filing by any

applicant requesting such a license. The information will be

submitted on the FCC Form 702 which is currently in use and has

already received Office of Management and Budget clearance. The

Commission estimates that the average burden on the applicant is

three hours for the information necessary to complete these forms.

The Commission estimates that 75 percent of the respondents (which

may include small businesses) will contract out the burden of

responding. The Commission estimates that it will take approximately

30 minutes to coordinate information with those contractors. The

remaining 25 percent of respondents (which may include small

businesses) are estimated to employ in-house staff to provide the

information.

E. Steps Taken To Minimize Burdens on Small Entities

The rules adopted in the Fourth R&O are designed to implement

Congress' goal of giving small businesses, as well as other

entities, the opportunity to participate in the provision of

spectrum-based services and are consistent with the Communications

Act's mandate to identify and eliminate market entry barriers for

entrepreneurs and small businesses in the provision and ownership of

telecommunications services.

Allowing non-restricted partitioning and disaggregation will

facilitate market entry by parties who may lack the financial

resources for participation in auctions, including small businesses.

Some small businesses may have been unable to obtain LMDS licensees

through auction due to high bidding. By allowing open partitioning

and disaggregation, small businesses will be able to obtain licenses

for smaller service areas and smaller amounts of spectrum at

presumably reduced costs, thereby providing a method for small

businesses to enter the LMDS marketplace.

Allowing geographic partitioning of LMDS licenses by service

areas defined by the parties will provide an opportunity for small

businesses to obtain partitioned LMDS license areas designed to

serve smaller, niche markets. This will permit small businesses to

enter the LMDS marketplace by reducing the overall cost of acquiring

a partitioned LMDS license.

Allowing disaggregation of spectrum in any amount will also

promote participation by small businesses who may seek to acquire a

smaller amount of LMDS spectrum tailored to meet the needs of their

proposed service.

F. Significant Alternatives Considered and Rejected

The Commission considered and rejected the following alternative

proposals concerning LMDS partitioning and disaggregation.

The Commission rejected a plan set forth by WebCel

Communications, Inc. (WebCel). Instead of requiring all partitioning

and disaggregation transactions to comply with our existing

assignment procedures, WebCel suggested that the Commission permit

parties to enter into agreements to partition and disaggregate

without prior Commission approval so long as notification is given

to the Commission by the original LMDS licensee. The Commission

considers partitioning and disaggregation transactions to be

essentially partial assignments of license, and Commission review

and approval is necessary to ensure compliance with its rules. Thus,

the Commission concluded that WebCel's proposed model is not an

appropriate construct for characterizing partitioning and

disaggregation transactions.

Finally, the Commission rejected a suggestion by CellularVision

that LMDS partitionees and disaggregatees should be allowed to

qualify for a renewal expectancy which is based upon their reduced

license period. The Commission found that this approach would

contradict its construction requirements for LMDS partitionees and

disaggregatees which require these entities to meet a separate

substantial service requirement by the end of their license term.

Partitionees and disaggregatees are not permitted to meet a scaled-

down substantial service construction requirement simply because of

the fact that they had a license term of less than ten years. The

Commission found that, by requiring LMDS partitionees and

disaggregatees to meet the same substantial service requirement for

renewal expectancy as all other licensees, LMDS licensees will be

encouraged to quickly develop their markets and fully utilize their

available spectrum.

G. Report to Congress

The Commission shall include a copy of this Final Regulatory

Flexibility Analysis, along with this Fourth R&O, in a report to be

sent to Congress pursuant to the Small Business Regulatory

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

[FR Doc. 98-12667 Filed 5-8-98; 5:08 pm]

BILLING CODE 6712-01-U