Service and Auction Rules for the 38.6-40.0 GHz Frequency Band
Federal RegisterFeb 6, 1998
Ask Donna
What actually matters in this document.
Text
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 101
[ET Docket No. 95-183; PP Docket No. 93-253; FCC 97-391]
Service and Auction Rules for the 38.6-40.0 GHz Frequency Band
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In the Report and Order portion of the Second Notice of
Proposed Rule Making and Report and Order, the Commission amends rules
to facilitate more effective use of the 39 GHz band, by implementing a
number of improvements such as licensing by Basic Trading Areas (BTAs)
and employing competitive bidding procedures as a means for choosing
among mutually exclusive license applicants. In addition, the
Commission concludes that the regulatory framework for the 39 GHz band
should be expanded to include service rules for mobile operations. Such
flexibility will promote competition by increasing both the diversity
of potential service offerings and the number of providers that can
offer any service. Finally, the Commission addresses those 39 GHz
applications held in abeyance pursuant to a processing freeze.
EFFECTIVE DATE: April 7, 1998.
ADDRESSES: 1919 M Street, N.W., Room 222, Federal Communications
Commission, Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: (For service and licensing rules),
Susan Magnotti, Public Safety and Private Wireless Division, (202) 418-
0871; (for auction rules and procedures) Christina Eads Clearwater,
Auctions and Industry Analysis Division, (202) 418-0660.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Report and Order
portion of the Commission's Second Notice of Proposed Rule Making and
Report and Order in ET Docket No. 95-183 and PP Docket No. 93-253,
adopted October 24, 1997 and released November 3, 1997. The complete
text of the Second Notice of Proposed Rule Making and Report and Order
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, at (202) 857-3800, 1231 20th
Street, N.W., Washington, D.C. 20036.
[[Page 6080]]
Synopsis of Report and Order in the Second Notice of Proposed
Rulemaking and Report and Order
1. In the Report and Order portion of the Second Notice of Proposed
Rulemaking and Report and Order, the Commission amends parts 1 and 101
of title 47, Code of Federal Regulations, to facilitate more effective
use of the 39 GHz band. The Commission implements a number of
improvements such as licensing by Basic Trading Areas (BTAs) and
employing competitive bidding procedures as a means for choosing among
mutually exclusive license applicants. (Rand McNally is the copyright
owner of the Basic Trading Area and Major Trading Area Listing, which
lists the counties contained in each BTA, as embodied in Rand McNally's
Trading Areas System diskette and geographically represented in the map
contained in Rand McNally's Commercial Atlas & Marketing Guide.) In
addition, it concludes that its regulatory framework should be expanded
to include service rules for mobile operations in the 39 GHz band.
Thus, 39 GHz service providers will be better positioned to respond to
the dictates of the marketplace. Moreover, such flexibility will
promote competition by increasing both the diversity of potential
service offerings and the number of providers that can offer any
service. Finally, the Commission addresses those 39 GHz applications
held in abeyance pursuant to the processing freeze imposed in the
Notice of Proposed Rulemaking and Order, (NPRM and Order), 61 FR 02452
(January 26, 1996) as modified in its subsequent Memorandum Opinion and
Order, 62 FR 14015 (March 25, 1997).
2. In the NPRM and Order, the Commission considered permitting an
array of fixed services in the 37 GHz band. Subsequently, Motorola and
other satellite entities expressed their interest in this band as well,
and similar interests were expressed for other high gigahertz bands.
Accordingly, the Commission decided to address the 36.0-51.0 GHz bands
in a unified manner, and In the Matter of Allocation and Designation of
Spectrum For Fixed-Satellite Services in the 37.5-38.5 GHz, 40.5-41.5
GHz, and 48.2-50.2 GHz Frequency Bands; Allocation of Spectrum to
Upgrade Fixed and Mobile Allocations in the 40.5-42.5 GHz Frequency
Band, Allocation of Spectrum in the 46.9-47.0 GHz Frequency Band for
Wireless Services; and Allocation of Spectrum in the 37.0-38.0 GHz and
40.0-40.5 GHz for Government Operations, IB Docket No. 97-95, Notice of
Proposed Rulemaking, FCC 97-85 (rel. March 24, 1997) (``36-51 GHz
NPRM''), Notice of Proposed Rulemaking, 62 FR 16129 (April 4, 1997),
the Commission sought comment on its proposals for these frequency
bands. However, because the 39 GHz band is significantly licensed and
subject to additional applications for license, the Commission has
concluded that it is in the public interest to refine its rules at this
time to allow existing and new licensees to maximize the array of
services they can provide to the public. In addition to providing
support for existing services (e.g., broadband PCS, cellular, and other
commercial and private mobile radio operations), 39 GHz band providers
plan to use this spectrum to satisfy needs for a host of other fixed
services, such as: (1) Wireless local loops, (2) call termination or
origination services to long distance companies, (3) connection of the
customers of a competitive access provider (``CAP'') or a local
exchange carrier (``LEC'') to its fiber rings, (4) connection and
interconnection services to private networks operated by business and
government as well as other institutions, (5) Internet access, and (6)
cable headend applications. In some cases, 39 GHz band licensees are
already using the spectrum for such purposes.
I. Decision--Service Rules
A. Service Areas
3. The Commission adopts its proposal in the NPRM and Order to
license new 39 GHz licenses based on pre-defined geographic areas
rather than the applicant-defined rectangular areas currently
authorized in the 39 GHz band. Commission-defined service areas will
foster efficient utilization of 39 GHz spectrum in an expeditious
manner and will provide a more orderly structure for the licensing
process. The Commission therefore rejects the suggestion by some
commenters that it continue licensing the 39 GHz band by permitting
applicants to define their own service areas. For those interested in
tailoring a service area to other smaller or larger markets, the
Commission notes that, concurrently with the instant proceeding, it is
also proposing service rules to allow partitioning and disaggregation
by 39 GHz licensees.
4. In choosing the most appropriate definition for 39 GHz service
areas, the Commission observes that its conclusion that this band is
auctionable (explained below in Discussion Section A) requires it to
apply the criteria of section 309(j)(4)(C) of the Communications Act of
1934, as amended, (``Act'' or ``Communications Act''). This section
mandates that the Commission consider certain factors when establishing
service areas for auctionable services. The first of these criteria is
that the service area promote an equitable distribution of licenses and
services among geographic areas. The Commission believes that use of
BTAs fulfills this objective because they are intended to represent the
natural flow of commerce, comprising areas within which consumers have
a community of interest. As a result, the Commission believes that BTAs
are representative of the geographic areas in which the types of
services envisioned for the 39 GHz band are likely to be provided. The
second criterion the Commission is required to consider is whether the
service area is appropriate to provide economic opportunity for a wide
variety of applicants, including small businesses, rural telephone
companies, and businesses owned by members of minority groups and
women. The Commission believes that BTAs are sufficiently large to
accommodate the array of services proposed for the 39 GHz band in a
manner which provides opportunities for a variety of licensees. The
BTA-sized service areas for support spectrum will be compatible with
the primary service areas defined for broadband PCS providers. The
Commission also believes that other services, such as telephony, would
find sufficient population within BTAs to support the pursuit of
various business opportunities. In addition, the Commission believes
that other services anticipated for 39 GHz spectrum, such as wireless
local loop, competitive access, local exchange, and Internet access,
are of a local nature for which use of BTAs also would be appropriate.
Moreover, the Commission believes that use of BTAs as the service area
definition for the 39 GHz band will also satisfy the third criterion of
section 309(j)(4)(C), which requires that the Commission establish
service areas in a manner which will promote investment in and rapid
deployment of new technologies and services. Accordingly, the
Commission agrees with the commenters who advocate the use of BTAs for
licensing the 39 GHz band.
5. The Commission disagrees with those commenters who contend that
the service areas for the 39 GHz band should be based on larger
geographic areas. The Commission believe that BTAs offer a sufficiently
large service area to allow applicants flexibility in designing a
system to maximize population coverage and to take advantage of
economies of scale necessary to support a successful
[[Page 6081]]
operation. Moreover, to the extent that 39 GHz licensees desire to
provide service over a larger geographic region, the rules the
Commission adopt today will allow them to aggregate BTAs. The
Commission does not believe, however, nor does the record indicate,
that the majority of licensees will seek to provide service over vast
geographic regions. Thus, the Commission believes that larger service
areas would be inappropriate for the 39 GHz band.
6. Finally, although GTE expressed some concern that any Rand
McNally licensing agreement should be reasonable, the Commission does
not believe that the existence of Rand McNally's copyright interest in
the BTA listings will present an impediment to use of these areas by 39
GHz band licensees. The Commission expects that potential licensees and
Rand McNally will execute a licensing agreement similar to those
already undertaken in other contexts. In particular, Rand McNally has
already licensed the use of its copyrighted MTA/BTA listing and maps
for a number of services, such as PCS, 800 MHz Special Mobile Radio
(SMR) service, and Local Multipoint Distribution Service (``LMDS''),
and the company has also reached an agreement with the American Mobile
Telecommunications Association (``AMTA'') for a blanket copyright
license for the conditional use of copyrighted material in the 900 MHz
SMR service. These agreements authorize the conditional use of Rand
McNally's copyrighted material in connection with these particular
services, require interested persons using the material to include a
legend on reproductions (as specified in the license agreement)
indicating Rand McNally's ownership, and provide for a payment of a
license fee to Rand McNally.
7. The Commission encourages interested parties and Rand McNally to
explore the possibility of entering into blanket license agreements to
cover the 39 GHz band. The Commission notes that a 39 GHz BTA
authorization grantee who does not obtain a copyright license through a
blanket license agreement (or some other arrangement) with Rand McNally
for use of the copyrighted material may not rely on the grant of a BTA-
based authorization from the Commission as a defense to any claim of
copyright infringement brought by Rand McNally against such grantee.
The MTA/BTA Listings, the MTA/BTA Map and the license agreements noted
above are available for public inspection at the Wireless
Telecommunications Bureau, Reference Room, Room 5322, 2025 M Street,
N.W., Washington, D.C., 20554.
B. Permissible Operations in the 39 GHz Band
8. In the NPRM and Order, the Commission raised questions about
expanding the array of services provided in the 39 GHz band to include
point-to-multipoint and mobile operations. Although these services are
permitted under the Table of Allocations for this spectrum band, the
only type of service authorized under the Commission's current service
rules is point-to-point operations. The 39 GHz band is currently being
licensed and used for non-Government, terrestrial-based, fixed, point-
to-point microwave service. In addition, there are no satellite
operations in the 39 GHz band. Accordingly, the Commission's efforts to
improve the licensing and service rules for non-Government service in
this band are not affected by any existing assignments under different
allocations. The Commission takes note of the fact that the 39 GHz band
contains the following allocations:
Domestically, the 38.6-39.5 GHz portion of the band is
allocated for non-Government use to provide fixed and mobile services
and FSS (space-to-Earth) on a primary basis. In addition to these
primary allocations, the 39.5-40.0 GHz portion of the band is allocated
on a shared basis between Government and non-Government users on a
primary basis for FSS (space-to-Earth) and Mobile-Satellite Service
(``MSS'') (space-to-Earth). Government use of 39.5-40.0 GHz is limited
to military systems.
Internationally, the 39 GHz band is allocated on a co-
primary basis for fixed and mobile services and FSS (space-to-Earth),
and on a secondary basis for use by the Earth-Exploration Satellite
service (space-to-Earth). The 39.5-40.0 GHz portion of the band is also
allocated on a primary basis for MSS (space-to-Earth).
9. In the NPRM and Order, the Commission requested public comment
on whether it should also establish service rules which would permit
point-to-multipoint and mobile services. Many parties commenting in
this proceeding have encouraged us to allow them flexibility to
determine the best uses of the 39 GHz band; in particular, they have
requested authority to provide point-to-multipoint and mobile service,
as the technology to provide these services becomes available. The
Commission has considered these comments in connection with the recent
amendment to section 303 of the Communications Act concerning criteria
it must consider when permitting flexible use of the electromagnetic
spectrum, which was enacted after the NPRM and Order and after the
comment period had been completed in this proceeding.
i. Point-to-Multipoint Operations
10. Given the fact that the 39 GHz service is still in its early
stages of development, the Commission believes that it is imperative
that it not take any regulatory actions that would hamper the service's
continued development and growth potential. The Commission notes, as a
general matter, that the type of services proposed for the 39 GHz band
by the commenters can be offered on both a point-to-point and point-to-
multipoint basis. Although a few commenters contend that the Commission
should defer allowing point-to-multipoint operations in this band until
specific technical rules are adopted to protect against interference to
point-to-point users (such as equipment specifications), there is no
evidence in the record that point-to-point and point-to-multipoint
operations are inherently incompatible in the same band or licensing
area. Therefore, the Commission will adopt 39 GHz rules for point-to-
multipoint operations.
ii. Mobile Operations
11. The Commission has considered the comments of several parties
requesting that it establish rules to permit mobile operations in this
band. Parties opposing authorization of mobile services in the 39 GHz
band argue that there are no technical parameters to protect both fixed
and mobile operations from mutual interference.
12. After careful review of the record evidence, the Commission has
decided to permit implementation of mobile operations in the 39 GHz
band. Permitting such flexibility will enable providers to modify their
offerings quickly and efficiently to provide the services that
consumers demand and that technology makes possible. Thus, providers
will be better positioned to respond to the dictates of the
marketplace. Moreover, such flexibility will promote competition by
increasing both the diversity of potential service offerings and the
number of providers that can offer any service. Thus, the requirements
of section 303(y) are fulfilled because both technological development
and investment therein will be stimulated. Moreover, this broad view of
the character of 39 GHz service comports with the development of the
industry thus far because parties are developing a wide variety of
fixed services and some parties may be developing, or planning to
develop,
[[Page 6082]]
mobile services technology capable of operating without interference to
fixed facilities in this band. Accordingly, the Commission is convinced
that establishing rules for mobile operations will best serve the
public interest. In addition, the Commission observes that in a number
of other contexts it has authorized licensees to provide both mobile
and fixed operations within the same service--e.g., General Wireless
Commercial Services (``GWCS''), the Commercial Mobile Radio Services
(``CMRS''), and the Interactive Video and Data Service (``IVDS'').
13. For the most part, the objections that have been raised to
mobile operations in this proceeding are misplaced. Since the service
is licensed on an exclusive, area-wide basis (whether by incumbents'
rectangular service areas or by new licensees' BTAs), the issue of
technical compatibility of fixed and mobile operations within a service
area is one that can and should be resolved by the licensee. To the
extent that a licensee has the technological wherewithal to provide one
or the other, or both, types of services, the licensee will do so in a
manner that the market directs. Governmental direction in this service
is unnecessary except to the extent that the operations of one licensee
may interfere with that of another. Even if mobile operations are not
now compatible with fixed operations within a licensee's service area,
if adequate protections against inter-licensee interference are in
place, a failure to authorize mobile use in this spectrum might delay
implementation of a dual (mobile and fixed) operation when it does
become feasible. Accordingly, the Commission agrees that 39 GHz
licensees should have the flexibility to provide mobile services.
14. The Commission recognizes that inter-licensee interference
issues are magnified under this approach. For example, a mobile unit
operating in a fixed microwave environment on the same frequency calls
for a different interference analysis and a more difficult resolution
than the operation of two or more fixed microwave systems on the
identical frequency in the same vicinity. In addition, the Department
of Defense has stated that it has plans to implement satellite
downlinks at 39.5-40.5 GHz in the future. NASA has also identified
39.5-40.0 GHz as a possible space research band to accommodate future
earth-to-space wideband data requirements. Such plans, however, should
not affect the continued development of the 39 GHz band for non-
Government use. The Commission believes that it is likely that military
satellite systems will be able to share with non-Government terrestrial
and/or fixed satellite systems, provided that the Government receiving
Earth stations are limited in number. The Commission intends to address
these interference issues in a future, separate proceeding that will
focus on developing inter-licensee and inter-service standards and
criteria. Until these standards and criteria are adopted the Commission
will not permit mobile operations in the 39 GHz band.
iii. The Balanced Budget Act Requirements for Flexible Use
15. The Balanced Budget Act authorizes the Commission to allocate
spectrum so as to provide flexible use, if such use is consistent with
international agreements to which the United States is a party and the
Commission finds that: (1) Such an allocation would be in the public
interest; (2) such use would not deter investment in communications
services and systems, or technical development; and (3) such use would
not result in harmful interference among users. In the NPRM and Order,
the Commission sought comment on whether it should allow point-to-
multipoint and mobile operations in addition to the traditional point-
to-point services authorized in the 39 GHz band. As discussed supra,
the Commission finds that the flexible use approach adopted herein is
consistent with the new statute. Accordingly, the Commission will
permit point-to-point, point-to-multipoint and mobile operations on the
39 GHz band. However, as explained supra, the Commission will defer
mobile use until a future rulemaking proceeding can establish
interference criteria. Accordingly, the Commission finds, as required
by Section 303(y) of the Communications Act, as amended by the Balanced
Budget Act, that no harmful interference will be caused by allowing
both point-to-point and point-to-multipoint operations in the 39 GHz
band. The Commission concludes further, based on the above-mentioned
comments in the record, that point-to-multipoint use will not deter
investment in communications services and systems, or in technology
development. To the contrary, permitting point-to-multipoint use will
stimulate creative technology development and facilitate investment
therein. It is in the public interest to afford 39 GHz licensees
flexibility in the design of their systems to respond readily to
consumer demand for their services, thus allowing the marketplace to
dictate the best uses for this band. Accordingly, the Commission finds
that the requirements of Section 303(y) of the Communications Act, as
amended, are fulfilled to justify point-to-multipoint use of the 39 GHz
band as part of a flexible use approach. While at this time, the
Commission is not determining the specific provisions for interference
protection with regard to mobile use, it will adopt such requirements
before permitting mobile operations in this band.
C. Channeling Plan
16. The existing 39 GHz channeling plan consists of fourteen paired
50 MHz channel blocks, with a spacing of 700 MHz between the transmit
and receive frequencies. Within this framework, 39 GHz licensees have
the flexibility to subdivide their channels in the manner they deem
most appropriate to meet service demands. The Commission will retain
its current channel plan. The Commission concludes that adopting a
standard subchannelization plan at this early stage in the development
of the 39 GHz service would potentially hamper licensees' efforts to
meet their customer demands and could unnecessarily impose technical
and economic costs on equipment users and limit the range of services
potentially available. Moreover, given the short propagation
transmission characteristics at these frequencies, lack of a
subchannelization plan is not likely to cause any significant
coordination problems in the 39 GHz band. Furthermore, because the
Commission anticipates that one of the uses for the 39 GHz band is
provision of CMRS infrastructure, it is concerned that adoption of a
subchannelization plan may frustrate such use if it is inconsistent
with the channeling plan for particular CMRS providers. Thus, the
Commission believes that the existing approach that allows 39 GHz
licensees to freely subdivide their channel blocks will not only avoid
this unintended result but also facilitate the most flexible and
efficient use of 39 GHz spectrum. As the Commission observed in the
NPRM and Order, however, the Commission's decision not to adopt a
standard subchannelization plan does not preclude the industry from
developing its own voluntary standards in this area.
D. Licensing Rules
i. Eligibility
17. In addressing the eligibility issue, the Commission inquires
whether open eligibility poses a significant likelihood of substantial
competitive harm in specific markets, and, if so, whether eligibility
restrictions are an effective way to address that harm. This approach
results in reliance on
[[Page 6083]]
competitive market forces to guide license assignment absent a
compelling showing that regulatory intervention to exclude potential
participants is necessary. Such an approach is appropriate here because
it best comports with the Commission's statutory guidance. When
granting the Commission authority in Section 309(j)(3) to auction
spectrum for the licensing of wireless services, Congress acknowledged
the Commission's authority ``to [specify] eligibility and other
characteristics of such licenses.'' However, Congress specifically
directed that the Commission exercise that authority so as to
``promot[e] * * * economic opportunity and competition.'' Congress also
emphasized this pro-competitive policy in Section 257, where it
articulated a ``national policy'' in favor of ``vigorous economic
competition'' and the elimination of barriers to market entry by a new
generation of telecommunications providers. This approach is also
consistent with the Commission's analysis in Rulemaking To Amend Parts
1, 2, 21, and 25 of the Commission's Rules To Redesignate the 27.5-29.5
GHz Frequency Band, To Reallocate the 29.5-30.0 GHz Frequency Band, To
Establish Rules and Policies for Local Multipoint Distribution Service
and for Fixed Satellite Services, Petitions for Reconsideration of the
Denial of Applications for Waiver of the Commission's Common Carrier
Point-to-Point Microwave Radio Service Rules, CC Docket No. 92-297,
Suite 12 Group Petition for Pioneer Preference, PP-22, Second Report
and Order, Order on Reconsideration, and Fifth Notice of Proposed
Rulemaking, 62 FR 16514 (April 7, 1997), adopting subpart L of part 101
of the Commission's Rules, 47 CFR 101.1001-1112; appeal pending sub
nom. Melcher v. FCC, Case Nos. 93-110, et al. (D.C. Cir., filed Feb. 8,
1993); Order on Reconsideration, 62 FR 28373 (May 23, 1997). Finally,
implementation of this approach is consistent with the court's
treatment of eligibility issues in Cincinnati Bell Tel. Co. v. FCC, 69
F.3d 752 (6th Cir. 1995), at 760. In that decision, the Court looked to
statistical data and general economic theory as support for predictive
judgments by the Commission such as a finding that eligibility
restrictions are required.
18. In the case of the 39 GHz band, the Commission determines that
it is unlikely that substantial anticompetitive effects would result
from LEC eligibility for two primary reasons. First, increased LEC
provision of services other than those provided in local exchange
markets, such as point-to-point backhaul and backbone transmission,
will not diminish the generally competitive environment in which those
services are now available. Second, even presuming that 39 GHz licenses
will enable effective provision of services that can compete with local
exchange service, such as wireless local loop, incumbent LECs should
have little or no incentive to acquire those licenses with the
anticompetitive intent of foreclosing entry by other firms and
preserving market power. An incumbent strategy of preserving expected
future profits by buying 39 GHz licenses cannot succeed because there
are numerous other sources of actual and potential competition. As
discussed supra, there are many non-LEC license holders in the 39 GHz
band currently, and these licensees will be able to provide services
that compete with wireline local exchange. In addition, the
Commission's overall 36-51 GHz band plan contemplates making available
considerable additional spectrum, including substantial unencumbered
spectrum, for flexible terrestrial use at frequencies close to those
covered by this Order. These future licenses should enable provision of
whatever competitive services can be provided with the 39 GHz licenses.
Further, entry by other wireless licensees is possible as well, such as
CMRS firms now authorized to provide fixed services. Moreover, the
Telecommunications Act of 1996, Public Law 104-104, 110 Stat. 56
(1996), has set the stage for new facilities-based, wireline entrants
such as interexchange carriers and competitive LECs, and non-
facilities-based wireline entrants utilizing the new local competition
provisions. Finally, the Commission has now provided for one additional
potential competitive option in every region of the country in the form
of the 1150 MHz LMDS licensee. The Commission has imposed an
eligibility restriction preventing in-region LECs (and cable television
companies) from acquiring these large LMDS licenses for three years,
guaranteeing that each license will be acquired by a firm new to
provision of local exchange in the service area. Therefore, these
licensees also constitute potential competition for incumbent LECs
providing local exchange services. Given all these competitive
possibilities, it is implausible that incumbent LECs would pursue a
strategy of buying 39 GHz licenses in the hope of foreclosing or
delaying competition, and implausible that they would succeed if that
strategy were attempted. Therefore, the Commission finds that LEC
eligibility for these licenses poses no likelihood of substantial
competitive harm.
19. Note that several factors, taken together, explain the
distinction between the Commission's resolution of the eligibility
issue here and in the case of the 1150 MHz LMDS licenses. The 1150 MHz
LMDS license blocks are unusually large, making possible the provision
of voice, video, data, or some combination of these services. With the
possibility of providing voice cheaply as part of a set of services,
the 1150 MHz LMDS license is a particularly attractive competitive
option, and incumbents are particularly likely to attempt acquisition
in order to prevent entry by new competitors using the LMDS license. In
addition, with only one large LMDS license available per geographic
area, anticompetitive preemption is quite feasible and thus the risk of
such acquisition is increased. Moreover, the 39 GHz licenses being made
available within the near future (i.e., within a similar time frame as
the LMDS spectrum) are encumbered, while LMDS licenses are largely
unencumbered. Thus, 39 GHz licenses are less likely to be acquired by
incumbent LECs for anticompetitive motives. Most importantly, as noted
above, given the fact that the Commission has now provided for an
additional competitive option by imposing the 1150 MHz LMDS eligibility
restriction, the competitive circumstances it faces in this proceeding
differ from those it faced in the LMDS proceeding. The Commission's
eligibility analysis and conclusion here, in fact, are consistent with
the Commission's treatment of eligibility for the small, 150 MHz, LMDS
licenses.
20. Because the Commission sees no likely and substantial
competitive harm flowing from LEC eligibility, it rejects the argument
that LECs should be required to certify compliance with the
``Competitive Checklist'' as a precondition to participation in the 39
GHz auction. The Commission also notes as a general matter that LEC
eligibility can be expected to yield efficiency benefits if there are
complementarities between the ultimate use(s) of 39 GHz spectrum and
the existing LEC services when offered in the same service area. For
example, LECs might be able to achieve savings not available to new
entrants by taking advantage of their current infrastructure, and
imposition of restrictions would prevent realization of such savings.
Restrictions might also prevent incumbent LECs from experimenting with
certain technology and market combinations, and preclude or delay
[[Page 6084]]
desirable entry by incumbents into new markets.
ii. License Term
21. Under the Commission's previous rules, all common carrier 39
GHz licensees who were licensed before August 1, 1996 (i.e., those
licensed previously under part 21 of the Commission's Rules) were
subject to a fixed license term ending February 1, 2001, regardless of
the grant date of their individual licenses. Private carrier 39 GHz
licensees authorized before August 1, 1996 (i.e., those licensed
previously under part 94 of the Commission's Rules) received a five-
year license which would run from the date of license grant. However,
both private and common carrier licenses granted on or after August 1,
1996, the effective date of the Part 101 Report and Order, have a
license term not to exceed ten years. In addition, neither the former
fixed microwave rules in Parts 21 and 94, nor the current ones in the
new part 101, expressly provide for a renewal expectancy for common
carrier or private carrier 39 GHz licensees.
22. The Commission declines to increase the term to ten years for
incumbents who have received a shorter period under the rules that
predated those adopted in the Part 101 Report and Order. When it
adopted the part 101 rules, the Commission decided to conform the
license terms of common carrier and private carrier 39 GHz licensees on
a going forward basis. The Commission did not, therefore, alter the
conditions under which incumbent licensees had taken their licenses,
and it left in place a bifurcated approach toward renewal that would
exist until the incumbents' current licensing cycle runs its course.
The Commission is unpersuaded that this approach, adopted only a year
ago, should be altered.
iii. Performance Requirements: Renewal and Build-out
23. The Commission noted in the NPRM and Order that both cellular
and PCS licensees receive a renewal expectancy, and it proposed
adopting a similar standard in this proceeding. Commenters support
adopting a renewal expectancy for the 39 GHz service for similar
reasons, as they recognize the benefits that such a presumption offers.
24. Incumbent 39 GHz licensees are currently subject to the build-
out requirements of part 101 of the Commission's Rules, which require
that at least one link be constructed in a licensee's geographic
service area within eighteen months of the date of license grant. In
the NPRM and Order, the Commission proposed new build-out requirements
for incumbent 39 GHz licensees in order to ensure that the spectrum was
being used to provide service to the public. Because of the
Commission's concern that such licenses be used to provide service to
the public, the Commission solicited comment on its proposal to allow
incumbent 39 GHz licensees to retain their licenses only by meeting
specific construction and loading requirements. The Commission
suggested three basic construction build-out options, each of which
depended upon a specific number of fixed stations to be built within
the licensees' geographic service area. The build-out options were each
intended to ensure a minimum level of service. While the proposals
represented a significant departure from the current build-out rules
applicable to these licensees, in the NPRM and Order the Commission
stated that the purpose of these proposed measures was to minimize
speculation without harming existing 39 GHz licensees who are
responsibly developing the spectrum they have been assigned.
25. The Commission also requested comment on build-out requirements
for new licensees authorized pursuant to the competitive bidding rules
promulgated herein. In the NPRM and Order, the Commission observed that
the Communications Act requires that any regulations implementing a
competitive bidding system include performance requirements--such as
appropriate deadlines and penalties for performance failures--to ensure
prompt delivery of service to rural areas, to prevent stockpiling or
warehousing of spectrum by licensees, and to promote investment in and
rapid deployment of new technologies and services. The build-out
requirements that apply to other fixed, microwave services licensed on
a link-by-link basis, as well as those requirements that apply to
mobile services, did not appear appropriate for a fixed, geographically
licensed service like 39 GHz. Accordingly, the Commission asked for
comment on what other methods it might employ to ensure that licensees
are using their spectrum, servicing rural areas, and enabling the
provision of new services to the public. The Commission suggested that
these goals might be accomplished if it required licensees to
demonstrate substantial service in their service areas. As the
Commission noted in the NPRM and Order, the use of a substantial
service standard has precedent in the Commission's Rules.
26. The performance rules the Commission is adopting for the 39 GHz
band require each licensee to prove substantial service in order to
achieve license renewal. The Commission arrives at this approach based
on two factors. First, the approach satisfies the dictates of Section
309(j)(4)(B) of the Communications Act, which requires the Commission
to adopt effective safeguards and performance requirements for
licensees in connection with any competitive bidding system. The
Commission believes that the requirements it establishes herein will
fulfill this obligation, because a license will be assigned in the
first instance through competitive bidding, with the result that it
will be assigned efficiently to an entity that has shown, by its
willingness to pay market value, its willingness to put the license to
its best use.
27. Second, the approach the Commission is taking with regard to
performance rules is also based on the record in this proceeding, which
strongly supports giving 39 GHz licensees a significant degree of
flexibility in meeting their performance requirement. As described
above, the types of service available from 39 GHz providers is
tremendously varied, and the service promises to develop in ways the
Commission cannot predict at this time. Thus, an inflexible performance
requirement might impair innovation and unnecessarily limit the types
of service offerings 39 GHz licensees can provide. Permitting licensees
to demonstrate that they are meeting the goals of a performance
requirement with a showing tailored to their particular type of
operation avoids this pitfall. Moreover, the Commission's examples of
presumed substantial service, based on a specific number of links per
population standard, provides licensees with a degree of certainty
regarding their license requirements. Accordingly, the Commission
believes that the performance requirements it establish herein will
permit flexibility in system design and market development, yet provide
a clear and expeditious accounting of spectrum use by licensees to
ensure that service is indeed being provided to the public.
28. The Commission declines to adopt any of the build-out proposals
it made for incumbent 39 GHz licensees in the NPRM and Order. The first
option would have required licensees to meet a specific build-out
benchmark. The Commission has considered a number of possibilities for
such a benchmark, and it has rejected those that appear infeasible. The
Commission's principal proposal fell into this category. The Commission
had proposed to require any licensee to construct and put in operation
at least four links per 100
[[Page 6085]]
square kilometers of their service area within 18 months of adoption of
a Report and Order in this proceeding. The Commission is persuaded by
several commenters' arguments that such a build-out requirement would
be unduly restrictive and burdensome, thus unnecessarily limiting
licensees' service options. For the same reasons, the Commission
rejects a variant of its principal proposal, which would have combined
the alternatives discussed below with an 18-month requirement to
construct a certain number of links per 100 kilometers.
29. The other two alternatives the Commission had proposed for
providing licensees with specific build-out benchmarks are also
problematic. One alternative provided for a specific number of links,
increasing over time, per geographic area served by each licensee. This
alternative does not adequately take into account the differences among
licensees. Under this requirement, a licensee in a sparsely populated
BTA would have to build an operation that could provide the same level
of service as a licensee of a metropolitan BTA. Such an approach would
result in either an overly burdensome requirement for the licensee of
the smaller market or a very lenient and almost meaningless requirement
for the licensee of the metropolitan BTA. Moreover, since market size
is a reasonable proxy for gauging the appropriate comparative levels of
spectrum use, the Commission agrees with the consensus of the
commenters that any build-out standard should therefore be based on
market population or population density. This approach is, in fact, an
underpinning of standards that have been adopted for CMRS services such
as PCS and SMR.
30. The second alternative would have required licensees to
construct a specific number of link installations based on the market's
population. In the case of 39 GHz, however, the services to be offered
generally will be customized for each subscriber, and, for the most
part, each subscriber will have equipment dedicated to its location.
Moreover, 39 GHz licensees are not likely to install equipment until
they receive an order. The Commission further notes that some
commenters argue that adoption of a concrete standard would discourage
growth, stymie new development, and deter investment in the 39 GHz
arena. Accordingly, the Commission is concerned that a requirement for
a fixed number of links may interfere with the market decisions of a
particular licensee and its customers.
31. The Commission concludes that a showing of substantial service,
the approach it proposed for new 39 GHz licensees, should be applied to
both incumbent and new licensees in the band. This approach will permit
flexibility in system design and market development, while ensuring
that service is being provided to the public. Although a finding of
substantial service will depend upon the particular type of service
offered by the licensee, one example of a substantial service showing
for a traditional point-to-point licensee might consist of four links
per million population within a service area. This revised performance
standard should ensure that meaningful service will be provided without
unduly restricting service offerings.
32. One of the principal problems that commenters identified with
the Commission's build-out proposals was that they required too much
too soon. The Commission recognizes that licensees must be given a
reasonable amount of time to meet a performance requirement. Parties,
particularly incumbent licensees, also argued that different build-out
standards were unfair and would place an unreasonable burden on their
ability to respond to market demands. Accordingly, the Commission has
decided that in order to impose the least regulatory burden on
licensees as possible, but to remain consistent with the Commission's
statutory responsibilities, it will combine the showing traditionally
required for build-out and the showing required to acquire a renewal
expectancy into one showing at the time of renewal. The Commission
believes this will give licensees a sufficient opportunity to construct
their systems. The Commission believes that applying a similar
performance requirement to all licensees at the license renewal point
will help establish a level playing field without compromising the
goals of ensuring efficient spectrum use and expeditious provision of
service to the public.
33. The Commission recognizes that existing licensees who obtained
their licenses before August 1, 1996, will receive a somewhat shorter
period from the date of this decision to meet the construction
threshold (i.e., about four years). Extending the build-out deadline
past renewal, however, would not be prudent nor would it appear to be
consistent with the objectives of section 309(j) of the Communications
Act. Moreover, these incumbents already have had at least a year, and
in some cases more than two years, in which to set in motion their
business plans. Thus, the Commission does not believe this approach
will adversely affect incumbent 39 GHz licensees.
34. The Commission concurs with those commenters who advocate
adopting a renewal expectancy for all licensees in the 39 GHz band. As
with cellular and broadband PCS licensees, affording 39 GHz providers
the opportunity to earn a renewal expectancy will facilitate investment
for their industry, provide stability over the long run, and better
serve the public by reducing the possibility that proven operators will
be replaced with less effective licensees. The Commission is not
limiting this opportunity to newly licensed 39 GHz providers. The
build-out/renewal requirements established herein will, if met, serve
to give the incumbent licensee a renewal expectancy as well.
iv. Spectrum Aggregation Limit
35. In the NPRM and Order, the Commission sought general comment on
whether there should be a limit on the aggregation of 39 GHz channels
within a single BTA. The Commission also requested comment on whether
the 39 GHz service represents a discrete market. In the event that the
Commission concluded that this service did constitute a discrete
market, it indicated that a spectrum aggregation limit might be
advisable to ensure that there would be an adequate number of licenses
available to meet the needs of broadband PCS licensees and other
competitors in the wireless marketplace.
36. The Commission agrees with those commenters who oppose a 39 GHz
spectrum aggregation limit. The record strongly supports the conclusion
that 39 GHz licensees will participate in a number of broad markets,
consisting of a host of short-range fixed communications provided by
many operators who employ a range of different, but substitutable,
technologies (both radio and wire). Therefore, the Commission is not
concerned with guaranteeing a particular number of 39 GHz competitors
or with creating competition within the 39 GHz band. Moreover, as the
Commission noted above, there is no evidence that the 1400 megahertz of
spectrum in the 39 GHz band is particularly important for, or unusually
suited for, the creation of competition in two markets where market
power still exists--local telecommunications services and multi-channel
video program delivery. Therefore, an aggregation limit is not needed
in order to foster competition in these two markets. Indeed, a 39 GHz
spectrum aggregation limit that was applicable to 39 GHz licensees
might
[[Page 6086]]
limit the ability of a licensee to bring efficient competition to these
markets.
37. Although the Commission believes that some of the 39 GHz
spectrum will be used to satisfy CMRS and private mobile radio
infrastructure needs, it is persuaded by the commenters that a great
portion of this spectrum likely will be used to provide other wireless
services, e.g., local area network (``LAN'')-to-LAN, local access for
long distance providers, wireless augmentations to CAPs' networks, and
other high capacity data transmission networks. This is evidenced by
current 39 GHz operations, which are not supporting CMRS communications
infrastructure but generally tend to be local private line and local
bypass services. Since this arena is already being served by multiple
providers using a variety of technologies, it is clear that
disaggregated ownership of 39 GHz spectrum is not necessary for the
competitive provision of those services.
38. The Commission also notes that even the current users of the 39
GHz band are still in the early stages of developing their services,
and that the particular uses of this spectrum are still being defined
by the marketplace. As indicated above, 39 GHz spectrum can be used for
almost any fixed, short-range communication--the internal parts of
almost any communications system (mobile or fixed)--or the ``last
mile'' of any fixed system, whether for voice, data, video, or more
than one of the foregoing. At this time, the Commission believes that
it would be inappropriate for us to view the output of 39 GHz spectrum
as falling into any one of these categories or to find that some limit
on spectrum aggregation in order to foster competition in that category
is necessary. Accordingly, the Commission does not believe that it is
appropriate to restrict the amount of 39 GHz spectrum that may be
licensed to any one service or entity.
39. Moreover, the Commission concludes that there may be benefits
to the public in terms of efficiencies and types of services provided
if it permits aggregation of 39 GHz spectrum. For example, spectrum
aggregation would allow a licensee to expand its operation and thereby
lower the per unit cost of equipment and its per capita cost of
providing service to subscribers. Furthermore, a 39 GHz licensee with
substantial spectrum can better compete with established service
providers who have large transmission capacity. In addition, the
Commission concludes that it is not likely that aggregation of 39 GHz
spectrum by a single entity would lead to undue market power. The
Commission notes that other service providers, such as LECs and CAPs,
have some significant competitive advantages over a competitor using
only 39 GHz spectrum, such as an established customer base and
transmission facilities that carry much more traffic than would be
possible by a 39 GHz-based facility using only, for example, 700 MHz of
spectrum. In addition, other service providers are not precluded from
adding fiber or radio transmission facilities to their existing
networks. Moreover, the Commission has proposed to make available
additional spectrum enabling more parties to compete in many of the
types of services proposed by potential 39 GHz service providers, and
it plans to consider these proceedings in connection with the
Commission's 36-51 GHz band plan proceeding. Therefore, the Commission
believes that even if a single licensee controls a significant part of
the 39 GHz band in a single BTA, it could not control service prices or
limit competition, given the number of providers of similar or
substitutable services and the variety of transmission media at their
disposal.
40. The Commission also does not believe that a spectrum
aggregation limit is warranted to ensure that there is adequate support
spectrum available for broadband PCS, cellular radio, and other
commercial and private mobile radio operations. While the use of the 39
GHz band may help meet these needs, such backhaul and backbone support
can also be provided by using wire-based technologies and over-the-air
spectrum outside the 39 GHz band (e.g., at 6, 11, 18 and 23 GHz). Given
this availability of substitutable spectrum for backhaul and backbone
support, coupled with the aforementioned competition that exists to 39
GHz providers of alternative types of services, the Commission finds
that imposing a spectrum aggregation limit for the 39 GHz band would be
contrary to the public interest.
v. Technical Rules
a. Frequency Tolerance and Efficiency Standard.
41. The Commission has determined that a frequency tolerance
standard is unnecessary. The Commission's basis for this view stems
from its desire to provide 39 GHz licensees flexibility in the
operation of their facilities and to avoid imposing unnecessary
regulations. In addition, the Commission believes such a standard could
inhibit technological advances, for equipment performance is likely to
be influenced by customer demand. For those that might be concerned
that elimination of this standard may lead to inter-system
interference, the Commission points to its existing out of band
emission requirements (emission mask) contained in Sec. 101.111 of the
rules. That rule requires frequencies removed in various percentages
from the center frequency to be attenuated below the mean power of the
transmitter. This means that the frequencies at the outer edges of an
assigned 50 MHz channel or at the edge of an aggregated group of 50 MHz
channels power levels will be significantly reduced such that
interference to an adjacent channel licensee is unlikely. Thus, the
Commission believes that strict adherence to Sec. 101.111 will be as
effective in controlling inter-system interference as the imposition of
a frequency tolerance standard. In addition, concerns for inter-system
interference should be further eased, as the Commission is requiring
neighboring and adjacent channel licensees to engage in frequency
coordination before implementation of their planned operations.
b. Antenna Requirements.
42. There is evidence in the record that the Commission's proposal
to require 39 GHz licensees to employ only Category A antennas is too
restrictive because parties are contemplating a variety of system
configurations that would require different types of antennas, e.g.,
sectorized or wide beam units, characteristics of which would be
incompatible with the standards of a Category A antenna. These models
represent a more cost-effective and technically suitable alternative to
traditional narrowbeam Category A antennas when deployed in a point-to-
multipoint configuration. As the deployment of 39 GHz facilities
increases, the Commission expects other system configurations to be
developed in which narrowbeam antennas may not be the optimal solution.
The Commission concludes that the need to provide 39 GHz licensees the
technical flexibility to meet service demands outweighs any benefits
that would ensue by adopting the requirement. Therefore, the Commission
declines to require licensees in the 39 GHz band to use Category A
antennas initially. The Commission concludes that 39 GHz licensees
should be given the flexibility to employ antennas other than Category
A types, provided they do not cause interference problems. Should the
use of an antenna other than a Category A antenna become the source of
an interference problem, however, the Commission will require that the
licensee immediately resolve such interference by replacing the antenna
[[Page 6087]]
with a Category A model or one with better performance characteristics.
c. Frequency Coordination and Power Flux Density (``PFD'') Limit.
43. The Commission is persuaded by the record that adoption of a
PFD limit or field strength limit now would not further the
Commission's goal of facilitating the growth and development of the 39
GHz spectrum. In this connection, the Commission notes that there is a
lack of consensus regarding the parameters necessary to establish a
reasonable and practical PFD or field strength limit. As a result, the
Commission is concerned that establishing a service area boundary PFD
or field strength limit without such information may stifle the
development of advanced 39 GHz technology. Thus, the Commission
declines to adopt such a standard at this time, and consequently, it
need not reevaluate the current EIRP at this time. The Commission
concludes that it is in the public interest to continue to use the
frequency coordination procedures outlined in Sec. 101.103(d) of the
Commission's Rules. The Commission describes these procedures, infra,
as modified to implement certain improvements supported by the record
of this proceeding. Despite the fact that licensees will not be able to
rely on PFD or field strength limits to avoid the formal coordination
process, the Commission believes that its modified coordination
procedures will provide licensees substantial flexibility in system
design while ensuring that inter-system interference will be kept to a
minimum. The Commission's experience with other services employing
frequency coordination procedures shows that those services have been
successfully implemented with little delay and rarely result in
unresolved frequency interference cases.
44. Under the Commission's frequency coordination procedures, 39
GHz licensees will be subject to the requirements of Sec. 101.103(d) of
the Commission's Rules, with certain modifications. As a result, they
must provide values for the appropriate parameters listed in that
subsection to each neighboring BTA licensee authorized to use adjacent
and co-channel frequencies. Likewise, they must provide the same
information to each potentially-affected, adjacent-channel licensee in
the same BTA. Coordinating parties also must supply technical
information related to their subchannelization plan and system
geometry. Based on the propagation characteristics of this spectrum,
coordination between neighboring systems need only encompass operations
located within 16 kilometers of BTA boundaries. Currently,
Sec. 101.103(d) of the Commission's Rules gives each party that
receives a coordination notification 30 days in which to respond. The
record in this proceeding indicates that 30 days is an inappropriate
time frame for operations in the 39 GHz band because licensees often
offer service that requires much shorter installation deadlines. In
order to facilitate such rapid service installation schedules, the
Commission will require that recipients of coordination notifications
respond within 10 days. Each licensee must complete this coordination
process prior to initiating service within its service area. Finally,
participating parties should resolve any problems that develop during
this process. Only unresolved frequency conflicts should be reported to
the Commission. In such cases the Commission will resolve the
conflicts. The Commission believes that the coordination approach it is
adopting does not preclude licensees from entering into private
agreements that mitigate interference problems. These agreements may
include an arrangement to conduct a one-time blanket coordination as
opposed to coordinating each individual link as they are planned for
activation, or arrangements for one party to compensate another
financially for modifying its operation to accommodate new
installations.
vi. Partitioning and Disaggregation
45. Partitioning is the assignment of all the spectrum within
specific geographic portions of a licensee's service area.
Disaggregation is the assignment of discrete portions or ``blocks'' of
licensed spectrum to another entity. The Commission concludes that
partitioning and disaggregation should be permitted in the 39 GHz band.
The Commission further concludes that the option of partitioning should
not be limited to rural telephone companies but should be made
available to all entities eligible to be licensees in the 39 GHz band,
including incumbent 39 GHz licensees. The Commission thus concurs with
commenters who support partitioning, and notes that no parties opposed
this proposal. The Commission believes that the availability of these
options will enhance 39 GHz licensees' flexibility with respect to
system design and service offerings. The Commission also believes that
partitioning and disaggregation opportunities further the objectives of
section 309(j) of the Communications Act by facilitating the
development of niche markets and the arrival of new entrants, including
small businesses, rural telephone companies and businesses owned by
members of minority groups and women. In addition, these tools will
promote efficient use of 39 GHz spectrum.
46. As a result, 39 GHz licensees acquiring their licenses under
the new rules established herein will be permitted to acquire
partitioned and/or disaggregated licenses in either of two ways: (1)
They may form bidding consortia to participate in auctions, and then
partition or disaggregate the licenses won among consortia participants
after grant; or (2) they may acquire partitioned or disaggregated 39
GHz licenses from other licensees through private negotiation and
agreement either before or after the auction. A licensee planning to
partition or disaggregate its license must first be granted the
license, and the licensee and partitionee and/or disaggregatee will be
required to file an assignment application. The Commission will require
that a licensee disaggregate by frequency pairs. This requirement is
necessary for administrative purposes: the database necessary to track
authorizations could otherwise become too cumbersome and complex and
processing could become delayed or prone to error.
47. Overall, the Commission believes that partitioning and
disaggregation will promote competition in the 39 GHz service and
expedite the delivery of service to the public, particularly in rural
areas. Moreover, partitioning and disaggregation will help to eliminate
market entry barriers pursuant to section 257 of the Communications Act
by creating smaller, less capital intensive service areas that may be
more accessible to small entities. The Commission considers
partitioning and disaggregation effectively to be types of assignments,
which will, therefore, require prior approval by the Commission. In
authorizing partitioning and disaggregation, the Commission will follow
existing assignment procedures.
48. The Commission will require the entity acquiring a license by
partitioning or disaggregation to satisfy the same construction
requirements as the initial licensee, regardless of when its license
was acquired. Should a licensee fail to meet the construction
requirements, the license will cancel automatically. The cancelled
license will, if it was partitioned from a rectangular service area,
revert to the BTA licensee for that channel (unless the forfeiting
entity is the BTA licensee for that channel). If the forfeited license
was partitioned from a BTA, the license will be auctioned. In addition,
parties must comply with the Commission's current technical rules
[[Page 6088]]
with respect to service area boundary limits and protections.
Coordination and negotiation among licensees must be maintained and
applied in licensing involving partitioned areas and disaggregated
spectrum. Finally, under partitioning or spectrum disaggregation, an
entity will be authorized to hold its license for the disaggregated
spectrum or partitioned area for the remainder of the original license
term. The Commission concludes that this approach is appropriate
because the Commission should not bestow greater rights to a licensee
receiving its authorization pursuant to partitioning or spectrum
disaggregation than the Commission awarded under the terms of the
original license grant.
vii. Regulatory Status
49. The Commission concludes that 39 GHz band licensees should be
permitted to serve as a common carrier or as a private licensee.
Further, those licensees who select common carrier regulatory status
will be able to provide private service, and those licensees who select
private service provider regulatory status may share the use of their
facilities on a non-profit basis or may offer service on a for-profit,
private carrier basis subject to Sec. 101.135 of the Commission's
Rules. Under this scenario, licensees will elect the status of the
services they wish to offer and be governed by the rules applicable to
their status. Although no commenters addressed this issue, the
Commission believes this approach will promote economic efficiencies by
reducing construction and operating costs associated with having to
provide separate facilities. This result also is consistent with
Sec. 101.133(a) of the Commission's Rules.
E. Treatment of Incumbent 39 GHz Licensees
50. Incumbent 39 GHz licensees are those who have been licensed
under the current fixed microwave rules in 47 CFR Part 101, or its
predecessors, parts 21 (for common carriers) or 94 (for private
carriers). Their service areas are self-defined and generally are
restricted to point-to-point operations. Many of these licensees have
participated as commenters in this proceeding, and include WinStar,
ART, BizTel, Columbia, and a number of PCS licensees.
i. Reconciling Service Areas of 39 GHz Incumbents With BTA Service
Areas of New Licensees
51. While the Commission has decided that BTAs are appropriate for
the new licensing system in the 39 GHz band, it recognizes that many of
the newly-licensed BTA service areas will be encumbered by incumbent 39
GHz band licensees. These incumbents are authorized in various
locations throughout the country, and their rectangular service areas
will occupy portions of BTAs or cross BTA boundaries. After careful
consideration of the concerns expressed by various commenters, the
Commission concludes that the following approaches are appropriate.
52. Where an incumbent licensee's rectangular service area occupies
only a portion of a BTA, the licensee's channels will be available for
application under the new competitive bidding rules, but the incumbent
will retain the exclusive right to use those channels within its
rectangular service area. The holder of the BTA authorization thus will
be required to design its system to protect against harmful
interference to the incumbent by complying with the Commission's
interference protection standards. The Commission notes that should
such an incumbent lose its authority to operate, the BTA license holder
will be entitled to operate within the portion of the forfeited
rectangular service areas located within its BTA, without being subject
to competitive bidding. This approach best serves the public because it
gives the service providers an incentive to make efficient use of
available spectrum, and it ensures that any disruption of service will
be remedied as quickly as possible.
53. Where an authorized incumbent licensee has a rectangular
service area covering an entire BTA, the Commission will not make those
channels available for ``overlay'' licensing in that BTA. Unlike the
scenario described above, in this situation a BTA will not have areas
that are currently unassigned. Since incumbents will be required to
construct and operate pursuant to Commission Rules, the public should
be assured of receiving service throughout the BTA without the need to
license an alternative provider.
ii. Repacking
54. Background. In the NPRM and Order, the Commission asked for
comment on whether incumbent facilities should be relicensed on their
current frequency or whether incumbent links should be ``repacked''
into a different portion of the band than initially occupied. There was
very little discussion by commenters on the issue of repacking. The
Commission's general approach up to this point has been to refrain from
repacking, if possible. The Commission finds that repacking the 39 GHz
band would cause a significant disruption of incumbent 39 operations.
As noted throughout this proceeding, the Commission does not intend to
alter or restrict significantly the operations of incumbents. Moreover,
the Commission believes that it can coordinate with the extant licenses
of 39 GHz incumbents so that they will not impair the Commission's new
licensing system using BTAs and 50-MHz channel blocks. Accordingly, the
Commission does not believe that repacking is necessary under these
circumstances.
iii. Disposition of Pending 39 GHz Band Applications
a. Background.
55. On November 13, 1995, the Wireless Telecommunications Bureau
(``Bureau''), pursuant to delegated authority, adopted and released an
Order (``Freeze Order''), 61 FR 8062 (March 1, 1996), announcing that
the Commission would no longer accept for filing any new applications
for 39 GHz licenses in the Common Carrier or Operational Fixed Point-
to-Point Microwave Radio Services, pending Commission action on the TIA
Petition. The Freeze Order was made effective upon its release.
56. The NPRM and Order, supra, extended the freeze, providing that
pending applications would be processed only if (1) they were not
mutually exclusive with other applications at the time of the Bureau's
Freeze Order, and (2) the 60-day period for filing mutually exclusive
applications had expired prior to November 13, 1995 (i.e., the
applications were ``ripe''). The NPRM and Order further provided that
those applications that were mutually exclusive with others as of
November 13, 1995, or within the 60-day period for filing competing
applications on or after November 13, 1995, would be held in abeyance
for processing and disposition. In addition, amendments to these frozen
applications received on or after November 13, 1995, were also held in
abeyance. Moreover, applications for modification of existing 39 GHz
licenses (e.g., applications to modify existing licenses for the
purpose of changing the height of an antenna) filed on or after
November 13, 1995, were held in abeyance, as well as amendments thereto
that were filed on or after November 13, 1995. Finally, no new
applications to modify existing licenses, or amendments to pending
modification applications, were to be accepted for filing on or after
December 15, 1995, unless they (1) did not involve any enlargement of
any portion of the proposed area of operation, and (2) did
[[Page 6089]]
not change frequency blocks, other than to delete one or more.
57. On January 16, 1996, Commco filed a Petition for
Reconsideration and an Emergency Request for Stay, asking the
Commission to vacate that portion of the NPRM and Order imposing an
interim freeze on the processing of mutually exclusive applications to
establish new facilities in the 39 GHz band, including amendments
thereto, pending as of November 13, 1995. BizTel, GHZ Equipment
Company, Inc. (``GEC''), and TIA filed comments in support of the Stay
Request. Additionally, on January 16, 1996, DCT Communications, Inc.,
filed a Petition for Partial Reconsideration, requesting that the
Commission process (a) minor amendments, at least those that eliminate
mutual exclusivity, and (b) as-yet uncontested applications for which
the 60-day period for filing mutually exclusive applications had not
expired prior to the November 13, 1995, Freeze Order.
58. In its Memorandum Opinion and Order, supra, the Commission
reconsidered certain aspects of the Commission's processing freeze and
decided to lift the processing freeze on amendments of right filed
before December 15, 1995. Thus, all applications that were amended to
resolve mutual exclusivity before that date were to be processed,
provided they had completed their 60-day public notice period as of
November 13, 1995. In addition, the Commission clarified that
applications to modify existing 39 GHz licenses and amendments thereto
were to be processed regardless of when filed, provided they neither
enlarge the service area nor change the assigned frequency blocks
(except to delete them). In all other respects, the Commission's
decisions regarding the filing and processing of 39 GHz applications
and amendments were unaffected by the reconsideration decision. A
summary of other main points of the decision follows:
The Commission decided to process those amendments of
right filed on or after November 13, 1995, but before December 15,
1995.
The Commission noted that all other amendments filed on or
after November 13, 1995, would continue to be held in abeyance.
The Commission affirmed its decision to continue to hold
in abeyance all pending mutually exclusive applications, unless the
mutual exclusivity was resolved by an amendment of right filed before
December 15, 1995. Where the mutual exclusivity was resolved, the
Commission expressly stated that it would process the application
provided that the application was ``ripe'' as of November 13, 1995--
i.e., that it had been placed on public notice and completed the 60-day
cut-off period for filing of competing applications as of November 13,
1995.
The Commission affirmed its decision to hold in abeyance
all applications that had not been placed on public notice or completed
the 60-day cut-off period as of November 13, 1995.
b. Processing of Pending Applications.
59. In view of the goals of this proceeding, e.g., to foster
competition among different service providers, to promote maximum
efficient use of the spectrum, and to provide efficient service to
customers by improving the licensing procedure, the Commission
concludes that what follows is the best approach for processing
currently pending 39 GHz license applications that were affected by the
November 13, 1995, Freeze Order and the December 15, 1995, freeze. The
Commission has processed: (1) Those 39 GHz applications that were not
mutually exclusive as of December 15, 1995, and that, as of November
13, 1995, had passed the 60-day cut-off period for filing competing
applications, and (2) applications to modify existing licenses
(``modification applications''), or amendments to modification
applications, which do not enlarge the service area or change frequency
blocks, except to delete them. For the reasons that follow, the
Commission has decided to dismiss, without prejudice, all other
applications that have remained subject to the freeze, i.e., (1)
applications that are mutually exclusive, (2) applications that were
not yet on public notice, or for which the 60-day cut-off period had
not been completed prior to November 13, 1995, and (3) modification
applications or amendments thereto that do not meet the criteria set
out infra, in paragraph 95. These applicants may reapply under the new
geographic area licensing rules established in this proceeding.
i. Pending Mutually Exclusive 39 GHz Applications.
60. PCS and other CMRS licensees, equipment manufacturers, and the
Telecommunications Industry Association (TIA) ask that the Commission
process 39 GHz applications that are pending and mutually exclusive.
GTE Service Corporation (GTE), however, urges us either to (1) dismiss
the pending 39 GHz applications that the Commission is holding in
abeyance and open a new application filing window for such frequencies
and licensing areas under the new rules that the Commission adopts in
this proceeding; or (2) retain those applications on file and permit
other interested parties to file competing applications that will be
processed pursuant to adopted competitive bidding procedures and
corresponding rules for 39 GHz authorizations. Some commenters
recommend a specific time frame for allowing 39 GHz license applicants
to resolve mutual exclusivity, i.e., between 60 days and six months
after a Report and Order is issued in this proceeding. In its Comments
filed on March 4, 1996, Bachow and Associates, Inc. (Bachow) asks that
the Commission dismiss, without prejudice, any mutually exclusive
applications that remain after the time for resolving mutual
exclusivity passes.
61. Some commenters further ask that the Commission dismiss as
defective any applications which did not limit themselves to only one
specified 39 GHz channel as of November 13, 1995, or which otherwise
failed to satisfy the Public Notice, Mimeo No. 44787 (released Sept.
16, 1994), that described the processing procedures and rules
applicable to the 39 GHz band. Under this approach, any remaining
applicants that are still subject to mutual exclusivity would be
allowed to file amendments to reduce their proposed service area
contours or otherwise enter into settlement agreements to resolve their
conflicts.
62. The Commission has determined that the best approach for
processing pending mutually exclusive applications is to dismiss them
without prejudice, and to allow these applicants to submit new
applications under the competitive bidding rules established in this
proceeding. The Commission takes this action because it finds that this
procedure will optimize the public interest by promoting fair and
efficient licensing practices. As the Commission discusses below,
(``Auctionability of the 39 GHz Band''), the use of a competitive
bidding system for licensing the 39 GHz band constitutes the best
method for choosing among mutually exclusive applicants. Competitive
bidding allows spectrum to be acquired by the parties who value it most
highly and increases the likelihood that innovative, competitive
services will be offered to consumers. These benefits will be lost, in
part, if the Commission were to process pending mutually exclusive
applications under its old rules. Moreover, under such an approach,
those pending mutually exclusive applications that cannot be
accommodated by the availability of alternative frequencies would be
subject to comparative hearing (either formal or informal). While these
rules may be
[[Page 6090]]
useful in other bands to address the rare situation in which two point-
to-point links cannot be coordinated to avoid interference, in the 39
GHz band, applicants seek to serve geographic areas rather than to
provide service on a single point-to-point link basis. This, coupled
with the exponential growth in demand for 39 GHz spectrum, results in a
significant number of mutually exclusive applications, including
``daisy-chain'' situations, among entities seeking to acquire spectrum.
Resolving these mutually exclusive applications through comparative
hearings would be much slower and possibly more costly, both to the
government and applicants, than competitive bidding.
63. The Commission also finds that those who believe that they
should be afforded the opportunity to amend their pending applications
to avoid mutual exclusivity had ample opportunity to file such
amendments prior to the commencement of this rule making. The
Commission is not convinced that parties who have not already entered
such agreements will successfully accomplish such agreements now.
Moreover, even if such agreements are possible, the parties will have
the opportunity to accomplish similar results through the partitioning
and disaggregation rules the Commission is adopting today. Similarly,
parties may resolve existing conflicts by forming joint ventures or
similar arrangements to apply for BTA licenses. If, however, the
Commission permitted pending mutually exclusive applicants to resolve
their conflicts outside the structure of the competitive bidding
process, other entities would be foreclosed from an opportunity to
apply for 39 GHz spectrum under the flexible rules the Commission
adopts herein. This would have the result of limiting the pool of
potential applicants to those who have already filed under the current,
more restrictive rules, and may inhibit the development of new and
innovative services in this spectrum. Accordingly, the Commission finds
that existing applicants have a reasonable avenue of relief for their
concerns in the procedures it adopts herein, and accordingly denies
their requests.
ii. Applications Within the 60-day Public Notice Period on November
13, 1995.
64. Some petitioners and commenters argue that the Commission
should process the ``unripe'' applications--those that had not passed
the 60-day public notice period as of the date of the November 13,
1995, Freeze Order. According to DCT, for example, all applications
that have been or should have been placed on public notice announcing
their susceptibility to petitions to deny as required by section 309 of
the Communications Act meet the processing requirements of the
Communications Act. DCT contends that the disparate treatment of these
applications and those the Commission have decided to process would
only make sense if there were no vacant channel pairs available for a
second applicant in the same service area. DCT and WinStar argue that
under the rules, if there were a vacant channel pair, a second
applicant would have to yield ultimately to the first-in-time applicant
with respect to the frequencies specified by the first-in-time
applicant.
65. In the Memorandum Opinion and Order, supra, the Commission held
that unripe applications would continue to be held in abeyance because,
until the Commission had completed its consideration of the record, the
Commission was not in a position to state whether further applications
may be filed, or how the applications presently held in abeyance would
have been treated. Having concluded here that the 39 GHz band should be
subject to significantly different rules than the ones used previously,
the Commission believes that the most fair and reasonable approach with
regard to pending unripe applications is to dismiss them and allow
these applicants to reapply under the new rules set forth in this
proceeding. Taking into account its conclusion that these new rules
further the public interest, the Commission believes that applying the
new 39 GHz rules to those applications that were still subject to the
possibility of competing applications under the former rules adequately
balances the expectations of applicants with the public need for a
better system for licensing use of the 39 GHz band. The Commission
further believes that it has crafted a fair approach because such
applicants will be permitted to apply for spectrum under the new rules.
iii. Modification Applications.
66. In the NPRM and Order, the Commission stated that it would hold
in abeyance modification applications, and any amendments thereto, that
were filed on or after November 13, 1995, the date of the Freeze Order.
The Commission stated that no new applications to modify existing
licenses would be accepted after December 15, 1995, unless they did not
involve any enlargement in any portion of the service area and did not
change frequency blocks (unless to delete one).
67. In the Memorandum Opinion and Order, supra, the Commission
clarified that any pending modification application or amendment
thereto filed prior to November 13, 1995, was to be processed.
Modification applications or amendments to such applications, filed
between November 13 and December 15, 1995, which meet the criteria of
Sec. 101.59 of the Commission's Rules and which do not enlarge the
applicant licensee's service area, were to be accepted for filing and
processed. Any modification application, or amendment thereto, which
meets the criteria of Sec. 101.61 of the Commission's Rules were
likewise to be accepted for filing and processed. All other
modification applications and amendments thereto were to be held in
abeyance.
68. For the same reasons that the Commission dismisses without
prejudice the pending mutually exclusive and unripe applications as
discussed supra, the Commission also dismisses without prejudice any
modification application held in abeyance pursuant to the freeze. Such
applications, if granted under the previous rules, would frustrate the
goals underlying this proceeding by continuing the licensing scheme
which the Commission is abandoning with this Report and Order. As
discussed supra, the Commission must choose a point from which its new
rules will apply, taking into account its conclusion that these new
rules are in the best interest of the public for the development of new
services in the 39 GHz band. The Commission believes that it is fair to
dismiss major modification applications because such applicants will be
permitted to apply for additional spectrum, without disadvantaging
potential new entrants, under the new rules.
iv. Applications That Are Partially Mutually Exclusive.
69. There are seven applications that are partially mutually
exclusive. That is, these applications request more than one frequency
pair, some of which are mutually exclusive with frequencies requested
in other applications and some of which are not mutually exclusive.
Although the non-mutually exclusive portion of these applications was
subject to processing under the Commission's December 15, 1995, NPRM
and Order, the mutually exclusive portion of each of the applications
was required to be held in abeyance. The divided status of these
applications has presented a unique processing issue. The Commission's
electronic process for addressing these applications does not permit
partial grants because there is no capability for allowing an
application to remain in pending status if final action has been taken
on a portion of it. As a result, the Commission has not been able to
process the non-mutually exclusive portion of these applications until
it had
[[Page 6091]]
reached a decision regarding the disposition of pending mutually-
exclusive applications in general. As the Commission has now made this
determination, it will process these applications as follows.
Specifically, it will process to completion that portion of each of
these applications that is non-mutually exclusive with other
applications. However, the Commission will dismiss the remainder of the
application which cannot be granted due to mutual exclusivity,
consistent with the Commission's order herein.
II. Decision--Competitive Bidding Issues
A. Auctionability of the 39 GHz Band
70. Background. In the NPRM and Order, 61 FR 2465 (January 26,
1996), the Commission proposed to use competitive bidding to select
among mutually exclusive applications for initial licenses in the 39
GHz band. The Commission reconsidered its previous decision not to
license intermediate links by competitive bidding and the various
factors that influenced its decision. First, the Commission noted that
point-to-point microwave channels used as part of end-to-end
subscriber-based service offerings meet the ``principal use''
requirement of the Communications Act. Second, because BTAs are large
areas, the Commission stated that defining service areas by BTAs likely
will result in the filing of mutually exclusive applications. Third,
the Commission noted that based upon experience with auctions in other
services, an auction for intermediate links within a well-defined
service area will neither significantly delay the provision of other
services, such as PCS, to the public nor impose significant
administrative costs on the applicants or the Commission. Fourth, the
Commission noted that by placing licenses in the hands of those who
value this spectrum most highly, competitive bidding will likely
promote the development and rapid deployment of new technologies and
ensure that new and innovative technologies are readily accessible to
the American people. Finally, the Commission noted that some of the
licensees in the 39 GHz band have offered to sell or lease their
licenses and may never have intended to directly serve the public, but
rather to hold their own auctions and thereby deprive the public of the
aforementioned benefits.
71. Discussion. Upon consideration of the record in this
proceeding, the Commission concludes that auctioning the 39 GHz band
meets the new criteria set forth in Sec. 309(j) of the Communications
Act, as amended by the Balanced Budget Act of 1997 (``Budget Act'').
During the pendency of this proceeding and after comments were received
in this proceeding, Congress enacted the Budget Act which extended and
expanded the Commission's auction authority. Many commenters support
the award of unallocated spectrum through auctions for the 39 GHz band.
Using the pre-Budget Act criteria for auctionability of spectrum, some
commenters argued that the 39 GHz band did not meet such criteria
because: (1) The band is being used for providing intermediate links
and, therefore, is not principally being used to garner compensation
from subscribers as required under the former ``principal use''
criterion of the Act; (2) an auction of the 39 GHz band does not
promote the objectives contained in the Act; and (3) an auction of
intermediate links could significantly delay the development and
deployment of new products and services and impose significant costs on
licensees and the Commission. As discussed below, as a result of the
Budget Act provisions, the ``principal use'' criterion of 309(j)(2)(A)
and ``promote the objectives'' criterion of 309(j)(2)(B) and 309(j)(3)
of the Act no longer govern the auctionability of electromagnetic
spectrum. Thus, the Commission does not find these arguments to be
compelling reasons not to employ competitive bidding procedures for 39
GHz spectrum.
72. Under the Budget Act, the Commission's auction authority covers
all mutually exclusive applications for initial licenses or
construction permits, with three limited exceptions which are not
applicable in this proceeding. The Budget Act replaced language in
section 309(j)(2), formerly called ``Uses to Which Bidding May Apply,''
which stated the requirements for spectrum to be auctionable (i.e., a
determination that the principle use of the spectrum will be on a
subscription basis and that competitive bidding will promote the
objectives stated in section 309(j)(3)) with a new paragraph that
expands the Commission's auction authority. Under amended section
309(j) the Commission has the authority to auction the 39 GHz band.
73. DCT contends that using competitive bidding procedures for this
band violates Secs. 309(j)(1) and 309(j)(6)(E), because the Commission
is required to use various means to avoid mutual exclusivity, including
the use of engineering solutions, negotiate threshold qualifications
and service regulations, and licensing proceedings, before turning to
auctions. DCT argues that because the NPRM and Order finds that current
point-to-point rules are structured to avoid mutual exclusivity through
frequency coordination, changing the rules to license by BTAs is
tantamount to adopting a licensing system designed to encourage mutual
exclusivity. The Commission rejects DCT's contentions. The 39 GHz band
has been the subject of significantly increased requests for large
rectangular service areas and multiple channels. Frequency coordination
techniques, suitable for the level of point-to-point spectrum demand
existing prior to the existence of emerging technologies, are no longer
adequate. The use of pre-defined geographic areas rather than the
applicant-defined rectangular areas currently used as service areas
furthers the Commission's public interest goals, as concluded above. As
the Commission noted, supra, predetermined service areas will provide a
more orderly structure for the licensing process and will foster
efficient utilization of the 39 GHz spectrum in an expeditious manner.
Indeed, the use of applicant-defined service areas can actually slow
the delivery of services because the processing of each application
requires extensive analysis and review by Commission staff.
74. Similarly, the Commission also rejects DCT's related contention
that the proposed auction framework for the 39 GHz band--simultaneous
multiple round bidding, the Milgrom-Wilson activity rule and the
simultaneous stopping rule--encourages mutual exclusivity of
applications. DCT further rejects the proposed rule that would have
limited licensees to an interest in four channel blocks contending that
the ``expansion of the number of channels which an applicant may
receive from a de facto one channel to four channels also encourages
mutual exclusivity.'' The competitive bidding rules proposed have been
used successfully in previous auctions and are intended to provide
flexibility to bidders to pursue different strategies for interrelated
licenses. Finally, as noted surpa, the Commission has decided not to
place any limit on the number of channels a licensee may hold. The
Commission rejects the contention that this will encourage mutual
exclusivity, but rather believes that this will best foster the
creation and deployment of new services. As discussed below, various
other auction provisions adopted here will address the speculative
bidding concerns raised by DCT.
75. While the Commission believes that competitive bidding will
place licenses in the hands of those who value them the most, various
commenters propose other methods for licensing this
[[Page 6092]]
band. DCR, for example, proposes that the Commission use the
alternative licensing proposal set forth in the NPRM and Order. TGI
proposes tight usage requirements, e.g., existing permittees would have
six months from completion of rule making to construct and commence
operation of their systems. Bachow proposes that the Commission adopt a
going-forward licensing approach that provides for, among other things,
applicant-defined service areas in contrast to geographic licensing;
public notice and thirty-day cut-off windows; exhaustion of
coordination efforts prior to any auction; and reasonable build-out
requirements. Finally, Ameritech and others state that after the
Commission has finished processing 39 GHz amendments, there likely will
be little or no desirable spectrum for any subsequent overlay auction
of the 39 GHz channels. These commenters recommend that, in lieu of
auctions, the Commission make the 39 GHz band available for the
licensing of point-to-point paths. While the Commission notes these
various proposals, the Commission concludes that the Budget Act's
amendments to section 309(j) of the Act directs it to auction the 39
GHz band.
76. The Commission also notes that under the Budget Act amendments,
it is required to provide adequate time before the issuance of bidding
rules to permit notice and comment, and after the issuance of bidding
rules to ensure adequate time for interested parties to assess the
market and develop their strategies or approaches as required under
section 309(j)(3)(E). The Commission believes it has satisfied the
first requirement by seeking comment in the NPRM and Order. As to the
second requirement, the Bureau recently released a Public Notice
announcing general time frames for upcoming auctions. The Commission
anticipates that the Bureau will routinely release similar public
notices in the future. The Commission believes that the release of such
public notices combined with the release of a Public Notice announcing
the 39 GHz auction should ensure that interested parties have adequate
time to assess the market and develop their strategies.
B. Competitive Bidding Design and Procedures
i. Competitive Bidding Design
77. Background. In the NPRM and Order, the Commission tentatively
concluded that simultaneous multiple round auctions are appropriate for
this band. The Commission noted that compared with other bidding
mechanisms, simultaneous multiple round bidding will generate the most
information about license values during the course of the auction and
provide bidders with the most flexibility to pursue back-up strategies.
78. Discussion. Based on the record in this proceeding and the
Commission's successful experience conducting simultaneous multiple
round auctions for other services, the Commission believes a
simultaneous multiple round auction design is the preferable
competitive bidding design for the 39 GHz band. The commenters
generally support the proposal to use simultaneous multiple round
auctions for selecting among mutually exclusive applicants. In
addition, the Commission believes that the value of these licenses will
be significantly interdependent because of the desirability of
aggregation across geographic regions. Under these circumstances,
simultaneous multiple round bidding will generate more information
about license values during the course of the auction and provide
bidders with more flexibility to pursue back-up strategies, than if the
licenses were auctioned separately.
79. DCT, on the other hand, argues that simultaneous multiple round
auctions give applicants only one opportunity to file for any or all
channels and that this approach creates an urgency to file for channels
that the applicant would not otherwise seek, thereby fostering
unnecessary creation of mutual exclusivity. DCT's argument misses
several points. As an initial matter, the Commission is not proposing
to auction all of the channels at one time but rather in a series of
simultaneous multiple round auctions in which three channels would be
placed up for bid in each auction. See infra. Thus, applicants will
have more than one opportunity to file for channels. Moreover, the
nature of this auction design provides bidders with flexibility to
pursue different strategies for interrelated licenses. Specifically, it
allows a bidder to pursue substitute licenses in the event it fails to
obtain its first choices. In addition, the Commission believes that the
upfront payment requirement and its withdrawal rules provide a
sufficient deterrent against applicants seeking licenses that they do
not want or intend to use. Notwithstanding its conclusion regarding the
use of simultaneous multiple round bidding, the Commission retains the
discretion to use a different methodology if that proves to be more
administratively efficient.
ii. Applicability of Part 1, Standardized Auction Rules
80. In the Competitive Bidding Second Report and Order, 59 FR 22980
(May 4, 1994) as modified by the Competitive Bidding Second Memorandum
Opinion and Order, 59 FR 44272 (August 26, 1994), the Commission
established general competitive bidding rules for all auctionable
services, but also stated that such rules may be modified on a service-
specific basis. These general competitive bidding rules are contained
in part 1 of the Commission's Rules. In the recent Order, Memorandum
Opinion and Order and Notice of Proposed Rule Making in WT Docket No.
97-82, 62 FR 13540 (March 21, 1997), the Commission amended some of the
part 1 provisions, and proposed further amendments to the part 1 rules
to streamline its auction procedures. Accordingly, for the 39 GHz band,
the Commission will follow the competitive bidding rules contained in,
or ultimately established for, Subpart Q of part 1 of the Commission's
Rules, as amended by the part 1 proceedings and related decisions,
unless specifically indicated otherwise below.
C. Bidding Issues
i. Grouping of Licenses
81. Background. The Commission determined in the Competitive
Bidding Second Report and Order that highly interdependent licenses
should be grouped together and put up for bid at the same time in a
multiple round auction because such grouping provides bidders with the
most information about the complementary and substitutable licenses
during the course of the auction. In the NPRM and Order, the Commission
requested comment on whether it should endeavor to have a single
auction. The Commission also solicited comments on alternative license
groupings and requested bidders to explain how such groupings would
benefit bidders.
82. Discussion. The Commission believes that all 39 GHz licenses
are significantly interdependent. As a result, the optimal grouping of
the licenses would be to put all of the licenses up for bid at the same
time in order for bidders to have information about the prices of
complementary and substitutable licenses during the auction. However,
due to the large number of licenses anticipated to be auctioned
(approximately 6,900), this approach may be burdensome for bidders.
Specifically, placing all of the 39 GHz licenses up for bid in a single
auction may overwhelm bidders with
[[Page 6093]]
the processing necessary to analyze effectively and efficiently the
amount of information associated with such a large number of licenses.
The Commission concludes that a series of simultaneous multiple round
auctions would be more advantageous to bidders and the most
administratively feasible means of distributing these licenses. At this
time, the Commission believes that three channel pairs should be placed
up for bid in each auction based on its review of the applicants'
requests for channels in the 39 GHz band. The Commission nonetheless
reserves the discretion to change the number of channels offered during
an auction if it is efficient and administratively feasible to do so
and delegate such authority to the Bureau.
ii. Reserve Price or Minimum Opening Bids
83. When licenses are subject to auction, the recently enacted
Budget Act requires the Commission to prescribe methods by which a
reasonable reserve price or a minimum opening bid is established,
unless a determination is made that such an assessment is not in the
public interest. Recently, in conjunction with the 800 MHz Specialized
Mobile Radio (``SMR'') Service auction, the Bureau, pursuant to the
Budget Act's provisions calling for the establishment of reserve prices
or minimum opening bids in FCC auctions, proposed, inter alia, a
formula for determining a reserve price or minimum opening bid for
licenses, and sought comment on its formula and other proposals for the
auction scheduled to begin on October 28, 1997. For the 39 GHz auction,
the Commission directs the Bureau to issue a similar public notice
proposing a method for determining a reserve price or minimum opening
bid for 39 GHz licenses subject to auction and seeking comment on its
proposed method and other proposals.
iii. Bid Increments
84. Background. Consistent with the approach for previous
simultaneous multiple round auctions for other services, in the NPRM
and Order the Commission proposed to establish minimum bid increments
for bidding in each round of the auction based on the same
considerations given in the Commission's prior orders. The Commission
proposed that the bid increment be the greater of either: (1) A
percentage of the high bid from the previous round or (2) a fixed
dollar amount per megahertz per service area population (``MHz-pops'').
The Commission also proposed to retain the discretion to vary the
minimum bid increments for individual licenses or groups of licenses at
any time before or during the course of the auction, based on the
number of bidders, bidding activity, and the aggregate high bid
amounts.
85. Discussion. The Commission adopts its bid increment proposals,
particularly given that no commenters opposed them. In fact, Milliwave
supports the Commission's proposal to retain the discretion with
respect to bidding increments. The Commission will follow the practice
that it has used for other auctions and delegates authority to the
Bureau to announce, by Public Notice prior to the auction, the general
guidelines for bid increments.
iv. Stopping Rules
86. Background. When simultaneous multiple round auctions are used,
a stopping rule must be established for determining when the auction is
over. In simultaneous multiple round auctions, bidding may close
separately on individual licenses, simultaneously on all licenses, or a
hybrid approach may be used. Generally, the Commission proposed to
adopt a simultaneous stopping rule in the 39 GHz auction in which
bidding generally remains open on all licenses until there is no new
acceptable bid for any license. In order to move the auction toward
closure more quickly, the Commission further proposed to retain the
discretion to declare when the auction will end, to vary the duration
of bidding rounds or the interval at which bids are accepted.
87. Discussion. The Commission will adopt a simultaneous stopping
rule whereby bidding will remain open on all licenses in an auction
until bidding stops on every license. The Commission believes that
allowing simultaneous closing for all licenses will afford bidders
flexibility to pursue back-up strategies without running the risk that
bidders will hold back their bidding until final rounds. As a general
matter, the auction will close after one round passes in which no new
valid bids or proactive activity rule waivers are submitted. In any
event, the Commission adopts its proposal to retain the discretion to
keep an auction open even if no new acceptable bids and no proactive
waivers are submitted in a single round. Milliwave supports the
Commission's proposal to retain such discretion. In the event that the
Commission exercises this discretion, the effect will be the same as if
a bidder has submitted a proactive waiver. The Commission also retains
the discretion to announce license-by-license closings.
88. The Commission further retains the discretion to declare after
40 rounds that the auction will end after some specified number of
additional rounds. Under such an approach, bids will be accepted only
on licenses where the high bid has increased in the last three rounds.
This will deter bidders from continuing to bid on a few low value
licenses solely to delay the closing of the auction. It also will
enable the Commission to end the auction when it determines that the
benefits of terminating the auction and issuing licenses exceed the
likely benefits of continuing to allow bidding.
v. Activity Rules
89. Background. In the Competitive Bidding Second Report and Order,
the Commission adopted the Milgrom-Wilson activity rule as the
preferred activity rule when a simultaneous stopping rule is used. The
Milgrom-Wilson approach encourages bidders to participate in early
rounds by limiting their maximum participation to some multiple of
their minimum participation level. In the NPRM and Order, the
Commission tentatively concluded that the Milgrom-Wilson activity rule
should be used in conjunction with the proposed simultaneous stopping
rule for this auction. The Commission indicated its belief that the
Milgrom-Wilson approach would best achieve the Commission's goals of
affording bidders flexibility to pursue backup strategies, while at the
same time ensuring that simultaneous auctions are concluded within a
reasonable period of time.
90. Discussion. In accordance with Sec. 1.2104 of the Commission's
Rules and the guidelines adopted in the Competitive Bidding Second
Report and Order, the Commission will employ the Milgrom-Wilson
activity rule for the 39 GHz auction. Milliwave supports adoption of
this rule. DCT appears to argue that the activity rule adds an
incentive for bidders to apply for areas they do not intend to serve.
No other comments on this issue were received. DCT's argument with
respect to this activity rule is misplaced. The activity rules do not
encourage applicants to apply for more licenses than they intend to
use, and actually has the opposite effect. Indeed, the total number of
licenses applied for determines the activity requirement. Therefore,
the greater the number of licenses an applicant applies for the greater
its activity level must be in order to maintain eligibility in the
auction.
91. For the 39 GHz auction, the Commission will generally use the
Milgrom-Wilson activity rule with some variations. Specifically, under
the Milgrom-Wilson activity rule, the auction is divided into three
stages and the minimum required activity level,
[[Page 6094]]
measured as a fraction of the bidder's eligibility in the current
round, will increase during the course of the auction. As in previous
auctions, the Commission will set, by announcement before the auction,
the minimum required activity levels for each stage of the auction. The
Commission retains the discretion to vary, by announcement before or
during the auction, the required minimum activity levels (and
associated eligibility calculations) for each auction stage. Retaining
this flexibility will improve the Commission's ability to control the
pace of the auction and help ensure that the auction is completed
within a reasonable period of time. The Commission delegates to the
Bureau the authority to set or vary the minimum activity levels if
circumstances warrant a modification. The Bureau will announce any such
modification by Public Notice. The auction will start in Stage One and
move to Stage Two and then to Stage Three. The movement from one
auction stage to the next will be dependent upon the auction activity
level. The Bureau will retain the discretion to determine and announce
during the course of an auction when, and if, to move from one auction
stage to the next. However, under no circumstances can the auction
revert to an earlier stage.
92. To avoid the consequences of clerical errors and to compensate
for unusual circumstances that might delay a bidder's bid preparation
or submission in a particular round, the Commission will (as it has in
past auctions) provide bidders with five activity rule waivers that may
be used in any round during the course of the auction. A waiver will
preserve current eligibility in the next round, but cannot be used to
correct an error in the amount bid. Bidders also will be afforded an
opportunity to override the automatic waiver mechanism when they place
a bid, if they wish to reduce their bidding eligibility and do not want
to use a waiver to retain their eligibility at its current level. If a
bidder overrides the automatic waiver mechanism, its eligibility
permanently will be reduced (according to the formulas specified
above), and it will not be permitted to regain its bidding eligibility
from a previous round. An automatic waiver invoked in a round in which
there are no valid bids will not keep the auction open. Bidders will
have the option to proactively enter an activity rule waiver during the
bid submission period. If a bidder submits a proactive waiver in a
round in which no other bidding activity occurs, the auction will
remain open. The Bureau will retain the discretion to issue additional
waivers during the course of an auction for circumstances beyond a
bidder's control, and also retain the flexibility to adjust, by Public
Notice prior to an auction, the number of waivers permitted, or to
institute a rule that allows one waiver during a specified number of
bidding rounds or during specified stages of the auction.
vi. Duration of Bidding Rounds
93. Background. The Commission proposed in the NPRM and Order to
retain the discretion to vary the duration of bidding rounds or the
interval at which bids are accepted (e.g., run more than one round per
day) in order to move the auction toward closure more quickly.
94. Discussion. The Commission will retain discretion to vary the
duration of bidding rounds and the interval at which bids are accepted.
In simultaneous multiple round auctions, bidders may need a significant
amount of time to evaluate back-up strategies and develop their bidding
plans. Milliwave, the sole commenter addressing this issue, supports
the Commission's decision. The Bureau will announce any changes to the
duration of and intervals between bidding rounds, either by Public
Notice prior to the auction or by announcement during the auction.
D. Procedural and Payment Issues
i. Short-Form Applications
95. Background. In the Competitive Bidding Second Report and Order,
the Commission determined that it should only require a short-form
application (FCC Form 175) prior to the auction, and that only winning
bidders should be required to submit a long-form license application
after the auction.
96. Discussion. The Commission adopts the bidding application and
certification procedures contained in Sec. 1.1205 of the Commission's
Rules, as amended by the Part 1 proceeding. Prior to the start of the
39 GHz auction, the Bureau will release an initial Public Notice
announcing the auction. The initial Public Notice will specify the
licenses to be auctioned and the procedures for the auction in the
event that mutually exclusive applications are filed. The Public Notice
will specify the method of competitive bidding to be used, applicable
bid submission procedures, stopping rules, activity rules, and the
deadline by which short-form applications must be filed and the amounts
and deadlines for submitting the upfront payment. The Commission will
not accept applications filed before or after the dates specified in
the Public Notice. Applications submitted before the release of the
Public Notice will be returned as premature. Likewise, applications
submitted after the deadline specified by Public Notice will be
dismissed with prejudice as untimely.
97. Soon after the release of the initial Public Notice, a Bidder
Information Package will be made available to prospective bidders. The
Bidder Information Package will contain information about incumbent
licensees based on the Commission's licensing records. Bidders also
should conduct their own due diligence regarding incumbent licensees
within the 39 GHz band.
98. All bidders will be required to submit short-form applications
on FCC Form 175 (and FCC Form 175-S, if applicable), by the date
specified in the initial Public Notice. Applicants are encouraged to
file Form 175 electronically. Detailed instructions regarding
electronic filing will be contained in the Bidder Information Package.
The short-form applications will require applicants to provide the
information required by Sec. 1.2105(a)(2) of the Commission's Rules, as
amended by the Part 1 proceeding.
ii. Amendments and Modifications
99. Background. To encourage maximum bidder participation, the
Commission proposed to provide applicants with an opportunity to
correct minor defects in their short-form applications prior to the
auction. Applicants whose short-form applications are substantially
complete, but contain minor errors or defects, would be provided the
opportunity to correct their applications prior to the auction.
100. Discussion. The Commission received no comments on its
proposal. Thus, the Commission will apply the provisions set forth in
Part 1 of the Commission's rules, including amendments adopted in the
Part 1 proceeding, governing amendments to and modifications of short-
form applications to the 39 GHz service. Upon reviewing the short-form
applications, the Commission will issue a Public Notice listing all
defective applications. Applicants with minor defects in their
applications will be given an opportunity to cure them and resubmit a
corrected version.
iii. Upfront Payments
101. Background. As in the case of other auctionable services, the
NPRM and Order proposed to require all
[[Page 6095]]
auction participants to tender in advance to the Commission a
substantial upfront payment. The Commission proposed to use the
standard upfront payment formula of $2,500 or $0.02 per MHz-pop for the
largest combination of MHz-pops, whichever is greater.
102. Discussion. The Commission previously has determined that a
substantial upfront payment requirement is necessary to ensure that
only serious, qualified bidders participate in auctions and to ensure
that sufficient funds are available to satisfy any bid withdrawal or
default payments that may be incurred. The Commission stated in the
Competitive Bidding Second Report and Order that as a general matter it
will base upfront payments on a formula of $0.02 per MHz-pop for the
largest combination of MHz-pops a bidder anticipates being active on in
any single round of bidding. The Commission also established a minimum
upfront payment of $2,500, but indicated that the minimum amount could
be modified on a service-specific basis. The Commission has varied the
minimum upfront payment where it determined that it would result in too
high an upfront payment for the service. Various commenters contend
that the formula used in the PCS context is not appropriate for the 39
GHz band because it results in an upfront payment that is too high.
103. The Commission recognizes, as indicated by commenters, that
for purposes of 39 GHz services the Commission's standard upfront
payment formula may yield excessively high payment amounts relative to
license values. Upfront payments at such levels could discourage
participation in the auction and would be well above the amounts needed
to discourage frivolous bidding and above what is necessary to ensure
that sufficient funds are available to satisfy any bid withdrawal or
default payments that may be incurred. Since the frequency range and
anticipated uses of 39 GHz services are more like LMDS than broadband
PCS, the Commission believes that it would be appropriate to set
upfront payments closer to the levels used for LMDS than the $.02 per
MHz-pop used in broadband PCS. LMDS upfront payments for 1150 MHz
licenses range from $.00078 per MHz-pop for BTAs with population over
one million to $.00026 per MHz-pop for BTAs with population under one
hundred thousand. Since many of the 39 GHz licenses are heavily
encumbered, it may also be appropriate to make license-by-license
downward adjustments to the upfront payments to account for the reduced
amount of spectrum available. Furthermore, by waiting until after the
LMDS auction is conducted, the Commission will have better estimates
regarding the value of 39 GHz spectrum and be able to more accurately
set the upfront payment amounts. Therefore, to allow the Commission
sufficient time to conduct such analysis, and to benefit from further
auction experience, the Commission proposes not to set the amounts of
the upfront payments for 39 GHz services at this time. Instead, the
Commission delegates authority to the Bureau to set the amounts of
upfront payments and to announce the levels by Public Notice.
iv. Down Payment and Full Payment
104. Background. In the NPRM and Order, the Commission tentatively
concluded that winning bidders should be required to supplement their
upfront payments with a down payment sufficient to bring their total
deposits up to 20 percent of their winning bid(s).
105. Discussion. We adopt the requirement that winning bidders must
supplement their upfront payments with a down payment sufficient to
bring their total deposits up to 20 percent of their winning bid(s). No
commenters addressed this specific proposal. If the upfront payment
already tendered by a winning bidder, after deducting any bid
withdrawal and default payments due, amounts to 20 percent or more of
its winning bids, no additional deposit will be required. If the
upfront payment amount on deposit is greater than 20 percent of the
winning bid amount after deducting any bid withdrawal and default
payments due, the additional monies will be refunded.
106. The Commission also will require winning bidders to submit the
required down payment by wire transfer to the Commission's lock-box
bank, by a date and time to be specified by Public Notice, generally
within ten (10) business days following release of the Public Notice
announcing the close of bidding. All auction winners generally will be
required to make full payment of the balance of their winning bids
within ten (10) business days following Public Notice that the
Commission is prepared to award the license.
107. The Commission notes that it has proposed to adopt a late fee
in Sec. 1.2109(a) in the Part 1 proceeding, to permit auction winners
to make their final payments 10 business days after the payment
deadline, provided that they also pay a late fee equal to five percent
of the amount due. While the Commission does not adopt the proposed
late fee provision in this proceeding, the Commission notes that should
it ultimately adopt such a provision in the part 1 proceeding it shall
apply to the 39 GHz band.
v. Bid Withdrawal, Default, and Disqualification
108. Background. In the Competitive Bidding Second Report and
Order, the Commission noted the importance to the success of the
competitive bidding process that potential bidders be required to make
a monetary payment if they withdraw a high bid, are found not to be
qualified to hold licenses, or default on payment of a balance due.
109. Discussion. To prevent insincere bidding, the Commission will
apply the bid withdrawal, default and disqualification rules found in
Secs. 1.2104(g), and 1.2109 of the Commission's Rules, as amended by
the part 1 proceeding, to the 39 GHz auctions. No commenters addressed
this issue. Any bidder that withdraws a high bid 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. The
Commission will calculate the bid withdrawal payment as either (1) the
difference between the withdrawn bid net of bidding credit and the
subsequent winning bid net of bidding credit, or (2) the difference
between the gross withdrawn bid and the subsequent gross winning bid
for that license, whichever is less. No withdrawal payment is assessed
if the subsequent winning bid exceeds the withdrawn bid. If a winning
bidder defaults after the close of an auction, the defaulting bidder
will be required to pay the foregoing payment plus an additional
payment of 3 percent of the subsequent winning bid or its own withdrawn
bid, whichever is lower.
110. The Commission notes that it has proposed to adopt guidelines
for erroneous bids in the part 1 proceeding, based upon the rationale
discussed in the Atlanta Trunking Order. While it does not adopt the
proposed guidelines in this proceeding, the Commission notes that
should the Commission ultimately adopt such guidelines for erroneous
bids in the part 1 proceeding it shall apply to the 39 GHz band.
vi. Long-Form Applications and Petitions to Deny
111. Background. In the NPRM and Order, the Commission stated that
if the winning bidder makes a down payment in a timely manner, it would
be required to file a long-form application.
[[Page 6096]]
112. Discussion. The Commission will apply the part 1 long-form
procedures to the 39 GHz auction, as amended by the part 1 proceeding.
No commenters addressed this issue. While long-form applications may be
filed either electronically or manually, beginning January 1, 1998, all
applications must be filed electronically. Upon acceptance for filing
of the long-form application, the Commission will issue a Public Notice
announcing this fact and triggering the filing window for petitions to
deny. If the Commission denies all petitions to deny, and is otherwise
satisfied that the applicant is qualified, a Public Notice announcing
the grants will be issued.
E. Regulatory Safeguards
i. Transfer Disclosure Requirements
113. Background. In section 309(j) of the Communications Act,
Congress directed the Commission to ``require such transfer disclosures
and anti-trafficking restrictions and payment schedules as may be
necessary to prevent unjust enrichment as a result of the methods
employed to issue licenses and permits.''
114. Discussion. The Commission will adopt the transfer disclosure
requirements contained in Sec. 1.2111(a) of the Commission's rules, as
amended by the Part 1 proceeding, for all 39 GHz licenses obtained
through competitive bidding. Generally, applicants transferring their
licenses within three years after the initial license grant will be
required to file, together with their transfer applications, the
associated contracts for sale, option agreements, management
agreements, and all other documents disclosing the total consideration
received in return for the transfer of its license(s).
ii. Anti-Collusion Rules
115. Background. In the Competitive Bidding Second Report and
Order, the Commission adopted special rules prohibiting collusive
conduct in the context of competitive bidding. The Commission indicated
that such rules would serve the objectives of the Omnibus Budget
Reconciliation Act of 1993 (Budget Act) by preventing parties,
especially the largest firms, from agreeing in advance to bidding
strategies that divide the market according to their strategic
interests and that disadvantage other bidders.
116. Discussion. The Commission adopts the rules prohibiting
collusive conduct in Secs. 1.2105 and 1.2107 of the Commission's rules,
as amended by the Part 1 proceeding, for use in the 39 GHz auctions.
The Commission notes that it has proposed to adopt two exceptions to
the anti-collusion rules in the Commission's Part 1 proceeding. While
it does not adopt the proposed exceptions in this proceeding, the
Commission notes that whatever exceptions to the anti-collusion rules
are ultimately adopted in the Part 1 proceeding shall apply to the 39
GHz band. Sections 1.2105 and 1.2107 of the Commission's rules operate,
along with existing antitrust laws, as a safeguard to prevent collusion
in the competitive bidding process. In addition, where specific
instances of collusion in the competitive bidding process are alleged
during the petition to deny process, the Commission may conduct an
investigation or refer such complaints to the United States Department
of Justice for investigation. Bidders who are found to have violated
the antitrust laws or the Commission's rules in connection with their
participation in the auction process may be subject to a variety of
sanctions, including forfeiture of their down payment or their full bid
amount, revocation of their license(s), and possible prohibition from
participating in future auctions.
F. Treatment of Designated Entities
i. Overview and Objectives
117. In authorizing the Commission to use competitive bidding, Congress
mandated that the Commission ``ensure that small businesses, rural
telephone companies, and businesses owned by members of minority groups
and women are given the opportunity to participate in the provision of
spectrum-based services.'' The statute required the Commission to
``consider the use of tax certificates, bidding preferences, and other
procedures'' in order to achieve this Congressional goal. In addition,
Section 309(j)(3)(B) provides that in establishing eligibility criteria
and bidding methodologies the Commission shall promote ``economic
opportunity and competition * * * 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.'' Finally,
Section 309(j)(4)(A) provides that to promote these objectives, the
Commission shall consider alternative payment schedules including
installment payments.
118. The Commission has employed a wide range of special provisions
and eligibility criteria designed to meet the statutory objectives of
providing opportunities to designated entities in other spectrum-based
services. The measures considered thus far for each service were
established after closely examining the specific characteristics of the
service and determining whether any particular barriers to accessing
capital stood in the way of designated entity opportunities. For
example, in the C block broadband PCS auction, small businesses
received a 25 percent bidding credit and all entrepreneurs' block
licensees were entitled to pay for these licenses under an installment
plan. More recently, for the WCS auction, the Commission adopted tiered
bidding credits of 25 percent for small businesses and 35 percent for
very small businesses, declined to adopt installment payments for
designated entities because of the expedited procedures imposed by the
Appropriations Act which required entities to make full payment on the
bid amount quickly, and adopted a tiered definition of small and very
small businesses. For the 800 MHz SMR auction, the Commission also
adopted tiered bidding credits of 25 percent for small businesses and
35 percent for very small businesses; eliminated installment payments
for the upper 200 channels and deferred the decision on adopting
installment payments in the lower 80 and General category channels to
the outcome in the pending Part 1 proceeding; and adopted a tiered
definition of small and very small businesses.
119. In the NPRM and Order, the Commission sought comment on
whether the designated entity provisions adopted for broadband PCS
should be applied here because this spectrum may be used in support of
PCS. The Commission also sought comments broadly on how it can best
promote opportunities for businesses owned by minorities and women in
light of Adarand.
Commenters were encouraged to provide the Commission with as much
evidence as possible with regard to past discrimination, continuing
discrimination, discrimination in access to capital,
underrepresentation and other significant barriers facing businesses
owned by minorities and women in obtaining licenses in communications
services.
ii. Eligibility for Bidding Credits
120. At this time the Commission has not developed a record
sufficient to sustain race-based measures in the 39 GHz band based on
the standard established by Adarand Constructors v. Pena. The
Commission also believes that at this time the record is insufficient
to support any gender-based provisions under the intermediate scrutiny
standard. In addition, the
[[Page 6097]]
record in this proceeding does not demonstrate a need for special
provisions for rural telephone companies beyond those that the
Commission adopts for small businesses. The Commission thus will limit
eligibility for special provisions for designated entities in the 39
GHz band to small businesses. While DCR supports adoption of special
provisions designed to promote opportunities for businesses owned by
minorities and women, it contends that fashioning provisions that can
withstand the Adarand test should not be permitted to delay the
licensing process. It notes that such a delay would be harmful to
minority- and women-owned businesses attempting to attract financing
and operate PCS systems. Neither DCR nor other commenters provide
evidence with regard to past discrimination, continuing discrimination,
or other significant barriers to minorities and women. Based on the
record in this proceeding, the Commission intends to adopt bidding
credits for applicants qualifying as small businesses, as discussed
infra. As there will be small businesses with variable abilities to
access capital, the Commission will tier the bidding credits to account
for these differences. The Commission believes these provisions will
provide small businesses with a meaningful opportunity to obtain
licenses in the 39 GHz auction. Moreover, many minority-and women-owned
entities are small businesses and will therefore qualify for the same
special provisions that would have applied to them under the previous
PCS rules. As such, these provisions will meet Congress' goal of
promoting wide dissemination of 39 GHz licenses.
a. Small Business Definition. 121. Background. In the Competitive
Bidding Second Memorandum Opinion and Order, the Commission stated it
would define small business eligibility on a service-specific basis,
taking into account the capital requirements and other characteristics
of each particular service in establishing the appropriate threshold.
In the NPRM and Order, the Commission proposed to define small
businesses as those entities with not more than $40 million in average
annual gross revenues for the preceding three years. In addition, the
Commission proposed to apply the same affiliation and attribution rules
for calculating revenues previously adopted for broadband PCS. The
Commission noted, however, that the attribution rules for calculating
gross revenues for broadband PCS are complex and sought comment on
substituting the ``control group'' concept for a simpler attribution
model. The Commission asked how the revenues of a small business entity
should be calculated. The Commission also asked how investors should be
treated in determining the eligibility of a small business, e.g.,
whether only investors that hold ownership interests at a certain
threshold should have their gross revenues included (e.g., ownership
interests of five percent would trigger attribution).
122. Discussion. As a general matter, the Commission adopts its
proposed small business definition of an entity with not more than $40
million in average annual gross revenues for the preceding three years.
The Commission concludes that this definition will accommodate the
broadest cross-section of small businesses because it will include, at
a minimum, all entities recognized as small businesses in the CMRS
contexts for which the Commission has either adopted or proposed small
business definitions. The Commission, however, rejects DCR's suggestion
to adopt a definition which completely mirrors the small business
definition in the broadband PCS C block rules. Significantly, if
certain winning C block winners do not qualify as small businesses
here, they will be able to participate in the 39 GHz auctions even
though they will not be eligible for special provisions. Moreover, DCR
has failed to demonstrate that control group equity structures and
affiliation rule exceptions are warranted in the 39 GHz context. In
fact, given the broad array of services that may be offered in the 39
GHz band, ranging from CMRS support services to niche service
offerings, the Commission is reluctant to adopt such complex ownership
structures absent evidence of the same factors present in the broadband
PCS context. As discussed in further detail, infra, the Commission is
providing bidding credits to an additional category of small
businesses--very small businesses. A very small business is an entity
that, together with its affiliates and persons or entities that hold
attributable interests in such entity and their affiliates, has average
gross revenues that are not more than $15 million for the preceding
three years.
123. In determining whether an applicant qualifies for bidding
credits as a small business or a very small business in the 39 GHz
auction, the Commission will consider the gross revenues of the small
business applicant, its affiliates, and certain investors in the
applicant. Specifically, for purposes of determining small business
status, the Commission will attribute the gross revenues of all
controlling principals in the small business applicant as well as the
gross revenues of affiliates of the applicant. The Commission also
chooses not to impose specific equity requirements on the controlling
principals that meet the small business definition. The Commission will
still require, however, that in order for an applicant to qualify as a
small business, qualifying small business principals must maintain
``control'' of the applicant. The term ``control'' would include both
de facto and de jure control of the applicant. For this purpose, the
Commission will borrow from certain SBA rules that are used to
determine when a firm should be deemed an affiliate of a small
business. Typically, de jure control is evidenced by ownership of 50.1
percent of an entity's voting stock. De facto control is determined on
a case-by-case basis. An entity must demonstrate at least the following
indicia of control to establish that it retains de facto control of the
applicant: (1) The entity constitutes or appoints more than 50 percent
of the board of directors or partnership management committee; (2) the
entity has authority to appoint, promote, demote and fire senior
executives that control the day-to-day activities of the licensees; and
(3) the entity plays an integral role in all major management
decisions. While the Commission is not imposing specific equity
requirements on the small business principals, the absence of
significant equity could raise questions about whether the applicant
qualifies as a bona fide small business. Finally, the Commission
rejects Winstar's proposal to adopt a high attribution standard to
determine small business status because the absence of special
provisions for minorities and women reduces the risk that applications
falsely claiming such status will be filed. The existence of special
small business provisions requires adoption of the provisions set forth
herein in order to prevent their improper use.
b. Bidding Credits. 124. Background. In the NPRM and Order, the
Commission proposed a 10 percent bidding credit for qualified small
businesses. The Commission stated that the magnitude of the credit was
reasonable and equitable in view of other proposals which will benefit
designated entities, including the relatively small geographic
licensing areas and the availability of installment payments. The
Commission also proposed to allow eligible entities to apply the credit
to all licenses. However, the Commission sought
[[Page 6098]]
comment on whether small businesses should receive a larger bidding
credit, such 25 percent credit.
125. Discussion. Based upon the record, the Commission adopts
tiered bidding credits for the 39 GHz service. Several commenters
support the Commission's proposal to give bidding credits to small
businesses. Some of these commenters also express concern that a 10
percent credit is too low. The Commission agrees with PCS Fund's
contention that tiered bidding credits will promote vigorous
competition not only between small businesses and large businesses but
also between small businesses of different economic sizes.
126. The Commission believes that a tiered approach will encourage
smaller businesses, that may be very well-suited to provide niche
services, to participate in the provision of services in the 39 GHz
band. For example, Winstar states that it believes that a major use of
the spectrum will be for wireless local loop services. Microwave
Partners indicates that it is looking at the spectrum for medical,
public health and safety related applications, such as high speed
transmission of medical data between physicians' offices and clinics
and hospitals, laboratories and X-ray facilities; interactive
videoconferencing for the continuing education of all health care
personnel; and surveillance and security monitoring of high risk areas.
The Commission recognizes that smaller businesses have more difficulty
accessing capital and thus need a higher bidding credit. These tiered
bidding credits are narrowly tailored to the varying abilities of
businesses to access capital. Tiering also takes into account that
different small businesses will pursue different strategies.
Accordingly, small businesses with average gross revenues of not more
than $40 million for the preceding three years will receive a 25
percent bidding credit. Very small businesses, that is, those small
businesses with average gross revenues of not more than $15 million for
the preceding three years, will receive a 35 percent bidding credit.
Bidding credits for small businesses are not cumulative.
c. Installment Payments.
127. Background. In the NPRM and Order, the Commission proposed to
allow small businesses to pay off their successful license bids in
installments. In the Competitive Bidding Second Report and Order, the
Commission concluded that installment payments are an effective means
to address the inability of small businesses to obtain financing and
will enable these entities to compete more effectively for the
auctioned spectrum. Under the Commission's proposal, small business
licensees may elect to pay their winning bid amount (less upfront
payments) in installments over the ten-year term of the license, with
interest charges to be fixed at the time of licensing at a rate equal
to the rate for ten-year U.S. Treasury obligations plus 2.5 percent.
The Commission sought comment on these proposals.
128. The Commission also sought comments on proposals for
additional special payment provisions to further address the access to
capital challenges faced by small businesses. The Commission proposed
that small business licensees be permitted to make interest-only
installment payments during the first two years of the license term.
The Commission also proposed to reduce down payments for small
businesses to 5 percent of the winning bid due five days after the
auction closes and the remaining 5 percent down payment due five days
after release of the Public Notice announcing that the Commission is
prepared to award the license. Finally, the Commission sought comment
on whether to offer ``tiered'' installment payments scaled to the
financial size of a small business applicant.
129. Discussion. The Commission has carefully considered the use of
installment payment plans for 39 GHz licenses and has decided not to
adopt its proposal to allow small businesses to pay for their licenses
in installment payments. First, Congress did not require the use of
installment payments in all auctions, but rather recognized them as one
means of promoting the various objectives of section 309(j)(3) of the
Communications Act. The Commission continues to experiment with
different means for achieving its obligations under the statute, and
has offered installment payments to licensees in several auctioned
wireless services. By no means, however, has Congress dictated that
installment payments are the only tool in assisting small business.
Indeed, the Commission has conducted several auctions without
installment payments. The Commission concludes that it can meet its
statutory obligations in the 39 GHz auction absent these provisions.
130. The Commission must balance competing objectives in section
309(j) that require, inter alia, that it promote the development and
rapid deployment of new spectrum-based services (i.e., competition) and
ensure that designated entities are given the opportunity to
participate in the provision of such services. In assessing the public
interest, the Commission must try to ensure that all the objectives of
section 309(j) are considered. The Commission's experience with the
installment payment program leads it to conclude that installment
payments may not always serve the public interest. The Commission is
presently examining issues relating to the administration of
installment payments in several other proceedings. Because of the
importance of these issues, the Commission plans to incorporate its
decisions regarding installment payments and other financial issues
into the Part 1 rulemaking.
131. Finally, as discussed infra, the Commission has adopted
enhanced bidding credits for the 39 GHz auction. The bidding credits
adopted for small businesses will help to promote access to the 39 GHz
band and various new services by ensuring that small businesses will
have genuine opportunities to participate in the 39 GHz auctions and in
provision of services. The Commission also notes that, given the
relatively large numbers of licenses available in the 39 GHz band,
there should be opportunities for small business participation. The
Commission has determined that, in view of the favorable tiered bidding
credits adopted herein, it does not see the need to adopt reduced down
payments for small businesses in order to ensure either their access to
capital or their participation in the auction. Instead, the Commission
will require a 20 percent down payment, the same down payment that is
required of all other 39 GHz auction winners. Under this approach, all
winning bidders will be required to supplement their upfront payments
to bring their total payment to 20 percent of their winning bid within
10 business days of the close of the auction. Prior to licensing, they
will be required to pay the balance of their winning bid. The
Commission believes that a 20 percent down payment is appropriate here
to ensure that all auction winners have the necessary financial
capabilities to complete payment for the license and to pay for the
costs of constructing a system and protect against possible default,
while at the same time not being so onerous as to hinder growth and
diminish access.
iii. Transfer Restrictions and Unjust Enrichment Provisions
132. Background. The Commission's unjust enrichment provisions are
integral to the success of the special provisions for designated
entities in the various auctionable services. In the Competitive
Bidding Second Report and Order, the Commission outlined unjust
enrichment provisions applicable specifically to designated entities.
The Commission established these
[[Page 6099]]
provisions to deter speculation and participation in the licensing
process by those who do not intend to offer service to the public, or
intend to use the Commission's provisions to obtain a license at a
lower cost than they otherwise would have to pay, and later to sell it
for a profit. In the NPRM and Order, the Commission sought comment
regarding the appropriate approach to prevent unjust enrichment.
133. Discussion. To ensure that large businesses do not become the
unintended beneficiaries of measures meant for smaller firms, the
Commission will adopt unjust enrichment provisions similar to those
adopted for other services, including, for example, narrowband PCS and
900 MHz SMR services. These rules provide that, during the initial
license term, licensees utilizing bidding credits and seeking to assign
or transfer control of a license to an entity that does not meet the
eligibility criteria for bidding credits will be required to reimburse
the government for the total value of the benefit conferred by the
government, that is, the amount of the bidding credit, plus interest,
before the transfer will be permitted. The rules which the Commission
now adopts additionally provide that, if a licensee applies to assign
or transfer control of a license to an entity that is eligible for a
lower bidding credit, the difference between the bidding credit
obtained by the assigning party and the bidding credit for which the
acquiring party would qualify, plus interest, must be paid to the
United States Treasury as a condition of approval of the assignment or
transfer.
134. If a licensee that utilizes bidding credits seeks to make any
change in ownership structure that would render the licensee ineligible
for bidding credits, or eligible only for a lower bidding credit, the
licensee must first seek Commission approval and reimburse the
government for the amount of the bidding credit, or the difference
between its original bidding credit and the bidding credit for which it
is eligible after the ownership change, plus interest. Additionally, if
an investor subsequently purchases an interest in the business and, as
a result, the gross revenues of the business exceed the applicable
financial caps, this unjust provision will apply. The amount of this
payment will be reduced over time as follows: (1) A transfer in the
first two years of the license term will result in a forfeiture of 100
percent of the value of the bidding credit (or, in the case of very
small businesses transferring to small businesses, 100 percent of the
difference between the bidding credit received by the former and the
bidding credit received by the latter is eligible); (2) in year three
of the license term the payment will be 75 percent; (3) in year four
the payment will be 50 percent; and (4) in year five the payment will
be 25 percent, after which there will be no payment. These assessments
will have to be paid to the U.S. Treasury as a condition of approval of
the assignment or transfer. Thus, a small business that received
bidding credits seeking transfer or assignment of a license to an
entity that does not qualify as a small business will be required to
reimburse the government for the amount of the bidding credit, plus
interest, before the transfer will be permitted.
iv. Entrepreneurs' Block
135. Background. In the Competitive Bidding Fifth Report and Order,
59 FR 37566 (July 22, 1994), the Commission established entrepreneurs'
blocks in broadband PCS on which only qualified entrepreneurs,
including small businesses, could bid. The Commission requested comment
on whether the capital requirements of this service were anticipated to
be so substantial that the Commission should insulate certain blocks
from very large bidders in order to provide meaningful opportunities
for designated entities. The Commission also requested comment on the
need to adopt an entrepreneurs' block to ensure that there will be
adequate spectrum available for communications links for broadband PCS
entrepreneurs' block licensees.
136. Discussion. No commenter advocated the adoption of an
entrepreneurs' block and the Commission decides not to adopt one in the
39 GHz service. First, the relatively large numbers of licenses
available in the 39 GHz band should allow for extensive small business
participation. Second, small businesses will have a significant
opportunity to compete for licenses given the enhanced bidding credits
adopted for small businesses. The bidding credits adopted for small
businesses will help to promote access to the 39 GHz band and various
new services by ensuring that small businesses will have genuine
opportunities to participate in the 39 GHz auctions and in provision of
services.
VI. Procedural Matters
A. Regulatory Flexibility Act
137. The analysis for this Report and Order pursuant to the
Regulatory Flexibility Act, 5 U.S.C. 604, is contained herein as
follows. As required by section 603 of the Regulatory Flexibility Act,
5 U.S.C. 603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA)
was incorporated in the Notice of Proposed Rule Making in this
proceeding in ET Docket No. 95-183. The Commission sought written
public comments on the proposals in the NPRM, including on the IRFA.
The Commission's Final Regulatory Flexibility Analysis (FRFA) in this
Report and Order conforms to the RFA, as amended by the Contract With
America Advancement Act of 1996 (CWAAA), Public Law 104-121, 110 Stat.
847 (1996).
i. Need for and Purpose of This Action
138. In this Report and Order, the Commission adopts rules and
procedures intended to facilitate the efficient use of the 38.6-40.0
GHz frequency band ( the ``39 GHz'' band ) and to permit different
types of services to be offered therein. The purposes of this action
are to provide support spectrum for emerging technologies, as well as
to permit the development of innovative point-to-point or point-to-
multipoint services. The Commission amends the rules for fixed, point-
to-point microwave service in the 39 GHz band , so as to conform the
regulatory approach toward operations in that band with its proposals
for licensing the adjacent 37.0-38.6 GHz (37 GHz) band. Action on the
37.0-38.6 GHz band ( the ``37 GHz'' band) has been postponed. In this
item the Commission retains the existing channeling plan and amends
some of the existing licensing and technical rules for the 39 GHz band
in order to improve the regulatory environment for the development and
implementation of a broad range of point-to-point microwave operations.
The Commission also is adopting rules for competitive bidding for the
39 GHz band. By these actions, the Commission is creating a flexible
regulatory vehicle for facilitating the development of a variety of
fixed microwave operations that will provide, inter alia,
communications infrastructure for commercial and private mobile radio
operations and competitive wireless local telephone service. The
Commission concludes that the public interest is served by the
geographic licensing and competitive bidding rules adopted herein.
ii. Summary of Issues Raised by the Public Comments in Response to the
Initial Regulatory Flexibility Analysis
139. No comments were filed in direct response to the IRFA. In
general comments on the NPRM, however, some commenters raised issues
that might
[[Page 6100]]
affect small entities. In particular, one commenter contended that in
the auctions for the 39 GHz band, small entities may be at serious
competitive disadvantage vis-a-vis large, well-financed companies,
especially if the small businesses already expended substantial sums on
obtaining PCS licenses. This commenter stated that if auctions are to
be utilized, small business preferences must be designed to provide
meaningful assistance to small business. Other commenters also
supported small business preferences in the auctions. Various
commenters contend that the upfront payment formula of $2,500 or $0.02
pop per MHz as proposed is excessive and will put a burden on small
businesses. Further, some commenters claim that the proposed bidding
credit offered to small business entities is too low. Many commenters
support the concept of permitting all 39 GHz licensees to partition
their licenses to any potential licensee meeting the relevant
requirements. These commenters state that partitioning will assist
small businesses that might be able to afford a portion of a license.
iii. Changes Made to the Proposed Rules
Service Rules.
140. In the NPRM, the Commission proposed a partitioning scheme
with respect to rural telephone companies. The Commission has
determined in the Report and Order that the option of partitioning
should be made available to all entities eligible to be licensees in
the 39 GHz band. The Commission also concluded that 39 GHz licensees
should be permitted to disaggregate their spectrum blocks. In the NPRM
the Commission also proposed to establish a maximum field strength
limit that would apply at the boundaries of each service area which
would provide that licensees' operations not exceeding this limit would
avoid the need to complete the formal coordination process. However, in
this Report and Order the Commission elects not to adopt a field
strength limit but will continue to use the frequency coordination
procedures outlined in Sec. 101.103(d) of the Commission's Rules. In
addition, the Commission proposed new build-out requirements for 39 GHz
licensees to ensure that the spectrum was being used efficiently. The
Commission suggested four construction build-out options, each of which
depended upon a specific number of fixed stations to be built within
the licensees' geographic area. In this Report and Order, the
Commission concludes that a substantial service standard is the most
appropriate benchmark for a build-out requirement for the 39 GHz band,
because it will permit flexibility in system design and market
development, and provide a clear and expeditious accounting of spectrum
use by licensees to ensure that service is being provided to the
public.
Auction Rules.
141. The Commission has delegated authority to the Wireless
Telecommunications Bureau to modify the upfront payment calculation for
the 39 GHz auction if circumstances warrant and such modification is in
the public interest.
142. The Commission in general adopted the proposed small business
definition of an entity with not more than $40 million in average
annual gross revenues for the preceding three years. As discussed
below, with respect to bidding credits, the Commission created an
additional category of small businesses--very small businesses. These
are entities with not more than $15 million in average annual gross
revenues for the preceding three years. In determining whether an
applicant qualifies as a small business, the Commission will attribute
the gross revenues of all controlling principals in the small business
applicant as well as the gross revenues of affiliates of the applicant.
No specific equity requirements will be imposed on the controlling
principals that meet the small business definition. However, in order
for an applicant to qualify as a small business, qualifying small
business principals must maintain ``control'' of the applicant. The
term control will include both de facto and de jure control of the
applicant.
143. In the NPRM, the Commission proposed a 10 percent bidding
credit for qualified small businesses. In this item, the Commission
adopts tiered bidding credits. Tiered bidding credits will promote
vigorous competition not only between small businesses and large
businesses but also between small businesses of different economic
sizes. In addition, a tiered approach will encourage smaller
businesses, that may be very well-suited to provide niche services to
participate in this auction. Accordingly, small businesses with average
gross revenues of not more than $40 million for the preceding three
years will receive a 25 percent bidding credit. Smaller businesses with
average gross revenues of not more than $15 million for the preceding
three years will receive a 35 percent bidding credit. Bidding credits
for small businesses will not be cumulative.
iv. Description and Estimate of the Small Entities Subject to the Rules
144. The rules adopted in this Report and Order will allow
cellular, PCS, and other small communication entities that require
support spectrum to obtain licenses through competitive bidding.
Pursuant to 47 CFR 101.1209, the Commission has defined ``small
business entity'' in the 39 GHz auction as a firm that had gross
revenues of less than $40 million in the three previous calendar years.
Approval for this regulation defining ``small business entity'' in the
context of 39 GHz was requested from the Small Business Administration
on May 8, 1997.
a. Estimates for Cellular Licensees.
145. The Commission has not developed a definition of small
entities applicable to cellular licensees. Therefore, the applicable
definition of small entity is the definition under the Small Business
Administration (SBA) rules applicable to radiotelephone companies. This
definition provides that a small entity is a radiotelephone company
employing fewer than 1,500 persons. Since the Regulatory Flexibility
Act amendments were not in effect until the record in this proceeding
was closed, the Commission was unable to request information regarding
the number of small cellular businesses and is unable at this time to
determine the precise number of cellular firms which are small
businesses.
146. The size data provided by the SBA does not enable us to make a
meaningful estimate of the number of cellular providers which are small
entities because it combines all radiotelephone companies with 500 or
more employees. The Commission therefore used the 1992 Census of
Transportation, Communications, and Utilities, conducted by the Bureau
of the Census, which is the most recent information available. This
document shows that only 12 radiotelephone firms out of a total of
1,178 such firms which operated during 1992 had 1,000 or more
employees. Therefore, even if all 12 of these firms were cellular
telephone companies, nearly all cellular carriers were small businesses
under the SBA's definition. The Commission assumes, for purposes of the
evaluations and conclusions in this FRFA, that all of the current
cellular licensees are small entities, as that term is defined by the
SBA. Although there are 1,758 cellular licenses, the Commission does
not know the number of cellular licensees, since a cellular licensee
may own several licenses.
b. Estimates for Broadband PCS Licensees.
147. The broadband PCS spectrum is divided into six frequency
blocks designated A through F. Pursuant to 47 CFR 24.720(b), the
Commission has defined ``small entity'' in the auctions for Blocks C
and F as a firm
[[Page 6101]]
that had average gross revenues of less than $40 million in the three
previous calendar years. This regulation defining ``small entity'' in
the context of broadband PCS auctions has been approved by the SBA.
148. The Commission has auctioned broadband PCS licenses in Blocks
A through F. The Commission does not have sufficient data to determine
how many small businesses bid successfully for licenses in Blocks A and
B. For the C Block auction, a total of 255 qualified bidders
participated in the auction. Of the qualified bidders, all were
entrepreneurs--defined for this auction as entities together with
affiliates, having gross revenues of less than $125 million and total
assets of less than $500 million at the time the FCC Form 175
application was filed. Of the 255 qualified bidders, 253 were ``small
businesses''--defined for this auction as entities together with
affiliates, having gross revenues of less than $40 million at the time
the FCC Form 175 application was filed. After a total of 184 rounds,
the number of winning bidders totalled 89, all of whom were small
business entrepreneurs, who won a total of 493 licenses. To date, two
of the winning bidders defaulted on 18 of the licenses. Those licenses
were reauctioned in Auction #10. For the D, E, and F Block au
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.