800 MHz SMR Licensees

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[FCC 95-211]

800 MHz SMR Licensees

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission

(Commission) addresses petitions for waiver which establishes the

maximum period for Specialized Mobile Radio (SMR) licensees to

construct their facilities and commence operation. The document grants

certain licensees an additional four months to construct and commence

operations of their licenses. The Commission partially granted the

waiver petitions because during the pendency of the waiver petitions,

it had changed the construction period for all new Commercial Mobile

Radio Service (CMRS) licenses, including conventional SMR licenses,

from eight months to twelve months. Thus, the basis for granting the

additional four months to these licensees was to place them in the same

posture as CMRS providers licenses after January 2, 1995, when the new

rule took effect.

DATES: Licensees have four months from August 27, 1998 to construct and

commence operation of their licenses.

FOR FURTHER INFORMATION CONTACT: Terry Fishel at (717) 338-2602 or

Ramona Melson or David Judelsohn at (202) 418-7240.

SUPPLEMENTARY INFORMATION:

1. This order addresses petitions for waiver of Section 90.633(c)

of the Commission's Rules, which establishes the maximum period for

Specialized Mobile Radio (SMR) licensees to construct their facilities

and commence operation. The petitions were filed on March 15, 1994 and

March 21, 1994, respectively, by Dr. Robert Chan and Daniel R. Goodman.

On April 6, 1994, the Private Radio Bureau released a Public Notice 59

FR 17547 (April 13, 1994) seeking comments on the Goodman and Chan

petitions. Based on the facts set forth in the petitions and the

comments filed in this matter, we conclude that the waivers requested

by Chan and Goodman should be granted to the extent described below.

2. The Goodman and Chan petitions are brought by or on behalf of

approximately 4,000 individuals who have obtained 800 MHz conventional

SMR licenses on General Category channels by using the services of one

of

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several companies that are the subject of an enforcement action brought

by the Federal Trade Commission. These companies have used TV

infomercials and telemarketing solicitations to promote SMR licenses as

``investment opportunities'' for individuals. The typical service

offered by these companies is to prepare SMR applications for a

substantial fee (usually $7000 per application). The companies

typically induce potential customers to purchase these services by

representing that SMR licenses have great value that can be recouped

through subsequent resale of these licenses, but do not emphasize the

obligations to which each licensee is subject.

3. The Commission has taken steps to protect the public against

deception and misinformation. In December 1992, the Commission issued a

public ``Consumer Alert'' regarding SMR licensing. Among other things,

the alert stated that SMR licenses could be obtained directly from the

FCC for a $35 fee, that licensees would be required to construct

facilities within eight months or lose their licenses, and that

licenses could not be sold or transferred prior to construction. The

Commission also developed a consumer information packet, which is sent

to individuals who contact the Commission after being solicited by SMR

application companies. The Commission also assisted the Federal Trade

Commission (FTC) in preparing a consumer information pamphlet issued in

January 1994.

4. The Commission has actively cooperated with the Federal Bureau

of Investigation, the FTC and the Securities Exchange Commission in

investigations of SMR application companies. In January 1994, one such

investigation culminated in a lawsuit brought by the FTC in U.S.

District Court against four companies, Metropolitan Communications

Corp., Nationwide Digital Data Corp., Columbia Communications Services

Corp., and Stephens Sinclair Ltd. (the ``Receivership Companies''). In

its complaint, the FTC alleged that approximately 4,000 individuals who

were assisted by the Receivership Companies in obtaining licenses for

conventional SMR channels were defrauded and misled as to the FCC rules

by the sales practices of these companies. The first phase of the

scheme involved selling consumers application preparation services for

FCC licenses at excessive cost. In the second phase of the scheme,

certain defendants used misrepresentations to solicit the purchase of

shares in partnerships that would purportedly construct and operate SMR

systems in various cities. On January 14, 1994, the court issued a

preliminary injunction freezing the assets of the Receivership

Companies and their principal officers and appointed Daniel R. Goodman

as Receiver of the Receivership Companies.

5. Waiver Requests. On March 15, 1994, Dr. Robert Chan filed a

petition for waiver on his own behalf as licensee of five SMR stations

acquired through two of the Receivership Companies. Dr. Chan requested

an additional year in which to build and place his facilities in

operation. On March 21, 1994, Daniel Goodman, the court-appointed

Receiver, filed a petition for waiver on behalf of all SMR licensees

who have received licenses through the Receivership Companies. Noting

that virtually no construction had taken place under these licenses and

that automatic license cancellation was imminent, Goodman requested an

eight month extension of time for all such licensees to construct and

commence operations, starting from the petition grant date. Goodman

also requested a 120-day emergency stay of all automatic cancellations

of licenses during the pendency of the petition. Goodman indicated that

its request for waiver was limited to the Commission's eight month

construction deadline, and no request was made to waive any of the

other requirements that apply to General Category channels.

6. On April 21, 1994, Goodman filed a supplement to his initial

waiver request asking that we waive the Commission's requirement of a

separate waiver fee for each individual license covered by the

petition. On April 29, 1994, Goodman filed another supplement

requesting that the Commission (1) issue a stay (retroactively

effective January 14, 1994) of any cancellation of the exclusive SMR

authorizations during the pendency of the waiver request; (2) suspend

the mailing of automatic cancellation notices to affected licensees;

and, (3) if the request for waiver is denied, grant the licensees a

120-day period from the date of such denial in which to construct their

facilities. In this supplemental request, Goodman stated that

petitioners needed ``an additional eight month period to construct and

load their licensed facilities,'' indicating that compliance with the

Commission's mobile loading requirements for the General Category

channels was contemplated.

7. Public Notice and Comments on Petitions. On April 6, 1994, the

Private Radio Bureau issued a Public Notice seeking comments and

replies on the Goodman and Chan petitions. Approximately 300 comments

and five replies were received. Many comments in support of the Goodman

petition were submitted by individual licensees who received their

licenses through the services of the Receivership Companies. In

addition, the FTC has submitted a letter to the Commission supporting

the Goodman petition. Oppositions to the waiver requests have been

filed by major SMR operators, frequency coordinators, and trade

associations, including Nextel Communications, Inc., the American

Mobile Telecommunications Association, the Association of Public-Safety

Communications Officials-International, National Association of

Business and Educational Radio, American Digital Communications, the

Industrial Telecommunications Association and Council of Independent

Communication Suppliers, Express Communications, TC3M, Inc., and Brown

and Schwaninger.

A. Receiver's Standing as Party in Interest

8. Background and Comments. As a threshold issue, several

commenters argue that Goodman lacks standing to bring a waiver petition

on behalf of multiple SMR licensees. These commenters note the apparent

lack of an express agreement between the licensees (individually or as

a group) and the Receiver for the latter to represent them. In

addition, commenters assert that Goodman's status as Receiver is

insufficient to make him a real-party-in-interest with respect to the

licenses at issue. The Receiver's duty is to receive monies due and

owing to the Receivership Companies so that these funds can be used to

satisfy the debts of these companies and their creditors. Because any

monies received from the sale of the licenses would go directly to the

licensees and not to the Receivership Companies, commenters argue, the

Receiver has no interest that would be affected by the request.

9. In reply, Goodman argues that he is the proper entity to submit

waiver requests on behalf of all the licensees. First, Goodman argues

that he should be recognized as having standing for reasons of

administrative convenience because requiring each licensee to file an

individual waiver petition would be unduly burdensome. Goodman also

contends that because many of the licensees entered into management

agreements with the Receivership Companies, the licensees depend on the

Receiver to take whatever actions are necessary to preserve the

validity of their authorizations. Finally, Goodman

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alleges that no licensee has objected to the Receiver's filing of a

petition on behalf of all licensees.

10. Decision. We conclude on grounds of administrative convenience

that Goodman should be deemed to have standing to file the instant

petition. Although this case involves multiple licenses, weighing the

merits of the waiver request for each licensee involves evaluating a

common fact situation rather than a diverse set of facts for each

licensee. Because the request for waiver for all of the licensees is

based on common facts, it would be a waste of time and resources to

require each licensee to file individually. There is also no evidence

that any licensee has objected to the Receiver filing the waiver

petition on his or her behalf. For purposes of the Goodman petition,

therefore, we believe that it is in the public interest to consider the

Receiver as representing the interests of all licensees whose interests

are affected by the FTC's action against the Receivership Companies.

B. Waiver of Application Fees

11. Petition. Section 1.1102 of the Commission's Rules requires

waiver petitions to be accompanied by a $105 fee for each rule section

that the petitioner seeks to waive multiplied by the number of stations

to which the petition applies. Although the Goodman petition was filed

on behalf of multiple licensees, Goodman has submitted only a single

$105 waiver petition fee instead of a separate fee for each affected

license. The Chan petition was not accompanied by any fee payment.

Goodman has requested that the Commission waive the requirement of a

separate fee for each license and accept the single payment as

sufficient. Goodman argues that the public interest warrants waiving

the fee requirement because the purpose of the underlying waiver

petition is to allay potential financial hardship to defrauded

licensees and a fee waiver would avoid a further depletion of the

licensees' funds.

12. Comments. The Public Notice did not solicit comment on the

Receiver's request for waiver of fees because it was filed subsequent

to the release of the Public Notice. Nevertheless, a few comments on

the issue of waiving filing fees were submitted. Express Communications

in particular opposes waiving the fee requirement on the grounds that

there is no provision in the rules to lump multiple requests together

for a single fee.

13. Decision. Section 1.1115(a) of the Commission's rules permits

the waiver of fees where good cause is shown and where waiver would

promote the public interest. If we were to require a separate fee for

each licensee that is covered by the Goodman petition, the total fees

due (based on 4,000 licensees) would total $420,000. We believe that

waiving this fee amount is in the public interest. The Goodman petition

was filed in an attempt to limit the financial harm caused to licensees

by the alleged fraudulent conduct of the Receivership Companies. The

petition also raises substantive issues that we believe should be

decided on the merits. We therefore conclude that good cause exists to

waive the filing fee requirement. For the same reasons, we also waive

the fee requirement with respect to the Chan petition on our own

motion.

C. Waiver of Construction and Operation Deadline

14. Petition. In support of his waiver petition, Goodman contends

that the individuals who obtained licenses through the Receivership

Companies are threatened with an aggregate loss of $28,000,000

(calculated based on 4,000 licenses times the $7,000 application fee

paid by each licensee) if their licenses are allowed to expire. Goodman

states that neither the licensees nor the Receiver have the financial

or technical resources to construct SMR facilities pursuant to their

authorizations within the required eight-month period. Goodman states

that he is in the process of negotiating and finalizing the sale and

assignment of thousands of these licenses to large, legitimate,

publicly-traded SMR companies. Because Commission rules do not allow

the assignment or transfer of unconstructed SMR licenses, however,

Goodman requests that the licensees be given additional time to

construct so that they can then sell the stations and potentially

recoup their investment. Without such an extension, Goodman contends,

the number of licenses that may be transferred will be substantially

diminished. The Receiver contends that if the licensees are granted

additional time to construct, they will be able to place in operation

and load their channels as required by our rules.

15. The Receiver acknowledges that many of the licensees on whose

behalf the waiver is sought were unaware of their obligations under the

Commission's Rules, including the intention to construct and operate

and the eight month construction requirement. Goodman contends that

their lack of knowledge should be excused, however, on the grounds that

the licensees were defrauded by the Receivership Companies concerning

their responsibilities as licensees. Goodman also notes that the

Commission has granted extended construction periods for licensees of

wide-area, multi-site SMR systems and urges us to treat the individual

licensees in this case as similarly entitled to extended construction

authority on a collective basis. Finally, Goodman argues that a waiver

grant would not compromise efficient use of spectrum or otherwise be

contrary to the public interest. If additional time for construction is

allowed, he argues, the systems can be constructed and the Commission's

policies fulfilled with only a brief delay.

16. The Chan petition raises essentially the same issues as the

Goodman petition with respect to the five SMR licenses held by Dr.

Chan. Dr. Chan states that he acquired licenses through two of the

Receivership Companies and that one of the companies, Nationwide

Digital, had undertaken to construct and operate Dr. Chan's SMR

facilities. Because Nationwide does not have the capability to

construct the stations in time, Dr. Chan requests a one-year extension

so that he can employ other business entities to construct and operate

his SMR stations.

17. Comments. The FTC supports the Goodman petition on the grounds

that an extension of the construction and operation deadline would help

to alleviate the financial injury suffered by the 4,000 licensees.

Licensees would directly benefit by a rule waiver, the FTC contends,

because it would give the Receiver adequate time to negotiate

arrangements with legitimate SMR operators to manage and/or construct

the stations. The FTC further argues that these arrangements would

indirectly benefit other investors who have been defrauded by the

Receivership Companies because reducing the licensees' damages will

preserve the assets of the Receivership Companies as a source of

redress for other claims.

18. Many individual licensees have submitted comments in support of

the Goodman petition. These commenters echo Goodman's argument that an

extension of time is necessary to allow construction of their SMR

stations because of the delay engendered by the Receivership Companies'

fraudulent scheme.

19. Petition opponents argue that extending the construction and

operation deadline is an inappropriate remedy for licensees who made

speculative and ill-advised investments. The purpose of the waiver

request, opponents contend, is not to promote development of SMR

service, but to

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protect the interests of a group of licensees who hope to make a profit

from selling their licenses to established operators. Opponents assert

that the Commission cannot act as the guarantor of the public's

investment decisions. Opponents also argue that licensees are charged

with knowing and fulfilling the responsibilities of holding a license.

If these licensees were in fact victims of fraud, opponents argue, they

have legal remedies other than an extension of the construction and

operation deadline. Opponents assert that the Commission would better

serve the public interest by allowing these licenses to lapse so that

the Commission can relicense these frequencies directly to legitimate

operators.

20. Decision. To obtain a waiver of our construction requirements,

petitioners must demonstrate that their circumstances are unique, that

there is no reasonable alternative solution within existing rules, and

that good cause exists to justify the requested relief. The thrust of

petitioners' argument is that they should be excused from the eight-

month construction requirement because they were the victims of fraud

by the Receivership Companies. As discussed more fully below, we will

waive our rules to the extent necessary to put petitioners in the same

posture as other part 90 CMRS providers now subject to a twelve-month

construction period under our rules. Specifically, we will grant

petitioners a four-month extension from the effective date of this

Memorandum Opinion and Order to construct and commence operations. A

four-month extension augments petitioners' original eight-month

construction period to the degree necessary to give them the twelve

months to build their systems that we allowed for all Part 90 CMRS

licensees in the Third Report and Order in General Docket No. 93-252.

We emphasize, however, that all other requirements in our rules

continue to apply. In particular, as licensees on General Category

channels, petitioners do not earn exclusive use of their channels

unless they have achieved loading of 70 mobiles per channel. To the

extent that petitioners have less than 70 mobiles operating on each of

their channels, additional licensees may be licensed to use those

channels. We believe our decision to grant petitioners limited relief

in this manner in no way undermines our commitment to strict

enforcement of our construction rules, which are intended to promote

efficient use of SMR spectrum and the availability of service to the

public.

21. Since the inception of the SMR service, our rules have required

licensees to comply with strict time limits for constructing and

loading their systems. These limits were viewed as essential to

ensuring that SMR spectrum would be used efficiently, and to promote

the rapid deployment of services to the public. We have enforced these

rules strictly in order to recover unused spectrum for relicensing. We

have particularly noted the importance of enforcing our construction

requirements with respect to the General Category channels, on which

the petitioners are licensed. In this regard, we have stated our intent

``to aggressively enforce Section 90.633 of our Rules requiring that

conventional 800 MHz systems be placed in operation eight months after

the date of the grant of the license for the system.''

22. Our policy of strict enforcement of our construction

requirements has led us to deny extensions in a wide variety of

circumstances in which the failure of SMR licensees to comply with our

construction or loading requirements resulted from circumstances that

were the result of the licensees' own business decisions or of risks

commonly assumed by all licensees. For example, in P & R Temmer, an SMR

licensee sought an extension of our construction and loading

requirements because it had been required to change its transmitter

site to eliminate technical problems and because of the equipment

manufacturer's alleged reluctance to aggressively market the system to

potential customers. In denying the waiver, we concluded that problems

with site selection and marketing strategy were not beyond the

licensee's control because they resulted from independent business

judgments made by the licensee. We have applied this standard in other

circumstances as well, denying extension requests by SMR licensees who

have been delayed by such factors as interference from adjacent

buildings, zoning difficulties, inability to obtain construction

permits, and equipment delivery problems.

23. In this respect, the facts of the present case bear a strong

resemblance to the facts in Robert A. Baker, Receiver, a case involving

individuals who were solicited by a company to prepare and file

cellular applications on their behalf. Shortly before the filing

deadline, the FTC brought a fraud action against the company and the

court appointed a receiver to assist the victims of the alleged fraud.

The receiver sought waiver of the deadline to enable the affected

parties to submit applications and the request was supported by the

FTC. In a decision affirmed by the Commission, the Common Carrier

Bureau denied the waiver request. The Bureau concluded that the

individual applicants were responsible for the consequences of their

decision to use a mass application preparer, and that there was no

evidence of compelling circumstances that would justify waiver of the

filing deadline. If the applicants had been defrauded, the Bureau

further stated, the appropriate remedy was to seek indemnification from

the party that had committed the fraud, not belated insertion into the

lottery. The Bureau concluded that the ``tribulations of a mass

application preparer cannot excuse the individual applicants from their

responsibilities.''

24. We also conclude that the principles set forth in Baker are

relevant here. Each individual licensee who hired the Receivership

Companies bears responsibility for the decision to rely on a third

party to act on his or her behalf in meeting the obligations imposed by

the Commission's rules. Assuming that these licensees were defrauded by

the Receivership Companies, they have recourse to other legal remedies

specifically designed to provide redress. The Commission's mandate,

however, is to allocate and assign radio spectrum to serve the public

interest.

25. Our decision to grant the petitions in part is motivated by our

determination that granting the waiver is equitable in light of the

fact that during the pendency of the Goodman and Chan requests, we

changed our construction requirements for SMRs licensed in the General

Category and all CMRS providers licensed under part 90 of our rules. In

the Third Report and Order in the CMRS docket, we adopted a uniform

twelve-month construction period for all CMRS providers licensed under

part 90 of our rules. We indicated that such a rule change would

eliminate the obvious disparity between Part 90 and Part 22 and would

further the goal of comparable regulation for all substantially similar

services. Recently, on grounds similar to our decision here, the

Private Radio Bureau granted 220 MHz non-nationwide licensees a four-

month extension to construct their stations. Petitioners and future

applicants should not interpret our decision today as a sign of any

diminution of our resolve to enforce the twelve-month construction

period that applies to General Category and other part 90 CMRS

licensees. Like the licensees in Baker, petitioners are fully

responsible for the consequences of their decision to use a mass

application preparer.

26. We nonetheless find that the request at hand are

distinguishable from Baker and other cases in which we denied

construction time extensions on

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the grounds that we changed our rules while the Goodman and Chan

petitions were pending before us. In the interests of fairness, we will

grant petitioners the relief necessary to place them in the same

posture as other SMR licensees that are subject to a twelve-month rule.

We will not, however, permit petitioners who have not achieved loading

of 70 mobiles to treat their channels as exclusive. Such relief was not

requested and, indeed, was deemed by the Receiver to be unnecessary.

27. We are granting petitioners only limited relief, and for the

reasons stated above. To grant this relief for the reasons stated by

the petitioners would undermine the objectives of our construction

requirements. As we have noted on numerous occasions, the purpose of

the prohibition against assignment or transfer of unconstructed

licenses is to deter speculation and trafficking in licenses. Even if

we assume that many of the licensees at issue here were unaware of or

misinformed about this rule, as appears likely, petitioners do not

dispute that these licensees were primarily interested in acquiring SMR

licenses as a form of investment that they could subsequently sell for

a profit. We believe it would be incongruous to grant waivers to

licensees on this basis when we have consistently denied them to

licensees who had a bona fide intent to construct and operate SMR

systems but were unable to construct because of adverse business

decisions. The Commission has previously noted that frequencies in the

800 MHz band are extremely scarce in many areas, making it difficult

for applicants to obtain channels. Moreover, the licenses at issue here

are for General Category frequencies, which may be licensed not only to

SMR operators but also to public safety entities and other categories

of private radio users.

28. We also want to be clear that by granting limited relief for

the reasons stated, we do not intend to reward and encourage further

speculative activity by entities like the Receivership Companies and

possibly invite abuse of the Commission's processes. The problem of

application mills is one that we have encountered and continue to

encounter in a number of services. If we were to grant a waiver on the

grounds that such action was needed to afford relief to the unwitting

victims of a few such companies, the result almost inevitably would be

to encourage numerous similar requests. Furthermore, we would be

compelled in each case to ascertain whether the licensee in fact was a

victim of fraud or was claiming fraud as a pretext.

Finally, the grant of a waiver for the reasons stated by

petitioners could inadvertently become a tool used by the application

mills themselves in their solicitation of new clients, resulting in

more unsuitable applicants seeking Commission licenses. We do, however,

affirm our commitment to pursue ongoing initiatives and explore new

ways to deter the practices of application mills and alert the public

regarding licensing fraud.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 98-22946 Filed 8-26-98; 8:45 am]

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