1998 Biennial Regulatory ReviewSpectrum Aggregation Limits for Wireless Telecommunications Carriers

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 22

[WT Docket Nos. 98-205, 96-59, GN Docket No. 93-252; FCC 98-308]

1998 Biennial Regulatory Review--Spectrum Aggregation Limits for

Wireless Telecommunications Carriers

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this Notice of Proposed Rulemaking the Commission

undertakes a comprehensive review of the 45 MHz Commercial Mobile Radio

Services (CMRS) spectrum cap as part of our biennial review of the

Commission's regulations. The Commission seeks comment on whether it

should repeal,

[[Page 70728]]

modify or retain the 45 MHz spectrum cap. In addition, the Commission

seeks comment on a petition, submitted by the Cellular

Telecommunications Industry Association (CTIA), to forbear from

enforcement of the CMRS spectrum cap pursuant to section 10 of the

Communications Act of 1934, as amended. We also seek comment on whether

we should retain, modify, or repeal the cellular cross-ownership rule.

DATES: Comments are due on or before January 25, 1999. Reply comments

are due on or before February 10, 1999.

ADDRESSES: All filings must be sent to the Commission's Secretary,

Magalie Roman Salas, Office of the Secretary, Federal Communications

Commission, 445 Twelfth Street, S.W.; TW-A325; Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: David Krech or Pieter van Leeuwen,

Commercial Wireless Division, Wireless Telecommunications Bureau, (202)

418-0620.

SUPPLEMENTARY INFORMATION: This Notice of Proposed Rulemaking in WT

Docket Nos. 98-205, 96-59, GN Docket No. 93-252, adopted November 19,

1998, and released December 10, 1998, is available for inspection and

copying during normal business hours in the FCC Reference Center, Room

230, 1919 M Street N.W., Washington D.C. The complete text may be

purchased from the Commission's copy contractor, International

Transcription Service, Inc., 1231 20th Street, N.W., Washington D.C.

20036 (202) 857-3800.

Synopsis of the Notice of Proposed Rulemaking:

I. Background

A. History of the CMRS Spectrum Cap

1. The CMRS spectrum cap, 47 CFR 20.6, governs the amount of CMRS

spectrum that can be licensed to a single entity within a particular

geographic area. Pursuant to Sec. 20.6, a single entity may acquire

attributable interests in the licenses of broadband Personal

Communications Service (PCS), cellular, and Specialized Mobile Radio

(SMR) services that cumulatively do not exceed 45 MHz of spectrum

within the same geographic area.

2. The CMRS spectrum cap was established in Implementation of

Sections 3(n) and 332 of the Communications Act, GN Docket No. 93-252,

Third Report and Order, 59 FR 59945 (November 21, 1994) (CMRS Third

Report and Order). The Commission found that if licensees were to

aggregate sufficient amounts of spectrum, it would be possible for

them, unilaterally or in combination, to exclude efficient competitors,

to reduce the quantity or quality of services provided, or to increase

prices to the detriment of consumers. The Commission found that

creating a cap on broadband PCS, SMR, and cellular licenses would

prevent licensees from artificially withholding capacity from the

market. The Commission found that a 45 MHz cap provided a minimally

intrusive means for ensuring that the mobile communications marketplace

remained competitive and preserved incentives for efficiency and

innovation.

3. To perform a spectrum cap analysis, a threshold determination

must first be made regarding whether the CMRS offerings under

consideration are serving markets that substantially overlap. The

Commission adopted a simple formula for this assessment: a

determination of whether the overlap between geographic service areas

or licensed contours contains 10 percent or more of the market's

population. Assuming a 10 percent population overlap, the rule next

requires a determination of whether there is common attributable

ownership. For purposes of the spectrum cap, equity ownership of 20

percent or more was deemed attributable. The Commission also stated

that in determining when cellular, broadband PCS and SMR licenses are

held indirectly through intervening corporate entities, a multiplier

would be used to determine attributable ownership levels, consistent

with application of the broadcast attribution rules.

4. In Implementation of Sections 3(n) and 332 of the Communications

Act, GN Docket No. 93-252, Fourth Report and Order, 59 FR 61828

(December 2, 1994) (CMRS Fourth Report and Order) the Commission

further clarified that certain business relationships could give rise

to attributable ownership interests for purposes of the CMRS spectrum

cap. First, the Commission held that resale agreements will not be

considered attributable interests because resellers can neither

exercise control over the spectrum on which they provide service nor

reduce the amount of service provided over that spectrum. Second, the

Commission found that management agreements that authorize managers of

cellular, broadband PCS or SMR systems to engage in practices or

activities that determine or significantly influence the nature and

types of services offered, the terms on which services are offered, or

the prices charged for such services, give the managers an attributable

interest in that licensee. Finally, the Commission also concluded that

joint marketing agreements that affect pricing or service offerings

will be attributable.

5. In Amendment of parts 20 and 24 of the Commission's Rules--

Broadband PCS Competitive Bidding and the Commercial Mobile Radio

Service Spectrum Cap; Amendment of the Commission's Cellular/PCS Cross-

Ownership Rule, WT Docket No. 96-59, GN Docket No. 90-314, Report and

Order, 61 FR 33859 (July 1, 1996) (CMRS Spectrum Cap Report and Order)

appeal pending sub nom. Cincinnati Bell Tel Co. v. FCC, No. 96-3756

(6th Cir), recon. (BellSouth MO&O) appeal pending sub nom. BellSouth

Corporation v. FCC, No. 97-1630 (D.C. Cir), the Commission reaffirmed

the basic tenets of the CMRS spectrum cap and provided additional

economic rationale for its use. Specifically, the Commission provided

an analysis of the potential market concentrations using the

Herfindahl-Hirschman Index (HHI), and found that a 45 MHz spectrum cap

was necessary to prevent CMRS markets from becoming highly

concentrated. The Commission found that such a spectrum cap was needed

to ensure competition, and that it would adequately address concerns

about anticompetitive behavior in the CMRS market.

6. In addition to reviewing the general structure of the CMRS

spectrum cap, the Commission also reconsidered the ownership and

geographic attribution provisions of Sec. 20.6. In the CMRS Spectrum

Cap Report and Order, the Commission revisited the use of a 20 percent

attribution standard and found it appropriate for use in the CMRS

spectrum cap. Although the Commission did not alter the 20 percent

ownership attribution standard in the CMRS Spectrum Cap Report and

Order, it did adopt a rule under which it would review requests for

waiver of the attribution standard. See 47 CFR 20.6 Note 3. The

Commission also eliminated the 40 percent attribution threshold for

ownership interests held by minorities and women, but maintained it for

small businesses and rural telephone companies. In considering changes

to the geographic attribution standard, the Commission declined to

alter the 10 percent overlap definition because it found that an

overlap of 10 percent of the population is sufficiently small that the

potential for exercise of undue market power by the cellular operator

is slight. In addition, the Commission expanded the divestiture

provisions by allowing parties with non-controlling, attributable

interests in CMRS licenses to have an attributable or controlling

interest in another CMRS application that would exceed the 45 MHz

spectrum cap so long as they followed our post-

[[Page 70729]]

licensing divestiture procedures. In the BellSouth MO&O, Commission

held that the CMRS spectrum cap is not limited to real time, two-way

switched phone service, but covers a variety of services within the

definition of CMRS.

B. Pending Proceedings Regarding the CMRS Spectrum Cap

7. There are several proceedings pending before the Commission

which deal with different aspects of the CMRS spectrum cap. Because the

Commission intends for this proceeding to be a comprehensive re-

evaluation of the CMRS spectrum cap, it plans to consolidate these

outstanding issues in this proceeding. The Commission therefore

incorporates into this proceeding the record of the following pending

proceedings on the CMRS spectrum cap: (1) Petitions for Reconsideration

of CMRS Third Report and Order; (2) Petitions for Reconsideration of

CMRS Fourth Report and Order; (3) Petitions for Reconsideration of CMRS

Spectrum Cap Report and Order; and, (4) Implementation of Sections 3(n)

and 332 of the Communications Act--Regulatory Treatment of Mobile

Services, GN Docket No. 93-252, Third Further Notice of Proposed

Rulemaking, 60 FR 26861 (May 19, 1995). In that proceeding the

Commission examined whether the CMRS spectrum cap should be extended to

all cellular, SMR, and broadband PCS providers regardless of whether

they are classified as Private Mobile Radio Services (PMRS) or CMRS

providers.

II. Notice of Proposed Rulemaking

A. Overview

8. The Commission last reviewed the CMRS spectrum aggregation

limits in 1996 in the CMRS Spectrum Cap Report and Order. Section 11 of

the Communications Act requires that the Commission review regulations

``that apply to the operation or activities of any provider of

telecommunications service'' and ``determine whether any such

regulation is no longer necessary in the public interest as the result

of meaningful economic competition between providers of such service.''

47 U.S.C. 161. In light of the mandate in section 11 and the

developments in the marketplace since 1996, the Commission seeks

comment in this Notice on whether to retain, modify, or repeal the CMRS

spectrum cap.

B. Reassessment of the CMRS Spectrum Cap

9. Generally, the Commission believes that the spectrum cap has

been useful in promoting competition in mobile voice services, given

that these services were largely available from only two cellular

companies in each locality prior to our broadband PCS auctions. The 45

MHz limit was originally devised as the Commission prepared for its

auction of broadband PCS spectrum, in response to concerns that

incumbent cellular providers had incentives to impede the development

of competing networks to preserve their competitive position. Under

constraints imposed by the CMRS spectrum cap, the Commission awarded

broadband PCS licenses that are now, or will soon be, competing

directly with these cellular providers. In many localities, significant

new entry into mobile voice services has already occurred. Moreover,

the Commission expects that competition will develop further as

remaining broadband PCS licensees complete the initial phases of their

network buildouts. The Commission believes that the aggregation limit

helped to promote the likely emergence of at least three new

competitors in each market. In at least several markets, mobile voice

services are now being offered by seven or more competitors. The

competitive evolution of these markets may be traced directly to

decisions to auction additional spectrum well-suited to the provision

of mobile communications, and to impose limits on the extent to which

firms were permitted to aggregate spectrum in these auctions. The

Commission seeks comment on this assessment that the existing spectrum

aggregation limit to date may have promoted competition in mobile voice

markets. The Commission seeks comment on how evidence of emerging

competition should be factored into the assessment of whether the

current cap should be eliminated, relaxed or redefined. In particular,

what weight should these factors be given relative to HHI calculations

or similar measures of concentration of ownership or control? Parties

should provide discussion or analysis supporting their views. The

Commission seeks comment on the following issues and how they relate to

the question of whether to retain, modify, or repeal the spectrum cap:

(1) what are the relevant product markets?; (2) what are the relevant

geographic markets?; and, (3) what are the relevant measures of market

capacity (assigned spectrum, operational spectrum, subscribers,

revenues, traffic/minutes of use, etc.)?

10. The extent to which services are presently available in

individual markets varies considerably. In no market have all of the

licensed broadband PCS providers begun offering service, and in a

number of localities, service is not yet available from any new

entrant. For purposes of assessing the competitive nature of individual

markets and calculating market shares, the Department of Justice's

Merger Guidelines limit market participants to firms that currently

produce or sell the relevant product and those described as

``uncommitted entrants.'' Hence, for purposes of conducting an analysis

of competition in wireless markets, the Commission seeks comment on

whether to limit the assessment of market participants to only current

suppliers and any other firms that have announced intentions to

commence operations, declared their intentions to offer the relevant

product, and will imminently begin soliciting business. Particularly in

smaller towns and rural markets, cellular incumbents continue to hold

competitive advantages vis-a-vis market entrants that are not very

different from those existing when the cap was originally conceived and

implemented. Spectrum aggregation limits may well continue to be useful

to promote competition in at least certain areas. The Commission

invites comment on these assessments. The Commission also solicits

comment on whether to apply the CMRS spectrum cap on a market-by-market

basis.

11. The Commission also believes that with respect to mobile

wireless services, the spectrum cap has served the purpose of

constraining undesirable erosion of existing competition through

mergers or acquisitions in major markets, where competition among

multiple carriers is most advanced. For cellular and SMR incumbents

especially, and perhaps for the early A- and B-Block broadband PCS

entrants as well, incentives exist for operational carriers to explore

in-market merger options. Hence, it appears likely that the spectrum

aggregation limit has been of some value in inhibiting competition-

eroding spectrum consolidation. The Commission invites comment on these

assessments and on the potential for consolidation of CMRS markets if

the spectrum cap were relaxed or eliminated, and whether such

consolidation would harm or benefit consumers. Commenters should

provide empirical evidence on the harms or benefits of consolidation in

CMRS markets.

12. The Commission also invites comment on whether there are

existing disciplinary factors in the marketplace that may independently

minimize the likelihood that any single entity would achieve an

anticompetitive level of ownership of CMRS spectrum in a particular

geographic area. For example,

[[Page 70730]]

are there dis-economies of scale that will limit the size to which

firms will grow, and thus tend to ensure that the CMRS sector will

assume a competitive structure even in the absence of a spectrum cap?

Is it possible that capital markets will not finance attempts by

individual firms to acquire spectrum in amounts or construct systems of

sizes that would threaten competition? Commenters arguing that such

factors lessen or eliminate the need for our current spectrum cap

should, where possible, provide specific quantifiable examples of dis-

economies, or of points at which various types of costs or risks

associated with owning or controlling additional wireless spectrum

outweigh potential benefits.

13. The Commission seeks comment on whether the convergence and

substitutability of other telecommunications networks, including

wireline, cable, private wireless, and satellite networks among others,

should affect the application or public interest considerations

underlying the spectrum cap. It is important that commenters addressing

this issue supply detailed analysis, identify all underlying

assumptions, and provide factual support for any projections.

14. The Commission has scheduled an auction for March 1999, that

will include licenses for operation on C and F block frequencies. There

are certain restrictions on the sale of entrepreneur block licenses (C

and F blocks). The Commission invites comment on whether these rules

are sufficient to prevent undesirable spectrum consolidation.

Commenters should also provide their views on any relationship between

this proceeding, including the timing of our final decision, and the

successful completion of the upcoming C block auction.

15. The Commission also seeks comment on whether issues regarding

economies of scope may provide a rationale for relaxing the spectrum

aggregation limit. The Commission invites comment generally on the

concepts of economies of scope and scale and their relationship to

spectrum aggregation limits.

16. In re-assessing the CMRS spectrum cap, the Commission also

seeks comment on whether there are other efficiency benefits or

progress toward other public interest goals that would flow from

changes in the cap that might counterbalance concerns about possible

anticompetitive effects resulting from increased geographic

concentration of ownership. For example, might a relaxed cap allow

efficient deployment of third-generation wireless services that would

be prevented under the present cap? Or, might a relaxed cap facilitate

provision of fixed wireless services by CMRS firms, perhaps as

universal service providers? What, if any, impact would altering the

cap have on the provision of wireless services to under-served areas?

Would an enforceable commitment to provide such service in high-cost or

low-income areas override anticompetitive concerns?

17. Service in rural areas. The Commission seeks comment on whether

the relative lack of competition in certain rural and other markets

suggests that there is a continuing need for the CMRS spectrum cap in

those areas. Commenters should address whether the cap should be

retained, at least in those areas until increased competition begins to

emerge. On the other hand, the cap may affect the ability of a CMRS

provider to attain certain economies of scale and scope. Spectrum may

be made newly available for commercial use through partitioning

agreements, but the economics of offering service to these lower-

density populations may nevertheless limit the extent of competitive,

facilities-based entry. The Commission seeks comment on whether the

existing spectrum cap may impede delivery of potentially lower-cost

service to rural customers as economies of scope go unrealized. In

particular, should more concentration of spectrum in rural markets be

permitted, perhaps allowing for leveraging of existing facilities? The

Commission seeks comment on the extent to which the current 45 MHz

aggregation limit may be thwarting the realization of potential

economies, and solicit evidence on the magnitude of any such savings or

efficiencies in particular market settings.

18. Advancement of competition in local markets. The Commission

seeks comment on how the spectrum cap affects wireless providers'

ability to enter into and compete in markets other than mobile voice

service. The Commission seeks comment on the extent to which existing

networks are capable of economically supporting the delivery of

wireless services other than fixed or mobile voice and paging/

messaging. In particular, we invite comment on the technical and

economic feasibility of offering dispatch, high-speed Internet, and

other two-way data services over existing cellular, broadband PCS, and

SMR network platforms. We also invite views on the extent to which any

limitations on currently installed networks may be eased in the

foreseeable future as newly available technologies are adopted. The

Commission is especially interested in views on whether the current

spectrum cap is enhancing or impeding the provision of wireless

services as a competitive alternative to wireline services.

19. Development and deployment of new technologies and services.

The Commission seeks comment on whether the spectrum cap serves as a

barrier to firms that wish to offer additional services or to adopt

advanced network technologies. Specifically, the Commission seeks

comment on whether the current aggregation limit poses an obstacle to

the introduction of more advanced network technologies. The Commission

also seeks comment on whether the existing spectrum limit constitutes a

significant constraint on firms' abilities to offer wireless local loop

or high-speed mobile data services, either on a stand-alone basis or

bundled with mobile voice services. In particular, we invite comment on

the extent to which companies are able to acquire and use spectrum

outside of CMRS bands to achieve these goals. The Commission also

invites comment on the possible use of our waiver process to consider

petitions for supplemental spectrum that may be needed to launch new

wireless services.

C. Modifications and Alternatives to Existing CMRS Spectrum Cap

i. Modification of Significant Overlap Threshold

20.The CMRS spectrum cap prohibits a licensee from having more than

45 MHz of spectrum in broadband PCS, cellular or SMR services with

significant overlap in a geographic area. A ``significant overlap''

occurs when at least ten percent of the population of the PCS licensed

service area is within the cellular geographic service area and/or SMR

service area(s). 47 CFR 20.6(c). Therefore, a carrier's spectrum counts

toward the spectrum cap if the carrier is licensed to serve 10 percent

or more of the population of the designated service area.

21. The Commission seeks comment on the effect of recent changes in

CMRS markets, particularly concerning the emergence of broadband PCS

carriers as competitors to cellular operators, on the rationale for a

10 percent overlap threshold. The Commission also seek comment on the

public interest benefits of increasing the threshold and whether those

benefits outweigh any potential for anticompetitive concentration of

ownership or control of CMRS licenses.

22. The Commission seeks comment on whether a geographic overlap

standard of greater than a 10 percent

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overlap should be adopted. If so, what would be a more appropriate

standard of geographic overlap and why. The Commission seeks comment on

whether a greater overlap may facilitate anticompetitive behavior. The

Commission also seeks comment on what degree of a permissible

geographic overlap could promote anticompetitive conduct. In addition,

the Commission seeks comment on whether we should permit carriers in

high-cost and under-served markets to have a greater than 10 percent

population overlap, and how we should define high-cost and under-served

markets for purpose of the significant overlap threshold. The

Commission also seeks comment on whether there is a need to allow a

greater overlap in high-cost and under-served areas if we adopt our

proposal to allow for a higher cap in rural areas. In addition, the

Commission seeks comment on whether a separate geographic overlap

standard for rural areas may be in the public interest by possibly

encouraging a greater number of service options and better service

quality. In the alternative, comment is requested on whether there is a

mechanism for triggering the application of a spectrum cap in given

geographic areas that might be superior to our current significant

overlap standard.

ii. Modification of 45 MHz Limitation

23. The CMRS spectrum cap allows a single entity to control up to

45 MHz of broadband PCS, cellular, and SMR spectrum in a geographic

area. The Commission seeks comment on whether a 45 MHz CMRS spectrum

limitation is appropriate given increased competition in the CMRS

marketplace. For instance, the vast majority of the broadband PCS

licenses have been assigned and there are broadband PCS licensees

providing service in competition with cellular carriers and each other

in many markets. In particular, we seek comment on what would be an

appropriate spectrum aggregation limitation in light of current and

future prospects for competition in CMRS markets. Commenters should

provide analytical support for any limitation that they propose.

24. Another option would be to raise the 45 MHz limitation when

competition in relevant markets reaches a particular level. For

example, one possible option would permit licensees to exceed the 45

MHz limit as long as a certain number of competitors would remain in a

market after the assignment. The Commission seeks comment on such an

option. How many competitors in a market would be sufficient to allow a

licensee to exceed the 45 MHz limitation? Would the same number of

competitors be required for wireless services other than mobile voice?

How would the Commission identify qualifying competitors? Should

facilities-based competitors be considered? Should other factors be

considered in addition to the number of facilities-based carriers in a

given market in determining when to lift the restriction? The

Commission seeks comment on whether there should be any restraints on

how much spectrum a licensee could obtain under such an option.

25. A similar option would be to allow the cap to be raised/

exceeded in rural or under-served areas. The Commission seeks comment

on the benefits that may be obtained by allowing licensees serving

rural, high-cost areas to hold more than 45 MHz of broadband CMRS

spectrum in those areas. The Commission also seeks comment on how to

define those areas. One possibility would be to use rural service

areas, or rural service areas (RSAs). Another option would be to use

high-cost areas as defined in our universal service proceeding. The

Commission seeks comment on these possible determinations of rural/

under-served areas. Commenters that suggest other definitions for rural

or under-served areas are requested to precisely set out their proposed

definition, and explain the type and number of areas that would come

within that definition.

26. The Commission also seeks comment whether the partnerships

anticipated under this option would result in meaningful convergence in

service quality and rates between urban and rural subscribers.

Furthermore, the Commission solicits views on whether any claimed

efficiencies of scope are likely to be commercially significant in

magnitude for operators in rural markets. The Commission also invites

comments on whether this option would discourage broadband PCS carriers

from extending their digital network buildouts beyond urban and

suburban centers.

iii. Modification of Ownership Attribution Thresholds

27. Under the CMRS spectrum cap, ownership interests of 20 percent

or more (40 percent if held by a small business or rural telephone

company), including general and limited partnership interests, voting

and non-voting stock interests or any other equity interest are

considered attributable. 47 CFR 20.6(d)(2). Officers and directors are

attributed with their company's holdings, as are persons who manage

certain operations of licensees, and licensees that enter into certain

joint marketing arrangements with other licensees. 47 CFR 20.6(d)(7).

Stock interests held in trust are attributable only to those who have

or share the power to vote or sell the stock. 47 CFR 20.6(d)(3). Debt

does not constitute an attributable interest, nor are securities

affording potential future equity interests (such as warrants, options,

or convertible debentures) considered attributable until they are

converted or exercised. 47 CFR 20.6(d)(5). The Commission seeks comment

generally on whether we should modify any or all of these attribution

criteria. Commenters should provide reasoning and factual support for

their positions.

28. The Commission seeks comment on whether we should modify the 20

percent ownership benchmark. Specifically, the Commission seeks comment

on the effect that a 20 percent attribution standard has on the ability

of CMRS providers to obtain capital, and on the public interest

benefits of increasing the 20 percent attribution standard. The

Commission also seeks comment on what level to set an attribution

standard. Commenters proposing a different standard should provide

analytical support for their proposals. The Commission seeks comment on

whether we should increase the benchmark as it applies to the amount of

non-voting equity interest, or interest held by a limited partner. The

Commission also seeks comment on whether to continue to have a separate

40 percent attribution standard for licenses that are held by small

businesses or rural telephone companies or whether this standard should

also be modified.

29. The Commission also seeks comment on whether any of the other

provisions in our ownership attribution criteria should be modified.

Are there any situations where an entity can acquire effective control

over another entity that is not adequately contemplated under our

attribution standards? Alternatively, are there situations proscribed

by our attribution rules that are inhibiting competition? Commenters

should be as specific as possible in identifying which, if any,

attribution standards should be changed and in explaining the rationale

and public interest benefits that might accompany such a change in our

rules. The Commission also seeks comment on the waiver test for

attribution, 47 CFR 20.6 note 3, and whether the waiver test should be

retained if the 20 percent attribution standard is modified.

[[Page 70732]]

iv. Forbearance From Enforcing the CMRS Spectrum Cap

30. On September 30, 1998, CTIA petitioned the Commission to

forbear from enforcing the spectrum cap pursuant to our authority under

section 10 of the Act, 47 U.S.C. 160. The Commission must forbear from

applying any regulation or provision of the Act to a telecommunications

carrier or service, or class of telecommunications carriers or

services, in any or some of its geographic markets, if a three-pronged

test is met. Specifically, section 10 requires forbearance,

notwithstanding 47 U.S.C. 332(c)(1)(A), if the Commission determines

that: (1) enforcement of such regulation or provision is not necessary

to ensure that the charges, practices, classifications, or regulations

by, for, or in connection with that telecommunications carrier or

telecommunications service are just and reasonable and are not unjustly

or unreasonably discriminatory; (2) enforcement of such regulation or

provision is not necessary for the protection of consumers; and (3)

forbearance from applying such provision or regulation is consistent

with the public interest.

31. To satisfy the first prong of section 10, CTIA relies on

statements that the CMRS market is competitive. CTIA also argues that

principles of antitrust law and economics provide adequate protection

against the possibility of excessive concentration that the spectrum

cap was designed to safeguard against. Addressing the second prong,

CTIA contends that the Commission's section 310(d) authority is an

appropriate vehicle for the Commission to effectuate the ``ideal

approach [which] is to judge spectrum combinations on a case-by-case

basis taking into account all of the relevant variables bearing upon

competition and efficiency, including the service area overlap, the

populations in the respective service areas, and the quantity of

spectrum currently allocated to and * * * sought to be acquired by the

licensee.'' CTIA argues that the third prong is met because the public

interest is better served by a case-by-case determination of

permissible ownership structures. According to CTIA, rigid ownership

limitations endangers innovation and efficiency and outweighs the

administrative burden associated with reliance upon a case-by-case

approach to market concentration issues.

32. The Commission seeks comment on the CTIA Forbearance Petition,

particularly whether CTIA's arguments meet the standards of section 10

for forbearance from the spectrum cap. In regard to the third prong of

the test and in connection with the above questions regarding the re-

assessment of the rule under section 11, it would be useful for

commenting parties to consider and comment upon: (i) the original

purpose of the particular rule in question; (ii) the means by which the

rule was meant to further that purpose; (iii) the state of competition

in relevant markets at the time the rule was promulgated; (iv) the

current state of competition as compared to that which existed at the

time of the rule's adoption; (v) how any changes in competitive market

conditions between the time the rule was promulgated and the present

might obviate, remedy, or otherwise eliminate the concerns that

originally motivated the adoption of the rule; and (vi) the ultimate

effect forbearance may have on consumers.

33. If the Commission, upon review of the record, finds that the

requirements set out in section 10 have been satisfied, and thus the

Commission has authority to forbear from the CMRS spectrum cap, we seek

comment on the advantages or disadvantages of forbearing from the cap

rather than modifying, sunsetting, or eliminating it.

34. If the Commission forbears from enforcing the CMRS spectrum

cap, what step the Commission should take next regarding the cap?

Should the Commission, subsequently, in this or another proceeding,

develop a factual record on what happened to CMRS markets without the

spectrum cap to confirm that our conclusions about the need for the cap

were correct?

v. Sunset CMRS Spectrum Cap

35. The Commission seeks comment on the public interest benefits of

establishing a sunset date for the CMRS spectrum aggregation limit in

all or some markets. In particular, what market conditions that should

be present before sunsetting the cap. The Commission also seeks comment

on when these market conditions are likely to be generally present. The

Commission also seeks comment on whether a date certain should be set

for elimination of the spectrum aggregation limit, or if instead, the

Commission should review the continuing need for such a restriction at

a pre-set date, e.g., as part of the next biennial review process.

36. One alternative to a uniform date for sunsetting the CMRS

spectrum aggregation limit in all or some markets, would be to sunset

the cap in selected markets based on the competitive concerns in the

particular markets in question. The Commission seeks comment on whether

it would be in the public interest to sunset the CMRS spectrum cap on a

market-by-market basis, and if so, what criteria should be considered

in determining whether to sunset the cap in a particular market. One

approach may be to sunset the cap when a certain number of competitors

are present in a market. The Commission seeks comment on this approach

and what level of competition should exist before we sunset the cap in

a particular market.

37. Another option would be to review certain types of proposed

transactions involving the aggregation of CMRS spectrum under our

section 310(d). Under this approach, any transfers in connection with a

merger or acquisition where both parties have directly competing

operational wireless services in the same geographic market, would no

longer be prohibited under the spectrum cap. Instead, parties to these

transactions involving a combination of more than 45 MHz would be

obligated to affirmatively demonstrate that the transaction is in the

public interest. This would generally include a competitive analysis to

evaluate whether the interests of consumers in relevant markets are

threatened. All other transactions, including those involving

overlapping licenses but where build-out is not complete and service is

not operational, would continue to be subject to compliance with the

CMRS spectrum cap. The Commission seeks comment on this approach.

vi. Eliminate CMRS Spectrum Cap

38. The Commission seeks comment on whether elimination of the CMRS

spectrum cap, and reliance on case-by-case determinations of ownership

issues pursuant to section 310(d) of the Communications Act, 47 U.S.C.

310(d), would serve the public interest. Commenters should provide

facts and detailed analysis supporting their position. The Commission

also seeks comment on the likelihood that anticompetitive behavior

would result from elimination of the cap, and request that commenters

identify what type of anticompetitive behavior is likely and establish

causality between elimination of the cap and that behavior.

39. The Commission seeks comment, including empirical evidence,

whether CMRS markets are sufficiently competitive to allow for removal

of the CMRS spectrum cap. Commenters should address any significant

changes in CMRS markets and telecommunications markets in general that

would directly support elimination of the CMRS spectrum cap. The

[[Page 70733]]

Commission also seeks comment regarding the administrative burden that

would presumably be placed on the Commission's limited resources by

reviewing ownership issues on a case-by-case basis.

40. The Commission invites comment on the extent to which other

Federal and state authorities, given their resources and broad

responsibilities, would be able to effectively monitor the competitive

effects of smaller mergers and corporate acquisitions. The Commission

also seeks comment on the ability that Federal and state authorities

have under antitrust laws to protect competition in cases where

competition may not yet be adequately developed.

D. Cellular Cross-Interest Rule

41. Section 22.942 of the Commission's rules prohibits any person

from having a direct or indirect ownership interest in licenses for

both cellular channel block in overlapping cellular geographic service

areas (CGSAs). 47 CFR 22.942. Given the changes in mobile voice

markets, and the fact that many markets no longer comprise primarily

cellular duopolies, as in 1991 when the rule was adopted, the

Commission seeks comment on whether to retain, modify, or repeal

Sec. 22.942.

42. The Commission seeks comment on whether the CMRS spectrum cap

provides sufficient protection from anticompetitive behavior by

cellular licenses in the same market. Commenters should also address

whether we should eliminate the cellular cross-ownership rule if we

decide to eliminate the CMRS spectrum cap.

43. Where the structure of these markets has not changed

significantly, the Commission seeks comment on whether the original

purpose of the rule may still be served by its application. Namely,

where cellular licensees are still the predominant providers of mobile

voice services, is the cellular cross-interest rule may still be

necessary to guarantee the competitive nature of the cellular industry

and to foster the development of competing systems? The Commission

seeks comment on whether to modify the cellular cross-ownership rule so

that it does not apply in certain circumstances. One possibility would

be to have the rule apply only in markets where there are a limited

number of competitors to the cellular providers. The Commission seeks

comment on what would be an appropriate threshold for determining in

which markets the rule would not apply. The Commission seeks comment on

the potential effects of such an application of the cellular cross-

ownership rule.

44. The Commission also seeks comment on whether we should relax

the current attribution rules related to this rule. For example, should

an entity that controls the cellular A block be allowed to have some

interest in the cellular B block in the same market? Further, should

the current limit on what a non-controlling interest holder may have in

each cellular license in a given market be relaxed? Commenters are

asked to address the competitive and public interest implications of

their proposals.

III. Conclusion

45. In this Notice of Proposed Rulemaking, the Commission seeks

comment on whether the present CMRS spectrum cap furthers the public

interest and encourages competition, consistent with spirit of the

Communications Act. The Commission also seeks comment on whether to

retain, forbear from, eliminate, or modify the present cap. In

particular, the Commission seeks comment on the petition filed by CTIA

requesting forbearance from applying the CMRS spectrum cap. The

Commission also seeks comment on whether we should retain, modify, or

repeal the cellular cross-interest rule.

IV. Procedural Matters and Ordering Clauses

A. Regulatory Flexibility Analysis

46. As required by the Regulatory Flexibility Act (RFA), see 5

U.S.C. 603, the Commission has prepared this Initial Regulatory

Flexibility Analysis (IRFA) of the possible impact on small entities of

the rules proposed in the Notice of Proposed Rulemaking (Notice) in WT

Docket No. 98-205. Written public comments are requested on the IRFA.

Comments on the IRFA must have a separate and distinct heading

designating them as responses to the IRFA and must be filed by the

deadlines for comments on the Notice. The Commission will send a copy

of the Notice, including this IRFA, to the Chief Counsel for Advocacy

of the Small Business Administration. In addition, the Notice and IRFA

(or summaries thereof) will be published in the Federal Register.

i. Need for, and objectives of, the proposed rules:

47. As part of its biennial regulatory review, pursuant to section

11 of the Communications Act, 47 U.S.C. 161, the Commission solicits

comment on whether we should retain, modify, or eliminate the

commercial mobile radio service (CMRS) spectrum cap, 47 CFR 20.6. In

this Notice of Proposed Rulemaking (Notice), the Commission also seeks

comment on the petition to forbear from enforcement of the CMRS

spectrum cap filed by the Cellular Telecommunications Industry

Association on September 30, 1998. The discussion in the Notice is

focused on whether to retain, modify, eliminate or forbear from

enforcing the spectrum cap by looking at the competitive changes in the

CMRS market, reexamining the goals that the spectrum cap was initially

designed to achieve, and seeking comment on whether there are less

restrictive measures, or additional public interest goals we should

consider in determining whether to eliminate or modify the spectrum

aggregation limits. Additionally, the Commission seeks comment on how

our analysis may differ in the context of markets with many wireless

competitors, as opposed to markets, for example, in rural or high-cost

areas, where few or no broadband Personal Communications Service (PCS)

providers may have initiated service, and whether we should consider

the rule on a market-by-market basis. The Notice sets forth several

different possible modifications or alterations to the cap and seeks

comments on them, as well as other options that commenters may suggest.

Specific issues raised for comment include: (1) expanding the allowable

amount of geographic overlap between a licensee's various broadband

CMRS holdings; (2) increasing the amount of spectrum that a single

entity may hold beyond 45 MHz; (3) altering the ownership attribution

rules associated with the spectrum cap; (4) forbearing from enforcement

of the CMRS spectrum cap pursuant to our authority under section 10 of

the Communications Act, 47 U.S.C. 160; (5) establishment of a sunset

for the CMRS spectrum cap; and, (6) elimination the CMRS spectrum cap

and reliance on a case-by-case analysis of the potential competitive

effects of a proposed spectrum holding pursuant to section 310(d) of

the Communications Act, 47 U.S.C. 310(d). The Commission also solicits

comment on whether we should retain, modify, or repeal the cellular

cross-ownership rule, 47 CFR 22.942.

ii. Legal basis:

48. The proposed action is authorized under sections 1, 4(i), 10,

11, 303(g), and 303(r) of the Communications Act of 1934, as amended,

47 U.S.C. 151, 154(i), 160, 161, 303(g) and 303(r).

iii. Description and estimate of the number of small entities to

which rules will apply:

[[Page 70734]]

49. The RFA directs agencies to provide a description of and, where

feasible, an estimate of the number of small entities that will be

affected by our rules. 5 U.S.C. 603(b)(3), 604(a)(3). The RFA generally

defines the term ``small entity'' as having the same meaning as the

terms ``small business,'' ``small organization,'' and ``small

governmental jurisdiction.'' 5 U.S.C. 601(6). A small organization is

generally ``any not-for-profit enterprise which is independently owned

and operated and is not dominant in its field.'' 5 U.S.C. 601(4).

Nationwide, there are 275,801 small organizations. ``Small governmental

jurisdiction'' generally means ``governments of cities, counties,

towns, townships, villages, school districts, or special districts,

with a population of less than 50,000.'' 5 U.S.C. 601(5). As of 1992,

there were 85,006 such jurisdictions in the United States.

50. In addition, the term ``small business'' has the same meaning

as the term ``small business concern'' under Section 3 of the Small

Business Act. 5 U.S.C. 601(3). Under the Small Business Act, a ``small

business concern'' is one which: (1) is independently owned and

operated; (2) is not dominant in its field of operation; and (3) meets

any additional criteria established by the Small Business

Administration (SBA). 15 U.S.C. 632.

51. The Notice could result in rule changes that, if adopted, would

affect all small businesses that currently are or may become licensees

of the broadband PCS, cellular and/or specialized mobile radio (SMR)

services. To assist the Commission in analyzing the total number of

affected small entities, commenters are requested to provide estimates

of the number of small entities that may be affected by any rule

changes resulting from the Notice. The Commission estimates the

following number of small entities may be affected by the proposed rule

changes:

52. Cellular Radiotelephone Service. 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 SBA rules applicable to radiotelephone companies.

This definition provides that a small entity is a radiotelephone

company employing no more than 1,500 persons. 13 CFR 121.20. 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 1000 or more

employees. The 1992 Census of Transportation, Communications, and

Utilities, conducted by the Bureau of the Census, is the most recent

information available. This document shows that only twelve

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 twelve

of these firms were cellular telephone companies, nearly all cellular

carriers were small businesses under the SBA's definition. The

Commission assumes, for purposes this IRFA, that all of the current

cellular licensees are small entities, as that term is defined by the

SBA. In addition, the Commission notes that there are 1,758 cellular

licenses; however, a cellular licensee may own several licenses. The

most reliable source of information regarding the number of cellular

service providers nationwide appears to be data the Commission

publishes annually in its Telecommunications Industry Revenue report,

regarding the Telecommunications Relay Service (TRS). The report places

cellular licensees and Personal Communications Service (PCS) licensees

in one group. According to the data released in November 1997, there

are 804 companies reporting that they engage in cellular or PCS

service. It seems certain that some of these carriers are not

independently owned and operated, or have more than 1,500 employees;

however, the Commission is unable at this time to estimate with greater

precision the number of cellular service carriers qualifying as small

business concerns under the SBA's definition. For purposes of this

IRFA, the Commission estimates that there are fewer than 804 small

cellular service carriers.

53. Broadband PCS. The broadband PCS spectrum is divided into six

frequency blocks designated A through F. The Commission has defined

``small entity'' in the auctions for Blocks C and F as a firm that had

average gross revenues of less than $40 million in the three previous

calendar years. This definition of ``small entity'' in the context of

broadband PCS auctions has been approved by the SBA. The Commission has

auctioned broadband PCS licenses in blocks A through F. Of the

qualified bidders in the C and F block auctions, all were

entrepreneurs. Entrepreneurs was defined for these auctions 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. Ninety bidders, including C block

auction winners, won 493 C block licenses and 88 bidders won 491 F

block licenses. For purposes of this IRFA, the Commission assumes that

all of the 90 C block broadband PCS licensees and 88 F block broadband

PCS licensees, a total of 178 licensees, are small entities.

54. Specialized Mobile Radio (SMR). The Commission awards bidding

credits in auctions for geographic area 800 MHz and 900 MHz SMR

licenses to firms that had revenues of no more than $15 million in each

of the three previous calendar years. This regulation defining ``small

entity'' in the context of 800 MHz and 900 MHz SMR has been approved by

the SBA. The Commission does not know how many firms provide 800 MHz or

900 MHz geographic area SMR service pursuant to extended implementation

authorizations, nor how many of these providers have annual revenues of

no more than $15 million. One firm has over $15 million in revenues.

The Commission assumes for purposes of this IRFA that all of the

remaining existing extended implementation authorizations are held by

small entities, as that term is defined by the SBA. The Commission has

held auctions for geographic area licenses in the 900 MHz SMR band, and

recently completed an auction for geographic area 800 MHz SMR licenses.

There were 60 winning bidders who qualified as small entities in the

900 MHz auction. There were 10 winning bidders who qualified as small

entities in the 800 MHz auction.

iv. Description of reporting, record keeping and other compliance

requirements:

55. The Notice proposes no additional reporting, record keeping or

other compliance measures.

v. Steps taken to minimize the significant economic impact on small

entities, and significant alternatives considered:

56. The CMRS spectrum cap was established in 1994 in the CMRS Third

Report and Order, and was reaffirmed in the CMRS Spectrum Cap Report

and Order. Since that time, there have been several developments that

have significantly affected CMRS markets. Through this notice the

Commission, as part of the Commission's biennial regulatory review

pursuant to section 11 of the Act, seeks to develop a record regarding

whether the CMRS spectrum cap continues to make regulatory and economic

sense in the current and foreseeable wireless telecommunications

markets. Likewise, the Commission seeks comment on whether there

continue to be a need for the cellular cross-interest rule. We request

comment on whether retention, modification, elimination or forbearance

from enforcement of the CMRS

[[Page 70735]]

spectrum cap is appropriate with respect to small business that are

licensees of the broadband PCS, cellular and/or SMR services. We also

request comment on whether retention, modification or elimination of

the cellular cross-interest rule is appropriate with respect to small

businesses that are cellular licensees.

vi. Federal rules which overlap, duplicate, or conflict with these

proposed rules:

None.

B. Ex Parte Rules--Permit-But-Disclose Proceedings

58. This is a permit-but-disclose notice and comment rulemaking

proceeding. Ex parte presentations are permitted except during the

Sunshine Agenda period, provided they are disclosed as provided in the

Commission's rules. See generally 47 CFR 1.1201, 1203, and 1.1206(a).

C. Comment Dates

59. Pursuant to Sections 1.415 and 1.419 of the Commission's rules,

47 CFR 1.415, 1.419, interested parties may file comments on or before

January 25, 1999, and reply comments on or before February 10, 1999.

Comments and reply comments should be filed in WT Docket No. 98-205.

Comments may be filed using the Commission's Electronic Comment Filing

System (ECFS) or by filing paper copies. See Electronic Filing of

Documents in Rulemaking Proceedings, 63 FR 24,121 (1998).

60. Comments filed through the ECFS can be sent as an electronic

file via the Internet to http://www.fcc.gov/e-file/ecfs.html>.

Generally, only one copy of an electronic submission must be filed.

Comments and reply comments should be filed in WT Docket No. 98-205. In

completing the transmittal screen, commenters should include their full

name, Postal Service mailing address, and the applicable docket or

rulemaking number. Parties may also submit an electronic comment by

Internet e-mail. To get filing instructions for e-mail comments,

commenters should send an e-mail to [email protected], and should include

the following words in the body of the message, ``get form <your e-mail

address.'' A sample form and directions will be sent in reply.

61. Parties who choose to file by paper must file an original and

four copies of each filing. All filings must be sent to the

Commission's Secretary, Magalie Roman Salas, Office of the Secretary,

Federal Communications Commission, 445 Twelfth Street, S.W.; TW-A325;

Washington, D.C. 20554.

62. Parties who choose to file by paper should also submit their

comments on diskette. These diskettes should be submitted to the Policy

and Rules Branch, Commercial Wireless Division, Wireless

Telecommunications Bureau, Room 700, 2100 M Street, N.W., Washington,

D.C. 20554. Such a submission should be on a 3.5 inch diskette

formatted in an IBM compatible format using WordPerfect 5.1 for Windows

or compatible software. The diskette should be accompanied by a cover

letter and should be submitted in ``read only'' mode. The diskette

should be clearly labelled with the commenter's name, proceeding

(Docket No.98-205), type of pleading (comment or reply comment), date

of submission, and the name of the electronic file on the diskette. The

label should also include the following phrase ``Disk Copy--Not an

Original.'' Each diskette should contain only one party's pleadings,

preferably in a single electronic file. In addition, commenters must

send diskette copies to the Commission's copy contractor, International

Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C.

20037.

D. Initial Paperwork Reduction Act of 1995 Analysis

63. This Notice of Proposed Rulemaking does not contain a proposed

information collection.

E. Ordering Clauses

64. It ordered that, pursuant to the authority of sections 1, 4(i),

10, 11, 303(g), and 303(r) of the Communications Act of 1934, as

amended, 47 U.S.C. 151, 154(i), 160, 161, 303(g), and 303(r), this

Notice of Proposed Rulemaking is hereby adopted.

65. It is further ordered that the Commission's Office of Public

Affairs, Reference Operations Division, shall send a copy of this

Notice of Proposed Rulemaking, including the Initial Regulatory

Flexibility Analysis, to the Chief Counsel for Advocacy of the Small

Business Administration.

List of Subject in 47 CFR Parts 20 and 22

Communications common carriers.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 98-33775 Filed 12-21-98; 8:45 am]

BILLING CODE 6712-01-P