A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to certain Boeing Model 737-100, -200, -200C, -300, -400, and -500 series airplanes was published in the Federal Register on May 31, 2001 (66 FR 29514). That action proposed to require initial and repetitive inspections of the elevator tab assembly to find any damage or discrepancy; and corrective actions, if necessary.

Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received.

One commenter has no objection to the proposed rule.

Two commenters ask for clarification of the repetitive inspection interval for Work Packages II and III, as specified in paragraph (a) of the proposed rule. One commenter states that it is unclear which interval the operator should use for the repetitive inspections: the interval in paragraph (a) or (b) of the proposed rule. The commenter adds that if the operator adheres to Work Package III using the more restrictive repetitive inspection intervals specified in paragraph (a), the requirement in paragraph (b) of the proposed rule is being met by the more frequent inspections; therefore, there is no need to track paragraph (b). The second commenter states that it interprets Note 2 of the proposed rule as referring to the requirements of the initial inspection only, and not to the repetitive inspection intervals specified in paragraphs (a) and (b) of the proposed rule. The commenter adds that its interpretation is that the repetitive inspections are still required at the intervals specified in paragraphs (a) and (b) of the proposed rule, but an inspection done per Work Package III can be used to take credit for the inspection specified in Work Package II.

The FAA concurs that clarification of the correct repetitive inspection interval for substitution of Work Package III for Work Package II, as specified in paragraph (a) of the final rule, is necessary. If the repetitive inspections in paragraph (a) are being done per Work Package III, it is not necessary to track paragraph (b), as noted by the first commenter. Note 2 of this final rule has been changed for clarification.

One commenter asks that the FAA add a note to the proposed rule stating that the FAA is not requiring the reporting requirement that is specified in Boeing Service Bulletin 737-55A1070, Revision 1. The commenter adds that a section should be added to the proposed rule stating that operators should submit their findings to Boeing after each inspection.

The FAA agrees that some clarification is necessary. Although the referenced service bulletin specifies that a report of inspection results should be submitted to the airplane manufacturer (Boeing) after each inspection, and provides the information to be included in that report, we are not mandating the reporting requirement in this final rule. We have added this clarification to paragraphs (a) and (b) of the final rule.

One commenter notes several issues with the service bulletin:

• Page 25 of Boeing Service Bulletin 737-55A1070, Revision 1, dated May 10, 2001, specifies concurrent accomplishment of certain service bulletins. The commenter would like clarification as to whether the referenced service bulletins are required to be accomplished concurrently with accomplishment of Boeing Service Bulletin 737-55A1070.

• Page 76 of the service bulletin has a typographical error in Item (g). That item specifies VMM 55-30-16, which should be CMM 55-30-16.

• Figures 3 and 4 of the service bulletin will be difficult to break into the three work packages, as these figures have combined all three packages into each figure, and have separated the Model 737-200 and -400 series airplanes. The commenter would like the figures broken out to have one figure for each work package and airplane model.

The commenter has notified the airplane manufacturer of the above issues.

The FAA will inform the airplane manufacturer of the changes requested by the commenter, and we can clarify some of the issues noted by the commenter:

• The service bulletins referenced on page 25 of Boeing Service Bulletin 737-55A1070 are not required to be accomplished concurrently with the bulletin referenced in this final rule. The manufacturer merely recommends concurrent accomplishment because the actions are similar to those in this final rule.

• We agree that Item (g) on page 76 of the bulletin references an incorrect acronym (VMM); the bulletin should refer to the Component Maintenance Manual, so the correct acronym is CMM.

• Only the airplane manufacturer can make revisions or corrections to the figures illustrated in the service bulletin.

No changes to the final rule are necessary in this regard.

One commenter asks that the initial detailed visual/free play inspections specified in paragraph (a) of the proposed rule limit the inspections for Work Package I to the ones for elevator tab free play, elevator tab hinge free play, and tab axial free play only. The commenter notes that the detailed visual inspections are not necessary. The commenter also asks that a check be included to ensure that self-locking castellated nuts with cotter pins are installed at each hinge location. The commenter states that the elevator tab and attachment hardware are inspected during the elevator tab hinge free play inspection, so another inspection is redundant. The commenter adds that the detailed visual inspection procedure for the elevator tab attachment hardware cannot be completed because, although the bolt can be wiggled or moved to check for unusual looseness, the spacers and bushings cannot be checked without removing the tab from the elevator. Additionally, the commenter notes that the attachment hardware of the elevator tab control push rod was already addressed in AD 2000-19-05, amendment 39-11906 (65 FR 65258, November 1, 2000), which requires replacement of all existing bolts and attachment nuts at the forward and aft end attachment of each elevator tab push rod with new bolts and self-locking castellated nuts.

The FAA does not agree with the commenter. Although a partial visual inspection may be done during the free play inspection, no minimum level of inspection is defined by the service bulletin. Figures 3 and 4 of Work Package I of the service bulletin describe procedures for doing the free play inspections, but do not describe procedures for a visual inspection. Contrary to the commenter's statement that a visual inspection cannot be completed unless the tab is removed, the spacers and bushings can indeed be visually inspected for unusual looseness without removing the tab, either by inspecting manually or using a probe. We also disagree that the free play inspections are a substitute for the detailed visual inspections. Additionally, AD 2000-19-05 requires a one-time visual inspection of the attachment nuts at the forward- and aft-end attachment of each elevator push rod only, and, therefore, is not a substitute for the repetitive inspections of the tab, hinges, and control mechanism required by this AD. No change to the final rule is necessary in this regard.

One commenter asks that a paragraph or note be added to the proposed rule stating that installation of a new or overhauled elevator and tab assembly during a maintenance visit meets the intent of Work Packages II and III, and, therefore, paragraph (a) of the proposed rule does not need to be done during that maintenance visit.

The FAA does not agree. A complete definition of configuration and installation procedures that meet all the requirements of this AD for a new or overhauled elevator and tab assembly, is currently not available. However, once those procedures are defined, the FAA may approve requests for alternative methods of compliance under the provisions of paragraph (d) of the final rule, if data are submitted to substantiate that adequate installation procedures have been developed and an acceptable level of safety can be maintained.

After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes previously described. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

There are approximately 2,790 Model 737 series airplanes of the affected design in the worldwide fleet. The FAA estimates that 1,080 airplanes of U.S. registry will be affected by this AD, as follows:

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this action (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES.

In the Federal Register of May 9, 2001 (66 FR 23634), FDA published a proposed rule to reclassify the automated differential cell counter from class III (premarket approval) into class II (special controls) based on new information regarding this device and on the recommendation of the Hematology and Pathology Devices Panel. FDA also identified the document “Guidance for Premarket Notification for Automated Differential Cell Counters for Immature or Abnormal Blood Cells” as the special control capable of providing reasonable assurance of safety and effectiveness for this device. The agency has since revised the guidance to provide the option of submitting an abbreviated 510(k), thereby reducing the burden. At the same time, FDA is revising the title of the document to “Class II Special Controls Guidance Document: Premarket Notifications for Automated Differential Cell Counters for Immature or Abnormal Blood Cells; Final Guidance for Industry and FDA.”

Interested persons were invited to comment on the proposed rule by August 7, 2001. FDA received one comment. That comment commended FDA's proposal to reclassify ADCCs into class II and agreed that the guidance proposed as the special control was adequate to provide reasonable assurance of the safety and effectiveness of the device.

Based on a review of the available information, referenced in the preamble to the proposed rule and placed on file in FDA's Dockets Management Branch, FDA concludes that special controls, in conjunction with general controls, provide reasonable assurance of the safety and effectiveness of this device.

In order to receive “Class II Special Controls Guidance Document: Premarket Notifications for Automated Differential Cell Counters for Immature or Abnormal Blood Cells; Final Guidance for Industry and FDA” via your fax machine, call the Center for Devices and Radiological Health (CDRH) Facts-On-Demand system at 800-899-0381 or 301-827-0111 from a touch-tone telephone. At the first voice prompt, press 1 to access DSMICA Facts, at second voice prompt press 2, and then enter the document number (1184) followed by the pound sign ( # ). Then follow the remaining voice prompts to complete your request.

Persons interested in obtaining a copy of the guidance may also do so using the Internet. CDRH maintains a Web site at http://www.fda.gov/cdrh on the Internet for easy access to information including text, graphics, and files that may be downloaded to a personal computer. Updated on a regular basis, the CDRH Web site includes device safety alerts; Federal Register reprints; information on premarket submissions (including lists of approved applications and manufacturers' addresses), small manufacturers' assistance, information on video conferencing and electronic submissions, Mammography Matters, and other medical device-oriented information. The CDRH Web site also includes the document “Class II Special Controls Guidance Document: Premarket Notifications for Automated Differential Cell Counters for Immature or Abnormal Blood Cells; Final Guidance for Industry and FDA” which may be accessed at http://www.fda.gov/cdrh/ode/guidance/1184.html. A search capability for all guidance documents may be found at http://www.fda.gov/cdrh/guidance.html. Guidance documents are also available at http://www.fda.gov/ohrms/dockets.

The agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

FDA has examined the impacts of the final rule under Executive Order 12866 and the Regulatory Flexibility Act (5 U.S.C 601-612) (as amended by subtitle D of the Small Business Regulatory Fairness Act of 1996 (Public Law 104-121)), and the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The agency believes that this final rule is consistent with the regulatory philosophy and principles identified in the Executive order. In addition, the final rule is not a significant regulatory action as defined by the Executive order and so is not subject to review under the Executive order.

The Regulatory Flexibility Act requires agencies to analyze regulatory options that would minimize any significant impact of a rule on small entities. Reclassification of ADCCs from class III will relieve all manufacturers of these devices of the cost of complying with the premarket approval requirements in section 515 of the act (21 U.S.C. 360e).

Moreover, compliance with special controls proposed for this device will not impose significant new costs on affected manufacturers because most of these devices already comply with the proposed special controls. Because reclassification will reduce regulatory costs with respect to ADCCs, it will impose no significant economic impact on any small entities, and it may permit small potential competitors to enter the marketplace by lowering their costs. The agency therefore certifies that this final rule will not have a significant economic impact on a substantial number of small entities. In addition, this final rule will not impose costs of $100 million or more on either the private sector or State, local, and tribal governments in the aggregate, and therefore a summary statement of analysis under section 202(a) of the Unfunded Mandates Reform Act of 1995 is not required.

FDA has analyzed this final rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the rule does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, the agency has concluded that the rule does not contain policies that have federalism implications as defined in the Executive order and, consequently, a federalism summary impact statement is not required.

FDA concludes that this final rule contains no collections of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) is not required.

The 63rd Street Bridge across Indian Creek, Miami Beach, Miami-Dade County, Florida is a double leaf bridge with a vertical clearance of 11.0 feet above mean high water (MHW) measured at the fenders in the closed position with a horizontal clearance of 50 feet. On December 21, 2001, the Florida Department of Transportation, the drawbridge owner, requested a deviation from the current operating regulation in 33 CFR part 117 which requires the draw of the 63rd Street Bridge, mile 4.04 at Miami Beach, to open on signal. This temporary deviation was requested to allow necessary repairs to the drawbridge in a critical time sensitive manner.

The District Commander has granted a temporary deviation from the operating requirements listed in 33 CFR part 117 to complete repairs to the drawbridge. Under this deviation, the 63rd Street Bridge need not open either span from 12:01 a.m. on January 15, 2002 until 11:59 p.m. on January 19, 2002.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553, the Coast Guard finds that good cause exists for not publishing an NPRM. On September 11, 2001, two commercial aircraft were hijacked from Logan Airport in Boston, Massachusetts and flown into the World Trade Center in New York, New York inflicting catastrophic human casualties and property damage. National security and intelligence officials warn that future terrorist attacks against civilian targets may be anticipated.

The Pilgrim Nuclear Power Plant is bordered on one side by water, exposing it to possible attack initiated from waters surrounding the power plant. Due to the potential catastrophic effect an exposure of radiation from the nuclear processes at the plant would have on the surrounding area, this rulemaking is urgently required to prevent potential future terrorist strikes against the Pilgrim Nuclear Power Plant. The delay inherent in the NPRM process is contrary to the public interest insofar as it may render people and facilities within and adjacent to the Pilgrim Nuclear Power Plant property vulnerable to subversive activity, sabotage or terrorist attack.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . The measures implemented in this rule are intended to prevent possible terrorist attacks against the Pilgrim Nuclear Power Plant. They are needed to protect the facility, persons at the facility, the public and the surrounding community from potential sabotage or other subversive activity, and terrorist attacks, either from the water or by land through access to public trust lands between the low water and high water tide lines adjacent to the facility. Immediate action is required to accomplish these objectives. Any delay in the effective date of this rule is impracticable and contrary to the public interest. These zones should have minimal impact on the users of Cape Cod Bay as vessels are able to pass safely outside the zones. Public notifications will be made to the maritime community via notice to mariners and marine information broadcasts informing them of boundaries of the zones.

In light of terrorist attacks on New York City and Washington, DC, on September 11, 2001, safety and security zones are being established to safeguard the Pilgrim Nuclear Power Plant, persons at the facility, the public and surrounding communities from sabotage or other subversive acts, accidents, or other events of a similar nature. The Pilgrim Nuclear Power Plant presents a possible target of terrorist attack, due to the potential catastrophic impact nuclear radiation would have on the surrounding area, its large destructive potential if struck, and its proximity to a population center. These safety and security zones prohibit entry into or movement within the specified areas.

This rulemaking establishes security and safety zones having identical boundaries in all waters of Cape Cod Bay and land adjacent to those waters enclosed by a line as follows: beginning at position 41°57′30″ N, 070°34′36″ W; then running southeast to position 41°56′36″ N, 070°33′30″ W; then running southwest to position 41°56′28″ N, 070°34′38″ W; then running northwest to position 41°56′50″ N, 070°34′58″ W; then running northeast back to position 41°57′30″ N, 070°34′36″ W. This rulemaking also removes safety and security zones established on September 24, 2001 under temporary rulemaking 33 CFR 165.T01-171(a)(4) (66 FR 49280, Sept. 27, 2001). That rulemaking established safety and security zones with identical boundaries in the following area: All waters of Plymouth Bay within a five hundred (500) yard radius of the cooling water discharge canal at the Pilgrim Nuclear Power Plant, Plymouth, MA. Those safety and security zones did not extend to the full boundaries of the facility. This rulemaking is necessary to provide complete protection of the waterfront areas of the Pilgrim Nuclear Power Plant. The increase of the boundaries of the zones seaward is necessary to ensure enforcement authorities enforcing the zone ample area to adequately prevent any incursions of the zone allowing access to the plant. The safety and security zones established in this rulemaking extend the safety and security zones established in section 165.T01-171(a)(4) to an area roughly 1000-yards from the shoreline of the facility. That section, 165.T01-171 (a)(4), was also temporarily removed by temporary rulemaking 33 CFR 165.T01-201 effective November 5 to November 15, 2001. The safety and security zones also close shore areas immediately adjacent to the facility to prevent access to the facility from the shore area.

No person or vessel may enter or remain in the prescribed safety and security zones at any time without the permission of the Captain of the Port. Each person or vessel in a safety and security zone shall obey any direction or order of the Captain of the Port or designated Coast Guard representative on-scene. The Captain of the Port may take possession and control of any vessel in a security zone and/or remove any person, vessel, article or thing from a security zone. No person may board, take or place any article or thing on board any vessel or waterfront facility in a security zone without permission of the Captain of the Port. These regulations are issued under authority contained in 50 U.S.C. 191, 33 U.S.C. 1223, 1225 and 1226.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866 and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not significant under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040, February 26, 1979).

The Coast Guard expects the economic impact of this rule to be so minimal that a full regulatory evaluation under paragraph 10e of the regulatory policies and procedures of DOT is unnecessary. The effect of this regulation will not be significant for several reasons: there is ample room for vessels to navigate around the zones in Cape Cod Bay, and advance notifications will be made to the local maritime community by marine information broadcasts.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), the Coast Guard considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit or anchor in a portion of Cape Cod Bay. For the reasons enumerated in the Regulatory Evaluation section above, these safety and security zones will not have a significant economic impact on a substantial number of small entities.

Under subsection 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 [Pub. L. 104-121], the Coast Guard wants to assist small entities in understanding this final rule so that they can better evaluate its effects on them and participate in the rulemaking. If your small business or organization would be affected by this final rule and you have questions concerning its provisions or options for compliance, please call Lieutenant (junior grade) Dave Sherry, Marine Safety Office Boston, at (617) 223-3000. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule would call for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

The Coast Guard analyzed this rule under Executive Order 13132 and has determined that this rule does not have implications for federalism under that Order.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) governs the issuance of Federal regulations that require unfunded mandates. An unfunded mandate is a regulation that requires a State, local, or tribal government or the private sector to incur direct costs without the Federal Government's having first provided the funds to pay those costs. This rule would not impose an unfunded mandate.

This rule would not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

The Coast Guard analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not pose an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. A rule with tribal implications has a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Coast Guard considered the environmental impact of this rule and concluded that, under figure 2-1, (34)(g), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

FEMA makes the final determinations listed below of the final determinations of modified BFEs for each community listed. These modified elevations have been published in newspapers of local circulation and ninety (90) days have elapsed since that publication. The Acting Administrator, Federal Insurance and Mitigation Administration, has resolved any appeals resulting from this notification.

The modified BFEs are not listed for each community in this notice. However, this rule includes the address of the Chief Executive Officer of the community where the modified BFE determinations are available for inspection.

The modifications are made pursuant to section 206 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq. , and with 44 CFR part 65.

For rating purposes, the currently effective community number is shown and must be used for all new policies and renewals.

The modified BFEs are the basis for the floodplain management measures that the community is required to either adopt or to show evidence of being already in effect in order to qualify or to remain qualified for participation in the National Flood Insurance Program (NFIP).

These modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own, or pursuant to policies established by other Federal, State, or regional entities.

These modified BFEs are used to meet the floodplain management requirements of the NFIP and are also used to calculate the appropriate flood insurance premium rates for new buildings built after these elevations are made final, and for the contents in these buildings.

The changes in BFEs are in accordance with 44 CFR 65.4. National Environmental Policy Act. This rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Acting Administrator, Federal Insurance and Mitigation Administration, certifies that this rule is exempt from the requirements of the Regulatory Flexibility Act because modified base flood elevations are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are required to maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 12612, Federalism. This rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform. This rule meets the applicable standards of section 2(b)(2) of Executive Order 12778.

Accordingly, 44 CFR part 65 is amended to read as follows:

The modified BFEs are not listed for each community in this interim rule. However, the address of the Chief Executive Officer of the community where the modified BFE determinations are available for inspection is provided.

Any request for reconsideration must be based on knowledge of changed conditions or new scientific or technical data.

The modifications are made pursuant to section 201 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq. , and with 44 CFR part 65.

For rating purposes, the currently effective community number is shown and must be used for all new policies and renewals.

The modified BFEs are the basis for the floodplain management measures that the community is required to either adopt or to show evidence of being already in effect in order to qualify or to remain qualified for participation in the National Flood Insurance Program (NFIP).

These modified BFEs, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own, or pursuant to policies established by other Federal, State, or regional entities.

The changes in BFEs are in accordance with 44 CFR 65.4.

National Environmental Policy Act . This rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. No environmental impact assessment has been prepared.

Regulatory Flexibility Act . The Acting Administrator for Federal Insurance and Mitigation Administration certifies that this rule is exempt from the requirements of the Regulatory Flexibility Act because modified BFEs are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are required to maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

Regulatory Classification . This interim rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 12612, Federalism . This rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform . This rule meets the applicable standards of section 2(b)(2) of Executive Order 12778.

FEMA makes final determinations listed below of BFEs and modified BFEs for each community listed. The proposed BFEs and proposed modified BFEs were published in newspapers of local circulation and an opportunity for the community or individuals to appeal the proposed determinations to or through the community was provided for a period of ninety (90) days. The proposed BFEs and proposed modified BFEs were also published in the Federal Register .

This final rule is issued in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR part 67.

FEMA has developed criteria for floodplain management in floodprone areas in accordance with 44 CFR part 60.

Interested lessees and owners of real property are encouraged to review the proof Flood Insurance Study and FIRM available at the address cited below for each community.

The BFEs and modified BFEs are made final in the communities listed below. Elevations at selected locations in each community are shown.

National Environmental Policy Act. This rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Administrator of the Federal Insurance and Mitigation Administration certifies that this rule is exempt from the requirements of the Regulatory Flexibility Act because final or modified base flood elevations are required by the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and are required to establish and maintain community eligibility in the NFIP. No regulatory flexibility analysis has been prepared.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 12612, Federalism. This rule involves no policies that have federalism implications under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform. This rule meets the applicable standards of section 2(b)(2) of Executive Order 12778.

This is a summary of the Commission's Report and Order, FCC 01-332, adopted on November 8, 2001, and released on December 14, 2001. The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257) of the Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554. The document is also available for download over the Internet at http://www.fcc.gov/bureaus/international/Orders/2001/fcc01332/txt. The complete text of this document also may be purchased from the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC, 20554, Telephone: 202-863-2893. Fax: 202-863-2898, e-mail qualexint@aol.com.

1. On June 8, 2000, the Commission adopted a Notice of Proposed Rulemaking (NPRM) in which it proposed streamlining procedures for applications seeking submarine cable landing licenses (65 FR 41613, July 6, 2000). This proceeding was one of a series of such efforts the Commission has undertaken to benefit U.S. consumers by expediting regulatory processing and enhancing the competitiveness of service providers in the global communications marketplace.

2. On November 8, 2001, the Commission adopted a Report and Order (Order) in this proceeding that focused on the objectives set out in the NPRM: (1) To institute an expedited licensing process to speed the deployment of cable capacity to the market; (2) to ensure careful Commission review of certain applications to guard against anti-competitive behavior, and (3) to adopt a pro-competitive model that could be used around the world.

3. The NPRM contained streamlining options that commenters found to be too complex and burdensome. In response to the comments, the Commission adopted a streamlining approach that tracks the streamlining procedures currently used for section 214 authorizations of international telecommunications services.

4. The Commission developed an approach under which most applications should be streamlined. An application will qualify for streamlined processing if the applicants have no affiliation with a carrier that possesses market power in the cable's destination markets. If an applicant has an affiliation with a carrier with market power in any of the cable's World Trade Organization (WTO) Member destination markets, the application will be eligible for streamlined processing if each applicant with such foreign carrier affiliation certifies that it will accept standard competitive safeguards. An application that includes an applicant that is, or is affiliated with, a carrier that has market power in a cable's non-WTO Member destination market will not be eligible for streamlining. To determine affiliation, the Order applies the twenty-five percent (25%) ownership affiliation standard that is currently applied to international section 214 and cable landing license applications.

5. The standard competitive safeguards are designed to detect and deter harm to competition in the United States that may result from a foreign carrier's market power. The safeguards include a requirement to file quarterly provisioning and maintenance reports and quarterly circuit status reports. Licensees concerned about public disclosure of the reports will be able to request a standard protective order for confidential treatment of the information.

6. The Order's competitive safeguards also include a “no special concessions” rule that prohibits all licensees from directly or indirectly agreeing to accept a “special concession” from a foreign carrier with market power in one or more of the cable's destination markets. The Order defines a special concession as an exclusive arrangement involving services, facilities, or functions on the foreign end of a U.S. international route that are necessary to land, connect, or operate submarine cables, where the arrangement is not offered to similarly situated U.S. submarine cable owners, indefeasible-right-of-user holders, or lessors, and includes arrangements for the terms for acquisition, resale, lease, transfer and use of capacity on the cable; access to collocation space; the opportunity to provide or obtain backhaul capacity; access to technical network information; and interconnection to the public switched telecommunications network. The rule will apply to all licenses issued after the effective date of the Order. In addition, existing licensees may seek to modify their licenses to substitute this targeted safeguard for the current prohibition against any exclusive arrangements.

7. The Order also adopted a requirement that all cable landing licensees, like international section 214 carriers, must notify the Commission of any foreign carrier affiliations acquired after the issuance of a license where the affiliation is with a carrier in a market at the foreign end of the cable. This rule will be applied to all licensees of all submarine cables, whether authorized by the Commission prior to or after the effective date of the rules adopted herein. The Commission concluded that this rule would provide additional protection against possible anti-competitive conduct.

8. Streamlined processing is optional, and thus applicants may elect to file under the traditional procedures. Moreover, although the Order did not mandate electronic filing of applications, applicants are encouraged to file electronically. Applications that meet the criteria for streamlined processing will be acted upon in a period of forty-five (45) days following the public notice announcing the application as acceptable for filing and eligible for streamlining. Applications acceptable for filing but ineligible for streamlining will be acted upon within ninety (90) days unless the Commission notifies the applicant that the application presents issues that require additional scrutiny, in which case the Commission will extend the review for another ninety (90) days. The Commission delegated to the International Bureau the authority to identify particular applications that, although otherwise eligible for streamlining, may warrant additional public comment and require consideration on a case-by-case basis.

9. The Commission declined to adopt a specific timeframe by which it will issue public notices of applications accepted for filing. Rather, it will continue its practice of issuing public notices of applications accepted for filing in an expeditious manner. The Commission adopted the procedure used for section 214 applications of not routinely removing applications from streamlining based on the filing of comments on competitive or other issues that a party might seek to raise. In addition, the Commission adopted its proposal to grant applications by public notice unless a formal written order is deemed necessary.

10. The Commission adopted a new rule that will require fewer entities to become applicants/licensees. Only the following entities will be required to be applicants for a cable landing license: an entity that (1) owns or controls a landing station in the United States; or (2) owns or controls a five percent (5%) or greater interest in the cable system and will use the U.S. points of the cable system. In addition, the Commission established a process for an existing licensee that is not a U.S. landing party and owns or controls less than five percent (5%) of the cable system to seek removal from a submarine cable landing license. The Commission also clarified its rule that once an entity is a licensee, it is subject to the Commission's rules for modifications, assignments and transfers of control of interests in cable landing licenses, even where these interests are less than five percent (5%). The Commission will continue to require applicants for a cable landing license to identify all original owners, including those with less than five percent (5%) interest.

11. The Commission reminded applicants seeking common carrier landing licenses that, in addition to the cable landing license application, they must file an application for section 214 authority for the construction of new lines under § 63.18(e)(4) of the Commission's rules.

12. The Commission adopted a new process designed to replace prior review of pro forma transactions with a post-transaction notification procedure, thereby allowing entities to proceed with their pro forma transactions without delay. In addition, the Commission provided that an existing licensee may file an application to modify its license to take advantage of this post-transaction notification procedure.

13. To provide clear and publicly available conditions for licenses, the Commission codified routine conditions that traditionally have been attached to all cable landing licenses. In addition, the Commission codified the new streamlining procedures, the no special concessions rule for all licensees, the reporting requirements, the pro forma procedures, and the applicant-licensee rule.

14. The Order also addressed other issues raised in the NPRM or by commenters. The Commission declined to eliminate the distinction between cables operated on a common carrier and private carrier basis. The Commission suggested that parties seeking modifications to existing fee structures pursue these requests through the annual rulemaking process specifically designated for this purpose. The Commission declined to adopt suggestions to reduce the ownership information required in cable landing license and section 214 applications, deferring this issue to its 2002 biennial review of all of its rules. The Commission clarified its rule regarding the type of information an applicant must provide in its specific description of cable landing stations.

15. Paperwork Reduction Act. The Order contained modified information collections. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget (OMB) to comment on the information collections contained in the NPRM, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due February 13, 2002. OMB notification of action is due March 15, 2002. Comments should address the following: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimate; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.

OMB Control Number: 3060-0944.

Title: Applications under the Cable Landing License Act.

Form Number: N/A.

Type of Review: Revised collection.

Respondents: Business and other for-profit entities.

Number of Respondents: 25.

Number of Responses: 271.

Estimated Time Per Response: An average of 4 hours per response.

Frequency of Response: On Occasion. Third party disclosure.

Total Annual Burden: 995 hours.

Total Annual Costs: $352,425.

Needs and Uses: The information will be used by the Commission to determine the qualifications of applicants to construct and operate submarine cables, including applicants that are affiliated with foreign carriers, and to determine whether and under what conditions the authorizations are in the public interest, convenience, and necessity. The information collections are necessary for the Commission to maintain effective oversight of U.S. carriers that are affiliated with, or involved in similar arrangements with, foreign carriers that have sufficient market power to affect competition adversely in the U.S. market. In addition, the Commission must maintain records that accurately reflect a party or parties that control a carrier's operations, particularly for purposes of enforcing the Commission's rules and policies.

16. Final Regulatory Flexibility Act Analysis. As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Review of Commission Consideration of Applications under the Cable Landing License Act, Notice of Proposed Rulemaking (NPRM). The Commission sought written public comment on the proposals of the NPRM, including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA. (5 U.S.C. 603. The RFA, see 5 U.S.C. 601 et seq. , has been amended by the Contract With America Advancement Act of 1996, Public Law No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).

17. In recent years, there has been growth in the number and capacity of submarine cables triggered in large part by increased Internet and data traffic. Because of this increased demand for capacity, the rapid pace of technological development, and the emergence of non-traditional ownership and financing structures in the submarine cable marketplace, the International Bureau reviewed its policies for licensing submarine cables. As a result of the review, the Commission initiated this proceeding.

18. The Order adopts streamlining procedures for processing applications for submarine cable landing licenses. The streamlining procedures are designed to promote the expansion of capacity and facilities-based competition in the submarine cable market, which should increase innovation and lower prices for U.S. consumers of international communications services. The measures also are designed to enable international carriers to respond to the demands of the market with minimal regulatory oversight and delay, saving time and resources for both the industry and the government, while preserving the Commission's ability to guard against anti-competitive behavior.

19. The measures adopted in the Order are part of the Commission's continuing streamlining efforts. We recognize the importance of reducing regulatory costs, providing regulatory certainty, and facilitating the planning of financial transactions. The procedures contained in the Order should allow participants in the submarine cable market to make business decisions more readily.

20. There were no comments in response to the IRFA. In general, commenters were very supportive of the agency's proposal to streamline the submarine cable landing license process. However, some commenters were concerned that the options proposed in the NPRM could be burdensome and time-consuming for both applicants and Commission staff, and, instead of expediting the licensing process, could slow the licensing process. Thus, commenters proposed alternatives that more closely resembled the streamlining process currently used by the agency for processing international section 214 authorizations. The Order adopts an approach to streamlining that reflects the concerns raised by commenters.

21. Commenters in this proceeding presented a number of approaches and/or criteria for determining whether an application would be eligible for streamlined processing. The Order adopts an eligibility test for cables to World Trade Organization (WTO) Member countries that focuses on whether the applicants are, or are affiliated with, carriers with market power in the cable's destination market. Cables without such affiliations will be eligible for streamlining. Cables with such affiliations will be eligible if the applicants/licensees with such affiliations comply with reporting requirements that are similar to existing dominant carrier reporting requirements applicable to section 214 carriers that have affiliations with market power carriers in foreign markets. ( See 47 CFR 63.10). In addition, all licensees will be subject to the prohibition against entering into special arrangements with foreign market-power carriers. The Commission believes that the rules and regulations adopted herein both will respond to the commenters' proposals and preserve the Commission's ability to guard against anti-competitive behavior that could result in harm to consumers in the U.S. market.

22. The RFA directs agencies to provide a description of, and, where feasible, estimate of, the number of small entities that may be affected by the proposals, if adopted. The Regulatory Flexibility Act defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under Section 3 of the Small Business Act. A small business concern is one that: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

23. The SBA has developed a definition of small entities for telephone communications companies other than radiotelephone (wireless) companies. Some of these telephone communications companies may have ownership interests in submarine cables or use such cables to provide international service. The Census Bureau reports that there were 2,321 such companies that had been operating for at least one year at the end of 1992. According to the SBA's definition, a wireline telephone company is a small business if it employs no more than 1,500 persons. All but 26 of the 2,321 wireline companies listed by the Census Bureau were reported to have fewer than 1,000 employees. Thus, even if all 26 of those companies had more than 1,500 employees, there would still be 2,295 wireline companies that might qualify as small entities or small incumbent LECs. Although it seems certain that some of these carriers are not independently owned and operated, we are unable at this time to estimate with greater precision the number of wireline carriers and service providers that would qualify as small business concerns under the SBA's definition. Consequently, we estimate that 2,295 or fewer of these wireline companies are small entities that might be affected by these proposals.

24. The streamlining measures contained in the Order are available to entities applying for a license to land or operate submarine cables under the Cable Landing License Act (or entities applying to assign or transfer control of interests in existing submarine cable landing licenses). The measures, however, may indirectly affect other entities as well, including users of submarine cable service such as Internet service providers (ISPs) that lease capacity or purchase indefeasible rights of use (IRUs) on cable systems. The policies and rules adopted in the Order will reduce the burden on all applicants regardless of size, by permitting applicants to seek to have their applications granted in a more expeditious manner. We do not have precise numbers for the small entities that will be affected by the policies and rules. Agency data indicates there have been approximately 50 cable landing applications filed with the Commission since 1992, but the total number of licensees at any particular time is difficult to determine, because many licenses are jointly held by several licensees and assignments and transfers of control of interests occur on a regular basis. Based on this information, we would estimate that, over the next five years, the streamlining procedures may benefit as many as 50 applicants meeting the SBA definition of a small entity.

25. In addition to expediting the processing of applications, the Order will require fewer entities to become applicants/licensees. This change will further reduce the number of small entities subject to the rules and regulations. Only the following entities will be required to be applicants for a cable landing license: an entity that (1) owns or controls a U.S. landing station; or (2) owns or controls a five percent (5%) or greater interest in the cable system and will use the U.S. points of the cable system. In order to afford existing cable landing licensees this same opportunity, small entities that meet the criteria may request to be removed from the cable landing license.

26. We note that it is difficult to determine with precision the number of small entities that will be affected by this Order. For example, some small entities with less than five percent (5%) ownership may elect to become licensees. We will be able to compile more specific data only after small entities file applications seeking removal from existing cable landing licenses. However, the following example of cable ownership interests will provide a good illustration of the potential number of small entities that could be exempt from the requirements of the Order. According to agency data at the time of application, the percentage of ownership interests for an existing submarine cable system, the TAT-14 cable, were as follows: four U.S. carriers owned five percent (5%) or greater (these four carriers owned a total of 32.57 percent); fifteen U.S. carriers owned less than five percent (5%) (these fifteen carriers owned a total of 16.93 percent); and thirty-two foreign carriers owned the remaining 50.50 percent.

27. Any reporting or recordkeeping requirements imposed on small entities will be insignificant. Generally, applicants seeking a cable landing license will submit the same information that is currently required by the rules. Applicants may continue to file for a license under the existing procedures, and some applicants will not meet the eligibility criteria for streamlined processing. Applicants may file electronic or paper applications.

28. We believe that many small entities below the five percent (5%) ownership criteria may decide not to be cable landing license applicants, and therefore, such entities will not be subject to the reporting, recordkeeping, or compliance requirements applicable to licensees. Small entities that are currently licensees, and meet these criteria, may file an application requesting that they be removed from the license. The application would demonstrate that the entity: (1) Does not own or control a U.S. cable landing station; and (2) holds less than five percent (5%) interest in the cable system. The application would be filed with the Commission and copies would be served on each other licensee of the cable system. This burden should be minimal because the information would be readily available from the information that the entity provided at the time of becoming an initial applicant or from other business records showing an increase or decrease of ownership interest. As an existing licensee of a cable landing license, the entity would have ready access to the names and addresses of other licensees. Thus, the service burden also would be minimal.

29. The Order also adopts standard competitive safeguards that will impose additional reporting burdens on certain entities. We believe, however, that very few small entities will be burdened with this requirement. Reporting requirements will be imposed only on those applicants that have an affiliation with a carrier with market power in any of the cable's destination markets. These applicants will be required to provide provisioning and maintenance reports that include: (a) Identification of each facility or service provisioned and/or maintained; (b) for provisioned facilities and services, the volume or quantity provisioned and the order-to-delivery intervals; and (c) for each facility and service, the number of outages and intervals to restoration. Also, applicants will be required to provide quarterly circuit status reports, on a facility-specific basis, in the format set out by the Commission's annual circuit status manual. If applicants have a concern over the public disclosure of their reports, they may seek confidential treatment of the information and request a standard protective order.

30. The Order also adopts a rule that requires licensees to notify the Commission of new affiliations that they acquire with foreign carriers in a cable's destination market. If the Commission deems it necessary, it will impose on the newly affiliated licensee the reporting requirements discussed above. This rule is similar to the notification rule that applies in the context of international section 214 carriers, see 47 CFR 63.11. We believe this reporting requirement will have minimal applicability to small entities because it will apply only to licensees, and it is likely, under our rules, that few small entities (that is, those independently owned and operated companies with no more than 1500 employees) will be required to become licensees.

31. The Order also adopts a new process designed to remove prior Commission review of pro forma assignments or transfers of control of interests in submarine cable landing licenses. Again, this process will have minimal applicability to small entities to the extent they are not cable licensees. Pro forma transactions do not result in a change in the ultimate control of the interest in the cable landing license or in changes to the cable system itself as previously evaluated at the time of the initial license application. Under the Order, a pro forma assignee or a person or company that is the subject of a pro forma transfer of control of an interest in a cable landing license will no longer be required to seek prior approval, but if electing post-transaction notification, must: (1) Notify the Commission no later than thirty (30) days after the pro forma transaction is consummated; (2) certify that the assignment or transfer of control is pro forma, and together with all previous pro forma transactions, does not result in a change of the licensee's ultimate control; and (3) provide an update to any ownership information required by our rules. Under this new rule, the burden of seeking prior approval would be eliminated for most entities, thus allowing them to proceed with their pro forma transaction without delay. Entities would file the same information after the transaction instead of prior to the transaction. The Order provides that existing licenses could be modified, at a licensee's request, to be subject to this post-transaction process. The licensee would be required to file an application with the Commission seeking a modification of its license to incorporate this limited exception to the prior approval requirement currently set forth in the applicable license condition. This new process will impose a slight burden on applicants that have been granted a cable landing license and wish to take advantage of this new process. Presumably licensees will only subject themselves to this burden if they believe the benefit of expedited post-transaction processing of pro forma assignments or transfers of control will offset any burden. Similarly, the Order states that licensees of previously authorized cables may file applications to modify their licenses to substitute the new, more narrowly tailored “no special concessions” rule for the “no exclusive arrangements” condition contained in existing licenses.

32. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage or the rule, or any part thereof, for small entities.

33. In the NPRM, we requested comment on whether small entities would be adversely affected by the proposals and whether the proposals would enable small entities to respond to the demands of the market with minimum regulatory oversight, delays, and expenses. Commenters did not specifically address the impact on small entities. Rather, commenters expressed concerns that the NPRM proposals could be burdensome and time-consuming on all entities. Commenters proposed alternative measures more aligned with the existing section 214 streamlining procedures. As a result, the Order adopts measures that are closely modeled on the streamlining process for international section 214 authorizations which has been successful and not burdensome.

34. The procedures adopted in the Order are designed to provide more certainty and flexibility for applicants, encourage investment and infrastructure development by multiple providers, expand available submarine cable capacity, and decrease application processing time. This decision extends the benefits of streamlined processing to as many applicants as possible, including small entities. It reduces the regulatory and procedural burdens while preserving the Commission's ability to guard against anti-competitive behavior. This streamlined processing may benefit small entities especially because the procedures should facilitate entry by such entities into the submarine cable market and expand international services available to such entities. In addition, we have developed a definition of “licensee” that should permit a large number of small entities to be exempt from the requirements contained in the Order.

35. Finally, the reporting requirements and other measures adopted in the Order will minimize any economic impact on small entities. The reporting requirements, which apply only to certain licensees, will allow the Commission to monitor and detect anti-competitive behavior without imposing unnecessarily burdensome regulations on a U.S. licensee due to its affiliation with a foreign carrier.

36. To simplify compliance with the rules and requirements, the Order codifies the submarine cable landing license conditions. This step will provide clear and publicly available standard conditions for all entities. Also, applicants will no longer be required to submit a letter affirmatively accepting the terms and conditions of the cable landing license.

Report to Congress: The Commission will send a copy of the Order, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of the Order, including FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the Order and FRFA (or summaries thereof) will also be published in the Federal Register . See 5 U.S.C. 604(b).

37. Accordingly, it is ordered that, pursuant to sections 1, 4(i) and (j), 201-255 303(r) of the Communications Act as amended, 47 U.S.C. 151, 154(i), 154(j), 201-255, 303(r), and the Cable Landing License Act, 47 U.S.C. 34-39 and Executive Order No. 10530, Sec. 5(a), reprinted as amended in 3 U.S.C. 301, this Report and Order is hereby adopted and the Commission's rules, 47 CFR part 1, are amended as set forth in the Rule Changes.

38. It is further ordered that the policies, rules and requirements established in this decision shall take effect March 15, 2002, except for §§ 1.767(a)(7) through (a)(9), (a)(11), (g)(1) through (g)(14), (j), (k), (l)(1) and (l)(2), and (m)(1) through (m)(2); and §§ 1.768(a) through (i) which contain information collection requirements that have not been approved by the Office of Management and Budget (OMB). The FCC will publish a document in the Federal Register announcing the effective date for those sections.

39. It is further ordered that the Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Flexibility Act Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

This is a summary of the Commission's Report and Order, ET Docket 98-156, FCC 01-357, adopted December 11, 2001 and released December 14, 2001. The full text of this document is available on the Commission's internet site at www.fcc.gov. It is also available for inspection and copying during regular business hours in the FCC Reference Center (Room CY-A257), 445 Twelfth Street, SW., Washington, DC 20554. The complete text of this document may be purchased from the Commission's duplication contractor Qualex International, (202) 863-2893 voice, (202) 863-2898 Fax, qualexint@aol.com e-mail, Portals II, 445 12th St., SW., Room CY­-B402, Washington, DC 20554.

1. In the NPRM in this proceeding, the Commission proposed to modify § 15.249 to allow operation of fixed point-to-point devices in the 24.05-24.25 GHz band segment of the 24 GHz spectrum in accordance with the field strength limit and antenna gain requirements requested by Sierra Digital Communications, Inc., 63 FR 50185, September 21, 1998. This Report and Order amends § 15.249 to permit the operation of unlicensed point-to-point transmitters in the 24.05-24.25 GHz band with field strengths up to 2500 mV/m measured at 3 meters, provided that such devices use directional antennas with gains of at least 33 dBi or a main lobe beamwidth not exceeding 3.5 degrees. Using a directional antenna with either the specified minimum gain or maximum main lobe beamwidth will produce a narrow radiation pattern thereby minimizing the area over which interference to other devices may occur. We find that it is in the public interest to allow such operations on an unlicensed basis to supplement the growing demand for licensed point-to-point facilities to satisfy important communications needs. As Sierra observes, increasing the field strength limit will promote greater use of part 15 unlicensed devices for purposes such as emergency restoration of communications in disaster situations, low-cost telecommunications delivery in rural areas, and other beneficial applications.

2. ARRL argues that the amateur service in the 24.05-24.25 GHz band uses sensitive receivers that will be threatened by part 15 devices operating pursuant to the proposed rules. We do not agree that there will be an increased risk of interference to amateur operations in the 24.05-24.25 GHz band segment. The use of a directional antenna will change the shape of the radiated radio frequency field but not the amount of geographic area contained in that field. While signals will travel further in the intended direction of communication, they will be limited in all other directions. As Sierra demonstrated in response to ARRL's concerns, the total area encompassed by the radiated field of the directional antenna will be equal to or less than the area encompassed by the radiated field of a lower-powered omni-directional antenna. We also note that § 15.245 of the rules allows field disturbance sensors to operate in the same band at 2500 mV/m. These devices have been authorized to operate for years with no adverse affects to other users in the band, including amateur operations. We thus find that, devices operating with field strengths up to 2500 mV/m with a directional antenna as prescribed herein will have the same or less interference potential as other devices currently authorized under part 15. Our decision here is also consistent with our earlier ruling in the Report and Order in ET Docket No. 96-8 wherein the Commission stated that the directional antenna requirement adopted for spread spectrum transmitters would ensure that the area over which harmful interference can occur is equivalent to what would be caused by a transmitter using an omni-directional antenna operating at a lower output power.

3. In an effort to ensure, to the greatest extent possible, that devices operating in accordance with these regulations will not create unwanted adjacent band interference, we are imposing more stringent operating conditions than proposed in the NPRM. Although the NPRM proposed a frequency stability requirement of only 0.003%, we will require these devices to maintain their transmitting frequency within 0.001% of nominal. Requiring 0.001% frequency stability in lieu of 0.003% will ensure that emissions remain within the authorized transmission bandwidth and minimize drift into the adjacent bands which are allocated on a primary basis to the amateur satellite service (24.00 24.05 GHz) and the DEMS (24.25-24.45 GHz) both of which are susceptible to interference from relatively low-level signals. Additionally, we are requiring, under § 15.249, that the field strength of emissions outside of the 24.05-24.25 GHz band, except for harmonics, be attenuated by at least 50 dB below the fundamental or to the general emissions limits contained in § 15.209 of the Commission's rules, whichever is the lesser attenuation.

4. Finally, we will address harmonic emissions. Section 15.209 set the limit for out-of-band emissions of part 15 devices, which is 500 uV/m at 3 meters. Harmonic emissions from transmitters operating under § 15.249 are permitted at different levels, generally higher, than other out-of-band emissions, and those limits are specified in that section. Section 15.205(b), however, provides that the § 15.209 limits shall not be exceeded in the restricted bands. All of the harmonics of the 24 GHz transmitters at issue here fall into the restricted band above 38.6 GHz, and thus must observe the 15.209 limits, rather than the less restrictive 15.249 limits. The Commission is considering in a separate proceeding, the possibility of removing the § 15.209 limits for some bands above 38.6 GHz, among other issues. For more information see Notice of Proposed Rulemaking in ET Docket 01-278, released October 15, 2001, 66 FR 59209, November 27, 2001.

5. In conclusion, we find that the public interest is served by permitting unlicensed point-to-point devices to operate at 2500 mV/m, under the conditions discussed, in the 24.05-24.25 GHz band. The band has accommodated unlicensed transmissions, government radar, and amateur facilities with no major conflicts. By allowing a greater variety of systems to occupy the band, we will provide the opportunity for innovative products and services to be made available to the American public as quickly as demand dictates.

6. As required by section 603 of the Regulatory Flexibility Act (“RFA”), 1 an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rule Making (NPRM). 2 The Commission sought written public comment on the proposal in the NPRM, including comment on the IRFA. The Commission's Final Regulatory Flexibility Analysis (“FRFA”) in the Report and Order conforms to the RFA. 3

7. The rule changes adopted in this Report and Order will help satisfy the growing demand for readily available unlicensed systems in the 24 GHz band. 4 The rules will allow fixed point-to-point transmitters to operate in the 24.05-24.25 GHz band at field strengths of up to 2500 mV/m. This action will facilitate the introduction of a variety of new services to the band. The requirement to use directional antennas will minimize the possibility of creating harmful interference to existing services while, at the same time, providing for communication links of greater distances.

8. No comments were filed in direct response to the IRFA. Moreover, no comments in response the NPRM discussed small business-related issues.

9. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the rules adopted herein. 5 The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 6 In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. 7 A “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). 8

10. The Commission has not developed a definition of small entities applicable to unlicensed communications devices. Therefore, we will utilize the SBA definition applicable to manufacturers of Radio and Television Broadcasting and Communications Equipment. According to the SBA regulations, unlicensed transmitter manufacturers must have 750 or fewer employees on order to qualify as a small business concern. 9 Census Bureau data indicates that there are 858 U.S. companies that manufacture radio and television broadcasting and communications equipment, and that 778 of these firms have fewer than 750 employees and would be classified as small entities. 10

11. Part 15 transmitters are already required to be authorized under the Commission's certification procedure as a prerequisite to marketing and importation. The changes adopted in this proceeding do not change any of the current reporting or recordkeeping requirements. Further, the regulations add permissible methods of operation and do not require the modification of any existing products.

12. The rule changes adopted in this Report and Order will permit manufacturers, including small entities, to market more diverse products in the 24 GHz band. The American Radio Relay League filed comments suggesting that the Commission also require manufacturers to maintain detailed records of their customers' installations of these devices. This information would be given to ARRL periodically to aid in coordination. The Commission believes that compliance with this additional regulation would create an undue economic burden for device manufacturers, especially smaller entities. The Commission noted that instituting such a rule could lead to more expensive part 15 equipment and slower speed to market. Therefore, the Commission declined to adopt such a requirement.

13. The Commission will send a copy of the Report and Order, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act. 11 In addition, the Commission will send a copy of the Report and Order, including this FRFA, to the Chief Counsel for Advocacy of the SBA.

14. It is Further Ordered that the Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

This Report and Order (“ R&O ”) in WT Docket No. 01-14, FCC 01-328, adopted November 8, 2001, and released December 18, 2001, is available for inspection and copying during normal business hours in the FCC Reference Information Center, 445 Twelfth Street, S.W., Room CY-A257, Washington, DC 20554. The complete text may be purchased from the Commission's duplicating contractor, Qualex International, 445 Twelfth Street, S.W., Room CY-B402, Washington, DC 20554, (202) 863-2893. The complete text is also available under the file name fcc01328.doc on the Commission's Internet site at www.fcc.gov.

1. CMRS Spectrum Aggregation Limit. The CMRS spectrum cap provides that “[n]o licensee in the broadband PCS, cellular, or SMR services (including all parties under common control) regulated as CMRS * * * shall have an attributable interest in a total of more than 45 MHz of licensed broadband PCS, cellular, and SMR spectrum regulated as CMRS with significant overlap in any geographic area, except that in Rural Service Areas (RSAs), * * * no licensee shall have an attributable interest in a total of more than 55 MHz of licensed broadband PCS, cellular, and SMR spectrum regulated as CMRS with significant overlap in any RSA.” 47 CFR 20.6(a). Determining whether a “significant overlap” exists is necessary because of the use of different licensing and service areas for cellular, broadband Personal Communications Service (PCS), and Specialized Mobile Radio (SMR) spectrum. When a PCS license and a cellular or SMR license are involved, a significant overlap exists when ten percent or more of the population of the designated PCS licensed service area is within the Cellular Geographic Service Area (CGSA) or SMR service area(s) in question.

2. History of the CMRS Spectrum Cap. The CMRS spectrum cap was established in 1994, in anticipation of PCS licensing, and in recognition that direct competition was likely to develop among cellular, broadband PCS, and SMR. Previously, the Commission had imposed service-specific limitations on the aggregation of broadband PCS spectrum and on cellular/PCS cross-ownership. In adopting the CMRS spectrum cap to complement these latter two rules, the Commission found that an overall cap applicable to cellular, broadband PCS, and SMR spectrum would add certainty to the marketplace without sacrificing the benefits of pro-competitive and efficiency-enhancing aggregation. The Commission explained that, if licensees were to aggregate sufficient amounts of CMRS 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 determined that the imposition of a cap on the amount of covered spectrum that a single entity could control in any one geographic area would limit the ability of any entity to increase prices artificially. The Commission also found that a cap on broadband PCS, SMR, and cellular spectrum holdings would prevent licensees from artificially withholding capacity from the marketplace. The Commission concluded 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. Third Report and Order (59 FR 59945, November 21, 1994).

3. In 1996, in light of the U.S. Court of Appeals for the Sixth Circuit's ruling in Cincinnati Bell Telephone Co. v. FCC (69 F.3d 752 (6th Cir. 1995)) remanding the cellular/PCS cross-ownership restriction, the Commission eliminated the service-specific limitations on the aggregation of broadband PCS spectrum and on cellular/PCS cross-ownership, and decided to rely solely on the 45 MHz CMRS spectrum cap to ensure that multiple service providers would be able to obtain broadband PCS spectrum and thereby facilitate the development of competitive markets for wireless services. The Commission analyzed potential market concentration and again found that a 45 MHz spectrum cap was sufficient “to avoid excessive concentration of licenses and promote and preserve competition” while “maintaining incentives for innovation and efficiency.”

4. In the First Biennial Review Order (“ First Biennial Review Order ”) (64 FR 54564, October 7, 1999), the Commission decided substantially to retain the CMRS spectrum cap, together with the cellular cross-interest rule, but ordered modifications to reflect circumstances in rural areas and to permit passive institutional investors to acquire greater non-attributable interests in CMRS carriers. The Commission concluded that the spectrum cap remained a simple and effective means of mitigating the competitive consequences of the spectrum-related barriers to entry in CMRS markets, and found that the 45 MHz limit struck the proper balance (in non-rural areas) between preserving opportunities for competitive entry and permitting carriers to achieve economies of scope and scale. The Commission did, however, raise the cap to 55 MHz in RSAs. This decision was based on findings that the potential consumer benefits in rural areas from competitive, facilities-based entry were likely to be limited by the economics of offering service to lower-density populations. The Commission also amended the spectrum cap rule to provide that equity interests of up to forty percent held by passive institutional investors are not attributable. At the same time, the Commission adopted a waiver process to meet the spectrum requirements for third-generation (3G) and other advanced wireless services until additional spectrum for next generation applications could be allocated.

5. Cellular Cross-Interest Rule. Section 22.942 of the Commission's rules limits the ability of parties to have interests in cellular carriers on different channel blocks in a single geographic area. 47 CFR 22.942. To the extent licensees on different channel blocks have any degree of overlap between their respective CGSAs, the rule prohibits any entity with an attributable interest in one licensee from having a direct or indirect ownership interest of more than five percent in the other licensee. An attributable interest is defined generally to include an ownership interest of twenty percent or more, as well as any controlling interest. However, an entity may have non-controlling and otherwise non-attributable direct or indirect ownership interests of less than twenty percent in licensees for different channel blocks in overlapping CGSAs. Divestiture of interests as a result of a transfer of control or assignment of authorization must occur prior to consummating the transfer or assignment.

6. History of the Cellular Cross-Interest Rule. The cellular cross-interest rule was adopted in 1991, when cellular licensees were the predominant providers of mobile voice services. In adopting this rule, the Commission stated that “in a service area where only two cellular carriers are licensed per market, the licensee on one frequency block in a market should not own an interest in the other frequency block licensee in the same market.” Thus, the Commission adopted restrictions on a party's ability to hold ownership interests in both cellular licensees in the same geographic area “[i]n order to guarantee the competitive nature of the cellular industry and to foster the development of competing systems.” In the First Biennial Review Order, the Commission determined that the cellular cross-interest rule was still required to protect against substantial anticompetitive threats from common ownership between the two cellular carriers in any given geographic area. The Commission found that cellular carriers served approximately eighty-six percent of nationwide mobile telephone subscribers at the end of 1998, and determined that the percentage was less than seventy in only a few major metropolitan markets. However, because competition from other services had increased on the whole since the rule's inception in 1991, the Commission relaxed the rule's attribution standards to the current limits described above.

7. In the Notice of Proposed Rulemaking (“ NPRM ”) (66 FR 9798, February 12, 2001) ( corrected at 66 FR 10567, February 15, 2001) in this proceeding, the Commission initiated a reexamination of the need for CMRS spectrum aggregation limits as part of its 2000 biennial regulatory review of the Commission's telecommunications regulations. Section 11 of the Communications Act requires the Commission, every two years, to review all regulations that apply to “the operations or activities of any provider of telecommunications service” and to “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.” The NPRM initiated the Commission's second comprehensive review of the CMRS spectrum cap and cellular cross-interest rules, the two regulations that currently limit the aggregation of broadband CMRS spectrum.

8. The NPRM requested public comment, including the submission of specific market data and studies, to assist the Commission's determination of whether the CMRS spectrum aggregation rules are no longer necessary in the public interest and, if they are necessary, whether the Commission's existing spectrum limits should be modified. First, comment was requested on whether spectrum aggregation limits, including the cellular cross-interest rule, continue to enhance meaningful competition in today's CMRS marketplace. In this regard, comment was sought on the development of meaningful economic competition, as well as the potential competitive consequences of consolidation that may occur without spectrum aggregation limits. Next, comment was requested on spectrum management and other regulatory considerations, particularly in the context of spectrum suitable for broadband CMRS. Under this inquiry, the Commission sought to examine any costs that the spectrum aggregation limits may impose on the development of advanced wireless services, the possible benefits of prophylactic standards, and whether these standards promote efficiency. In addition, comment was sought on how recent international developments should affect the Commission's public interest determination.

9. The Commission also sought comment on the implications for its processes of DOJ's antitrust law enforcement responsibilities. The Commission asked whether it should defer to DOJ in CMRS license transfers, and, if so, what form such deference should take. Specifically, the Commission asked whether all transfers resulting in consolidation of spectrum below a certain threshold should be exempt from competitive analysis under section 310(d) of the Communications Act. The Commission acknowledged that antitrust laws may place adequate focus on mergers that threaten to curtail actual competition. Therefore, the Commission asked whether it may, and should, refrain from independent review of the competitive effects of a transaction that is subject to some specified level of DOJ review, and if so, what that level should be.

10. The NPRM also requested comment on whether specific attributes of the CMRS spectrum cap and cellular cross-interest rules should be modified, if those rules are generally retained, to allow some of the benefits that may arise from additional cross-ownership interests. To the extent that certain revisions would reduce any costs of the rules or promote public interest objectives, the Commission sought comment on how to implement them without significantly increasing barriers to entry for new competitors or reducing benefits to wireless consumers.

11. The Telecommunications Act of 1996 (1996 Act) (Public Law No. 104-104, 110 Stat. 56 (1996)) significantly amended the Communications Act to permit and encourage competition in various communications markets. Congress anticipated that the development of competition would lead market forces to reduce the need for regulation. Section 11 of the Communications Act, which was added by the 1996 Act, provides that every two years the Commission shall review all regulations that apply to “the operations 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.” Section 11 further provides that in carrying out this review, the Commission “shall repeal or modify any regulation it determines to be no longer necessary in the public interest.”

12. Consistent with section 11, the Commission stated in the NPRM that its fundamental inquiry is whether, as a result of meaningful economic competition among providers of telecommunications services, spectrum aggregation limits are no longer necessary in the public interest. The Commission sought comment on what constitutes “meaningful economic competition” under section 11, and to what degree the relevant competitive conditions have changed since the Commission's last biennial review of these rules. If meaningful economic competition were found to exist, the Commission asked whether this would mean that spectrum aggregation limits have served their purpose and are no longer in the public interest, or whether public interest considerations nevertheless would warrant continued use of spectrum aggregation limits.

13. Commenters differ on how section 11 should be applied and whether there might be public interest reasons to retain spectrum aggregation limits if meaningful economic competition exists. The Commission, however, concludes that it need not, for purposes of this proceeding, go beyond the plain meaning of the text of section 11 of the Communications Act. The language places an obligation on the Commission to “determine” if the regulation in question “is no longer necessary in the public interest as the result of meaningful economic competition.” Section 11 requires the Commission to determine “whether any of these regulations are no longer in the public interest because competition between providers renders the regulation no longer meaningful.” The Communications Act then explicitly provides that “the Commission shall repeal or modify” any regulation that it determines is no longer necessary in the public interest as the result of meaningful economic competition. The statutory language does not impose any particular burdens on the opponents or proponents of a particular rule, but rather places the burden on the Commission to make the requisite determinations. In exercising its obligation under section 11, the language suggests that the Commission must examine why the rule was “necessary” in the first place and whether it is necessary any longer. Thus, in making the determination whether a rule remains “necessary” in the public interest once meaningful economic competition exists, the Commission must consider whether the concerns that led to the rule or the rule's original purposes may be achieved without the rule or with a modified rule.

14. The primary public interest purpose underlying the original adoption of the spectrum aggregation limits was to promote pro-competitive ends in CMRS markets. In initially setting the spectrum cap in 1994, the Commission's goal was to “discourage anticompetitive behavior while at the same time maintaining incentives for innovation and efficiency.” The Commission found that its “goal of preventing anticompetitive outcomes” could be accomplished by creating a cap on broadband PCS, cellular, and SMR licensees, which would “prevent licensees from artificially withholding capacity from the market.” Consistent with this goal, the Commission stated that the spectrum cap sought “to promote diversity and competition in mobile services, by recognizing the possibility that mobile service licensees might exert undue market power or inhibit market entry by other service providers if permitted to aggregate large amounts of spectrum” Furthermore, the absence of a spectrum cap could undermine other statutory goals related to the promotion of competition, “such as the avoidance of excessive concentration of licenses and the dissemination of licenses among a wide variety of applicants.” In addition, the Commission found that the cap not only promoted competition, but also benefited the public interest by allowing review of CMRS acquisitions in an administratively simple manner and lending certainty to the marketplace. In 1996 and 1999, the Commission reaffirmed the primary public interest purpose of promoting pro-competition ends in the CMRS markets. In 1996, the Commission also found that the spectrum cap, in addition to other tools at its disposal, furthered the goals of section 309(j) of the Communications Act. CMRS Spectrum Cap Report and Order (61 FR 33859, July 1, 1996) ( corrected at 61 FR 51233, October 1, 1996). (The Commission notes that there are other tools to achieve goals other than competition, including case-by-case review, as well as prescribing license area designations and bandwidth assignments, and using bidding credits to create opportunities for new entrants.) In adopting the cellular cross-interest rule, the Commission acted “[i]n order to guarantee the competitive nature of the cellular industry and to foster the development of competing systems.”

15. In the case of the spectrum cap and cellular cross-interest rules, the Commission's inquiry focuses on the state of competition in the consumer markets for CMRS. At the same time, the Commission recognizes that spectrum is an input in CMRS markets. Indeed, this recognition prompted adoption of the spectrum cap as a means of ensuring CMRS competition in the first place. Although participants in the mobile telephony and CMRS spectrum markets are largely the same entities under current conditions, this could change if leasing arrangements become more common. Secondary Markets Policy Statement (65 FR 80367, December 21, 2000). Again, the Commission emphasizes that the markets with which it is principally concerned are the output markets for services, and that conditions in the input markets provide only a partial proxy measure of competition in the output markets. Nonetheless, in the context of the output market, the state of control over the spectrum input is a relevant factor.

16. In evaluating CMRS markets, the Commission considers both actual and potential competition. In general, potential competition can be as important as actual competition in promoting desirable outcomes. In the case of CMRS, however, it appears that actual competition among those firms already providing service has been the most significant factor in the gains that have been achieved in recent years. There remains relatively little potential for additional entry into urban markets in the near term, because most licenses for currently allocated spectrum have been constructed and put into service. In rural markets, a significant number of licenses have not yet been put into service, but demographic and geographic conditions generally appear to render additional large-scale entry economically difficult to support. As additional CMRS-suitable spectrum becomes available, the overall effect on the CMRS marketplace of potential competition could change.

17. In determining whether its spectrum aggregation limits remain necessary in the public interest, the Commission considers the original purposes for which the rules were promulgated. The purpose underlying the spectrum aggregation limits was to promote competition in CMRS markets. An important consideration in determining the necessity for regulation is the availability of other, less burdensome tools to achieve these ends. In the case of the CMRS spectrum aggregation limits, these tools include case-by-case review of transactions by the Commission and DOJ, as well as the Commission's ability to shape the initial distribution of licenses through the service rules adopted with respect to specific auctions. In addition, the Commission is also obligated, pursuant to section 332(c)(1)(C) of the Communications Act, to continue to review (as it has done six times already) the state of competition among CMRS providers. Specifically, this provision states:

The Commission's most recent report, issued this year, has guided its decision in this proceeding, and future reports will continue to provide a useful tool for overseeing the changes, if any, in competitive market conditions. Sixth Annual CMRS Competition Report (“ Sixth Annual CMRS Competition Report ”) (16 FCC Rcd 13350 (2001)). Moreover, the Commission also has at its disposal various enforcement tools to ensure that CMRS carriers, which are common carriers under section 332(c) and key provisions of Title II of the Communications Act, 47 U.S.C. 332(c), 201, 202, 208, do not engage in conduct that is anti-competitive or otherwise harm consumers due to excess concentration of spectrum.

18. The Commission begins its analysis by considering the state of economic competition. Various indicators confirm the presence of meaningful economic competition in markets for CMRS. As the Commission described in the Sixth Annual CMRS Competition Report, and as commenters generally agree, mobile telephony markets have experienced and continue to experience strong growth, increased competition, and active innovation. (Although the Commission noted that it could not warranty the accuracy or completeness of the individual data in the Sixth Annual CMRS Competition Report, all of which were taken from publicly available sources, the Commission finds that, cumulatively, these data are more than adequate to inform its evaluation of meaningful economic competition.) The Commission also finds it important that competition in these markets has progressed dramatically, not only since 1994, but since its last biennial review.

19. Number of Competitors and Concentration. One basic indicator of meaningful economic competition is that most Americans have a choice of obtaining CMRS from several different providers of service. As of the end of 2000, about ninety-one percent of U.S. residents lived in a county that was served, at least in part, by three or more different mobile telephony providers, and seventy-five percent of the U.S. population lived in a county where five or more providers offered service. (Because the Commission's analysis was limited to publicly available sources of information, this coverage percentage is based on the number of operators serving any portion of a particular county. Consequently, some counties included in this analysis may have only a small amount of coverage from a particular provider.) Furthermore, over 133 million people lived in counties with six or more mobile telephony providers, an increase of thirty-five percent over the previous year, and thirty-four million people lived in counties served by seven or more providers, a one-year increase of 170 percent. By contrast, when the spectrum cap was first promulgated in 1994, in all but the few markets where Nextel had then launched service, consumer choice was limited to two cellular providers.

20. Measures of market concentration in the record show a substantial continuing decline in concentration in most local CMRS markets. The Commission finds that considerable entry has occurred and that meaningful competition is present, particularly given the presence of such earmarks of competition as falling prices, increasing output, and improving service quality and options. Specifically, concentration in CMRS markets, as measured by subscriber share, is falling. Calculations submitted by economist John Hayes in both this record and the previous biennial review proceeding show that Herfindahl-Hirschman Indices (HHIs) in the twenty-five largest markets, calculated based on estimated subscribed customers, have fallen by an average of fifteen to twenty-five percent over the last two years. This downward trend in concentration may be attributed in part to the continued construction of new entrants' networks, which has made these mobile telephony providers more viable competitors.

21. On the other hand, other measures of market concentration reveal moderate to high concentration levels. Using CMRS spectrum share as the capacity measure, the Commission has calculated HHIs of 1,270 to 1,801 for the fifty most populous MSAs, and 1,246 to 2,405 for a sampling of eighty counties in RSAs. These figures are generally consistent with the capacity'based HHI calculations submitted by various commenters. The Commission emphasizes, however, that caution is appropriate in employing such measures, whether they reveal a positive or negative indication of concentration. Although more concentrated markets can be less competitive and more vulnerable to anticompetitive activity than less concentrated markets, moderate to high concentration is not necessarily a threat to competition. For example, the Commission has previously found that “an HHI analysis alone is not determinative and does not substitute for its more detailed examination of competitive considerations.” In the case of CMRS markets, for example, limits to economies of scale, technological compatibility issues, difficulties in finding a willing seller at a reasonable price, and capital market constraints limit consolidation. Moreover, antitrust review by the DOJ and section 310(d) review by the Commission continue to serve as protection against levels of consolidation that would impair competition. Furthermore, HHI measures function as indicators of the likely competitive situation—guidelines to which other information is added, as under the DOJ/Federal Trade Commission (FTC) approach—rather than as the single factor upon which to make competitive judgments, including the judgment of whether to retain the spectrum cap rule. As the DOJ/FTC Merger Guidelines state, “[b]ecause the specific standards set forth in the guidelines must be applied to a broad range of possible factual circumstances, mechanical application of those standards may provide misleading answers to the economic questions raised under antitrust laws.”

22. Based on the record before the Commission and publicly available evidence, however, there appears to be a disparity in the amount of actual competition existing in MSAs versus RSAs. In MSAs, eighty-six percent of counties have four or more facilities-based CMRS providers serving some portion of the county, while in RSAs, twenty-four percent of counties have four or more facilities-based CMRS providers. Further, in over half of RSA counties, two or fewer licensed mobile telephony carriers are currently providing service. Because these numbers include carriers that may be offering service in only a small portion of a county, they may overstate the amount of actual facilities-based competition, especially in RSAs. Moreover, the Commission's licensing records show that gaps in the footprints of the nationwide carriers tend to be greater in RSAs than in MSAs. Of the fifty most populous MSAs, forty have five licensed nationwide carriers, not counting Nextel, and the other ten have four. In a sampling of fifty average population RSA counties, by contrast, sixteen have five nationwide carriers, sixteen have four, and eighteen have fewer than four. In a sampling of thirty less populated RSA counties, eight have five nationwide carriers, nine have four, and thirteen have fewer than four. Therefore, consumers in rural areas appear to have fewer choices in terms of providers, pricing plans, and service offerings than consumers in MSAs. Commenters generally agree that rural markets have significantly less competition than metropolitan areas in large part due to population density and economics.

23. Benefits to Consumers of Competition. As the CMRS marketplace has developed, consumers in both MSAs and RSAs have realized the benefits of competition in the form of increased output, lower prices, and increased diversity of service offerings. For example, from 1993 to 2000, the number of subscribers using mobile phones jumped 584 percent, the amount of revenue the sector generated climbed 384 percent, and the number of people employed in the industry grew 364 percent. In addition, as the Commission described in the Sixth Annual CMRS Competition Report, and as commenters generally agree, prices in mobile telephony markets are falling at an accelerating rate. During 2000, the cellular telephone component of the Consumer Price Index (CPI) produced by the United States Department of Labor decreased by 12.3 percent, while the overall CPI increased by 3.4 percent. In comparison, the cellular telephone component of the CPI from December 1997 to January 1999 decreased by 9.1 percent (8.4 percent annualized), while the overall CPI increased by 1.9 percent. Several studies indicate that the entrance of new competitors into mobile telephony markets continues to reduce prices. Furthermore, mobile telephony service providers are offering new and innovative pricing plans. Most of the major carriers offer nationwide flat-rate, digital pricing plans, and several large carriers now offer regional flat-rate, digital pricing plans as well. Further, several carriers provide international roaming services to their customers. Mobile telephony providers are also offering technologically innovative services including Short Message Service (SMS), e-mail, and web-based applications. In addition, “churn * * * and continued expansion of mobile networks into new and existing markets demonstrate a high level of competition for mobile telephony customers.”

24. To a certain degree, mobile telephony services have begun to compete with wireline services. For some, wireless service is no longer a complement to wireline service but has become the preferred method of communication. According to a recent survey by the Yankee Group, about three percent of mobile telephony subscribers rely on their wireless phone as their only phone. In another survey conducted in January 2000, twelve percent of respondents said they purchased a mobile phone instead of installing an additional wireline phone. In a survey performed for the Consumer Electronics Association, three in ten mobile phone users, and forty-five percent of mobile phone users aged eighteen to thirty-four years old, stated they would rather give up their home telephone than their mobile phone. In some areas, mobile phone use has begun to erode wireline revenue due to “technology substitution,” that is, the substitution of new technologies for existing ones. BellSouth, for example, stated in February 2001 that it was exiting the payphone business in part due to business lost to mobile phones.

25. A few mobile carriers have begun offering service plans designed to compete directly with wireline local telephone service. For example, Leap, through its Cricket subsidiary, now offers its Comfortable Wireless mobile telephone service in over a dozen markets. Leap's service allows subscribers to make unlimited local calls and receive calls from anywhere in the world for a flat rate of approximately $30 per month. In November 2000, Leap also claimed that sixty percent of its customers use their wireless phones as their primary phone. US Cellular, ALLTEL, and Rural Cellular Corporation similarly offer flat-rate or nearly flat-rate service plans in select markets. Several CMRS providers have received Eligible Telecommunications Carrier status, enabling them to receive universal service funding in certain states, and some carriers are using cellular or broadband PCS spectrum to offer fixed wireless services.

26. Consumers have also derived benefits in recent years from combinations as some operators have expanded their licensed service areas through acquisitions and swaps to create nationwide service providers. There are currently six nationwide mobile telephony operators: AT&T, Cingular, Nextel, Sprint, Verizon, and VoiceStream. The Commission has concluded previously that mobile telephony service providers with nationwide service areas can achieve certain economies of scale and increased efficiencies compared to operators with smaller service areas.

27. Barriers to Entry. One potential threat to the continued existence of meaningful economic competition in CMRS markets is the barrier to entry posed by the limited availability of spectrum. Ease of entry is an important factor when determining if firms in a given product and geographic market will be able to exercise market power. “[E]ntry is * * * easy if entry would be timely, likely, and sufficient in its magnitude, character and scope to deter or counteract the competitive effects of concern.” In particular, we note that antitrust authorities “will consider timely only those committed entry alternatives that can be achieved within two years from initial planning to significant market impact.” Unfettered market competition forces prices to the level of production costs. Markets function optimally only if one or more firms are able to enter a market or expand current production swiftly and effectively in response to the elevation of prices (or degradation of service) by one or more firms attempting to exercise market power. Therefore, in evaluating the state of the market the Commission considers whether barriers to entry exist and, if so, how pronounced these barriers to entry are, with the ultimate goal of determining whether potential entry would be timely, likely, and sufficient to discipline the market.

28. The requirement to obtain access to spectrum constitutes a barrier to facilities-based entry into the CMRS marketplace because the supply of suitable spectrum is limited. Facilities-based mobile telephony service cannot be offered without access to suitable spectrum, and a government license is required to use spectrum to provide CMRS. Some commenters argue that, because CMRS spectrum allocations have been made, this barrier to entry has been reduced. Other commenters, however, argue that it is typically difficult to acquire the spectrum necessary to enter a CMRS market. One commenter, in particular, emphasizes that the finite amount of spectrum suitable for CMRS is an “insurmountable barrier to entry.” The Commission finds that the limited amount of spectrum suitable for CMRS available today creates a significant barrier to entry, at least in MSAs. Most of the spectrum currently subject to the cap either has been assigned or is being considered for assignment to the high bidder at auction. In most cases, the high bidder is either an existing market participant or its affiliate. Although some of this spectrum is currently unused or underused, the total pool of such spectrum is finite, and the amount that is not controlled by a provider that has launched service, particularly in MSAs, is small.

29. Some commenters argue that availability of spectrum is not a significant barrier to entry because other spectrum, not covered by the cap, is a viable substitute for the provision of mobile telephony services. Specifically, commenters identify spectrum allocated for Mobile Satellite Service (MSS), big Low Earth Orbit (LEO) satellite service, Multipoint Multichannel Distribution Service and Instructional Television Fixed Service (MDS/ITFS), Wireless Communications Service (WCS), and CMRS other than cellular, broadband PCS, and SMR, as well as spectrum that has been (or is soon likely to be) reallocated from television Channels 52-59 and 60-69. Much of this spectrum, however, either is not currently allocated for mobile terrestrial use, is subject to technical and use restrictions that prevent offering of full mobile telephony services, or has insufficient capacity to support significant mobile telephony competition. The Commission believes the spectrum bands that are most likely to support additional competition to the services offered over cellular, broadband PCS, and SMR spectrum in the reasonably near future are the 1.7 and 2.1 GHz bands that are being considered for mobile allocation in the Commission's so-called 3G proceeding, and the bands reallocated from television Channels 60-69. However, this spectrum is still at least several months away from being assigned, and after assignment it will take time for incumbent users to be relocated and following that for licensees to build out their networks. Thus, although the Commission expects that 3G and Channels 60-69 spectrum will offer some potential for near-term entry over the next few years, the availability of spectrum suitable for CMRS remains a barrier to entry in the near term.

30. Nonetheless, there are factors that moderate concern regarding the spectrum access barrier to entry. In particular, the need for direct access to spectrum is not absolute because carriers can compete in the provision of CMRS without direct access to spectrum through resale, or a mobile virtual network operator (MVNO) arrangement. However, it is not clear that these options have more than a limited role today. The transition period the Commission adopts today also helps to minimize the problem of spectrum access because, while future allocations do not respond to the needs of the marketplace today, the Commission expects that additional spectrum will be available at the end of the transition period, or shortly thereafter.

31. Although access to spectrum does not appear to be a substantial barrier to entry in RSAs, as in these areas there is typically a significant amount of unused spectrum, the other costs of serving high-cost and low-density areas may make it unlikely that competition in RSAs will increase to a level rivaling that of MSAs. Specifically, the cost of building out a network with pervasive coverage is likely to be higher in rural than in urban areas (especially for digital networks on 1.9 GHz PCS spectrum with lower power handsets), and revenue potential is lower. Thus, the potential revenue from initiating or expanding service in an RSA may not be sufficient to cover the costs of building out the network, including any opportunity costs associated with directing resources to rural buildout instead of enhancing the carrier's network in urban areas. In addition, it would likely be time-consuming for a new entrant to access sufficient capital, build out its network to a sufficient degree to effectively market its services, and attract a sufficient subscriber base to discipline the market. Although the Commission does not have sufficient record evidence to evaluate the likely development of the market in RSAs, the underlying economics appear to make it unlikely that competition in RSAs will evolve in the near term to rival that in MSAs.

32. Other Issues . Various commenters discuss the potential for CMRS providers to foreclose entry by anticompetitive warehousing of spectrum. Some commenters argue that it is unlikely that carriers have an incentive to warehouse spectrum because the cost of acquiring spectrum and meeting the Commission's buildout requirements is high. Other commenters, however, argue that CMRS providers have an incentive to warehouse spectrum either by purchasing more spectrum than can be used or by investing in inefficient technologies. Even if a carrier did not deliberately set out to foreclose competition, one commenter contends that the profits from doing so may be an attractive side effect of spectrum aggregation. The Commission does not have evidence that firms are currently holding excess spectrum in order to deter entry or that the benefits of excluding competitors would exceed the cost of acquiring spectrum and the free-rider problem of several incumbents benefiting from one incumbent's expenditure. However, it is at least a threshold possibility that because the supply of suitable spectrum is limited, firms in CMRS markets might choose to overinvest in spectrum in order to deter entry, depending on the costs of doing so.

33. One commenter also suggests that collusion among CMRS providers may warrant ongoing consideration. It notes that pricing plans for CMRS offerings are similar among the national carriers, and price comparisons of these plans can easily be performed, facilitating price coordination. Further, the commenter argues that experience in the marketplace shows carriers behaving in a largely oligopolistic fashion by offering largely identical products at prices far above their marginal costs. However, another commenter argues that anticompetitive collusion is unlikely in CMRS markets because these markets have well-capitalized actual and potential competitors, and demand is increasing. Further, according to this commenter, it is relatively easy for existing competitors to add capacity in response to any price increase, and therefore firms cannot profitably reduce output and sustain a high price for a significant period of time. Other commenters argue that the large number of competitors and the complexities of the various pricing plans make coordination unlikely. Although the record does not indicate that tacit collusion is occurring or is likely to occur, CMRS markets do meet many of the criteria that make tacit collusion sustainable. Moreover, tacit collusion becomes more likely as the number of competitors is reduced.

34. Conclusion . In light of all the factors discussed above, the Commission finds that there is meaningful economic competition in CMRS mobile telephony generally. Evidence in MSAs regarding the current state of these markets clearly shows that the presence of multiple competitors is effectively restraining prices, promoting innovation and diversity, and increasing output. Based on the information available, competition in RSAs appears to be less robust than in MSAs. Finally, to the extent that competitive concerns are raised in a particular proposed assignment or transfer of control application, as discussed below, the Commission believes they can be addressed through means other than the spectrum cap.

35. Currently, the Commission evaluates the competitive effects of the acquisition of CMRS spectrum primarily through the general application of numerical thresholds such as the spectrum cap. The Commission could, however, fulfill its duties under section 310(d) and other statutory provisions through case-by-case review of individual transactions. In light of its finding of meaningful economic competition above, the Commission concludes that long-term retention of the spectrum cap rule is no longer necessary in the public interest, and it therefore moves to repeal that rule. At the same time, it concludes that it is necessary in the public interest to retain the rule for a limited transition period to allow the market to adjust and enable the Commission to consider guidelines for case-by-case review of CMRS spectrum aggregation transactions. Finally, during the transition period, the Commission modifies the rule by increasing the spectrum cap to 55 MHz in all areas.

36. Background . With respect to the appropriate regulatory tool for reviewing potential effects on competition in CMRS markets, proponents of the current spectrum cap generally favor a bright-line approach, arguing that a bright line promotes regulatory certainty and significantly reduces the processing time of transfer and assignment applications. One proponent argues that determining how to apply the rule in a particular case is easier than gathering the information that transacting parties may be required to submit under a case-by-case approach, such as potentially sensitive customer and market share information. Generally, opponents of the current spectrum cap argue that case-by-case review is preferable to a prophylactic approach because the case-by-case approach is more flexible and reduces the possibility of blocking transactions that are actually in the public interest or, alternatively, permitting transactions that are not in the public interest.

37. Discussion . The Commission concludes that it is appropriate to move in the very near future from reliance on a prophylactic rule of general application to pure case-by-case review. In assessing the choice of an appropriate tool, the Commission recognizes that different costs and benefits can be associated with bright-line rules and case-by-case review with respect to degree of flexibility, predictability of outcome, likelihood of rejecting beneficial (or approving harmful) transactions, ability to account for the particular attributes of a transaction or market, speed of decision-making, and resource demands on the Commission and carriers.

38. On balance, and in light of the growth of both competition and consumer demand in CMRS markets, the Commission concludes that case-by-case review, accompanied by enforcement of sanctions in cases of misconduct, is now preferable to the spectrum cap rule because it gives the Commission flexibility to reach the appropriate decision in each case, on the basis of the particular circumstances of that case. The development of competition among CMRS carriers since the 1999 biennial review is an important factor underlying this conclusion. The Commission is persuaded that competition is now robust enough in CMRS markets that it is no longer appropriate to impose overbroad, a priori limits on spectrum aggregation that may prevent transactions that are in the public interest. As discussed below, the Commission commits itself to increasing Commission resources available to review spectrum aggregation transactions and to considering appropriate guidelines for review of future transactions, in order to continue to provide parties with a reasonable degree of certainty and transparency as well as to minimize the administrative costs of case-by-case review.

39. The Commission does not agree with commenters who suggest that the spectrum cap rule should be retained to promote technologically efficient use of spectrum. As discussed above, the Commission's purpose in adopting the spectrum cap was to promote competition in CMRS markets. The Commission is not persuaded that it is in the public interest to interfere with the competitive market's creation of incentives regarding choice of technology. Similarly, the Commission does not agree with commenters who argue that the spectrum cap rule should be retained to further opportunities for resale or roaming arrangements. The Commission's case-by-case review will allow it the flexibility to consider any such concerns raised with respect to specific applications.

40. The Commission also is not persuaded by arguments that the spectrum cap rule should be retained to preserve opportunities for entrepreneurs and providers of niche services. As other commenters point out, the spectrum cap rule does nothing in and of itself to create opportunities for entrepreneurs, and may actually harm small businesses by limiting their access to existing carriers as sources of capital and management expertise. Furthermore, to the extent the spectrum cap does create some potential opportunities for entrepreneurs, the Commission finds this benefit is insufficient to outweigh the benefits of moving away from a bright-line rule approach, particularly in light of the other tools it has to help preserve opportunities for small businesses—its ability to carry out case-by-case review of transactions and its ability to shape the initial distribution of licenses through the service rules adopted with respect to specific auctions. Moreover, the Commission intends to take into account the special needs of small businesses as it considers processing guidelines, and the Commission believes that individualized review will benefit small businesses as well as large.

41. Finally, the Commission notes the arguments of several parties that, if it eliminates or increases the spectrum cap, it should take certain other actions to ensure competition in all segments of the CMRS marketplace. The merits of these proposals are beyond the scope of this proceeding, irrespective of the Commission's decisions today with regard to the spectrum cap; however, the Commission notes that a flexible case-by-case approach will allow it to consider specific circumstances and impacts of individual applications.

42. The public policy objectives that the Commission first articulated in 1994 with respect to review of CMRS spectrum acquisitions remain applicable today. The spectrum cap rule was originally designed to “discourage anticompetitive behavior while at the same time maintaining incentives for innovation and efficiency.” The Commission has also stated that the spectrum cap promotes competition in CMRS markets, allows efficient administration of CMRS spectrum acquisitions, and provides regulatory certainty to the marketplace. Although the Commission decides today that the spectrum cap rule is no longer necessary in the public interest, it must still achieve the objectives that the spectrum cap was intended to promote. The Commission believes that these objectives can now be better achieved in the context of secondary market transactions through case-by-case review, properly performed. Furthermore, to the extent that the initial distribution of spectrum through auction is an issue in the future, that is also amenable to case-by-case review, in the sense that the Commission can shape the initial distribution through the service rules adopted with respect to specific auctions.

43. With or without the spectrum cap rule, the Commission has an obligation to ensure that acquisitions of CMRS spectrum do not have anticompetitive effects that render them contrary to the public interest. Specifically, section 310(d) of the Communications Act requires the Commission not to approve any transfer, assignment, or disposal of a license, or attendant rights unless it finds that the public interest, convenience, and necessity will be served thereby. Moreover, although strong competitive forces are evident in today's CMRS industry, the Commission recognizes the possibility that significant additional consolidation of control over spectrum could have serious anticompetitive effects. Thus, the Commission intends to perform case-by-case review of CMRS spectrum aggregation transactions in order to fulfill its statutory mandates to promote competition, ensure diversity of license holdings, and manage the spectrum in the public interest. 47 U.S.C. 301, 303, 309(j), 310(d). The Commission determines that, in order to ensure that this review is performed in a manner that serves the public interest, it is necessary to retain the spectrum cap rule until January 1, 2003, to enable the Commission and the market to prepare for case-by-case review, including the Commission's consideration of processing and/or substantive guidelines for this process.

44. Performing Case-by-Case Review . Although, the Commission determines that long-term retention of the spectrum cap rule is no longer necessary to serve the procompetitive purposes for which it was adopted, it recognizes that application of this prophylactic rule has conferred certain advantages. In particular, the spectrum cap rule has provided parties with guidance regarding what transactions the Commission would likely consider to be in the public interest, enabled parties to structure their transactions to fall within the rule, and provided processing guidance for Commission staff. From August 2000 to August 2001, the Wireless Telecommunications Bureau disposed of assignments and transfers of control involving approximately 1,305 licenses (other than pro forma applications) currently covered by the CMRS spectrum cap. The overwhelming majority of these transfers and assignments were processed within ninety days.

45. If it were to repeal the spectrum cap immediately, without anything further, the Commission would have neither objective guidelines nor a body of precedent to guide the review process. Therefore, the Commission would run the risks both that its review would fail to produce accurate and consistent results, and that, without benefit of either objective standards or directly applicable precedent, applications would not be decided on a timely basis. To perform meaningful and timely review of spectrum aggregation transactions without the spectrum cap, the Commission may need to develop effective guidelines for this process, as well as ensure that sufficient resources are devoted to the task. One commenter emphasized the importance of regulatory certainty and speed of review to enable them to plan efficiently, invest with confidence, and reassure providers of capital. A transition period is necessary so that the Commission can continue to meet these needs.

46. As it develops the contours of its case-by-case regime during the transition period, the Commission will consider what form of guidelines might best balance the virtues of certainty and flexibility in this review process. For example, procedural guidelines could specify timing benchmarks and the types of information that applicants will be expected to provide. It may also be useful to applicants and Commission staff to identify substantive factors and benchmarks that would make the Commission more or less likely to take a closer look at a proposed transaction. For example, some of these factors could track those in the DOJ/FTC Merger Guidelines , such as measures of concentration in a market. One commenter argues that, to the extent the Commission develops internal processing guidelines for evaluating wireless transactions, “it should look to the same criteria used by [DOJ] in its antitrust analysis—the Merger Guidelines, and rely on the kind of information and methodologies utilized by DOJ in conducting its competition analyses.” The Commission also will consider the most appropriate process for developing potential guidelines, including whether notice and comment procedures are necessary or helpful. The Commission emphasizes, however, that it does not intend to adopt guidelines to reinstate a bright-line rule.

47. Relationship of Commission's and DOJ's Processes . With respect to competitive issues, applicants may currently be required to satisfy both the Commission's review process and that of DOJ. (DOJ investigates proposed mergers and acquisitions to determine whether they may substantially affect competition under sections 1 and 2 of the Sherman Antitrust Act (15 U.S.C. 1-2) and section 7 of the Clayton Act (15 U.S.C. 18)). In the NPRM , the Commission asked whether, and under what circumstances, in its review of transfer/assignment applications it should defer to DOJ's review of competitive issues in a transaction. A number of parties, generally those that favor retaining the spectrum cap, argue that the Commission cannot leave all competitive review of CMRS markets to DOJ. One commenter argues that the Commission bears a special responsibility under the Communications Act for CMRS markets, different from the antitrust authority of DOJ under the antitrust statutes. Unlike DOJ or FTC, the commenter asserts, the Commission is under explicit statutory mandates to promote economic opportunity; avoid excessive concentration of licenses and disseminate licenses among a wide variety of applicants; foster rapid deployment of new technologies, products, and services that benefit the public; and promote the efficient use of the spectrum. Further, the commenter argues that the Communications Act obligates the Commission to promote competition, while DOJ is authorized only to stop proposed transactions that would substantially lessen competition. Therefore, the commenter argues, the Commission has an independent role in competitive review and is not duplicating the work of the antitrust agencies by performing competitive analysis.

48. Another commenter argues that the Commission has authority to prevent certain anticompetitive acquisitions that DOJ does not, such as the acquisition of licenses at auction, license swaps, and spectrum leases. Further, the commenter argues that the Commission has an independent responsibility to review competitive effects of transactions because DOJ's review standard does not encompass overall public interest considerations. Another commenter argues that the Commission should continue to analyze the competitive effects of license transfers and assignments because many transactions fall below the reporting threshold of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR) (15 U.S.C. 18(a)) and, in light of the recent increase in these thresholds, fewer transactions are now reportable than before. Pursuant to 15 U.S.C. 18(a), premerger notification is required if a transaction meets either of two thresholds: (1) one of the parties to the transaction has annual sales or assets of more than $100 million and the other party $10 million, and as a result of the acquisition, the acquiring person will hold voting securities or assets worth in the aggregate more than $50 million; or (2) the total value of the transaction exceeds $200 million. Further, the commenter argues that DOJ has limited resources, resulting in review of only a subset of the transactions reported under HSR and virtually none of the transactions that need not be reported.

49. Some parties that favor eliminating the spectrum cap argue that the Commission's competitive analysis duplicates review by DOJ and, therefore, is unnecessary and creates delay and uncertainty. These parties generally believe that the Commission should review transfers and assignments only pursuant to specific obligations imposed by the Communications Act, e.g., the public interest standard of section 310(d) and for compliance with Commission rules, and that competitive review of CMRS transactions should be performed exclusively by the antitrust agencies. Another commenter argues that DOJ is better equipped than the Commission to investigate competitive harm, but that section 310(d) of the Communications Act provides the means for the Commission also to investigate competitive issues as a supplement to DOJ's responsibilities.

50. Discussion. The Commission finds that, under the statutory regime set out by Congress, the Commission has an obligation, distinct from that of DOJ, to consider as part of the Commission's public interest review the anticompetitive effects of acquisitions of CMRS spectrum, including those that occur in the secondary market. The U.S. Court of Appeals for the District of Columbia Circuit has found that the Commission must consider antitrust and competition effects in making its public interest determinations under the Communications Act. United States v. FCC (652 F.2d 72 (D.C. Cir. 1980)).

51. Further, the Commission's independent statutory obligations in this area are sufficiently different from those of DOJ that it would be difficult for the Commission to fulfill them were it to defer generally to competitive assessments made by DOJ. For example, the Commission's unique spectrum management responsibilities, including those under 47 U.S.C. 151, 301, 303, and 309(j), are affected by the level of competition that exists in CMRS markets. In addition, while the Commission has never chosen to exercise it, the Commission has independent authority under sections 7 and 11 of Clayton Act (15 U.S.C. 18, 21(a)) to disapprove the acquisition of common carriers engaged in wire or radio communications or radio transmissions of energy in any line of commerce in any section of the country where the effects of such an acquisition may substantially lessen competition, or tend to create a monopoly.

52. There are also significant differences between the two agencies' procedural responsibilities. Unlike DOJ, the Commission has an independent statutory obligation to make a public interest determination that is judicially reviewable, on the record, pursuant to the APA, with regard to all applications for transfer or assignment of licenses. By contrast, DOJ does not review all CMRS-related transactions, is permitted to exercise prosecutorial discretion in choosing which cases to pursue, and is not required to state the reasons that underlie its decision to abandon individual cases. Were the Commission to defer all competitive review to DOJ, it would sometimes be compelled to defer to DOJ's silence on particular matters, providing no basis for judicial review.

53. It may, however, be appropriate for the Commission to rely, at least in part, on DOJ's analysis in certain cases where DOJ has fully examined the competitive effects of a particular acquisition and determined its effect on the relevant market(s)—for example, cases where DOJ and the transacting parties have entered into a Consent Decree. The Commission intends during its transition period to case-by-case review to explore appropriate circumstances in which it might either rely on DOJ's conclusions or engage in greater coordination with DOJ with respect to these issues so as to minimize duplication of effort between the agencies, process applications as efficiently as possible, and minimize the burden on applicants for Commission approval of transfers and assignments.

54. Transition Period. The Commission concludes that a transition period, pursuant to which a modified spectrum cap will remain in effect until January 1, 2003, is in the public interest so that applicants and the Commission can prepare for case-by-case review of all transactions. In addition to giving the Commission the opportunity to consider guidelines, a transition period will also help carriers prepare for the additional burdens that case-by-case review could impose on their resources. In particular, the Commission believes this preparation may be especially important for small businesses. While the Commission believes that opportunities for small businesses can be fully protected through a case-by-case approach, the Commission recognizes that advancing one's positions in a case-by-case regime could require the preparation of more detailed applications, which could require resources that small businesses may not be immediately prepared to commit. In addition, regulatory certainty and speed of processing are likely to be particularly important to small businesses, which typically are less able to withstand extended or costly administrative processes. This demand for resources would be especially great if the Commission were to change immediately to a case-by-case process without first considering effective standards and procedures. The Commission intends to take the special needs of small businesses into account in considering its guidelines for the review of CMRS spectrum acquisitions.

55. At the same time, the Commission finds that in the interim, continued application of the spectrum cap, modified as discussed below, will not result in significant distortions in the market or delay in the introduction of beneficial services. In fact, in only relatively few instances is any party at the spectrum cap. (In the fifty most populous MSAs, Commission records indicate that in only four instances is a carrier currently at the spectrum cap, and in a survey of eighty sample RSAs the Commission found only seven instances of a party reaching the cap.) The Commission believes increasing the spectrum cap to 55 MHz will provide a meaningful margin to relieve capacity constraints that some carriers may face now or are likely to encounter within the next fourteen months. Thus, the Commission will generally presume that transactions complying with the 55 MHz spectrum cap will not cause undue risk of market concentration. At the same time, while it anticipates that most transactions that are within the cap will not raise competitive concerns, the Commission retains the discretion to review the competitive effects of transactions that are within the spectrum cap if an interested party provides specific evidence that such a transaction will create an undue risk of market concentration, or if the Commission staff independently finds such evidence. In any instance in which permitting a carrier to exceed 55 MHz would be in the public interest due to capacity constraints or otherwise, the waiver process remains available.

56. The Commission concludes that sunsetting the cap on January 1, 2003, will provide a sufficient period of time for the Commission and industry to prepare for reliance solely on case-by-case review of CMRS spectrum aggregation transactions. Moreover, two blocks of spectrum that will be usable for CMRS are likely to be allocated and assigned within this approximate timeframe or soon thereafter. First, the Commission currently has pending a proceeding in which it has proposed to allocate additional spectrum for the provision of 3G and other advanced services. 3G Notice of Proposed Rulemaking (66 FR 7483, January 23, 2001), 3G Memorandum Opinion and Order and Further Notice of Proposed Rulemaking (“ M&O ”) (66 FR 47591, September 13, 2001) and (“ FNPRM ”) (66 FR 47618, September 13, 2001), 3G First Report and Order and Memorandum Opinion and Order (“ First R&O” ) (66 FR 53960, October 25, 2001) and (“ MO&O ”) (66 FR 53973, October 25, 2001). Second, 30 MHz of spectrum being vacated by television Channels 60-69 is scheduled to be auctioned beginning June 19, 2002. Accordingly, the spectrum cap rule will cease to be effective on January 1, 2003. The Commission believes that setting a date certain for repeal of this rule provides stability to the market, and that this period gives all parties sufficient time to prepare for the change.

57. Having determined that the CMRS spectrum cap should be eliminated, but that a transition period is necessary before it switches to a pure case-by-case approach to analyzing CMRS assignments and transfers of control, the Commission next considers whether to make changes to the existing rule during the transition period. The Commission concludes that an increase in the spectrum cap to 55 MHz in MSAs is appropriate at this time. This modification will provide carriers in MSAs some additional freedom to acquire spectrum during the transition at relatively minimal competitive risk. The Commission also concludes that because the spectrum cap in RSAs is already at 55 MHz, no modification in RSAs is appropriate during the sunset period.

a. MSAs : 58. The current CMRS spectrum cap restricts parties to attributable interests in 45 MHz of covered spectrum in MSAs. In the NPRM , the Commission requested comment on whether this threshold should be modified. The Commission first addresses the efficiency effects of the rule and then addresses the competitive effects.

59. Efficiency Effects of the Spectrum Cap. Advocates of raising the spectrum cap generally make two types of efficiency arguments. The first is a long-run argument that the 45 MHz ceiling prevents service providers from achieving minimum efficient scale, i.e., that level of output at which long-run average costs reach a minimum. This means that non-trivial economies of scale are going unrealized. The second argument is that in the short run under the current ceilings, the quantity of service demanded exceeds, or will soon exceed, the quantity that firms can supply efficiently. That is, demand for service is, or will be, such that firms will be forced either not to offer certain services at all, or to distort their input choices in order to satisfy demand. This input distortion, for example, might consist of over-investing in cell-splitting and smart antennas because additional spectrum input cannot be acquired.

60. The Commission agrees that both the short-run and long-run efficiency problems, to the extent they are present, would constitute harms imposed by the current rule, and easing them would be a benefit of raising the CMRS cap. Based on the specific information and data in the record, however, the Commission finds that most providers are not constrained today by the current cap in most markets, and that it is unlikely that total demand for voice and data services will grow so rapidly over the next year or two that capacity constraints will become a serious, across-the-board problem during that time. The Commission also believes that less than 45 MHz is required to achieve minimum efficient scale in the provision of service today.

61. The Commission does agree, however, that it may be the case that some carriers are capacity-constrained in certain urban markets with high population density. And the Commission agrees that it is possible—if not likely—that demand for voice and data services will grow so rapidly over the next fourteen months that the current 45 MHz cap would cause significant efficiency costs. Such costs, of course, while initially imposed on the operators, would eventually be passed on at least in part to consumers of mobile telephony services in the form of higher prices, poorer service, or lack of innovation. An increase in the cap to 55 MHz, where it is now for rural areas, can help to prevent such potential efficiency losses.

62. Competitive Effects of Relaxing the Spectrum Cap. There are several reasons that an increase in the cap in MSAs to 55 MHz does not pose undue risk of anticompetitive consequences during the transition period, but that any greater increase would run an unacceptable risk of significantly reducing competition. First, a 10 MHz increase in the cap means that, as with the 45 MHz cap, there must in principle be at least four competitors in each geographic market. While the current cap permits four competitors with equal (45 MHz) spectrum holdings, the 55 MHz cap will permit three firms holding 55 MHz and a fourth holding 15 MHz. Although a firm with 15 MHz may be capacity-constrained in some geographic areas, it will often be able to help discipline its larger competitors. Second, the Commission notes that raising the cap to 55 MHz increases the maximum possible input-based HHI by only 350 points, from 2,500 to 2,850. While not insignificant, this increase appears unlikely to foster unilateral pricing power in the current marketplace. Third, mobile telephony operators typically experience high fixed costs and low marginal costs of production. Low marginal costs mean that producers can potentially achieve high profits by reducing their prices, and therefore can render tacit agreements to charge high prices difficult to sustain.

63. The Commission also notes that, as is the case today, it reserves the right to subject transactions involving significant geographic overlap but resulting in consolidation below the new ceiling to further scrutiny. There may be circumstances under which a transfer or assignment could raise competitive concerns notwithstanding compliance with the spectrum cap, for example, elimination of significant actual competition. The Commission will generally presume that transactions complying with the 55 MHz cap do not cause undue risk of market concentration unless specific evidence to the contrary is presented by either interested parties or through review by Commission staff.

64. Furthermore, any concern about the possible competitive impact of moderately increased concentration is also materially reduced by the possibility of additional allocations of spectrum over the next two years that will greatly increase the amount of spectrum available for CMRS applications. In particular, the Commission's Advanced Wireless Services proceeding is considering options for substantial new allocations of spectrum for terrestrial, fixed, and mobile services. These options include the 1710-1755 MHz band, which has already been transferred from federal government use, and the 2110-2150, 2160-2165 MHz Emerging Technologies band. Licensing of these bands is likely within the next two years. Clearance of incumbent users in each case is unlikely to be difficult, since they are primarily fixed operators and thus multiple options for relocation are available. Although provision of service on these bands is not imminent, the Commission believes this quantity of spectrum and the relative certainty that it will become available shortly after the end of the transition period should meaningfully discourage anticompetitive behavior during the period.

65. Balancing of Efficiency and Competitive Effects of the Spectrum Cap. On balance, the Commission finds that it should increase the CMRS spectrum cap to 55 MHz in MSAs. The potential harm from increasing the cap to 55 MHz appears to be outweighed by the corresponding potential benefits, which include facilitating improved operations, network design, and innovation. The Commission believes any increase of less than 10 MHz might not provide significant relief to firms that may be capacity-constrained, because there may be indivisibilities in the secondary market for spectrum that make acquisition in increments smaller than 10 MHz unlikely. (For example, carriers at 40 MHz may in effect be constrained by the 45 MHz cap because they can acquire, at most, 5 MHz of additional spectrum and such a small block of spectrum may not be available.) Regarding the effect of mergers or acquisitions up to the new cap, the Commission notes that many of these may not be acquisitions of ongoing businesses, but rather of bare licenses or licenses with only certain physical assets. In the 50 largest MSAs, for example, there is an average of roughly 40 MHz of unlaunched spectrum licenses. In the ten largest MSAs, there is an average of roughly 30 MHz. Consolidation of this unused spectrum into an existing business would not reduce actual competition, although it might have an effect on potential competition.

66. If a firm is capacity-constrained even at the 55 MHz limit, it may submit a waiver request. We find that waivers provide a reasonable solution for carriers that may need spectrum above the relaxed spectrum aggregation limit during the period until the rule sunsets. Therefore, to the extent that a carrier can demonstrate that in a particular geographic area the spectrum cap is currently having a significant adverse effect on its ability to provide CMRS, the Commission will consider granting a waiver of the cap for that geographic area. We urge carriers requesting waivers to clearly identify what additional services they would provide if the spectrum cap rule were waived, and why such services cannot be provided without exceeding the cap. In evaluating a waiver request, the Commission will also take into account any potential adverse effects of granting the waiver, such as diminution of competition, as well as the potential benefits from the provision of additional services.

b. RSAs: 67. CMRS markets in rural areas are significantly different from the markets in urban areas. In particular, RSAs typically have many fewer competitors offering two-way mobile service, and many fewer nationwide service providers, than do MSAs. Indeed, in seventy-six percent of RSA counties, no more than one broadband PCS provider is competing with the cellular incumbents in any part of the county. In the First Biennial Review Order , the Commission increased the spectrum cap to 55 MHz in RSAs on the ground that allowing rural cellular and broadband PCS carriers to form partnerships in certain overlapping areas would allow these carriers to achieve economies of scope that might facilitate deployment, while entailing little opportunity cost because the economics of serving rural areas made it unlikely that a large number of independent competitors would emerge in any event. In the NPRM , the Commission asked whether, in light of the continued lagging development of competition in rural areas, it should consider further changes to the spectrum aggregation limits in these markets. In particular, the Commission asked commenters to describe any benefits to rural customers that had accrued from the previous increase in the spectrum cap in terms of lower prices, availability of digital services, or otherwise.

68. Some commenters argue that the spectrum cap inhibits competition in rural areas due to the high cost of providing service across large geographic areas, and that the most cost-effective means of bringing broadband PCS and SMR services to rural subscribers is to provide existing rural cellular providers the ability to acquire additional spectrum to offer such services. Another commenter, on the other hand, argues that removal of the spectrum cap in rural markets is likely to reduce competition and increase costs of mobile wireless service in those areas, given the smaller number of competitors in rural areas. Others argue that spectrum in rural areas is currently going unused, and that if the spectrum cap and cellular cross-interest rules are eliminated, the Commission should take other actions to ensure that small rural companies have the ability to obtain spectrum and that consumers in rural areas have access to advanced services.

69. Based on the record before it, the Commission concludes that, given the market conditions prevailing in rural areas during the transition period, 55 MHz remains the appropriate level for the spectrum cap in these areas until the cap is eliminated in favor of case-by-case review. Given the smaller population and demand for service in RSAs, it is highly unlikely that the current spectrum cap is causing any capacity constraint or similar inefficiency. The Commission therefore concludes that during the sunset period it should continue to keep the spectrum cap at 55 MHz in RSAs.

70. In the NPRM , the Commission sought comment on the possible repeal of the cellular cross-interest rule. Alternatively, it asked whether the rule could be modified so that it would not apply in certain circumstances in which other regulations would provide adequate safeguards. The Commission suggested the possibility of continuing to apply the rule only in markets where there are a limited number of competitors to the existing cellular providers. Accordingly, the Commission sought comment on whether there was a need to maintain any cellular-specific restrictions in more urban areas, where there are generally a larger number of competitive choices for consumers. While noting that cellular providers maintained large market shares in MSAs, the Commission asked whether cellular/cellular combinations remain more anticompetitive than cellular/PCS or PCS/PCS combinations in MSAs. Commenters were asked to provide empirical evidence and/or studies on the relative competitive and buildout status of cellular, SMR, and broadband PCS carriers on a market-by-market as well as comprehensive basis.

71. The majority of commenters who address the issue recommend elimination of the cellular cross-interest rule, particularly in MSAs. Some argue that the rule should be eliminated in its entirety. These commenters argue that the rule is unnecessary, outdated, and inequitable, noting that PCS licensees are not subject to a similar rule. Moreover, they argue that meaningful competition now exists and the rule is not necessary to prevent harmful consolidation. Another commenter argues that, if the spectrum cap rule is retained, the cellular cross-interest rule should be eliminated in MSAs, though retained in RSAs, because in most MSAs, consumers have numerous choices. One commenter argues that the cross-interest rule remains a valuable competitive safeguard, particularly because there are still cellular markets in rural areas in which no broadband PCS provider has initiated service. Others argue that in the event that the spectrum cap or cellular cross-interest rules are modified or eliminated, the Commission must take other actions to ensure opportunities for small businesses and provision of service to underserved areas.

72. The Commission concludes that the cellular cross-interest rule is no longer necessary in urban markets, given the presence of numerous competitive choices for consumers in such markets. The Commission therefore repeals the rule in MSAs in order to provide relief from capacity constraints and in recognition of the fact that the cellular incumbents in MSAs no longer enjoy significant first-mover advantages. Unlike the case of the spectrum cap, the Commission finds that no transition period is necessary to eliminate the cellular cross-interest restriction in MSAs.

73. In the First Biennial Review Order , the Commission concluded that the cellular cross-interest rule was still necessary, given the strong market position held by the two cellular carriers in virtually all markets. The two cellular carriers held the vast majority of subscribers in all markets and were the only providers of mobile telephony service in many markets. The Commission therefore found that the rule was still needed to prevent these incumbents from merging or having significant cross-ownership interests. The Commission recognized, however, that the cellular carriers' relative market position was diminishing in certain markets as broadband PCS and digital SMR service providers attracted more subscribers and began service in more areas of the country, particularly urban markets. The Commission then noted that it would reassess the need for a separate cellular cross-interest rule as part of its year 2000 biennial review, by which time it expected that the market positions of the two cellular carriers and broadband PCS and digital SMR service providers would have narrowed further.

74. The Commission finds today that cellular carriers no longer possess market power in MSAs, and that the services offered by cellular and broadband PCS providers in these markets are indistinguishable to consumers. In MSAs, eighty-six percent of counties have four or more facilities-based CMRS providers that are offering service in some part of the county. Forty of the fifty most populous MSAs have six nationwide carriers, counting Nextel, with the remaining ten MSAs having five nationwide carriers. The significant drop in HHI calculations based on estimated subscribers in the top twenty-five MSAs from January 1999 to January 2001 is further indication that any market power that cellular carriers may have been able to exercise in the past has diminished in these urban markets. Moreover, the cellular providers' share of mobile telephony nationwide had declined to seventy percent by the end of 2000. In addition, most cellular carriers in MSAs have deployed digital technology extensively throughout their networks, and from a customer's perspective, digital service in the cellular band is virtually identical to digital service in the PCS band.

75. Accordingly, the Commission finds no reason to view the combination of cellular licensees in these markets less favorably than combinations of other CMRS licensees. Moreover, because the Commission finds that combinations of cellular carriers in MSAs are not presumptively anticompetitive today, and because restrictions on such combinations may be contributing to capacity constraints, it would be inappropriate to continue applying this rule on a transitional basis.

76. The Commission concludes, however, based on the record before it, that it would not be appropriate at this time to eliminate the cellular cross-interest rule in rural markets. The Commision therefore retains the rule in RSAs, subject to waiver of the prohibition where it is shown that the proposed cross-interest would not create a significant likelihood of substantial competitive harm. The Commission will, however, reassess the need for a cellular cross-interest restriction in RSAs as part of its next biennial review in 2002, by which time the Commission may have more comprehensive information regarding the state of competition in rural markets.

77. CMRS markets in rural areas are different from the markets in urban areas, in that, generally, the cellular providers seem to enjoy first-mover advantages and to dominate the marketplace. In seventy-six percent of RSA counties, no more than one broadband PCS provider is competing with the cellular incumbents in any part of the county. Indeed, fifty-six percent of RSA counties have two or fewer facilities-based providers of mobile telephony offering service, presumably in most instances the two cellular licensees. In addition, it is the Commission's understanding that, in some areas, any competitors to the cellular incumbents are serving only a small portion of the county, particularly in the western United States, where many states have large rural counties. It is also significant that cellular carriers still control 70 percent of mobile telephony markets nationwide as of year-end 2000, and this share is likely to be smaller in MSAs and larger in RSAs. In the absence of a record to the contrary, these facts suggest that the cellular carriers generally dominate the rural markets. Moreover, due to the economics of serving rural areas, potential entry by new competitors is likely to be difficult. Thus, based on the record in this proceeding, it appears that a combination of interests in cellular licensees in rural areas would more likely result in a significant reduction in competition. In this regard, the Commission notes that unlike the spectrum cap rule, the cellular cross-interest rule addresses not the aggregation of spectrum, but the competitive position of the two cellular licensees. Without more comprehensive information in the record, however, the Commission is unable to conclude that repeal of the cellular cross-interest rule in RSAs is appropriate at this time.

78. In addition, the cellular cross-interest rule in RSAs is well tailored to the harm that it seeks to prevent. Because the rule places cellular carriers in RSAs under no special constraints in obtaining PCS spectrum, and in most RSAs there is ample unused PCS spectrum available, the rule does not prevent cellular carriers from increasing their capacity or offering advanced services. The ability of cellular carriers in rural areas to obtain PCS spectrum may provide an additional opportunity to consumers in RSAs to have access to the same advanced services offered to consumers in MSAs. The Commission therefore concludes that it should continue to forbid a cellular licensee in an RSA from holding an attributable interest in the cellular licensee on the other channel block in an overlapping CGSA. To the extent that it can be shown that an RSA exhibits market conditions under which a specific cellular cross-interest would not create a significant likelihood of substantial competitive harm, such a situation can be addressed through waiver of the cross-interest prohibition.

79. Further, the Commission rejects one commenter's arguments that the benchmark for attributable ownership interests under the cellular cross-interest rule should be increased from five to 20 percent, as under the spectrum cap rule, and that the Commission should include a provision for waiver in the case of a passive minority investor in a licensee that has a single majority shareholder. The commenter, which supports retention of the spectrum cap and the cellular cross-interest rule (in both MSAs and RSAs), argues that because of the evolution of mobile telephony since the inception of the cellular cross-interest rule, there currently may be situations in which attributable ownership interests of greater than five percent would pose “no actual threat to competition.” In the First Biennial Review Order , the Commission found that given the continued dominance of the cellular incumbents in CMRS markets, allowing a party with a controlling interest in one cellular licensee to hold up to twenty percent ownership of the other licensee in the same market would pose a substantial threat to competition. Specifically, significant cross-interests between the two largest service providers in RSAs generally would create a significant incentive for the two not to compete with one another as vigorously as otherwise. For the reasons discussed above, the Commission concludes that market conditions in RSAs have not changed sufficiently to generally permit such cross-holdings of cellular interests today. The Commission will, however, entertain requests for waiver in appropriate circumstances. Thus, it declines to make the above-suggested revisions to the cellular cross-interest rule.

80. In the NPRM , the Commission sought comment on whether the cellular cross-interest rule should be modified to account for the possible disaggregation of cellular spectrum. For example, it asked whether the cellular cross-interest rule should be replaced by a cellular spectrum cap of 35 MHz so as to permit combination of a 25 MHz cellular license with up to 10 MHz of cellular spectrum on the other channel block in the same geographic area. The Commission did not receive any comment on this issue. In light of the absence of comment to guide it deliberations, and in light of the lack of applications for disaggregation of cellular spectrum, the Commission declines to modify the rule at this time. Given the lack of record evidence regarding this issue, the Commission believes it is more appropriate at this time to address any such requests on a case-by-case basis.

81. The current spectrum cap and cellular cross-interest rules impose different time frames for divestiture of interests. The cellular cross-interest rule requires that a divestiture transaction be consummated prior to consummating the transaction that gives rise to the need to divest. The spectrum cap rule, however, considers parties to be in compliance with the divestiture provisions if, prior to consummating the primary transaction, an application is filed to transfer control of or assign any interest that would conflict with the rule. Based on its experience over the past two years, particularly in reviewing applications that combined cellular and PCS divestitures in one transaction, the Commission believes that the required timing of divestiture under these two rules should be harmonized.

82. Rather than tighten the divestiture provision in § 20.6, the Commission concludes that the better approach is to afford parties more leeway in the timing of divestiture transactions by revising § 22.942 of its rules to permit a transaction that causes a conflict with this rule to close as long as an application (or other request for Commission approval) has been filed that, if granted and the transaction is consummated, would remove the conflict. In choosing this more lenient course, however, the Commission notes that there may be circumstances in which a party that must divest an interest to comply with the spectrum cap and/or cellular cross-interest restriction should not be allowed a full 180 days to consummate a divestiture transaction. Divestiture transactions, by definition, occur to relieve potential anti-competitive effects of additional concentration. Therefore, because of specific competitive consequences of individual transactions, the Commission may decide on a case-by-case basis that it would serve the public interest to shorten the consummation and notification period to minimize the amount of time that such overlap occurs.

83. The Commission also takes this opportunity to clarify certain issues with respect to placing licenses (or interests in licenses) into a divestiture trust. As a preliminary matter, the Commission will revise § 22.942 of its rules to state explicitly that divestiture of licenses or interests pursuant to this rule is permitted via divestiture trust. In the First Biennial Review Order, the Commission stated that a licensee may divest to a trust if the trust will be of limited duration (six months or less) and the terms of the trust are approved by the Commission prior to the transfer of the assets to the trust. Further, the Commission stated that: (1) The divesting party must not have any interest in or control of the trustee; (2) the trust agreement must clearly state that there will be no communications with the trustee regarding the management or operation of the subject facilities; and (3) the trustee must have the authority to dispose of the license(s) as he or she sees fit.

84. Based on its experience over the past two years reviewing such trust arrangements, the Commission believes that certain clarifications are appropriate to its policy on divestiture trusts. First, with respect to communications between the trustee and the beneficiary ( i.e., the divesting party), the Commission recognizes that the nature of communication required between the trustee and the beneficiary will differ depending on the nature of the trust property. For example, if the trust property is merely equity in a licensee that the beneficiary formerly held, very little communication between the trustee and the beneficiary will be necessary. If, however, the trustee is holding an entire business and managing operations, the beneficiary must have the freedom, and the responsibility, to respond to inquiries from the trustee, but must not be given additional knowledge about the operations of the divested property that could be used to influence the operations that the beneficiary retained in the affected market(s). Second, to enable the Commission to keep track of the progress toward ultimate divestiture, the Commission clarifies that its policy is to require, in individual transactions, trustees to report to the Commission every sixty days on the status of attempts to transfer the trust property to a third party. Third, the Commission clarifies that material revisions to an approved trust agreement that relate to the types of provisions it has identified herein or in the First Biennial Review Order require prior Commission approval. Fourth, the Commission clarifies that, in the case of an approved divestiture trust, the trust property will be attributed during the period held in trust to the trustee, and because of the protections that are required of such trusts, not to the beneficiary.

85. As required by the Regulatory Flexibility Act of 1980, as amended, (RFA) an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM in this proceeding. The Commission sought written public comment on the proposals in the NPRM, including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

86. In the NPRM in this proceeding, as part of its biennial regulatory review pursuant to section 11 of the Communications Act, the Commission solicited comment on whether it should retain, modify, or eliminate the CMRS spectrum cap and the cellular cross-interest rule. In asking these questions, the NPRM looked at recent competitive changes in CMRS markets, reexamined the public interest objectives that the spectrum aggregation limits were designed to achieve, and asked whether there were alternatives to the existing rules that would avoid any potential public interest costs.

87. This R&O concludes that the CMRS spectrum cap is no longer necessary in the public interest as the result of meaningful economic competition in CMRS markets. Accordingly, the Commission provides for the elimination or “sunset” of the spectrum cap rule effective January 1, 2003. The Commission will no longer rely on this prophylactic rule in its approach to the aggregation of CMRS spectrum, but instead it will examine spectrum aggregation on a case-by-case basis, along with enforcement of safeguards in cases of misconduct. During the transition period, the Commission will consider substantive and processing guidelines to guide its case-by-case review of transactions that would raise concerns similar to those that the spectrum cap was designed to address. The Commission further decides, on the basis of the current state of competition in CMRS markets, to raise the spectrum cap to 55 MHz in all markets during the transition period. The Commission believes that this change should address certain carriers' concerns about near term capacity constraints in the most constrained urban areas during the period until the rule is eliminated and reliance solely on case-by-case review of CMRS spectrum aggregation is initiated, while not posing an undue risk of anti-competitive consequences during the transition period.

88. The Commission also eliminates the cellular cross-interest rule in MSAs without a transition period, in recognition that the cellular carriers in these areas no longer enjoy significant first-mover advantages. However, based on the current record, the Commission retains the cellular cross-interest rule in RSAs, where it appears that the cellular incumbents continue generally to dominate the market. The Commission will reassess the continued need for the cellular cross-interest rule in RSAs during the 2002 biennial review.

89. The Office of Advocacy of the U.S. Small Business Administration (SBA) and the National Telephone Cooperative Association (NTCA) filed comments in response to the IRFA. The SBA asserts that the Commission failed to (1) clearly state its regulatory objectives, (2) describe the impact its proposed rules would have on small businesses, and (3) propose alternatives designed to minimize this impact. The Commission disagrees.

90. First, the deregulatory goal of this biennial regulatory review proceeding is clear. The Communications Act requires the Commission to review certain of its rules biennially and determine whether those rules are no longer necessary in the public interest as a result of meaningful economic competition. Subsequent to making those determinations, the Commission is directed to “repeal or modify any regulation it determines to be no longer in the public interest.” Pursuant to that mandate, the Commission has reviewed whether competitive or other developments in CMRS markets warrant elimination or modification of any Commission regulations. In particular, in this proceeding, the Commission reviewed whether to retain, modify or eliminate two regulations that currently limit the aggregation of broadband CMRS spectrum: (1) the CMRS spectrum cap and (2) the cellular cross-interest rule. The NPRM addressed possible modifications to the spectrum cap and cellular cross-interest rules, including, among other things: (1) Increasing the amount of spectrum that a single entity may hold in a given geographic area beyond 45/55 MHz; (2) modifying the spectrum cap's ten percent population overlap threshold and/or attribution rules; (3) eliminating or modifying the rule that limits attributable SMR spectrum to 10 MHz; (4) altering the cellular cross-interest rule's provisions as they relate to disaggregation of spectrum and/or post-licensing divestiture; and (5) modifying the ownership attribution standards under both rules. Finally, the Commission notes that by its nature, the Commission's statutory biennial regulatory review obligation contemplates a somewhat open-ended review of the Commission's rules with an eye toward deregulation.

91. Second, the NPRM sufficiently described the impact the Commission's proposed rules would have on small businesses, as required by the RFA. SBA states, “the Commission should explain whether lifting the spectrum cap would tend to discourage small business new entry or drive existing small businesses from the marketplace.” Again, the Commission notes that its statutory biennial regulatory review requires it to review certain of its rules biennially and determine whether those rules are no longer necessary in the public interest as a result of meaningful economic competition. In the NPRM, the Commission stated:

92. The above-quoted language demonstrates that the Commission raised and addressed the very issues SBA claims were absent in the NPRM. The Commission believes it sufficiently raised questions to obtain comment on these issues. For instance, the Commission notes that the above language asks whether “there continues to be a need for these rules to ensure that new entrants, including small businesses, have access to the spectrum licenses both at auction and in the secondary market.” Accordingly, the NPRM met the RFA's requirements.

93. Finally, SBA states that “the Commission should raise and explore alternative ways to encourage nationwide networks, alleviate spectrum shortages, or safeguard competition, and analyze how these alternatives would affect entities with varied resources.” As noted in the above-quoted language, the NPRM raised a series of issues concerning small entities, affording such entities adequate opportunity to comment on these issues. In addition, as previously noted, biennial regulatory review by its nature contemplates a somewhat open-ended review of the Commission's rules with an eye toward deregulation, as opposed to a more targeted rulemaking. The deregulatory nature of the NPRM focuses on whether to retain, modify or eliminate two rules—the CMRS spectrum cap and the cellular cross-interest rule—because they may no longer be necessary in the public interest as a result of meaningful economic competition. Therefore, within the context of its biennial regulatory review, the Commission believes the NPRM raised and explored the possible alternatives ( i.e., whether to retain, modify or eliminate the two rules). In addition, the NPRM sought comment on alternative courses of action if the Commission does eliminate the spectrum cap.

94. NTCA argues that “[t]he unconditional raising or lifting of the spectrum cap will likely result in further consolidation within the CMRS industry and diminish the opportunities for smaller entities to provide broadband CMRS service.” Notably, NTCA does not, in its comments on either the body of the NPRM or the IRFA, oppose modifying or eliminating either the spectrum cap or the cellular cross-interest rule. Nor does NTCA identify any specific inadequacy in the IRFA. Rather, as an “alternative to its proposed rule changes,” NTCA urges the Commission to take several actions unrelated to its spectrum aggregation limits: (1) license spectrum according to smaller geographic service territories, (2) take actions to increase the availability of spectrum to small carriers on the secondary market, and (3) enforce strict construction requirements against CMRS licensees.

95. The alternatives that NTCA advocates are beyond the scope of this proceeding. Specifically, the Commission considers the size of geographic licensing areas in the context of establishing licensing rules for particular bands of spectrum. The Commission is considering in another proceeding potential measures to facilitate the availability of spectrum in secondary markets. Notice of Proposed Rulemaking (65 FR 81475, December 26, 2000). Any potential changes in the Commission's construction requirements, or establishment of construction requirements for newly assigned spectrum, are also best considered separately from spectrum aggregation limits. The Commission has considered in this R&O alternatives to eliminating the spectrum cap rule, and has adopted measures to minimize the impact of its decision on small entities.

96. No other comments were submitted specifically in response to the IRFA.

97. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by their rules. The RFA generally defines the term “small entity” as having the same meaning as the terms “small organization,” “small business,” and “small governmental jurisdiction.” The term “small business” has the same meaning as the term “small business concern” 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) satisfies any additional criteria established by the SBA. A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 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.” As of 1992, there were approximately 85,006 such jurisdictions in the United States. This number includes 38,978 counties, cities, and towns; of these, 37,566, or ninety-six percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, the Commission estimates that 81,600 (ninety-one percent) are small entities. According to SBA reporting data, there were 4.44 million small business firms nationwide in 1992.

98. The rule changes adopted in this R&O will affect small businesses that currently are or may become licensees in the cellular, broadband PCS and/or SMR services. The Commission estimates the following number of small entities may be affected by the proposed rule changes:

99. Cellular Radiotelephone Service. Neither the Commission nor the SBA has 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 (wireless) companies. This provides that a small entity is a radiotelephone company employing no more than 1,500 persons. According to the Bureau of the Census, only twelve radiotelephone firms from 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. In addition, the Commission notes that there are 1,758 cellular licenses; however, a cellular licensee may own several licenses. In addition, according to the most recent Telecommunications Industry Revenue data, 808 carriers reported that they were engaged in the provision of either cellular service or PCS, which are placed together in the data. The Commission does not have data specifying the number of these carriers that are not independently owned and operated or have more than 1,500 employees, and thus are unable at this time to estimate with greater precision the number of cellular service carriers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are fewer than 808 small cellular service carriers that may be affected by the policies adopted in this R&O .

100. Broadband Personal Communications Service (PCS). The broadband PCS spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission defined “small entity”' for Blocks C and F as an entity that has average gross revenues of less than $40 million in the three previous calendar years. Subsequently, the Commission defined an additional classification—“very small business”—for blocks C and F for entities that, together with their affiliates, have had average gross revenues of not more than $15 million for the preceding three calendar years. These regulations defining “small entity”' in the context of broadband PCS auctions and licensing have been approved by the SBA.

101. The Commission has held six auctions of broadband PCS licenses to date. No small businesses within the SBA-approved definition bid successfully for licenses in the first of these auctions, Auction No. 4, in which the Commission made available licenses in blocks A and B. In Auction No. 5, the initial C block auction, eighty-nine (89) winning bidders qualified as small entities, winning 493 licenses. In the next C block auction, Auction No. 10, seven (7) winning bidders qualified as small entities, winning eighteen (18) licenses. A total of ninety-three (93) small and very small business bidders won approximately forty percent of the 1,479 licenses for blocks D, E, and F in the next broadband PCS auction, Auction No. 11. In Auction No. 22, forty-eight (48) bidders claiming small or very small business status won 277 of the 347 licenses offered. In Auction No. 35, the most recent broadband PCS auction, twenty-nine (29) of the thirty-five (35) winning bidders qualified as small or very small businesses and won 247 licenses. Accordingly, a maximum of 266 small entities have been awarded or placed high bids on licenses in broadband PCS block auctions to date.

102. Specialized Mobile Radio (SMR). Pursuant to 47 CFR 90.814(b)(1), the Commission has defined “small business” for purposes of auctioning 900 MHz SMR licenses, 800 MHz SMR licenses for the upper 200 channels, and 800 MHz SMR licenses for the lower 230 channels on the 800 MHz band as a firm that has had average annual gross revenues of $15 million or less in the three preceding calendar years. The SBA has approved this small business size standard for the 800 MHz and 900 MHz auctions. The auction of the 1,020 geographic area licenses for the 900 MHz SMR band began on December 5, 1995, and was completed on April 15, 1996. Sixty (60) winning bidders for geographic area licenses in the 900 MHz SMR band qualified as small businesses under the $15 million size standard. The auction of the 525 800 MHz SMR geographic area licenses for the upper 200 channels began on October 28, 1997, and was completed on December 8, 1997. Ten (10) winning bidders for geographic area licenses for the upper 200 channels in the 800 MHz SMR band qualified as small businesses under the $15 million size standard.

103. The lower 230 channels in the 800 MHz SMR band are divided between General Category channels (the upper 150 channels) and the lower 80 channels. The auction of the 1,050 800 MHz SMR geographic area licenses for the General Category channels (plus three (3) 800 MHz licenses for the upper 200 channels from a previous auction) began on August 16, 2000, and was completed on September 1, 2000. At the close of the auction, 1,030 licenses were won by bidders. Eleven (11) winning bidders for geographic area licenses for the General Category channels in the 800 MHz SMR band qualified as small businesses under the $15 million size standard. The auction of the 2,800 geographic area licenses for the lower 80 channels of the 800 MHz SMR service began on November 1, 2000, and was completed on December 5, 2000. Nineteen (19) winning bidders for geographic area licenses for the lower 80 channels in the 800 MHz SMR band qualified as small businesses under the $15 million size standard. The Commission, therefore, estimates that there are up to 100 geographic area licensees that are small entities in the 800 MHz and 900 MHz SMR bands. In addition, there are 1,144 incumbent site-by-site SMR licensees on the 800 and 900 MHz bands.

104. The rules in this R&O do not impose any additional reporting, recordkeeping or other compliance measures.

105. In this proceeding, the Commission considered whether to retain, modify, or, alternatively, to eliminate the CMRS spectrum cap and cellular cross-interest rules. The Commission also asked whether there were alternatives to these rules that could avoid any potential public interest costs. The Commission has weighed the benefits of such alternative means of reviewing CMRS spectrum aggregation, specifically considering whether to continue using prophylactic rules or to review spectrum aggregation issues on a case-by-case basis.

106. As an alternative to eliminating the spectrum cap rule, the Commission considered continuing to apply a prophylactic approach to the potential anti-competitive effects of CMRS spectrum aggregation. The Commission recognized that different costs and benefits can be associated with bright-line rules and case-by-case review with respect to degree of flexibility, predictability of outcome, likelihood of rejecting beneficial (or approving harmful) transactions, ability to account for the particular attributes of a transaction or market, speed of decision-making, and resource demands on the Commission and carriers. On balance, and in light of the growth of both competition and consumer demand in the CMRS market, the Commission concludes that case-by-case review, accompanied by enforcement of sanctions in cases of misconduct, is now preferable to the spectrum cap rule because it gives the Commission flexibility to reach the appropriate decision in each case, on the basis of the particular circumstances of that case. The Commission is persuaded that competition is now robust enough in CMRS markets that it is no longer appropriate to impose overbroad, a priori limits on spectrum aggregation that may prevent transactions that are in the public interest.

107. The Commission believes its provision for a transition period prior to January 1, 2003, for eliminating the spectrum cap will minimize the impact of its decision on small businesses. The Commission notes that several commenters argue against eliminating or increasing the spectrum cap on the ground that the cap preserves opportunities for entrepreneurs and providers of niche services. As other commenters point out, however, the spectrum cap rule does nothing in and of itself to create opportunities for entrepreneurs, and may actually harm small businesses by limiting their access to existing carriers as sources of capital and management expertise. To the extent the spectrum cap does create some potential opportunities for entrepreneurs, the Commission finds this benefit is insufficient to outweigh the benefits of moving away from a bright-line rule approach, particularly in light of the other tools the Commission has to help preserve opportunities for small businesses—its ability to carry out case-by-case review of transactions and its ability to shape the initial distribution of licenses through the service rules adopted with respect to specific auctions. Nevertheless, although it believes that opportunities for small businesses can be fully protected through a case-by-case approach, the Commission recognizes that advancing one's positions in a case-by-case regime could require resources that small businesses may not be immediately prepared to commit. Furthermore, regulatory certainty and speed of processing are likely to be particularly important to small businesses, which typically are less able to withstand extended or costly administrative processes. Therefore, in considering the adoption of guidelines and procedures, the Commission will take account of the needs of small businesses. The Commission fully expects that case-by-case review, properly performed, will offer large and small businesses alike the benefits of flexibility and attention to the specific details of a particular transaction. The Commission also commits itself to vigorous enforcement of safeguards against anti-competitive activity.

108. During the transition period, the Commission raises the spectrum cap to 55 MHz in all geographic areas. The Commission considered and rejected the alternative of leaving the spectrum cap at 45 MHz in MSAs because it determined that a 45 MHz cap may over the next fourteen months impose capacity constraints, and ensuing costs to consumers, on carriers in certain urban markets. The Commission also determined that a moderate increase in the spectrum cap, under current market conditions, does not pose an undue risk of anti-competitive conduct during the transition period. Finally, the Commission notes that it will continue to review the competitive consequences of transactions that are at or below the spectrum cap if specific evidence of competitive concerns is presented either by interested parties or through review by Commission staff.

109. With respect to the cellular cross-interest rule, the Commission determines that the rule is no longer necessary or appropriate in MSAs because the cellular duopoly conditions that prompted the rule's adoption no longer exist. Thus, under current market conditions in MSAs, there is no reason to treat the aggregation of cellular spectrum any differently than other aggregation of CMRS spectrum. In RSAs, by contrast, the record, though limited on this point, indicates that competition to the incumbent cellular licensees is not as developed as in MSAs. Thus, based on the record in this proceeding, it appears that a combination of interests in cellular licensees would more likely result in a significant reduction in competition. The Commission, therefore, retains the cellular cross-interest rule in RSAs, subject to waiver of the rule for those RSAs that are shown to exhibit market conditions under which cellular cross-interests may be permissible without a significant likelihood of substantial competitive harm.

110. Report to Congress: The Commission will send a copy of the R&O, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act, 5 U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of the R&O, including this FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the R&O and FRFA (or summaries thereof) will also be published in the Federal Register . 5 U.S.C. 604(b).

111. This R&O has been analyzed with respect to the Paperwork Reduction Act of 1995, Public Law No. 104-13, and does not contain any new or modified information collections subject to Office of Management and Budget Review.

112. Pursuant to the authority of sections 1, 4(i), 11, 303(g), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 161, 303(r), and 309(j), this R&O is adopted, and §§ 20.6 and 22.942 of the Commission's Rules, 47 CFR 20.6, 22.942, are amended as set forth in the R&O, effective February 13, 2002.

113. The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration, in accordance with paragraph 603(a) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq.

This is a summary of the Commission's Fifth Report and Order in CC Docket No. 92-105, First Report and Order in WT Docket No. 00-110 (Order), and Memorandum Opinion and Order in CC Docket No. 92-105 and WT Docket No. 00-110, FCC No. 01-351 (cited collectively as Order), adopted November 29, 2001, and released December 11, 2001. The complete text of this Order is available for inspection and copying during normal business hours in the FCC Reference Information Center, Courtyard Level, 445 12th Street, SW., Washington, DC, and also may be purchased from the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. Copies of the full text of this decision may also be found at the Commission's Internet site at www.fcc.gov .

1. The Commission, in the Order, takes further steps to implement the provisions in the Wireless Communications and Public Safety Act of 1999 (911 Act), enacted by Congress to promote public safety through the deployment of a seamless, nationwide emergency communications infrastructure that includes wireless communications services and to implement 911 as the universal emergency assistance number. (A summary of the Third Notice of Proposed Rulemaking in CC Docket No. 92-105 may be found at 65 FR 56752, September 19, 2000. The First Notice of Proposed Rulemaking in WT Docket No. 00-110 was summarized at 65 FR 56757, September 19, 2000.)

2. The Commission first adopts a flexible transition approach to implementation of 911 as the emergency assistance number. This approach reflects the different technical and operational measures that carriers need to undertake and provides carriers the flexibility necessary for them to effectuate transition to 911 expeditiously. The Commission notes that the transition period adopted in the Order does not apply to those carriers who currently route 911 calls to PSAPs in their service area.

3. As an initial matter, paragraph 14 of the Order discusses the use of the term “appropriate authorities” as used in the 911 Act, and finds it reasonable to interpret this term to include emergency answering points such as county sheriff offices, volunteer fire departments, or other similar points that are effectively functioning as PSAPs for purposes of receiving emergency calls, and, if necessary, relaying the calls to other emergency service providers, for the purpose of responding to emergencies.

4. As discussed in paragraphs 15 through 31 of the full text of the Order, the Commission establishes a flexible transition approach to 911 implementation. First, where carriers do not currently route 911 calls to officially designated PSAPs, the Commission adopts a nine-month transition period for each of the particular circumstances carriers will face. Where a PSAP has been designated, the Commission adopts a maximum period, running from the release of this Order and expiring nine months later, for carriers to deliver all 911 calls to that PSAP. Similarly, in areas where no PSAP has been designated, the Commission adopts a requirement that within nine months of the release of this Order, carriers must begin delivering 911 calls: (a) statewide-established default point; (b) if none exists, to an appropriate local emergency authority, such as the police or county sheriff, selected by an authorized State or local entity; or (c) as a matter of last resort and to avoid the blocking of 911 calls, if no PSAP has been designated and neither a statewide default answering point nor an appropriate local emergency authority has been selected, to an appropriate local emergency authority, based on the exercise of the carrier's reasonable judgment, following initiation of contact with the State Governor's designated entity under section 3(b) of the 911 Act.

5. In this regard, the Commission strongly encourages State and local authorities to designate the appropriate emergency response points. The Commission believes that these government agencies, as the primary safety and security agencies should decide the routing of 911 calls. For these reasons, once a carrier has been made aware that no appropriate local emergency authority has been selected, the carrier should notify the Governor's designated entity as soon as practicable of that matter and allow at least 15 days for a response from that entity before proceeding to select an answering point on its own initiative.

6. Further, as discussed in paragraphs 16, 33, and 34 of the Order, in transitioning to the use of 911, carriers must implement a permissive dialing period, during which emergency calls will be routed to the appropriate emergency response point using either 911 or the seven or ten-digit number to allow time for the education of consumers as to the transition to the use of 911. The Commission requires carriers to continue to deliver both 911 calls and emergency calls made using a seven or ten-digit number under a permissive dialing scheme until the State or local jurisdiction determines to phase out the use of the seven or ten-digit number entirely. Once a determination has been made to end a permissive dialing period, as described in paragraphs 16 and 37 of the Order, the Commission requires carriers to furnish a standard intercept message, in accordance with accepted industry practices and guidelines to further educate callers about the dialing code change.

7. Additionally, as indicated in paragraphs 42 through 45 of the Order, the Commission adopts a limited transition report requirement. Specifically, the Commission requires carriers to file two transition reports covering the following geographic areas: (1) Those counties where there is no 911 service; (2) those counties in the process of implementing 911; and (3) those counties that have basic 911 service only in some parts. The first transition report must be filed three months following the release of the Order. The second transition report must be filed 15 calendar days following the end of the transition. Carrier transition reports must be filed, as appropriate depending upon whether the carrier's service is wireline or wireless, with the Chief of the Common Carrier Bureau or the Chief of the Wireless Telecommunications Bureau, Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554. The Commission encourages carriers to file their transition reports electronically to the appropriate electronic mailbox that has been established by each Bureau. For ease of accessibility, a link to these reports will be placed on the Commission's E911 website. Depending upon whether the carrier's service is wireline or wireless, please email the report to either 911transitionreport-ccb@fcc.gov or 911transitionreport-wtb@fcc.gov . In addition to the information included in the reports as described in paragraphs 44 and 45 of the Order, the Commission delegates authority to the Chiefs of the Common Carrier Bureau and the Wireless Telecommunications Bureau to require additional information, as necessary to evaluate the carriers' progress in achieving the transition and their compliance with the transition requirements adopted in the Order.

8. Paragraphs 46 through 52 of the Order address steps the Commission will take to encourage and support States in their efforts to develop and implement end-to-end emergency communications infrastructure and programs for the improved delivery of emergency services to the public. The Commission assumes a leadership role to encourage and support States' efforts to deploy comprehensive emergency communications networks by pursuing an informal approach rather than the adoption of specific rules. To carry out its role, the Commission will maintain an ongoing dialog with State and local officials, through interactions with various associated groups such as the National Governors' Association, the National Conference of State Legislatures, and the National Association of Regulatory Utility Commissioners. The Commission also will make presentations on 911-related issues at conferences of various associations, hold roundtable discussions, and provide an information clearinghouse function with links from its E911 website. The Commission will also explore participation in the National Emergency Number Association's (NENA) “critical issues forums,” providing a website link for NENA's Report Card to the Nation and updates to that report and assisting in the establishment of State-level clearinghouses.

9. Finally, paragraphs 55 through 62 of the Order clarify that VHF Public Coast Station licensees are not required to use 911 dialing for accessing emergency services to the extent that they are providing maritime services.

10. This Order contains a modified information collection. As part of the Commission's continuing effort to reduce paperwork burdens, the Commission invites the general public and the Office of Management and Budget to take this opportunity to comment on the information collections contained in this Order, as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due March 15, 2002, and comments from the Office of Management and Budget are due May 14, 2002. Comments should address: (a) Whether the modified collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. The Commission has requested OMB emergency approval of these modified burdens and will place a document in the Federal Register once this approval is received.

OMB Control Number: 3060-0954.

Title: Implementation of the 911 Act, The Use of N11 Codes and Other Abbreviated Dialing Arrangements.

Form No. N.A.

Type of Review: Revision of an existing information collection.

Respondents: Business or other for profit; not for profit institutions, State or local government.

Number of Respondents: 800 respondents, 400 responses.

Estimated Time Per Response: 4.5 hours.

Frequency of Response: Third-party Disclosure, on occasion; Reporting, twice.

Total Annual Burden: 3,100 hours.

Cost to Respondents: 0.

Needs and Uses: The burdens contained in this Order are all needed to ensure prompt and smooth transition to universal 911 emergency calling services.

11. This is a summary of the Commission's Final Regulatory Flexibility Analysis. The full text of the Analysis may be found in Appendix C of the Order.

12. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), Initial Regulatory Flexibility Analyses (IRFA) were incorporated in the Notice of Proposed Rulemaking (NPRM) and the Third NPRM (Third NPRM) in this proceeding. The Commission sought written public comment on the proposals in the NPRM and the Third NPRM, including comment on both IRFAs. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

13. In this and Fifth Report and Order (Fifth R&O) in CC Docket No. 92-105, First Report and Order (First R&O) in WT Docket No. 00-110, and Memorandum Opinion and Order on Reconsideration in both dockets (collectively referred to as the Order) the Commission takes further steps to implement the provisions in the Wireless Communications and Public Safety Act of 1999 (911 Act) enacted to promote public safety through the deployment of a seamless, nationwide emergency communications infrastructure that includes wireless communications services. The actions adopted in the Order are intended to ensure that these Congressional goals are implemented effectively and efficiently.

14. No comments were filed in direct response to the IRFAs. However, the Commission received comments regarding several issues affecting small entities. For example, as discussed in paragraphs 4 through 9 of the Order, commenters questioned whether the Commission is the appropriate entity to establish transition periods for implementation of universal 911 dialing. The Commission disagrees, finding that to delegate the responsibility to States and localities for establishing transition periods for carriers could result in multiple, conflicting transition periods. Also, as indicated in paragraphs 42 through 45 of the Order, commenters opposed a requirement that carriers file transition reports for Commission use as a tool to monitor carrier progress in converting to universal 911. However, the Commission adopts a limited transition report requirement which is less burdensome than that proposed in the Third NPRM. As adopted, carriers are required to file only two reports and these reports will focus only on carriers serving those areas of country in which 911 is not currently in use. This requirement is discussed in more depth in the FRFA section, infra, considering steps taken to minimize the significant economic impact on small entities and alternatives considered.

15. Paragraphs 48 through 52 of the Order discusses ways in which the Commission can comply with its obligation to offer support of comprehensive state emergency plans. Although the Commission received only nine comments on this issue, one comment, for American Samoa License, Inc., in particular, provided significant input on, among other things, the unique circumstances of its situation and the way a “one-size-fits-all” model plan would not address its particular needs. In response to such comment, the Commission adopts an informal leadership approach to its responsibilities in this regard, for example, by participating in organizational meetings setup by interested parties, and placing details of information-sharing measures by means of the FCC's website and public notice, which the Commission hopes will encourage increased participation to which we can add our support.

16. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules adopted in this action. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” 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) satisfies any additional criteria established by the Small Business Administration (SBA).

17. A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations. The definition of “small governmental jurisdiction” generally means “governments of cities, counties, towns, townships, villages, school districts, or special districts with populations of fewer than 50,000.” There are 85,006 governmental jurisdictions in the nation. This number includes such entities as states, counties, cities, utility districts, and school districts. There are no figures available on what portion of this number has populations of fewer than 50,000. However, this number includes 38,978 counties, cities and towns, and of those, 37,556, or 96 percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all government entities. Thus, of the 85,006 governmental entities, we estimate that 96 percent, or about 81,600, are small entities that may be affected by our rules.

18. This list includes categories that at present may not be subject to the 911 Act rules. At present, covered carriers include all cellular licensees, broadband PCS licensees, and certain carriers of Specialized Mobile Radio (SMR) licensees. The SMR providers that are presently covered include “only licensees that offer real-time, two-way switched voice service that is interconnected with the public switched network, either on a stand-alone basis or packaged with other telecommunications services.” For those carriers that presently do not need to comply with the 911 requirements, such as Mobile Satellite Service (MSS) carriers, the Commission acknowledges that, at some point in the future, they may be required to provide appropriate access to emergency services.

19. Neither the Commission nor the SBA has developed definitions for small providers of the specific industries affected. Therefore, throughout our analysis, the Commission uses the closest applicable definition under the SBA rules, the North American Industry Classification System (NAICS) standards for “Cellular and Other Wireless Telecommunications” and “Wired Telecommunications Carriers.” According to these standards, a small entity is one with no more than 1,500 employees. To determine which of the affected entities in the effected services fit into the SBA definition of small business, the Commission has consistently referred to Table 5.3 in Trends in Telephone Service (Trends) a report published annually by the Commission's Common Carrier Bureau.

20. Local Exchange Carriers. According to the most recent Trends data, 1,335 incumbent carriers reported that they were engaged in the provision of local exchange services. We do not have data specifying the number of these carriers that are either dominant in their field of operations, or are not independently owned. However Trends indicates that 1,037 local exchange carriers report that, in combination with their affiliates, they have 1,500 or fewer employees, and would thus be considered small businesses as defined by NAICS.

21. We have included small incumbent local exchange carriers in this RFA analysis. A “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. We have therefore included small incumbent carriers in this RFA analysis, although we emphasize that this RFA action has no effect on the Commission's analyses and determinations in other, non-RFA contexts.

22. Also included in the number of Local Exchange Carriers is the rural radio telephone service. A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio Systems (BETRS). There are approximately 1,000 licensees in the Rural Radiotelephone Service, and we estimate that almost all of them qualify as small entities under the NAICS definition.

23. Competitive Access Providers and Competitive Local Exchange Carriers (CAPs and CLECs). Trends indicates that 349 CAPs and CLECs, 87 local resellers, and 60 other local exchange carriers reported that they were engaged in the provision of competitive local exchange services. The Commission does not have data specifying the number of these carriers that are not independently owned and operated. However, Trends states that 297 CAPs and CLECs, 86 local resellers, and 56 other local exchange carriers report that, in combination with their affiliates, they have 1,500 or fewer employees for a total of 439 such entities qualified as small entities.

24. Fixed Local Service Providers and Payphone Providers. Trends reports that there are 1,831 fixed local service providers and 758 payphone providers. Using the NAICS standard for small entity of fewer than 1,500 employees, Trends estimates that 1,476 fixed local service providers, in combination with affiliates have 1,500 or few employees and thus qualify as small entities. In addition, 755 payphone providers report that, in combination with their affiliates, they employ 1,500 or fewer individuals.

25. Wireless Telephone Including Cellular, Personal Communications Service (PCS) and SMR Telephony Carriers. There are 806 entities in this category as estimated in Trends, and 323 such licensees in combination with their affiliates have 1,500 or fewer employees and thus qualify using the NAICS guide, as small businesses.

26. Other Mobile Service Providers. Trends estimates that there are 44 providers of other mobile services, and again using the NAICS standard, 43 providers of other mobile services in combination with their affiliates hire 1,500 or fewer employees and thus may be considered small entities.

27. Toll Service Providers. Trends calculates that there are 738 toll service providers, including 204 interexchange carriers, 21 operator service providers, 21 pre-paid calling card providers, 21 satellite service carriers, 454 toll resellers, and 17 carriers providing other toll services. Trends further estimates that 656 toll service providers with their affiliates have 1,500 or fewer employees and thus qualify as small entities as defined by NAICS. This figure includes 163 interexchange carriers, 20 operator service providers, 20 pre-paid calling card providers, 16 satellite service carriers, 423 toll resellers, and 15 carriers providing other toll services.

28. Offshore Radiotelephone Service. This service operates on several TV broadcast channels that are not otherwise used for TV broadcasting in the coastal area of the states bordering the Gulf of Mexico. At present, there are approximately 55 licensees in this service. The Commission is unable at this time to estimate the number of licensees that would qualify as small entities under the SBA definition for radiotelephone communications. The Commission assumes, for purposes of this FRFA, that all of the 55 licensees are small entities, as that term is defined by NAICS.

29. The Commission adopts a flexible approach of basic requirements based on maximum periods for certain technical and operational aspects of a transition and recommends steps to ensure the prompt delivery of emergency calls across the nation. Paragraphs 18 through 21 of the Order consider transition periods for areas where there is a designated public safety answering point (PSAP) or once a PSAP is designated. For areas in which State or local authorities have established a PSAP, the Commission adopts a maximum nine-month transition period that runs from December 11, 2001, for carriers to deliver all 911 calls to that PSAP. Subsequent to the transition period, the Commission establishes a permissive dialing period in order for carriers to educate consumers on the transition to 911-dialing. The Commission also encourages such carriers, following the permissive dialing period, to furnish a standard intercept message. ( See paragraphs 16 and 37 of the Order).

30. Also, as detailed in paragraphs 22 through 31 of the Order, in areas where there is no PSAP, the Commission adopts the following requirements: within nine months of the effective date of this Order, carriers must begin delivering 911 calls to either a statewide established default point or, if none exists, to an appropriate local emergency authority, such as the police or country sheriff. If a State or local authority prefers that carriers deliver 911 calls to some other local default point, the Commission provides that carriers must begin delivering 911 calls to such a default point no later than nine months from the date of the request by the local authority or appropriate State entity. Once a State or local authority has formally designated a PSAP for an area, a carrier will have a nine-month period to deliver 911 calls to that PSAP. Paragraph 27 of the Order establishes that, where no appropriate local emergency authority has been selected, that carriers contact, as soon as practicable, the entity designated by that State's Governor to assist in implementation of 911, and to allow 15 days for a response. If none is forthcoming, then carriers should exercise reasonable judgment in determining where to deliver 911 calls.

31. Paragraphs 42 through 45 of the Order consider implementation and enforcement of transition period deadlines. In this regard, the Commission adopts a limited transition report requirement which requires that carriers serving areas where 911 is not in use as the emergency number on the date of enactment of the law file two reports as detailed in paragraphs 43-45 of the Fifth R&O.

32. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include, among others, the following four alternatives: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) any exemption from coverage of the rule, or any part thereof, for such small entities.

33. The Commission is limited in establishing less stringent requirements for small entities in this proceeding by the critical public safety issues of concern and by legislative mandate. The results of delayed or insufficient response to wireless 911 calls can be equally fatal whether the carrier involved is a large or small entity. When given alternatives which do not compromise the public safety goals of this proceeding but offer all entities the flexibility to carry out their responsibilities in a way that is tailored to their individual locality and its needs, the Commission has chosen the more flexible option. For example, in areas where there is neither a PSAP nor a statewide default answering point, many of which are served by small carriers or are governed by small entities, an existing local law enforcement agency such as a country sheriff could serve as the local emergency authority.

34. On the other hand, several carrier-commenters recommend that the Commission allow carriers and States and localities to establish transition periods for implementation of 911 dialing. As discussed in paragraphs 5 through 9 of the Fifth R&O, the Commission declines to adopt this alternative, finding that to delegate such authority to carriers and PSAPs could result in multiple, conflicting transition periods and create confusion in critical emergency situations as travelers move from one locality to another. Further, the Commission finds that delegating the authority to establish 911 transition periods to carriers and PSAPS could hinder the Commission's ability to ensure that the transition to 911 dialing occurs on a timely basis and could hinder the Commission's overall ability to monitor the transition to 911 as the nationwide emergency number. If the Commission had authorized States and localities to establish 911 transition periods, it would place the responsibility and burden for this administrative work on the entities themselves, many of whom are small. It should be noted, however, that the Commission recognized the need for a transition period, noting the fluid nature of technology, and provided the flexible transition period adopted in the Fifth R&O. The transition period will allow both large and small carriers time, not only to complete the technological updates and coordination which may be necessary to provide 911 service, but also time to educate the public regarding 911 service. Also, in establishing flexible transition periods, the Commission recognizes that individual service areas face different technical and operational measures.

35. In this regard, as discussed in paragraphs 32 through 39 of the Order, the Commission elects not to promulgate rules for carriers to educate the public about 911 transition, but simply encourages carriers to plan and provide time in the transition period for planning and executing a public education program. Several commenters suggest additional requirements regarding educating the public, which the Commission found to be unnecessary and burdensome, particularly on small entities. One commenter, for example, proposed a requirement that carriers service areas that currently use non-911 abbreviated numbers for emergency purposes notify the agency using such numbers that they will not be available after the transition period. The same commenter recommended requirements for carriers to provide billing inserts apprising customers of the conversion to 911 as the universal emergency assistance number. The Commission encourages such public education efforts to enable the permissive dialing period to be discontinued. Nonetheless, once discontinued, the Rules require the carriers to intercept calls made via non-911 emergency numbers with an announcement to alert the caller to the change to 911 for emergency calls. This offers all carriers, including small carriers, the flexibility to design the appropriate public education program that best satisfies the need for 911 education within the individual service area, while offering the carrier some control over expenditures in this area.

36. In one area, however, the Commission, faced with its legislative mandate to monitor the progress of carriers in the transition to 911, adopted a requirement that may particularly impact rural and small carriers. As indicated in paragraphs 42 through 45 of the Order, the Commission adopts a limited requirement for transition reports. In the NPRM, the Commission proposed a broader approach to transition reports that would have affected all carriers and would be filed on a more regular basis than the requirement adopted in the Fifth R&O. The adopted requirement states that only those carriers providing service in areas where 911 is not in use as the emergency number on the date of enactment of the law must file two reports. The filing of the reports will be limited to those counties where there is no 911 service; those counties that are in the process of implementing 911; and those counties that have basic 911 service only in some parts. The first report is to be filed March 11, 2002 and the second report 15 calendar days after the end of the transition period. Although the actual regulation is less burdensome overall on all carriers, it is likely that carriers that do not yet offer 911 service would be small entities as defined by the SBA. In addition, as described in paragraph 27 of the Order, the Commission adopts a requirement that carriers serving areas where no PSAP or appropriate local emergency authority has been established must initiate contact with the entity designated by the Governor before exercising reasonable judgment as to where to deliver 911 calls.

37. The Commission recognizes that the burden for making progress towards 911 implementation may fall, during the transition period, on small and rural entities because they are most likely to require the most effort in implementing 911. They may cover larger, less populated areas who may face funding problems and who may have farther to go in achieving the expensive technological advances which facilities serving more urban areas have access to. By the same token, however, these same disadvantages that many such small carriers and State or local governments face also dictate a need for optimum 911 emergency service as quickly as possible. The Commission has tried to make compliance with 911 rules and implementation dates as fair as possible to small entities by, for example, establishing flexible transition periods. In establishing the limited transition report requirement, the Commission provides that carriers might, at their option, consolidate reporting and eliminate redundant reports by filing the transition reports either collectively with those carriers similarly situated or combining reports for several counties facing similar problems, thus saving the affected carriers time and costs. It is intended that the transition reports will provide the Commission with information leading to solutions to the unique problems faced by small entities in the implementation of 911 service. In addition, the Commission hopes the reporting process will generate a cooperative dialogue regarding how entities with similar problems can resolve such issues.

38. The Commission, instead of establishing a proposed program that would require carriers and PSAPS, large and small, to provide information to each other or to the Commission regarding problems exclusive to their locality, establishes an informal program in which the Commission would serve as a clearinghouse for such information. Further, instead of establishing a coordination requirement forcing PSAPs and carriers to meet to discuss intra-locality issues, the Commission emphasizes the importance of assuming a leadership role in providing coordination and technical assistance and endorses the joint leadership of the Commission and State Governors in this area to assist parties involved with integrated comprehensive emergency communications systems. ( See paragraphs 46 through 52 of the Order)

39. Report to Congress: The Commission will send a copy of this decision, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act, 5 U.S.C. 801(a)(1)(a). In addition, the Commission will send a copy of the Order, including this FRFA to the Chief Counsel for Advocacy of the Small Business Administration.

40. Pursuant to §§ 1, 4(i), 4(j), 7, 10, 201, 202, 208, 214, 251(e)(3), 301, 303, 308, 309(j), and 310 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), 157, 160, 210, 202, 208, 214, 251(e), 301, 303, 308, 309(j), and 310, the Fifth Report and Order in CC Docket No. 92-105 is adopted.

41. Part 64, new Subpart AA, of the Commission's rules is adopted to require wireline and wireless licensees to complete the transition to 911 as the universal emergency assistance number, as set forth in Appendix B of the Order and will become effective February 13, 2002, except for § 64.3002, which contains modified information collection requirements that are not effective until approved by the Office of Management and Budget. The Commission will publish a notice in the Federal Register announcing the effective date for this section.

42. The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this, Fifth Report and Order, First Report and Order, and Memorandum Opinion and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

43. Pursuant to §§ 1, 4(i), 4(j), 7, 10, 201, 202, 208, 214, 251(e)(3), 301, 303, 308, 309(j), and 310 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), 157, 160, 210, 202, 208, 214, 251(e), 301, 303, 308, 309(j), and 310, the First Report and Order in WT Docket No. 00-110 is adopted.

44. The Petition for Reconsideration or Clarification of the Fourth Report and Order, in CC Docket No. 92-105, filed by Maritel, Inc. on September 28, 2000, IS GRANTED to the extent described in the Order.

45. Authority is hereby delegated to the Chiefs of the Common Carrier Bureau and the Wireless Telecommunications Bureau to require additional information, as necessary, to evaluate carriers progress in achieving the transition to the use of 911 and their compliance with the transition requirements set forth in the Order.

This is a summary of the Commission's Second Report and Order (“Second Order”), FCC 01-314, adopted October 22, 2001; released October 31, 2001. The full text of the Commission's Order is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257) at its headquarters, 445 12th Street, SW., Washington, DC 20554, or may be purchased from the Commission's copy contractor, International Transcription Service, Inc., (202) 857-3800, 1231 20th Street, NW., Washington, DC 20036, or may be reviewed via Internet at http://www.fcc.gov/csb/.

In this document we make non-substantive rule changes to correct errors in the publication of part 76 of the Commission's rules. With this action, we complete the Commission's biennial review of the public file, notice, recordkeeping, and notice requirements applicable to cable operators under part 76 of the Commission's rules.

As published, the final regulations contain errors which may prove to be misleading and need to be clarified.

On December 1, 2000, RSPA published a final rule (65 FR 75378) that prescribed integrity management program requirements for pipeline operators who own or operate 500 or more miles of pipeline transporting hazardous liquids or carbon dioxide. Under the Integrity Management rule, operators are required to develop and implement integrity management programs that focus on hazardous liquid and carbon dioxide pipelines that could affect high consequence areas. High consequence areas are defined as: populated areas, areas unusually sensitive to environmental damage, and commercially navigable waterways.

As part of the Integrity Management final rule, we requested comment on repair and mitigation provisions (§ 195.452(h).) We made this request because we substantially changed the initial provisions proposed in the notice of proposed rulemaking. We noted at that time that, at the end of the comment period (March 31, 2001), we would either publish a final rule modifying these repair provisions or stating that the provisions would remain unchanged. We received comments from six sources. Based on our analysis of the comments received, we modified paragraph (h). We discussed the comments, our responses, and changes made to these provisions below, in greater detail.

This document also makes several corrections and language clarifications to other provisions in § 195.452 and the Appendix C guidance. These changes do not affect the substance of any of the Integrity Management rule requirements. Rather, these revisions either correct the rule because of mistakes found since the rule was issued, or they clarify some of the language.

The reference in paragraph (j)(4)(i) that the external monitoring technology provide an understanding of the line pipe equivalent to that obtained under paragraph (j)(2), was incorrect. The reference should be to the assessment methods listed in paragraph (j)(5), not to the evaluation described in paragraph (j)(2).

We deleted the sentence in paragraph (j)(4)(ii) requiring an operator to complete an integrity assessment within 180 days, after providing 180-days advance notice that it could not complete the five-year continual integrity assessment because of unavailable technology. If we did not remove this requirement, an operator would have to complete the re-assessment within the five-year period. Thus, the exception for a longer assessment period would be illusory.

We corrected the notification period in paragraph (j)(5)(iii), which required using alternative technology in the continual integrity assessment, from 60 days to 90 days. 90 days is consistent with the advance notice required for a baseline assessment that uses technology other than a hydrostatic test or an internal inspection tool.

We added paragraph number 1 to precede the first sentence in paragraph (l).

We corrected the grammar in several places in Appendix C.

We added carbon dioxide pipelines to § 195.452(a) to clarify that the integrity management program requirements for hazardous liquid pipelines to also apply to carbon dioxide pipelines regulated under Part 195.

We clarified in paragraphs (c)(1)(i) and (j)(5) that the three allowable assessment methods for the baseline and continual integrity assessments are to be applied to lap welded pipe and to low frequency ERW pipe.

We clarified that the periodic evaluation (paragraph (j)(2)) is to consider the results from the integrity assessments required by § 195.452, i.e., the baseline and continual integrity assessments.

We clarified the language in paragraph (j)(4)(i) regarding the justification and notice required for a variance based on engineering reasons.

We added the requirement that an address and facsimile number must be included for notifications required by the Integrity Management rule, rather than referencing these in other pipeline safety regulations. Due to the confusion of some operators about where to send a notification required by § 195.452 versus notifications required for other purposes, we added a new paragraph (paragraph (m)), which provides this information.

We revised several paragraphs in § 195.452 and Appendix C to make the terminology consistent with changes made to the terms used in paragraph (h).

We added another section to the guidance in Appendix C, which lists conditions an operator should include in its schedule for evaluation and remediation.

The Technical Hazardous Liquid Pipeline Safety Standards Committee (THLPSSC) is the Federal advisory committee charged with the responsibility of advising on the technical feasibility, reasonableness, cost-effectiveness, and practicability of proposed hazardous liquid pipeline safety standards. The committee is composed of members with the requisite statutory expertise who represent industry, government, and the general public.

We discussed the repair provisions in paragraph (h) and comments received on those provisions by teleconference with the THLPSSC at its meeting on August 13, 2001. Before the discussion, the committee members were mailed a summary of comments on the repair provisions, and a supplement to the cost-benefit analysis that addressed these provisions.

At the August 13 meeting, seven of the twelve current members participated in the teleconference. These seven THLPSSC members voted unanimously to accept the repair provisions, provided OPS consider the changes and comments discussed during the teleconference.

The following is a list of the changes and comments that the THLPSSC asked OPS to consider:

• Reevaluate and relax the 60-day repair schedule for dents on the top of the pipe.

• Allow mitigative measures, other than repair.

• The provisions assume the use of in-line-inspection technology to identify defects although the rule allows both hydrostatic testing and other technologies for the integrity assessments.

• Provide that discovery of a defect occurs when an engineering analysis of the assessment results is completed.

• Let the section reflect that some internal inspection assessment results cannot be analyzed as quickly as others. For example, it typically takes a year following completion of the assessment to receive final results from a crack detection tool.

• Delete the section on other conditions requiring repair or move it to Appendix C as guidance material.

We discuss below all changes made to § 195.452(h) in response to the THLPSSC and other commenters.

On December 1, 2000, OPS issued a final rule addressing pipeline integrity management in high consequence areas for operators owning or operating 500 or more miles of hazardous liquid or carbon dioxide pipeline (65 FR 75378) (The Integrity Management Rule.) This rule included provisions addressing the repair of conditions found during an integrity assessment. The provisions were found in paragraph (h) of section 195.452, under the title “What actions must be taken to address integrity issues.” However, because the repair provisions in the Integrity Management rule were substantially different from what we initially proposed in the notice of proposed rulemaking, we requested comment on the provisions. All other provisions of the Integrity Management rule were final and became effective May 29, 2001.

We received comments from the following six sources:

SEFBO did not comment directly on the repair provisions but expressed its support for pipeline integrity management programs and stressed the importance of considering safety issues relating to the support structures used by pipelines to cross high consequence and other sensitive areas.

Some of the comments we received about the repair provisions also addressed other portions of the final rule. As we only requested comment on the repair provisions in paragraph (h), this document will focus on those comments. If at some point we determine that substantive revisions to the final rule are necessary and we propose changes, we will then consider those comments.

Comments on Section 195.452(h)—“What actions must be taken to address integrity issues?''

1. General comments about paragraph (h):

API objected to use of the word repair throughout paragraph (h). API contended the exclusive focus of the rule on repairs undermined the holistic approach of the rule. API commented that a key principle throughout the rule is the integration of information, so appropriate mitigative actions can be taken based on a comprehensive assessment. API explained that although actions may consist of repair, other actions such as further testing and evaluation, environmental changes, operational changes, or administrative changes could be appropriate. API advised that the goal should be to ensure operators differentiate defects injurious to a pipeline's integrity from those that are not.

Tosco also commented that requiring repair in all instances was too inflexible, and operators must have the flexibility to address a wide range of conditions.

Response:

To assure the integrity of pipeline segments that could affect high consequence areas, Section 195.452 requires an operator to conduct a variety of assessments. The assessments include baseline and continual integrity assessments of the line pipe and periodic evaluations of entire pipeline systems, to assure the integrity of pipeline segments that could affect high consequence areas. This is accomplished through the continual identification and remediation of potential problems. We agree the word “repair” in paragraph (h) might be too narrow to encompass the range of actions an operator could take to address a problem. We intended paragraph (h) to reflect the broader actions an operator must take to address integrity issues that are identified. We further agree that all anomalies identified by an integrity assessment or information analysis might not require repair. Therefore, we replaced the word repair with remediate throughout paragraph (h). Remediate can encompass a broad range of actions, which include mitigative measures as well as repair, that an operator can take to resolve a potential integrity concern. Although we firmly believe repair is necessary to address many anomalies, we recognize repair may not be necessary in all instances. The rule provides the operator flexibility to determine the most appropriate action to take. However, we added language to ensure that whatever action is taken by an operator, it must be adequate to resolve the integrity concern on the pipeline for the long term. We also added a requirement that when an operator chooses to remediate a condition through a reduction in operating pressure, the pressure reduction is not to extend beyond 365 days without the operator taking further action to ensure the safety of the pipeline.

2. Section 195.452(h)(1)—General Requirements: In this paragraph we required an operator to take prompt action to address all pipeline integrity issues raised by the integrity assessment and information analysis, and evaluate all anomalies and repair those that could reduce a pipeline's integrity. An operator was further required to follow § 195.422 in making a repair.

API objected to the words “prompt” and “all” because these words could be interpreted in their absolute sense; could cause confusion because of the required time frames for addressing certain conditions; and could lead inspectors to require operators to take costly actions to address insignificant anomalies. API recommended deleting these terms.

Tosco suggested the rule only require an operator to comply with § 195.22 when a repair is necessary.

Response:

As explained in the previous section, we replaced “repair” with “remediate” throughout paragraph (h), allowing for actions other than repair, in order to address integrity threatening pipeline conditions. This will allow an operator flexibility in how to address anomalous conditions on its pipeline.

We did not delete the terms “prompt” and “all.” The pipeline safety regulations have long incorporated the term “prompt,” with consistent enforcement; there is little disagreement between operators and inspectors about its meaning. For the listed conditions, we determined what a prompt time frame should be (viz., immediate, 60 days, 180 days), but leave it to the operator to determine appropriate time frames for other conditions. We kept the word “all” because it is a reasonable requirement for an operator to evaluate all conditions indicated by an integrity assessment or the information analysis, in order to determine the significance of each concern. Upon evaluation of the condition, the operator can then determine the appropriate further action to take, if any. We revised the language to clarify that an operator must evaluate all anomalous conditions (i.e., any condition that is irregular, abnormal, deviates from the norm, etc.) and remediate those conditions that could reduce the integrity of a pipeline.

The word “address” is used in the introductory paragraph to encompass the process an operator should go through to find and remedy anomalous conditions, i.e., discovery, evaluation, and remediation of the condition through repair or other mitigative action. Using language to capture the process, is consistent with API's comment about the intended goal of the rule. By having an operator address all anomalous conditions raised by the integrity assessment or the information analysis, we envision a process that begins with discovery of a condition or anomaly that poses an integrity concern to the pipeline; continues with an evaluation that includes the analysis of other relevant data about the pipeline (this analysis could also be part of the discovery); and concludes with fixing the problem.

We did not add “if necessary,” to the requirement about complying with § 195.422, as suggested by Tosco. The rule now uses the word remediate, which should alleviate any confusion about when compliance with § 195.422 is necessary. Section 195.422 applies only to repairs. If actions other than repair are taken, the requirements in the section do not apply.

3. Section 195.452(h)(2)—Discovery of a condition.

The discovery of a condition triggers the time frames (either required by the rule or the operator's schedule) for remediating the condition. We defined discovery as occurring when an operator has adequate information to determine the need for a repair, and we provided examples of when such information might be available, depending on the circumstances. The examples included the receipt of the preliminary internal inspection report, the gathering and integrating of other inspection information, and the receipt of the final internal inspection report. The date of discovery could be no later than the date of the integrity assessment results or the final report.

API objected to tying discovery to a specific point in time because discovery is not usually a single event but occurs over time as information is analyzed. API commented that other provisions of the Integrity Management rule require operators to integrate information from various sources, and tying the date of discovery to the date of the integrity results or receipt of the final report is inconsistent with the concept of integrating data. API maintained that too much emphasis is put on the use of internal inspection tools and the data collected from running these tools through a pipeline. API also commented that the emphasis on the results of in-line inspections in determining what action must be taken, is inappropriate and inconsistent with the rule's intent for information from multiple sources to be integrated in the assessment process. API suggested that rather than tying discovery to the integrity assessment results or final report, discovery should occur when an operator has integrated other inspections, tests, surveillance, controls, or pipeline integrity data with the final inspection report from an in-line inspection vendor or hydrostatic test. API believes this integration should be completed within 90 days from the receipt of the final inspection report.

Tosco expressed similar concerns and suggested the word “discovery” not be used, since it has the common meaning of when something is first found and might cause confusion with how the term is used in § 195.56. Instead, Tosco would tie the repair schedules to the determination that a condition requires mitigation, which would be an outcome of the ongoing assessment process.

Chevron also believed it is inappropriate to tie discovery to a specific event because discovery is a process that is subject to change with new information. Chevron suggested language changes identical to those recommended by API.

Response:

We contend that discovery triggers an operator's process to address a condition that could affect the integrity of a pipeline. Therefore, discovery has to occur at a specific point in time to start the period for evaluation and remediation of the condition. The use of the word “discovery” here is consistent with how the word has been used in other pipeline safety regulation. However, to allow flexibility the rule provides that the time of discovery can vary depending on circumstances, and does not define discovery to occur at the same time for every operator and every pipeline.

Discovery will depend on circumstances. We revised the rule to provide that discovery occurs when an operator has adequate information about a condition to determine the condition presents a potential threat to the integrity of the pipeline. The “when” for an operator to have sufficient information to make a determination will not be the same for every operator and every pipeline. Although the examples in paragraph (h) provide circumstances when discovery might occur, they were intended only as examples. We decided to eliminate the list as it is not exhaustive and may cause confusion. We did keep the performance-based standard to give an operator flexibility when deciding there is adequate information to determine a condition presents a potential threat to its pipeline. However, we put an upper limit on the length of the discovery process. An operator must promptly obtain the information from an assessment to ensure that remediation of a condition which could threaten a pipeline's integrity occurs soon after an integrity assessment. The discovery process (the process for obtaining the adequate information) will end 180 days after an integrity assessment unless an operator can demonstrate that the 180-day period is impracticable.

4. Section 195.452(h)(3)—Review of integrity assessment:

This paragraph, as proposed, required an operator to include in its schedule for evaluation and repair a schedule for promptly reviewing and analyzing integrity assessment results. After March 31, 2004, an operator's schedule had to provide for this review within 120 days of conducting each assessment. The operator also had to obtain and assess a final report within an additional 90 days.

API objected to setting a fixed period for the review of integrity assessment results. API commented that the language confused the role of the vendor who conducts a specific test or provides interpretive results, with the operator who conducts the integrity assessment and uses information from sources other than in-line inspections in performing those assessments. API explained that an operator contracts with the vendor for a specific service that is part of an overall integrity assessment.

API also expressed concern that increased demand for inspection services would likely affect the time in which tool vendors deliver the reports. API stated that it is unlikely that operators will be able to meet the deadlines for every tool run and for every type of tool, as many types of tools are on the leading edge of development. API suggested that the rule: require review of integrity tests and inspections (rather than assessments); provide for integrating other appropriate data with the inspection/test results; and allow for a delay in schedule beyond the specified deadlines as long as an operator provides a reasonable explanation for the delay.

Tosco commented that the two separate time periods is confusing; that if assessment of inspection results must be accomplished within 120 days, it is not clear what additional evaluation is required within 90 days of obtaining the report of an inspection.

Response: We wish to note: an integrity assessment should not be confused with an integrity management program. Integrity management applies to the entire pipeline. It is a process that uses the information from an integrity assessment, in conjunction with the periodic evaluation and information analysis, to better manage the risks posed to each pipeline segment that could affect a high consequence area. Assessment is only one part of an operator's integrity management program and applies only to the line pipe. In the integrity management rule an assessment is required as a baseline and then required, periodically, every five years to ascertain the condition of the line pipe in each pipeline segment that could affect a high consequence area. To perform this assessment an operator has a choice of technologies: hydrostatic testing; internal inspection devices; or other technology. The rule clearly states that it is the operator's responsibility to perform the required baseline and periodic assessments.

Integration of information is a critical part of an operator's integrity management program. An operator must conduct periodic evaluations, which are to include evaluating data from the information analysis. The evaluations must be conducted as frequently as needed to assure pipeline integrity, not just when an assessment is done. Thus, the rule leaves it to each operator to best determine the frequency for evaluating its pipelines. We further expect an operator to structure its program to bring the necessary information together at the appropriate time.

The requirement that an operator obtain and analyze an integrity assessment report by a specified time was intended to prompt an operator to obtain a timely report so that it could begin the repair of pipeline integrity-threatening conditions. However, after further analysis of this requirement we believe its implementation would be confusing and likely result in endless disagreements between operators and enforcement personnel. For example, an operator might have a condition on its pipeline that falls into the 60-day category. It could be argued that discovery occurred when the operator received a preliminary report of its integrity assessment, and that the operator was required to remediate the condition within 60 days after it received the report. However, the operator is supposed to have 120 days to review and analyze a preliminary report. Thus, there could be disagreement over whether the 60-day requirement negated the period for review and analysis, or whether the period for initial review and analysis gave the operator an additional 120 days before it was required to remediate the condition.

Furthermore, we realized that the intent of this provision is to ensure an operator promptly addresses anomalous conditions on its pipeline, not to create disagreements about when an operator receives a report, reviews the report, and whether the report was a preliminary or final report.

Rather than create a potential compliance and enforcement nightmare, we eliminated this provision from paragraph (h). Instead, we rewrote the provision (see discussion on discovery above) to give the operator flexibility in what information it uses, and what analysis it needs to discover a condition. Now an operator must promptly obtain sufficient information about a condition to make the determination that the condition presents a potential threat to the integrity of the pipeline. However, the obtaining of this information can take no longer than 180 days after an integrity assessment. 180 days after an integrity assessment, is considered sufficient time for an operator to obtain a report and any other information the operator needs to determine that a condition may present a threat. In limited instances, an operator may be able to demonstrate that the 180-day period is impracticable.

By having a performance-based requirement, yet establishing an upper limit on when discovery can occur, it should be clearer to an operator on how to comply. It should also be clearer to determine when there is a violation, for enforcement purposes.

The revised provisions ensure that an operator takes prompt action following an integrity assessment to remediate anomalous conditions and encourage operators to use sophisticated and developing technologies, because the operator will not be dependent on the report from the vendor.

5. Section 195.452(h)(4)—Schedule for repairs: This paragraph required an operator to complete repairs according to a schedule that prioritizes conditions for evaluation and repair. The schedule was based on risk factors used for establishing the baseline and continual integrity assessment schedules. An operator would be allowed to notify RSPA/OPS when it could not meet the schedule and provide a justification for the delay. Notice was to be sent to the address in § 195.58 or to the facsimile number in § 195.56.

API recommended the reference to the risk factors be deleted because the factors are appropriate for establishing re-inspection intervals but not for prioritizing mitigative actions.

Tosco questioned, in the event an operator could not meet its schedule, whether the notification required should also be sent to the appropriate State agency in those States that are certified under Section 60105 of the Federal Pipeline Safety Statute. Tosco also noted that because § 195.58 applies to subpart B and § 195.56 applies to Safety Related Condition reports, we should reference the integrity management notification in these sections.

Response:

It is likely the results of an integrity assessment will be the principal basis for scheduling a condition for remediation. These results will generally indicate the significance of anomalies so operators can establish their relative importance for remediation. However, RSPA recognizes that there may be other factors an operator needs to consider in prioritizing the conditions for remediation, and agrees that requiring an operator to base its schedule on risk factors is unnecessary. We deleted this requirement from the rule and will leave it to the operator to determine how best to set up a schedule for evaluation and remediation of conditions identified from the assessment. Of course, an operator must document the basis for how it prioritizes conditions in its schedule.

As for where an operator is to send a notification when it is unable to meet its schedule, the language clearly provides the address and facsimile numbers for sending the notification. Although we see no reason for confusion about where to send a notification, we added a new paragraph (m) to the integrity management rule that contains the address and facsimile number for sending notification. This paragraph now contains the current room number and facsimile number for sending any notification required by § 195.452.

The rule continues to require operator notification to RSPA/OPS. We will then ensure that the relevant Regional office receives the notification for forwarding to a certified State. Having the notification come to RSPA is consistent with the filing of other reports, such as the safety-related condition report and accident report. As RSPA plans to keep a data base of notifications, it is most practicable for it to be the notified agency rather than State safety agencies. It also prevents a burden to operators of trying to determine which agencies should be notified. Requiring all notifications under the Integrity Management rule first come to RSPA/OPS, eliminates any potential confusion about where a notification should be sent.

When a certified State adopts the integrity management regulations, it may also add a requirement for notification by intrastate hazardous liquid operators.

6. Section 195.452(h)(5)—Special requirements for scheduling repairs:

This paragraph provided a list of certain conditions that require either immediate repair, repair within 60 days, or repair within six months. This paragraph also listed other conditions an operator would be required to evaluate and repair, but did not specify the time frame.

Although not directly affected by this rulemaking, Enron maintained that the prescriptive time frames for certain conditions were not appropriate for the conditions, forcing operators to seek extensions. Enron further commented that the descriptions of the conditions were open to interpretation.

Immediate repair conditions: This subparagraph provided a list of conditions that require immediate repair. An operator is further required to temporarily reduce operating pressure or shut down the pipeline until the operator could complete the repair, basing the temporary operating pressure reduction on remaining wall thickness.

API acknowledged that the conditions we listed as immediate repair conditions are those where the indicated anomaly may suggest the potential for imminent failure. However, API objected to limiting an operator's actions to address these conditions to repair of the condition. API recommended renaming these immediate concern conditions, and allowing an operator to take actions other than repair. API gave the example of a pipeline over-designed for wall thickness, as able to remain in service at very low pressure and not subject to imminent failure, even with metal loss greater than 80 percent of nominal wall thickness.

API further stated that limiting an operator's discretion on reducing operating pressure to remaining wall thickness may be inappropriate in many situations (e.g., dents with indicated metal loss) and supported by engineering calculations. API suggested that the original wall thickness in some pipelines may have been above that needed to contain current maximum operating pressure, and recommended basing pressure reduction on an engineering assessment that includes all the potential factors that may contribute to pressure containment.

Chevron recommended we remove the condition of “dents on the top of the pipeline with any indicated metal loss” from the immediate repair category. Chevron agreed such dents may be serious, but contended there is insufficient data to prove that these types of anomalies are of immediate concern. Chevron also believed an immediate repair requirement related to such anomalies would be difficult to meet because corrosion internal inspection tools do not always identify such dents, and those vendors that claim the tools can identify such dents cannot correctly size and identify them. Chevron recommended we place these types of anomalies in the 60-day category, and reword the anomaly description to include known topside dents that exceed 6 percent of the nominal pipe diameter with any (emphasis in the original comments) indicated metal wall loss. In addition, Chevron recommended RSPA work with industry to develop a pressure calculation that will determine the level of pressure reduction required (dependent on the size of the dent) to operate the pipeline safely.

Response:

We allowed an operator latitude in how it addresses most conditions, by changing the word repair to remediate throughout paragraph (h). However, we firmly believe that certain conditions, due to the immediate threat they pose to a pipeline's integrity and to a high consequence area, are best addressed by repair. We continue to list these conditions as “Immediate repair conditions.” An operator must repair these conditions; and until the repair is completed, either reduce operating pressure or shut down the pipeline.

We agree that a situation might exist where an over designed pipe segment operating at a lower pressure could withstand maximum operating pressure, even with 80% wall loss. However, we find it unacceptable for an operator not to immediately repair a segment of pipeline where less than 20 percent of original wall thickness remains. Wall loss exceeding 80% indicates something significant is occurring on the pipeline.

We also do not agree with Chevron's suggestion that “dents on top of the pipeline with indicated metal loss” do not require immediate repair because they are hard to identify. We acknowledge current inspection techniques may not readily identify dents with metal loss. The rule does not require an operator to identify such conditions. The rule simply specifies that when such conditions are identified, an operator must repair them immediately. This type of dent is also classified as an immediate concern in the most recent draft of API-1160, “Managing System Integrity for Hazardous Liquid Pipelines.” Therefore, we are not removing this condition from the list of immediate repair conditions.

The reduction in operating pressure, or the shutdown of the pipeline, provides an additional margin of safety. This requirement is consistent with § 195.401(b). This established regulation requires an operator to correct conditions that could adversely affect safe operations in a reasonable time and not operate the affected part of the system until the condition is corrected, if it is of such a nature that it presents an immediate hazard to persons or property.

We agree that pressure reductions should be based on an engineering evaluation, and changed the final rule accordingly. Although it is appropriate to base the pressure reduction on the remaining wall thickness for corrosion, this may not be the best method on which to base a pressure reduction for dents and gouges. We modified the requirement so that an operator must calculate the temporary reduction in the operating pressure using the formula in section 451.7 of ASME/ANSI B31.4.

In response to concerns about the rule confusing the role of vendors with that of operators, we clarified the language in one of the listed conditions concerning the person responsible for making certain determinations about a condition. We revised the language so that now it is the person designated by the operator to evaluate assessment results, who is to determine whether an anomaly requires immediate action.

60-day conditions:

As proposed, this paragraph required an operator to schedule for evaluation and repair all dents (other than those listed as immediate repair conditions), regardless of size, located on the top of the pipeline (above the 4 and 8 o'clock position) within 60 days of discovery of the condition.

API agreed with placing special emphasis on investigating anomalies that represent potential excavation damage on the top of the pipe. However, API contended that requiring repair of any topside dent, regardless of size, would preclude operators from making appropriate engineering judgments about anomalies that differ in character and risk profile from one pipeline to another.

API contended that increasing sensitivities of inspection tools could result in “hundreds or even thousands” of topside line indications, only some of which will be a result of third-party damage. (Colonial and Chevron made the same comment). To better focus resources on areas of highest risk, API recommended we specify dents that are in excess of three percent of pipeline diameter and are located in a high population or other populated area, as 60-day conditions and include remaining dent-type defects as 6-month conditions. API believes this conservatively reduces by half the ASME B31.4 provisions, which require removal or repair of dents exceeding a depth of six percent of nominal diameter. API explained that the focus on high population areas and populated areas is appropriate because third-party activity is more likely to occur in these areas. (Chevron recommended these same changes). API further recommended excluding dents less than 0.25 inches for small diameter pipe (less than NPS 12) to recognize mill imperfections that fall within manufacturing tolerances. API maintained that operators have conducted verification digs on many such small defects identified by past in-line inspections to demonstrate that these indications do not threaten pipeline integrity.

Colonial reported in its experience, in-line inspection identified hundreds of bending shoe marks, smooth dents, and minor mill imperfections that fall within manufacturing tolerances. However, Colonial found these indications to be neither injurious to the pipeline nor the result of third-party damage. Colonial suggested that increased focus on these indications would result in dilution of resources and diversion of attention from higher risks. Colonial recommended we exclude “smooth dents, bending anomalies, and mill defects that may be identified through engineering analysis and data integration including data gathered from previous excavations and inspections.”

Chevron recommended we limit the 60-day conditions to known topside dents in excess of six percent of the nominal pipe diameter with any indicated metal loss, and that occur within a high population area or other populated area.

Tosco would not limit the 60-day conditions to topside dents. Tosco explained that an operator must also evaluate dents located at the bottom of the pipe because they may indicate that the pipe has been damaged by lifting the line with excavation equipment.

Response:

Although commenters expressed concern about internal inspection tools not being able to detect immediate repair conditions, they also expressed concern about the tools finding too many of the 60-day conditions. We reconsidered what conditions an operator should address within 60 days from discovery. We decided to limit those conditions to large dents (i.e., those dents in excess of three percent of pipeline diameter) on the top of the pipeline and to dents on the bottom of the pipeline that contain stress concentrators because these types of dents are more likely to impair the integrity of the pipeline. We want the rule to encourage the use of more sophisticated inspection tools, as these tools become available. By modifying the list of 60-day conditions so that operators can better focus resources on remediating those conditions most likely to pose a threat to the integrity of a pipeline and to a high consequence area, operators will be encouraged to use more sensitive tools.

We do not agree that the 60-day conditions should be limited to conditions found in high-population and populated areas. While it may be possible that third-party damage is more likely to occur in these areas, such damage can also occur in other areas. There is no reason why third party damage to a pipeline in an unusually sensitive environmental area should not be addressed as promptly as third party damage to a pipeline in another high consequence area. We make no distinction in the final rule between dents identified in populated areas and dents identified in other areas defined as high consequence.

We did not make the change suggested by Tosco to include all dents located on the bottom of the pipe. We recognize that excavation damage limited to the bottom of pipe can occur, but understands it to be much less prevalent. However, we included under the 60-day conditions dents located on the bottom of the pipeline that have other indicators of damage, such as evidence of cracks or stress risers within the dent that would indicate a need for more immediate action. Significant dents (i.e., those dents with a depth greater than six percent of the pipe's diameter) on the bottom of pipe would require remediation within 180 days of discovery. An operator must also evaluate and remediate any other dents on the bottom of the pipeline within a reasonable time.

Six-month conditions: This paragraph listed several conditions an operator would have to schedule for evaluation and repair within six months following discovery.

API recommended the list of 6-month conditions be completely rewritten and offered changes it believes use technically sound descriptions of the potential anomalies. API's revisions include the concept of minimum detection limits, particularly with respect to dent-type anomalies. API claimed this would prevent the inappropriate diversion of safety resources that could result from a requirement to address “all dents, regardless of size” as detection capabilities increase. API echoed the comments of Colonial, discussed above, that in-line inspection companies have identified imperfections that fall within manufacturing tolerances and operators have conducted many verifying digs to demonstrate that these anomalies do not affect pipeline integrity. Colonial's comments in that regard are applicable also.

Chevron also recommended a complete rewrite of the six-month conditions for the same reasons as API, and proposed language substantially the same as API's. Differences exist in addressing situations in which “predicted burst pressure” is less than established maximum operating pressure (API uses the term “safe operating pressure”). API would limit the need to evaluate metal loss located at foreign pipeline crossings, to instances with greater than 50 percent wall loss, while Chevron would address those with greater than 30 percent wall loss.

Enron also commented that several of the listed conditions could require an expensive, time consuming, and non-productive diversion of safety resources. Enron believed evaluating dents with metal loss or dents affecting pipe curvature at a girth or seam weld, could result in numerous excavations. Many in-line inspection devices cannot identify such seams and having to investigate such dents, regardless of their depth, could require significant resources for little safety benefit. Enron raised the same concern regarding the need for unnecessary physical inspections to evaluate and repair corrosion of or along seam welds. Enron suggested that the six-month conditions only specify narrow axial external corrosion. Enron commented that the rule did not appear to allow pressure reduction as an option for addressing areas of general corrosion with predicted metal loss of greater than 50 percent of wall thickness.

Response:

To be consistent in language throughout paragraph (h), we now list the six-month conditions as 180-day conditions. We re-categorized some of the dents listed as 60-day conditions into the 180-day category because they are less severe. To avoid including minor and non integrity-threatening dents that fall within manufacturing tolerance limits, we revised the list of conditions to include dents greater than two percent of pipe diameter. The 180-day conditions category is consistent with the most recent draft of API-1160, “Managing System Integrity for Hazardous Liquid Pipelines,” except for minor differences. We included gouges and grooves greater than 12.5 percent of wall thickness, which are not in the API-1160 draft.

Enron's concern regarding potential diversion of resources to address dents affecting seam welds was based on the perception that an operator would need to excavate most, or all dents to determine if they impacted a seam weld (similar logic underlies Enron's concern about the need to investigate corrosion along seam welds). We do not intend to require an excavation in order to identify the location of welds. We clarified the final rule to eliminate confusion by setting de-minimus values for certain dents.

We also clarified an apparent inconsistency in which we listed weld anomalies with predicted metal loss greater than 50 percent of wall thickness and corrosion of or along seam welds as 6-month conditions. We deleted from the list weld anomalies with a predicted metal loss greater than 50% of nominal wall. The rule now lists as 180-day conditions corrosion of and along a longitudinal seam weld, and metal loss greater than 50% that can affect a girth weld.

Other conditions: Paragraph (h) also listed examples of other conditions an operator would need to schedule for evaluation and repair. API recommended we eliminate this paragraph as they contended it is unworkable and unenforceable. Many of the listed conditions, according to API, are not pipeline conditions but describe characteristics of the conditions as they might appear in raw inspection data. API argued that this paragraph oversimplifies the task of using past data in evaluations.

Tosco also commented that the listed conditions seem to relate to an assessment using internal inspection tools, and conditions identified by other means of assessment (e.g., direct assessment) might not be addressed if this list were considered exhaustive.

Enron commented that because the list of other conditions contain vague descriptions (e.g., over a large area, abrupt in nature, reflect a change, near casings), compliance with and enforcement of these requirements will be arbitrary, inconsistent and result in numerous disagreements between operators and regulators. As an example, Enron explained that a strict interpretation of the requirement requiring an operator to evaluate data that reflect changes since the last internal inspection, could include any change, no matter how small, or even one indicating an improvement. Enron argued for us to allow operators a reasonable degree of latitude in making decisions regarding what conditions must be evaluated, and requested we provide guidance in the rule on this latitude and not develop it through enforcement and interpretation. Finally, Enron maintained the repair requirements are likely to result in differing interpretations by different regulatory agencies.

Response:

The paragraph listing other conditions is not intended as an exhaustive list, but simply a list of some of the conditions an operator was to address in its schedule. We wrote paragraph (h), as well as other provisions of section 195.452, to include performance-based and, when necessary, prescriptive language. The rule tries to balance the need of an operator for flexibility with the need for clear and enforceable regulations.

Although we strive for clarity in a regulation, language is an imprecise instrument and is invariably subject to different interpretations. We face this challenge in every rulemaking, yet we enforce the regulations with a modicum of difficulty. Nonetheless, in response to the comments, we modified the list of other conditions to give better descriptions of certain conditions an operator should address, and we relocated the list to Appendix C. This list will now offer guidance to operators on conditions they should be prepared to evaluate and remediate. An operator will now be required to evaluate and remediate conditions other than those listed as immediate repair, 60-day, and 180-day conditions, and in so doing to consider the guidance provided in Appendix C.

Again, we want to emphasize that the conditions listed as immediate repair, 60 day, and 180-day are not an exclusive list of conditions an operator will be required to evaluate and remediate. These are simply some of the conditions that may show up. The argument that because a condition was not listed in paragraph (h) or in the Appendix C guidance and so an operator did not know it was required to evaluate and remediate the condition, will never be accepted.

Comments on other provisions in the final rule:

The Integrity Management Rule issued on December 1, 2000, was a final rule. We only sought comment on the repair provisions in paragraph (h) due to the substantive changes made from those initially proposed. All other provisions of the rule were previously subject to notice and comment. Therefore, we will not address comments aimed at other provisions in the rule, in this document.

Paragraph (h) of § 195.452 requires an operator to take prompt action to address all anomalous conditions the operator discovers through the integrity assessment or information analysis. Addressing all conditions means an operator must evaluate all anomalous conditions and remediate those which could reduce a pipeline's integrity. The actions an operator may take to remediate a condition include a range of mitigative and other actions, including repair. However, the action taken must be adequate to ensure the condition is unlikely to present a long-term threat to the integrity of the pipeline.

The time frames for evaluating and remediating certain conditions begin when the condition is discovered. Discovery of a condition occurs when an operator has adequate information to determine a condition presents a potential threat to the integrity of the pipeline. An operator must promptly, but no later than 180 days after an integrity assessment, obtain sufficient information about a condition to make the determination that a condition presents a potential threat to the integrity of the pipeline. Thus, an operator has flexibility determining when it has sufficient information for discovery. However, the discovery process will end 180 days after an integrity assessment, unless the operator can demonstrate that the 180-day period is impracticable.

Discovery triggers the time frames for remediating a condition. An operator must have a schedule providing time frames for evaluating and completing remedial action on a condition.

For most conditions, it is left to each operator to determine how to prioritize the conditions for evaluation and remediation. An operator must be able to justify its prioritization. The rule provides the time frames in which an operator must complete repair or remediation of certain conditions. These are listed as immediate repair conditions, 60-day conditions and 180-day conditions. Of course, the rule cannot identify all conditions an operator will have to evaluate and remediate. A condition an operator discovers may qualify as an immediate repair, 60-day or 180-day condition, even though it is not listed in the rule. The rule simply provides common examples of such conditions.

The rule further provides that an operator is to include in its schedule, conditions other than those listed. Example of some conditions that could show up during an integrity assessment are provided in the Appendix C guidance. The list in the Appendix is not an exhaustive list.

An operator may deviate from the scheduled time frames for remediation of a condition, if the operator justifies the reasons why it cannot meet the schedule and the changed schedule will not jeopardize public safety or environmental protection. An operator's justification for a deviation would be one of the records the operator is required to maintain for inspection. An operator must notify OPS if the operator cannot meet the schedule and cannot provide safety through a temporary reduction in operating pressure. The operator would be required to provide RSPA/OPS notice by mail or facsimile.

The rule allowed two limited exceptions for when an operator could seek a variance from the five-year re-assessment intervals. One exception (paragraph (j)(4)(i)) is if an operator can justify, on an engineering basis, for a longer assessment interval. Among other requirements, an operator is to support the justification with the use of other technology that provides an understanding of the line pipe equivalent to that provided by the other allowable assessment methods. However, instead of referencing the assessment methods listed in paragraph (j)(5), the rule incorrectly referenced (j)(2), the paragraph addressing the periodic evaluation. We corrected the reference.

The second exception (paragraph (j)(4)(ii)) allows a variance because of unavailable sophisticated technology. For this exception an operator is to notify OPS 180 days before the end of the five-year interval. However, the rule further provided that an operator would then have to complete the assessment within 180 days. This requirement was incorrectly included and we deleted it. If an operator has to complete the re-assessment within 180 days of its 180-day notice, the operator would be completing the re-assessment within the five-year period. Therefore, with this requirement the exception allowing an extension is illusory. We deleted the requirement and instead, now specify that with its notice, an operator is to provide an estimate of when it will complete the re-assessment.

Advance notice to OPS is required before an operator conducts a continual integrity assessment using alternative technology. Paragraph (j) (5) (iii) of the final rule gave this period as 60 days. This was incorrect. The advance notification period should be 90 days, to be consistent with the advance notification period required when an operator uses alternative technology for the baseline assessment. We corrected the time period.

In paragraph (l), we inadvertently left out the number (1) before the first paragraph. We corrected this oversight.

We also corrected the grammar in several places in the Appendix C guidance.

In paragraph (a) we clarified that the rule applies to any operator who owns or operates 500 or more miles of hazardous liquid or carbon dioxide pipeline. When we wrote the paragraph describing which operators need comply with the rule, we intended for the phrase “hazardous liquid” to include carbon dioxide pipelines. However, we have since realized that because of how hazardous liquid and carbon dioxide are used in other pipeline safety regulations, there may be confusion about whether carbon dioxide lines are included. By changing the language to “hazardous liquid or carbon dioxide,” we eliminate any confusion about which operators are to comply.

In paragraphs (c)(1)(i) and (j)(5), questions were raised about the listed methods an operator is allowed to use for an integrity assessment. The questions concerned the application of the methods to low frequency electric resistance welded pipe or lap welded pipe susceptible to longitudinal seam failure. We revised these paragraphs to make clear that the listed assessment methods apply to these types of pipe. Although for these types of pipe, an operator must choose methods that have certain capabilities, and the methods are to be from those listed in the rule.

In paragraph (j)(2) we clarified that the evaluation of assessment results include results from the baseline or periodic integrity assessments. Although an operator may have performed a previous internal inspection, unless the operator uses that as its baseline assessment the operator would not have had to maintain those records because the pipeline safety regulations did not require an internal inspection. This clarification should avoid any disagreement about which integrity assessment records an operator will need for its periodic evaluations.

In paragraph (j)(4)(i), we clarified the language about the requirements for the justification for a variance from the 5-year re-assessment interval for engineering reasons and the requirements for notification to OPS.

Due to changes we made to the terminology in paragraph (h), we revised several other paragraphs of the rule and Appendix C to be consistent with those changes. Affected paragraphs in § 195.452 are (f)(4) and (j)(2), and in Appendix C, VI (16) and VI(18).

We added a new paragraph (paragraph m) to the rule to clarify that the required notification must be sent to the Information Resources Manager, Office of Pipeline Safety, Research and Special Programs Administration, U.S. Department of Transportation, Room 7128, 400 Seventh Street SW., Washington DC 20590, or to the facsimile number (202) 366-7128. Notification is required when an operator cannot meet its schedule for evaluating and remediating anomalous conditions; uses alternative technology for an integrity assessment; or seeks a variance from the five-year continual assessment interval.

In Appendix C, which contains guidance material for § 195.452, we added a section on conditions other than those listed in paragraph (h), which an operator could find from an integrity assessment and an operator should consider in its schedule for evaluation and remediation. We initially listed these conditions in paragraph (h) but decided they more appropriately fit into the Appendix C guidance. This guidance does not list every possible condition that could arise on a pipeline and an operator should evaluate. We also revised the introductory paragraph to reference the new section.

This rulemaking action is not considered a significant regulatory action under section 3(f) of Executive Order (58 FR 51735: October 4, 1993). Therefore, the Office of Management and Budget did not review this rulemaking document.

We sought public comment on any additional financial burden that the repair requirements would have on the hazardous liquid pipeline industry. A supplemental report to the regulatory evaluation to address this issue is placed in the docket. The seven members present at the August 13, 2001, Technical Hazardous Pipeline Safety Standards committee meeting voted unanimously to accept the supplement to the regulatory evaluation. Below is a summary of their supplemental report.

The final regulatory evaluation supporting the integrity management rule did not estimate the costs associated with repairs to pipe that may occur as a result of the rule. The evaluation instead focused on the costs associated with the planning and integrity assessments required by the rule. The reasons for not evaluating repair costs were:

1. The pipeline safety regulations have always required an operator to repair problems found on its hazardous liquid or carbon dioxide pipelines. (49 CFR 195.401(b)). The primary changes made by the Integrity Management rule were to establish a systematized assessment and evaluation process that would cause operators to better identify conditions on their pipelines requiring repair. Thus, the additional effort required of operators by the rule is in the planning and assessment process, the costs of which were considered in the regulatory evaluation. Repair of a problem, once it is known, was not a new requirement and was not evaluated because of the assumption that additional costs would not be incurred.

2. The repair criteria in paragraph (h) of the final rule (65 FR 75378; December 1, 2000) were changed from those published with the proposed rule. Accordingly, public comments were solicited regarding the repair criteria. RSPA received comments from six organizations (one trade association, one engineering company, three operators directly affected by the rule, and one operator not directly affected by the rulemaking). None commented on the lack of specific reference to repair costs in the regulatory evaluation.

3. Some commenters identified criteria they believed would require unnecessary excavation and evaluation of minor pipeline anomalies that would not affect a pipeline's integrity. We made changes to the provisions in paragraph (h) in response to these comments. These changes clarify the types of conditions an operator must evaluate and remediate so the focus will be on those conditions that are most likely to affect pipeline integrity. Moreover, the remediation requirements allow an operator flexibility in the action it takes to address a condition that poses a threat to the integrity of its pipeline. These provisions are consistent with the existing requirements in section 195.401(b), and add no additional costs.

Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), RSPA must consider whether a rulemaking would have a significant impact on a substantial number of small entities. This rulemaking was designed to impact only those operators that own or operate 500 or more miles of hazardous liquid or carbon dioxide pipeline. Because of this limitation on pipeline mileage, only 66 hazardous liquid pipeline operators (large national energy companies) covering 86.7% of regulated liquid transmission lines are impacted by this final rule. Based on this, and the evidence discussed above, I certify that paragraph (h) in the final rule addressing the remedial actions an operator is required to take to address integrity concerns on its pipeline will not have a significant impact on a substantial number of small entities.

The pipeline integrity management rule contains information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507 (d)), the Department of Transportation submitted a copy of the Paperwork Reduction Act Analysis to the Office of Management and Budget for its review. The information collection was reviewed and approved by the Office of Management and Budget. The name of the information collection is “Pipeline Integrity Management in High Consequence Areas.” The remediation requirements in paragraph (h) of the rule will not add any additional paperwork on hazardous liquid or carbon dioxide pipeline operators as repair requirements must already comply with 49 CFR 195.401(b). This was discussed above in the Regulatory Evaluation section. Therefore, no additional paperwork reduction analysis is necessary.

The remediation provisions of the integrity management final rule were analyzed in accordance with the principles and criteria contained in Executive Order 13084 (“Consultation and Coordination with Indian Tribal Governments.”) Because these provisions, as well as the other provisions of the final rule, do not significantly or uniquely affect the communities of the Indian tribal governments and do not impose substantial direct compliance costs, the funding and consultation requirements of Executive Order 13084 do not apply.

The final rule provisions in paragraph (h) were analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This final rule does not adopt any regulation that:

(1) has substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government;

(2) imposes substantial direct compliance costs on States and local governments; or

(3) preempts state law.

Nonetheless, State public safety representatives were involved throughout the development of the hazardous liquid integrity management rule.

This rulemaking is not a “significant energy action” within the meaning of Executive Order 13211 (“Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use”). It is not a significant regulatory action under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Further, this rulemaking has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action.

This rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $100 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objective of the rule.

In accordance with section 102(2)(c) of the National Environmental Policy Act (42 U.S.C. Section 4332), the Council on Environmental Quality regulations (40 CFR Sections 1500-1508), and DOT Order 5610.1D, we prepared an Environmental Assessment (EA) that analyzed the environmental impacts of the rulemaking addressing integrity management programs for operators owning or operating 500 or more miles of hazardous liquid or carbon dioxide pipeline. In the EA we determined that the rule would not significantly affect the quality of the human environment. The EA and the Finding of No Significant Impact are available in Docket No. RSPA-00-6355. That EA considered the requirements in section 195.452 (h) concerning repairs an operator would have to make to its pipeline following an integrity assessment.

We reviewed the EA in light of the changes we have made to § 195.452 (h), and did not find that any of the changes affected our finding about the environmental impacts of the rule.

Scutellaria montana is a perennial herb with solitary, erect, four-angled, hairy stems that are usually from 30.0 to 50.0 centimeters (cm) (11.7 to 19.5 inches (in)) tall. The leaves are lanceolate (shaped like a lance-head, several times longer than wide, broadest above the base and narrowed to the apex) to ovate (egg-shaped, with the broader end at the base), on 1.0 to 2.0 cm (0.4 to 0.8 in) petioles (the stalk of a leaf that attaches it to the stem), with blades (the expanded portion of a leaf) 5.0 to 8.0 cm (2.0 to 3.1 in) long and 3.0 to 5.0 cm (1.2 to 2.0 in) wide. The leaf margins (the edge of the leaf) are crenate (rounded, tooth-like edges) to serrate (having sharp teeth pointing forward) and hairy on both surfaces. The inflorescence (the flowering part of a plant) is a terminal (at the end of the stalk), leafy-bracted (a “modified” leaf) raceme (simple flowering stalk), with or without paired lateral racemes at the base. The calyx (the outer part of the flower) is two-lobed with a “cap” just above the base of the upper lobe (characteristic of the genus Scutellaria ). The corolla (petals) is relatively large, 2.6 to 3.5 cm (1.0 to 1.4 in) long, blue and white, and lacking a fleshy ridge (annulus) within the corolla tube near the top of the calyx. Flowering occurs from mid-May to early June, and fruits mature in June and early July.

Bridges (1984) stated, “The genus Scutellaria can be easily recognized by its distinctive calyx, with a protrusion, or ‘cap’ on the upper lobe.” Scutellaria montana could be confused with other species of Scutellaria. Bridges (1984) also listed some important characters of Scutellaria montana: (1) A terminal inflorescence; (2) a large corolla at least 2.5 cm (1 in) long; (3) tapering or truncate (ending abruptly) leaf bases, never cordate (heart-shaped); (4) a midstem with at least some stipitate (short stemmed) glandular hairs; (5) no sessile (without a footstalk of any kind) glands on the upper leaf surface; (6) a fairly densely pubescent (hairy) lower leaf surface, often with glandular hairs; and (7) a corolla tube lacking an annulus within.

Dr. A. W. Chapman (1878) described Scutellaria montana in 1878. Since then, the taxonomy of Scutellaria montana has undergone a period of debate. Penland (1924) reduced the taxon to a variety of Scutellaria serrata. Leonard (1927) later reinstated the species, but he made no distinction between Scutellaria pseudoserrata and Scutellaria montana (Collins, unpublished). Epling (1942) restored the taxon to full species status and clarified the questions regarding the taxonomic differences between Scutellaria pseudoserrata and Scutellaria montana.

Cruzan and Vege (in preparation [prep.]) determined that populations southeast of Taylor Ridge in northwest Georgia are genetically distinct and lacked a number of alleles present in populations northwest of Taylor Ridge. This division is supported by analysis of chloroplast DNA variation, which indicates that populations of Scutellaria montana are divided into two geographically distinct groups of populations that are probably derived from separate Pleistocene refugia (Cruzan and Ferguson, in prep.).

In the field, Scutellaria montana is most likely to be confused with Scutellaria pseudoserrata. The two species have a similar range and habitat and are sometimes found growing together. Scutellaria montana is the only species of Scutellaria that lacks an annulus within the corolla tube. Further, Scutellaria pseudoserrata has transparent sessile glands on the upper leaf surface and hairs only on the veins and leaf margins. In contrast, Scutellaria montana has a fine, even-mixed glandular and nonglandular “velvety” pubescence on the upper and lower leaf surface. Two other skullcaps that can occur in the same region are Scutellaria elliptica and Scutellaria ovata, both of which have smaller flowers and branching inflorescences. Scutellaria elliptica tends to have leaf margins with rounded teeth and noticeably longer hairs on the leaf, and Scutellaria ovata has strongly cordate (heart-shaped) leaf bases and flowers later in the season.

The pollination biology of this species has not been described. Collins (unpublished) and Cruzan ( in Shea and Hogan 1998) observed bees (Apiodea) visiting plants, and Kemp and Knauss (1990) observed butterflies, wasps, and hummingbirds occasionally visiting the plants. The long floral tube (3.0 to 4.0 cm or 1.2 to 1.6 in) and a sucrose-hexose (sugar) ratio near 50 percent (Cruzan and Case, in prep.) are indicative of a historical association with moths or long-tongued bees as the primary pollinator (Baker and Baker 1979, Southwick 1992, Kearns and Inouye 1993).

Scutellaria montana is known from the southern portion of the Ridge and Valley Physiographic Province in Marion and Hamilton Counties in Tennessee; Catoosa, Chattooga, Dade, Floyd, Gordon, Murray, Walker, and Whitfield Counties in Georgia; and the Cumberland Plateau Province in Sequatchie, Marion, and Hamilton Counties in Tennessee.

According to Bridges (1984), the geological strata underlying the occurrences of Scutellaria montana include most of the major slope-forming formations of the region—shale, chert, limestone, and sandstone from Cambrian to Pennsylvanian in age. Most occurrences in Tennessee occur on the Upper Mississippian Pennington Formation and Lower Pennsylvanian sandstone and shale. Most of the occurrences in the Lookout Mountain portion of the Chickamauga-Chattanooga National Military Park are found on Fort Payne, St. Lewis, Warsaw, Monteagle, and Bangor Formations that underlie the Pennington Formations (McKerrow and Pyne 1993). The Georgia portion of the Ridge and Valley is underlain by Paleozoic rock such as sandstone, shale, and limestone (Lipps and DeSelm 1969). The Georgia occurrences are found on Mississippian Formations including Rome, Red Mountain, and Rockwood (Collins, unpublished). Occurrence elevations range from 189 meters (620 feet) to 562 m (1,844 ft) above sea level.

Most populations occur on colluvial soils (loose deposit of soils accumulated at the base of cliff or slope) over bedrock composed of shale, chert, or limestone. The soils are generally rocky, shallow, well-drained, and slightly acidic. Soil depth ranges from deep to a thin layer, no more than 3.0 cm (1.2 in) deep, over bedrock. In Georgia, the soil is generally stony, shaley, or cherty silt loam or silty clay loam ranging in depth from 0.2 m (8.0 in) to 1.4 m (55.0 in). The average pH is 5.6 and ranges from 4.5 to 6.3 (Collins, unpublished).

Bridges (1984) described the habitat of Scutellaria montana as “* * * rocky, submesic to xeric, well-drained, slightly acidic slope, ravine and stream bottom forests in the Ridge and Valley and Cumberland Plateau provinces of Northwestern Georgia, and adjacent southeastern Tennessee (and probably Alabama).” Bridges (1984) also listed distinguishing characteristics of the forests where Scutellaria montana is found as: (1) A history of some natural pine occurrence; (2) a canopy dominated by oaks and hickories; (3) a mostly deciduous shrub layer with some evergreen Vaccinium ; (4) a moderately dense herb layer with mesic and xeric species; and (5) occurring on well-consolidated Paleozoic to Precambrian strata, often with some exposed rock.

Forest composition data have been collected on sites in the Marshall Forest and Marion County, Tennessee, populations (Faulkner 1993; Collins, unpublished; Lipps 1966). Data from the sites where Scutellaria montana was first studied indicated that it occurred in late-successional forests. Studies of other sites suggest that it is more of a mid-to late-successional species (Bridges 1984; Collins, unpublished; Lipps 1966). At a Marion County, Tennessee, site, Faulkner (1993) observed Scutellaria montana persisting in an area where timbering activities had occurred and where the plants had been subjected to low-intensity ground fires. He concluded that, while individual plants established before the disturbance may survive, recruitment into disturbed sites is not likely. Fail and Sommers (1993) conducted a study on the Marshall Forest that suggests the associated species Quercus prinus (Chestnut oak) and Oxydendrum arboreum (Sourwood) may be producing allelopathic agents (toxic compounds) that may be inhibiting the growth and germination of Scutellaria montana near them.

Scutellaria montana does not appear to compete well with other herbaceous species, especially rhizomatous colonial plants, and is not found in thick herbaceous cover (Bridges 1984). While optimal light conditions are not yet known, plants grow in areas that receive a relatively greater amount of light at ground level, generally due to canopy disturbance (Sutter, in litt ., 1993). Nix (1993) states that “canopy coverage is probably the most important environmental factor that influences growth and survival.” However, disturbances to the canopy accompanied by disturbances to the soil can lead to increases in other herbaceous species that could be detrimental to Scutellaria montana .

When we listed Scutellaria montana in 1986, 10 populations were known—7 in Georgia (4 in Floyd County, 2 in Walker County, and 1 in Gordon County) and 3 in Tennessee (2 in Hamilton County and 1 in Marion County). Currently, 48 populations (some made up of more than one subpopulation) are known. We have defined a population as an “occurrence” that is generally at least 0.5 mile from other occurrences, but site-specific determinations take into account physical barriers (ridges, highways, etc.), contiguous habitat (2 or more occurrences deemed part of a single population could be 1 mile apart on the same ridge or slope), and richness or diversity of the occurrence. Based on criteria in the Large-flowered Skullcap Recovery Plan, a population is considered self-sustaining, or viable, if it has a minimum of 100 individuals.

Georgia is now known to have 29 populations. In Floyd County, there are now 9 known populations (15 occurrences), 5 of which are self-sustaining, ranging in size from a few plants to about 1,300 plants. All of one self-sustaining population and 90 percent of another self-sustaining population are protected (owned by The Nature Conservancy [TNC]), including the largest of the nine populations in the county. The remaining populations are all on private land.

Catoosa County, Georgia, is currently known to have 6 populations (10 occurrences). Three of the populations are self-sustaining, ranging in size from about 140 to more than 300 plants. The largest population receives some protection as it is within Catoosa County Park. The other populations are all on private land or land of unknown ownership. There is also evidence of a site with Scutellaria montana on Chickamauga Park (owned by the National Park Service [NPS]) in Catoosa County, but the site has not been surveyed and its status is considered ambiguous according to the Georgia Natural Heritage Program.

Five new populations (8 occurrences) have been discovered in Gordon County, Georgia, though none appear to be self-sustaining (all have less than 100 plants). One population known from Gordon County, Georgia, was extirpated when the area was clearcut early in 1986, prior to the listing of the species.

Walker County, Georgia, has three nonself-sustaining populations (5, 16, and 60 plants, respectively). The population of 16 plants is found on NPS land, and the other 2 are privately owned. Additionally, there is an introduced population on the Chattahoochee National Forest in Walker County (not included among populations counted towards attainment of criteria for downlisting).

Murray County has two nonself-sustaining populations, all on private land, and there are currently two nonviable populations (three occurrences) known from Chattooga County, Georgia. One population has only three plants (on U.S. Forest Service [USFS] land), and the other two occurrences that make up the other population are described as having only four plants and “dozens” of plants. A single, nonviable population (10 plants) occurs on NPS land in Dade County, Georgia, near the Lookout Mountain population in Tennessee, and a single nonviable population (~60 plants) of unknown ownership has been found in Whitfield County.

Tennessee is now known to have 19 populations. Hamilton County has 14 known populations, 7 of which are considered self-sustaining. These populations range in size from a few plants to more than 2,600 plants. Several Hamilton County populations are made up of multiple subpopulations, some of which are large enough to constitute self-sustaining populations by themselves, but they do not meet the necessary criteria set forth in the recovery plan to be considered separate populations.

Marion County, Tennessee, now has 2 populations ranging in size from about 50 plants to more than 40,000 plants at the Tennessee River Gorge. The Tennessee River Gorge population is made up of 8 subpopulations, 2 of which contain more than 20,000 plants. All of the smaller Marion County site (55 plants) is protected, and 6 of the 8 subpopulations in the Tennessee River Gorge are protected (less than 1 percent of the plants are not protected).

Three populations (2, 50, and “several hundred” plants, respectively) are known from Sequatchie County, Tennessee, with only the latter being self-sustaining. The landowner of the largest population is willing to protect the plant through a donated conservation easement, but the agreement has yet to be formalized.

Federal Government actions on this species began with section 12 of the Act (16 U.S.C. 1531 et seq. ), which directed the Secretary of the Smithsonian Institution (Smithsonian) to prepare a report on plants considered endangered, threatened, or extinct. This report, designated House Document No. 94-51, was presented to Congress on January 9, 1975. On July 1, 1975, we published a notice (40 FR 27823) that formally accepted the Smithsonian report as a petition within the context of section 4(c)(2) (now section 4(b)(3)) of the Act. By accepting this report as a petition, we also acknowledged our intention to review the status of those plant taxa named within the report. Scutellaria montana was included in the Smithsonian report and the July 1, 1975, Notice of Review.

We published a revised Notice of Review for Native Plants on December 15, 1980 (45 FR 82480); Scutellaria montana was included as a category 1 species. Category 1 species were those for which we had information on file to support proposing them as endangered or threatened. On November 28, 1983, we published a supplement to the Notice of Review for native plants in the Federal Register (48 FR 53640). Scutellaria montana was changed to a category 2 species in this supplement. Category 2 species were those for which we had information suggesting that proposing to list them as endangered or threatened may be appropriate but for which substantial data on biological vulnerability and threats were not currently known or on file to support the preparation of proposed listing rules. Subsequent to this notice, we received a draft status report on Scutellaria montana (Collins, unpublished). This report and other available information indicated that the addition of Scutellaria montana to the Federal List of Endangered and Threatened Wildlife and Plants was appropriate.

All plants included in the comprehensive plant notices were treated as under petition. Section 4(b)(3)(B) of the Act, as amended in 1982, requires the Secretary to make certain findings on pending petitions within 12 months of their receipt. Section 2(b)(1) of the 1982 amendments further requires that all petitions pending on October 13, 1982, be treated as having been newly submitted on that date. This situation was the case for Scutellaria montana because of the acceptance of the 1975 Smithsonian report as a petition. On October 13, 1983, October 12, 1984, and October 11, 1985, we found that the petitioned listing of Scutellaria montana was warranted but precluded by other listing actions of higher priority and that additional data on vulnerability and threats were still being gathered. On September 27, 1985, Scutellaria montana was again included as a category 1 species in the revised Notice of Review (50 FR 39526), and on November 13, 1985, we published in the Federal Register (50 FR 46797) a proposal to list Scutellaria montana as an endangered species. That proposal constituted the next 1-year finding as required by the 1982 amendments to the Act. A final rule placing Scutellaria montana on the Federal List of Endangered and Threatened Wildlife and Plants as an endangered species was published in the Federal Register on June 20, 1986 (51 FR 22521).

Since listing, Federal actions have included a variety of recovery actions funded or carried out by the Tennessee Valley Authority (TVA), NPS, USFS, and the Service, including searches for additional populations, habitat studies, translocations, and land management.

We have conducted numerous consultations under section 7 of the Act involving Scutellaria montana. More than 50 consultations have taken place in Tennessee, principally concerning road and bridge construction or maintenance. Most potential conflicts have been resolved early in the informal portion of the consultation process, resulting in our concurrence with “not likely to adversely affect” determinations. One formal consultation was conducted that resulted in a “no jeopardy” biological opinion. Three informal section 7 consultations regarding this species have taken place in Georgia.

A recovery plan was completed for Scutellaria montana in 1996 (Service 1996). The recovery plan provides the following criteria for downlisting: “If numbers of discrete populations increase to 25 (because of the discovery or establishment of additional populations) or the number of protected and managed self-sustaining populations becomes 10 or more (distributed throughout the known geographic range), the species will be considered for downlisting to threatened status.” The recovery plan also provides a description of protected and managed self-sustaining populations as follows: “A population will be considered adequately protected when it is legally protected and all needed active management is provided. A population will be considered ‘self-sustaining’ if monitoring data support the conclusion that it is reproducing successfully and is stable or increasing in size. The minimum number of individuals necessary for a self-sustaining population should be considered at least 100 until otherwise determined by demographic studies.”

The criteria for downlisting have been met through both the number of known populations (48) and the number of self-sustaining (viable), protected populations (11) distributed throughout the species' range. Though no formal written agreements have been developed with the principal landowners where protected, self-sustaining populations occur (TNC, the States of Georgia and Tennessee, TVA, and the NPS), managers of this land are committed to the conservation of these populations and are actively involved as part of the recovery effort.

On February 8, 1998, we mailed letters to 94 potentially affected congressional offices, Federal and State agencies, local governments, and interested parties to notify them that we were considering a proposal to reclassify Scutellaria montana as a threatened species. We received three written responses (TVA, Tennessee Department of Environment and Conservation, and the Wildlife Resources Division of the Georgia Department of Natural Resources), all in support of downlisting.

On July 12, 2000, we published the proposed rule to reclassify Scutellaria montana from endangered to threatened status in the Federal Register (65 FR 42973), under the authority of the Act. Additionally, we announced this proposal in letters (110) dated July 17, 2000, and in legal notices published in the Rome News Tribune, Rome, Georgia, on July 23, 2000; the Walker County Messenger, LaFayette, Georgia, and the Catoosa County News, Ringgold, Georgia, on July 26, 2000; the Jasper Journal, Jasper, Tennessee, on July 27, 2000; and the Chattanooga Times, Chattanooga, Tennessee, on July 28, 2000. Those documents notified affected congressional offices, the governors of Tennessee and Georgia, Federal and State agencies, local governments, scientific organizations, and interested parties of the proposed action and requested comments and information that might contribute to the development of a final determination. We also announced the proposed downlisting through a press release on July 18, 2000, that was also made available on the Service's Southeast Regional home page on the Internet ( southeast.fws.gov ).

We received four responses during the public comment period (one from a Federal agency, two from State agencies, and one from a conservation organization), all in support of the proposed reclassification. These comments did not result in any significant changes to the final rule. Population data received from the Georgia Department of Natural Resources' Natural Heritage Program are incorporated in this final rule. Key issues raised in the comments are presented below.

Issue 1: One commenter raised concerns that “* * * the qualifications for protected populations be published [as part of consensus opinions] during the downlisting procedure or in a revised Recovery Plan * * * to ensure such populations are viable, have feasible stewardship provisions to ensure the survival of the population, and represent the total range of the species * * *”

Our Response: We agree that further definition of what constitutes a protected population will be valuable for this species and this issue will be considered through the recovery plan revision process.

Issue 2: In the proposed rule we stated that “* * * Scutellaria montana was not a significant component of the commercial trade in native plants. Significant commercial trade in Scutellaria montana is not currently known to occur or expected in the future, and no significant import or export is expected.” One comment letter pointed out that at least one named cultivar of this species is ready to be placed in commercial trade. They also stated that Scutellaria montana is unlikely to be collected in the wild and that both Tennessee and Georgia have provisions in their respective State agencies to require permitting as needed in all in-State commerce.

Our Response: We have changed this final rule to reflect this information.

Issue 3: Under 50 CFR, subpart G, § 17.71(a) “Seeds of cultivated specimens of species treated as threatened shall be exempt from all the provisions of § 17.61, provided that a statement that the seeds are of ‘cultivated origin’ accompanies the seeds or their container during the course of any activity otherwise subject to these regulations.” One comment letter stated that “cuttings” as well as seeds should be included in this exemption, as this is a common way plants enter the horticultural trade.

Our Response: Cuttings are a common way plants enter the horticultural trade, and plants grown from legally obtained cuttings might logically be allowed under this same exemption. Unfortunately, this oversight can only be corrected by amending the Act or its implementing regulations. If necessary and consistent with species conservation, it is possible to exempt cuttings of threatened species in a manner similar to seeds of cultivated specimens by preparing a special rule under section 4(d) of the Act.

Issue 4: One comment letter stated that “* * * because many of the populations occur on public land in late successional forests, which are still subject to industrial extraction and other development that could impact the species * * * and many of the private-land populations may be subject to projects with Federal implications * * * critical habitat is surely prudent and determinable at this time.”

Our Response: In the more than 14 years since this species was listed, no Federal project or federally permitted project has had a significant impact on this species. The NPS, through its own regulations and in accordance with the Act, is unlikely to have a project ever result in significant impacts to Scutellaria montana. Similarly, the TVA has been a leader in the recovery of this plant, having implemented various protective measures, management techniques, and surveys for additional populations. The TVA is currently discussing with the Service, in both Tennessee and Georgia, and other stakeholders the possibility of entering into a cooperative agreement to promote the further recovery of this species. Further, more than half of the known plants and most of the largest population are on land owned by the Tennessee River Gorge Trust, a conservation organization that has also been instrumental in protecting this species. Although timber-harvesting activities continue to threaten the species, since listing, no population of large-flowered skullcap has been lost to timber-harvesting. Because (1) critical habitat designation would not result in substantial benefits to the species, (2) there is currently a large backlog of listed species without critical habitat designation—many of which would benefit more from critical habitat designation than this species, and (3) the status of this species is currently improving, we believe our limited funding available for critical habitat designation should be spent on critical habitat designations for species for which such designation would provide more benefit. Furthermore, we expect that all of the appropriation to be made available for critical habitat designation in the near future will be used to comply with existing court orders and settlement agreements. Therefore, we are not proposing to designate critical habitat for Scutellaria montana at this time.

Section 4(a)(1) of the Act (16 U.S.C. 1531 et seq. ) and regulations promulgated to implement the listing provisions of the Act (50 CFR Part 424) set forth five criteria to be used in determining whether to add, reclassify, or remove a species from the Federal List of Endangered and Threatened Wildlife and Plants. These factors and their application to Scutellaria montana (large-flowered skullcap) are as follows:

In 1986, when Scutellaria montana was listed as endangered, 7 populations were known in Georgia and 3 in Tennessee. Over 90 percent of the 7,000 individual plants known in 1986 occurred at only 2 sites, neither of which was completely protected. At the time of listing, the most significant threats were logging, wildfires, livestock grazing, and residential development. In 1986, 80 percent of the site with the largest known population had been subdivided and was being offered for sale. A large portion of the second largest population at that time was on land owned by TNC and was therefore afforded protection. The third largest population occurred on privately owned land and had no protection from potential land-use changes. All remaining 1986 populations were extremely small, consisting of 4 to 60 plants.

Though this species is under less threat than when listed, largely due to the discovery of additional populations, and 22 (46 percent) of the 48 known populations are currently being afforded protection through ownership by conservation organizations, county parks, historic sites, or Federal land (11 of these protected populations are considered self-sustaining), threats to the species' habitat and future security still exist. Further, nearly 80 percent of the known plants continue to occur at only two sites in the Tennessee River Gorge population.

Habitat destruction caused by logging, residential development, clearing of wooded areas for pasture, grazing, and wildfire all continue to pose some degree of threat to the species. Prior to listing, one population of Scutellaria montana was lost due to clearcutting activities (prior to the landowner becoming aware of the presence of Scutellaria montana on the property). Damage caused by off-road vehicles and hikers (trampling) has been noted at several sites, and the maintenance (widening) or rerouting of hiking trails is also a potential threat. Rapid urbanization in and around the Chattanooga area also poses a threat.

When Scutellaria montana was listed as an endangered species (1986), it was not a significant component of the commercial trade in native plants. During the comment period for this rule, the Georgia Department of Natural Resources informed us that “there is at least one named cultivar of this species ready to be placed in commercial trade.” However, both Tennessee and Georgia have provisions in their respective State agencies to require permitting as needed for all in-State commerce. Except for seeds of cultivated origin, inter-State commerce, import, and export are prohibited for threatened species. We know of no reason to believe that trade in accordance with the provisions for protection of threatened species or any other type of current or future utilization pose an appreciable risk to wild populations of Scutellaria montana.

While herbivory by animals, especially deer, has been observed at several sites, herbivory does not appear to be a factor affecting the continued existence of the species at this time. Some individual plants have been affected by disease, but this factor appears to affect only a few individuals and is not a threat to the species.

Though there is less protection afforded to threatened plants than to endangered plants under section 9 of the Act, most of the legal protections conferred under the ESA will remain in place following final reclassification of Scutellaria montana. Both Georgia (Ga. Code Ann. §§ 27-3-130 et seq. ) and Tennessee (Tenn. Code Ann. §§ 70-8-301 et seq. ) have rare plant protection laws that also protect this species. Georgia has separate laws covering endangered plant and animal species. (Ga. Code Ann. §§ 27-3-130 et seq. ; §§ 12-6-171 et seq. ) Listing under both acts is limited to scientific and commercial criteria. Habitat acquisition is authorized but not required. The acts do not require recovery plans or agency consultation. Violations constitute a misdemeanor. In addition, the Georgia Environmental Policy Act requires the assessment of major proposed agency impacts on biological resources. (Ga. Code Ann. § 12-16-1 et seq. )

In Tennessee, the Rare Plant Protection and Conservation Act authorizes investigation, listing, and education efforts. (Tenn. Code Ann. §§ 70 8-301 et seq. ) Listing is based on scientific and commercial data only. The act cannot be used to interfere with, delay, or impede any public works project. Penalties include fines up to $1,000 and/or imprisonment of up to six months. Tennessee does not have an “environmental protection act.” However, by statute, any person or agency planning an energy project must submit an analysis of the environmental impacts of the project. (Tenn. Code Ann. § 13-18-103) In addition, any person conducting oil and gas activities must prevent or mitigate adverse environmental impacts. (Tenn. Code Ann. § 60-1-202) Tennessee has private land conservation programs. For example, conservation easements are authorized by statute. (Tenn. Code Ann. §§ 66-9-301 et seq. ) Owners of land subject to a conservation easement are not liable for injury to a third person using the land. (Tenn. Code Ann. § 11-10103) A Forest Stewardship Program assists private landowners with conservation issues. In addition, the Tennessee Biodiversity Program encourages private landowners to protect critical areas. While considerable progress has been made towards recovery of Scutellaria montana under these regimes, some threats, such as habitat modification, remain sufficiently serious that the species still requires protection under the Act until the number of total and protected populations can be further increased. Such additional increases in the total number of populations, particularly those under protection, may sufficiently reduce the risk of extinction, even under these current State laws, that concerns under Factor D are no longer an obstacle to delisting Scutellaria montana.

Scutellaria montana appears to be quite sensitive to the amount of light available. To the extent that human activities facilitate the growth of non-native, invasive species, such as Japanese honeysuckle ( Lonicera japonica ) and privet ( Ligustrum vulgare ), competition with these species for light currently remains a problem for some populations of Scutellaria montana. These nonnative species are likely to continue to be a problem where disturbance allows these species to become established in close proximity to Scutellaria montana.

Several investigators have noted a low reproductive capacity for Scutellaria montana. The percentage of flowers that form fruit has been recorded at 30 and 44 percent in the Marshall Forest (Kemp and Knauss 1990), and in another study, 91.5 percent of the plants did not form fruits (Kemp 1987). This reproductive rate is extremely low compared with other Scutellaria species that have 75 to 93 percent of the flowers producing mature nutlets (Collins 1976).

Scutellaria montana also produces fewer seeds per fruit compared with other members of the genus. Kemp and Knauss (1990) found that the fruit averaged 2.2 to 2.3 seeds rather than the 4 seeds that are possible. Similarly, Cruzan ( in Shea and Hogan 1998) found pollen present on 60 percent of the styles, but only 15 percent of these flowers set fruit, with an average of two seeds per fruit. As mentioned previously, the long floral tube and a sucrose-hexose ratio near 50 percent (Cruzan and Case, in prep.) are indicative of a historical association with moths or long-tongued bees as the primary pollinator (Baker and Baker 1979, Southwick 1992, Kearns and Inouye 1993). However, after several hundred hours of observations over 4 years, Cruzan and Hopkins (in prep.) found these pollinators appeared to be rare or lacking and believed that the low seed production is largely because of the lack of pollen deposition on stigmas (Cruzan and Hopkins, in prep.), indicating a possible loss of, or decline in, an associated pollinator(s). The loss/decline of an associated pollinator, particularly one able to travel relatively long distances, could also explain the apparent inbreeding noted at smaller and more isolated populations of this self-compatible species (Cruzan and Vege, in prep.).

We have carefully assessed the best scientific and commercial information available regarding the past, present, and future threats faced by Scutellaria montana in determining this final rule. Based on this evaluation, the preferred action is to reclassify Scutellaria montana from an endangered species to a threatened species. The recovery plan for Scutellaria montana states that the species is qualified for downlisting to threatened: “* * * If numbers of discrete populations increase to 25 (because of the discovery/establishment of additional populations) or the number of protected and managed self-sustaining populations becomes 10 or more (distributed throughout the known geographic range) * * * ” The criteria for downlisting have been met through both the number of known populations (48) and the number of viable (self-sustaining), protected populations (11) distributed between both States in the species' range.

All of 23 populations of Scutellaria montana and a portion of 9 others are privately owned (all of 1 population and a portion of 2 others are owned by conservation groups, accounting for nearly 43 current page percent of all plants), 1 is County-owned, a portion of 1 is City-owned, and 1 entire population and a portion of 5 others are State-owned. State-owned land harbors more than 40 percent of the known plants, second only to the number owned by conservation organizations. In addition, 10 entire populations and portions of 3 others are on Federal land (TVA, NPS, and Department of Defense [U.S. Army]).

Conservation measures provided to species listed as endangered or threatened under the Act include recognition, recovery actions, requirements for Federal protection, and prohibitions against certain practices. Recognition through listing encourages and results in conservation actions by Federal, State, and private agencies, groups, and individuals. The protection required of Federal agencies and the prohibitions against taking and harm are discussed, in part, below.

Section 7(a) of the Act, as amended, requires Federal agencies to evaluate their actions with respect to any species that is proposed or listed as endangered or threatened and with respect to its critical habitat, if any is being designated. Regulations implementing this interagency cooperation provision of the Act are codified at 50 CFR part 402. If a Federal action may affect a listed species or its critical habitat, the responsible Federal agency must enter into formal consultation with the Service.

The Act and its implementing regulations set forth a series of general prohibitions and exceptions that apply to all threatened plants. However, unlike endangered plants, not all prohibitions of section 9(a)(2) of the Act, implemented by 50 CFR 17.67, apply. However, section 4(d) of the Act allows for the provision of such protection to threatened species through regulation. This protection may apply to this species in the future if regulations are promulgated. Those prohibitions that do apply to threatened plants, in part, make it illegal for any person subject to the jurisdiction of the United States to import or export, transport in interstate or foreign commerce in the course of a commercial activity, sell or offer for sale in interstate or foreign commerce, or remove and reduce the species to possession from areas under Federal jurisdiction. Seeds from cultivated specimens of threatened plants are exempt from these prohibitions (50 CFR 17.71) provided their containers are marked “Of Cultivated Origin.” Certain exceptions to the prohibitions apply to agents of the Service and State conservation agencies.

The Act and 50 CFR 17.72 also provide for the issuance of permits to carry out otherwise prohibited activities involving threatened plants under certain circumstances. Such permits are available for scientific purposes and to enhance the propagation or survival of the species. For threatened plants, permits are also available for botanical or horticultural exhibition, educational purposes, or special purposes consistent with the purposes of the Act. We anticipate that few trade permits would ever be sought or issued because the species is not a common cultivar or common in the wild.

Questions regarding whether specific activities will constitute a violation of section 9 should be directed to the Field Supervisors of either the Service's Athens Field Office, U.S. Fish and Wildlife Service, 247 South Milledge Avenue, Athens, Georgia 30605 (Phone 706/613-9493), or the Cookeville Field Office, U.S. Fish and Wildlife Service, 446 Neal Street, Cookeville, Tennessee 38501 (Phone 931/528-6481). Requests for copies of regulations regarding listed species and inquiries about prohibitions and permits may be addressed to the U.S. Fish and Wildlife Service, Ecological Services Division, 1875 Century Boulevard, Atlanta, Georgia 30345 (Phone 404/679-4176; Fax 404/679-7081).

This rule changes the status of Scutellaria montana at 50 CFR 17.12 from endangered to threatened. This rule formally recognizes that this species is no longer in imminent danger of extinction throughout all or a significant portion of its range. Reclassification maintains most of the protections for this species under the Act. Anyone importing or exporting, transporting in interstate or foreign commerce in the course of a commercial activity, selling or offering for sale in interstate or foreign commerce, or removing and reducing the species to possession from areas under Federal jurisdiction will be subject to a penalty under section 11 of the Act. Although less than those for endangered species, substantial penalties apply to illegal take of threatened species. Federal agencies will continue to be responsible for ensuring that their activities are not likely to jeopardize the continued existence of Scutellaria montana, as prescribed by section 7 of the Act.

This final rule is not an irreversible action on the part of the Service. Reclassifying Scutellaria montana back to endangered status is possible should changes occur in management, habitat, or other factors that alter the species' status or increase threats to its survival.

This final rule does not contain any new collections of information other than those already approved under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. , and assigned Office of Management and Budget clearance number 1018-0094. An agency may not conduct or sponsor, and a person is not required to respond, to a collection of information, unless it displays a currently valid control number. For additional information concerning permits and associated requirements for threatened species, see 50 CFR 17.72.

We have determined that we do not need to prepare an Environmental Assessment or Environmental Impact Statement, as defined by the National Environmental Policy Act of 1969, in connection with regulations adopted pursuant to section 4(a) of the Act. We published a notice outlining our reasons for this determination in the Federal Register on October 25, 1983 (48 FR 49244).

The primary author of this final rule is Mr. J. Allen Ratzlaff (See ADDRESSES section).

On June 14, NMFS issued a BiOp that found that the Atlantic pelagic longline fishery is jeopardizing the continued existence of loggerhead and leatherback sea turtles. The BiOp estimated that a 55-percent reduction in bycatch mortality from the pelagic longline fishery is necessary to allow for the recovery of these two species. To achieve the necessary reduction, the BiOp required the implementation of a reasonable and prudent alternative that was composed of several elements including an area closure and gear modifications.

On July 13, 2001, NMFS issued an emergency rule (66 FR 36711) to implement the BiOp. Specifically, the regulation closed the NED area, required specific gear deployment modifications, and required that the safe handling and release guidelines for sea turtles caught in pelagic longline gear be posted aboard all vessels permitted for HMS fisheries. The emergency rule is effective until January 9, 2002.

On September 24, 2001 (66 FR 48812), the July 13, 2001, emergency rule was revised to adjust the requirement to post the sea turtle handling and release guidelines in the wheelhouse of all HMS permitted vessels. The safe handling guidelines are specific to longline interactions and would not be applicable to vessels using other gear such as seines or gillnets. Accordingly, NMFS revised the regulation to apply only to HMS permitted vessels having pelagic and bottom longline on board.

On December 13, 2001 (66 FR 64378), NMFS published a regulation that extended the July 13, 2001, emergency rule for 180 days. This measure insures that the regulations do not lapse as NMFS prepares a proposed rule and environmental impact statement to implement the required measures of the BiOp. The emergency rule extension maintains the sea turtle protection measures through July 8, 2002.

In extending the July 13, 2001, emergency rule, NMFS inadvertently omitted the September 24, 2001, revisions and the necessary references to the new effective dates. This emergency rule revision adjusts the effective dates established in the July 13, 2001, emergency rule and the September 24, 2001, emergency rule adjustment to make the effective dates consistent with the intent of the December 13, 2001, emergency rule extension.

The Assistant Administrator for Fisheries (AA), under 5 U.S.C. 553(b)(3), finds that providing prior notice and opportunity for public comment on this revision would be contrary to the public interest. This revision is necessary to maintain the intended effective dates of the December 13, 2001, emergency rule extension. An opportunity was provided for public comment on the extension of the emergency rule and on the BiOp that was the basis of the emergency rule. The AA, under 5 U.S.C. 553(d)(3), finds that it would be contrary to the public interest to delay the effective date of these regulatory amendments. As the previously implemented regulations will expire on January 9, 2002, delaying the effectiveness of these amendments would create a lapse in the protection measures for the threatened and endangered sea turtles.

Because prior notice and opportunity for public comment are not required for this emergency rule by 5 U.S.C. 553, or by any other law, the analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., are inapplicable.

This action is not significant under the meaning of Executive Order 12866.