[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Rules and Regulations]
[Pages 34648-34667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16868]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[General Docket No 96-113; FCC 97-164]


Section 257 Proceeding To Identify and Eliminate Market Entry 
Barriers for Small Businesses

AGENCY: Federal Communications Commission.

ACTION: Policy statement.

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SUMMARY: The attached Report summarizes the Commission's implementation 
of Section 257 of the Telecommunications Act of 1996 (1996 Act), which 
requires the Commission to identify and eliminate market entry barriers 
for entrepreneurs and small businesses in the provision and ownership 
of telecommunications services and information services or in the 
provision of parts or services to providers of telecommunications 
services or information services. The Report addresses issues raised by 
the more than 80 entities that filed comments, describes the 
Commission's policies to foster small business opportunities in the 
telecommunications industry, and explains agency-wide small business 
initiatives that the Commission has undertaken since enactment of the 
1996 Act, as well as steps that the Commission intends to take in the 
future. The Report also describes the Commission's comprehensive study 
of the participation of small businesses and businesses owned by women 
or minorities in the telecommunications market. Through this Report the 
Commission reaffirms its commitment to achieving the policy goals of 
Section 257; to eliminate market entry barriers for small 
communications businesses.

ADDRESSES: The complete text of this report is available for inspection 
and copying during normal business hours in the FCC Reference Center 
(room 239), 1919 M Street, N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Office of General Counsel: Linda L. 
Haller or Sheryl Wilkerson, at (202) 418-1720. Office of Communications 
Business Opportunities: Catherine K. Sandoval or Vivian Keller, at 
(202) 418-0990.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Report which was adopted on May 8, 1997 and released on May 8, 1997. 
The complete text of this report also can be obtained on-line at the 
FCC's Internet Home Page at www.fcc.gov., and may be purchased from the 
Commission's copy contractor, International Transcription Service (202) 
857-3800, 2100 M Street, N.W., Suite 140, Washington, D.C. 20037.

I. Introduction and Statement of Policy

    1. Section 257 of the Telecommunications Act of 1996 
(Telecommunications Act or 1996 Act) 1 requires the 
Commission to identify and eliminate ``market entry barriers for 
entrepreneurs and other small businesses in the provision and ownership 
of telecommunications

[[Page 34649]]

services and information services, or in the provision of parts or 
services to providers of telecommunications services and information 
services.'' 2 In carrying out this mandate, the Commission 
must ``promote the policies and purposes of this Act favoring diversity 
of media voices, vigorous economic competition, technological 
advancement, and promotion of the public interest, convenience and 
necessity.'' 3
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    \1\ Telecommunications Act of 1996, Pub. L. No. 104-104, 110 
Stat. 56 (1996), Section 257.
    \2\ 47 U.S.C. 257(a).
    \3\ 47 U.S.C. 257(b).
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    2. This Report summarizes the Commission's implementation of 
Section 257, describes our strong commitment to continue to achieve its 
statutory goals, and outlines steps we plan to take in the future. Many 
of the measures described below occurred apart from this Report in 
other Commission proceedings or through agency access and outreach 
endeavors, in which the Commission integrated the mandate and policy 
goals of Section 257.
    3. The Report also demonstrates our commitment to achieving the 
policy goals of Section 257(b). As described below, the Commission has 
taken a variety of measures to fulfill the four national policy 
objectives set forth in Section 257(b). First, with respect to 
``vigorous economic competition,'' we have defined the term ``market 
entry barrier'' in a manner that facilitates entry by small businesses 
yet avoids unwarranted regulatory intervention that could distort a 
competitive marketplace.
    4. Second, to promote ``technological advancement,'' the Commission 
has taken steps to eliminate outdated, unnecessary, or burdensome 
requirements and procedures. We have undertaken substantial efforts to 
disseminate information to small entities and entrepreneurs about 
Commission processes and communications opportunities, and to increase 
access to Commission decisionmakers. We also have made additional 
spectrum available which in turn should spur technological advancement. 
Third, we will continue to consider the policy favoring ``diversity of 
media voices,'' in our review of broadcast ownership rules and in other 
appropriate contexts, as well as in our further evaluation of issues 
relating to small businesses owned by women or minorities. Finally, we 
anticipate that our Section 257 actions thus far, combined with our 
ongoing commitment to enhance opportunities for small businesses, will 
promote the fourth policy goal of serving the ``public interest, 
convenience, and necessity'' by expediting entry in the 
telecommunications market, encouraging development of new, innovative 
communications services, facilitating the availability of services in 
various geographic markets, and contributing to a vibrant, competitive 
telecommunications marketplace.
    5. This Report also reflects our independent recognition of the 
crucial role that small businesses play in the U.S. economy. Small 
businesses contribute 47% of all sales in the United States, are 
responsible for 50% of the private gross domestic product, employ 53% 
of the private workforce, and produced an estimated 75% of the 2.5 
million new jobs created during 1995. Small businesses also produce 
more than twice the number of innovations per employee as large firms. 
In addition, while only 3% of the employees in large enterprises work 
in research and development, 19% of the employees in comparable small 
enterprises with intellectual property work in research and 
development. Despite their important role, small businesses represent 
only a small portion of the businesses in telecommunications.
    6. We initiated an omnibus Section 257 proceeding in May 1996 by 
adopting a Notice of Inquiry. Section 257 Proceeding to Identify and 
Eliminate Market Entry Barriers for Small Businesses, 11 FCC Rcd 6280 
(1996), in FCC 96-216, 61 FR 33066, June 26, 1996 (Market Entry 
Barriers Notice of Inquiry). We asked how to define small businesses, 
requested profile data about the characteristics of small 
telecommunications businesses, inquired about market entry barriers for 
small businesses generally, and asked whether small businesses owned by 
minorities or women face unique market entry barriers. Over 80 entities 
filed comments.4 The commenters represent every sector of 
the telecommunications market and include individual entrepreneurs, 
small businesses, large communications companies, associations, federal 
and state government representatives, telecommunications policy groups, 
women's organizations, and minority interests. Many of the parties' 
recommendations concern other ongoing Commission rulemakings, and 
therefore, must be addressed and resolved under the timeframes and in 
the context of the records in those separate proceedings.
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    \4\ See Appendix A.
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    7. As described in this Report, some of our key measures 
implementing Section 257 to date are: deciding to use service-specific 
definitions of small businesses, rather than adopting a general 
definition; planning new initiatives that will better enable small 
businesses to file comments and participate in Commission proceedings; 
requiring the Bureaus and Offices to ensure that our rulemaking 
processes enable meaningful comment on Commission proposals and their 
impact on small businesses; instituting rulemaking proceedings so as to 
ensure effective and prompt enforcement of the Communications Act and 
our rules; reducing information filing and other burdens that create 
obstacles to entry for small businesses; ensuring that the Commission 
fully considers the interests of small carriers in proceedings to 
determine funding mechanisms for universal service support; adopting 
licensing incentives to facilitate small business participation in 
spectrum auctions; adopting and proposing policies that permit 
geographic partitioning and spectrum disaggregation in various wireless 
communications services; adopting spectrum initiatives to encourage 
technological innovation by equipment manufacturers and others; 
speeding resolution of complaints; sponsoring conferences on 
telecommunications services and financing options; increasing public 
access to the Commission through technology by creating sites on the 
World Wide Web and establishing the National Call Center; and making 
continued efforts to ensure that the Telecommunications Development 
Fund (TDF or Fund) becomes an effective vehicle for removing financial 
obstacles to entry.
    8. As this Report demonstrates, we shall give careful consideration 
to the commenters' recommendations as we proceed to vigorously pursue 
the statutory objective of eliminating obstacles to entry and thereby 
to ensure a vibrant and strong telecommunications marketplace.
    9. This Report focuses primarily on initiatives that relate to 
small businesses generally. Prior to taking any action specifically 
oriented to small businesses owned by women or minorities, we must 
fully evaluate the Section 257 record according to the constitutional 
requirements that govern action by the federal government based on race 
(strict scrutiny) or gender (intermediate scrutiny). As part of this 
evaluation, we are conducting a comprehensive study of the 
participation of small businesses and businesses owned by women and 
minorities in the telecommunications market.

[[Page 34650]]

II. General Market Entry Barriers

A. Definitions and Characteristics

1. Definition of ``Market Entry Barrier''
    10. In the Market Barriers Notice of Inquiry, we observed that 
``market entry barriers'' could include:

obstacles that deter individuals from forming small businesses, 
barriers that impede entry into the telecommunications market by 
existing small businesses, and obstacles that small 
telecommunications businesses face in providing service or expanding 
within the telecommunications industry * * * 5
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    \5\ Market Barriers Notice of Inquiry, FCC Rcd 6280, 6283 
(1996), in FCC 96-216, 61 FR 33066, June 26, 1996. We also stated 
that discrimination could be a market entry barrier as well. Id. at 
6305-6306. See also infra Paras. 210-225 (addresses unique obstacles 
facing small telecommunications businesses owned by women or 
minorities).

In their comments, parties discussed various kinds of obstacles and 
impediments that are currently faced by small telecommunications 
businesses. In this Report, we discuss these obstacles and impediments 
without deciding whether they qualify as ``market entry barriers.'' It 
is important to note that not all impediments to small business 
participation in the telecommunications industry qualify as ``market 
entry barriers'' relevant to Section 257(a). We also describe several 
other Commission initiatives to encourage small business participation 
in the telecommunications industry. In this regard, we believe that 
this Report goes beyond what Section 257(a) requires.
    11. America's Carriers Telecommunications Association requests that 
the Commission construe ``market entry barrier'' in a commercially 
effective manner so as to ``create a competitive environment which 
permits small business'' ability to expand their market presence once 
entry has been achieved.'' The Small Business Administration notes that 
Section 257 ``does not define or limit'' the term ``market entry 
barrier'' and recommends that the Commission construe the term ``as 
aggressively as possible.'' Telecommunications Resellers Association 
claims that the market ``is an effective regulator only if market 
forces are adequate to discipline the behavior of all market 
participants; if one or more such participants retains vestiges of 
market power, regulatory intervention is essential to protect the 
public interest.'' It argues further that ``[r]egulatory intervention, 
therefore, continues to be necessary to ensure opportunities for small 
resale carriers in markets that are still dominated by much larger 
providers * * * [and that] [s]uch action could be deregulatory, but it 
also could require regulatory measures.''
    12. AT&T opposes our original construction of ``market entry 
barrier,'' stating that the 1996 Act did not intend the Section 257 
proceeding ``to carve out certain market niches as the preserve of 
small companies, or to subsidize their competition against larger 
entities.'' AT&T points out that barriers to small firm entry may 
simply result from the fundamental structure of a given market--for 
example, a market where there may be efficiencies due to economies of 
scale, or where a large up-front investment is required to begin 
operations.
    13. From a public policy perspective, and consistent with the 
``pro-competitive, de regulatory national policy framework'' 
established by Congress in the 1996 Act, we do not regard all 
impediments or obstacles to small business entry to necessarily be 
``market entry barriers'' that require governmental intervention under 
Section 257. Instead, we believe that the term ``market entry barrier'' 
as used in Section 257(a) is primarily intended to encompass those 
impediments to entry within the Commission's jurisdiction that justify 
regulatory intervention because they so significantly distort the 
operation of the market and harm consumer welfare. Removing these 
impediments will, in our opinion, facilitate the entry or expansion of 
small businesses into telecommunications markets as required by Section 
257(a) and also fulfill the national policy goals articulated in 
Section 257(b).
    14. It is not our objective to make viable small business entry 
into every sector of the telecommunications and information services 
industries because there may be legitimate efficiency reasons that 
favor large-scale operation. Finally, our construction of the term 
``market entry barrier'' does not in any way limit our broad obligation 
under Section 253 of the Act to preempt state or local legal 
requirements that ``may prohibit or have the effect of prohibiting the 
ability of any entity to provide any interstate or intrastate 
telecommunications service.'' 6
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    \6\ 47 U.S.C. Sec. 253(a).
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2. Definition of ``Small Business''
    15. In the Market Entry Barriers Notice of Inquiry, we requested 
comment on how small businesses should be defined under Section 257. 
Specifically, we asked whether we should define the term by the number 
of employees, gross revenues, net revenues, assets or any other 
factors. In addition, we asked whether we should adopt a general size 
standard or a specific standard for particular services. We also sought 
comment on whether we should use other factors such as minimum capital 
requirements, debt/equity ratios, cash flow, net worth or other indicia 
of a business' ability to enter and compete in the marketplace.
    16. The Commission historically has used a number of different size 
standards to define small businesses, depending on the particular 
communications service. The Commission has used size standards as a 
basis for analyzing the impact of its rules on small business entities 
pursuant to the Regulatory Flexibility Act.
    17. Those parties commenting on the issue of whether we should 
adopt a general size standard or specific standards for particular 
services seem to prefer the latter approach. The Small Business 
Administration argues that the size standards already in place for all 
types of small telecommunications carriers have served small businesses 
well and the Commission has not explained why they should be jettisoned 
for purposes of this proceeding. The Small Business Administration also 
notes that it would be virtually impossible to develop a single 
definition of small businesses given the diversity inherent in the 
telecommunications industry. It argues that a single definition would 
be contrary to the intent of the Small Business Act, which specifies 
that the Administrator is to make a detailed definition and that 
definitions shall vary from industry to industry to the extent 
necessary to reflect differing characteristics of such industries. 
Similarly, America's Carriers Telecommunications Association suggests 
that the Commission fashion policy on the basis of identifiable spheres 
of services being offered.
    18. We agree with those commenters who suggest that the Commission 
should not adopt a small business definition based on a general size 
standard. The comments demonstrate that each service has its own 
characteristics.
    19. In light of this, we believe that the better approach would be 
to adopt specific size standards for individual services in proceedings 
implementing Section 257 incentives. We note that our decision here is 
consistent with our current approach to adopting small business 
definitions in the competitive bidding context.
    20. Finally, several parties commented on the small business 
definitions adopted by the Commission

[[Page 34651]]

for specific services in other contexts and proposed alternative 
definitions for purposes of Section 257. As we are not now adopting a 
generic small business definition for purposes of Section 257, we find 
it unnecessary to address those comments in this report.
3. Characteristics of Small Telecommunications Businesses
    21. In the Market Entry Barriers Notice of Inquiry, we requested 
profile data about small telecommunications businesses, including their 
financing sources, types of services provided, markets served, 
geographic areas of operation, and information concerning their 
employee workforces.7 We received much general information 
about the nature of small telecommunications businesses, as well as 
specific profile information on a number of services, including 
Specialized Mobile Radio (SMR) services, cable television services, and 
wireless resale services.
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    \7\ Market Entry Barriers Notice of Inquiry, FCC Rcd 6280, 6298 
(1996), in FCC 96-216, 61 FR 33066, June 26, 1996.
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    22. A number of commenters point out that, in contrast to small 
businesses in some other industries, small businesses in the 
telecommunications industry typically are start-up companies that 
require a significant amount of equity capital or a combination of debt 
and equity. In addition, Small Business in Telecommunications notes 
that due to insufficient capitalization, small telecommunications 
businesses tend to engage in localized operations, serving only a 
portion of a larger market. Small Business in Telecommunications also 
notes that unlike large companies, small businesses do not have the 
capital resources to spread costs over an extended period. Thus, they 
need to earn a profit in a shorter period of time.

B. Financial Impediments

1. The Record
    23. Many parties have identified access to capital as a primary 
market entry obstacle for small businesses. Commenters assert that 
traditional sources of capital for small businesses are insufficient 
for today's entry costs. The record also is replete with comments that 
small businesses must assume great risks and make personal capital 
contributions to finance their companies.
    24. Some parties suggest ways for the Commission to address 
financial impediments. One party suggests that the FCC should encourage 
lenders to provide non-personally guaranteed funds to small carriers 
under the same terms and conditions provided to larger carriers. 
Another commenter contends that the FCC must recognize that gaining 
access to a spectrum license itself is not enough--the availability and 
cost of financing is critical to the success of PCS entrepreneurs.
    25. Many parties address the Telecommunications Development Fund as 
a source of financing and provide recommendations on how it should be 
administered.
2. Commission Measures
    26. The record shows that financial obstacles create substantial 
impediments to small business entry in the telecommunications market. 
We recognize that the telecommunications industry is generally capital 
intensive and that substantial financial resources are necessary for 
successful participation in most telecommunications sectors. The 
Commission is limited, however, in its authority--and concomitant 
ability--to remove financial impediments and obstacles. The FCC has no 
statutory jurisdiction over the financial industry. Thus, we cannot 
directly require banks, lenders, investors, or any other entity to 
finance small businesses, or any sized business, in the 
telecommunications industry.
    27. The Commission, however, has taken measures to enhance access 
to capital for small businesses in the auctions process. Pursuant to 
Section 309(j) of the Communications Act, the Commission has taken 
steps to promote capital access for small businesses, businesses owned 
by minorities or women, and rural telecommunications businesses in the 
provision of certain spectrum-based services. These mechanisms 
facilitate access to capital by making the license costs more 
affordable for small businesses.
    28. Additionally, Congress created the Telecommunications 
Development Fund and provided the Commission with a statutory role in 
its operation. As provided in Section 707 of the Telecommunications 
Act, the Fund's mission is to promote access to capital for small 
businesses in the telecommunications industry, stimulate development of 
new technology, promote employment and training, and support universal 
service and the delivery of telecommunications services to underserved 
areas. TDF is funded primarily by the interest earned on certain 
deposits for spectrum auctions, and is authorized to make loans and 
extend credit to small businesses.
    29. On November 20, 1996, the FCC Chairman appointed the full TDF 
board of directors.8 Pursuant to the statute, the board is 
in the process of establishing general policies that will govern the 
overall structure and operation of the Fund. TDF, a non-profit 
corporation, is authorized to make loans, investments, or other 
extensions of credit to small businesses; to provide financial advice 
to small businesses; and to prepare research studies, financial 
analyses, or other services consistent with the purposes of the Fund. 
The Board is currently in the process of creating a sustainable source 
of capital for small communications businesses and is investigating 
means to leverage the more than $20.3 million in initial capitalization 
it has received to date from auction upfront payments in order to 
create a larger pool for small communications business loans and equity 
investments.
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    \8\ FCC Public Notice, Public Sector Board Members Appointed to 
the Telecommunications Development Board (released Nov. 20, 1996). 
The TDF Board members are: Interim Chairperson, Solomon D. Trujillo, 
President and Chief Executive Officer, U.S. West Communications 
Group; Richard L. Fields, Managing Director of Allen & Company 
Incorporated; Thomas A. Hart, Jr., Partner, Ginsburg, Feldman & 
Bress; Debra L. Lee, President and Chief Operating Officer of BET 
Holdings, Inc. (Black Entertainment Television), Ginger Ehn Lew, 
Deputy Administrator, Small Business Administration; Kirsten S. Moy, 
Director, Community Development Financial Institutions (CDFI) Fund, 
Department of Treasury; and William E. Kennard, General Counsel, 
Federal Communications Commission.
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    30. The full TDF board is finalizing its review of market 
opportunities where TDF could direct its resources. TDF is commencing a 
search for a fund manager. The board also is working to develop TDF's 
structure to provide loans, equity investments and technical 
assistance.

C. General Regulatory Obstacles

    31. Many of the market entry impediments identified by the 
commenting parties concerned general regulatory issues, and in 
particular, difficulties in obtaining access to the Commission itself, 
participating in Commission proceedings, and in obtaining information 
about new services. The Commission already has taken several steps to 
eliminate many of these obstacles.
1. Access to Commission Decisionmakers
    32. Several parties point out that, unlike large companies and 
associations, small businesses often do not have the time or resources 
to meet with Commission staff or participate in Commission proceedings. 
Others note that many small businesses historically have had little 
representation before the

[[Page 34652]]

Commission and as a consequence, small businesses are frequently viewed 
as outsiders in the telecommunications industry.
    33. At the outset, we note that particular measures, both 
legislative and regulatory, have been created to ensure that the 
interests of small businesses are appropriately taken into account by 
federal agencies. At the legislative level are the Regulatory 
Flexibility Act (RFA),9 and, most recently, the Small 
Business Regulatory Enforcement Fairness Act (SBREFA), which Congress 
enacted as part of the Contract with America Advancement Act of 1996 
(CWAAA), that strengthens and broadens the existing mandate under the 
RFA.
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    \9\ Pub.L. No. 96-354, 94 Stat. 1164 (1980).
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    34. For example, the 1996 amendments to the RFA now provide for 
judicial review and include expanded authority for the Chief Counsel 
for Advocacy of the Small Business Administration to file amicus curiae 
briefs in court proceedings on the question of whether an agency 
properly complied with the RFA.
    35. Other provisions of the new law expand on these efforts, e.g., 
Section 212 requires federal agencies to publish easily understood 
``small entity compliance guides'' to assist businesses in complying 
with all regulations for which a final regulatory flexibility analysis 
is required. Section 213 requires federal agencies to establish within 
one year of enactment a program to answer inquiries of small entities 
seeking information on and advice about regulatory compliance, and 
Section 222 creates a Small Business and Agriculture Regulatory 
Enforcement Ombudsman within the Small Business Administration to give 
small businesses a confidential means to comment on agency enforcement 
activities.
    36. In response to these requirements, the Commission is developing 
compliance guides to assist small entities. Small entities can call the 
FCC for informal guidance on compliance questions. Small entities and 
other businesses may also call the FCC's National Call Center toll free 
at 1-888-Call-FCC to receive fact sheets and answers to routine 
questions. The Call Center will direct callers to the appropriate 
Bureau or Office staff for more detailed questions.
    37. The Commission's Office of Communications Business 
Opportunities specifically addresses small business concerns. The 
Commission is mindful of the financial and other difficulties that many 
small businesses face and of the limited resources that are available 
to them. As such, OCBO's primary mission is to promote opportunities 
for small business participation in the communications industry in 
order to increase competition, encourage innovation, increase 
employment opportunities, improve services to all communities, and 
increase the diversity of voices and viewpoints over the public 
airwaves. OCBO serves as the principal small business policy advisor to 
the Commissioners and is the Commission's primary resource for 
implementing SBREFA.
    38. OCBO also engages in extensive outreach and research. It 
provides information to the public, industry, trade organizations, and 
public interest organizations on the participation of small businesses, 
minorities, and women in various communications services. OCBO also 
organizes and participates in numerous conferences throughout the 
country designed to increase small business participation in the 
telecommunications industry and the regulatory process.
    39. We also wish to emphasize that any interested party may file or 
participate in Commission proceedings and file comments before the 
Commission. To assist them, the Commission has published several Fact 
Sheets describing how to participate in Commission proceedings. As a 
matter of general policy, we believe it is imperative to solicit the 
advice and perspectives of all interested parties, including small 
businesses. We have sought to do so by reaching out to groups who do 
not ordinarily visit the Commission or participate in its proceedings.
    40. In addition, last year, the Commission adopted a Notice of 
Inquiry seeking suggestions from all interested parties on how best to 
streamline its processes and improve its delivery of 
services.10 The responses ranged from proposals for major 
policy initiatives to suggestions for minor adjustments in the way we 
do business. The Commission has released a report summarizing its 
efforts to date to improve internal processes and to improve Commission 
operations.11
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    \10\ In the Matter of Improving Commission Processes, Notice of 
Inquiry, 11 FCC Rcd 14006 (1996) (Commission Processes Notice of 
Inquiry).
    \11\ Report to the Commission, Office of Plans and Policy, In 
the Matter of Improving Commission Processes: FCC Notice of Inquiry 
PP 96-17, July 25, 1996.
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    41. Another vehicle the Commission has used to assist small 
businesses in the Commission's processes is the use of seminars. One of 
the first seminars the Commission held following passage of the 1996 
Act was designed to help individuals participate in the Commission 
process.12 This forum provided the general public with 
instruction on how to get information from the FCC, how to track 
specific issues, how to file comments, and how to understand FCC 
terminology. The Commission also held two seminars about its World Wide 
Web site 13 and has participated in numerous other 
communications conferences for small businesses and minorities.
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    \12\ See FCC News Release, Learn Your NOIs: FCC Open Forum on 
How to Participate in the FCC Process (released May 2, 1996).
    \13\ These fora, titled How to Find FCC Information on the 
Internet, were held on June 24, 1996 and October 22, 1996.
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    42. The Commission will consider the recommendations developed in 
this proceeding as it plans future public seminars. We will encourage 
bureaus and offices, to sponsor, on a regular basis, seminars on issues 
of importance to small businesses, including emerging technologies, 
spectrum opportunities, and financing of communications services. We 
also will encourage regional and local conferences, which are 
particularly valuable in reaching small businesses that are not able to 
attend conferences in Washington, D.C.
    43. The Commission also has initiated an electronic comment filing 
effort which will make it easier for small businesses and organizations 
to file comments and review comments filed by others. On April 3, 1997, 
we adopted an Electronic Filing Notice of Proposed Rulemaking, FCC 96-
113, 62 FR 19247, April 21, 1997, which proposes the necessary rule 
changes for implementing the electronic filing system and invites 
comment on implementation questions. In proceedings where comments have 
been filed on diskettes, the public is able to view those comments 
online as long as they can access the World Wide Web site. A contract 
has been awarded to develop a new database system to receive, process, 
and make available comments in electronic form.
    44. Further, all Commission Offices and Bureaus are now accessible 
through the Commission's Internet site.14 Each office has an 
e-mail address and personalized Web page with information about the 
office and where to direct inquiries. In addition, texts of Commission 
actions, including notices of proposed rulemaking, orders, public 
notices, press releases, and speeches are now available on the 
Internet. The Commission also has created a general FCC mailbox 
entitled ``fccinfo'' for

[[Page 34653]]

electronic mail to the FCC.15 In addition, as described 
above, the public may utilize the FCC's National Call Center.
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    \14\ The URL address for the FCC home page is http://
www.fcc.gov.
    \15\ The general mailbox for e-mail to the FCC is located at 
[email protected]. Freedom of Information Act (FOIA) requests can be 
sent to [email protected]. See also FCC News Release, FCC Upgrades on 
the Internet (released June 6, 1995).
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    45. We believe that all of the initiatives described above will 
significantly enhance the ability of small businesses to make their 
perceived barriers known to the Commission and its decisionmakers. We 
also shall continue to be sensitive to the special needs of small 
businesses in this regard and to look for new ways to enhance their 
ability to have a voice in our decisionmaking process.
2. Commission Procedure as an Obstacle
    46. According to the Cable Telecommunications Association, in many 
instances, the agency's rulemaking process does not set forth any 
proposed rule or variations thereof that enables commenters to analyze 
the potential impact on small businesses before final rules are 
adopted. It strongly recommends that the Commission reinstitute the 
practice of putting out for public comment in notices of proposed 
rulemaking the actual proposed language or variations thereof of the 
rules the Commission is actually considering adopting.
    47. The Administrative Procedures Act (APA) requires an 
administrative agency to give ``either the terms or substance of the 
proposed rule or a description of the subjects and issues involved.'' 
16 Thus, it does not require an agency to set forth the 
actual text or variations of proposed rules. Nevertheless, we shall 
make every effort to ensure our rulemaking process complies with the 
spirit and letter of the APA and SBREFA by facilitating meaningful 
comment on the effects of our rulemaking proposals and carefully 
analyzing, and setting forth in that analysis, the effects of our final 
actions on small businesses. To the extent not precluded by statutory 
time constraints or the complex nature of the particular subject 
matters involved, we can further these goals by including in our 
rulemaking notices the text of actual proposed rules or variations 
thereof. However, many times the Commission expresses a range of 
options in its proposals, to solicit comment on those options, and on 
the underlying issue, before concluding that one option is the best. We 
believe this practice is consistent with the APA and SBREFA and often 
allows small businesses and all commenters a fuller opportunity to be 
part of the FCC's decisionmaking process because their comments affect 
the Commission's choice of rules. We thus shall strongly encourage 
bureaus and offices when they craft rulemaking proposals for our 
consideration to set forth actual text of proposed rules where feasible 
and practicable, although comment on a range of options and issues also 
may be solicited.17
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    \16\ 5 U.S.C. Sec. 553(b)(3).
    \17\ It should be fully understood, however, that this may not 
be possible where statutory time constraints exist, where numerous 
broad issues exist that make publication of a particular rule or set 
of rules impractical or inappropriate, or where other extenuating 
circumstances warrant expeditious action that would preclude setting 
forth with particularity a specific rule or versions thereof in the 
notice. To the extent that parties and other interested persons 
believe that final rules adopted do not adequately address their 
concerns, they can seek redress through the reconsideration process, 
i.e., requesting the Commission to modify or otherwise reconsider 
its rules.
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3. Access to Information
    48. Several parties also claim difficulties in obtaining access to 
information about new communications services and related regulatory 
matters as market entry barriers. To remedy this, the parties recommend 
that the Commission make documents and information accessible 
electronically to all parties and at costs that are reasonable to the 
general public and small businesses.
    49. We have taken many significant steps to ensure that information 
about new services and regulatory proceedings is made available. In 
addition, OCBO and the Commission's Office of Public Affairs (OPA) have 
made a special effort to reach out to small businesses and others who 
have less experience in working with the Commission and who are 
uncertain about how to obtain information from the Commission.
    50. OPA's Public Service Division provides a variety of 
information, such as Fact Sheets,18 Information Bulletins 
and Brochures, and handles incoming phone calls and requests from walk-
in visitors on all topics.19 OPA maintains mailing lists and 
performs outreach activities to organizations, businesses and 
individuals who are interested in particular issues. OPA also has 
expanded its outreach to ``nontraditional'' media, including community 
and Spanish language newspapers nationwide. Interested parties can 
obtain the Commission's Daily Digest over the Internet by subscribing 
to the Commission's list-server 20 or through the 
Commission's fax-on-demand 21 phone line service.
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    \18\ The Office of Public Affairs, Public Service Division has 
published Fact Sheets to help the public obtain information and 
participate in the Commission rule making process. They include, but 
are not limited to: FCC Fact Sheet, How to Participate in the FCC 
Process (released May 1996); FCC Fact Sheet, How to Participate in 
the FCC Rule Making Process (released May 1996); FCC Fact Sheet, 
Hints on Filing Comments With the FCC (released May 1996).
    \19\ The Office of Public Affairs is located at 1919 M Street, 
N.W., Room 254, Washington, D.C., (202) 418-0200. Interested parties 
who are unable to visit the FCC in person may obtain documents and 
services from the FCC's duplicating contractor, International 
Transcription Service Inc. (ITS) at 2100 M Street, N.W., Suite 140, 
Washington, D.C. 20037, (202) 857-3800.
    \20\ Request for subscriptions to the Commission's list-server 
should be sent via e-mail to [email protected]. See FCC Public 
Notice, Daily Digest on Listserver (released Oct. 30, 1995).
    \21\ The ``fax-on-demand'' service uses simple call and prompt 
instructions to send materials directly to a fax machine. Lengthy 
documents can be downloaded directly from the Commissions World Wide 
Web site at http://www.fcc.gov. The listserver provides only the 
Daily Digest and has recently expanded to include speeches.
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    51. After passage of the Telecommunications Act, OPA established a 
special Telecommunications Act home page on the Commission's web site 
to provide a central location for all public information regarding 
Commission actions to implement the law. OPA also modified the 
Commission's Daily Digest to assist the public in tracking the 
Commission's proceedings.
    52. OPA also publishes an Information Seekers Guide which contains 
detailed information about the Commission's reference rooms, and the 
various ways the public can obtain information at the Commission. In 
addition, OPA is consolidating public reference files into the main FCC 
Reference Center, which will enable the public to obtain all ownership, 
pending and granted licenses, and EEO files from one central location. 
All Commissions documents on the Commission's Internet site are 
available for free.

III. Impediments in Specific Services

A. Common Carrier Services

    53. In the Market Entry Barriers Notice of Inquiry, the Commission 
sought comment on ways to eliminate market entry barriers and enhance 
opportunities for entrepreneurs and small businesses in wireline 
services. Many of the obstacles identified by small businesses in the 
common carrier services relate directly to control of vital inputs by 
incumbent carriers and accordingly fall within the definition of 
policy-relevant entry barriers. Examples of such barriers include: 
incumbent LEC refusal to comply with interconnection obligations; 
onerous conditions, such as high deposits for resale; incumbent LEC 
monopoly control over subscriber list

[[Page 34654]]

information; and incumbent LEC control and assignment of 
NXXs.22
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    \22\ An ``NXX'' code, or central office code, is the second 
three digits of a ten digit telephone number and identifies the 
carrier switch that serves the particular customer location. See 
Administration of the North American Numbering Plan, Report and 
Order, 11 FCC Rcd 2588, 2593-2594 (1995) (Numbering Plan Order).
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    54. Commenting parties also assert that regulatory obstacles have 
evolved in a manner that favors incumbent carriers and thus create a 
tremendous disincentive for small businesses to enter the 
telecommunications marketplace. Examples of these perceived regulatory 
barriers include: the formal complaint process; regulatory filing 
burdens; support mechanisms for universal service; and the section 214 
certification process.
1. Interconnection and Resale Barriers
    55. Commenting parties raise a number of issues regarding 
interconnection and emphasize that aggressive enforcement of the 
interconnection and resale rights set forth in section 251 of the 
Communications Act, as amended, is essential for small businesses and 
new entrants to compete effectively in the telecommunications 
marketplace. Several commenters indicate that national implementation 
of the 1996 Act is essential because disparate regulations throughout 
the states would operate as a significant obstacle for small 
businesses, while some commenters claim that absent strong national 
standards, incumbent LECs will retain the ability to erect 
insurmountable barriers for new entrants, in particular small 
businesses.
    56. The Commission concurs that carrier compliance with, and our 
diligent enforcement of, the rights and obligations set forth in 
section 251 are absolutely necessary for achievement of the pro-
competitive goals and policies of the 1996 Act. In August 1996, as 
required by the 1996 Act, the Commission adopted rules to implement 
sections 251 and 252 of the Act, which establish the basic obligations 
of carriers, especially in the local exchange and exchange access 
markets.23 Section 251 establishes the general 
interconnection obligations for all telecommunications carriers, 
delineates further obligations for LECs, and prescribes additional 
requirements for incumbent LECs. Section 252 generally sets forth the 
procedures that state commissions, incumbent LECs, and new entrants 
must follow to implement the requirements of section 251 and establish 
specific interconnection arrangements. The Commission's regulations 
implementing the local interconnection and resale provisions of the 
1996 Act, however, have been partially stayed by the United States 
Court of Appeals for the Eighth Circuit.24 Accordingly, 
although the Commission remains fully committed to enforcement of our 
rules implementing the various interconnection and resale rights and 
obligations set forth in section 251, we may do so only to the extent 
those rules are not currently stayed by the appellate court. We will, 
however, continue to advocate national pricing rules in court.
---------------------------------------------------------------------------

    \23\ See generally First Local Competition Order, 11 FCC Rcd 
15499; Implementation of the Local Competition Provisions the 
Telecommunications Act of 1996, Second Report and Order and 
Memorandum Opinion and Order, 11 FCC Rcd 19392 (1996) (Second Local 
Competition Order).
    \24\ In particular, See Iowa Util. Board v. FCC, No. 96-3221 and 
consolidated cases (8th Cir. Oct 15, 1996).
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2. Enforcement and the Complaint Process
    57. In the Market Entry Barriers Notice of Inquiry, the Commission 
specifically requested comment on whether small businesses have 
particular difficulties regarding Commission rules or policies. Several 
commenting parties identified the Commission's own formal complaint 
process as a barrier. Excessive delay, according to the commenting 
parties, renders the complaint process ineffective as a tool to enforce 
the Communications Act and the Commission's rules, in particular the 
provisions of the 1996 Act designed to promote entry into the local 
telecommunications marketplace. To remedy the perceived barriers of the 
Commission's existing formal complaint process, commenting parties 
advocate that the Commission adopt a streamlined, highly expedited 
complaint process for resolving carrier-to-carrier disputes.
    58. We agree that effective enforcement of the Communications Act 
and existing Commission rules and policies is imperative if small 
businesses are to participate fully in the telecommunications 
marketplace. In recognition of this need, the Commission released a 
notice of proposed rulemaking that proposes procedures designed to 
expedite the resolution of formal complaints against common 
carriers.25 As some parties recommend in this proceeding, 
the Formal Complaint NPRM sets forth proposed procedures, including 
legal and evidentiary standards, for requests for cease-and-desist 
orders and other forms of interim relief designed to expedite 
disposition of formal complaints and associated requests for relief. We 
also have proposed to waive potentially burdensome formal and content 
requirements upon a showing of financial hardship or other public 
interest showing. The Commission anticipates that what has become an 
obstacle for small businesses will likely be eliminated as a 
consequence of revising and expediting the complaint process for all 
common carriers.
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    \25\ See Implementation of the Telecommunications Act of 1996: 
Amendment of Rules Governing Procedures To Be Followed When Formal 
Complaints Are Filed Against Common Carriers, Notice of Proposed 
Rulemaking, CC Docket No. 96-238, FCC 96-460 (released Nov. 27, 
1996) (Formal Complaint NPRM).
---------------------------------------------------------------------------

    59. Further, in response to suggestions regarding staffing 
necessary to ensure effective enforcement of and compliance with the 
Communications Act and the Commission's rules and policies, new staff 
has been added to both the formal and informal complaints branches of 
the Enforcement Division within the Common Carrier Bureau. A review of 
staffing in the Audits Branch of the Accounting and Audits Division in 
the Common Carrier Bureau is likewise being undertaken.
    60. Finally, a ``paperless environment'' is being implemented to 
increase the efficiency of the informal complaint process. All such 
correspondence submitted to the Common Carrier Bureau in paper form 
will be optically scanned and posted to an imaging database for 
processing. This will increase efficiency by, among other things: 
providing a means for the Bureau to identify on-line the status of 
pending informal complaints and inquiries; facilitating rapid storage 
and management of documents associated with a particular complaint or 
inquiry; and providing Commission staff with a virtually real-time 
means of obtaining statistical information about complaints and 
inquiries.
3. Information Filing Burdens
    61. Several parties have recognized that with movement to a 
competitive telecommunications marketplace, day-to-day regulatory 
filings are unnecessary and may serve anti-competitive purposes. 
Another commenting party proposes relaxed tariff filing requirements 
for all but the largest carriers.
    62. As demonstrated by recent orders, the Commission is committed 
to eliminating or streamlining tariff filing and other reporting 
requirements applicable to entities providing common carrier 
services.26 The Commission

[[Page 34655]]

believes that its actions taken with respect to reporting requirements 
will facilitate increased participation by entrepreneurs and small 
businesses in the provision of telecommunications services, while 
preserving their ability to obtain sufficient information to make 
rational market entry decisions.
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    \26\ See Revision of Filing Requirements, Report and Order, 11 
FCC Rcd 14110 (1996) (Revision of Filing Requirements Order). See 
also Implementation of the Telecommunications Act of 1996: Reform of 
Filing Requirements and Carrier Classifications, Order and Notice of 
Proposed Rulemaking, 11 FCC Rcd 11716, 11718 (1996) (amending the 
Commission's rules to specify that carriers may now file the 
Automated Reporting Management Information System (ARMIS) 43-0 
quarterly report and the 43-06 semi-annual Service Quality report on 
an annual basis); FCC Public Notice, Common Carrier Bureau Seeks 
Suggestions on Forbearance, DA 96-798 (released May 17, 1996) 
(requesting suggestions on specific regulatory rules or requirements 
that meet the statutory standards for forbearance). The Commission 
also has eliminated tariff filing requirements for interstate, 
domestic, interexchange services offered by nondominant 
interexchange carriers. This detariffing order, however, has been 
stayed by the United States Court of Appeals for the D.C. Circuit. 
See Policy and Rules Concerning the Interstate, Interexchange 
Marketplace, Second Report and Order, CC Docket No. 96-61, FCC 96-
424 (released Oct. 31, 1996), stay granted sub nom., MCI 
Telecommunications Corp. v. FCC, No. 96-1459 (D.C. Cir. Feb. 13, 
1997).
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4. Impact of Commission Proceedings on Small Telcos
    63. Several commenting parties express concern that the Commission 
has failed to consider the potential adverse impact that its 
proceedings may have on small or rural incumbent LECs by automatically 
assuming the dominance of rural incumbent LECs and thus avoiding 
analysis under the Regulatory Flexibility Act.
    64. The Commission continues to believe that incumbent LECs do not 
qualify as small businesses, as defined by the Small Business 
Administration, because they are dominant in their field of operation 
due to their current control of bottleneck facilities. Our assessment, 
however, may change in the future as local telecommunications markets 
become fully competitive. In the meantime, the Commission nevertheless 
has adopted the practice of including a discussion of the potential 
impact of Commission rules on small incumbent LECs. In addition, as 
suggested by at least one commenting party, the Commission has 
considered the impact on small carriers when revising the structural 
safeguards applicable to incumbent LECs as mandated by the 1996 Act.
5. Existing Universal Service Funding Mechanisms
    65. According to America's Carriers Telecommunications Association, 
the looming reality that any small interexchange carrier will have to 
shoulder a portion of the financial burden for universal service once 
it reaches a certain size operates to discourage such small carriers 
from expanding their existing interexchange operations or from 
providing interexchange service in the first place. America's Carriers 
Telecommunication Association proposes that the Commission amend part 
69 of this Chapter to fund Universal Service and Lifeline Assistance 
through a broad-based charge rather than through charges assessed upon 
a small segment of interexchange carriers.
    66. In implementing the Joint Board's recommendations regarding 
reform of the mechanisms for preserving and advancing universal 
service, the Commission has already recognized the concern expressed by 
America's Carriers Telecommunication Association by adopting 
competitively neutral mechanisms for calculating universal service 
support.27 Specifically, in the recently adopted Universal 
Service Report and Order, the Commission has required that any 
telecommunications carrier providing any interstate telecommunications 
service for a fee to the public (or to such classes of eligible users 
as to be effectively available to the public), and certain other 
providers of telecommunications, must contribute to the funding of 
universal service as well as that the contributions likewise must be 
determined in a competitively neutral manner based on end-user 
telecommunications revenues.
---------------------------------------------------------------------------

    \27\ See Federal-State Joint Board on Universal Service, Report 
and Order, FCC 97-157 (adopted May 7, 1997) (Universal Service 
Report and Order). See also Federal-State Joint Board on Universal 
Service, Recommended Decision, 12 FCC Rcd 87, 91 (1996), FCC 96-45, 
61 FR 63778, December 2, 1996 (Joint Board Universal Service 
Recommended Decision).
---------------------------------------------------------------------------

    67. In a related vein, some commenting parties suggest that the 
Commission streamline, or forbear from, its policy of requiring study 
area waiver petitions for companies seeking to acquire, and 
subsequently add, additional telephone exchanges to their existing 
study areas,28 claiming that the waiver procedure serves as 
yet another hurdle for small telecommunications carriers venturing to 
expand service through the acquisition of exchanges.
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    \28\ A study area is a geographical segment of a carrier's 
telephone operation, which in general corresponds to a carrier's 
entire service territory within a state. See 47 CFR Part 36, 
Appendix. For jurisdictional separations purposes, the Commission 
froze all service area boundaries effective November 15, 1984.
---------------------------------------------------------------------------

    68. In evaluating petitions seeking a waiver of the rule freezing 
study areas, the Commission applies a three-prong test: (i) The change 
in the study area must not adversely affect the Universal Service Fund 
support program; (ii) the state commission having regulatory authority 
must not object to the change; and (iii) the public interest supports 
the change.29 We just completed the first step in the 
process of effecting sweeping reform of the mechanisms for preserving 
and advancing universal service and will soon commence a proceeding to 
review our jurisdictional separations rules. Accordingly, we believe 
that it is premature to consider the streamlining proposal suggested by 
a commenter. Nevertheless, we shall carefully consider and evaluate the 
merits of any such proposals in future proceedings.
---------------------------------------------------------------------------

    \29\ See U.S. West Communications, Inc., Memorandum Opinion and 
Order, 10 FCC Rcd 1771, 1772 (1995) (U.S. West Order).
---------------------------------------------------------------------------

6. Impartial Administration of NXXs
    69. One party, which is a franchise under which individually owned 
and operated small business communications consultants provide voice 
messaging services, describes difficulties encountered as the result of 
allegedly improper administration of central office codes (i.e., NXXs) 
by incumbent LECs. This party states that it has encountered multiple 
instances of LEC service problems including, for example, LEC failure 
to update translation tables to assignment of numbers reserved for the 
LEC's own internal use.
    70. The Commission agrees that access to numbering resources is 
essential to all entities, not just small businesses, desiring to 
participate in the telecommunications industry. The concerns raised 
over numbering plan administration have been, or are in the process of 
being, addressed by the Commission. For example, the newly added 
section 251(e)(1) of the Communications Act requires the Commission to 
create or designate one or more impartial entities to administer 
numbering and to make such numbers available on an equitable basis. 
Even prior to the passage of the 1996 Act, the Commission announced the 
establishment of the North American Numbering Council (NANC) and 
directed that central office code administration be transferred from 
the LECs to a neutral entity selected to serve as the North American 
Numbering Plan Administrator (NANP Administrator). To ensure efficient 
and impartial number administration, the Commission has required that 
the new NANP Administrator not be aligned with any particular 
telecommunications industry segment.

[[Page 34656]]

    71. NANC, through various working groups, is developing a plan for 
the transfer of central office code administration. It also anticipates 
that it will be recommending a NANP Administrator by May 15, 1997. In 
the interim period prior to the transfer, Bellcore and the incumbent 
LECs will continue their existing numbering administration functions. 
The Commission, however, has declared that any attempts to delay or 
deny central office code assignments, or to charge different ``code 
opening'' fees for different providers of telecommunications services, 
would violate sections 251(b)(3) and 202(a) of the Telecommunications 
Act, as well as the Commission's numbering guidelines.30 The 
Commission remains committed to closely monitoring actions by incumbent 
LECs as central office code administrators until those functions are 
transferred to the new NANP Administrator.
---------------------------------------------------------------------------

    \30\ See Second Local Competition Order, 11 FCC Rcd at 19392.
---------------------------------------------------------------------------

    72. In addition, the Commission has specifically declined to allow 
states to serve as central office code administrators. Moreover, to 
ensure that small businesses do not suffer competitive disadvantages, 
we have mandated that state commissions choosing to implement an all-
services area code overlay must include: (i) mandatory 10-digit dialing 
by all customers between and within area codes in the area covered by 
the overlay; and (ii) the availability of at least one NXX in the 
existing area code to every telecommunications carrier authorized to 
provide telephone exchange service, exchange access, or paging service 
in the affected area code at least 90 days before introduction of the 
overlay.
    73. The Commission believes that these actions adequately address 
any entry barriers that small businesses may have previously faced due 
to incumbent LEC control of central office code assignment. In 
addition, as further evidence of an ongoing commitment to eliminating 
obstacles faced by small telecommunications businesses, the Commission 
has recently launched a home page for the NANC to facilitate open 
participation in, and wide-spread dissemination of information 
regarding, numbering plan administration.31
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    \31\ The URL address for the NANC home page is http://
www.fcc.gov/bureaus/common__carrier/www/NANC.
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7. Preemption of Onerous State Requirements
    74. Several commenting parties cite perceived onerous state 
regulatory requirements as one of the major obstacles to small business 
entry into, and expanded participation in, common carrier services 
request preemption of burdensome municipal requirements. The Commission 
stands ready to enforce the general prohibition set forth in section 
253 of the Communications Act, as amended, which prohibits any state or 
local requirement that prohibits or has the effect of prohibiting any 
entity from providing any interstate or intrastate telecommunications 
service. As required by statute, however, the Commission will consider 
any preemption request pursuant to section 253 on a case-by-case basis, 
after notice and opportunity for comment, depending on the facts 
presented.

B. Wireless Services

    75. Some commenters argue that many market entry barriers in the 
wireless telecommunications services relate to Commission rules, 
policies and practices that create disincentives for small businesses 
to participate in the wireless telecommunications services. These 
include: the Commission's spectrum assignment decisions and its 
construction requirements, application processing, and enforcement 
practices. Other obstacles identified by commenters relate to the 
control of vital inputs by incumbent facilities-based carriers, 
including the reluctance of facilities-based carriers to negotiate 
resale agreements. Many commenters also express views concerning our 
competitive bidding incentives for small businesses in spectrum-based 
wireless services. We address all of these issues in this Report.
1. Spectrum Assignment Policies
    76. Commenters indicate that our spectrum assignment decisions, and 
specifically the assignment of spectrum for large geographic service 
areas and in large spectrum blocks, create a barrier to entry for small 
businesses. Small Business in Telecommunications explains that wide-
area geographic systems are more capital intensive to construct and 
operate than other types of systems. American Mobile Telecommunications 
Association argues that entry barriers for small businesses are even 
higher in circumstances in which the Commission has decided to convert 
from site-specific to geographic area licensing for services in which a 
substantial number of small, incumbent licensees are already operating. 
The commenters argue that small business incumbents are often left with 
limited expansion opportunities because they lack the resources to bid 
on more frequencies or territory.
    77. As we have discussed in the service-specific rulemakings for 
those services where we have decided to or proposed to adopt geographic 
area licensing, we believe that using predefined geographic areas 
better serves the public interest than other types of licensing 
schemes, such as site-specific licensing. Under a geographic licensing 
approach, licensees can build and modify their systems in response to 
market demands without having to come to the Commission for additional 
authorizations. In addition, geographic licensing is administratively 
more efficient and less burdensome because licensees are required to 
file fewer license applications and, thus, the Commission has fewer 
applications to process.
    78. With respect to the impact on incumbent licensees of geographic 
area licensing, we note that in the context of the service-specific 
rulemakings, the Commission has either proposed or adopted provisions 
designed to protect incumbent operations from harmful interference as a 
result of future operations under the new licensing approach. We 
believe that this approach represents a balancing of competing 
interests, including those of incumbents, new entrants, small 
businesses, and large businesses.
    79. While we are mindful of the challenges that small businesses 
may face in their efforts to acquire geographic area licenses, we have 
taken steps to alleviate the perceived difficulties. For example, in 
some services, we have adopted band plans that included licenses for 
small geographic areas and spectrum blocks; thus, promoting economic 
opportunity for a wide variety of applicants, including small 
businesses, rural telephone companies and businesses owned by 
minorities or women. Moreover, in many of our auctionable services, we 
have adopted special provisions, such as bidding credits and 
installment payment plans, to assist small businesses, minority and 
women-owned businesses and rural telephone companies in acquiring 
spectrum assigned in geographic service areas and spectrum blocks.
    80. Finally, we believe, and many commenters in this proceeding 
agree, that rules and policies that permit geographic partitioning and 
spectrum disaggregation may also address the concerns raised regarding 
geographic area licensing. We recently adopted rules permitting all 
licensees in the broadband PCS service to partition their license areas 
or disaggregate their spectrum blocks to entities that meet

[[Page 34657]]

certain minimum eligibility requirements.32
---------------------------------------------------------------------------

    \32\ Geographic Partitioning and Spectrum Disaggregation by 
Commercial Mobile Radio Services Licensees, Report and Order and 
Further Notice of Proposed Rulemaking, WT Docket No. 96-148 and GN 
Docket No. 93-113, FCC 96-474 (released Dec. 20, 1996) (CMRS 
Partitioning and Disaggregation Order and FNPRM).
---------------------------------------------------------------------------

    81. In addition, we currently permit or are considering similar 
partitioning and disaggregation rules in services other than broadband 
PCS, including the Multipoint Distribution Service (MDS), 800 MHz SMR, 
paging, 220 MHz, 38 GHz fixed point-to-point microwave, Wireless 
Communications Service (WCS), Local Multipoint Distribution Service 
(LMDS), cellular, and General Wireless Communications Services (GWCS). 
We also are exploring whether to allow partitioning and disaggregation 
for other Commercial Mobile Radio Services. We believe these efforts 
may enhance the ability of small businesses to compete in the wireless 
telecommunications industry.
2. Spectrum Warehousing and Construction Requirements
    82. Small Business in Telecommunications argues that our policies 
relating to construction requirements encourage spectrum warehousing 
and thus, create a barrier to market entry for small businesses due to 
the unavailability of sufficient amounts of spectrum for their use. In 
particular, Small Business in Telecommunications points to our policy 
of granting extended implementation authority in the Specialized Mobile 
Radio (SMR) service to large companies which, it believes, encourages 
spectrum warehousing. It also suggests that the Commission's 
enforcement of its construction requirements has resulted in disparate 
treatment between large and small companies.
    83. Extended implementation authority for SMRs was initially 
established to facilitate construction of wide-area systems by all 
licensees, both large and small.33 In eliminating extended 
implementation authority in the 800 MHz SMR service, we noted that the 
geographic area licensing plan we adopted for the majority of the 
spectrum allocated to the service rendered extended implementation 
authority no longer necessary. We intend to initiate a proceeding that 
will examine the relationship between longer and more flexible 
construction requirements and spectrum warehousing. We also note that 
in recent years, we have adopted longer construction periods which 
benefit all licensees, both large and small, and have adopted proposals 
to adopt flexible construction requirements in other wireless services. 
In a separate proceeding, we have sought comment on whether our 
finder's preference program should be eliminated.
---------------------------------------------------------------------------

    \33\ See 800 MHz SMR Order and NPRM, 11 FCC Rcd at 1524.
---------------------------------------------------------------------------

3. Application Processing and Filing
    One party argues that some methods used by the Commission to 
process applications result in entry barriers for small businesses. We 
believe our recent Refarming decision 34 addresses some of 
the concerns raised. Specifically, we recently adopted rules that will 
inject competition in the frequency coordination process. We expect 
that such competition will reduce prices, improve coordination 
services, and provide more flexibility to private land mobile radio 
licensees.
---------------------------------------------------------------------------

    \34\ Replacement of Part 90 by Part 88 to Revise the Private 
Land Mobile Radio Services and Modify the Policies Governing Them, 
Second Report and Order, PR Docket No. 92-235, FCC 97-61 (released 
Mar. 12, 1997) (Refarming Second Report and Order).
---------------------------------------------------------------------------

    85. We agree with one commenter that our processes for electronic 
filing and viewing should be readily accessible by small businesses. We 
are taking steps to alleviate difficulties experienced by small 
businesses and others in accessing application and other licensing 
information on-line.
4. Enforcement Policies
    86. Small Business in Telecommunications also argues that the 
Commission does not allocate sufficient resources to the enforcement of 
its rules. It claims that complaints filed by its members remain 
pending for long periods, that alleged violations of construction 
requirements by large companies go unaddressed and that the Commission 
staff has, at times, urged settlement of complaints despite apparent 
rule violations. It argues that all of this, Telecommunications creates 
regulatory uncertainty which in turn results in unnecessary and 
unreasonable risk for small business operators.
    87. We agree that speedy enforcement of the Communications Act and 
our rules is imperative if small businesses are to participate 
effectively in the telecommunications industry and recently issued the 
Formal Complaint NPRM, 61 FR 67978, December 26, 1996, proposing 
changes to our formal complaint procedures for common carriers in an 
effort to improve the speed and effectiveness of our formal complaint 
process. In addition, the Wireless Telecommunications Bureau's 
Enforcement Division has streamlined its informal complaint processes. 
The streamlined procedures have resulted in faster resolution of 
written informal complaints.
    88. In an effort to reduce the filing of unfounded complaints 
against carriers, the Enforcement Division has taken steps to assist 
consumers in dealing with wireless carriers. For example, the Division 
has published a consumer information bulletin describing how to file a 
complaint with the FCC, fact sheets about industry practices and 
applicable FCC rules, and a consumer alert to potential investors, such 
as small business operators and consumers about how to avoid wireless 
telecommunications investment scams. Moreover, the Division provides 
information about consumer complaints to the National Fraud Information 
Center, provides information on licensing fraud issues to consumer 
groups, and provides technical support for the Federal Trade Commission 
and the Securities and Exchange Commission regarding wireless 
investment scams.
5. Outreach Efforts
    89. Some commenters raise the issue of outreach efforts to small 
businesses. As discussed above, the Office of Communications Business 
Opportunities was established to address issues relating to small 
communications businesses. The Wireless Telecommunications Bureau has 
designated a small business contact person to coordinate issues of 
particular concern to small businesses in the wireless 
telecommunications industry, and has sponsored a number of seminars 
regarding auctions and wireless telecommunications services. In 
addition, members of the Commission and its staff have spoken at 
numerous industry, trade association, and public interest organization 
conferences on opportunities in wireless services licensed by the 
Commission, and will continue to do so.
6. Interconnection and Resale
    90. National Wireless Resellers Association argues that the 
Commission's decision to sunset its longstanding rule prohibiting 
carriers from restricting resale of their services erects a market 
entry barrier because as facilities-based carriers will use the 
Commission's sunset provision as a basis for refusing to negotiate 
resale agreements, while financial institutions, sensing the carriers' 
reluctance to negotiate, will refuse to provide capital to resellers. 
It further argues that the Commission's inaction in resolving

[[Page 34658]]

disputes about Commercial Mobile Radio Service (CMRS) interconnection 
issues and the pending reseller complaints on the same subject have 
created a regulatory environment in which carriers, despite the 
requirements of Sections 201 and 202 of the Communications Act, feel no 
pressing obligation to negotiate in good faith with resellers regarding 
either resale or switch-based resale agreements, resulting in 
significant barriers to entry and expansion by delaying additional 
competition and the deployment of innovative services and by creating 
uncertainty in the industry impacting resellers' access to capital. In 
addition, National Wireless Resellers Association argues that the 
Commission must endeavor to balance the unequal bargaining positions 
between facilities-based carriers and resellers.
    91. In our CMRS Resale decision, we extended the resale rule 
applying to cellular carriers to broadband PCS and covered SMR 
providers and provided that this rule will sunset five years after we 
award the last group of initial licenses for currently allocated 
broadband PCS spectrum. A petition for reconsideration is now pending 
regarding this issue and, therefore, we will address concerns about the 
resale sunset in the context of that proceeding. We note that we intend 
to actively enforce the requirements of Sections 201 and 202, as well 
as other provisions of the Act and our rules. To date, the Wireless 
Telecommunications Bureau has received ten formal complaints regarding 
resale obligations. Of these ten complaints, six have been resolved and 
four are pending. The Wireless Telecommunications Bureau also has 
received four complaints regarding interconnection obligations 
(including reseller/switch interconnection issues), which are pending. 
Finally, we note that in the First Local Competition 
Order,35 we concluded that CMRS providers are not de facto 
LECs simply because they provide telephone exchange and exchange access 
services. In addition, we noted that Congress also concluded that CMRS 
providers' offering of such services, by itself, did not require them 
to be classified as LECs.
---------------------------------------------------------------------------

    \35\ See First Local Competition Order, 11 FCC Rcd at 15995-
15996 (the Commission declined to treat CMRS providers as local 
exchange carriers for purposes of Section 251(c) of the 
Communications Act). The National Wireless Resellers Association 
states that it disagrees with the Commission's conclusion in that 
proceeding.
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7. Definition of ``Covered SMR''
    92. In the CMRS proceeding, the Commission determined that an SMR 
licensee offering interconnected service falls within the statutory 
definition of an CMRS provider. American Mobile Telecommunications 
Association argues that this definition will include many licensees 
offering primarily local, dispatch service to specialized customers. It 
contends that these entities cannot compete against other CMRS 
providers and will be subject to a panoply of CMRS related regulations 
that will result in increased costs. We note that the ``covered SMR'' 
definition issue is currently pending before the Commission in a number 
of proceedings.36
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    \36\ See, e.g., CMRS Resale Order, 11 FCC Rcd 18455; Telephone 
Number Portability, First Report and Order and Further Notice of 
Proposed Rulemaking, 11 FCC Rcd 8352 (1996,) First Memorandum 
Opinion and Order on Reconsideration, FCC 97-74 (released Mar. 11, 
1997); American Mobile Telecommunications Association Petition for 
Declaratory Ruling (filed Dec. 16, 1996).
---------------------------------------------------------------------------

8. Competitive Bidding Incentives
    93. As we stated in the Market Entry Barriers Notice of Inquiry, 
Section 309(j) of the Act, like Section 257, embodies Congress' intent 
to facilitate opportunities for small businesses in telecommunications. 
Section 309(j) requires the Commission to establish competitive bidding 
rules and other provisions to ensure that small businesses, businesses 
owned by minorities and women, and rural telephone companies 
(collectively referred to as ``designated entities'') have an 
opportunity to participate in the wireless telecommunications industry.
    94.Many commenters stated that despite our incentives, the use of 
competitive bidding itself has become a barrier as it has resulted in 
higher costs for entry into wireless spectrum-based services. We have 
recognized previously that competitive bidding, despite the public 
interest benefits associated with its use, has the potential to erect 
another barrier for small businesses and other designated entities by 
raising the costs of entry into spectrum-based services.37 
However, we note that Section 309(j) provides mechanisms to address 
this potential problem, and the Commission has adopted special 
incentives for designated entities in various services. In addition, 
our policies regarding geographic partitioning and spectrum 
disaggregation should aid small businesses and other entrepreneurs 
through the creation of smaller, less capital intensive licenses that 
are more easily within the reach of smaller entities. Moreover, such 
policies may increase access to capital that can be used to construct 
and maintain wireless systems.38 We further note that small 
businesses have both participated in and been successful bidders in the 
majority of spectrum auctions we have conducted to date. Specifically, 
in our simultaneous multiple-round spectrum auctions, 79% of the 
auction bidders were small businesses (as defined for each respective 
service) and small businesses acquired 54% of the total licenses 
offered in these auctions.39
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    \37\ See, e.g., Competitive Bidding Fifth Report and Order, 9 
FCC Rcd at 5599-5600 (25% reduction for all broadband PCS C block 
small business applicants). See, e.g., D, E & F Block Competitive 
Bidding Report and Order, 11 FCC Rcd at 7875-7876 (25% bidding 
credit for small businesses and 15% bidding credit for very small 
businesses); Competitive Bidding Sixth Report and Order, 11 FCC Rcd 
at 161 (25% bidding credit for small businesses in broadband PCS C 
block auctions); 900 MHz SMR, 11 FCC Rcd at 1705-06 (15% bidding 
credit for very small businesses and 10% bidding credit for small 
businesses). See also 800 MHz SMR Order and NPRM, 11 FCC Rcd at 
1574; Allocation of Spectrum Below 5 GHz Transferred from Federal 
Government Use, Second Report and Order, 11 FCC Rcd 624, 662-663 
(1996) (GWCS Second Report and Order).
    \38\ See Geographic Partitioning and Spectrum Disaggregation by 
Commercial Mobile Radio Services Licensees, Notice of Proposed 
Rulemaking, 11 FCC Rcd at 10195-10196 (1996).
    \39\ These results include auctions for the narrowband PCS, 
broadband PCS, direct broadcast satellite, multipoint and/or 
multichannel distribution, 900 MHz SMR, and digital audio radio 
services. The Interactive Video and Data Service (IVDS) service 
auction was an oral outcry auction; thus, those results are 
excluded.
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    94. Finally, with respect to Small Business in Telecommunications' 
suggestion that the Commission examine alternatives to competitive 
bidding, we note that in granting the Commission authority to assign 
licenses through competitive bidding, Congress recognized the benefits 
of this assignment method in ensuring the efficient use of spectrum and 
faster deployment of new services and technologies to the public as 
opposed to other methods of licensing. Specifically, Congress found 
that other licensing methods such as lotteries and comparative hearings 
``in many respects * * * have not served the public interest.'' Indeed, 
in authorizing the Commission's use of competitive bidding, Congress 
limited the Commission's authority to license spectrum using lotteries. 
Consequently, we will continue to seek comment, where appropriate, on 
the use of competitive bidding to assign licenses for individual 
services in specific rulemaking proceedings, and we will continue to 
assign licenses for spectrum-based services through competitive bidding 
where permitted by the Communications Act and where we find that the 
public interest would be served. In addition, we note that Section 
309(j)(12) requires the Commission, no later than September 30, 1997, 
to

[[Page 34659]]

conduct a public inquiry and submit a report to Congress evaluating the 
use of competitive bidding, including the extent to which competitive 
bidding has improved the efficiency and effectiveness of the process 
for granting licenses and has facilitated the introduction of new 
spectrum-based technologies and the entry of new companies in the 
telecommunications market.
    96. In the Market Entry Barriers Notice of Inquiry, we asked , we 
sought preliminary views on how Section 309(j) incentives have operated 
in the completed auctions employing small business incentives. While 
one party had a positive view of the competitive bidding incentives 
used thus far, other commenters, however, did not. Other commenters 
allege that the Commission has a practice of changing rules in mid-
stream. Minority and women entrepreneurs, complain that they lost 
financing once the Commission eliminated its race and gender-specific 
competitive bidding provisions in light of Adarand v. 
Pena.40
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    \40\ 115 S.Ct. 2097 (1995) (Adarand).
---------------------------------------------------------------------------

    97. We agree that we must continue to take steps to eliminate entry 
barriers and other burdens that discourage small businesses from 
participation in auctions for spectrum-based services. Some of the 
suggestions made by commenters already have been implemented. For 
example, the Commission continues to adopt special incentives to 
encourage the participation of small businesses in auctions. Indeed, 
the Commission has adopted or proposed tiered bidding credits and, in 
some cases, tiered installment payment plans as suggested in Williams' 
testimony in a number of services, such as: broadband PCS D, E & F 
block, WCS, 900 MHz SMR, 800 MHz SMR, Interactive Video and Data 
Service (IVDS), and paging. The Commission also has eliminated the PCS 
cross-ownership rule and is considering procedural changes to increase 
the pace of auctions, and thereby, shorten the duration of each 
auction.
    98. Finally, one party argues that the Commission should consider 
policies that support entrepreneurs in their efforts to build their 
systems, recognizing that these small businesses will need to build out 
quickly not only to comply with FCC rules, but also to reduce the lead 
time of licensees in the Broadband PCS ``A'' and ``B'' block.
    99. We are considering some steps to facilitate faster build-out of 
PCS systems by entrepreneurs. For example, we recently adopted rules, 
62 FR 12752, March 18, 1997, that shorten the voluntary negotiation 
period for relocation of microwave incumbents by PCS licensees in the 
``C,'' ``D,'' ``E,'' and ``F'' blocks from two years to one 
year.41 We believe this rule change will help to eliminate 
an obstacle to entry for ``C'' and ``F'' block licensees by encouraging 
faster relocation of microwave incumbents and, therefore, enabling 
these licensees to more quickly build-out their PCS systems and 
commence operation. In addition, the Wireless Telecommunications Bureau 
is exploring using its current licensing databases to fashion 
specialized licensing databases which we anticipate will be of 
particular interest to small businesses. The Bureau is exploring ways 
to provide interested parties with information concerning spectrum 
availability and types of services being provided by existing 
licensees. We believe that the availability of such databases will 
facilitate small businesses' efforts to discover and realize 
partitioning and disaggregation opportunities.
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    \41\ Amendment to the Commission's Rules Regarding a Plan for 
Sharing the Costs of Microwave Relocation, Second Report and Order, 
WT Docket No. 95-157, FCC 97-48 (released Feb. 27, 1997).
---------------------------------------------------------------------------

C. Cable Services

    100. Before addressing the specific cable-related market entry 
concerns raised by commenters, we note that even prior to the enactment 
of Section 257, the Commission already had taken significant steps to 
minimize the impact of our regulations on small cable businesses. In 
1995, we established a new form of cable rate regulation designed to 
take into account the unique circumstances of small cable systems and 
companies.42 By tailoring rules specifically for small cable 
systems, the Small System Order has had a significant impact in easing 
the burdens of regulation for smaller cable companies. The commenters 
in this proceeding have brought to our attention certain areas in which 
they believe market entry barriers exist for small cable operators and 
other small video programming providers.
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    \42\ Implementation of Sections of the Cable Television Consumer 
Protection and Competition Act of 1992; Rate Regulation, Sixth 
Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 
7393 (1995) (Small System Order).
---------------------------------------------------------------------------

1. Access to Programming and Related Obstacles
    101. Several commenters assert that, due to their size, small cable 
operators have difficulty in obtaining programming on terms and 
conditions comparable to their larger competitors. These concerns 
implicate the program access rules we adopted pursuant to Section 628 
of the Communications Act.43 One of the purposes of Section 
628 is to increase ``competition and diversity in the multichannel 
video programming market  * * *.'' In adopting program access rules, 
the Commission sought to carry out Congress' preference that program 
access disputes be resolved in the marketplace 44 
specifically rejecting a generally applicable approach to program 
access issues, such as requiring program vendors to offer their 
programming to all MVPDs [multichannel video programming distributors] 
at the same rate on the same terms narrowly tailoring our rules to 
address conduct by vertically integrated programmers, i.e., programmers 
affiliated with cable operators. Absent regulation, such programmers 
have the incentive and ability to favor their affiliated cable 
operators over competing MVPDs. Our rules thus focus on discrimination 
between MVPDs that are in competition with each other. Commenters in 
the instant proceeding urge us to expand the focus of the program 
access rules by more broadly regulating the disparity between 
programming rates paid by small cable operators and rates paid by 
larger MVPDs, even where that disparity does not involve competing 
MVPDs.
---------------------------------------------------------------------------

    \43\ 47 U.S.C. Sec. 548. See 47 CFR Sec. 76.1000-76.1003.
    \44\ Applications of Turner Broadcasting System, Inc., 
Memorandum Opinion and Order, 11 FCC Rcd 19595 (1996) (Turner).
---------------------------------------------------------------------------

    102. We do not deem it appropriate to seek to impose new 
regulations governing the relationship between programmers and 
distributors at the wholesale level. While higher programming rates 
obviously are not in the financial interest of smaller operators, this 
alone does not allow the Commission to step in with a new scheme of 
regulation. As discussed elsewhere in this item, our efforts to take 
account of the hardships faced by small cable systems have been aimed 
more at eliminating potentially burdensome regulatory requirements, 
rather than marketplace activity that does not appear to be intended to 
deter competition. The complaints articulated by commenters are 
consistent with the common practice of vendors offering discounts for 
bulk purchasers. Even our rules regulating vertically integrated 
programming vendors allow variations in rates, terms, and conditions 
when selling to a particular programming distributor based on 
``economies of scale, cost savings, or other direct and legitimate 
economic benefits reasonably

[[Page 34660]]

attributable to the number of subscribers served by the distributor. * 
* *'' Likewise, Congress recently re-affirmed the right of a cable 
operator to engage in discriminatory pricing at the retail level by 
offering bulk discounts to multiple dwelling units. Although we found 
in 1992 that Congress sought to rely on the marketplace to the extent 
possible, the Telecommunications Act of 1996 reflects an even more 
deregulatory intent on the part of Congress. In this environment, we 
therefore do not believe it appropriate to seek to expand the scope of 
our program access rules to address the disparity in programming rates 
where competing MVPDs are not involved.
    103. With respect to disparate pricing for programming acquired 
through broadcaster retransmission consent, Section 325 of the 
Communications Act 45 imposed upon the Commission the duty 
to ensure that its regulation of broadcaster retransmission consent did 
not conflict with its obligation under Section 623 46 to 
ensure that basic service rates are reasonable. Subject to this 
proviso, Congress expressly gave broadcasters flexibility to negotiate 
the terms of carriage and did not appear to exclude from the 
negotiating table such factors as the individual characteristics of the 
cable system requesting carriage. As the Senate Committee Report 
explaining Section 325 states, it ``is the Committee's intention to 
establish a marketplace for the disposition of the rights to retransmit 
broadcast signals; it is not the Committee's intention in the bill to 
dictate the outcome of the ensuing marketplace negotiations.'' 
47 We thus are reluctant to limit the scope of negotiations 
under the retransmission provisions of Section 325 absent clear and 
persuasive evidence that the present system is not meeting the 
objectives Congress had in mind.
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    \45\ 47 U.S.C. Sec. 325.
    \46\ 47 U.S.C. Sec. 543.
    \47\ Senate Committee on Energy and Commerce, S. Rep. No. 92, 
102d Cong., 2nd Sess. at 36 (1991).
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2. Cable Technical Standards
    104. Southwest Missouri Cable asserts that the Commission's 
stringent proof of performance technical standards require considerable 
expense and expertise that many small cable operators cannot afford. 
Our cable technical standards serve a number of important objectives, 
including ensuring broadcast signals retransmitted by cable systems are 
not subject to material degradation, promoting uniform and nationwide 
standards generally, and ensuring cable systems do not exceed our cable 
signal leakage standards by causing excessive radiation that might 
interfere with use of aeronautical radio services and thereby endanger 
life or property. In Cable Television Technical Standards,48 
we revised our cable technical rules and required proof of performance 
testing to ensure compliance. In addition, we stated that we would 
allow local franchising authorities of small cable systems to adopt 
less stringent standards because they are in the best position to 
evaluate the costs of compliance with technical standards and the 
impact that such costs will have on the provision of cable service. We 
continue to believe that this is a reasonable approach with respect to 
ensuring adequate signal quality and, absent a fuller reexamination, 
represents an appropriate balancing of the need for adequate technical 
standards and the interests of small cable businesses.
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    \48\ Cable Television Technical and Operational Requirements, 
Review of the Technical and Operational Requirements of Part 76 
Cable Television, Report and Order, 7 FCC Rcd 2021 (1992) (Cable 
Television Technical Standards).
---------------------------------------------------------------------------

    105. Additional testing and reporting requirements apply when a 
cable operator transmits signals over aeronautical frequencies. 
Although these rules further important safety considerations, it may be 
possible to eliminate certain reporting requirements to ease regulatory 
burdens on smaller entities, without jeopardizing public safety. After 
further examination, we will decide whether to propose relaxed 
reporting requirements in this context.
3. Access to Capital and the Definition of ``Affiliate''
    106. Commenters suggest the Commission could ease the difficulty 
small cable operators face in obtaining access to capital by narrowly 
defining the term ``affiliate'' as that term is used in the small cable 
operator provisions of the Telecommunications Act.49 As 
enacted by the 1996 Act, Section 623(m) of the Communications 
Act,50 grants partial and, in some cases, total rate 
deregulation to small cable operators in franchise areas where they 
serve 50,000 or fewer subscribers. The Commission has requested comment 
on the manner in which the term ``affiliate'' should be defined for 
purposes of determining whether a particular cable operator qualifies 
as a ``small cable operator'' entitled to rate deregulation.
---------------------------------------------------------------------------

    \49\ 1996 Act, Sec. 302(c). See Cable Act Reform Order, 11 FCC 
Rcd at 5947-48.
    \50\ 47 U.S.C. Sec. 543(m).
---------------------------------------------------------------------------

    107. The Commission intends to give full and careful consideration 
to the concerns raised by small cable companies in the Cable Act Reform 
proceeding (Docket 96-85), 61 FR 19013, April 30, 1996, including the 
extent to which it would be appropriate to define the term 
``affiliated'' to exclude passive investments in small cable companies. 
The commenters have raised important issues concerning the benefits of 
permitting such passive investments, but we note that substantial 
countervailing arguments also have been made that merit our 
consideration. We expect to address and resolve these issues in the 
near future.
4. Franchise Renewal Process
    108. The Small Cable Business Association maintains that many cable 
operators face significant abuse in the franchise renewal process 
because municipalities fail to follow the procedural protections of 47 
U.S.C. Sec. 546, and, in other instances, demand system upgrades wholly 
unrelated to community needs and costs or seek compensation in excess 
of the five percent franchise fee cap. The Small Cable Business 
Association recommends that the Commission initiate an inquiry into the 
franchise renewal processes that exist at the municipal level and, from 
this investigation, recommend to Congress changes in federal law that 
will more affirmatively preempt overreaching by local franchise 
authorities.
    109. As the commenters recognize, Section 626(e)(1) expressly 
provides for a right of judicial appeal for cable operators who have 
been denied renewal or have been ``adversely affected by a failure of 
the franchising authority to act in accordance with the procedural 
requirements'' of Section 626. In view of Congress' enactment of a 
specific judicial remedy, and in the absence of specific information 
that abuses have occurred, we believe it would be premature at this 
juncture to move forward on the Small Cable Business Association's 
proposal. Nevertheless, commenters are free to bring to the 
Commission's attention documented instances of abuse and, if 
appropriate, we shall recommend legislative initiatives to address any 
such issues.
5. Leased Access Requirements
    110. Southwest Missouri Cable argues that imposing leased access 
requirements is not practicable, is a severe economic burden imposed on 
small business, and is totally unnecessary. The Small Cable Business 
Association states the Commission should adopt leased access rules that 
adequately compensate small cable companies for their true costs in 
meeting leased access requests so that such requirements do not cripple 
small

[[Page 34661]]

cable financially or competitively. Blab Television, on the other hand, 
asserts that the complexity of Commission rules and the inaccessibility 
of underlying information from cable operators make it extremely 
difficult to determine if a given rate is ``reasonable'' under the 
statute and that, consequently, leased access programmers face 
artificially high carriage rates. It states that a low, across-the-
board, fixed rate would eliminate market entry barriers and protect 
both programmers and cable operators.
    111. Section 612(b)(1)(D) exempts many smaller cable operators from 
leased access requirements altogether. In addition, we recently 
modified our leased access rules, excusing operators of eligible small 
systems from having to respond to requests for leased access unless the 
leased access programmer provides specified information designed to 
show that its request is bona fide and providing qualifying small 
system operators twice as much time as other cable operators to comply 
with certain procedural deadlines. The revised rules should benefit 
small leased access programmers such as Blab Television because they 
should result in lower maximum rates for tiered services, permit 
resale, grant access to highly penetrated tiers, and require part-time 
rates to be prorated without a surcharge. We believe the modified 
leased access rules strike the proper balance required to ensure that 
the congressional objectives underlying Section 612 are fully realized 
without imposing onerous burdens on small cable systems.
6. Access Contracts to Multiple Dwelling Units
    112. OpTel maintains that cable operators often enter into service 
contracts with owners of multiple dwelling units (MDUs) that end up 
being ``perpetual'' and thus allow franchised cable operators to lock-
up whole blocks of subscribers. It maintains that the Commission should 
apply a ``fresh look'' policy to perpetual or other long-term contracts 
and provide an opportunity for MDU owners or managers to escape such 
contracts. In a similar vein, Watson Cable states that exclusive 
agreements of larger cable companies with apartment complexes deny 
access to smaller cable companies that serve the same area. Both the 
National Cable Television Association and Tele-Communications, Inc. 
state that the contracts about which OpTel is concerned are not the 
type of market entry barrier contemplated by Section 257 because they 
do not reflect legal or regulatory barriers nor result from disparities 
in the ability to raise capital. Instead, such contracts are the result 
of arms-length, privately-negotiated agreements which are equally 
available to franchised cable operators and other MVPDs.
    113. These issues are related to matters that are the subject of a 
pending proceeding known as the ``Inside Wiring'' 
rulemaking,51 where the Commission is addressing, among 
other things, the ability of a cable operator or other MVPDs to claim 
ownership or control over wiring installed within MDUs. The Commission 
is considering whether MDU owners and residents have sufficient 
flexibility to choose between competing MVPDs, or whether Commission 
action would be appropriate. We believe the Inside Wiring rulemaking is 
the better forum to address the MDU issues raised by commenters in the 
instant proceeding. The Commission intends to act in the Inside Wiring 
proceeding shortly, and will address issues related to MDUs in an 
appropriate manner.
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    \51\ Implementation of the Cable Television Consumer Protection 
and Competition Act of 1992; Cable Home Wiring, Final Order on 
Reconsideration and Further Notice of Proposed Rulemaking, 11 FCC 
Rcd 4561 (1996).
---------------------------------------------------------------------------

7. Pole Attachment-Related Impediments
    114. Both the Small Cable Business Association and the National 
Cable Television Association maintain that cable systems that operate 
in rural areas face entry barriers and competitive barriers from 
electrical and telephone cooperatives because the rates and conditions 
which these entities charge for pole attachment usage are not subject 
to pole attachment regulation. They ask that we propose to Congress a 
statutory amendment to Section 224 of the Communications 
Act,52 that would apply the pole attachment/access to right-
of-way rules to telephone cooperatives and electric cooperatives.
---------------------------------------------------------------------------

    \52\ 47 U.S.C. Sec. 224.
---------------------------------------------------------------------------

    115. When it created this exemption almost twenty years ago, 
Congress found that cooperative utilities charge the lowest pole rates 
to pole users. Further, in the rural areas generally served by 
cooperatives, the technical quality of over-the-air television was 
often poor, giving the customer-owners of these utilities an added 
incentive to foster the growth of cable television in their areas. 
While the comments suggest that some of the circumstances that gave 
rise to the exemption no longer exist, the record in this proceeding 
provides an inadequate basis to make a firm recommendation whether to 
retain or eliminate the exemption. We will continue to consider the 
matter.
8. Other Matters
    116. The Commission is examining other areas not specifically 
raised in the Section 257 proceeding that have the potential for 
imposing barriers on small cable businesses. For example, the 
Commission is revisiting its current regulation that requires cable 
operators to be able to override normal programming to give viewers 
notice of a national emergency. The Commission also is giving careful 
consideration to whether an extended implementation schedule for 
smaller cable systems can be developed that would satisfy Section 624, 
without undermining the congressional intent underlying that section.
    117. In Closed Captioning Notice 53 we have sought 
comment on the implementation of Section 713 which requires the 
Commission to prescribe rules mandating that video programming be 
closed captioned for the benefit of persons with hearing disabilities. 
Specifically, we recognized the market entry objectives of Section 257 
and seeks comment on whether we should define economic burdens based on 
the size of the programmer or provider.
---------------------------------------------------------------------------

    \53\ 47 U.S.C. Sec. 613. See In the Matter of Closed Captioning 
and Video Description of Video Programming, Notice of Proposed 
Rulemaking, 12 FCC Rcd 1044 (1997) (Closed Captioning Notice).
---------------------------------------------------------------------------

D. Mass Media Services

    118. In the mass media area, the Commission already has made 
considerable progress in reducing regulatory hurdles that may impact 
small businesses and impede entry. We have streamlined and improved our 
processes so that the average time for processing routine television 
station sales has been reduced from three months to two months and the 
average time for processing non-routine radio station sales from twelve 
months to five months. The Mass Media Bureau also has begun publishing 
radio application status and station technical information on the 
Internet so that it is readily available to the public. It has 
commenced work on a project to provide for electronic filing of 
broadcast applications, which will scan for incomplete or inaccurate 
applications and provide for automatic computer analysis of 
interference issues. The Commission also plans to resolve the 
proceeding instituted to reform the comparative hearing process for the 
award of new broadcast licenses. All of these efforts should 
significantly assist small businesses by generally easing the burdens 
and delays associated with the regulatory process. The commenters

[[Page 34662]]

have raised additional entry barrier issues and these are addressed 
below.
1. Low Power Television
    119. Community Broadcasters Association argues that small 
businesses, particularly, low power television (LPTV), have not been 
given the amount of regulatory attention they deserve and that Section 
257 requires. More specifically, some commenters state that Section 
257's goal of diversity will be rendered virtually meaningless under 
the Commission's proposed digital television (DTV) conversion proposal 
because low power television stands to lose approximately forty-five 
percent of its stations, thereby decreasing diversified ownership which 
will result in significantly less diversified programming. According to 
these interests, the Commission should change its ``small business'' 
focus from trying to facilitate multi-billion dollar bidding in 
spectrum auctions to assisting currently-existing businesses that are 
truly small so that these business are not eradicated. In particular, 
these commenters believe the Commission should propose multiple classes 
of DTV--full power and small stations--and open a second window for 
these smaller DTV allotments and designate only low power television 
station licensees as eligible. They urge the Commission to use a wide 
range of solutions proposed by the low power television industry to 
protect as many existing low power television authorizations as 
possible and to accommodate as many of these businesses with DTV 
conversion channels as feasible.
    120. With respect to concerns expressed by some commenters about 
the impact of the conversion of DTV on LPTV stations, on April 21, 
1997, the Commission released the DTV Fifth Report and Order in MM 
Docket No. 87-268,54 62 FR 26684, May 14, 1997, which issued 
initial licenses and established the service rules for 
DTV.55 In the DTV Fifth Report and Order, following 
Congress' direction in Section 336(a)(1) of the 1996 Act, we determined 
that initial eligibility for DTV licenses should be limited to those 
full-power broadcasters who, as of the date of issuance of the initial 
digital licenses, hold a license to operate a television broadcast 
station or a permit to construct such a station, or both. We reiterated 
our previous determination that there is insufficient spectrum to 
include LPTV stations and translators, which are secondary under our 
rules and policies, to be initially eligible for a DTV channel and that 
we had not been able to find a means of resolving this problem. 
However, we also pointed out that limiting initial eligibility to full-
power broadcasters does not necessarily exclude LPTV stations from the 
conversion to DTV.
---------------------------------------------------------------------------

    \54\ See Advanced Television Systems and Their Impact Upon the 
Existing Television Broadcast Service, Fifth Report and Order, MM 
Docket No. 87-268, FCC 97-116 (released Apr. 21, 1997) (DTV Fifth 
Report and Order).
    \55\ See DTV Sixth Further Notice, 11 FCC Rcd 10968. While this 
proceeding progressed further, all-digital advanced television 
systems were developed. Thereafter, the Commission began to refer to 
``advanced television'' as ``digital television'' or ``DTV'' in 
recognition that, with the development of the technology, any 
advanced television system was certain to be digital. See Advanced 
Television Systems and Their Impact upon the Existing Television 
Broadcast Service, Fourth Report and Order, 11 FCC Rcd 17771, 17773 
(1996).
---------------------------------------------------------------------------

    121. On the same day, in the DTV Sixth Report and Order in MM 
Docket No. 87-268,56 62 FR 26996, May 16, 1997 we adopted a 
number of measures intended to minimize the impact of DTV 
implementation on existing LPTV service. These measures include many of 
the changes to the technical rules requested by the LPTV and TV 
translator industries. The new rules provide additional flexibility to 
accommodate low power operations during and after the transition to DTV 
and thus mitigate the impact of DTV implementation on LPTV. For 
example, low power stations that are displaced by new DTV stations may 
apply for a suitable replacement channel in the same area, on a first-
come, first-served basis, without being subject to competing 
applications. We also deleted the restrictions on use of a channel 
either seven channels below or fourteen channels above the channel of 
another station in the low power TV service, allowed LPTV and TV 
translator stations to make use of appropriate interference abatement 
techniques to show that the station will not cause interference to 
other full or low power stations, and allow LPTV and TV translator 
station operators and applicants to agree to accept interference from 
other LPTV and TV translator stations.
---------------------------------------------------------------------------

    \56\ See Advanced Television Systems and Their Impact Upon the 
Existing Television Broadcast Service, Sixth Report and Order, MM 
Docket No. 87-268, FCC 97-115, Paras. 6, 114-147 (released Apr. 21, 
1997) (DTV Sixth Report and Order) (adopting a Table of Allotments 
for DTV, rules for initial DTV allotments, procedures for assigning 
DTV frequencies, and plans for spectrum recovery). Thus, LPTV 
stations will continue to have secondary status to full-service 
television stations. See 47 CFR Sec. 73.702(b).
---------------------------------------------------------------------------

    122. In the DTV Sixth Report and Order, we also noted that, as 
secondary operations, LPTV and TV translator stations would be able to 
continue to operate until a displacing DTV station or a new primary 
service provider is operational. We concluded that these various rule 
changes would preserve many existing low power operations, open many 
new channels for those low power operations subject to possible 
displacement by DTV, and allow hundreds of LPTV and TV translators to 
continue service to their viewers. We further recognized that most low 
power stations would be able to continue to operate throughout the DTV 
transition.
    123. We note that DTV may offer new opportunities for small 
businesses. For example, small businesses may have opportunities to 
apply for licenses to use much of the recovered spectrum. Also, new 
opportunities might arise for small businesses to participate in the 
manufacturing or sale of equipment for DTV, LPTV, and related services, 
or for wireless services that might possibly be provided over recovered 
spectrum from the transition by broadcasters to DTV.
2. Wireless Cable
    124. Integration Communications International et al. maintain that 
the biggest barrier to wireless cable's competition with wireline cable 
and DBS services and to the goal of a level playing field is 
insufficient channel capacity. They state that wireless cable operators 
must digitize and compress the signal to increase capacity but the high 
costs of hardware to digitize and compress is prohibitive for small 
businesses. Wireless cable interests also contend that the Commission 
should allow wireless cable operators to receive digitalized, 
compressed signals from one source such as DBS service, in order to 
avoid the enormous capital investment that otherwise would be necessary 
for digital compression equipment at each system headend.
    125. The Commission is sensitive to the commenters' complaint that 
existing technology for digital modulation in Multipoint Distribution 
Service station operation is too expensive for small businesses, and 
that the Commission should approve more cost effective methods of 
digitized signal reception by wireless cable operators. We already have 
taken some steps to address this issue. Specifically, we authorized the 
use of digital modulation techniques in MDS and ITFS on an interim 
basis until final rules could be promulgated.57 In addition, 
on March 14, 1997, a group of entities in the wireless cable industry 
filed a petition for rulemaking

[[Page 34663]]

proposing to engage in fixed two-way digital transmissions, and we 
issued a public notice seeking comment on the petition.58 
The Commission will continue to take suitable steps to enhance the 
wireless cable operators' ability to provide competition in the video 
marketplace, including, as appropriate, authorization of new 
technological advancements for use by such operators. Broadcast Data et 
al. maintain that the Commission should repeal or modify Sections 21.44 
and 21.912, which, in their view, unfairly impose a so-called ``death 
penalty'' on MDS licensees. They apparently believe that, in order to 
operate, small MDS businesses must enter into channel leasing 
agreements whereby larger wireless cable entities provide programming 
or equipment in exchange for channel capacity as part of a channel 
aggregation strategy. Thus, the commentators urge that the Commission 
eliminate the ``death penalty'' provisions of the rules or guarantee 
the licensee access to the larger operator's site, equipment, and, if 
necessary, channel capacity.
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    \57\ Request for Declaratory Ruling on the Use of Digital 
Modulation by Multipoint Distribution Service and Instructional 
Television Fixed Service Stations, Declaratory Ruling and Order, 11 
FCC Rcd 18839 (1996).
    \58\ FCC Public Notice, Pleading Cycle Established for Comments 
on Petition for Rulemaking to Amend Parts 21 and 74 of the 
Commission's Rules to Enhance the Ability of Multipoint Distribution 
Service and Instructional Television Fixed Service Licensees to 
Engage in Fixed Two-Way Transmissions, DA 97-637 (released Mar. 31, 
1997).
---------------------------------------------------------------------------

    126. Because wireless cable's ability to compete effectively with 
other providers on a more equal footing is tied, with other factors, to 
MDS operators' ability to attract investment capital, we continue to 
believe that channel accumulation is an essential element in the 
accomplishment of that goal.59 Section 21.932 of our rules 
was specifically adopted to enhance the auction winner's opportunity 
for success. Thus, we held that the ``available MDS spectrum within a 
BTA authorization will increase if the unconstructed facilities or 
unused channels held by an MDS incumbent with transmitter locations 
within a particular BTA are forfeited or if previously proposed 
conditional licenses or modifications are not granted.'' Moreover, we 
believe our rules provide sufficient safeguards to protect existing 
licensees in a manner consistent with the public interest. Where 
appropriate we will grant reinstatement pursuant to Section 21.44(b) 
and waivers pursuant to Section 21.303 of our rules. We caution all 
small business licensees, however, to scrutinize carefully any channel 
lease agreement before entering into such an arrangement. We believe it 
is the responsibility of the respective parties to negotiate the terms 
most suited to their needs.
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    \59\ See Amendment of Parts 21 and 74 of the Commission's Rules 
With Regard to Filing Procedures in the Multipoint Distribution 
Service and in the Instructional Television Fixed Service and 
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Notice of Proposed Rulemaking, 9 FCC Rcd 7666, 
7667 (1994).
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3. Broadcast Ownership Consolidation
    127. Some commenters maintain that ownership consolidation in the 
broadcast industry under relaxed ownership restrictions constitute 
market entry barriers. For example, United Church of Christ and 
Minority Media and Telecommunications Council assert that minority-
owned businesses are effectively being squeezed out of local markets by 
better financed group owners and that the Commission's definition of 
``local market,'' in combination with Section 202(b) of the 1996 Act, 
permits undue concentrations of ownership in local communities. One 
party contends that FCC policies on consolidations, mergers, and 
acquisitions constitute market entry barriers for minorities because 
the resources of small businesses are limited and group owners greatly 
influence major advertisers and media budgets and buys.
    128. Similarly, National Association of Black Owned Broadcasters 
maintains that the Commission, the courts, and Congress have fostered 
policies that have resulted in consolidation of ownership in the 
broadcast industry and a retreat from promotion of minority ownership 
and that these actions include: (1) Repeal of the ``seven station 
rule''; (2) adoption of rules permitting radio duopolies; (3) Congress' 
repeal of the tax certificate for sales to minorities and women; (4) 
the U.S. Supreme Court's Adarand decision; and (5) the 
Telecommunications Act of 1996. It, as well as the United Church of 
Christ and Minority Media and Telecommunications Council, maintain that 
the Commission should recommend to Congress reinstatement of the 
minority tax certificate policy.
    129. Commenters are correct in pointing out that there has been 
greater consolidation of radio ownership since the relaxation of the 
Commission's broadcast radio ownership rules. This, however, is 
consistent with congressional policy as reflected in the 1996 Act, 
which explicitly directed the FCC to eliminate the national radio 
ownership rule and to replace the local radio ownership rule with 
specific, significantly relaxed limits on local radio ownership 
depending on the size of the local market. The Commission issued an 
order on March 8, 1996, revising the radio ownership rules 
accordingly.60 In addition, we will consider the issues 
raised by the commenters regarding our former minority tax certificate 
program in our subsequent evaluation of unique obstacles for small 
businesses owned by women and minorities.
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    \60\ See Implementation of Sections 202(a) and 202(b)(1) of the 
Telecommunications Act of 1996, Order, 11 FCC Rcd 12368 (1996).
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    130. As to the commenters' proposals to redefine the local 
television market for purposes of enforcing the television duopoly 
rule, the Commission has recently released a Second Notice of Proposed 
Rule Making, 61 FR 66978, December 19, 1996, in its local television 
ownership proceeding.61 This proceeding seeks comment on 
revising the television duopoly rule, including whether to modify the 
current Grade B signal contour test for measuring the local geographic 
market, as well as revising the radio-television cross-ownership rule. 
The Commission expressly sought comment on what aggregate effect these 
proposed rules may have on small stations, or stations owned by 
minorities and women. In addition, in a pending rulemaking, the 
Commission sought comment on the potential impact on our attribution 
rules resulting from the relaxation of our multiple ownership rules as 
required by the 1996 Act.62
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    \61\ Review of the Commission's Regulations Governing Television 
Broadcasting, Second Further Notice of Proposed Rule Making, FCC 96-
438 (released Nov. 7, 1996).
    \62\ Review of the Commission's Regulations Governing 
Attribution of Broadcast and Cable /MDS Interests, Review of the 
Commissions Regulations and Policies Affecting Investment in the 
Broadcast Industry, Reexamination of the Commission's Cross-Interest 
Policy, Further Notice of Proposed Rule Making, MM Docket Nos. 94-
150, 92-51 & 87-154, FCC 96-436 (released Nov. 7, 1996).
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    131. Finally, Section 202(h) of the 1996 Act directs the Commission 
to conduct a biennial review of all its ownership rules. The first such 
review will be conducted in 1998. In this review, we expect to examine 
issues related to the changes and consolidation that have resulted in 
the market since the passage of the 1996 Act, including the impact on 
small businesses and small businesses owned by minorities or women, 
resulting from the industry and regulatory changes during the past 
several years. In addition, there is a pending proceeding in which the 
Commission proposed initiatives to increase minority and female 
ownership of mass media facilities.63
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    \63\ See Policies and Rules Regarding Minority and Female 
Ownership of Mass Media Facilities, Notice of Proposed Rulemaking, 
10 FCC Rcd 2788 (1995) (Minority and Female Ownership NPRM).

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[[Page 34664]]

4. FCC Policing of Abuse and Enforcement of Rules
    132. Brown-Blackwell states the Commission should be more active in 
investigating possible fraud and in monitoring licensees for abuse and 
enforcing its rules where ownership interests of minorities and women 
are affected because apathy in such areas can prevent entry into the 
marketplace. In a similar vein, Romar contends that the Commission 
should police against abuse of preferences, i.e., where after a 
construction permit is awarded, the interest of the minority or female 
is transferred to others.
    133. As discussed in Part IV of this Report, the Commission is 
continuing to explore issues relating to minorities and women in 
telecommunications services and expects to issue a more comprehensive 
report on those issues in the future. As part of that effort, we shall 
fully consider issues relating to the potential abuses described by 
these commenters and take appropriate action where warranted.

E. Other Services

1. International Bureau
    134. With respect to international services, several commenters 
express concern about Commission actions that they believe may hinder 
small businesses' ability to enter the telecommunications market, such 
as the Commission's actions with respect to TelQuest's application to 
operate a fixed transmit/receive earth station to uplink and receive 
U.S. and Canadian DBS programming. On July 15, 1996, the International 
Bureau concluded that, because Canada had not yet authorized the 
satellites with which TelQuest proposed to communicate, TelQuest's 
earth station applications should be dismissed, without prejudice, as 
premature. In taking this action, the International Bureau reiterated 
that its policy is to dismiss earth station applications where the 
space station with which the earth station will communicate has not yet 
been authorized.64
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    \64\ See Applications of TelQuest Ventures, L.L.C. and Western 
Tele-Communications, Inc., 11 FCC Rcd 8151 (1996). The Commission 
noted that this policy prevents premature consideration of systems 
that may never operate and deters applicants from filing competing 
premature applications in the hope of obtaining earth station 
authorizations for the purpose of influencing space station 
licensing decisions. Id. at 8154. On October 29, 1996, the 
International Bureau denied TelQuest's petition for reconsideration 
finding that TelQuest's earth station application was properly 
dismissed, without prejudice. See Applications of TelQuest Ventures, 
L.L.C and Western Tele-Communications, Inc., Report and Order, 11 
FCC Rcd 13943 (1996), applications for review pending.
---------------------------------------------------------------------------

    135. The specific matter of TelQuest's application is pending 
separately in connection with TelQuest's application for review of two 
International Bureau Orders. We will address that matter in that 
proceeding. Based on the comments received in this proceeding, we find 
nothing in the International Bureau policy reflected in that case that 
imposes burdens uniquely or predominantly on small 
businesses.65
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    \65\ TelQuest has also sought reconsideration of our decision in 
Streamlining the Commission's Rules and Regulations for Satellite 
Application and Licensing Procedures, Report and Order, FCC 96-425 
(released Dec. 16, 1996), on a number of related grounds. The 
arguments raised in that proceeding will be addressed in that 
proceeding.
---------------------------------------------------------------------------

    136. Several commenting parties object to the Commission's 
financial qualifications requirements for satellite applicants, on the 
ground that the Commission's standards are an entry barrier for small 
businesses. Mobile Communications Holdings contends that Commission 
Rule 25.143(b)(3) adversely affects small businesses because it fails 
to take into account the unique ways that small businesses obtain 
capital. As a means of addressing these concerns, parties generally 
recommend that the Commission apply the financial standards more 
flexibly. However, one party disagrees with this proposal and asserts 
that a less rigorous standard is not in the public interest.
    137. The specific requests for action concerning financial 
standards as applied to satellite services generally relate to other 
ongoing proceedings pending before the Commission and the courts, and 
are more appropriately addressed in connection with those specific 
proceedings. We also have pending petitions for reconsideration of our 
decision in the DISCO I Order to adopt a uniform financial standard for 
domestic and international fixed satellite service satellites. 
Furthermore, we have raised issues concerning the proper financial 
standard to be applied in the non-voice non-geostationary mobile 
satellite service (Little LEOs) in an outstanding Notice of Proposed 
Rulemaking.66 We believe these matters are most 
appropriately addressed in connection with the records developed in 
those proceedings.
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    \66\ See Amendment of Part 25 of the Commission's Rules to 
Establish Rules and Policies Pertaining to the Second Processing 
Round of the Non-Voice, Non-Geostationary Mobile Satellite Service, 
Notice of Proposed Rulemaking, IB Docket No. 96-220, FCC 96-426 
(released Oct. 29, 1996).
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2. Office of Engineering and Technology
    138. In December 1996, the Commission adopted a Notice of Proposed 
Rulemaking, 61 FR 68698, December 30, 1996, to eliminate unnecessary 
and burdensome Experimental Radio Service (ERS) regulations for ERS 
applicants and licensees, many of which are small 
entities.67 If adopted, the proposals in the Experimental 
Radio Notice would provide an increased opportunity for manufacturers, 
inventors, entrepreneurs, and students to experiment with new radio 
technologies, equipment designs, characteristics of radio wave 
propagation, and new service concepts using the radio spectrum. Because 
the proposals would streamline the ERS regulations and would remove 
excessive regulatory burdens, they would be beneficial to small 
businesses.
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    \67\ Amendment of Part 5 of the Commission's Rules to Revise the 
Experimental Radio Service Regulations, Notice of Proposed 
Rulemaking, ET Docket No. 96-256, FCC 96-475 (released Dec. 20, 
1996) (Experimental Radio Notice).
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    139. In another recent proceeding, 62 FR 04920, February 3, 1997, 
the Commission has provided licensees an alternative means of 
demonstrating compliance with the Commission's antenna performance 
standards.68 This measure removes an obstacle that had 
previously existed for manufacturers and licensees, a number of which 
are small businesses. The practical effect of the Flexible Antenna 
Report and Order is to permit licensees to use technologically 
innovative directional microwave antennas (such as planar-array 
antennas), which our rules had unintentionally prohibited.
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    \68\ Amendment of Parts 74, 78, and 101 of the Commission's 
Rules to Adopt More Flexible Standards for Directional Microwave 
Antennas, Report and Order, 12 FCC Rcd 1016 (1997) (Flexible Antenna 
Report and Order).
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    140. On January 9, 1997, the Commission adopted the U-NII Report 
and Order, 62 FR 04649, January 31, 1997, making available 300 
megahertz of spectrum at 5.15-5.35 GHz and 5.725-5.825 GHz for a new 
category of Unlicensed National Information Infrastructure (U-NII) 
devices 69 that will provide short-range, high speed 
wireless digital communications on an unlicensed basis.
---------------------------------------------------------------------------

    \69\ Amendment of the Commission's Rules to Provide for 
Operation of Unlicensed NII Devices in the 5 GHz Frequency Range, 
Report and Order, 12 FCC Rcd 1576 (1997) (U-NII Report and Order).
---------------------------------------------------------------------------

    141. By fostering development of a broad range of new devices and 
service offerings, the U-NII Report and Order should stimulate economic 
development and the growth of new industries and, at the same time, 
further our Section 257 objectives. Specifically, allowing unlicensed 
devices access to the 5.15-5.35 GHz and 5.725-5.825 GHz

[[Page 34665]]

bands will enable educational institutions to form inexpensive 
broadband wireless computer networks between classrooms, thereby 
providing cost-effective access to an array of multimedia services on 
the Internet. Use of the new spectrum by unlicensed wireless networks 
also could help improve the quality and reduce the cost of services 
provided by small business users (including medical providers) of the 
networks.
    142. On March 13, 1997, the Commission adopted its Simplify and 
Streamline the Equipment Authorization Process Notice, 62 FR 24383, May 
5, 1997.70 By this action, the Commission proposes to 
eliminate two of its five equipment authorization procedures, namely, 
the type acceptance procedure and the notification procedure. As a 
result, there will be only one procedure for equipment that must be 
authorized by the Commission: certification. These proposals would lead 
to a simpler and far less cumbersome set of equipment authorization 
requirements, which will promote compliance. In addition, the 
Commission proposes to relax the equipment authorization requirements 
for a broad array of equipment, including unintentional radiators, 
consumer ISM equipment and a variety of radio transmitters. Thus, 
adoption of these proposals would further advance our Section 257 
objectives to enhance market opportunities for small businesses, such 
as manufacturers who supply parts and services to telecommunications 
service providers, to speed delivery of their products to the public, 
and would save manufacturers some $100 million by reducing the number 
of applications necessary for equipment authorization.
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    \70\ Amendment of Parts 2, 15, 18 and Other Parts of the 
Commission's Rules to Simplify and Streamline the Equipment 
Authorization Process for Radio Frequency Equipment, Notice of 
Proposed Rule Making, ET Docket No. 97-84, FCC 97-84 (released Mar. 
27, 1997) (Simplify and Streamline the Equipment Authorization 
Process Notice).
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3. Compliance and Information Bureau
    143. The FCC's Compliance and Information Bureau is furthering the 
Commission's Section 257 mandate through information dissemination 
initiatives that are particularly valuable to small businesses, which, 
as discussed above, often lack resources and information. First, as 
part of its ongoing commitment to make information available to the 
public expeditiously and inexpensively, in 1996, CIB established a new 
FCC National Call Center.71 The National Call Center 
provides consumers with free, one-stop shopping for Commission 
information in English and Spanish in 26 states, (it is being phased-in 
geographically as budget constraints permit). The Call Center also 
provides TTY access.72
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    \71\ The National Call Center can be accessed by dialing 1-888-
CALL FCC (1-888-225-5322). See FCC News Release, FCC's Toll-Free 
Information Service Expanded (September 30, 1996). The Call Center 
has received nearly 160,000 calls. Additional information about CIB 
resources and the National Call Center is available on the World 
Wide Web (http://www.fcc.gov/cib) (CIB homepage) and (http://
www.fcc.gov/cib/ncc).
    \72\ Full Call Center services for the hearing impaired can be 
accessed through the Telecommunications Device of the Deaf (TYY) by 
dialing 1-888-TELL-FCC (835-5322).
---------------------------------------------------------------------------

    144. CIB Public Affairs Specialists and Compliance Specialists in 
field offices throughout the country have provided various small 
telecommunications businesses, including women and minority businesses, 
information regarding telecommunication issues. In addition, CIB faxes 
a ``Welcome Letter'' to new telecommunications companies listed in 
local newspaper legal notices, advising that the FCC can assist and 
answer communications questions. In conjunction with the SBA, 
participated in the U.S. General Store for Small Businesses in Houston, 
Texas, which provides at one location all the information necessary to 
operate a small business.
    145. CIB has specifically required state broadcast associations to 
include non-member licensees, many of which are small businesses, in 
their Alternative Broadcast Inspection Program (ABIP). On an continuing 
basis, CIB notifies radio stations about information regarding various 
communications-related matters, e.g., spectrum auctions, and cable 
complaint procedures, for inclusion in stations' public service 
information programs. CIB also made outreach efforts to manufacturers 
as well as participants to implement the new Emergency Alert System 
(EAS), and has worked with the cable industry to ensure that emergency 
messages will reach as many members of the public as possible without 
adverse financial impact on small cable operators. Further, CIB works 
closely with local chambers of commerce, which has been particularly 
effective in reaching small businesses. All of these steps serve to 
promote opportunities for small businesses by ensuring that, despite 
limited resources, small business have access to the most current 
information available about new telecommunication policies and 
services.

IV. Unique Obstacles for Small Businesses Owned by Women or Minorities

A. Background

    146. In the Market Entry Barriers Notice of Inquiry, we inquired 
whether small businesses owned by women or minorities encounter unique 
obstacles in the telecommunications market.73 We asked 
parties to submit personal accounts of individual experiences, studies, 
reports, statistical data, or any other information. We recognized that 
a prospective barrier is discrimination and requested evidence of any 
past or current discrimination or unfavorable treatment. Because 
governmental action that takes race or gender into account is subject 
to heightened judicial scrutiny, we sought comment on whether as a 
legal matter, the obstacles that women and minorities encounter are 
significant enough to justify special incentives for those 
groups.74 We specifically asked whether there is sufficient 
evidence of discrimination in the communications industry against any 
particular minority group to support race-based incentives under the 
strict scrutiny standard and whether there is sufficient evidence to 
warrant incentives for women under either strict scrutiny (in the event 
that the Supreme Court raised the gender standard to strict scrutiny) 
or intermediate scrutiny (in the event that the Court maintained the 
existing intermediate scrutiny standard).
---------------------------------------------------------------------------

    \73\ As explained in the Market Entry Barriers Notice of 
Inquiry, we explored this area for several reasons: the legislative 
history of Section 257 suggests Congress was concerned about the 
under representation of minority and women-owned small businesses in 
the telecommunications market and sought to increase competition by 
diversifying ownership, see 142 Cong. Rec. H1141 at H1176-77 (daily 
ed. Feb. 1, 1996) (statement of Rep. Collins); Section 309(j) 
requires the Commission to further opportunities for businesses 
owned by women and minorities in the provision of spectrum-based 
services; and FCC licensing and other statistical data show that a 
portion of small communications businesses are owned by women and 
minorities and there is evidence that these entities encounter 
unique market barriers. Market Entry Barriers Notice of Inquiry, 11 
FCC Rcd at 6301-6305.
    \74\ Market Entry Barriers Notice of Inquiry, 11 FCC Rcd at 
6308, 6315-6317. In Adarand, the Supreme Court held that government 
classifications based on race must satisfy strict scrutiny. 115 
S.Ct. at 2113. For a full discussion of the constitutional 
standards, see Market Entry Barriers Notice of Inquiry, 11 FCC Rcd 
at 6309-6315.
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    147. In addition, we sought comment on any nonremedial objectives 
that would justify the use of race and gender-based incentives while 
furthering the Section 257 mandate. Finally, we asked parties to 
propose specific licensing incentives to redress any discrimination or 
to further any nonremedial objectives. We encouraged parties to support 
their proposals with

[[Page 34666]]

data and to identify specific provisions of the Act that would 
authorize us to implement any such proposals.
    148. At the Market Entry Barriers Forum, which included a panel on 
``Unique Barriers for Minority or Women-Owned Businesses,'' several 
women and minority entrepreneurs described their personal experiences 
in trying to enter and participate in the telecommunications market, 
members of the financial industry described lending and advertising 
practices, and a representative from the Department of Justice 
addressed the constitutional standards for race and gender programs. 
Although we will address in more detail the comments regarding women 
and minorities in our subsequent report, in this Report we provide a 
summary of the principal barriers and proposals raised in the record to 
date.

B. Principal Obstacles and Proposals Identified in the Record

    149. Parties to the Section 257 proceeding identify several 
obstacles that women or minority-owned businesses face based on race or 
gender. The predominant impediment to entry identified is access to and 
cost of capital. Many parties cite difficulty in obtaining credit and 
time-delayed payment options, as well as negative attitudes toward 
women or minority-owned businesses. Ofori, United Church of Christ and 
Minority Media and Telecommunications Council assert that minority 
entrepreneurs often must rely on financiers and venture capitalists 
that impose unfavorable terms, for example, requiring unreasonable 
performance goals for returns on investment or advertising revenue. 
Williams states that traditional sources of capital for minority 
businesses, such as small business investment companies (SBICs), are 
inadequate to cover entry costs into telecommunications. In addition, 
some parties contend that historical treatment of minorities and women 
has contributed to the difficulty those entities experience in 
financing small telecommunications ventures.
    150. Some parties point to other possible barriers. For example, 
some commenters identify barriers in licensing of specific 
telecommunications services; numerous parties assert that employment 
and management experience is valuable for ownership in 
telecommunications and that lack of employment opportunity or 
employment discrimination is a barrier; several commenters advocate 
stronger enforcement of the Commission's EEO rules or preference 
policies; some parties contend that women and minorities are excluded 
from government procurement, which impedes participation in the 
telecommunications market, and one party cites political changes as 
barring entry. The Small Business Administration maintains that beyond 
all the general barriers that small businesses encounter, women and 
minorities also face an entirely different set of market entry barriers 
that result in a disproportionately low rate of ownership and 
participation in virtually every telecommunications field.
    151. Numerous parties advocate adoption of licensing incentives for 
women and minorities. American Women in Radio and Television and Women 
of Wireless recommend that the Commission adopt gender-based policies 
for both remedial and nonremedial purposes--to redress prior and 
ongoing discrimination against women; to foster diversity in media 
voices under Section 257(b); and to widely disseminate spectrum 
licenses under Section 309(j). National Black Caucus of State 
Legislators argues that the Adarand decision, coupled with 
Congressional repeal of the tax certificate program, and the FCC's 
response to Adarand demonstrates that the federal government fails to 
address the ``growing erosion of economic opportunity on the part of 
African-Americans.'' Some commenters suggest that the Commission 
encourage industry to establish partnerships with women or minority-
owned companies, and to provide training programs, business 
opportunities, or mentoring programs to assist such groups in 
developing skills and becoming successful telecommunications 
entrepreneurs. Some parties recommend specific auction-related 
provisions. They argue that the FCC should reinstate its pre-Adarand 
PCS incentive policies for women and minorities, while others raise 
Section 309(j) issues. Many parties urge the FCC to conduct a study of 
the participation of women and minorities in the telecommunications 
industry and market entry barriers.

C. Ongoing Commission Evaluation

    152. There is a long history of recognition by this agency, as well 
as by courts, Congress, and the public, that minorities and women have 
experienced serious obstacles in attempting to participate in the 
telecommunications industry and that their greater participation would 
enhance the public interest. Since the late 1960's, the Commission has 
addressed women and minority access to employment and ownership 
opportunities in the telecommunications area. In 1982, Congress 
observed that ``the effects of past inequities stemming from racial and 
ethnic discrimination have resulted in a severe underrepresentation of 
minorities in the media of mass communications'' and enacted Section 
309(i)(3)(A) of the Communications Act, authorizing the Commission to 
provide minority preferences in awarding spectrum licenses by lottery. 
More recently, in 1993, Congress reached beyond broadcast services to 
wireless spectrum-based services and enacted Section 309(j), which 
requires the Commission to adopt competitive bidding procedures that 
promote economic opportunity to a wide variety of applicants, including 
minorities and women. In implementing Section 309(j), the Commission 
designed rules to assist small, rural, women, and minority-owned 
businesses ``to overcome barriers that have impeded these groups' 
participation in the telecommunications arena, including barriers 
related to access to capital.'' Although the specific auction rules we 
adopted for businesses owned by women and minorities were held in 
abeyance after Adarand, since then, we have continued to request 
comment on the effect of Adarand on our policies and to seek evidence 
of discrimination against women or minorities in telecommunications 
services. Later, in enacting Section 257 of the 1996 Act, one member of 
Congress noted that women and minorities are ``extremely under 
represented'' in the telecommunications industry.
    153. Thus, our Section 257 mandate continues a succession of 
measures over several decades to enhance opportunities for women and 
minorities. The goal in this aspect of the Section 257 proceeding is to 
identify the specific obstacles that women and minorities face and to 
determine whether they are of the nature that will satisfy heightened 
judicial scrutiny. As a federal government agency, our ability to adopt 
race or gender based incentives is limited by constitutional 
requirements. Under Adarand, any governmental classification based on 
race must satisfy strict scrutiny: it must be narrowly tailored to 
further compelling governmental interests. Remedying discrimination 
against a particular racial group in a specific field has been 
recognized as a compelling government interest. Thus, for us to adopt 
race-based incentives, there must be an appropriate record of 
discrimination against minorities in telecommunications. After we 
released the Market Entry Barriers Notice of Inquiry, the Supreme Court 
clarified the

[[Page 34667]]

applicable constitutional standard for classifications regarding 
gender. In United States v. Commonwealth of Virginia,75 the 
Court affirmed and applied its pre-existing standard for reviewing 
gender classifications--intermediate scrutiny--to hold that a state 
male-only military college violated the Equal Protection 
Clause.76 Under intermediate scrutiny, a government's 
justification for gender-based classifications must be ``exceedingly 
persuasive'' and specifically, the government must show at least that 
the classification serves important governmental objectives and is 
substantially related to those objectives.
---------------------------------------------------------------------------

    \75\ 116 S.Ct. 2264 (1996).
    \76\ United States v. Virginia, 116 S.Ct. 2264, 2274-2276 
(citing J.E.B. v. Alabama ex rel. T.B., 511 U.S. 127, 136-137 & n.6 
(1994) and Mississippi University for Women v. Hogan, 458 U.S. 718, 
724 (1982)).
---------------------------------------------------------------------------

    154. The record in this proceeding, including comments on the 
Market Entry Barriers Notice of Inquiry and the testimony at the Market 
Entry Barriers Forum, supplemented by the record in various other 
proceedings, strongly indicates that minorities and women have 
experienced tremendous obstacles in participating in the 
telecommunications industry. To satisfy our statutory obligations under 
both Section 257 and Section 309(j), we are commencing a comprehensive 
study to further examine the role of small businesses and businesses 
owned by minorities or women in the telecommunications industry and the 
impact of our policies on access to the industry for such businesses. 
In addition to furthering the requirements of Section 257, the study 
will assist us in fulfilling our Section 309(j) mandates and in 
determining whether there are constitutionally-sound bases for adopting 
licensing incentives for women or minorities.
    155. As to Section 257, the study will provide data and information 
to help us identify and eliminate market entry barriers for small 
businesses in the telecommunications market as the statute requires. In 
addition, the study will assist the Commission in reporting to Congress 
on our implementation of Section 257, as the statute also 
requires.77 As to Section 309(j), the study will be useful 
in comparing the effectiveness of auction and non-auction 
methodologies, and in assessing entry of new companies into the market, 
prompt delivery of service to rural areas, and the participation and 
success of small businesses and businesses owned by minorities or women 
in the competitive bidding process, as well as reporting to Congress on 
the auction process as required.
---------------------------------------------------------------------------

    \77\ 47 U.S.C. Sec. 257(c). Section 257(c) requires the 
Commission to report to Congress every three years following 
completion of the proceeding on regulations that have been issued to 
eliminate barriers and any statutory barriers that the Commission 
recommends be eliminated.
---------------------------------------------------------------------------

    156. The study will be conducted by an external contractor. It will 
focus on two types of communications services, the oldest and the 
newest--broadcast and wireless.78 Specifically, the study 
will develop a profile of applicants and participants in broadcast 
licensing and the licensing of certain wireless services, both by 
auction and other previously used methods. It will analyze 
participation rates of small businesses, minority-owned businesses, 
women-owned businesses, and the difference between participants and 
potential participants. The study will identify and evaluate the effect 
of any market entry barriers and other impediments on participation and 
attainment of licenses, the impact of incumbency in the 
telecommunications industry, the effect of previous FCC licensing 
proceedings, the effect of the presence, absence and removal of race 
and gender-based provisions, and the effect of past employment or 
management experience in the communications industry on auction 
participation and success.
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    \78\ An analysis of broadcast licensing also will assist the 
Commission's analysis of auction participation. Many auction 
participants and investors are broadcast licensees. For example, the 
study will examine the impact of incumbency and the regulatory 
structure the FCC established for the licensing of broadcast 
spectrum on auction bidding.
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V. Conclusion

    This Report, we believe, demonstrates our implementation of Section 
257. As described above, the Commission has taken numerous steps to 
eliminate regulatory and other impediments to entry for small 
businesses in the telecommunications market and will continue to do so.

VI. Ordering Clauses

    158. The motion of Blab Television to accept late-filed comments in 
this proceeding is Granted.
    159. The motion of National Association of Black Owned Broadcasters 
to accept late-filed comments in this proceeding is Granted.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-16868 Filed 6-26-97; 8:45 am]
BILLING CODE 6712-01-P