[Federal Register Volume 62, Number 147 (Thursday, July 31, 1997)]
[Rules and Regulations]
[Pages 41225-41238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19914]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[PR Docket No. 93-144; GN Docket No. 93-252; PP Docket No. 93-253; FCC 
97-224]


Facilitate Future Development of SMR Systems in the 800 MHz 
Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In the First Report and Order and Eighth Report and Order in 
PR Docket No. 93-144, GN Docket No. 93-252, and PP Docket No. 93-253, 
the Commission adopted final service and competitive bidding rules for 
the upper 200 channels of the 800 MHz Specialized Mobile Radio (SMR) 
band. In the Second Further Notice of Proposed Rulemaking, the 
Commission sought comment on additional service and competitive bidding 
rules for the remaining 800 MHz SMR spectrum and the General Category 
channels. After carefully reviewing the comments and petitions the 
Commission received following the issuance of the Further Notice of 
Proposed Rulemaking, the Commission addresses the Petitions for 
Reconsideration in this order.

EFFECTIVE DATE: September 29, 1997.

FOR FURTHER INFORMATION CONTACT: Shaun Maher or Michael Hamra, Policy 
and Rules Branch, Commercial Wireless Division, Wireless 
Telecommunications Bureau at (202) 418-0620 or Alice Elder, Auctions 
and Industry Analysis Division, Wireless Telecommunications Bureau at 
(202) 418-0660.

SUPPLEMENTARY INFORMATION: This Memorandum Opinion and Order on 
Reconsideration in PR Docket No. 93-144, GN Docket No. 93-252, and PP 
Docket No. 93-253, adopted June 23, 1997, and released July 10, 1997, 
is available for inspection and copying during normal business hours in 
the FCC Dockets Branch, Room 230, 1919 M Street, NW., Washington, DC. 
The complete text may be purchased from the Commission's copy 
contractor, International Transcription Service, Inc., 2100 M Street, 
NW., Suite 140, Washington, DC 20037 (telephone (202) 857-3800).

I. Background

    1. In the 800 MHz Report and Order, 61 FR 6138 (February 16, 1996), 
the Commission restructured the licensing framework that governs the 
800 MHz SMR service. For the upper 200 channels, the Commission 
replaced site-and frequency-specific licensing with a geography-based 
system similar to those used in other Commercial Mobile Radio Services 
(``CMRS''). The Commission designated the upper 200 channels of 800 MHz 
SMR spectrum for geographic licensing, and created 120-, 60- and 20-
channel blocks within the U.S. Department of Commerce Bureau of 
Economic Analysis Economic Areas (``EAs''). The Commission concluded 
that mutually exclusive applications for these licenses would be 
awarded through competitive bidding. Additionally, the Commission 
granted EA licensees the right to relocate incumbent licensees out of 
the upper 200 channels to comparable facilities. The Commission 
reallocated the 150 contiguous 800 MHz General Category channels for 
exclusive SMR use.
    2. The Commission also established competitive bidding rules for 
the upper 200 channels of 800 MHz SMR spectrum. Specifically, the order 
provided for the award of 525 EA licenses in the upper 200 channel 
block through a simultaneous multiple round auction. Incumbents and new 
entrants may bid for all EA licenses, subject to the CMRS spectrum cap 
in Sec. 20.6 of the Commission's rules. The Commission also adopted a 
``tiered'' approach to installment payments for small businesses in the 
upper 200 channel block, and allowed partitioning for rural telephone 
companies.

A. Geographic Licensing in the 800 MHz SMR Band

1. Geographic Licensing in Contiguous Spectrum Blocks
    3. In the CMRS Third Report and Order, 59 FR 59945 (November 21, 
1996), the Commission found that licensing 800 MHz SMR spectrum in 
contiguous blocks would make SMR systems more competitive with other 
CMRS systems by maximizing technical flexibility so that, for example, 
it would be possible for SMR licensees to deploy spread spectrum and 
other broadband technologies. In the 800 MHz Report and Order the 
Commission concluded that the entire upper 200 channel block should be 
licensed on a contiguous basis throughout a geographic area because the 
SMR geographic license would then be equivalent in size to the smallest 
block of spectrum now authorized for broadband PCS.
    4. Commenters argue that the Commission has not justified its 
decision to group the upper 200 channels of 800 MHz SMR spectrum into 
geographically licensed contiguous blocks or adequately explained how 
the need for contiguous spectrum justifies disruption of established 
SMR operators and that the Commission's rules impermissibly fail to 
mandate that contiguous blocks of spectrum be used to offer innovative 
or competitive services. They also argue that the Commission's decision 
should be reversed if it is based on reducing its administrative 
burden. It argues that scarcity of Commission resources cannot justify 
any changes in its rules and that geographic licensing will in fact 
increase the Commission's administrative burden. One commenter asserts 
that most incumbent licensees span all three EA frequency blocks. Thus, 
relocating most incumbents will require that at least four applications 
be filed, placed on public notice and processed by the Commission. It 
also claims that these burdens will be exacerbated by the burdens of 
site-specific licensing because the Commission has not eliminated 
current site-specific licenses.
    5. Discussion: The Commission rejects the contention that it has 
failed to justify the need for licensing the upper 200 channels in 
contiguous blocks. In the CMRS Third Report and Order, the Commission 
determined that, where feasible, assigning contiguous spectrum is 
likely to enhance the competitive potential of CMRS geographic 
providers. In the 800 MHz Report and Order the Commission determined 
that geographic licensing and contiguous spectrum are essential to the 
competitive viability of SMR service because they will permit use of 
spread spectrum and other broadband technologies and eliminate delays 
and transaction costs associated with site-by-site licensing.
    6. The Commission disagrees with Commenters claim that geographic 
licensing will have a negative impact on existing SMR operators. The 
Commission's rules continue to protect incumbent operators from 
interference. In the upper 200 channels, the Commission requires EA 
licensees to comply with existing rules that require minimum separation 
from incumbents' facilities. Thus, an EA licensee must either locate 
its station at least 113 km (70 miles) from any incumbent's facility, 
or if it seeks to operate stations less than 113 km from an incumbent's 
facility, it must comply with the Commission's short-spacing rule, 
unless it negotiates a shorter distance with the incumbent. 
Additionally, incumbent SMRs on the

[[Page 41226]]

upper 200 channels also have the operational flexibility to add 
transmitters in their existing coverage area, without prior 
notification to the Commission, so long as their 22 dBu interference 
contours are not exceeded. The Commission cannot agree with the 
contention that competition and innovation will be increased by 
allocation of spectrum resources via a blanket regulatory prescription 
rather than through individual market participants' decisions. In the 
800 MHz Report and Order, the Commission stated that its goal was to 
provide regulatory symmetry and operational flexibility that will allow 
SMR providers to use new technologies and compete with other CMRS 
providers. By giving licensees flexibility to use spectrum on either a 
contiguous or non-contiguous basis, the Commission gives SMR operators 
more ways to provide service and more ways to compete with other CMRS 
providers.
    7. The Commission also rejects the claim that geographic licensing 
will increase its administrative burden. Under the Commission's site-
specific licensing rules, it has received and processed approximately 
6,000 applications for individual SMR licenses and modifications a 
year, and in some years, as many as 20,000 applications. By contrast, 
geographic licensing of the upper 200 channels will be accomplished by 
issuing 525 EA licenses, and virtually eliminating the need for 
subsequent modifications of any license unless it is transferred or 
partitioned. Moreover, licensees will no longer be required to file an 
application for each base station; geographic licensees will be able to 
construct base-stations in pre-defined areas without the Commission's 
prior approval. These changes represent dramatic reductions in 
administrative burden for both licensees and the Commission. In this 
connection, the Commission rejects commenter's claim that reducing its 
administrative costs is an invalid basis for adopting new rules. While 
the Commission's rule changes are driven by numerous considerations 
other than administrative cost, e.g., promoting more efficient spectrum 
use and creating a regulatory framework that will allow 800 MHz SMR 
operators to compete more effectively with other CMRS providers, the 
Commission considers improving its efficiency and reducing its cost to 
be valid public interest considerations.
2. Size of EA Spectrum Blocks
    8. Background. In the 800 MHz Report and Order, the Commission 
concluded that dividing the upper 200 channels into various-sized 
channel blocks would create opportunities for SMR providers with 
differing spectrum needs. The Commission rejected proposals to assign 
the upper 200 channels in five- and/or ten-channel blocks, concluding 
instead that allocating one 120-channel block, one 60-channel block, 
and one 20-channel block for licensing on an EA basis would equitably 
balance the interests of all potential and existing licensees.
    9. Commenters argue that the record does not support the 
Commission's decision to group currently allocated channels into 
contiguous blocks. They contend that the aggregation of 20, 60, and 120 
contiguous channels restricts the number of small business entities 
that can compete effectively at auction because relocation channels 
will either be unavailable or impracticably costly and that the cost of 
relocating 20 or more channels will be prohibitive for small business.
    10. Commenters claim that smaller channel blocks would require an 
EA applicant desiring adjacent channels to bid more aggressively, and 
thus the public would receive more value for the spectrum. They also 
argue that 5-channel geographic licenses would facilitate bidding for 
designated entities such as small businesses.
    11. Discussion. The Commission rejects commenters' argument that 
the public interest would be better served by five-channel spectrum 
blocks. The Commission stated in the 800 MHz Report and Order, that the 
use of such small spectrum blocks make it more difficult to obtain 
sufficient spectrum to establish a viable and competitive wide-area 
system, and to use broadband technologies such as CDMA and GSM. The 
Commission also rejects the claim that the aggregation of 20, 60, and 
120 channels will reduce opportunities for small businesses. Under 
Commission rules, small businesses may form coalitions to raise needed 
capital and finance any desired relocations. The Commission has adopted 
provisions in its auction rules enabling small businesses to receive 
bidding credits.
    12. The Commission also rejects Commenter's claim that five-channel 
blocks would increase spectrum valuation. The Commission's geographic 
licensing system is designed to enhance the competitive potential of 
the 800 MHz SMR operators. To accomplish this, the Commission has 
tailored the channel blocks to the needs of various users by creating 
large, medium and small channel blocks and by placing these blocks to 
accommodate the spectrum needs of different-sized SMR providers. As the 
Commission recognized in the 800 MHz Report and Order, placing the 120-
channel block closest to the cellular spectrum allocation will assist 
operators in providing wide-area service by facilitating dual-mode 
operation. Placing the 20-channel block in the portion of spectrum 
nearest to the lower 80 SMR channels will allow small to medium-sized 
operators to expand capacity while minimizing costs and disruption to 
existing customers. Similarly, the Commission expects that in many EA's 
medium-sized SMR operators or consortia of smaller SMR operators may 
find the 60-channel block suitable to their needs.
    13. The Commission similarly is not persuaded by the claim that 
allocating spectrum in five-channel blocks will reduce the burdens of, 
and number of entities involved in, relocation negotiations. To the 
contrary, the Commission's relocation mechanism provided for cost 
sharing and collective negotiations so that relocation can efficiently 
occur. Additionally, the Commission notes that in the lower 80 
channels, where the current five-channel blocks are non-contiguous and 
interleaved with blocks of non-SMR channels, it is adopting the 
proposal to license in five-channel blocks.
3. 800 MHz SMR Spectrum Aggregation Limit
    14. Background. In the CMRS Third Report and Order, the Commission 
adopted a 45 MHz limit on aggregation of broadband PCS, cellular, and 
SMR spectrum. It concluded that in light of the broadband CMRS spectrum 
cap, no separate limitation was necessary on aggregation of spectrum in 
the upper 200 channel block. In the 800 MHz Report and Order, the 
Commission reasoned that the 800 MHz SMR service is one of many 
competitive services within the CMRS marketplace, and that allowing 
unrestricted aggregation of SMR spectrum would not impede CMRS 
competition so long as 800 MHz SMR licensees were subject to the 45 MHz 
CMRS spectrum aggregation limit.
    15. Petitions. Commenters argue that the Commission has failed to 
consider that its actions will increase the current state of 
concentration in the SMR industry. Accordingly, the Commission must 
limit EA licensees to something less than the entire 200 channels to 
ensure a wide variety of applicants. One commenter suggests that the 
Commission prohibit any EA licensee from acquiring more than one third 
of the Upper 200 channels in any EA, thus, providing adequate 
opportunities for designated entities while avoiding excessive 
concentration of licenses.

[[Page 41227]]

Commenters also argue that unlimited spectrum aggregation is critical 
to regulatory parity because an SMR operator aggregating all 200 
channels in a market would still operate on only 10 MHz of spectrum, as 
compared to the 25 MHz for cellular and 30 MHz for A, B and C block PCS 
licensees.
    16. Discussion. The Commission sees no need to adopt a spectrum 
aggregation limit for the upper 200 channels beyond the CMRS spectrum 
aggregation limit set forth in 47 CFR 20.6. Market forces--not 
regulation--should shape the developing CMRS marketplace, and the 
Commission is unpersuaded that further constraints on SMR providers' 
ability to acquire spectrum are necessary. In fact, the proposed 
restriction could handicap all SMR providers--including small 
businesses, rural telephone companies and women-owned and minority-
owned businesses--by limiting their ability to compete with cellular 
and broadband PCS. The Commission has determined that the relevant 
market for examining concentration of SMR licenses is the CMRS market 
as a whole, not SMR only. Thus, even if one licensee were to acquire 
all 10 MHz of spectrum in an EA, this would not be sufficient to have 
an anti-competitive effect on the relevant market.
4. Licensing in Mexican and Canadian Border Areas
    17. Background: In the 800 MHz Report and Order, the Commission 
determined that EA licenses would be made available without 
distinguishing border from non-border areas. Thus, the Commission 
determined that EA licensees can use available border area channels 
within their spectrum blocks, subject to international assignment and 
coordination. Although, reduced channel availability and operating 
restrictions may reduce values of border area EA licenses, the 
Commission concluded that EA applicants would consider such factors 
when bidding on such licenses. The Commission also noted that EA 
licensees could privately negotiate with other licensees to acquire 
additional SMR spectrum in border areas.
    18. Petitions. Petitioners seek clarification of the Commission's 
border area licensing plan. They note that in border areas some of the 
upper 200 channels are assigned to non-SMR categories. They seek 
clarification that these channels are not subject to EA licensing and 
that incumbent licensees are not subject to mandatory relocation. 
Petitioners note that in many EAs adjacent to either the Canadian or 
Mexican borders, no frequencies are available for SMR use in the 120-
channel, and 60-channel blocks, and few are available in the 20-channel 
block and are concerned that bidders will be unaware of this and may 
overvalue the spectrum.
    19. Discussion. The Commission clarifies that non-SMR channels in 
the border area are not subject to EA licensing and thus are unaffected 
by this rulemaking. The Commission further clarifies that non-SMR 
channels that have been allocated to SMR eligibles in border areas, but 
to non-SMR eligibles elsewhere in the country, have been allocated to 
the upper 200 channel EA licensees on a pro rata basis. Prospective 
bidders should be aware that these channels, which are not available to 
them anywhere else except in the border regions, will be assigned for 
their use in the Canadian and Mexican border regions. Most importantly, 
EA licensees must afford full interference protection to non-SMR 
licensees operating in adjacent areas on these channels.
    20. The Commission notes that its rules already specify which 
channels are available for EA licensing in the border regions. The 
Commission believes that license applicants are best situated to decide 
whether reduced channel availability in border areas affects the value 
of particular licenses. Nonetheless, to help alleviate ITA's concern 
about applicant awareness, the Commission will also provide information 
regarding channel availability border area in the auction bidders 
package.

B. Rights and Obligations of EA Licensees

1. Spectrum Management Rights
    21. Background. In the 800 MHz Report and Order, the Commission 
determined that if an SMR incumbent fails to construct, discontinues 
operations, or otherwise has its license terminated by the Commission, 
the licensed spectrum automatically reverts to the EA licensee. The 
Commission thus eliminated all waiting lists for SMR category channels 
within the upper 200 channel block and terminated its finder's 
preference program for the 800 MHz SMR service. Finally, the Commission 
created a presumption that permanent transfers and assignments between 
an EA licensee and incumbents operating within its spectrum block would 
serve the public interest. The Commission reasoned that this would give 
EA licensees more flexibility to manage their spectrum, be more 
consistent with their cellular and PCS rules, and reduce regulatory 
burdens on both licensees and the Commission.
    22. Petitions. Petitioner claims that the Commission's approach to 
spectrum management violates Congressional intent and its goal of 
regulatory symmetry by disadvantaging non-EA winning SMR licensees vis-
a-vis EA licensees. They argue, that incumbents are disadvantaged 
because they will be restricted from expanding on wide-area blocks and 
that the Commission's construction requirements favor EA licensees over 
incumbents. One petitioner claims that the Commission violated section 
553(b) of the Administrative Procedure Act by failing to give notice of 
the elimination of the finder's preference program. It also argues that 
the Commission should temporarily retain the finder's preference 
program so that all persons knowing of unconstructed or discontinued 
facilities can request a finder's preference, take the channels, and 
provide balance among those applying for the wide-area SMR frequency 
blocks.
    23. Discussion. The Commission rejects the claim that it has 
violated Congressional intent by conferring spectrum management rights 
on EA licensees, including the right to recover spectrum lost by 
incumbents who cease operations or violate its rules. The contention 
that these rules discriminate against incumbent licensees is without 
merit. Incumbents retain all of the rights to operate that they held 
under their pre-existing licenses. Thus, incumbents who operate in 
compliance with the Commission's rules are not affected by the spectrum 
recovery rule, while incumbents who cease operations or violate the 
Commission's rules would lose their spectrum rights under either the 
old rules or the new rules. The only difference in the Commission's new 
rules is that they have provided for unused spectrum to revert to the 
EA licensee rather than to be relicensed by the Commission. This 
procedure does not discriminate against incumbents: any incumbent who 
seeks the ``superior'' spectrum management rights of an EA license has 
the same opportunity to obtain it as any other applicant: by bidding 
for the EA license through the auction process.
    24. The Commission also rejects the claim that it gives no notice 
of the possible elimination of the finder's preference program. Such 
notice was inherent in the Commission's proposal that rights to 
unconstructed or non-operational channels would automatically revert to 
the EA licensee. The elimination of the Commission's finder's 
preference program was thus both necessarily implicit in and a

[[Page 41228]]

logical outgrowth of, the Commission's proposals.
    25. Finally, the Commission declines to retain the finders 
preference program, even on a temporary basis. The Commission's move to 
geographic licensing makes the finder's preference program unnecessary 
because EA licensees will have incentive to identify and make use of 
unused spectrum within their blocks. Additionally, the finder's 
preference program is inconsistent with the Commission's objective of 
assigning spectrum through geographic licensing because it would 
perpetuate site-by-site licensing.
2. Treatment of Incumbent Systems

a. Mandatory Relocation of Incumbents From the Upper 200 Channels

    26. Background. In the 800 MHz Report and Order, the Commission 
adopted a mandatory relocation mechanism for incumbents on the upper 
200 channels. In order to minimize the impact on existing licensees, 
the Commission adopted two key provisions: (1) If an EA licensee is 
unable or unwilling to provide an incumbent licensee with ``comparable 
facilities,'' such an incumbent would not be subject to mandatory 
relocation; and (2) any incumbent that is relocated from the upper 200 
channels, either voluntarily or involuntarily, will not be required to 
relocate again if the Commission adopts its geographic area licensing 
proposal for the lower 80 and General Category channels.
    27. Petitions. Several petitioners challenge the Commission's 
decision to authorize mandatory relocation of incumbent SMR licensees. 
They argue that the Commission's licensing framework does not require 
mandatory relocation, and that relocations should occur through private 
negotiations between EA licensees and incumbents. Other petitioners 
object that there are no alternative channels on which to relocate 
incumbents. Still, other commenters are concerned that mandatory 
relocation will reduce the amount of competitive service offered to the 
public and thus be harmful to end users and subscribers. These 
petitioners argue that requiring relocation of an incumbent's entire 
system effectively excludes most bidders from the auction, including 
small businesses. Another petitioner adds that the public interest is 
not served by displacing existing SMRs so other SMRs can provide the 
same service. And, another argues that the Commission has behaved 
inconsistently with respect to 800 MHz and paging services, two 
comparably encumbered frequency bands, because they have concluded that 
``alternative'' spectrum for relocation exists in the 800 MHz band but 
does not exist in the paging bands.
    28. Discussion. In the 800 MHz Report and Order, the Commission 
concluded that while voluntary negotiations are important and to be 
encouraged, mandatory relocation is necessary to achieve the transition 
to geographic area licensing and to enhance the flexibility of EA 
licensees on the upper 200 channels. The Commission rejects 
petitioners' contention that the Commission could accomplish these 
goals by relying on voluntary negotiations alone. While the Commission 
expects most relocation to occur through voluntary negotiations, it is 
concerned that EA licensees will be unable to realize the potential of 
their spectrum without some mandatory mechanism in the event voluntary 
negotiations prove unsuccessful. The Commission reaffirms its 
conclusion that a narrowly tailored mandatory relocation mechanism is 
necessary to the achievement of the goals of this proceeding.
    29. The Commission also rejects the argument that relocation should 
not be required because EA licensees will provide the same service as 
incumbents who are relocated. The Commission expects that EA licensees 
will use their spectrum to provide a wide variety of services. While 
some of these services may be of the same type provided by incumbents 
who are relocated, the ability to clear contiguous spectrum will give 
EA licensees operational flexibility to provide new and innovative 
services that were far more difficult to develop under site-by-site, 
channel-by-channel licensing rules. Thus, relocation will not merely 
replace one SMR licensee with an identical licensee, but will allow 
both parties to move towards more efficient use of the spectrum.
    30. Many petitioners who challenge the Commission's adoption of 
mandatory relocation argue it will harm incumbent licensees, 
particularly small system operators. The Commission disagrees with this 
view. The Commission's rules do not require any incumbent to relocate 
unless the EA licensee provides comparable facilities and a seamless 
transition. Moreover, the rules the Commission is adopting for the 
lower 80 and General Category channels provide positive incentives for 
small businesses who relocate, including bidding credits. Bidding 
credits assist small business in obtaining licenses and thus, provide 
small business with an incentive to relocate to the lower channels. In 
addition, because the Commission is allowing incumbents on the lower 
channels to operate within their 18 dBu contours, incumbents on these 
channels (including incumbents who relocate from the upper 200 
channels) will have greater operational flexibility and protection from 
interference than incumbents on the upper 200 channels.
    31. Some petitioners argue that the Commission's mandatory 
relocation rules make relocation impractical for all but a few large 
SMR operators who have spectrum on the lower 80 and General Category 
channels that can be used for relocation. Even if this is so, the 
Commission does not agree with petitioners that this is an argument 
against mandatory relocation: the Commission considers it preferable to 
allow relocation where it is feasible rather than to prohibit it 
because it is not feasible in every instance. Moreover, the Commission 
disagrees with the premise that small businesses will be discouraged 
from participating in the upper 200 channel auction because of the 
practical difficulty of relocating incumbents. Many of those small 
businesses may themselves be incumbents who choose to bid (individually 
or in combination with other small incumbents) for the upper 200 
channel blocks rather than relocate. In addition, small businesses may 
develop business strategies that do not depend on relocation, e.g., 
entering into partitioning agreements with incumbents or providing 
niche services on available channels. The Commission believes that 
market forces should be relied upon for these types of decisions.
    32. Finally, the Commission rejects the claim that its decision 
conflicts with its decision not to adopt mandatory relocation in the 
Commission's recently completed paging rulemaking. The Commission's 
adoption of geographic licensing rules in paging did not require 
relocation because paging channels are technically identical to one 
another and paging technology is generally consistent and compatible 
regardless of the channel used. Thus, there is no advantage in spectrum 
efficiency to be gained from encouraging paging incumbents in a 
particular band to migrate to another band. In contrast, the 800 MHz 
SMR allocation is a mixture of contiguous and non-contiguous channels, 
which has led to the development of sometimes incompatible 
technologies. Relocation is therefore beneficial because it creates 
incentives for SMR providers to operate on the spectrum most suitable 
for their particular technologies.

[[Page 41229]]

b. Mandatory Relocation Implementation Issues

i. Pre-Auction Negotiations
    33. Background: In the CMRS Third Report and Order, the Commission 
suspended acceptance of new 800 MHz applications pending adoption of 
new 800 MHz service and auction rules. On October 4, 1995, the Wireless 
Bureau imposed a similar freeze on new applications for the General 
Category channels. Under both of these freezes, assignment and transfer 
of control applications continued to be processed if the location of 
the licensed facilities remained unchanged.
    34. In the 800 MHz Report and Order, the Commission partially 
lifted the freeze on new applications for SMR and General Category 
channel licenses. Specifically, the Commission allowed filing of new 
applications to permit assignments and transfers of control involving 
modifications to licensed facilities that were intended to accommodate 
market-driven, voluntary relocation arrangements between incumbents and 
potential EA applicants; and (1) would not change the 22 dBu service 
contour of the facilities relocated, (2) the assignment or transfers 
would relocate a licensee out of the upper 200 channels block, and (3) 
the potential EA applicant and relocating incumbent(s) were 
unaffiliated. The Commission took these actions to begin the relocation 
process and thus ease the transition to a wide-area licensing scheme 
for the upper 200 channels.
    35. Petitions. Petitioner requests two modifications of the 
Commission's partial lifting of the application freeze. First, it asks 
that the Commission ``clarify'' that only incumbent 800 MHz SMR 
licensees be treated as ``potential EA applicants.'' It argues that 
absent this restriction, anyone could negotiate with an incumbent and 
avoid the licensing freeze--regardless of eligibility or intent to bid 
in the auctions. Petitioner believes that the ability to participate in 
pre-auction settlements should ``travel with the license.'' Second, the 
petitioner requests that prior to the auction the Commission accept 
only those applications that facilitate relocation of incumbents off 
the upper 200 channels, as opposed to moves from one upper 200 channel 
to another. Petitioner argues that allowing incumbents to move within 
the upper 200 channels could be used by potential EA applicants for 
anti-competitive purposes. Such a limitation on pre-auction settlements 
would prejudice incumbent licensees without lower band channels to 
trade and may reduce the number of auction participants for certain 
channels and satisfy Congressional intent that the Commission use 
negotiations to avoid mutual exclusivity in application and licensing 
procedures.
    36. Discussion. The Commission goal in partially lifting the freeze 
was to facilitate the voluntary relocation of incumbents off of the 
upper 200 channels. In order to facilitate this goal, the Commission 
believes that anyone who intends to bid in the upper 200 auction should 
be able to use this procedure to obtain spectrum that could be used for 
relocation of incumbents. While the Commission anticipates that most 
bidders for EA licenses will themselves be incumbents, it is possible 
that non-incumbents will bid as well. Therefore, the Commission 
declines to limit the filing of new applications to incumbent 800 MHz 
SMR licensees as requested. The Commission is concerned that such a 
restriction could arbitrarily limit the flexibility of participants in 
pre-auction negotiations.
    37. The Commission agrees that new applications should only be 
accepted if they facilitate relocation of incumbents off of the upper 
200 channels. In order for the auction of the upper 200 channels to 
occur, bidders must have certainty regarding the channels that are 
currently licensed to incumbents. Continuing to accept applications for 
new authorizations on the upper 200 channels would deprive bidders of 
such certainty and delay the auction process. In addition, the 
Commission sees no relocation benefit to allowing licensees to acquire 
new spectrum on the upper 200 channels prior to the auction. Therefore, 
pre-auction applications will be accepted for relocation purposes only 
on the lower 230 channels, and only if they meet the conditions 
specified in the 800 MHz Report and Order. The Commission notes, 
however, that this policy only applies to initial applications for new 
spectrum, not to transfers and assignments of existing authorizations, 
which have never been subject to the 800 MHz licensing freeze. 
Therefore, incumbents may continue to transfer and assign existing 
authorizations on either the upper 200 channels or the lower 230 
channels.
ii. Relocation Negotiations
    38. Background. To encourage negotiation between EA licensees and 
incumbents the Commission adopted a multi-phase, post-auction 
relocation mechanism in the 800 MHz Report and Order. In the initial 
one-year voluntary period, the EA licensee and incumbents may negotiate 
any mutually agreeable relocation agreement. If no agreement is 
reached, the EA licensee may initiate a two-year mandatory negotiation 
period, during which the parties are required to negotiate in ``good 
faith.'' If the parties still fail to reach an agreement, the EA 
licensee may then initiate involuntary relocation of the incumbent's 
system. However, such relocation must be to comparable facilities and 
must be seamless, i.e., without any significant disruption in the 
incumbent's operations.
    39. Petitions. Several commenters argue that the Commission's 
phased negotiation plan does not serve the public interest and object 
to the one-year voluntary period and two year mandatory period. They 
argue that the Commission recently recognized the advantages of a two-
year voluntary period and have no compelling reason to deviate from 
this precedent and that a two-year voluntary period gives incumbents 
the flexibility in timing their relocation and minimizes the adverse 
impact of relocation on existing SMR service subscribers.
    40. Some commenters argue that the Commission should reduce the 
mandatory negotiation period to one year, because the 800 MHz 
relocation process will be less complex than that faced by PCS 
licensees and 2 GHz microwave incumbents. Others support the adopted 
relocation process of one-year voluntary and two-year mandatory 
negotiation periods, although they want relocation safeguards to apply 
to all incumbents, including non-SMR licensees.
    41. Commenters complain that the Commission's rules do not require 
EA licensees to begin negotiations at any particular time and do not 
require an EA licensee to relocate incumbents during the initial year. 
It is argued that EA licensees should be required to notify the 
incumbent that mandatory negotiations have begun, lest an EA licensee 
wait out the voluntary period and then declare later that mandatory 
negotiations have begun, leaving incumbents unprepared. Another argues 
that the EA licensee must show that it has made a bona fide attempt to 
negotiate during the voluntary period.
    42. Commenters also complain that the Commission has not explained 
how disputes over whether negotiations have been conducted in ``good 
faith'' are to be adjudicated. They also argue that since the 
Communications Act authorizes the Commission neither to reject nor 
delegate its authority to resolve licensing disputes, the Commission 
must either (1) expeditiously resolve these disputes or (2) reject 
mandatory frequency relocation and let the market determine whether 
frequency relocation

[[Page 41230]]

will occur. They also ask that the Commission allow incumbents to 
decide who will retune end-user equipment. They note that hundreds of 
thousands of mobile units and control stations are included in 
incumbent SMR systems. Thus, it is concerned that the Commission's 
requirement that EA licensees build and test the new [relocated] system 
could be read to permit or require that EA licensees intervene in 
relations between an incumbent and its customers.
    43. Discussion: The Commission agrees with commenters that the 
mandatory negotiations period be limited to one year. The Commission 
agrees that such a reduction will serve the public interest by 
facilitating the clearing of incumbents from the EA blocks so that the 
EA licensees can implement their wide-area systems. Moreover, this 
reduction will minimize the period during which incumbents will 
experience uncertainty concerning relocation. Finally, the Commission 
notes that this approach is consistent with its recent decision in PCS 
to adopt a one-year voluntary period and a one-year mandatory period 
for the C, D, E, and F blocks.
    44. The Commission rejects the proposal that we extend voluntary 
negotiations to two years. A one-year voluntary period and a one-year 
mandatory period balances the desirability of giving parties 
flexibility to negotiate voluntarily with the need to ensure that 
relocation, where feasible, occurs expeditiously. The Commission sees 
no need to extend the voluntary period for an additional year. The 
Commission finds that petitioners have not supported their claims that 
another year of voluntary negotiations would ``minimize the adverse 
impact'' of relocation. In fact, although the voluntary period has not 
yet commenced, incumbents and potential EA licensees can begin 
voluntary negotiations at any time, thus affording themselves more than 
a year to reach a voluntary agreement. The Commission finds that it 
would not serve the public interest to delay for another year. Finally, 
the Commission notes that in recent decisions they have reduced 
voluntary negotiation periods to one year.
    45. In response to the argument that the Commission has not 
explained how disputes over good faith will be resolved, the Commission 
notes that in this case as in all others, licensees may bring 
infractions of the Commission's rules to its attention. Nevertheless, 
the Commission strongly encourage parties to use expedited alternative 
dispute resolution procedures, such as binding arbitration, mediation 
or other alternative dispute techniques. Further, since relocation 
agreements are pursuant to private contracts, the Commission 
anticipates that parties will pursue common law contract remedies in 
the court of competent jurisdiction if alternative dispute resolution 
is not successful.
    46. Finally, the Commission clarifies that its relocation rules are 
not intended to require the mandatory disclosure of incumbents' 
proprietary information or customer lists. Incumbents must cooperate 
with the EA licensees and facilitate the testing of their relocated 
equipment, but incumbents need not disclose competitively sensitive 
information.
iii. Notice
    47. Background. In the 800 MHz Report and Order, the Commission 
recognized that incumbents need prompt information about the EA 
licensees' relocation plans. As such, the Commission required EA 
licensees within 90 days of the release of the Public Notice commencing 
the voluntary negotiation period to notify incumbents operating in 
their spectrum block of their intent to relocate such incumbents. 
Moreover, if an incumbent does not receive timely notice of the EA 
licensees intent to relocate, the EA licensee can no longer require 
that incumbent to relocate.
    48. Because such notice affects an EA licensee's relocation rights, 
the Commission decided that the EA licensee must file a copy of the 
relocation notice and proof of the incumbent's receipt of the notice 
within ten days of such receipt, or the Commission will presume that 
the incumbent was not notified of the intended relocation. An incumbent 
licensee notified of intended relocation will be able to require joint 
negotiations with all notifying EA licensees. These requirements should 
ensure that possible relocation will be properly noticed and 
coordinated.
    49. Petitions. Commenters ask the Commission to amend its notice 
rule to recognize proof of an attempt to notify at the address in the 
Commission's database as proper notice and that the Commission clarify 
that any EA licensees relocation notice informs the incumbent that it 
could be relocated out of any EA license block on which its SMR system 
is operating--even those not licensed to the EA licensee providing 
notice. Otherwise any EA licensee's failure to provide notice could 
provide the incumbent a defense to the relocation of part of its system 
(and, thus, the entire system).
    50. Discussion. The Commission's rules already require licensees to 
update its data base with their current address. The Commission thus 
agrees that proof of an attempt to notify at the address in its 
database constitutes sufficient evidence of notice. The Commission also 
agrees that notice by an EA licensee shall constitute notice with 
respect to the incumbent's entire system, including portions of the 
system outside the EA licensees' own spectrum block.

c. Incumbent Operational Flexibility

    51. Background. In the 800 MHz Report and Order the Commission 
declined to allow non-EA licensees to expand their systems at will 
after geographic licensing has occurred because such expansion would 
devalue geographic licenses by creating continuing uncertainty about 
the amount of spectrum available under the EA license. The Commission 
recognized, however, that incumbents should be allowed to make minor 
alterations to their service areas to preserve the viability of their 
systems. Thus, in the 800 MHz Report and Order, the Commission 
concluded that incumbent licensees on the upper 200 channels should be 
allowed to make modifications within their current 22 dBu interference 
contour without prior notice to the Commission. The Commission reasoned 
that this would increase incumbents' operational flexibility without 
significantly affecting the EA licensee's wide-area system in the same 
market. The Commission stated, however, that incumbents must still 
comply with its short-spacing criteria even if the modifications do not 
extend their 22 dBu interference contours. Finally, the Commission also 
decided to allow 800 MHz SMR incumbents who are not relocated to 
convert their current site-by-site licenses to a single license 
authorizing operations throughout the contiguous and overlapping 
service area contours of the incumbent's constructed multiple sites.
    52. Petitions. Commenters asked that the Commission clarify that 
the rule allowing incumbents to modify their systems within existing 22 
dBu contours does not apply to aggregate 22 dBu contours but must be 
applied on a channel-specific basis. For example, if an incumbent is 
operating on more than one station within a geographic area, petitioner 
contends that the incumbent should not be allowed to use a channel 
licensed at one station at a site inside the 22 dBu contour of another 
station if that channel is not licensed at both sites. Thus, an 
incumbent would be allowed to re-use a channel throughout

[[Page 41231]]

the composite 22 dBu contour only of those stations on which that 
channel is licensed.
    53. One commenter supports the Commission's decision to permit 
incumbent licensees to convert their current site-by-site licenses to a 
single license, but argues that incumbent licensees might abuse the 
procedure by filing spurious requests that would enable unaffiliated 
systems to obtain a single geographic license. Commenter proposed that 
the Commission allow affected EA licensees to oppose such requests.
    54. Discussion. The Commission clarifies that the rule allowing 
incumbents to modify their systems within their existing 22 dBu 
contours will be applied on a channel-specific basis. The Commission is 
concerned that by allowing incumbents to unilaterally redeploy channels 
to sites where they were not previously authorized would create 
continuous uncertainty for EA licensees as to which channels they could 
use at particular locations. Thus, an incumbent may use a channel 
within the 22 dBu contour of all facilities authorized on that channel, 
but may not redeploy the channel to another facility (or within the 22 
dBu contour of such a facility) where that channel is not previously 
authorized, unless the EA licensee agrees to the change. The Commission 
emphasizes, however, that incumbents and EA licensees may negotiate 
alternative arrangements with respect to the deployment of channels for 
their respective systems.
    55. The Commission rejects the request to allow EA licensees to 
formally oppose incumbent requests to convert multiple site-by site 
licenses to a single geographic license. The Commission does not 
believe this process will be susceptible to abuse by incumbents, as 
Nextel contends. Converting site-by-site licenses to a geographic 
license will not in any way expand the spectrum rights of incumbents; 
it is simply an administrative vehicle for simplifying the licensing 
process. In addition, the Commission is requiring incumbents seeking 
geographic licenses to show that their facilities are constructed and 
operational, and that no other licensee would be able to use the 
channels within the designated geographic area.
3. Co-Channel Interference Protection

a. Incumbent SMR Systems

    56. Background. In the CMRS Third Report and Order, the Commission 
retained most of its existing co-channel protection rules for CMRS 
licensees, including its existing station-specific interference 
criteria for 800 MHz SMR co-channel stations.
    57. In the 800 MHz Report and Order, the Commission concludes that 
EA licensees on the upper 200 channels must afford interference 
protection to incumbent SMR systems as provided in Sec. 90.621 of the 
Commission's rules. As a result, an EA licensee must either (1) locate 
its stations at least 113 km (70 miles) from any incumbent's 
facilities; (2) comply with the Commission's short-spacing rule; or (3) 
negotiate with the incumbent licensee if it wishes to operate closer 
than these rules allow. The Commission concluded that these 
requirements will adequately protect incumbents while EA licensees to 
build stations in their authorized service areas. The Commission 
believes that the short-spacing rule provides flexibility to EA 
licensees, allows incumbents to fill in ``dead spots,'' and protects 
incumbent licensees from actual interference.
    58. Petitions. Commenters argue that the Commission's decision 
improperly gives geographic licensees more rights than incumbent 
licensees. They believe that the Commission's proposal will preclude 
affected parties from equitably balancing one operator's desire to 
expand against another operator's desire to obtain full value for an 
existing investment. Another commenter requests that the Commission 
require EA licensees to file an application for each proposed station 
and serve a copy on any incumbent within 70 miles of the proposed 
station. It claims that some authorized wide-area licensees have 
violated the Commission's rules when selecting co-channel station 
locations. Additionally, it argues that the Commission should not 
proceed until it reviews its database of currently authorized wide-area 
stations, confirm those authorizations comply with the Commission's 
interference protection rules, and cancel any wide-area authorizations 
which were erroneously granted.
    59. Consumers also request clarifications of certain aspects of the 
interference protection rules. Consumers asks the Commission to clarify 
that the full primary co-channel protection standards of Sec. 90.621(b) 
must be afforded by non-border area EA auction winners to co-channel I/
LT category licensees. They also ask that the Commission clarify that 
EA licensees operating in California and the Pacific Northwest must 
comply with the unique co-channel interference protection rules 
applicable to certain transmitter sites in mountainous areas of 
California and Washington state.
    60. Discussion. The Commission disagrees that it must give 
incumbent and EA licensees identical co-channel protection rights. In 
other auctions, incumbents obtained the benefits of being geographic 
area providers by obtaining geographic area licenses. To protect 
incumbents who do not want to provide service in a predetermined 
geographic area, the Commission has maintained the technical co-channel 
interference standards under which such incumbents were originally 
licensed. These measures give incumbents the flexibility provided in 
their original license. The Commission also permits them to freely add 
sites within their existing 22 dBu interference contour.
    61. The Commission also declines to adopt the suggestion that it 
require EA licensees to file applications on a per-site basis. Such a 
procedure is counterproductive to the Commission's goal of providing EA 
licensees additional operational flexibility, and would reintroduce 
some of the administrative burdens associated with site-by-site 
licensing.
    62. Finally, as requested by commenters, the Commission clarifies 
that (1) full primary co-channel protection pursuant to the standards 
of Sec. 90.621(b) must be afforded to co-channel I/LT category 
licensees by non-border area EA licensees and (2) the EA licensees must 
comply with co-channel separation rules in Sec. 90.621(b) for 
designated transmitter sites in California and Washington.

b. Adjacent EA Licensees

    63. Background. In the CMRS Third Report and Order, the Commission 
concluded that the co-channel interference protection between 
geographic area licensees would be similar to those in the cellular and 
PCS services, which impose interference protection criteria for border 
areas in Commission-defined service areas. In the 800 MHz Report and 
Order, the Commission determined that 40 dBuV/m is an appropriate 
measure for the desired signal level at the service border area. Thus, 
the Commission prohibited EA licensees from exceeding a signal level of 
40 dBuV/m at their service area boundaries, unless the bordering EA 
licensee(s) agree to a higher field strength.
    64. Petitions. One commenter claims that the Commission should 
replace the 40 dBuV/m signal level standard with a 22 dBu standard as 
proposed. It also claims that the Commission should adopt a stricter 
protection standard because entities operating at a signal level of 40 
dBuv/m at the same

[[Page 41232]]

geographic boundary will interfere with one another. It further argues 
that under the proposal, resulting ``dead spots'' at borders could be 
resolved by negotiations between operators.
    65. Discussion. The Commission rejects the suggestion that it 
replace the 40 dBuV/m signal level standard with a 22 dBu standard. The 
Commission's approach here is consistent with its approach in setting 
signal strength thresholds in PCS and cellular services. In all three 
instances, the Commission has used a threshold that allows the 
geographic area licensee to deliver a reliable signal throughout its 
licensing area. While the commenter is correct that this could lead to 
interference between adjacent licensees operating at full power at a 
common service area border, the Commission's experience has shown that 
actual interference is uncommon because not all licensees extend 
coverage to their licensing area borders. Moreover, the Commission has 
found that in those instances where actual interference does occur, 
adjacent licensees can and do resolve these situations by mutual 
agreement. If the Commission were to use the 22 dBu standard, on the 
other hand, an EA licensee seeking to provide reliable coverage at the 
border of its licensing area would require the consent of the adjacent 
EA licensee even if the adjacent licensee was not operating close 
enough to the border to suffer actual interference. The Commission 
believes such a requirement would be unnecessarily restrictive.
4. Emission Masks
    66. Background. In the CMRS Third Report and Order, the Commission 
affirmed its out-of-band emission rules for CMRS services and decided 
that out-of-band emission rules should apply only if emissions could 
potentially affect other licensees operations. Moreover, the Commission 
decided to apply out-of-band emission rules to licensees having 
exclusive use of a block of contiguous channels only if needed to 
protect operations outside of the licensee's authorized spectrum. In 
the 800 MHz Report and Order, the Commission decided to apply out-of-
band emission rules only to the ``outer'' channels included in an EA 
license and to spectrum adjacent to interior channels used by 
incumbents. The Commission also adopted and modified a proposed 
emission mask rule to maintain the existing level of adjacent channel 
interference protection.
    67. Petitions. Commenters supports the emission mask rule described 
in Sec. 90.691, but believes that it should also apply to any non-EA 
800 MHz part 90 CMRS system. They propose to amend Sec. 90.210 of the 
Commission's rules by adding the following sentence to footnote 3: 
``Equipment used in this band by non-EA systems shall comply with this 
section or the emission mask provisions of Section 90.691.''
    68. Discussion. The Commission agrees with petitioners that its 
Sec. 90.691 emission mask rules should also apply to non-EA 800 MHz 
part 90 CMRS systems, and thus it will adopt the proposed change to 
Sec. 90.210 of the Commission's rules. By making this change, the 
Commission will provide incumbent licensees who do not submit a winning 
bid in the auction process the opportunity to use the more flexible 
emission mask that it has adopted for EA licensees. Moreover, it will 
aid CMRS operators who are operating on non-SMR pool channels to have 
the same capabilities as those operating in the SMR category. Thus, the 
Commission amends Sec. 90.210 by adding the suggested sentence to 
footnote 3.

C. Construction Requirements

1. EA Licensees
    69. Background. In the 800 MHz Report and Order, the Commission 
adopted a five-year construction requirement for EA-based licensees 
beginning when the license issues and applying to all of the licensee's 
stations within the EA spectrum block, including any stations 
previously subject to an earlier construction deadline. The Commission 
recognized that it had adopted a ten-year period adopted for PCS 
systems, but concluded that the already-substantial construction of 800 
MHz systems made a five-year period sufficient. Moreover, the 
Commission recognized that geographic-area licensees that have invested 
in existing systems or that have incurred bidding costs must construct 
facilities and provide service promptly, to recover these costs.
    70. Petitions. A petitioner argues that EA licensees should not be 
able to obtain an additional five years to construct facilities 
previously subject to earlier construction deadlines and that the 
Commission's approach rewards spectrum warehousing and is inconsistent 
with regulatory symmetry because prior construction deadlines were 
issued on a site-specific basis. Other petitioners believe that the 
Commission's construction requirements discriminate between EA 
licensees and non-EA licensees and that the Commission's rationale for 
a five-year construction period is flawed because it rested, in part, 
on an order finding that a two-year construction period was sufficient 
for existing SMRs.
    71. Finally, the petitioner argues that 50 percent minimum channel 
use should be required at more than a single location within the EA or 
otherwise, a licensee could meet this requirement by building a multi-
channel facility in a rural portion of an EA and avoid serving a 
metropolitan area. They contend that this would enable EA licensees to 
avoid constructing true wide-area systems and to warehouse spectrum.
    72. Discussion. The Commission declines to reconsider its five-year 
construction deadline. The Commission is unpersuaded by the unsupported 
assertion that a five-year construction period for EA licensees does 
not serve the public interest and that its EA construction requirements 
will allow those who warehouse to be unjustly enriched at auction. To 
the contrary, the auctions process requires licensees to purchase the 
rights to, and thereby compensate the American taxpayer for, the 
spectrum that they use. Thus, the Commission's auction rules discourage 
speculation and spectrum warehousing. Moreover, the Commission does not 
agree that its five-year construction requirement will result in or 
reward spectrum warehousing. The five-year requirement assures that 
geographic licensees promptly build out and provide service.
    73. The Commission also rejects claims that it has acted 
discriminatorily by adopting a two year construction requirement for 
site-by-site licenses and a five-year build out for EA licensees. 
Further, the Commission rejects the claim that its rationale for 
granting EA licensees a five-year build out period, while limiting 
existing site licensees to an additional two years, is flawed. The 
Commission imposes a two-year build out period on site licensees 
because, by definition, they are seeking authority to build and operate 
a particular site. EA licensees, in contrast, will be building multiple 
sites throughout their licenses entire geographical area and thus 
require a longer build out period. Moreover, the competitive bidding 
process provides incentives for EA licensees to build out quickly, and 
thus reduces the likelihood that a longer construction period would 
lead to spectrum warehousing.
    74. Finally, the Commission rejects the proposed expansion of the 
50 percent channel use requirement because it finds that its concerns 
are too speculative, and its suggested approach too rigid. It would be 
economically irrational for a licensee to construct multiple channels 
in areas where there is limited demand while leaving areas

[[Page 41233]]

where demand is greatest covered by only a single channel. Moreover, 
licensees should have the flexibility to determine how best to provide 
services in response to consumer demand. The Commission does not 
believe that it should micromanage how the EA licensee chooses to 
provide service.
2. Extended Implementation Authority

a. Dismissal of Pending Extended Implementation Requests

    75. Background. In the 800 MHz Report and Order, the Commission 
stopped accepting requests for extended implementation authority, 
accelerated the termination date of pending extended implementation 
periods, and dismissed pending requests for extended implementation 
authority. The Commission reasoned that retaining extended 
implementation authority for up to five years would impede EA licensees 
construction efforts, and that parties still wanting extended 
implementation could apply for EA licenses under the Commission's new 
rules.
    76. Petitions. A Commenter seeks reconsideration of the 
Commission's dismissal of pending requests for extended implementation 
and its decision to reduce previously granted construction periods from 
five to two years. They argue that eliminating existing extended 
implementation periods unfairly harms incumbent SMR providers. They 
also argue that eliminating extended implementation authority is an 
unlawful deprivation of the property interest which it contends it has 
in its FCC licenses and the continuation of those licenses, and argues 
that to deny or revoke such a license without cause violates the 
licensee's due process rights.
    77. The commenter also claims that eliminating extended 
implementation periods will harm the public and the CMRS industry by 
excluding small and mid-sized SMR providers from the CMRS marketplace. 
They argue that small SMR providers may lack the resources to acquire 
spectrum for their current markets at auction. It asserts that 
eliminating extended implementation compounds this problem by stranding 
investment in SMR systems whose construction periods will be cut short.
    78. Finally, another commenter argues that the Commission has 
recognized that public safety agencies need extended implementation 
because complex government funding mechanisms impede rapid deployment 
of public safety systems. It argues that extended implementation should 
be available to public safety systems in the General Category. Still, 
another commenter argues that extended implementation should be 
available for all private radio licensees in the General Category, 
because problems such as budgetary constraints affect the I/LT and 
Business users as much as Public Safety licensees.
    79. Discussion. The Commission rejects the claim that eliminating 
extended implementation interferes with legitimate business 
expectations. First, these licensees have already been given 
significant time to complete construction. Second, upon adequate 
rejustification, licensees will have up to two years to complete build 
out of their systems. Far from being a ``drastic change'' that will 
strand investment, as contended, this is an equitable transition to a 
more efficient method of providing service and using spectrum. Finally, 
one commenter's reliance on the public interest analysis in the OVS 
NPRM, 61 FR 10496 (March 14, 1996), is also misplaced. While, the OVS 
proceeding did acknowledge a strong public interest in establishing a 
level of certainty in business plans, the Commission did not suggest 
that a licensees' business expectations were entitled to absolute 
protection, nor did the Commission imply that these expectations would 
always dictate the course of future regulation.
    80. The claim of a property interest in its license is also without 
merit. Both section 301 of the Communications Act and relevant case law 
establish that licensees have no ownership interest in their FCC 
licenses. Moreover, the Commission does not agree that ending extended 
implementation will decrease competition. To the contrary, competitive 
bidding, which allocates resources to those who value them most, is a 
more efficient and competitive method than the Commission's prior rules 
for licensing spectrum on an extended basis. The Commission also 
disagrees that terminating extended implementation will limit small 
business participation. To the contrary, the Commission has adopted 
special provisions, such as bidding credits, in order to assist small 
businesses at auction.
    Finally, the Commission notes that it only curtailed extended 
implementation for SMR licensees. Thus, non-SMR licensees with existing 
extended implementation grants are not affected by this proceeding. In 
addition, non-SMR licensees on 800 MHz channels that are not subject to 
EA licensing (i.e. Business, I/LT and Public Safety channels may still 
obtain extended implementation authority under Sec. 90.629).

b. Rejustification of Extended Implementation Authority

    82. Background. In the 800 MHz Report and Order, the Commission 
required incumbent 800 MHz licensees with extended implementation 
grants to submit showings rejustifying the need for extended time to 
construct their facilities. The Commission provided that if the Bureau 
approved a licensee's showing, the licensee would receive a 
construction period of two years or the remainder of its current 
extended implementation period, whichever was shorter. Licensees making 
an insufficient or incomplete showing would have six months to 
construct the remaining facilities covered under their implementation 
plans.
    83. Petitions: Several petitioners seek reconsideration or 
clarification of the extended implementation rejustification procedures 
adopted in the 800 MHz Report and Order. One petitioner argues that 
wide-area systems that received extended implementation via waiver 
should not be required to submit rejustification showings because their 
waivers were predicated on the existence of underlying constructed 
analog facilities. Another asks that the Commission delineate the 
evidence that a licensee must provide to rejustify its extended 
implementation grant. Petitioners also ask that the Commission clarify 
whether licensees who received license grants in the processing of the 
800 MHz SMR backlog in October 1995 are eligible for extended 
implementation.
    84. Discussion. In the 800 MHz Report and Order, the Commission 
specified that all licensees with extended implementation grants would 
be required to file rejustification showings, regardless of whether 
they sought extended implementation under Sec. 90.629 to construct new 
systems or had obtained waivers to reconfigure existing high-power 
analog systems into low-power digital systems within the existing 
analog footprint. One petitioner argues that licensees who are 
converting their systems should be exempt from the rejustification 
requirement because they are not seeking to occupy previously 
unlicensed spectrum. The Commission disagrees. The waivers that were 
granted to licensees to convert existing analog facilities gave them 
considerable latitude to redeploy channels throughout the aggregate 
footprint of their systems, in effect allowing them to obtain new 
spectrum (i.e., spectrum on additional channels) within their existing 
footprints. In order to provide EA licensees with reasonable certainty 
regarding what spectrum is available to

[[Page 41234]]

them, the Commission believes it is necessary that these licensees be 
subject to the same timetable for constructing their systems and 
returning unconstructed channels as licensees who received extended 
implementation grants to build entirely new systems. Therefore, the 
Commission denies the request for reconsideration.
    85. Since the filing of the petitions for reconsideration, the 
Wireless Bureau has solicited and received rejustification showings 
from 37 licensees, and has acted on the showings in a recent order. The 
Commission also notes that prior to the filing of these showings, the 
Bureau issued a Public Notice describing the information to be provided 
in the rejustifications and clarifying that licensees who obtained 
license grants in the October 31, 1995 Bureau Public Notice, and who 
had extended implementation requests associated with such applications, 
could treat such requests as granted for purposes of the 
rejustification filing requirement. Therefore, the Commission dismisses 
two petitioners' reconsideration requests as moot.

D. EA License Initial Eligibility

    86. Background. In the 800 MHz Report and Order, the Commission 
concluded that restrictions on EA licensee eligibility were not 
warranted, except for foreign ownership restrictions required by 
section 310(b) of the Communications Act.
    87. Petitions. A petitioner argues that the Commission's relocation 
requirements have created a de facto eligibility limitation. According 
to the petitioner, if EA licensees must relocate incumbent licensees 
onto ``comparable facilities,'' then only entities having sufficient 
``comparable spectrum'' to offer to incumbents can become EA licensees, 
and it contends that this relocation requirement will reduce the number 
and quality of auction participants and the amount of revenue raised. 
It therefore argues that the Commission should limit eligibility for 
wide-area licenses on the upper 200 channels to applicants who do not 
currently hold any wide-area SMR authorizations. It argues that this 
eligibility restriction will create more competition for EA 
authorizations and will increase the number of wide-area CMRS service 
providers.
    88. Discussion. The Commission rejects the suggested eligibility 
limitation because it confuses protecting individual competitors with 
promoting competition. In many instances, the proposal would preclude 
entities from bidding to obtain geographic area licenses that encompass 
spectrum they are already using. Such a restriction would be 
inefficient and contrary to the goals of this proceeding. By contrast, 
open eligibility for EA licensees is pro-competitive because it enables 
the market, not regulation, to determine who values the spectrum the 
most.

E. Redesignation of Other 800 MHz Spectrum--General Category Channels 
and Inter-Category Sharing

1. General Category Channels
    89. Background. In the Commission's 800 MHz Report and Order, the 
Commission redesignated the General Category channels exclusively for 
SMR use. The Commission's licensing records showed that there are three 
times as many SMR licensees in the General Category as any other type 
of part 90 licensee. The Commission concluded that SMR providers' 
demand for additional spectrum significantly exceeds the demand of non-
SMR services. Moreover, the Commission anticipated that SMR providers' 
demand for this spectrum would be increased by geographic area 
licensing of the upper 200 channels and its mandatory relocation 
policy.
     90. Petitions. A number of petitioners challenge the Commission's 
decision to reclassify the General Category based on its finding that 
SMR licensees outnumber non-SMR licensees on these channels. Some 
commenters argue that many of these licensees are speculators who have 
not constructed and are not using the spectrum. Others contend that the 
SMR licensing freeze and the elimination of intercategory sharing have 
artificially increased SMR demand for General Category channels and 
argue that the Commission has arbitrarily reversed its prior treatment 
of the General Category without adequate explanation. They note that in 
the Competitive Bidding Second Report and Order, 59 FR 26741 (May 24, 
1994), the Commission declined to subject the General Category to 
competitive bidding, whereas it has now determined that the General 
Category should be reclassified and subject to auction. It contend that 
the pattern of licensing on the General Category channels has not 
changed dramatically since the Competitive Bidding Second Report and 
Order was adopted, and that the Commission therefore has no basis for 
treating it differently now.
    91. Some petitioners also argue that reclassifying the General 
Category will harm non-SMR operations on General Category channels by 
stranding existing investment in internal communications systems. They 
contend that it will have to re-engineer its nationwide network if the 
General Category is redesignated. Another adds that the Commission's 
decision will make American industry less competitive internationally 
by limiting its flexibility and that denying public safety operators 
access to General Category channels will jeopardize police and 
ambulance communications systems. It adds that redesignating the 
General Category channels will harm non-SMR licensees whose needs 
cannot be met by commercial carriers and that redesignation of the 
General Category channels will not facilitate relocation from the upper 
200 channels, because it will make it more difficult to accommodate the 
relocation of non-SMR incumbents currently operating on those channels. 
One petitioner argues that a reallocation of the General Category 
channels is ill-advised unless the Commission identifies additional 
spectrum to accommodate private systems.
    92. Discussion. In the 800 MHz Report and Order, the Commission 
concluded based on comments in the proceeding and on its licensing 
records that the primary demand for General Category channels came from 
SMR operators. Petitioners' arguments do not persuade the Commission 
that this conclusion was incorrect. Petitioners concede that SMR 
licensees far outnumber non-SMR licensees on these channels. Moreover, 
at the time the Commission froze General Category licensing in 1995, it 
noted that the number of SMR applications for these channels had risen 
markedly. Even if some of this increased licensing activity was 
attributable to speculation, as petitioners contend, the Commission 
believes that such activity is itself an indication that demand for the 
spectrum exists. The Commission also anticipates that with the advent 
of geographic area licensing on the upper 200 channels, there will be 
substantial demand for General Category channels among legitimate small 
SMR operators, including incumbents who relocate from the upper 200 
channels. Based on these factors, and on the fuller record relating to 
800 MHz developed in this proceeding, the Commission believes that it 
was fully justified in reaching a different conclusion with respect to 
the General Category from that reached in the earlier Competitive 
Bidding Second Report and Order.
    93. The Commission believes, however, that petitioners have raised 
valid concerns with respect to the interests of non-SMR licensees 
operating on the General Category channels. As several petitioners 
note, the Commission's decision in the 800 MHz Report and Order, to 
reclassify the

[[Page 41235]]

General Category as SMR-only would preclude non-SMRs from seeking 
additional authorizations on these channels to expand their systems. On 
reconsideration, the Commission sees no reason why non-SMRs should not 
continue to be eligible for licensing in the General Category. By 
allowing non-SMRs to obtain spectrum in this band, the Commission gives 
non-SMRs more options and greater flexibility for continued growth of 
their systems.
    94. While the Commission concludes that non-SMRs should continue to 
be eligible for General Category licensing, the Commission emphasizes 
that this in no way affects its decision to license General Category 
channels geographically, with competing applications resolved through 
competitive bidding. The Commission has not altered its conclusion in 
the 800 MHz Report and Order, that General Category channels are used 
primarily for subscriber-based services, and thus are subject to 
competitive bidding under section 309(j). Moreover, competitive bidding 
will further the public interest by encouraging efficient spectrum use, 
promoting competition, recovering portions of the value of the spectrum 
for the public and promote the rapid deployment of service. The 
Commission rejects petitioners' view that this approach will harm the 
interests of non-commercial licensees by requiring them to compete for 
spectrum with commercial systems. To the contrary, there are several 
ways in which non-SMRs can benefit from the Commission's geographic 
licensing rules. For example, non-commercial operators may not only 
apply individually for geographic area licenses, but may also 
participate in joint ventures (with other non-commercial operators or 
with commercial service providers) or obtain spectrum through 
partitioning and disaggregation to meet their spectrum needs. The 
Commission also expects that geographic area licensing of SMR and 
General Category spectrum will free up non-SMR spectrum in the 800 MHz 
band, providing more options for non-commercial operators where 
availability of General Category spectrum is limited. Finally, the 
Commission is continuing with its initiatives to provide sufficient 
spectrum for non-commercial operations through its Refarming proceeding 
and its participation in the Public Safety Wireless Activity Committee.
2. Inter-Category Sharing
    95. Background. Prior to the 800 MHz Report and Order, the Wireless 
Bureau imposed a freeze on applications for intercategory sharing among 
800 MHz Industrial/Land Transportation (I/LT), Business, and Public 
Safety channels (collectively, ``Pool Channels''). This freeze was 
intended to stem the increase in intercategory applications for Public 
Safety channels by I/LT and Business licenses whose own channels were 
subject to increased demand from SMR applicants. In the 800 MHz Report 
and Order, the Commission eliminated intercategory sharing by SMR 
licensees on all of the Pool Channels. The Commission also concluded 
that non-SMR licensees would no longer be eligible for intercategory 
sharing on SMR channels.
    96. Petitions. Petitioners representing I/LT and Business Radio 
operators oppose the elimination of intercategory sharing to the extent 
that it prevents them from obtaining spectrum where channels in their 
own pools are unavailable. They argue that the intercategory sharing 
freeze has harmed the wireless industry by prohibiting licensees from 
expanding in areas lacking I/LT or Business channels and that utilities 
and pipelines need intercategory sharing to expand their radio systems 
to meet current communications requirements. They add that commercial 
demand for 800 MHz spectrum has made it virtually impossible for 
private system operators to obtain channels in their own pools.
    97. In contrast, one commenter defends the current freeze on 
intercategory sharing with respect to Public Safety channels and 
opposes any effort to reopen these channels to non-Public Safety 
applicants. It argues that because of the limited availability of 
Business and I/LT channels and the Commission's proposals for 
geographic licensing of the General Category, a lifting of the 
intercategory freeze would cause more Business and I/LT entities to 
seek Public Safety channels as a ``safe harbor.'' It argues therefore, 
that a permanent bar on non-public safety applications in the Public 
Safety pool is needed to ensure that such channels will be available 
for current and future public safety use.
    98. Discussion. The Commission will retain the current prohibitions 
on intercategory sharing between SMR and non-SMR channels. By 
prohibiting SMRs from applying for Pool Channels, the Commission 
preserves the availability of those channels for non-commercial and 
public safety uses. Similarly, eliminating intercategory sharing for 
SMR-only channels ensures that they will be available exclusively for 
licensing to SMR operators. In addition, the Commission believes that 
the concerns of ITA and others regarding the availability of spectrum 
for I/LT and Business systems are sufficiently addressed by its 
decision to restore non-SMR eligibility for General Category channels.

F. Auctionability

    99. Background. In the 800 MHz Report and Order, the Commission 
reiterated its conclusion that competitive bidding is an appropriate 
licensing mechanism for the 800 MHz SMR service. The Commission 
concluded that the 800 MHz SMR service satisfies the criteria set forth 
by Congress for determining when competitive bidding should be used. It 
noted that competitive bidding will further the public interest 
requirements of the Communications Act by promoting rapid deployment of 
services, fostering competition, recovering a portion of the value of 
the spectrum for the public, and encouraging efficient spectrum use. 
The Commission further noted that where competitive bidding is used, a 
diverse group of applicants including incumbent licensees and potential 
new entrants into this service will be able to participate in the 
auction process because it has decided not to restrict eligibility for 
EA licenses. Finally, the Commission adopted special provisions for 
small businesses seeking EA licenses.
    100. Petitions. Several petitioners once again request that the 
Commission use procedures other than competitive bidding to license 800 
MHz SMR. In essence, petitioners contend that this band does not fit 
within the congressional criteria for auctions because (i) Congress did 
not intend for the 800 MHz SMR band to be auctioned; (ii) the 
competitive bidding design for the upper 10 MHz channels of the 800 MHz 
SMR band does not promote the objectives contained in section 309(j) of 
the Communications Act; and (iii) the Commission has failed to consider 
alternative licensing mechanisms which avoid mutually exclusive 
applications.
    101. Discussion. The Commission reaffirms its conclusion that 
competitive bidding is an appropriate tool to resolve mutually 
exclusive license applications for the upper 10 MHz channels of the 800 
MHz SMR service. Moreover, the criteria for auctionability set forth in 
section 309(j) of the Communications Act are met. The Commission has 
fully considered the issues raised here by petitioners both in the 800 
MHz Report and Order and the Competitive Bidding Second Report and 
Order. The Commission continues to believe that competitive bidding is 
appropriate for the upper 10 MHz of the 800 MHz SMR spectrum and that 
employing this

[[Page 41236]]

procedure strikes a reasonable balance in protecting the public 
interest in the use of the spectrum while promoting the objectives 
specified in the Communications Act.
    102. The Commission disagrees with petitioners' contention that 
Congress did not intend that the upper 10 MHz of the 800 MHz SMR 
spectrum be auctioned. Those petitioners contend that Congress intended 
auctions to be used for the licensing of new services and not for 
currently allocated services, such as the upper 10 MHz of the 800 MHz 
SMR. The Commission disagrees with this position because section 309(j) 
of the Communications Act does not distinguish between new services and 
existing services in terms of whether initial licenses in a given 
service should be subject to competitive bidding. Furthermore, there is 
nothing in the legislative history to indicate that Congress intended 
to limit the applicability of auctions to new services. As the 
Commission noted in the Competitive Bidding Second Report and Order, 
the principal use of 800 MHz SMR is to provide service to eligible 
subscribers for compensation. The Commission concludes that the use of 
competitive bidding in the upper 10 MHz block is fully consistent with 
section 309(j) of the Communications Act and its legislative history.
    103. In the Competitive Bidding Second Report and Order, the 
Commission concluded that its auction designs are calculated to meet 
the policy objective of introducing new technologies to the public. 
Several petitioners contend that the competitive bidding procedures for 
the upper 10 MHz of the 800 MHz SMR do not promote the section 309(j) 
objectives. One petitioner contends that the Commission's auctioning 
policies do not ensure that winning bidders will employ advanced 
technologies to serve the public. However, no commenter raises any new 
arguments that persuade the Commission to change its conclusion that 
making the 800 MHz SMR spectrum available for public use through 
auctioning will lead, most efficiently and effectively, to the 
deployment of new technologies and services to the public. As the 
Commission noted in the Competitive Bidding Eight Report and Order, it 
believes that competitive bidding furthers the public interest by 
promoting rapid development of service, fostering competition, 
recovering a portion of the value of the spectrum for the public and 
encouraging efficient spectrum use.
    104. The Commission does not agree with the contention of some 
petitioners that the administrative procedures associated with 
licensing through auctions are not as efficient as site-specific 
licensing. The Commission previously addressed the advantages to both 
the Commission and licensees of geographic area licensing. Petitioners 
do not raise any new arguments that would persuade the Commission to 
reconsider the adoption of EA licensing for the 800 MHz SMR service. 
The Commission again emphasizes that geographic area licensing offers a 
flexible licensing scheme that eliminates the need for many of the 
complicated and burdensome licensing procedures that hampered SMR 
development in the past.
    105. In response to requests by petitioners, the Commission 
considers yet again whether auctioning allows for the dissemination of 
licenses among a wide variety of entities in the 800 MHz SMR spectrum. 
Several petitioners, for example, believe that auctioning will lead to 
the concentration of licenses in the hands of a few operators in each 
market to the detriment of small businesses. The Commission disagrees 
with the contention that small businesses will not be able to 
participate in these auctions. The auction rules for the upper 800 MHz 
SMR include small business provisions such as bidding credits and other 
measures that are intended to meet the statutory objective of providing 
opportunities for small businesses in the upper 10 MHz channels of the 
800 MHz SMR service. The results of prior auctions demonstrate that 
these provisions have ensured small businesses participation in other 
auctionable services. The Commission further notes that because the 800 
MHz SMR service falls within the definition of the Commercial Mobile 
Radio Services (CMRS), it is subject to the 45 MHz aggregate spectrum 
cap on CMRS. The spectrum cap has been placed on CMRS licensees in 
order to promote and preserve competition in the CMRS marketplace by 
limiting the number of licenses any one entity can acquire.
    106. The Commission has further considered various alternative 
licensing procedures for the 800 MHz SMR band as requested by several 
petitioners. These petitioners contend that section 309(j)(6)(E) of the 
Communications Act prohibits the Commission from conducting an auction 
unless it first attempts alternative licensing mechanisms to avoid 
mutual exclusivity. In the course of this proceeding, the Commission 
has evaluated the appropriateness of other licensing mechanisms for the 
upper 800 MHz SMR, but concluded those methods are not in the public 
interest. The Commission has found that ``first-come, first-served'' 
licensing in the 800 MHz service leads to processing delays. For the 
upper channels of the 800 MHz SMR frequency band, the use of 
competitive bidding is the most appropriate licensing procedure because 
the Commission anticipates a considerable number of applications for 
these licenses and competitive bidding will allow the most expeditious 
access to the spectrum if any of these applications is mutually 
exclusive. Therefore, the Commission rejects once again other licensing 
procedures for the upper 800 MHz SMR spectrum. In doing so, the 
Commission must emphasize that it has made every effort to include the 
SMR industry in the decision-making process to make certain that the 
concerns of the industry and, particularly, incumbents are addressed by 
the Commission.

G. Bidding Issues

1. Bid Increment
    107. Background. In the 800 MHz Report and Order for the upper 10 
MHz block, the Commission adopted the same procedures for bid 
increments as those used in auctions for MTA-based PCS licenses. The 
Commission also indicated that it would retain the discretion to set 
and, by announcement before or during the auction, vary the minimum bid 
increments for individual licenses or groups of licenses over the 
course of the auction.
    108. Petitions. One petitioner supports a minimum bid increment but 
believes that tying the minimum bid to the absolute minimum bid 
establishes an artificial value for each license rather than allowing 
the marketplace to determine the value of the licenses. Instead, 
petitioner supports a five percent minimum bid increment because it 
will ensure active participation by bidders without requiring a 
disparate increase from one round to the next.
    109. Discussion. After considering the record, the Commission 
modified its rules to delegate authority to the Bureau to set 
appropriate bid increments. The Commission's experience with other 
auctions indicates that flexibility is necessary to set appropriate 
bidding levels to account for the pace of the auction, the needs of the 
bidders, and the value of the spectrum. While the Commission believes 
that a bid increment of $0.02 MHz-pop is appropriate here, it will 
delegate authority to the Bureau to vary the minimum bid increment over 
the course of the auction as it deems necessary.

[[Page 41237]]

The Bureau will announce by Public Notice prior to the auction the 
general guidelines for bid increments.
2. Upfront Payment
    110. Background. In the 800 MHz Report and Order, the Commission 
determined that the upfront payment for the upper 800 MHz SMR service 
should be $0.02 per MHz-pop, with a minimum payment of $2500. The 
Commission indicated that in the initial Public Notice, it would 
announce population information and upfront payments corresponding to 
each EA license. Further, the Commission notes that population coverage 
for each channel block in each EA will be based on a formula that takes 
into account the presence of incumbent licenses.
    111. Petitions. Petitioners request the Commission to set a lower 
upfront payment contending that $0.02 per MHz-pop is too high given the 
value of these licenses and that the Commission reconsider its decision 
to use upfront payments that take into account the presence of 
incumbent licenses because of the uncertainty that results from ongoing 
channel relocation by incumbents. Petitioner believes that prospective 
bidders would be better served by being advised that the band in 
heavily encumbered, by being provided with either a list of those 
incumbents or information as to how that information may be obtained.
    112. Discussion. The Commission reaffirms its upfront payment 
formula of $0.02 MHz-pop and uniform discounting for incumbency. The 
Commission also reaffirms a minimum upfront payment of $2500 and 
believes that it is necessary to set an adequate upfront payment to 
ensure participation by qualified bidders. However, as commenters 
suggest, the Commission recognizes that for purposes of these 
particular licenses the standard upfront payment formula may yield 
higher payment as compared to the values of the license. The Commission 
will modify its rules to delegate authority to the Bureau to vary the 
minimum upfront payment when it determines that the standard $0.02 per 
MHz-pop formula would result in an unreasonably high upfront payment. 
In determining an appropriate upfront payment, the Bureau may take into 
account such factors as the population and the approximate amount of 
usable spectrum in each EA. The Bureau will announce any such 
modification by Public Notice.
3. Activity Rules
    113. Background. In the 800 MHz Report and Order, the Commission 
adopted the three-stage Milgrom-Wilson activity rule in conjunction 
with the simultaneous stopping rule. The Commission noted that an 
activity rule ensures that an auction will close within a reasonable 
period of time by requiring a bidder to remain active throughout the 
auction. The Commission further noted that under the Milgrom-Wilson 
approach, bidders are required to declare their maximum eligibility in 
terms of MHz-pops, and to make an upfront payment equal to $0.02 per 
MHz-pop. The Commission also notes that the population calculation in 
each EA will be discounted to take into consideration the presence of 
incumbent licensees.
    114. Petitions. Petitioner requests the Commission to reconsider 
the decision to adjust the bidding unit of an EA based on the 
occupation of channel blocks by incumbents unless the incumbent has 
constructed facilities. It contends that the allowance of a downward 
adjustment irrespective of whether facilities have been constructed 
unjustly enriches those entities holding unconstructed authorizations.
    115. Discussion. The Commission affirms its decision to use a 
three-stage Milgrom-Wilson activity rule for the upper 10 MHz channels 
of the 800 MHz SMR service. The Commission also reaffirms the use of a 
uniform discount on the upfront payment to take into consideration the 
presence of incumbent licenses. The Commission disagrees with the 
recommendation that a downward adjustment should be made for 
constructed facilities only. This proposal would require the Commission 
to make an unsupported assumption that none of the entities holding 
unconstructed authorizations ever intend to build out their systems.

H. Treatment of Designated Entities

1. Bidding Credits
    116. Background. In the 800 MHz Report and Order, the Commission 
does not adopt bidding credits for designated entities participating in 
the auctions for the upper 10 MHz channels of the 800 SMR service. 
Bidding credits initially had been proposed for businesses owned by 
women and minorities. As a result of the Supreme Court's decision in 
Adarand, in the 800 MHz Report and Order the Commission concluded there 
was an insufficient record to support the adoption of special 
provisions solely benefitting minority-and women-owned business 
(regardless of size) for the upper 10 MHz block auction.
    117. Petitions. Petitioners request that the Commission provide 
bidding credits to small businesses in order to provide these entities 
with a meaningful opportunity to obtain licenses in the 800 MHz SMR 
service auction.
    118. Discussion. In this instance, the Commission grants 
petitioners' request and will provide bidding credits to small 
businesses. The Commission notes that in the 800 MHz Report and Order, 
it concluded that special provisions for small businesses are 
appropriate for the 800 MHz SMR service. The Commission also recognizes 
that smaller businesses have more difficulty accessing capital and thus 
may need a higher bidding credit. Accordingly, the Commission will 
adopt tiered bidding credits that are narrowly tailored to the varying 
abilities of businesses to access capital. Tiering also takes into 
account that different small businesses will pursue different 
strategies. In determining eligibility for these bidding credits, the 
Commission will employ the same tiered definitions of small businesses 
as used in the 800 MHz Report and Order to determine eligibility for 
installment payments in the upper 10 MHz, with an adjustment to reflect 
the unavailability of installment payment plans for the 800 MHz SMR 
services. Accordingly, a small business with average gross revenues 
that do not exceed $15 million will be eligible for a bidding credit of 
25 percent. A small business having revenues that do not exceed $3 
million will be eligible for a bidding credit of 35 percent. Revenues 
will be defined as average gross revenues for the last three years 
including affiliates. These are the same levels of bidding credits used 
in the WCS auction.
2. Installment Payments
    119. Background. In the 800 MHz Report and Order, the Commission 
adopted rules which provided small businesses participating in this 
auction with tiered installment payment plans. The Commission noted 
that it adopts the same tiered installment payment approach as in the 
900 MHz SMR auction.
    120. Petitions. Petitioner requests that the Commission eliminate 
all installment payment plans for the upper 200 channels on the basis 
of its belief that in prior auctions, the availability of installment 
payments has encouraged speculation and warehousing. Another petitioner 
disagrees, stating that installment payments are the only means by 
which independent, incumbent SMR operators will be able to participate 
in the auctions. One petitioner believes that the tiered approach to 
installment payments is insufficient to ensure meaningful participation 
by small businesses, and

[[Page 41238]]

as an alternative asks for 50 percent bidding credits.
    121. Discussion. As petitioned, the Commission will not adopt 
installment payments for the upper 200 channels. While the Commission 
disagrees with the petitioner's contention that installment payments 
encourage speculation and warehousing of spectrum, its experience with 
the installment payment program leads the Commission to conclude that 
installment payments may not always serve the public interest. The 
Commission has found, for example, that obligating licensees to pay for 
their licenses as a condition of receipt requires greater financial 
accountability from applicants. Currently, in several proceedings the 
Commission is reviewing a number of issues related to administration of 
installment payment programs. Nonetheless, given that applications for 
new 800 MHz SMR licenses have not been accepted since 1994, the 
Commission's priority is to facilitate the licensing of the upper 200 
channels without further delay. Therefore, the Commission believes that 
the public interest is best served by going forward with the auction 
for the upper 200 channels without extending installment payments to 
small businesses while it considers installment payment issues 
generally.
    122. The Commission disagrees with petitioner's contention that 
installment payments are the only means by which small SMR operators 
will be able to participate in auctions. The Commission notes that in 
other auctions in which installment payments were not available, small 
businesses were the high bidders on a significant number of licenses. 
Further, section 309(j)(4) requires the Commission to consider 
alternative methods to allow for dissemination of licenses among a wide 
variety of applicants, including small businesses. To encourage small 
business participation, the Commission has raised the bidding credits 
available to small businesses and very small businesses to 25 percent 
and 35 percent respectively. The Commission believes that higher 
bidding credits will both fulfill the mandate of section 309(j)(4)(D) 
to provide small business with the opportunity to participate in 
auctions and ensure that new services are offered to the public without 
delay.
    123. In view of the Commission's decision here, all winning bidders 
will be required to supplement their upfront payments with down 
payments sufficient to bring their total deposits to 20 percent of 
their winning bid(s). Consistent with the Commission's determination in 
the Second Report and Order, it will allow bidders up to ten days 
following the close of the auction to make their down payments.
3. Attribution of Gross Revenues of Investors and Affiliates
    124. Background. In the 800 MHz Report and Order, the Commission 
adopts a definition of small business which included attributing the 
gross revenues of investors owning 20 percent or more in the applicant. 
In light of the pending petitions for reconsideration, the Commission, 
on its own motion, retains jurisdiction to reconsider the attribution 
rule.
    125. Discussion. In determining eligibility for small business 
provisions, the Commission will modify its attribution rule to 
substitute the ``controlling principal'' concept for the attribution 
model as it recently did for auctions involving other services. 
Specifically, the Commission will eliminate the rule attributing the 
revenues of certain investors. The Commission will only attribute the 
gross revenues of all controlling principals in the small business 
applicant as well as the gross revenues of the affiliates of the 
applicant. The Commission will require that in order for an applicant 
to qualify as a small business, qualifying small business principals 
must maintain both de jure and de facto control of the applicant. 
Typically, de jure control is evidenced by ownership of 50.1 percent of 
an entity's voting stock. De facto control is determined on a case-by-
case basis. An entity must demonstrate at least the following indicia 
of control to establish that it retains de facto control of the 
applicant: (1) The entity constitutes or appoints more than 50 percent 
of the board of directors or partnership management committee; (2) the 
entity has authority to appoint, promote, demote and fire senior 
executives that control the day-to-day activities of the licensee; and 
(3) the entity plays an integral role in all major management 
decisions. This simplified procedure was adopted for auctions involving 
other services. The Commission believes this modification of its 
attribution rule will enhance the opportunity for a wide variety of 
applicants to obtain licenses. Specifically, the Commission will follow 
the attribution rules discussed in the Lower 80 and General Category 
licenses section of the Second Report and Order in section 2(a), Small 
Business Definition.

II. Ordering Clauses

    126. It is ordered that, pursuant to the authority of sections 
4(i), 302, 303(r), and 332(a)(2) of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 302, 303(r), and 332(a), the rule changes 
specified in the related final rule (FCC 97-223) published elsewhere in 
this issue of the Federal Register are adopted.
    127. It is further ordered that the rule changes set forth in FCC 
97-223 will become effective September 29, 1997.
    128. It is further ordered that the referenced Petitions for 
Reconsideration are granted to the extent discussed herein, and are 
otherwise denied.

List of Subjects in 47 CFR Part 90

    Radio, Specialized mobile radio services.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-19914 Filed 7-30-97; 8:45 am]
BILLING CODE 6712-01-P