[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Rules and Regulations]
[Pages 6079-6109]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1731]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 101

[ET Docket No. 95-183; PP Docket No. 93-253; FCC 97-391]


Service and Auction Rules for the 38.6-40.0 GHz Frequency Band

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In the Report and Order portion of the Second Notice of 
Proposed Rule Making and Report and Order, the Commission amends rules 
to facilitate more effective use of the 39 GHz band, by implementing a 
number of improvements such as licensing by Basic Trading Areas (BTAs) 
and employing competitive bidding procedures as a means for choosing 
among mutually exclusive license applicants. In addition, the 
Commission concludes that the regulatory framework for the 39 GHz band 
should be expanded to include service rules for mobile operations. Such 
flexibility will promote competition by increasing both the diversity 
of potential service offerings and the number of providers that can 
offer any service. Finally, the Commission addresses those 39 GHz 
applications held in abeyance pursuant to a processing freeze.

EFFECTIVE DATE: April 7, 1998.

ADDRESSES: 1919 M Street, N.W., Room 222, Federal Communications 
Commission, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: (For service and licensing rules), 
Susan Magnotti, Public Safety and Private Wireless Division, (202) 418-
0871; (for auction rules and procedures) Christina Eads Clearwater, 
Auctions and Industry Analysis Division, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Report and Order 
portion of the Commission's Second Notice of Proposed Rule Making and 
Report and Order in ET Docket No. 95-183 and PP Docket No. 93-253, 
adopted October 24, 1997 and released November 3, 1997. The complete 
text of the Second Notice of Proposed Rule Making and Report and Order 
is available for inspection and copying during normal business hours in 
the FCC Reference Center (Room 239), 1919 M Street, N.W., Washington 
D.C., and also may be purchased from the Commission's copy contractor, 
International Transcription Services, at (202) 857-3800, 1231 20th 
Street, N.W., Washington, D.C. 20036.

[[Page 6080]]

Synopsis of Report and Order in the Second Notice of Proposed 
Rulemaking and Report and Order

    1. In the Report and Order portion of the Second Notice of Proposed 
Rulemaking and Report and Order, the Commission amends parts 1 and 101 
of title 47, Code of Federal Regulations, to facilitate more effective 
use of the 39 GHz band. The Commission implements a number of 
improvements such as licensing by Basic Trading Areas (BTAs) and 
employing competitive bidding procedures as a means for choosing among 
mutually exclusive license applicants. (Rand McNally is the copyright 
owner of the Basic Trading Area and Major Trading Area Listing, which 
lists the counties contained in each BTA, as embodied in Rand McNally's 
Trading Areas System diskette and geographically represented in the map 
contained in Rand McNally's Commercial Atlas & Marketing Guide.) In 
addition, it concludes that its regulatory framework should be expanded 
to include service rules for mobile operations in the 39 GHz band. 
Thus, 39 GHz service providers will be better positioned to respond to 
the dictates of the marketplace. Moreover, such flexibility will 
promote competition by increasing both the diversity of potential 
service offerings and the number of providers that can offer any 
service. Finally, the Commission addresses those 39 GHz applications 
held in abeyance pursuant to the processing freeze imposed in the 
Notice of Proposed Rulemaking and Order, (NPRM and Order), 61 FR 02452 
(January 26, 1996) as modified in its subsequent Memorandum Opinion and 
Order, 62 FR 14015 (March 25, 1997).
    2. In the NPRM and Order, the Commission considered permitting an 
array of fixed services in the 37 GHz band. Subsequently, Motorola and 
other satellite entities expressed their interest in this band as well, 
and similar interests were expressed for other high gigahertz bands. 
Accordingly, the Commission decided to address the 36.0-51.0 GHz bands 
in a unified manner, and In the Matter of Allocation and Designation of 
Spectrum For Fixed-Satellite Services in the 37.5-38.5 GHz, 40.5-41.5 
GHz, and 48.2-50.2 GHz Frequency Bands; Allocation of Spectrum to 
Upgrade Fixed and Mobile Allocations in the 40.5-42.5 GHz Frequency 
Band, Allocation of Spectrum in the 46.9-47.0 GHz Frequency Band for 
Wireless Services; and Allocation of Spectrum in the 37.0-38.0 GHz and 
40.0-40.5 GHz for Government Operations, IB Docket No. 97-95, Notice of 
Proposed Rulemaking, FCC 97-85 (rel. March 24, 1997) (``36-51 GHz 
NPRM''), Notice of Proposed Rulemaking, 62 FR 16129 (April 4, 1997), 
the Commission sought comment on its proposals for these frequency 
bands. However, because the 39 GHz band is significantly licensed and 
subject to additional applications for license, the Commission has 
concluded that it is in the public interest to refine its rules at this 
time to allow existing and new licensees to maximize the array of 
services they can provide to the public. In addition to providing 
support for existing services (e.g., broadband PCS, cellular, and other 
commercial and private mobile radio operations), 39 GHz band providers 
plan to use this spectrum to satisfy needs for a host of other fixed 
services, such as: (1) Wireless local loops, (2) call termination or 
origination services to long distance companies, (3) connection of the 
customers of a competitive access provider (``CAP'') or a local 
exchange carrier (``LEC'') to its fiber rings, (4) connection and 
interconnection services to private networks operated by business and 
government as well as other institutions, (5) Internet access, and (6) 
cable headend applications. In some cases, 39 GHz band licensees are 
already using the spectrum for such purposes.

I. Decision--Service Rules

A. Service Areas

    3. The Commission adopts its proposal in the NPRM and Order to 
license new 39 GHz licenses based on pre-defined geographic areas 
rather than the applicant-defined rectangular areas currently 
authorized in the 39 GHz band. Commission-defined service areas will 
foster efficient utilization of 39 GHz spectrum in an expeditious 
manner and will provide a more orderly structure for the licensing 
process. The Commission therefore rejects the suggestion by some 
commenters that it continue licensing the 39 GHz band by permitting 
applicants to define their own service areas. For those interested in 
tailoring a service area to other smaller or larger markets, the 
Commission notes that, concurrently with the instant proceeding, it is 
also proposing service rules to allow partitioning and disaggregation 
by 39 GHz licensees.
    4. In choosing the most appropriate definition for 39 GHz service 
areas, the Commission observes that its conclusion that this band is 
auctionable (explained below in Discussion Section A) requires it to 
apply the criteria of section 309(j)(4)(C) of the Communications Act of 
1934, as amended, (``Act'' or ``Communications Act''). This section 
mandates that the Commission consider certain factors when establishing 
service areas for auctionable services. The first of these criteria is 
that the service area promote an equitable distribution of licenses and 
services among geographic areas. The Commission believes that use of 
BTAs fulfills this objective because they are intended to represent the 
natural flow of commerce, comprising areas within which consumers have 
a community of interest. As a result, the Commission believes that BTAs 
are representative of the geographic areas in which the types of 
services envisioned for the 39 GHz band are likely to be provided. The 
second criterion the Commission is required to consider is whether the 
service area is appropriate to provide economic opportunity for a wide 
variety of applicants, including small businesses, rural telephone 
companies, and businesses owned by members of minority groups and 
women. The Commission believes that BTAs are sufficiently large to 
accommodate the array of services proposed for the 39 GHz band in a 
manner which provides opportunities for a variety of licensees. The 
BTA-sized service areas for support spectrum will be compatible with 
the primary service areas defined for broadband PCS providers. The 
Commission also believes that other services, such as telephony, would 
find sufficient population within BTAs to support the pursuit of 
various business opportunities. In addition, the Commission believes 
that other services anticipated for 39 GHz spectrum, such as wireless 
local loop, competitive access, local exchange, and Internet access, 
are of a local nature for which use of BTAs also would be appropriate. 
Moreover, the Commission believes that use of BTAs as the service area 
definition for the 39 GHz band will also satisfy the third criterion of 
section 309(j)(4)(C), which requires that the Commission establish 
service areas in a manner which will promote investment in and rapid 
deployment of new technologies and services. Accordingly, the 
Commission agrees with the commenters who advocate the use of BTAs for 
licensing the 39 GHz band.
    5. The Commission disagrees with those commenters who contend that 
the service areas for the 39 GHz band should be based on larger 
geographic areas. The Commission believe that BTAs offer a sufficiently 
large service area to allow applicants flexibility in designing a 
system to maximize population coverage and to take advantage of 
economies of scale necessary to support a successful

[[Page 6081]]

operation. Moreover, to the extent that 39 GHz licensees desire to 
provide service over a larger geographic region, the rules the 
Commission adopt today will allow them to aggregate BTAs. The 
Commission does not believe, however, nor does the record indicate, 
that the majority of licensees will seek to provide service over vast 
geographic regions. Thus, the Commission believes that larger service 
areas would be inappropriate for the 39 GHz band.
    6. Finally, although GTE expressed some concern that any Rand 
McNally licensing agreement should be reasonable, the Commission does 
not believe that the existence of Rand McNally's copyright interest in 
the BTA listings will present an impediment to use of these areas by 39 
GHz band licensees. The Commission expects that potential licensees and 
Rand McNally will execute a licensing agreement similar to those 
already undertaken in other contexts. In particular, Rand McNally has 
already licensed the use of its copyrighted MTA/BTA listing and maps 
for a number of services, such as PCS, 800 MHz Special Mobile Radio 
(SMR) service, and Local Multipoint Distribution Service (``LMDS''), 
and the company has also reached an agreement with the American Mobile 
Telecommunications Association (``AMTA'') for a blanket copyright 
license for the conditional use of copyrighted material in the 900 MHz 
SMR service. These agreements authorize the conditional use of Rand 
McNally's copyrighted material in connection with these particular 
services, require interested persons using the material to include a 
legend on reproductions (as specified in the license agreement) 
indicating Rand McNally's ownership, and provide for a payment of a 
license fee to Rand McNally.
    7. The Commission encourages interested parties and Rand McNally to 
explore the possibility of entering into blanket license agreements to 
cover the 39 GHz band. The Commission notes that a 39 GHz BTA 
authorization grantee who does not obtain a copyright license through a 
blanket license agreement (or some other arrangement) with Rand McNally 
for use of the copyrighted material may not rely on the grant of a BTA-
based authorization from the Commission as a defense to any claim of 
copyright infringement brought by Rand McNally against such grantee. 
The MTA/BTA Listings, the MTA/BTA Map and the license agreements noted 
above are available for public inspection at the Wireless 
Telecommunications Bureau, Reference Room, Room 5322, 2025 M Street, 
N.W., Washington, D.C., 20554.

B. Permissible Operations in the 39 GHz Band

    8. In the NPRM and Order, the Commission raised questions about 
expanding the array of services provided in the 39 GHz band to include 
point-to-multipoint and mobile operations. Although these services are 
permitted under the Table of Allocations for this spectrum band, the 
only type of service authorized under the Commission's current service 
rules is point-to-point operations. The 39 GHz band is currently being 
licensed and used for non-Government, terrestrial-based, fixed, point-
to-point microwave service. In addition, there are no satellite 
operations in the 39 GHz band. Accordingly, the Commission's efforts to 
improve the licensing and service rules for non-Government service in 
this band are not affected by any existing assignments under different 
allocations. The Commission takes note of the fact that the 39 GHz band 
contains the following allocations:
     Domestically, the 38.6-39.5 GHz portion of the band is 
allocated for non-Government use to provide fixed and mobile services 
and FSS (space-to-Earth) on a primary basis. In addition to these 
primary allocations, the 39.5-40.0 GHz portion of the band is allocated 
on a shared basis between Government and non-Government users on a 
primary basis for FSS (space-to-Earth) and Mobile-Satellite Service 
(``MSS'') (space-to-Earth). Government use of 39.5-40.0 GHz is limited 
to military systems.
     Internationally, the 39 GHz band is allocated on a co-
primary basis for fixed and mobile services and FSS (space-to-Earth), 
and on a secondary basis for use by the Earth-Exploration Satellite 
service (space-to-Earth). The 39.5-40.0 GHz portion of the band is also 
allocated on a primary basis for MSS (space-to-Earth).
    9. In the NPRM and Order, the Commission requested public comment 
on whether it should also establish service rules which would permit 
point-to-multipoint and mobile services. Many parties commenting in 
this proceeding have encouraged us to allow them flexibility to 
determine the best uses of the 39 GHz band; in particular, they have 
requested authority to provide point-to-multipoint and mobile service, 
as the technology to provide these services becomes available. The 
Commission has considered these comments in connection with the recent 
amendment to section 303 of the Communications Act concerning criteria 
it must consider when permitting flexible use of the electromagnetic 
spectrum, which was enacted after the NPRM and Order and after the 
comment period had been completed in this proceeding.
i. Point-to-Multipoint Operations
    10. Given the fact that the 39 GHz service is still in its early 
stages of development, the Commission believes that it is imperative 
that it not take any regulatory actions that would hamper the service's 
continued development and growth potential. The Commission notes, as a 
general matter, that the type of services proposed for the 39 GHz band 
by the commenters can be offered on both a point-to-point and point-to-
multipoint basis. Although a few commenters contend that the Commission 
should defer allowing point-to-multipoint operations in this band until 
specific technical rules are adopted to protect against interference to 
point-to-point users (such as equipment specifications), there is no 
evidence in the record that point-to-point and point-to-multipoint 
operations are inherently incompatible in the same band or licensing 
area. Therefore, the Commission will adopt 39 GHz rules for point-to-
multipoint operations.
ii. Mobile Operations
    11. The Commission has considered the comments of several parties 
requesting that it establish rules to permit mobile operations in this 
band. Parties opposing authorization of mobile services in the 39 GHz 
band argue that there are no technical parameters to protect both fixed 
and mobile operations from mutual interference.
    12. After careful review of the record evidence, the Commission has 
decided to permit implementation of mobile operations in the 39 GHz 
band. Permitting such flexibility will enable providers to modify their 
offerings quickly and efficiently to provide the services that 
consumers demand and that technology makes possible. Thus, providers 
will be better positioned to respond to the dictates of the 
marketplace. Moreover, such flexibility will promote competition by 
increasing both the diversity of potential service offerings and the 
number of providers that can offer any service. Thus, the requirements 
of section 303(y) are fulfilled because both technological development 
and investment therein will be stimulated. Moreover, this broad view of 
the character of 39 GHz service comports with the development of the 
industry thus far because parties are developing a wide variety of 
fixed services and some parties may be developing, or planning to 
develop,

[[Page 6082]]

mobile services technology capable of operating without interference to 
fixed facilities in this band. Accordingly, the Commission is convinced 
that establishing rules for mobile operations will best serve the 
public interest. In addition, the Commission observes that in a number 
of other contexts it has authorized licensees to provide both mobile 
and fixed operations within the same service--e.g., General Wireless 
Commercial Services (``GWCS''), the Commercial Mobile Radio Services 
(``CMRS''), and the Interactive Video and Data Service (``IVDS'').
    13. For the most part, the objections that have been raised to 
mobile operations in this proceeding are misplaced. Since the service 
is licensed on an exclusive, area-wide basis (whether by incumbents' 
rectangular service areas or by new licensees' BTAs), the issue of 
technical compatibility of fixed and mobile operations within a service 
area is one that can and should be resolved by the licensee. To the 
extent that a licensee has the technological wherewithal to provide one 
or the other, or both, types of services, the licensee will do so in a 
manner that the market directs. Governmental direction in this service 
is unnecessary except to the extent that the operations of one licensee 
may interfere with that of another. Even if mobile operations are not 
now compatible with fixed operations within a licensee's service area, 
if adequate protections against inter-licensee interference are in 
place, a failure to authorize mobile use in this spectrum might delay 
implementation of a dual (mobile and fixed) operation when it does 
become feasible. Accordingly, the Commission agrees that 39 GHz 
licensees should have the flexibility to provide mobile services.
    14. The Commission recognizes that inter-licensee interference 
issues are magnified under this approach. For example, a mobile unit 
operating in a fixed microwave environment on the same frequency calls 
for a different interference analysis and a more difficult resolution 
than the operation of two or more fixed microwave systems on the 
identical frequency in the same vicinity. In addition, the Department 
of Defense has stated that it has plans to implement satellite 
downlinks at 39.5-40.5 GHz in the future. NASA has also identified 
39.5-40.0 GHz as a possible space research band to accommodate future 
earth-to-space wideband data requirements. Such plans, however, should 
not affect the continued development of the 39 GHz band for non-
Government use. The Commission believes that it is likely that military 
satellite systems will be able to share with non-Government terrestrial 
and/or fixed satellite systems, provided that the Government receiving 
Earth stations are limited in number. The Commission intends to address 
these interference issues in a future, separate proceeding that will 
focus on developing inter-licensee and inter-service standards and 
criteria. Until these standards and criteria are adopted the Commission 
will not permit mobile operations in the 39 GHz band.
iii. The Balanced Budget Act Requirements for Flexible Use
    15. The Balanced Budget Act authorizes the Commission to allocate 
spectrum so as to provide flexible use, if such use is consistent with 
international agreements to which the United States is a party and the 
Commission finds that: (1) Such an allocation would be in the public 
interest; (2) such use would not deter investment in communications 
services and systems, or technical development; and (3) such use would 
not result in harmful interference among users. In the NPRM and Order, 
the Commission sought comment on whether it should allow point-to-
multipoint and mobile operations in addition to the traditional point-
to-point services authorized in the 39 GHz band. As discussed supra, 
the Commission finds that the flexible use approach adopted herein is 
consistent with the new statute. Accordingly, the Commission will 
permit point-to-point, point-to-multipoint and mobile operations on the 
39 GHz band. However, as explained supra, the Commission will defer 
mobile use until a future rulemaking proceeding can establish 
interference criteria. Accordingly, the Commission finds, as required 
by Section 303(y) of the Communications Act, as amended by the Balanced 
Budget Act, that no harmful interference will be caused by allowing 
both point-to-point and point-to-multipoint operations in the 39 GHz 
band. The Commission concludes further, based on the above-mentioned 
comments in the record, that point-to-multipoint use will not deter 
investment in communications services and systems, or in technology 
development. To the contrary, permitting point-to-multipoint use will 
stimulate creative technology development and facilitate investment 
therein. It is in the public interest to afford 39 GHz licensees 
flexibility in the design of their systems to respond readily to 
consumer demand for their services, thus allowing the marketplace to 
dictate the best uses for this band. Accordingly, the Commission finds 
that the requirements of Section 303(y) of the Communications Act, as 
amended, are fulfilled to justify point-to-multipoint use of the 39 GHz 
band as part of a flexible use approach. While at this time, the 
Commission is not determining the specific provisions for interference 
protection with regard to mobile use, it will adopt such requirements 
before permitting mobile operations in this band.

C. Channeling Plan

    16. The existing 39 GHz channeling plan consists of fourteen paired 
50 MHz channel blocks, with a spacing of 700 MHz between the transmit 
and receive frequencies. Within this framework, 39 GHz licensees have 
the flexibility to subdivide their channels in the manner they deem 
most appropriate to meet service demands. The Commission will retain 
its current channel plan. The Commission concludes that adopting a 
standard subchannelization plan at this early stage in the development 
of the 39 GHz service would potentially hamper licensees' efforts to 
meet their customer demands and could unnecessarily impose technical 
and economic costs on equipment users and limit the range of services 
potentially available. Moreover, given the short propagation 
transmission characteristics at these frequencies, lack of a 
subchannelization plan is not likely to cause any significant 
coordination problems in the 39 GHz band. Furthermore, because the 
Commission anticipates that one of the uses for the 39 GHz band is 
provision of CMRS infrastructure, it is concerned that adoption of a 
subchannelization plan may frustrate such use if it is inconsistent 
with the channeling plan for particular CMRS providers. Thus, the 
Commission believes that the existing approach that allows 39 GHz 
licensees to freely subdivide their channel blocks will not only avoid 
this unintended result but also facilitate the most flexible and 
efficient use of 39 GHz spectrum. As the Commission observed in the 
NPRM and Order, however, the Commission's decision not to adopt a 
standard subchannelization plan does not preclude the industry from 
developing its own voluntary standards in this area.

D. Licensing Rules

i. Eligibility
    17. In addressing the eligibility issue, the Commission inquires 
whether open eligibility poses a significant likelihood of substantial 
competitive harm in specific markets, and, if so, whether eligibility 
restrictions are an effective way to address that harm. This approach 
results in reliance on

[[Page 6083]]

competitive market forces to guide license assignment absent a 
compelling showing that regulatory intervention to exclude potential 
participants is necessary. Such an approach is appropriate here because 
it best comports with the Commission's statutory guidance. When 
granting the Commission authority in Section 309(j)(3) to auction 
spectrum for the licensing of wireless services, Congress acknowledged 
the Commission's authority ``to [specify] eligibility and other 
characteristics of such licenses.'' However, Congress specifically 
directed that the Commission exercise that authority so as to 
``promot[e] * * * economic opportunity and competition.'' Congress also 
emphasized this pro-competitive policy in Section 257, where it 
articulated a ``national policy'' in favor of ``vigorous economic 
competition'' and the elimination of barriers to market entry by a new 
generation of telecommunications providers. This approach is also 
consistent with the Commission's analysis in Rulemaking To Amend Parts 
1, 2, 21, and 25 of the Commission's Rules To Redesignate the 27.5-29.5 
GHz Frequency Band, To Reallocate the 29.5-30.0 GHz Frequency Band, To 
Establish Rules and Policies for Local Multipoint Distribution Service 
and for Fixed Satellite Services, Petitions for Reconsideration of the 
Denial of Applications for Waiver of the Commission's Common Carrier 
Point-to-Point Microwave Radio Service Rules, CC Docket No. 92-297, 
Suite 12 Group Petition for Pioneer Preference, PP-22, Second Report 
and Order, Order on Reconsideration, and Fifth Notice of Proposed 
Rulemaking, 62 FR 16514 (April 7, 1997), adopting subpart L of part 101 
of the Commission's Rules, 47 CFR 101.1001-1112; appeal pending sub 
nom. Melcher v. FCC, Case Nos. 93-110, et al. (D.C. Cir., filed Feb. 8, 
1993); Order on Reconsideration, 62 FR 28373 (May 23, 1997). Finally, 
implementation of this approach is consistent with the court's 
treatment of eligibility issues in Cincinnati Bell Tel. Co. v. FCC, 69 
F.3d 752 (6th Cir. 1995), at 760. In that decision, the Court looked to 
statistical data and general economic theory as support for predictive 
judgments by the Commission such as a finding that eligibility 
restrictions are required.
    18. In the case of the 39 GHz band, the Commission determines that 
it is unlikely that substantial anticompetitive effects would result 
from LEC eligibility for two primary reasons. First, increased LEC 
provision of services other than those provided in local exchange 
markets, such as point-to-point backhaul and backbone transmission, 
will not diminish the generally competitive environment in which those 
services are now available. Second, even presuming that 39 GHz licenses 
will enable effective provision of services that can compete with local 
exchange service, such as wireless local loop, incumbent LECs should 
have little or no incentive to acquire those licenses with the 
anticompetitive intent of foreclosing entry by other firms and 
preserving market power. An incumbent strategy of preserving expected 
future profits by buying 39 GHz licenses cannot succeed because there 
are numerous other sources of actual and potential competition. As 
discussed supra, there are many non-LEC license holders in the 39 GHz 
band currently, and these licensees will be able to provide services 
that compete with wireline local exchange. In addition, the 
Commission's overall 36-51 GHz band plan contemplates making available 
considerable additional spectrum, including substantial unencumbered 
spectrum, for flexible terrestrial use at frequencies close to those 
covered by this Order. These future licenses should enable provision of 
whatever competitive services can be provided with the 39 GHz licenses. 
Further, entry by other wireless licensees is possible as well, such as 
CMRS firms now authorized to provide fixed services. Moreover, the 
Telecommunications Act of 1996, Public Law 104-104, 110 Stat. 56 
(1996), has set the stage for new facilities-based, wireline entrants 
such as interexchange carriers and competitive LECs, and non-
facilities-based wireline entrants utilizing the new local competition 
provisions. Finally, the Commission has now provided for one additional 
potential competitive option in every region of the country in the form 
of the 1150 MHz LMDS licensee. The Commission has imposed an 
eligibility restriction preventing in-region LECs (and cable television 
companies) from acquiring these large LMDS licenses for three years, 
guaranteeing that each license will be acquired by a firm new to 
provision of local exchange in the service area. Therefore, these 
licensees also constitute potential competition for incumbent LECs 
providing local exchange services. Given all these competitive 
possibilities, it is implausible that incumbent LECs would pursue a 
strategy of buying 39 GHz licenses in the hope of foreclosing or 
delaying competition, and implausible that they would succeed if that 
strategy were attempted. Therefore, the Commission finds that LEC 
eligibility for these licenses poses no likelihood of substantial 
competitive harm.
    19. Note that several factors, taken together, explain the 
distinction between the Commission's resolution of the eligibility 
issue here and in the case of the 1150 MHz LMDS licenses. The 1150 MHz 
LMDS license blocks are unusually large, making possible the provision 
of voice, video, data, or some combination of these services. With the 
possibility of providing voice cheaply as part of a set of services, 
the 1150 MHz LMDS license is a particularly attractive competitive 
option, and incumbents are particularly likely to attempt acquisition 
in order to prevent entry by new competitors using the LMDS license. In 
addition, with only one large LMDS license available per geographic 
area, anticompetitive preemption is quite feasible and thus the risk of 
such acquisition is increased. Moreover, the 39 GHz licenses being made 
available within the near future (i.e., within a similar time frame as 
the LMDS spectrum) are encumbered, while LMDS licenses are largely 
unencumbered. Thus, 39 GHz licenses are less likely to be acquired by 
incumbent LECs for anticompetitive motives. Most importantly, as noted 
above, given the fact that the Commission has now provided for an 
additional competitive option by imposing the 1150 MHz LMDS eligibility 
restriction, the competitive circumstances it faces in this proceeding 
differ from those it faced in the LMDS proceeding. The Commission's 
eligibility analysis and conclusion here, in fact, are consistent with 
the Commission's treatment of eligibility for the small, 150 MHz, LMDS 
licenses.
    20. Because the Commission sees no likely and substantial 
competitive harm flowing from LEC eligibility, it rejects the argument 
that LECs should be required to certify compliance with the 
``Competitive Checklist'' as a precondition to participation in the 39 
GHz auction. The Commission also notes as a general matter that LEC 
eligibility can be expected to yield efficiency benefits if there are 
complementarities between the ultimate use(s) of 39 GHz spectrum and 
the existing LEC services when offered in the same service area. For 
example, LECs might be able to achieve savings not available to new 
entrants by taking advantage of their current infrastructure, and 
imposition of restrictions would prevent realization of such savings. 
Restrictions might also prevent incumbent LECs from experimenting with 
certain technology and market combinations, and preclude or delay

[[Page 6084]]

desirable entry by incumbents into new markets.
ii. License Term
    21. Under the Commission's previous rules, all common carrier 39 
GHz licensees who were licensed before August 1, 1996 (i.e., those 
licensed previously under part 21 of the Commission's Rules) were 
subject to a fixed license term ending February 1, 2001, regardless of 
the grant date of their individual licenses. Private carrier 39 GHz 
licensees authorized before August 1, 1996 (i.e., those licensed 
previously under part 94 of the Commission's Rules) received a five-
year license which would run from the date of license grant. However, 
both private and common carrier licenses granted on or after August 1, 
1996, the effective date of the Part 101 Report and Order, have a 
license term not to exceed ten years. In addition, neither the former 
fixed microwave rules in Parts 21 and 94, nor the current ones in the 
new part 101, expressly provide for a renewal expectancy for common 
carrier or private carrier 39 GHz licensees.
    22. The Commission declines to increase the term to ten years for 
incumbents who have received a shorter period under the rules that 
predated those adopted in the Part 101 Report and Order. When it 
adopted the part 101 rules, the Commission decided to conform the 
license terms of common carrier and private carrier 39 GHz licensees on 
a going forward basis. The Commission did not, therefore, alter the 
conditions under which incumbent licensees had taken their licenses, 
and it left in place a bifurcated approach toward renewal that would 
exist until the incumbents' current licensing cycle runs its course. 
The Commission is unpersuaded that this approach, adopted only a year 
ago, should be altered.
iii. Performance Requirements: Renewal and Build-out
    23. The Commission noted in the NPRM and Order that both cellular 
and PCS licensees receive a renewal expectancy, and it proposed 
adopting a similar standard in this proceeding. Commenters support 
adopting a renewal expectancy for the 39 GHz service for similar 
reasons, as they recognize the benefits that such a presumption offers.
    24. Incumbent 39 GHz licensees are currently subject to the build-
out requirements of part 101 of the Commission's Rules, which require 
that at least one link be constructed in a licensee's geographic 
service area within eighteen months of the date of license grant. In 
the NPRM and Order, the Commission proposed new build-out requirements 
for incumbent 39 GHz licensees in order to ensure that the spectrum was 
being used to provide service to the public. Because of the 
Commission's concern that such licenses be used to provide service to 
the public, the Commission solicited comment on its proposal to allow 
incumbent 39 GHz licensees to retain their licenses only by meeting 
specific construction and loading requirements. The Commission 
suggested three basic construction build-out options, each of which 
depended upon a specific number of fixed stations to be built within 
the licensees' geographic service area. The build-out options were each 
intended to ensure a minimum level of service. While the proposals 
represented a significant departure from the current build-out rules 
applicable to these licensees, in the NPRM and Order the Commission 
stated that the purpose of these proposed measures was to minimize 
speculation without harming existing 39 GHz licensees who are 
responsibly developing the spectrum they have been assigned.
    25. The Commission also requested comment on build-out requirements 
for new licensees authorized pursuant to the competitive bidding rules 
promulgated herein. In the NPRM and Order, the Commission observed that 
the Communications Act requires that any regulations implementing a 
competitive bidding system include performance requirements--such as 
appropriate deadlines and penalties for performance failures--to ensure 
prompt delivery of service to rural areas, to prevent stockpiling or 
warehousing of spectrum by licensees, and to promote investment in and 
rapid deployment of new technologies and services. The build-out 
requirements that apply to other fixed, microwave services licensed on 
a link-by-link basis, as well as those requirements that apply to 
mobile services, did not appear appropriate for a fixed, geographically 
licensed service like 39 GHz. Accordingly, the Commission asked for 
comment on what other methods it might employ to ensure that licensees 
are using their spectrum, servicing rural areas, and enabling the 
provision of new services to the public. The Commission suggested that 
these goals might be accomplished if it required licensees to 
demonstrate substantial service in their service areas. As the 
Commission noted in the NPRM and Order, the use of a substantial 
service standard has precedent in the Commission's Rules.
    26. The performance rules the Commission is adopting for the 39 GHz 
band require each licensee to prove substantial service in order to 
achieve license renewal. The Commission arrives at this approach based 
on two factors. First, the approach satisfies the dictates of Section 
309(j)(4)(B) of the Communications Act, which requires the Commission 
to adopt effective safeguards and performance requirements for 
licensees in connection with any competitive bidding system. The 
Commission believes that the requirements it establishes herein will 
fulfill this obligation, because a license will be assigned in the 
first instance through competitive bidding, with the result that it 
will be assigned efficiently to an entity that has shown, by its 
willingness to pay market value, its willingness to put the license to 
its best use.
    27. Second, the approach the Commission is taking with regard to 
performance rules is also based on the record in this proceeding, which 
strongly supports giving 39 GHz licensees a significant degree of 
flexibility in meeting their performance requirement. As described 
above, the types of service available from 39 GHz providers is 
tremendously varied, and the service promises to develop in ways the 
Commission cannot predict at this time. Thus, an inflexible performance 
requirement might impair innovation and unnecessarily limit the types 
of service offerings 39 GHz licensees can provide. Permitting licensees 
to demonstrate that they are meeting the goals of a performance 
requirement with a showing tailored to their particular type of 
operation avoids this pitfall. Moreover, the Commission's examples of 
presumed substantial service, based on a specific number of links per 
population standard, provides licensees with a degree of certainty 
regarding their license requirements. Accordingly, the Commission 
believes that the performance requirements it establish herein will 
permit flexibility in system design and market development, yet provide 
a clear and expeditious accounting of spectrum use by licensees to 
ensure that service is indeed being provided to the public.
    28. The Commission declines to adopt any of the build-out proposals 
it made for incumbent 39 GHz licensees in the NPRM and Order. The first 
option would have required licensees to meet a specific build-out 
benchmark. The Commission has considered a number of possibilities for 
such a benchmark, and it has rejected those that appear infeasible. The 
Commission's principal proposal fell into this category. The Commission 
had proposed to require any licensee to construct and put in operation 
at least four links per 100

[[Page 6085]]

square kilometers of their service area within 18 months of adoption of 
a Report and Order in this proceeding. The Commission is persuaded by 
several commenters' arguments that such a build-out requirement would 
be unduly restrictive and burdensome, thus unnecessarily limiting 
licensees' service options. For the same reasons, the Commission 
rejects a variant of its principal proposal, which would have combined 
the alternatives discussed below with an 18-month requirement to 
construct a certain number of links per 100 kilometers.
    29. The other two alternatives the Commission had proposed for 
providing licensees with specific build-out benchmarks are also 
problematic. One alternative provided for a specific number of links, 
increasing over time, per geographic area served by each licensee. This 
alternative does not adequately take into account the differences among 
licensees. Under this requirement, a licensee in a sparsely populated 
BTA would have to build an operation that could provide the same level 
of service as a licensee of a metropolitan BTA. Such an approach would 
result in either an overly burdensome requirement for the licensee of 
the smaller market or a very lenient and almost meaningless requirement 
for the licensee of the metropolitan BTA. Moreover, since market size 
is a reasonable proxy for gauging the appropriate comparative levels of 
spectrum use, the Commission agrees with the consensus of the 
commenters that any build-out standard should therefore be based on 
market population or population density. This approach is, in fact, an 
underpinning of standards that have been adopted for CMRS services such 
as PCS and SMR.
    30. The second alternative would have required licensees to 
construct a specific number of link installations based on the market's 
population. In the case of 39 GHz, however, the services to be offered 
generally will be customized for each subscriber, and, for the most 
part, each subscriber will have equipment dedicated to its location. 
Moreover, 39 GHz licensees are not likely to install equipment until 
they receive an order. The Commission further notes that some 
commenters argue that adoption of a concrete standard would discourage 
growth, stymie new development, and deter investment in the 39 GHz 
arena. Accordingly, the Commission is concerned that a requirement for 
a fixed number of links may interfere with the market decisions of a 
particular licensee and its customers.
    31. The Commission concludes that a showing of substantial service, 
the approach it proposed for new 39 GHz licensees, should be applied to 
both incumbent and new licensees in the band. This approach will permit 
flexibility in system design and market development, while ensuring 
that service is being provided to the public. Although a finding of 
substantial service will depend upon the particular type of service 
offered by the licensee, one example of a substantial service showing 
for a traditional point-to-point licensee might consist of four links 
per million population within a service area. This revised performance 
standard should ensure that meaningful service will be provided without 
unduly restricting service offerings.
    32. One of the principal problems that commenters identified with 
the Commission's build-out proposals was that they required too much 
too soon. The Commission recognizes that licensees must be given a 
reasonable amount of time to meet a performance requirement. Parties, 
particularly incumbent licensees, also argued that different build-out 
standards were unfair and would place an unreasonable burden on their 
ability to respond to market demands. Accordingly, the Commission has 
decided that in order to impose the least regulatory burden on 
licensees as possible, but to remain consistent with the Commission's 
statutory responsibilities, it will combine the showing traditionally 
required for build-out and the showing required to acquire a renewal 
expectancy into one showing at the time of renewal. The Commission 
believes this will give licensees a sufficient opportunity to construct 
their systems. The Commission believes that applying a similar 
performance requirement to all licensees at the license renewal point 
will help establish a level playing field without compromising the 
goals of ensuring efficient spectrum use and expeditious provision of 
service to the public.
    33. The Commission recognizes that existing licensees who obtained 
their licenses before August 1, 1996, will receive a somewhat shorter 
period from the date of this decision to meet the construction 
threshold (i.e., about four years). Extending the build-out deadline 
past renewal, however, would not be prudent nor would it appear to be 
consistent with the objectives of section 309(j) of the Communications 
Act. Moreover, these incumbents already have had at least a year, and 
in some cases more than two years, in which to set in motion their 
business plans. Thus, the Commission does not believe this approach 
will adversely affect incumbent 39 GHz licensees.
    34. The Commission concurs with those commenters who advocate 
adopting a renewal expectancy for all licensees in the 39 GHz band. As 
with cellular and broadband PCS licensees, affording 39 GHz providers 
the opportunity to earn a renewal expectancy will facilitate investment 
for their industry, provide stability over the long run, and better 
serve the public by reducing the possibility that proven operators will 
be replaced with less effective licensees. The Commission is not 
limiting this opportunity to newly licensed 39 GHz providers. The 
build-out/renewal requirements established herein will, if met, serve 
to give the incumbent licensee a renewal expectancy as well.
iv. Spectrum Aggregation Limit
    35. In the NPRM and Order, the Commission sought general comment on 
whether there should be a limit on the aggregation of 39 GHz channels 
within a single BTA. The Commission also requested comment on whether 
the 39 GHz service represents a discrete market. In the event that the 
Commission concluded that this service did constitute a discrete 
market, it indicated that a spectrum aggregation limit might be 
advisable to ensure that there would be an adequate number of licenses 
available to meet the needs of broadband PCS licensees and other 
competitors in the wireless marketplace.
    36. The Commission agrees with those commenters who oppose a 39 GHz 
spectrum aggregation limit. The record strongly supports the conclusion 
that 39 GHz licensees will participate in a number of broad markets, 
consisting of a host of short-range fixed communications provided by 
many operators who employ a range of different, but substitutable, 
technologies (both radio and wire). Therefore, the Commission is not 
concerned with guaranteeing a particular number of 39 GHz competitors 
or with creating competition within the 39 GHz band. Moreover, as the 
Commission noted above, there is no evidence that the 1400 megahertz of 
spectrum in the 39 GHz band is particularly important for, or unusually 
suited for, the creation of competition in two markets where market 
power still exists--local telecommunications services and multi-channel 
video program delivery. Therefore, an aggregation limit is not needed 
in order to foster competition in these two markets. Indeed, a 39 GHz 
spectrum aggregation limit that was applicable to 39 GHz licensees 
might

[[Page 6086]]

limit the ability of a licensee to bring efficient competition to these 
markets.
    37. Although the Commission believes that some of the 39 GHz 
spectrum will be used to satisfy CMRS and private mobile radio 
infrastructure needs, it is persuaded by the commenters that a great 
portion of this spectrum likely will be used to provide other wireless 
services, e.g., local area network (``LAN'')-to-LAN, local access for 
long distance providers, wireless augmentations to CAPs' networks, and 
other high capacity data transmission networks. This is evidenced by 
current 39 GHz operations, which are not supporting CMRS communications 
infrastructure but generally tend to be local private line and local 
bypass services. Since this arena is already being served by multiple 
providers using a variety of technologies, it is clear that 
disaggregated ownership of 39 GHz spectrum is not necessary for the 
competitive provision of those services.
    38. The Commission also notes that even the current users of the 39 
GHz band are still in the early stages of developing their services, 
and that the particular uses of this spectrum are still being defined 
by the marketplace. As indicated above, 39 GHz spectrum can be used for 
almost any fixed, short-range communication--the internal parts of 
almost any communications system (mobile or fixed)--or the ``last 
mile'' of any fixed system, whether for voice, data, video, or more 
than one of the foregoing. At this time, the Commission believes that 
it would be inappropriate for us to view the output of 39 GHz spectrum 
as falling into any one of these categories or to find that some limit 
on spectrum aggregation in order to foster competition in that category 
is necessary. Accordingly, the Commission does not believe that it is 
appropriate to restrict the amount of 39 GHz spectrum that may be 
licensed to any one service or entity.
    39. Moreover, the Commission concludes that there may be benefits 
to the public in terms of efficiencies and types of services provided 
if it permits aggregation of 39 GHz spectrum. For example, spectrum 
aggregation would allow a licensee to expand its operation and thereby 
lower the per unit cost of equipment and its per capita cost of 
providing service to subscribers. Furthermore, a 39 GHz licensee with 
substantial spectrum can better compete with established service 
providers who have large transmission capacity. In addition, the 
Commission concludes that it is not likely that aggregation of 39 GHz 
spectrum by a single entity would lead to undue market power. The 
Commission notes that other service providers, such as LECs and CAPs, 
have some significant competitive advantages over a competitor using 
only 39 GHz spectrum, such as an established customer base and 
transmission facilities that carry much more traffic than would be 
possible by a 39 GHz-based facility using only, for example, 700 MHz of 
spectrum. In addition, other service providers are not precluded from 
adding fiber or radio transmission facilities to their existing 
networks. Moreover, the Commission has proposed to make available 
additional spectrum enabling more parties to compete in many of the 
types of services proposed by potential 39 GHz service providers, and 
it plans to consider these proceedings in connection with the 
Commission's 36-51 GHz band plan proceeding. Therefore, the Commission 
believes that even if a single licensee controls a significant part of 
the 39 GHz band in a single BTA, it could not control service prices or 
limit competition, given the number of providers of similar or 
substitutable services and the variety of transmission media at their 
disposal.
    40. The Commission also does not believe that a spectrum 
aggregation limit is warranted to ensure that there is adequate support 
spectrum available for broadband PCS, cellular radio, and other 
commercial and private mobile radio operations. While the use of the 39 
GHz band may help meet these needs, such backhaul and backbone support 
can also be provided by using wire-based technologies and over-the-air 
spectrum outside the 39 GHz band (e.g., at 6, 11, 18 and 23 GHz). Given 
this availability of substitutable spectrum for backhaul and backbone 
support, coupled with the aforementioned competition that exists to 39 
GHz providers of alternative types of services, the Commission finds 
that imposing a spectrum aggregation limit for the 39 GHz band would be 
contrary to the public interest.
v. Technical Rules
    a. Frequency Tolerance and Efficiency Standard.
    41. The Commission has determined that a frequency tolerance 
standard is unnecessary. The Commission's basis for this view stems 
from its desire to provide 39 GHz licensees flexibility in the 
operation of their facilities and to avoid imposing unnecessary 
regulations. In addition, the Commission believes such a standard could 
inhibit technological advances, for equipment performance is likely to 
be influenced by customer demand. For those that might be concerned 
that elimination of this standard may lead to inter-system 
interference, the Commission points to its existing out of band 
emission requirements (emission mask) contained in Sec. 101.111 of the 
rules. That rule requires frequencies removed in various percentages 
from the center frequency to be attenuated below the mean power of the 
transmitter. This means that the frequencies at the outer edges of an 
assigned 50 MHz channel or at the edge of an aggregated group of 50 MHz 
channels power levels will be significantly reduced such that 
interference to an adjacent channel licensee is unlikely. Thus, the 
Commission believes that strict adherence to Sec. 101.111 will be as 
effective in controlling inter-system interference as the imposition of 
a frequency tolerance standard. In addition, concerns for inter-system 
interference should be further eased, as the Commission is requiring 
neighboring and adjacent channel licensees to engage in frequency 
coordination before implementation of their planned operations.
    b. Antenna Requirements.
    42. There is evidence in the record that the Commission's proposal 
to require 39 GHz licensees to employ only Category A antennas is too 
restrictive because parties are contemplating a variety of system 
configurations that would require different types of antennas, e.g., 
sectorized or wide beam units, characteristics of which would be 
incompatible with the standards of a Category A antenna. These models 
represent a more cost-effective and technically suitable alternative to 
traditional narrowbeam Category A antennas when deployed in a point-to-
multipoint configuration. As the deployment of 39 GHz facilities 
increases, the Commission expects other system configurations to be 
developed in which narrowbeam antennas may not be the optimal solution. 
The Commission concludes that the need to provide 39 GHz licensees the 
technical flexibility to meet service demands outweighs any benefits 
that would ensue by adopting the requirement. Therefore, the Commission 
declines to require licensees in the 39 GHz band to use Category A 
antennas initially. The Commission concludes that 39 GHz licensees 
should be given the flexibility to employ antennas other than Category 
A types, provided they do not cause interference problems. Should the 
use of an antenna other than a Category A antenna become the source of 
an interference problem, however, the Commission will require that the 
licensee immediately resolve such interference by replacing the antenna

[[Page 6087]]

with a Category A model or one with better performance characteristics.
    c. Frequency Coordination and Power Flux Density (``PFD'') Limit.
    43. The Commission is persuaded by the record that adoption of a 
PFD limit or field strength limit now would not further the 
Commission's goal of facilitating the growth and development of the 39 
GHz spectrum. In this connection, the Commission notes that there is a 
lack of consensus regarding the parameters necessary to establish a 
reasonable and practical PFD or field strength limit. As a result, the 
Commission is concerned that establishing a service area boundary PFD 
or field strength limit without such information may stifle the 
development of advanced 39 GHz technology. Thus, the Commission 
declines to adopt such a standard at this time, and consequently, it 
need not reevaluate the current EIRP at this time. The Commission 
concludes that it is in the public interest to continue to use the 
frequency coordination procedures outlined in Sec. 101.103(d) of the 
Commission's Rules. The Commission describes these procedures, infra, 
as modified to implement certain improvements supported by the record 
of this proceeding. Despite the fact that licensees will not be able to 
rely on PFD or field strength limits to avoid the formal coordination 
process, the Commission believes that its modified coordination 
procedures will provide licensees substantial flexibility in system 
design while ensuring that inter-system interference will be kept to a 
minimum. The Commission's experience with other services employing 
frequency coordination procedures shows that those services have been 
successfully implemented with little delay and rarely result in 
unresolved frequency interference cases.
    44. Under the Commission's frequency coordination procedures, 39 
GHz licensees will be subject to the requirements of Sec. 101.103(d) of 
the Commission's Rules, with certain modifications. As a result, they 
must provide values for the appropriate parameters listed in that 
subsection to each neighboring BTA licensee authorized to use adjacent 
and co-channel frequencies. Likewise, they must provide the same 
information to each potentially-affected, adjacent-channel licensee in 
the same BTA. Coordinating parties also must supply technical 
information related to their subchannelization plan and system 
geometry. Based on the propagation characteristics of this spectrum, 
coordination between neighboring systems need only encompass operations 
located within 16 kilometers of BTA boundaries. Currently, 
Sec. 101.103(d) of the Commission's Rules gives each party that 
receives a coordination notification 30 days in which to respond. The 
record in this proceeding indicates that 30 days is an inappropriate 
time frame for operations in the 39 GHz band because licensees often 
offer service that requires much shorter installation deadlines. In 
order to facilitate such rapid service installation schedules, the 
Commission will require that recipients of coordination notifications 
respond within 10 days. Each licensee must complete this coordination 
process prior to initiating service within its service area. Finally, 
participating parties should resolve any problems that develop during 
this process. Only unresolved frequency conflicts should be reported to 
the Commission. In such cases the Commission will resolve the 
conflicts. The Commission believes that the coordination approach it is 
adopting does not preclude licensees from entering into private 
agreements that mitigate interference problems. These agreements may 
include an arrangement to conduct a one-time blanket coordination as 
opposed to coordinating each individual link as they are planned for 
activation, or arrangements for one party to compensate another 
financially for modifying its operation to accommodate new 
installations.
vi. Partitioning and Disaggregation
    45. Partitioning is the assignment of all the spectrum within 
specific geographic portions of a licensee's service area. 
Disaggregation is the assignment of discrete portions or ``blocks'' of 
licensed spectrum to another entity. The Commission concludes that 
partitioning and disaggregation should be permitted in the 39 GHz band. 
The Commission further concludes that the option of partitioning should 
not be limited to rural telephone companies but should be made 
available to all entities eligible to be licensees in the 39 GHz band, 
including incumbent 39 GHz licensees. The Commission thus concurs with 
commenters who support partitioning, and notes that no parties opposed 
this proposal. The Commission believes that the availability of these 
options will enhance 39 GHz licensees' flexibility with respect to 
system design and service offerings. The Commission also believes that 
partitioning and disaggregation opportunities further the objectives of 
section 309(j) of the Communications Act by facilitating the 
development of niche markets and the arrival of new entrants, including 
small businesses, rural telephone companies and businesses owned by 
members of minority groups and women. In addition, these tools will 
promote efficient use of 39 GHz spectrum.
    46. As a result, 39 GHz licensees acquiring their licenses under 
the new rules established herein will be permitted to acquire 
partitioned and/or disaggregated licenses in either of two ways: (1) 
They may form bidding consortia to participate in auctions, and then 
partition or disaggregate the licenses won among consortia participants 
after grant; or (2) they may acquire partitioned or disaggregated 39 
GHz licenses from other licensees through private negotiation and 
agreement either before or after the auction. A licensee planning to 
partition or disaggregate its license must first be granted the 
license, and the licensee and partitionee and/or disaggregatee will be 
required to file an assignment application. The Commission will require 
that a licensee disaggregate by frequency pairs. This requirement is 
necessary for administrative purposes: the database necessary to track 
authorizations could otherwise become too cumbersome and complex and 
processing could become delayed or prone to error.
    47. Overall, the Commission believes that partitioning and 
disaggregation will promote competition in the 39 GHz service and 
expedite the delivery of service to the public, particularly in rural 
areas. Moreover, partitioning and disaggregation will help to eliminate 
market entry barriers pursuant to section 257 of the Communications Act 
by creating smaller, less capital intensive service areas that may be 
more accessible to small entities. The Commission considers 
partitioning and disaggregation effectively to be types of assignments, 
which will, therefore, require prior approval by the Commission. In 
authorizing partitioning and disaggregation, the Commission will follow 
existing assignment procedures.
    48. The Commission will require the entity acquiring a license by 
partitioning or disaggregation to satisfy the same construction 
requirements as the initial licensee, regardless of when its license 
was acquired. Should a licensee fail to meet the construction 
requirements, the license will cancel automatically. The cancelled 
license will, if it was partitioned from a rectangular service area, 
revert to the BTA licensee for that channel (unless the forfeiting 
entity is the BTA licensee for that channel). If the forfeited license 
was partitioned from a BTA, the license will be auctioned. In addition, 
parties must comply with the Commission's current technical rules

[[Page 6088]]

with respect to service area boundary limits and protections. 
Coordination and negotiation among licensees must be maintained and 
applied in licensing involving partitioned areas and disaggregated 
spectrum. Finally, under partitioning or spectrum disaggregation, an 
entity will be authorized to hold its license for the disaggregated 
spectrum or partitioned area for the remainder of the original license 
term. The Commission concludes that this approach is appropriate 
because the Commission should not bestow greater rights to a licensee 
receiving its authorization pursuant to partitioning or spectrum 
disaggregation than the Commission awarded under the terms of the 
original license grant.
vii. Regulatory Status
    49. The Commission concludes that 39 GHz band licensees should be 
permitted to serve as a common carrier or as a private licensee. 
Further, those licensees who select common carrier regulatory status 
will be able to provide private service, and those licensees who select 
private service provider regulatory status may share the use of their 
facilities on a non-profit basis or may offer service on a for-profit, 
private carrier basis subject to Sec. 101.135 of the Commission's 
Rules. Under this scenario, licensees will elect the status of the 
services they wish to offer and be governed by the rules applicable to 
their status. Although no commenters addressed this issue, the 
Commission believes this approach will promote economic efficiencies by 
reducing construction and operating costs associated with having to 
provide separate facilities. This result also is consistent with 
Sec. 101.133(a) of the Commission's Rules.

E. Treatment of Incumbent 39 GHz Licensees

    50. Incumbent 39 GHz licensees are those who have been licensed 
under the current fixed microwave rules in 47 CFR Part 101, or its 
predecessors, parts 21 (for common carriers) or 94 (for private 
carriers). Their service areas are self-defined and generally are 
restricted to point-to-point operations. Many of these licensees have 
participated as commenters in this proceeding, and include WinStar, 
ART, BizTel, Columbia, and a number of PCS licensees.
i. Reconciling Service Areas of 39 GHz Incumbents With BTA Service 
Areas of New Licensees
    51. While the Commission has decided that BTAs are appropriate for 
the new licensing system in the 39 GHz band, it recognizes that many of 
the newly-licensed BTA service areas will be encumbered by incumbent 39 
GHz band licensees. These incumbents are authorized in various 
locations throughout the country, and their rectangular service areas 
will occupy portions of BTAs or cross BTA boundaries. After careful 
consideration of the concerns expressed by various commenters, the 
Commission concludes that the following approaches are appropriate.
    52. Where an incumbent licensee's rectangular service area occupies 
only a portion of a BTA, the licensee's channels will be available for 
application under the new competitive bidding rules, but the incumbent 
will retain the exclusive right to use those channels within its 
rectangular service area. The holder of the BTA authorization thus will 
be required to design its system to protect against harmful 
interference to the incumbent by complying with the Commission's 
interference protection standards. The Commission notes that should 
such an incumbent lose its authority to operate, the BTA license holder 
will be entitled to operate within the portion of the forfeited 
rectangular service areas located within its BTA, without being subject 
to competitive bidding. This approach best serves the public because it 
gives the service providers an incentive to make efficient use of 
available spectrum, and it ensures that any disruption of service will 
be remedied as quickly as possible.
    53. Where an authorized incumbent licensee has a rectangular 
service area covering an entire BTA, the Commission will not make those 
channels available for ``overlay'' licensing in that BTA. Unlike the 
scenario described above, in this situation a BTA will not have areas 
that are currently unassigned. Since incumbents will be required to 
construct and operate pursuant to Commission Rules, the public should 
be assured of receiving service throughout the BTA without the need to 
license an alternative provider.
ii. Repacking
    54. Background. In the NPRM and Order, the Commission asked for 
comment on whether incumbent facilities should be relicensed on their 
current frequency or whether incumbent links should be ``repacked'' 
into a different portion of the band than initially occupied. There was 
very little discussion by commenters on the issue of repacking. The 
Commission's general approach up to this point has been to refrain from 
repacking, if possible. The Commission finds that repacking the 39 GHz 
band would cause a significant disruption of incumbent 39 operations. 
As noted throughout this proceeding, the Commission does not intend to 
alter or restrict significantly the operations of incumbents. Moreover, 
the Commission believes that it can coordinate with the extant licenses 
of 39 GHz incumbents so that they will not impair the Commission's new 
licensing system using BTAs and 50-MHz channel blocks. Accordingly, the 
Commission does not believe that repacking is necessary under these 
circumstances.
iii. Disposition of Pending 39 GHz Band Applications

a. Background. 

    55. On November 13, 1995, the Wireless Telecommunications Bureau 
(``Bureau''), pursuant to delegated authority, adopted and released an 
Order (``Freeze Order''), 61 FR 8062 (March 1, 1996), announcing that 
the Commission would no longer accept for filing any new applications 
for 39 GHz licenses in the Common Carrier or Operational Fixed Point-
to-Point Microwave Radio Services, pending Commission action on the TIA 
Petition. The Freeze Order was made effective upon its release.
    56. The NPRM and Order, supra, extended the freeze, providing that 
pending applications would be processed only if (1) they were not 
mutually exclusive with other applications at the time of the Bureau's 
Freeze Order, and (2) the 60-day period for filing mutually exclusive 
applications had expired prior to November 13, 1995 (i.e., the 
applications were ``ripe''). The NPRM and Order further provided that 
those applications that were mutually exclusive with others as of 
November 13, 1995, or within the 60-day period for filing competing 
applications on or after November 13, 1995, would be held in abeyance 
for processing and disposition. In addition, amendments to these frozen 
applications received on or after November 13, 1995, were also held in 
abeyance. Moreover, applications for modification of existing 39 GHz 
licenses (e.g., applications to modify existing licenses for the 
purpose of changing the height of an antenna) filed on or after 
November 13, 1995, were held in abeyance, as well as amendments thereto 
that were filed on or after November 13, 1995. Finally, no new 
applications to modify existing licenses, or amendments to pending 
modification applications, were to be accepted for filing on or after 
December 15, 1995, unless they (1) did not involve any enlargement of 
any portion of the proposed area of operation, and (2) did

[[Page 6089]]

not change frequency blocks, other than to delete one or more.
    57. On January 16, 1996, Commco filed a Petition for 
Reconsideration and an Emergency Request for Stay, asking the 
Commission to vacate that portion of the NPRM and Order imposing an 
interim freeze on the processing of mutually exclusive applications to 
establish new facilities in the 39 GHz band, including amendments 
thereto, pending as of November 13, 1995. BizTel, GHZ Equipment 
Company, Inc. (``GEC''), and TIA filed comments in support of the Stay 
Request. Additionally, on January 16, 1996, DCT Communications, Inc., 
filed a Petition for Partial Reconsideration, requesting that the 
Commission process (a) minor amendments, at least those that eliminate 
mutual exclusivity, and (b) as-yet uncontested applications for which 
the 60-day period for filing mutually exclusive applications had not 
expired prior to the November 13, 1995, Freeze Order.
    58. In its Memorandum Opinion and Order, supra, the Commission 
reconsidered certain aspects of the Commission's processing freeze and 
decided to lift the processing freeze on amendments of right filed 
before December 15, 1995. Thus, all applications that were amended to 
resolve mutual exclusivity before that date were to be processed, 
provided they had completed their 60-day public notice period as of 
November 13, 1995. In addition, the Commission clarified that 
applications to modify existing 39 GHz licenses and amendments thereto 
were to be processed regardless of when filed, provided they neither 
enlarge the service area nor change the assigned frequency blocks 
(except to delete them). In all other respects, the Commission's 
decisions regarding the filing and processing of 39 GHz applications 
and amendments were unaffected by the reconsideration decision. A 
summary of other main points of the decision follows:
     The Commission decided to process those amendments of 
right filed on or after November 13, 1995, but before December 15, 
1995.
     The Commission noted that all other amendments filed on or 
after November 13, 1995, would continue to be held in abeyance.
     The Commission affirmed its decision to continue to hold 
in abeyance all pending mutually exclusive applications, unless the 
mutual exclusivity was resolved by an amendment of right filed before 
December 15, 1995. Where the mutual exclusivity was resolved, the 
Commission expressly stated that it would process the application 
provided that the application was ``ripe'' as of November 13, 1995--
i.e., that it had been placed on public notice and completed the 60-day 
cut-off period for filing of competing applications as of November 13, 
1995.
     The Commission affirmed its decision to hold in abeyance 
all applications that had not been placed on public notice or completed 
the 60-day cut-off period as of November 13, 1995.
    b. Processing of Pending Applications. 
    59. In view of the goals of this proceeding, e.g., to foster 
competition among different service providers, to promote maximum 
efficient use of the spectrum, and to provide efficient service to 
customers by improving the licensing procedure, the Commission 
concludes that what follows is the best approach for processing 
currently pending 39 GHz license applications that were affected by the 
November 13, 1995, Freeze Order and the December 15, 1995, freeze. The 
Commission has processed: (1) Those 39 GHz applications that were not 
mutually exclusive as of December 15, 1995, and that, as of November 
13, 1995, had passed the 60-day cut-off period for filing competing 
applications, and (2) applications to modify existing licenses 
(``modification applications''), or amendments to modification 
applications, which do not enlarge the service area or change frequency 
blocks, except to delete them. For the reasons that follow, the 
Commission has decided to dismiss, without prejudice, all other 
applications that have remained subject to the freeze, i.e., (1) 
applications that are mutually exclusive, (2) applications that were 
not yet on public notice, or for which the 60-day cut-off period had 
not been completed prior to November 13, 1995, and (3) modification 
applications or amendments thereto that do not meet the criteria set 
out infra, in paragraph 95. These applicants may reapply under the new 
geographic area licensing rules established in this proceeding.
i. Pending Mutually Exclusive 39 GHz Applications.
    60. PCS and other CMRS licensees, equipment manufacturers, and the 
Telecommunications Industry Association (TIA) ask that the Commission 
process 39 GHz applications that are pending and mutually exclusive. 
GTE Service Corporation (GTE), however, urges us either to (1) dismiss 
the pending 39 GHz applications that the Commission is holding in 
abeyance and open a new application filing window for such frequencies 
and licensing areas under the new rules that the Commission adopts in 
this proceeding; or (2) retain those applications on file and permit 
other interested parties to file competing applications that will be 
processed pursuant to adopted competitive bidding procedures and 
corresponding rules for 39 GHz authorizations. Some commenters 
recommend a specific time frame for allowing 39 GHz license applicants 
to resolve mutual exclusivity, i.e., between 60 days and six months 
after a Report and Order is issued in this proceeding. In its Comments 
filed on March 4, 1996, Bachow and Associates, Inc. (Bachow) asks that 
the Commission dismiss, without prejudice, any mutually exclusive 
applications that remain after the time for resolving mutual 
exclusivity passes.
    61. Some commenters further ask that the Commission dismiss as 
defective any applications which did not limit themselves to only one 
specified 39 GHz channel as of November 13, 1995, or which otherwise 
failed to satisfy the Public Notice, Mimeo No. 44787 (released Sept. 
16, 1994), that described the processing procedures and rules 
applicable to the 39 GHz band. Under this approach, any remaining 
applicants that are still subject to mutual exclusivity would be 
allowed to file amendments to reduce their proposed service area 
contours or otherwise enter into settlement agreements to resolve their 
conflicts.
    62. The Commission has determined that the best approach for 
processing pending mutually exclusive applications is to dismiss them 
without prejudice, and to allow these applicants to submit new 
applications under the competitive bidding rules established in this 
proceeding. The Commission takes this action because it finds that this 
procedure will optimize the public interest by promoting fair and 
efficient licensing practices. As the Commission discusses below, 
(``Auctionability of the 39 GHz Band''), the use of a competitive 
bidding system for licensing the 39 GHz band constitutes the best 
method for choosing among mutually exclusive applicants. Competitive 
bidding allows spectrum to be acquired by the parties who value it most 
highly and increases the likelihood that innovative, competitive 
services will be offered to consumers. These benefits will be lost, in 
part, if the Commission were to process pending mutually exclusive 
applications under its old rules. Moreover, under such an approach, 
those pending mutually exclusive applications that cannot be 
accommodated by the availability of alternative frequencies would be 
subject to comparative hearing (either formal or informal). While these 
rules may be

[[Page 6090]]

useful in other bands to address the rare situation in which two point-
to-point links cannot be coordinated to avoid interference, in the 39 
GHz band, applicants seek to serve geographic areas rather than to 
provide service on a single point-to-point link basis. This, coupled 
with the exponential growth in demand for 39 GHz spectrum, results in a 
significant number of mutually exclusive applications, including 
``daisy-chain'' situations, among entities seeking to acquire spectrum. 
Resolving these mutually exclusive applications through comparative 
hearings would be much slower and possibly more costly, both to the 
government and applicants, than competitive bidding.
    63. The Commission also finds that those who believe that they 
should be afforded the opportunity to amend their pending applications 
to avoid mutual exclusivity had ample opportunity to file such 
amendments prior to the commencement of this rule making. The 
Commission is not convinced that parties who have not already entered 
such agreements will successfully accomplish such agreements now. 
Moreover, even if such agreements are possible, the parties will have 
the opportunity to accomplish similar results through the partitioning 
and disaggregation rules the Commission is adopting today. Similarly, 
parties may resolve existing conflicts by forming joint ventures or 
similar arrangements to apply for BTA licenses. If, however, the 
Commission permitted pending mutually exclusive applicants to resolve 
their conflicts outside the structure of the competitive bidding 
process, other entities would be foreclosed from an opportunity to 
apply for 39 GHz spectrum under the flexible rules the Commission 
adopts herein. This would have the result of limiting the pool of 
potential applicants to those who have already filed under the current, 
more restrictive rules, and may inhibit the development of new and 
innovative services in this spectrum. Accordingly, the Commission finds 
that existing applicants have a reasonable avenue of relief for their 
concerns in the procedures it adopts herein, and accordingly denies 
their requests.
    ii. Applications Within the 60-day Public Notice Period on November 
13, 1995.
    64. Some petitioners and commenters argue that the Commission 
should process the ``unripe'' applications--those that had not passed 
the 60-day public notice period as of the date of the November 13, 
1995, Freeze Order. According to DCT, for example, all applications 
that have been or should have been placed on public notice announcing 
their susceptibility to petitions to deny as required by section 309 of 
the Communications Act meet the processing requirements of the 
Communications Act. DCT contends that the disparate treatment of these 
applications and those the Commission have decided to process would 
only make sense if there were no vacant channel pairs available for a 
second applicant in the same service area. DCT and WinStar argue that 
under the rules, if there were a vacant channel pair, a second 
applicant would have to yield ultimately to the first-in-time applicant 
with respect to the frequencies specified by the first-in-time 
applicant.
    65. In the Memorandum Opinion and Order, supra, the Commission held 
that unripe applications would continue to be held in abeyance because, 
until the Commission had completed its consideration of the record, the 
Commission was not in a position to state whether further applications 
may be filed, or how the applications presently held in abeyance would 
have been treated. Having concluded here that the 39 GHz band should be 
subject to significantly different rules than the ones used previously, 
the Commission believes that the most fair and reasonable approach with 
regard to pending unripe applications is to dismiss them and allow 
these applicants to reapply under the new rules set forth in this 
proceeding. Taking into account its conclusion that these new rules 
further the public interest, the Commission believes that applying the 
new 39 GHz rules to those applications that were still subject to the 
possibility of competing applications under the former rules adequately 
balances the expectations of applicants with the public need for a 
better system for licensing use of the 39 GHz band. The Commission 
further believes that it has crafted a fair approach because such 
applicants will be permitted to apply for spectrum under the new rules.
    iii. Modification Applications.
    66. In the NPRM and Order, the Commission stated that it would hold 
in abeyance modification applications, and any amendments thereto, that 
were filed on or after November 13, 1995, the date of the Freeze Order. 
The Commission stated that no new applications to modify existing 
licenses would be accepted after December 15, 1995, unless they did not 
involve any enlargement in any portion of the service area and did not 
change frequency blocks (unless to delete one).
    67. In the Memorandum Opinion and Order, supra, the Commission 
clarified that any pending modification application or amendment 
thereto filed prior to November 13, 1995, was to be processed. 
Modification applications or amendments to such applications, filed 
between November 13 and December 15, 1995, which meet the criteria of 
Sec. 101.59 of the Commission's Rules and which do not enlarge the 
applicant licensee's service area, were to be accepted for filing and 
processed. Any modification application, or amendment thereto, which 
meets the criteria of Sec. 101.61 of the Commission's Rules were 
likewise to be accepted for filing and processed. All other 
modification applications and amendments thereto were to be held in 
abeyance.
    68. For the same reasons that the Commission dismisses without 
prejudice the pending mutually exclusive and unripe applications as 
discussed supra, the Commission also dismisses without prejudice any 
modification application held in abeyance pursuant to the freeze. Such 
applications, if granted under the previous rules, would frustrate the 
goals underlying this proceeding by continuing the licensing scheme 
which the Commission is abandoning with this Report and Order. As 
discussed supra, the Commission must choose a point from which its new 
rules will apply, taking into account its conclusion that these new 
rules are in the best interest of the public for the development of new 
services in the 39 GHz band. The Commission believes that it is fair to 
dismiss major modification applications because such applicants will be 
permitted to apply for additional spectrum, without disadvantaging 
potential new entrants, under the new rules.
    iv. Applications That Are Partially Mutually Exclusive.
    69. There are seven applications that are partially mutually 
exclusive. That is, these applications request more than one frequency 
pair, some of which are mutually exclusive with frequencies requested 
in other applications and some of which are not mutually exclusive. 
Although the non-mutually exclusive portion of these applications was 
subject to processing under the Commission's December 15, 1995, NPRM 
and Order, the mutually exclusive portion of each of the applications 
was required to be held in abeyance. The divided status of these 
applications has presented a unique processing issue. The Commission's 
electronic process for addressing these applications does not permit 
partial grants because there is no capability for allowing an 
application to remain in pending status if final action has been taken 
on a portion of it. As a result, the Commission has not been able to 
process the non-mutually exclusive portion of these applications until 
it had

[[Page 6091]]

reached a decision regarding the disposition of pending mutually-
exclusive applications in general. As the Commission has now made this 
determination, it will process these applications as follows. 
Specifically, it will process to completion that portion of each of 
these applications that is non-mutually exclusive with other 
applications. However, the Commission will dismiss the remainder of the 
application which cannot be granted due to mutual exclusivity, 
consistent with the Commission's order herein.

II. Decision--Competitive Bidding Issues

A. Auctionability of the 39 GHz Band

    70. Background. In the NPRM and Order, 61 FR 2465 (January 26, 
1996), the Commission proposed to use competitive bidding to select 
among mutually exclusive applications for initial licenses in the 39 
GHz band. The Commission reconsidered its previous decision not to 
license intermediate links by competitive bidding and the various 
factors that influenced its decision. First, the Commission noted that 
point-to-point microwave channels used as part of end-to-end 
subscriber-based service offerings meet the ``principal use'' 
requirement of the Communications Act. Second, because BTAs are large 
areas, the Commission stated that defining service areas by BTAs likely 
will result in the filing of mutually exclusive applications. Third, 
the Commission noted that based upon experience with auctions in other 
services, an auction for intermediate links within a well-defined 
service area will neither significantly delay the provision of other 
services, such as PCS, to the public nor impose significant 
administrative costs on the applicants or the Commission. Fourth, the 
Commission noted that by placing licenses in the hands of those who 
value this spectrum most highly, competitive bidding will likely 
promote the development and rapid deployment of new technologies and 
ensure that new and innovative technologies are readily accessible to 
the American people. Finally, the Commission noted that some of the 
licensees in the 39 GHz band have offered to sell or lease their 
licenses and may never have intended to directly serve the public, but 
rather to hold their own auctions and thereby deprive the public of the 
aforementioned benefits.
    71. Discussion. Upon consideration of the record in this 
proceeding, the Commission concludes that auctioning the 39 GHz band 
meets the new criteria set forth in Sec. 309(j) of the Communications 
Act, as amended by the Balanced Budget Act of 1997 (``Budget Act''). 
During the pendency of this proceeding and after comments were received 
in this proceeding, Congress enacted the Budget Act which extended and 
expanded the Commission's auction authority. Many commenters support 
the award of unallocated spectrum through auctions for the 39 GHz band. 
Using the pre-Budget Act criteria for auctionability of spectrum, some 
commenters argued that the 39 GHz band did not meet such criteria 
because: (1) The band is being used for providing intermediate links 
and, therefore, is not principally being used to garner compensation 
from subscribers as required under the former ``principal use'' 
criterion of the Act; (2) an auction of the 39 GHz band does not 
promote the objectives contained in the Act; and (3) an auction of 
intermediate links could significantly delay the development and 
deployment of new products and services and impose significant costs on 
licensees and the Commission. As discussed below, as a result of the 
Budget Act provisions, the ``principal use'' criterion of 309(j)(2)(A) 
and ``promote the objectives'' criterion of 309(j)(2)(B) and 309(j)(3) 
of the Act no longer govern the auctionability of electromagnetic 
spectrum. Thus, the Commission does not find these arguments to be 
compelling reasons not to employ competitive bidding procedures for 39 
GHz spectrum.
    72. Under the Budget Act, the Commission's auction authority covers 
all mutually exclusive applications for initial licenses or 
construction permits, with three limited exceptions which are not 
applicable in this proceeding. The Budget Act replaced language in 
section 309(j)(2), formerly called ``Uses to Which Bidding May Apply,'' 
which stated the requirements for spectrum to be auctionable (i.e., a 
determination that the principle use of the spectrum will be on a 
subscription basis and that competitive bidding will promote the 
objectives stated in section 309(j)(3)) with a new paragraph that 
expands the Commission's auction authority. Under amended section 
309(j) the Commission has the authority to auction the 39 GHz band.
    73. DCT contends that using competitive bidding procedures for this 
band violates Secs. 309(j)(1) and 309(j)(6)(E), because the Commission 
is required to use various means to avoid mutual exclusivity, including 
the use of engineering solutions, negotiate threshold qualifications 
and service regulations, and licensing proceedings, before turning to 
auctions. DCT argues that because the NPRM and Order finds that current 
point-to-point rules are structured to avoid mutual exclusivity through 
frequency coordination, changing the rules to license by BTAs is 
tantamount to adopting a licensing system designed to encourage mutual 
exclusivity. The Commission rejects DCT's contentions. The 39 GHz band 
has been the subject of significantly increased requests for large 
rectangular service areas and multiple channels. Frequency coordination 
techniques, suitable for the level of point-to-point spectrum demand 
existing prior to the existence of emerging technologies, are no longer 
adequate. The use of pre-defined geographic areas rather than the 
applicant-defined rectangular areas currently used as service areas 
furthers the Commission's public interest goals, as concluded above. As 
the Commission noted, supra, predetermined service areas will provide a 
more orderly structure for the licensing process and will foster 
efficient utilization of the 39 GHz spectrum in an expeditious manner. 
Indeed, the use of applicant-defined service areas can actually slow 
the delivery of services because the processing of each application 
requires extensive analysis and review by Commission staff.
    74. Similarly, the Commission also rejects DCT's related contention 
that the proposed auction framework for the 39 GHz band--simultaneous 
multiple round bidding, the Milgrom-Wilson activity rule and the 
simultaneous stopping rule--encourages mutual exclusivity of 
applications. DCT further rejects the proposed rule that would have 
limited licensees to an interest in four channel blocks contending that 
the ``expansion of the number of channels which an applicant may 
receive from a de facto one channel to four channels also encourages 
mutual exclusivity.'' The competitive bidding rules proposed have been 
used successfully in previous auctions and are intended to provide 
flexibility to bidders to pursue different strategies for interrelated 
licenses. Finally, as noted surpa, the Commission has decided not to 
place any limit on the number of channels a licensee may hold. The 
Commission rejects the contention that this will encourage mutual 
exclusivity, but rather believes that this will best foster the 
creation and deployment of new services. As discussed below, various 
other auction provisions adopted here will address the speculative 
bidding concerns raised by DCT.
    75. While the Commission believes that competitive bidding will 
place licenses in the hands of those who value them the most, various 
commenters propose other methods for licensing this

[[Page 6092]]

band. DCR, for example, proposes that the Commission use the 
alternative licensing proposal set forth in the NPRM and Order. TGI 
proposes tight usage requirements, e.g., existing permittees would have 
six months from completion of rule making to construct and commence 
operation of their systems. Bachow proposes that the Commission adopt a 
going-forward licensing approach that provides for, among other things, 
applicant-defined service areas in contrast to geographic licensing; 
public notice and thirty-day cut-off windows; exhaustion of 
coordination efforts prior to any auction; and reasonable build-out 
requirements. Finally, Ameritech and others state that after the 
Commission has finished processing 39 GHz amendments, there likely will 
be little or no desirable spectrum for any subsequent overlay auction 
of the 39 GHz channels. These commenters recommend that, in lieu of 
auctions, the Commission make the 39 GHz band available for the 
licensing of point-to-point paths. While the Commission notes these 
various proposals, the Commission concludes that the Budget Act's 
amendments to section 309(j) of the Act directs it to auction the 39 
GHz band.
    76. The Commission also notes that under the Budget Act amendments, 
it is required to provide adequate time before the issuance of bidding 
rules to permit notice and comment, and after the issuance of bidding 
rules to ensure adequate time for interested parties to assess the 
market and develop their strategies or approaches as required under 
section 309(j)(3)(E). The Commission believes it has satisfied the 
first requirement by seeking comment in the NPRM and Order. As to the 
second requirement, the Bureau recently released a Public Notice 
announcing general time frames for upcoming auctions. The Commission 
anticipates that the Bureau will routinely release similar public 
notices in the future. The Commission believes that the release of such 
public notices combined with the release of a Public Notice announcing 
the 39 GHz auction should ensure that interested parties have adequate 
time to assess the market and develop their strategies.

B. Competitive Bidding Design and Procedures

i. Competitive Bidding Design
    77. Background. In the NPRM and Order, the Commission tentatively 
concluded that simultaneous multiple round auctions are appropriate for 
this band. The Commission noted that compared with other bidding 
mechanisms, simultaneous multiple round bidding will generate the most 
information about license values during the course of the auction and 
provide bidders with the most flexibility to pursue back-up strategies.
    78. Discussion. Based on the record in this proceeding and the 
Commission's successful experience conducting simultaneous multiple 
round auctions for other services, the Commission believes a 
simultaneous multiple round auction design is the preferable 
competitive bidding design for the 39 GHz band. The commenters 
generally support the proposal to use simultaneous multiple round 
auctions for selecting among mutually exclusive applicants. In 
addition, the Commission believes that the value of these licenses will 
be significantly interdependent because of the desirability of 
aggregation across geographic regions. Under these circumstances, 
simultaneous multiple round bidding will generate more information 
about license values during the course of the auction and provide 
bidders with more flexibility to pursue back-up strategies, than if the 
licenses were auctioned separately.
    79. DCT, on the other hand, argues that simultaneous multiple round 
auctions give applicants only one opportunity to file for any or all 
channels and that this approach creates an urgency to file for channels 
that the applicant would not otherwise seek, thereby fostering 
unnecessary creation of mutual exclusivity. DCT's argument misses 
several points. As an initial matter, the Commission is not proposing 
to auction all of the channels at one time but rather in a series of 
simultaneous multiple round auctions in which three channels would be 
placed up for bid in each auction. See infra. Thus, applicants will 
have more than one opportunity to file for channels. Moreover, the 
nature of this auction design provides bidders with flexibility to 
pursue different strategies for interrelated licenses. Specifically, it 
allows a bidder to pursue substitute licenses in the event it fails to 
obtain its first choices. In addition, the Commission believes that the 
upfront payment requirement and its withdrawal rules provide a 
sufficient deterrent against applicants seeking licenses that they do 
not want or intend to use. Notwithstanding its conclusion regarding the 
use of simultaneous multiple round bidding, the Commission retains the 
discretion to use a different methodology if that proves to be more 
administratively efficient.
ii. Applicability of Part 1, Standardized Auction Rules
    80. In the Competitive Bidding Second Report and Order, 59 FR 22980 
(May 4, 1994) as modified by the Competitive Bidding Second Memorandum 
Opinion and Order, 59 FR 44272 (August 26, 1994), the Commission 
established general competitive bidding rules for all auctionable 
services, but also stated that such rules may be modified on a service-
specific basis. These general competitive bidding rules are contained 
in part 1 of the Commission's Rules. In the recent Order, Memorandum 
Opinion and Order and Notice of Proposed Rule Making in WT Docket No. 
97-82, 62 FR 13540 (March 21, 1997), the Commission amended some of the 
part 1 provisions, and proposed further amendments to the part 1 rules 
to streamline its auction procedures. Accordingly, for the 39 GHz band, 
the Commission will follow the competitive bidding rules contained in, 
or ultimately established for, Subpart Q of part 1 of the Commission's 
Rules, as amended by the part 1 proceedings and related decisions, 
unless specifically indicated otherwise below.

C. Bidding Issues

i. Grouping of Licenses
    81. Background. The Commission determined in the Competitive 
Bidding Second Report and Order that highly interdependent licenses 
should be grouped together and put up for bid at the same time in a 
multiple round auction because such grouping provides bidders with the 
most information about the complementary and substitutable licenses 
during the course of the auction. In the NPRM and Order, the Commission 
requested comment on whether it should endeavor to have a single 
auction. The Commission also solicited comments on alternative license 
groupings and requested bidders to explain how such groupings would 
benefit bidders.
    82. Discussion. The Commission believes that all 39 GHz licenses 
are significantly interdependent. As a result, the optimal grouping of 
the licenses would be to put all of the licenses up for bid at the same 
time in order for bidders to have information about the prices of 
complementary and substitutable licenses during the auction. However, 
due to the large number of licenses anticipated to be auctioned 
(approximately 6,900), this approach may be burdensome for bidders. 
Specifically, placing all of the 39 GHz licenses up for bid in a single 
auction may overwhelm bidders with

[[Page 6093]]

the processing necessary to analyze effectively and efficiently the 
amount of information associated with such a large number of licenses. 
The Commission concludes that a series of simultaneous multiple round 
auctions would be more advantageous to bidders and the most 
administratively feasible means of distributing these licenses. At this 
time, the Commission believes that three channel pairs should be placed 
up for bid in each auction based on its review of the applicants' 
requests for channels in the 39 GHz band. The Commission nonetheless 
reserves the discretion to change the number of channels offered during 
an auction if it is efficient and administratively feasible to do so 
and delegate such authority to the Bureau.
ii. Reserve Price or Minimum Opening Bids
    83. When licenses are subject to auction, the recently enacted 
Budget Act requires the Commission to prescribe methods by which a 
reasonable reserve price or a minimum opening bid is established, 
unless a determination is made that such an assessment is not in the 
public interest. Recently, in conjunction with the 800 MHz Specialized 
Mobile Radio (``SMR'') Service auction, the Bureau, pursuant to the 
Budget Act's provisions calling for the establishment of reserve prices 
or minimum opening bids in FCC auctions, proposed, inter alia, a 
formula for determining a reserve price or minimum opening bid for 
licenses, and sought comment on its formula and other proposals for the 
auction scheduled to begin on October 28, 1997. For the 39 GHz auction, 
the Commission directs the Bureau to issue a similar public notice 
proposing a method for determining a reserve price or minimum opening 
bid for 39 GHz licenses subject to auction and seeking comment on its 
proposed method and other proposals.
iii. Bid Increments
    84. Background. Consistent with the approach for previous 
simultaneous multiple round auctions for other services, in the NPRM 
and Order the Commission proposed to establish minimum bid increments 
for bidding in each round of the auction based on the same 
considerations given in the Commission's prior orders. The Commission 
proposed that the bid increment be the greater of either: (1) A 
percentage of the high bid from the previous round or (2) a fixed 
dollar amount per megahertz per service area population (``MHz-pops''). 
The Commission also proposed to retain the discretion to vary the 
minimum bid increments for individual licenses or groups of licenses at 
any time before or during the course of the auction, based on the 
number of bidders, bidding activity, and the aggregate high bid 
amounts.
    85. Discussion. The Commission adopts its bid increment proposals, 
particularly given that no commenters opposed them. In fact, Milliwave 
supports the Commission's proposal to retain the discretion with 
respect to bidding increments. The Commission will follow the practice 
that it has used for other auctions and delegates authority to the 
Bureau to announce, by Public Notice prior to the auction, the general 
guidelines for bid increments.
iv. Stopping Rules
    86. Background. When simultaneous multiple round auctions are used, 
a stopping rule must be established for determining when the auction is 
over. In simultaneous multiple round auctions, bidding may close 
separately on individual licenses, simultaneously on all licenses, or a 
hybrid approach may be used. Generally, the Commission proposed to 
adopt a simultaneous stopping rule in the 39 GHz auction in which 
bidding generally remains open on all licenses until there is no new 
acceptable bid for any license. In order to move the auction toward 
closure more quickly, the Commission further proposed to retain the 
discretion to declare when the auction will end, to vary the duration 
of bidding rounds or the interval at which bids are accepted.
    87. Discussion. The Commission will adopt a simultaneous stopping 
rule whereby bidding will remain open on all licenses in an auction 
until bidding stops on every license. The Commission believes that 
allowing simultaneous closing for all licenses will afford bidders 
flexibility to pursue back-up strategies without running the risk that 
bidders will hold back their bidding until final rounds. As a general 
matter, the auction will close after one round passes in which no new 
valid bids or proactive activity rule waivers are submitted. In any 
event, the Commission adopts its proposal to retain the discretion to 
keep an auction open even if no new acceptable bids and no proactive 
waivers are submitted in a single round. Milliwave supports the 
Commission's proposal to retain such discretion. In the event that the 
Commission exercises this discretion, the effect will be the same as if 
a bidder has submitted a proactive waiver. The Commission also retains 
the discretion to announce license-by-license closings.
    88. The Commission further retains the discretion to declare after 
40 rounds that the auction will end after some specified number of 
additional rounds. Under such an approach, bids will be accepted only 
on licenses where the high bid has increased in the last three rounds. 
This will deter bidders from continuing to bid on a few low value 
licenses solely to delay the closing of the auction. It also will 
enable the Commission to end the auction when it determines that the 
benefits of terminating the auction and issuing licenses exceed the 
likely benefits of continuing to allow bidding.
v. Activity Rules
    89. Background. In the Competitive Bidding Second Report and Order, 
the Commission adopted the Milgrom-Wilson activity rule as the 
preferred activity rule when a simultaneous stopping rule is used. The 
Milgrom-Wilson approach encourages bidders to participate in early 
rounds by limiting their maximum participation to some multiple of 
their minimum participation level. In the NPRM and Order, the 
Commission tentatively concluded that the Milgrom-Wilson activity rule 
should be used in conjunction with the proposed simultaneous stopping 
rule for this auction. The Commission indicated its belief that the 
Milgrom-Wilson approach would best achieve the Commission's goals of 
affording bidders flexibility to pursue backup strategies, while at the 
same time ensuring that simultaneous auctions are concluded within a 
reasonable period of time.
    90. Discussion. In accordance with Sec. 1.2104 of the Commission's 
Rules and the guidelines adopted in the Competitive Bidding Second 
Report and Order, the Commission will employ the Milgrom-Wilson 
activity rule for the 39 GHz auction. Milliwave supports adoption of 
this rule. DCT appears to argue that the activity rule adds an 
incentive for bidders to apply for areas they do not intend to serve. 
No other comments on this issue were received. DCT's argument with 
respect to this activity rule is misplaced. The activity rules do not 
encourage applicants to apply for more licenses than they intend to 
use, and actually has the opposite effect. Indeed, the total number of 
licenses applied for determines the activity requirement. Therefore, 
the greater the number of licenses an applicant applies for the greater 
its activity level must be in order to maintain eligibility in the 
auction.
    91. For the 39 GHz auction, the Commission will generally use the 
Milgrom-Wilson activity rule with some variations. Specifically, under 
the Milgrom-Wilson activity rule, the auction is divided into three 
stages and the minimum required activity level,

[[Page 6094]]

measured as a fraction of the bidder's eligibility in the current 
round, will increase during the course of the auction. As in previous 
auctions, the Commission will set, by announcement before the auction, 
the minimum required activity levels for each stage of the auction. The 
Commission retains the discretion to vary, by announcement before or 
during the auction, the required minimum activity levels (and 
associated eligibility calculations) for each auction stage. Retaining 
this flexibility will improve the Commission's ability to control the 
pace of the auction and help ensure that the auction is completed 
within a reasonable period of time. The Commission delegates to the 
Bureau the authority to set or vary the minimum activity levels if 
circumstances warrant a modification. The Bureau will announce any such 
modification by Public Notice. The auction will start in Stage One and 
move to Stage Two and then to Stage Three. The movement from one 
auction stage to the next will be dependent upon the auction activity 
level. The Bureau will retain the discretion to determine and announce 
during the course of an auction when, and if, to move from one auction 
stage to the next. However, under no circumstances can the auction 
revert to an earlier stage.
    92. To avoid the consequences of clerical errors and to compensate 
for unusual circumstances that might delay a bidder's bid preparation 
or submission in a particular round, the Commission will (as it has in 
past auctions) provide bidders with five activity rule waivers that may 
be used in any round during the course of the auction. A waiver will 
preserve current eligibility in the next round, but cannot be used to 
correct an error in the amount bid. Bidders also will be afforded an 
opportunity to override the automatic waiver mechanism when they place 
a bid, if they wish to reduce their bidding eligibility and do not want 
to use a waiver to retain their eligibility at its current level. If a 
bidder overrides the automatic waiver mechanism, its eligibility 
permanently will be reduced (according to the formulas specified 
above), and it will not be permitted to regain its bidding eligibility 
from a previous round. An automatic waiver invoked in a round in which 
there are no valid bids will not keep the auction open. Bidders will 
have the option to proactively enter an activity rule waiver during the 
bid submission period. If a bidder submits a proactive waiver in a 
round in which no other bidding activity occurs, the auction will 
remain open. The Bureau will retain the discretion to issue additional 
waivers during the course of an auction for circumstances beyond a 
bidder's control, and also retain the flexibility to adjust, by Public 
Notice prior to an auction, the number of waivers permitted, or to 
institute a rule that allows one waiver during a specified number of 
bidding rounds or during specified stages of the auction.
vi. Duration of Bidding Rounds
    93. Background. The Commission proposed in the NPRM and Order to 
retain the discretion to vary the duration of bidding rounds or the 
interval at which bids are accepted (e.g., run more than one round per 
day) in order to move the auction toward closure more quickly.
    94. Discussion. The Commission will retain discretion to vary the 
duration of bidding rounds and the interval at which bids are accepted. 
In simultaneous multiple round auctions, bidders may need a significant 
amount of time to evaluate back-up strategies and develop their bidding 
plans. Milliwave, the sole commenter addressing this issue, supports 
the Commission's decision. The Bureau will announce any changes to the 
duration of and intervals between bidding rounds, either by Public 
Notice prior to the auction or by announcement during the auction.

D. Procedural and Payment Issues

i. Short-Form Applications
    95. Background. In the Competitive Bidding Second Report and Order, 
the Commission determined that it should only require a short-form 
application (FCC Form 175) prior to the auction, and that only winning 
bidders should be required to submit a long-form license application 
after the auction.
    96. Discussion. The Commission adopts the bidding application and 
certification procedures contained in Sec. 1.1205 of the Commission's 
Rules, as amended by the Part 1 proceeding. Prior to the start of the 
39 GHz auction, the Bureau will release an initial Public Notice 
announcing the auction. The initial Public Notice will specify the 
licenses to be auctioned and the procedures for the auction in the 
event that mutually exclusive applications are filed. The Public Notice 
will specify the method of competitive bidding to be used, applicable 
bid submission procedures, stopping rules, activity rules, and the 
deadline by which short-form applications must be filed and the amounts 
and deadlines for submitting the upfront payment. The Commission will 
not accept applications filed before or after the dates specified in 
the Public Notice. Applications submitted before the release of the 
Public Notice will be returned as premature. Likewise, applications 
submitted after the deadline specified by Public Notice will be 
dismissed with prejudice as untimely.
    97. Soon after the release of the initial Public Notice, a Bidder 
Information Package will be made available to prospective bidders. The 
Bidder Information Package will contain information about incumbent 
licensees based on the Commission's licensing records. Bidders also 
should conduct their own due diligence regarding incumbent licensees 
within the 39 GHz band.
    98. All bidders will be required to submit short-form applications 
on FCC Form 175 (and FCC Form 175-S, if applicable), by the date 
specified in the initial Public Notice. Applicants are encouraged to 
file Form 175 electronically. Detailed instructions regarding 
electronic filing will be contained in the Bidder Information Package. 
The short-form applications will require applicants to provide the 
information required by Sec. 1.2105(a)(2) of the Commission's Rules, as 
amended by the Part 1 proceeding.
ii. Amendments and Modifications
    99. Background. To encourage maximum bidder participation, the 
Commission proposed to provide applicants with an opportunity to 
correct minor defects in their short-form applications prior to the 
auction. Applicants whose short-form applications are substantially 
complete, but contain minor errors or defects, would be provided the 
opportunity to correct their applications prior to the auction.
    100. Discussion. The Commission received no comments on its 
proposal. Thus, the Commission will apply the provisions set forth in 
Part 1 of the Commission's rules, including amendments adopted in the 
Part 1 proceeding, governing amendments to and modifications of short-
form applications to the 39 GHz service. Upon reviewing the short-form 
applications, the Commission will issue a Public Notice listing all 
defective applications. Applicants with minor defects in their 
applications will be given an opportunity to cure them and resubmit a 
corrected version.
iii. Upfront Payments
    101. Background. As in the case of other auctionable services, the 
NPRM and Order proposed to require all

[[Page 6095]]

auction participants to tender in advance to the Commission a 
substantial upfront payment. The Commission proposed to use the 
standard upfront payment formula of $2,500 or $0.02 per MHz-pop for the 
largest combination of MHz-pops, whichever is greater.
    102. Discussion. The Commission previously has determined that a 
substantial upfront payment requirement is necessary to ensure that 
only serious, qualified bidders participate in auctions and to ensure 
that sufficient funds are available to satisfy any bid withdrawal or 
default payments that may be incurred. The Commission stated in the 
Competitive Bidding Second Report and Order that as a general matter it 
will base upfront payments on a formula of $0.02 per MHz-pop for the 
largest combination of MHz-pops a bidder anticipates being active on in 
any single round of bidding. The Commission also established a minimum 
upfront payment of $2,500, but indicated that the minimum amount could 
be modified on a service-specific basis. The Commission has varied the 
minimum upfront payment where it determined that it would result in too 
high an upfront payment for the service. Various commenters contend 
that the formula used in the PCS context is not appropriate for the 39 
GHz band because it results in an upfront payment that is too high.
    103. The Commission recognizes, as indicated by commenters, that 
for purposes of 39 GHz services the Commission's standard upfront 
payment formula may yield excessively high payment amounts relative to 
license values. Upfront payments at such levels could discourage 
participation in the auction and would be well above the amounts needed 
to discourage frivolous bidding and above what is necessary to ensure 
that sufficient funds are available to satisfy any bid withdrawal or 
default payments that may be incurred. Since the frequency range and 
anticipated uses of 39 GHz services are more like LMDS than broadband 
PCS, the Commission believes that it would be appropriate to set 
upfront payments closer to the levels used for LMDS than the $.02 per 
MHz-pop used in broadband PCS. LMDS upfront payments for 1150 MHz 
licenses range from $.00078 per MHz-pop for BTAs with population over 
one million to $.00026 per MHz-pop for BTAs with population under one 
hundred thousand. Since many of the 39 GHz licenses are heavily 
encumbered, it may also be appropriate to make license-by-license 
downward adjustments to the upfront payments to account for the reduced 
amount of spectrum available. Furthermore, by waiting until after the 
LMDS auction is conducted, the Commission will have better estimates 
regarding the value of 39 GHz spectrum and be able to more accurately 
set the upfront payment amounts. Therefore, to allow the Commission 
sufficient time to conduct such analysis, and to benefit from further 
auction experience, the Commission proposes not to set the amounts of 
the upfront payments for 39 GHz services at this time. Instead, the 
Commission delegates authority to the Bureau to set the amounts of 
upfront payments and to announce the levels by Public Notice.
iv. Down Payment and Full Payment
    104. Background. In the NPRM and Order, the Commission tentatively 
concluded that winning bidders should be required to supplement their 
upfront payments with a down payment sufficient to bring their total 
deposits up to 20 percent of their winning bid(s).
    105. Discussion. We adopt the requirement that winning bidders must 
supplement their upfront payments with a down payment sufficient to 
bring their total deposits up to 20 percent of their winning bid(s). No 
commenters addressed this specific proposal. If the upfront payment 
already tendered by a winning bidder, after deducting any bid 
withdrawal and default payments due, amounts to 20 percent or more of 
its winning bids, no additional deposit will be required. If the 
upfront payment amount on deposit is greater than 20 percent of the 
winning bid amount after deducting any bid withdrawal and default 
payments due, the additional monies will be refunded.
    106. The Commission also will require winning bidders to submit the 
required down payment by wire transfer to the Commission's lock-box 
bank, by a date and time to be specified by Public Notice, generally 
within ten (10) business days following release of the Public Notice 
announcing the close of bidding. All auction winners generally will be 
required to make full payment of the balance of their winning bids 
within ten (10) business days following Public Notice that the 
Commission is prepared to award the license.
    107. The Commission notes that it has proposed to adopt a late fee 
in Sec. 1.2109(a) in the Part 1 proceeding, to permit auction winners 
to make their final payments 10 business days after the payment 
deadline, provided that they also pay a late fee equal to five percent 
of the amount due. While the Commission does not adopt the proposed 
late fee provision in this proceeding, the Commission notes that should 
it ultimately adopt such a provision in the part 1 proceeding it shall 
apply to the 39 GHz band.
v. Bid Withdrawal, Default, and Disqualification
    108. Background. In the Competitive Bidding Second Report and 
Order, the Commission noted the importance to the success of the 
competitive bidding process that potential bidders be required to make 
a monetary payment if they withdraw a high bid, are found not to be 
qualified to hold licenses, or default on payment of a balance due.
    109. Discussion. To prevent insincere bidding, the Commission will 
apply the bid withdrawal, default and disqualification rules found in 
Secs. 1.2104(g), and 1.2109 of the Commission's Rules, as amended by 
the part 1 proceeding, to the 39 GHz auctions. No commenters addressed 
this issue. Any bidder that withdraws a high bid before the Commission 
declares bidding closed will be required to reimburse the Commission in 
the amount of the difference between its high bid and the amount of the 
winning bid the next time the license is offered by the Commission, if 
this subsequent winning bid is lower than the withdrawn bid. The 
Commission will calculate the bid withdrawal payment as either (1) the 
difference between the withdrawn bid net of bidding credit and the 
subsequent winning bid net of bidding credit, or (2) the difference 
between the gross withdrawn bid and the subsequent gross winning bid 
for that license, whichever is less. No withdrawal payment is assessed 
if the subsequent winning bid exceeds the withdrawn bid. If a winning 
bidder defaults after the close of an auction, the defaulting bidder 
will be required to pay the foregoing payment plus an additional 
payment of 3 percent of the subsequent winning bid or its own withdrawn 
bid, whichever is lower.
    110. The Commission notes that it has proposed to adopt guidelines 
for erroneous bids in the part 1 proceeding, based upon the rationale 
discussed in the Atlanta Trunking Order. While it does not adopt the 
proposed guidelines in this proceeding, the Commission notes that 
should the Commission ultimately adopt such guidelines for erroneous 
bids in the part 1 proceeding it shall apply to the 39 GHz band.
vi. Long-Form Applications and Petitions to Deny
    111. Background. In the NPRM and Order, the Commission stated that 
if the winning bidder makes a down payment in a timely manner, it would 
be required to file a long-form application.

[[Page 6096]]

    112. Discussion. The Commission will apply the part 1 long-form 
procedures to the 39 GHz auction, as amended by the part 1 proceeding. 
No commenters addressed this issue. While long-form applications may be 
filed either electronically or manually, beginning January 1, 1998, all 
applications must be filed electronically. Upon acceptance for filing 
of the long-form application, the Commission will issue a Public Notice 
announcing this fact and triggering the filing window for petitions to 
deny. If the Commission denies all petitions to deny, and is otherwise 
satisfied that the applicant is qualified, a Public Notice announcing 
the grants will be issued.

E. Regulatory Safeguards

i. Transfer Disclosure Requirements
    113. Background. In section 309(j) of the Communications Act, 
Congress directed the Commission to ``require such transfer disclosures 
and anti-trafficking restrictions and payment schedules as may be 
necessary to prevent unjust enrichment as a result of the methods 
employed to issue licenses and permits.''
    114. Discussion. The Commission will adopt the transfer disclosure 
requirements contained in Sec. 1.2111(a) of the Commission's rules, as 
amended by the Part 1 proceeding, for all 39 GHz licenses obtained 
through competitive bidding. Generally, applicants transferring their 
licenses within three years after the initial license grant will be 
required to file, together with their transfer applications, the 
associated contracts for sale, option agreements, management 
agreements, and all other documents disclosing the total consideration 
received in return for the transfer of its license(s).
ii. Anti-Collusion Rules
    115. Background. In the Competitive Bidding Second Report and 
Order, the Commission adopted special rules prohibiting collusive 
conduct in the context of competitive bidding. The Commission indicated 
that such rules would serve the objectives of the Omnibus Budget 
Reconciliation Act of 1993 (Budget Act) by preventing parties, 
especially the largest firms, from agreeing in advance to bidding 
strategies that divide the market according to their strategic 
interests and that disadvantage other bidders.
    116. Discussion. The Commission adopts the rules prohibiting 
collusive conduct in Secs. 1.2105 and 1.2107 of the Commission's rules, 
as amended by the Part 1 proceeding, for use in the 39 GHz auctions. 
The Commission notes that it has proposed to adopt two exceptions to 
the anti-collusion rules in the Commission's Part 1 proceeding. While 
it does not adopt the proposed exceptions in this proceeding, the 
Commission notes that whatever exceptions to the anti-collusion rules 
are ultimately adopted in the Part 1 proceeding shall apply to the 39 
GHz band. Sections 1.2105 and 1.2107 of the Commission's rules operate, 
along with existing antitrust laws, as a safeguard to prevent collusion 
in the competitive bidding process. In addition, where specific 
instances of collusion in the competitive bidding process are alleged 
during the petition to deny process, the Commission may conduct an 
investigation or refer such complaints to the United States Department 
of Justice for investigation. Bidders who are found to have violated 
the antitrust laws or the Commission's rules in connection with their 
participation in the auction process may be subject to a variety of 
sanctions, including forfeiture of their down payment or their full bid 
amount, revocation of their license(s), and possible prohibition from 
participating in future auctions.

F. Treatment of Designated Entities

i. Overview and Objectives
117. In authorizing the Commission to use competitive bidding, Congress 
mandated that the Commission ``ensure that small businesses, rural 
telephone companies, and businesses owned by members of minority groups 
and women are given the opportunity to participate in the provision of 
spectrum-based services.'' The statute required the Commission to 
``consider the use of tax certificates, bidding preferences, and other 
procedures'' in order to achieve this Congressional goal. In addition, 
Section 309(j)(3)(B) provides that in establishing eligibility criteria 
and bidding methodologies the Commission shall promote ``economic 
opportunity and competition * * * by avoiding excessive concentration 
of licenses and by disseminating licenses among a wide variety of 
applicants, including small businesses, rural telephone companies, and 
businesses owned by members of minority groups and women.'' Finally, 
Section 309(j)(4)(A) provides that to promote these objectives, the 
Commission shall consider alternative payment schedules including 
installment payments.
    118. The Commission has employed a wide range of special provisions 
and eligibility criteria designed to meet the statutory objectives of 
providing opportunities to designated entities in other spectrum-based 
services. The measures considered thus far for each service were 
established after closely examining the specific characteristics of the 
service and determining whether any particular barriers to accessing 
capital stood in the way of designated entity opportunities. For 
example, in the C block broadband PCS auction, small businesses 
received a 25 percent bidding credit and all entrepreneurs' block 
licensees were entitled to pay for these licenses under an installment 
plan. More recently, for the WCS auction, the Commission adopted tiered 
bidding credits of 25 percent for small businesses and 35 percent for 
very small businesses, declined to adopt installment payments for 
designated entities because of the expedited procedures imposed by the 
Appropriations Act which required entities to make full payment on the 
bid amount quickly, and adopted a tiered definition of small and very 
small businesses. For the 800 MHz SMR auction, the Commission also 
adopted tiered bidding credits of 25 percent for small businesses and 
35 percent for very small businesses; eliminated installment payments 
for the upper 200 channels and deferred the decision on adopting 
installment payments in the lower 80 and General category channels to 
the outcome in the pending Part 1 proceeding; and adopted a tiered 
definition of small and very small businesses.
    119. In the NPRM and Order, the Commission sought comment on 
whether the designated entity provisions adopted for broadband PCS 
should be applied here because this spectrum may be used in support of 
PCS. The Commission also sought comments broadly on how it can best 
promote opportunities for businesses owned by minorities and women in 
light of Adarand.
    Commenters were encouraged to provide the Commission with as much 
evidence as possible with regard to past discrimination, continuing 
discrimination, discrimination in access to capital, 
underrepresentation and other significant barriers facing businesses 
owned by minorities and women in obtaining licenses in communications 
services.
ii. Eligibility for Bidding Credits
    120. At this time the Commission has not developed a record 
sufficient to sustain race-based measures in the 39 GHz band based on 
the standard established by Adarand Constructors v. Pena. The 
Commission also believes that at this time the record is insufficient 
to support any gender-based provisions under the intermediate scrutiny 
standard. In addition, the

[[Page 6097]]

record in this proceeding does not demonstrate a need for special 
provisions for rural telephone companies beyond those that the 
Commission adopts for small businesses. The Commission thus will limit 
eligibility for special provisions for designated entities in the 39 
GHz band to small businesses. While DCR supports adoption of special 
provisions designed to promote opportunities for businesses owned by 
minorities and women, it contends that fashioning provisions that can 
withstand the Adarand test should not be permitted to delay the 
licensing process. It notes that such a delay would be harmful to 
minority- and women-owned businesses attempting to attract financing 
and operate PCS systems. Neither DCR nor other commenters provide 
evidence with regard to past discrimination, continuing discrimination, 
or other significant barriers to minorities and women. Based on the 
record in this proceeding, the Commission intends to adopt bidding 
credits for applicants qualifying as small businesses, as discussed 
infra. As there will be small businesses with variable abilities to 
access capital, the Commission will tier the bidding credits to account 
for these differences. The Commission believes these provisions will 
provide small businesses with a meaningful opportunity to obtain 
licenses in the 39 GHz auction. Moreover, many minority-and women-owned 
entities are small businesses and will therefore qualify for the same 
special provisions that would have applied to them under the previous 
PCS rules. As such, these provisions will meet Congress' goal of 
promoting wide dissemination of 39 GHz licenses.
    a. Small Business Definition. 121. Background. In the Competitive 
Bidding Second Memorandum Opinion and Order, the Commission stated it 
would define small business eligibility on a service-specific basis, 
taking into account the capital requirements and other characteristics 
of each particular service in establishing the appropriate threshold. 
In the NPRM and Order, the Commission proposed to define small 
businesses as those entities with not more than $40 million in average 
annual gross revenues for the preceding three years. In addition, the 
Commission proposed to apply the same affiliation and attribution rules 
for calculating revenues previously adopted for broadband PCS. The 
Commission noted, however, that the attribution rules for calculating 
gross revenues for broadband PCS are complex and sought comment on 
substituting the ``control group'' concept for a simpler attribution 
model. The Commission asked how the revenues of a small business entity 
should be calculated. The Commission also asked how investors should be 
treated in determining the eligibility of a small business, e.g., 
whether only investors that hold ownership interests at a certain 
threshold should have their gross revenues included (e.g., ownership 
interests of five percent would trigger attribution).
    122. Discussion. As a general matter, the Commission adopts its 
proposed small business definition of an entity with not more than $40 
million in average annual gross revenues for the preceding three years. 
The Commission concludes that this definition will accommodate the 
broadest cross-section of small businesses because it will include, at 
a minimum, all entities recognized as small businesses in the CMRS 
contexts for which the Commission has either adopted or proposed small 
business definitions. The Commission, however, rejects DCR's suggestion 
to adopt a definition which completely mirrors the small business 
definition in the broadband PCS C block rules. Significantly, if 
certain winning C block winners do not qualify as small businesses 
here, they will be able to participate in the 39 GHz auctions even 
though they will not be eligible for special provisions. Moreover, DCR 
has failed to demonstrate that control group equity structures and 
affiliation rule exceptions are warranted in the 39 GHz context. In 
fact, given the broad array of services that may be offered in the 39 
GHz band, ranging from CMRS support services to niche service 
offerings, the Commission is reluctant to adopt such complex ownership 
structures absent evidence of the same factors present in the broadband 
PCS context. As discussed in further detail, infra, the Commission is 
providing bidding credits to an additional category of small 
businesses--very small businesses. A very small business is an entity 
that, together with its affiliates and persons or entities that hold 
attributable interests in such entity and their affiliates, has average 
gross revenues that are not more than $15 million for the preceding 
three years.
    123. In determining whether an applicant qualifies for bidding 
credits as a small business or a very small business in the 39 GHz 
auction, the Commission will consider the gross revenues of the small 
business applicant, its affiliates, and certain investors in the 
applicant. Specifically, for purposes of determining small business 
status, the Commission will attribute the gross revenues of all 
controlling principals in the small business applicant as well as the 
gross revenues of affiliates of the applicant. The Commission also 
chooses not to impose specific equity requirements on the controlling 
principals that meet the small business definition. The Commission will 
still require, however, that in order for an applicant to qualify as a 
small business, qualifying small business principals must maintain 
``control'' of the applicant. The term ``control'' would include both 
de facto and de jure control of the applicant. For this purpose, the 
Commission will borrow from certain SBA rules that are used to 
determine when a firm should be deemed an affiliate of a small 
business. 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 licensees; and 
(3) the entity plays an integral role in all major management 
decisions. While the Commission is not imposing specific equity 
requirements on the small business principals, the absence of 
significant equity could raise questions about whether the applicant 
qualifies as a bona fide small business. Finally, the Commission 
rejects Winstar's proposal to adopt a high attribution standard to 
determine small business status because the absence of special 
provisions for minorities and women reduces the risk that applications 
falsely claiming such status will be filed. The existence of special 
small business provisions requires adoption of the provisions set forth 
herein in order to prevent their improper use.
    b. Bidding Credits. 124. Background. In the NPRM and Order, the 
Commission proposed a 10 percent bidding credit for qualified small 
businesses. The Commission stated that the magnitude of the credit was 
reasonable and equitable in view of other proposals which will benefit 
designated entities, including the relatively small geographic 
licensing areas and the availability of installment payments. The 
Commission also proposed to allow eligible entities to apply the credit 
to all licenses. However, the Commission sought

[[Page 6098]]

comment on whether small businesses should receive a larger bidding 
credit, such 25 percent credit.
    125. Discussion. Based upon the record, the Commission adopts 
tiered bidding credits for the 39 GHz service. Several commenters 
support the Commission's proposal to give bidding credits to small 
businesses. Some of these commenters also express concern that a 10 
percent credit is too low. The Commission agrees with PCS Fund's 
contention that tiered bidding credits will promote vigorous 
competition not only between small businesses and large businesses but 
also between small businesses of different economic sizes.
    126. The Commission believes that a tiered approach will encourage 
smaller businesses, that may be very well-suited to provide niche 
services, to participate in the provision of services in the 39 GHz 
band. For example, Winstar states that it believes that a major use of 
the spectrum will be for wireless local loop services. Microwave 
Partners indicates that it is looking at the spectrum for medical, 
public health and safety related applications, such as high speed 
transmission of medical data between physicians' offices and clinics 
and hospitals, laboratories and X-ray facilities; interactive 
videoconferencing for the continuing education of all health care 
personnel; and surveillance and security monitoring of high risk areas. 
The Commission recognizes that smaller businesses have more difficulty 
accessing capital and thus need a higher bidding credit. These tiered 
bidding credits 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. 
Accordingly, small businesses with average gross revenues of not more 
than $40 million for the preceding three years will receive a 25 
percent bidding credit. Very small businesses, that is, those small 
businesses with average gross revenues of not more than $15 million for 
the preceding three years, will receive a 35 percent bidding credit. 
Bidding credits for small businesses are not cumulative.

c. Installment Payments. 

    127. Background. In the NPRM and Order, the Commission proposed to 
allow small businesses to pay off their successful license bids in 
installments. In the Competitive Bidding Second Report and Order, the 
Commission concluded that installment payments are an effective means 
to address the inability of small businesses to obtain financing and 
will enable these entities to compete more effectively for the 
auctioned spectrum. Under the Commission's proposal, small business 
licensees may elect to pay their winning bid amount (less upfront 
payments) in installments over the ten-year term of the license, with 
interest charges to be fixed at the time of licensing at a rate equal 
to the rate for ten-year U.S. Treasury obligations plus 2.5 percent. 
The Commission sought comment on these proposals.
    128. The Commission also sought comments on proposals for 
additional special payment provisions to further address the access to 
capital challenges faced by small businesses. The Commission proposed 
that small business licensees be permitted to make interest-only 
installment payments during the first two years of the license term. 
The Commission also proposed to reduce down payments for small 
businesses to 5 percent of the winning bid due five days after the 
auction closes and the remaining 5 percent down payment due five days 
after release of the Public Notice announcing that the Commission is 
prepared to award the license. Finally, the Commission sought comment 
on whether to offer ``tiered'' installment payments scaled to the 
financial size of a small business applicant.
    129. Discussion. The Commission has carefully considered the use of 
installment payment plans for 39 GHz licenses and has decided not to 
adopt its proposal to allow small businesses to pay for their licenses 
in installment payments. First, Congress did not require the use of 
installment payments in all auctions, but rather recognized them as one 
means of promoting the various objectives of section 309(j)(3) of the 
Communications Act. The Commission continues to experiment with 
different means for achieving its obligations under the statute, and 
has offered installment payments to licensees in several auctioned 
wireless services. By no means, however, has Congress dictated that 
installment payments are the only tool in assisting small business. 
Indeed, the Commission has conducted several auctions without 
installment payments. The Commission concludes that it can meet its 
statutory obligations in the 39 GHz auction absent these provisions.
    130. The Commission must balance competing objectives in section 
309(j) that require, inter alia, that it promote the development and 
rapid deployment of new spectrum-based services (i.e., competition) and 
ensure that designated entities are given the opportunity to 
participate in the provision of such services. In assessing the public 
interest, the Commission must try to ensure that all the objectives of 
section 309(j) are considered. The Commission's experience with the 
installment payment program leads it to conclude that installment 
payments may not always serve the public interest. The Commission is 
presently examining issues relating to the administration of 
installment payments in several other proceedings. Because of the 
importance of these issues, the Commission plans to incorporate its 
decisions regarding installment payments and other financial issues 
into the Part 1 rulemaking.
    131. Finally, as discussed infra, the Commission has adopted 
enhanced bidding credits for the 39 GHz auction. The bidding credits 
adopted for small businesses will help to promote access to the 39 GHz 
band and various new services by ensuring that small businesses will 
have genuine opportunities to participate in the 39 GHz auctions and in 
provision of services. The Commission also notes that, given the 
relatively large numbers of licenses available in the 39 GHz band, 
there should be opportunities for small business participation. The 
Commission has determined that, in view of the favorable tiered bidding 
credits adopted herein, it does not see the need to adopt reduced down 
payments for small businesses in order to ensure either their access to 
capital or their participation in the auction. Instead, the Commission 
will require a 20 percent down payment, the same down payment that is 
required of all other 39 GHz auction winners. Under this approach, all 
winning bidders will be required to supplement their upfront payments 
to bring their total payment to 20 percent of their winning bid within 
10 business days of the close of the auction. Prior to licensing, they 
will be required to pay the balance of their winning bid. The 
Commission believes that a 20 percent down payment is appropriate here 
to ensure that all auction winners have the necessary financial 
capabilities to complete payment for the license and to pay for the 
costs of constructing a system and protect against possible default, 
while at the same time not being so onerous as to hinder growth and 
diminish access.
iii. Transfer Restrictions and Unjust Enrichment Provisions
    132. Background. The Commission's unjust enrichment provisions are 
integral to the success of the special provisions for designated 
entities in the various auctionable services. In the Competitive 
Bidding Second Report and Order, the Commission outlined unjust 
enrichment provisions applicable specifically to designated entities. 
The Commission established these

[[Page 6099]]

provisions to deter speculation and participation in the licensing 
process by those who do not intend to offer service to the public, or 
intend to use the Commission's provisions to obtain a license at a 
lower cost than they otherwise would have to pay, and later to sell it 
for a profit. In the NPRM and Order, the Commission sought comment 
regarding the appropriate approach to prevent unjust enrichment.
    133. Discussion. To ensure that large businesses do not become the 
unintended beneficiaries of measures meant for smaller firms, the 
Commission will adopt unjust enrichment provisions similar to those 
adopted for other services, including, for example, narrowband PCS and 
900 MHz SMR services. These rules provide that, during the initial 
license term, licensees utilizing bidding credits and seeking to assign 
or transfer control of a license to an entity that does not meet the 
eligibility criteria for bidding credits will be required to reimburse 
the government for the total value of the benefit conferred by the 
government, that is, the amount of the bidding credit, plus interest, 
before the transfer will be permitted. The rules which the Commission 
now adopts additionally provide that, if a licensee applies to assign 
or transfer control of a license to an entity that is eligible for a 
lower bidding credit, the difference between the bidding credit 
obtained by the assigning party and the bidding credit for which the 
acquiring party would qualify, plus interest, must be paid to the 
United States Treasury as a condition of approval of the assignment or 
transfer.
    134. If a licensee that utilizes bidding credits seeks to make any 
change in ownership structure that would render the licensee ineligible 
for bidding credits, or eligible only for a lower bidding credit, the 
licensee must first seek Commission approval and reimburse the 
government for the amount of the bidding credit, or the difference 
between its original bidding credit and the bidding credit for which it 
is eligible after the ownership change, plus interest. Additionally, if 
an investor subsequently purchases an interest in the business and, as 
a result, the gross revenues of the business exceed the applicable 
financial caps, this unjust provision will apply. The amount of this 
payment will be reduced over time as follows: (1) A transfer in the 
first two years of the license term will result in a forfeiture of 100 
percent of the value of the bidding credit (or, in the case of very 
small businesses transferring to small businesses, 100 percent of the 
difference between the bidding credit received by the former and the 
bidding credit received by the latter is eligible); (2) in year three 
of the license term the payment will be 75 percent; (3) in year four 
the payment will be 50 percent; and (4) in year five the payment will 
be 25 percent, after which there will be no payment. These assessments 
will have to be paid to the U.S. Treasury as a condition of approval of 
the assignment or transfer. Thus, a small business that received 
bidding credits seeking transfer or assignment of a license to an 
entity that does not qualify as a small business will be required to 
reimburse the government for the amount of the bidding credit, plus 
interest, before the transfer will be permitted.
iv. Entrepreneurs' Block
    135. Background. In the Competitive Bidding Fifth Report and Order, 
59 FR 37566 (July 22, 1994), the Commission established entrepreneurs' 
blocks in broadband PCS on which only qualified entrepreneurs, 
including small businesses, could bid. The Commission requested comment 
on whether the capital requirements of this service were anticipated to 
be so substantial that the Commission should insulate certain blocks 
from very large bidders in order to provide meaningful opportunities 
for designated entities. The Commission also requested comment on the 
need to adopt an entrepreneurs' block to ensure that there will be 
adequate spectrum available for communications links for broadband PCS 
entrepreneurs' block licensees.
    136. Discussion. No commenter advocated the adoption of an 
entrepreneurs' block and the Commission decides not to adopt one in the 
39 GHz service. First, the relatively large numbers of licenses 
available in the 39 GHz band should allow for extensive small business 
participation. Second, small businesses will have a significant 
opportunity to compete for licenses given the enhanced bidding credits 
adopted for small businesses. The bidding credits adopted for small 
businesses will help to promote access to the 39 GHz band and various 
new services by ensuring that small businesses will have genuine 
opportunities to participate in the 39 GHz auctions and in provision of 
services.

VI. Procedural Matters

A. Regulatory Flexibility Act

    137. The analysis for this Report and Order pursuant to the 
Regulatory Flexibility Act, 5 U.S.C. 604, is contained herein as 
follows. As required by section 603 of the Regulatory Flexibility Act, 
5 U.S.C. 603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA) 
was incorporated in the Notice of Proposed Rule Making in this 
proceeding in ET Docket No. 95-183. The Commission sought written 
public comments on the proposals in the NPRM, including on the IRFA. 
The Commission's Final Regulatory Flexibility Analysis (FRFA) in this 
Report and Order conforms to the RFA, as amended by the Contract With 
America Advancement Act of 1996 (CWAAA), Public Law 104-121, 110 Stat. 
847 (1996).
i. Need for and Purpose of This Action
    138. In this Report and Order, the Commission adopts rules and 
procedures intended to facilitate the efficient use of the 38.6-40.0 
GHz frequency band ( the ``39 GHz'' band ) and to permit different 
types of services to be offered therein. The purposes of this action 
are to provide support spectrum for emerging technologies, as well as 
to permit the development of innovative point-to-point or point-to-
multipoint services. The Commission amends the rules for fixed, point-
to-point microwave service in the 39 GHz band , so as to conform the 
regulatory approach toward operations in that band with its proposals 
for licensing the adjacent 37.0-38.6 GHz (37 GHz) band. Action on the 
37.0-38.6 GHz band ( the ``37 GHz'' band) has been postponed. In this 
item the Commission retains the existing channeling plan and amends 
some of the existing licensing and technical rules for the 39 GHz band 
in order to improve the regulatory environment for the development and 
implementation of a broad range of point-to-point microwave operations. 
The Commission also is adopting rules for competitive bidding for the 
39 GHz band. By these actions, the Commission is creating a flexible 
regulatory vehicle for facilitating the development of a variety of 
fixed microwave operations that will provide, inter alia, 
communications infrastructure for commercial and private mobile radio 
operations and competitive wireless local telephone service. The 
Commission concludes that the public interest is served by the 
geographic licensing and competitive bidding rules adopted herein.
ii. Summary of Issues Raised by the Public Comments in Response to the 
Initial Regulatory Flexibility Analysis
    139. No comments were filed in direct response to the IRFA. In 
general comments on the NPRM, however, some commenters raised issues 
that might

[[Page 6100]]

affect small entities. In particular, one commenter contended that in 
the auctions for the 39 GHz band, small entities may be at serious 
competitive disadvantage vis-a-vis large, well-financed companies, 
especially if the small businesses already expended substantial sums on 
obtaining PCS licenses. This commenter stated that if auctions are to 
be utilized, small business preferences must be designed to provide 
meaningful assistance to small business. Other commenters also 
supported small business preferences in the auctions. Various 
commenters contend that the upfront payment formula of $2,500 or $0.02 
pop per MHz as proposed is excessive and will put a burden on small 
businesses. Further, some commenters claim that the proposed bidding 
credit offered to small business entities is too low. Many commenters 
support the concept of permitting all 39 GHz licensees to partition 
their licenses to any potential licensee meeting the relevant 
requirements. These commenters state that partitioning will assist 
small businesses that might be able to afford a portion of a license.
iii. Changes Made to the Proposed Rules

Service Rules.

    140. In the NPRM, the Commission proposed a partitioning scheme 
with respect to rural telephone companies. The Commission has 
determined in the Report and Order that the option of partitioning 
should be made available to all entities eligible to be licensees in 
the 39 GHz band. The Commission also concluded that 39 GHz licensees 
should be permitted to disaggregate their spectrum blocks. In the NPRM 
the Commission also proposed to establish a maximum field strength 
limit that would apply at the boundaries of each service area which 
would provide that licensees' operations not exceeding this limit would 
avoid the need to complete the formal coordination process. However, in 
this Report and Order the Commission elects not to adopt a field 
strength limit but will continue to use the frequency coordination 
procedures outlined in Sec. 101.103(d) of the Commission's Rules. In 
addition, the Commission proposed new build-out requirements for 39 GHz 
licensees to ensure that the spectrum was being used efficiently. The 
Commission suggested four construction build-out options, each of which 
depended upon a specific number of fixed stations to be built within 
the licensees' geographic area. In this Report and Order, the 
Commission concludes that a substantial service standard is the most 
appropriate benchmark for a build-out requirement for the 39 GHz band, 
because it will permit flexibility in system design and market 
development, and provide a clear and expeditious accounting of spectrum 
use by licensees to ensure that service is being provided to the 
public.

Auction Rules.

    141. The Commission has delegated authority to the Wireless 
Telecommunications Bureau to modify the upfront payment calculation for 
the 39 GHz auction if circumstances warrant and such modification is in 
the public interest.
    142. The Commission in general adopted the proposed small business 
definition of an entity with not more than $40 million in average 
annual gross revenues for the preceding three years. As discussed 
below, with respect to bidding credits, the Commission created an 
additional category of small businesses--very small businesses. These 
are entities with not more than $15 million in average annual gross 
revenues for the preceding three years. In determining whether an 
applicant qualifies as a small business, the Commission will attribute 
the gross revenues of all controlling principals in the small business 
applicant as well as the gross revenues of affiliates of the applicant. 
No specific equity requirements will be imposed on the controlling 
principals that meet the small business definition. However, in order 
for an applicant to qualify as a small business, qualifying small 
business principals must maintain ``control'' of the applicant. The 
term control will include both de facto and de jure control of the 
applicant.
    143. In the NPRM, the Commission proposed a 10 percent bidding 
credit for qualified small businesses. In this item, the Commission 
adopts tiered bidding credits. Tiered bidding credits will promote 
vigorous competition not only between small businesses and large 
businesses but also between small businesses of different economic 
sizes. In addition, a tiered approach will encourage smaller 
businesses, that may be very well-suited to provide niche services to 
participate in this auction. Accordingly, small businesses with average 
gross revenues of not more than $40 million for the preceding three 
years will receive a 25 percent bidding credit. Smaller businesses with 
average gross revenues of not more than $15 million for the preceding 
three years will receive a 35 percent bidding credit. Bidding credits 
for small businesses will not be cumulative.
iv. Description and Estimate of the Small Entities Subject to the Rules
    144. The rules adopted in this Report and Order will allow 
cellular, PCS, and other small communication entities that require 
support spectrum to obtain licenses through competitive bidding. 
Pursuant to 47 CFR 101.1209, the Commission has defined ``small 
business entity'' in the 39 GHz auction as a firm that had gross 
revenues of less than $40 million in the three previous calendar years. 
Approval for this regulation defining ``small business entity'' in the 
context of 39 GHz was requested from the Small Business Administration 
on May 8, 1997.

a. Estimates for Cellular Licensees. 

    145. The Commission has not developed a definition of small 
entities applicable to cellular licensees. Therefore, the applicable 
definition of small entity is the definition under the Small Business 
Administration (SBA) rules applicable to radiotelephone companies. This 
definition provides that a small entity is a radiotelephone company 
employing fewer than 1,500 persons. Since the Regulatory Flexibility 
Act amendments were not in effect until the record in this proceeding 
was closed, the Commission was unable to request information regarding 
the number of small cellular businesses and is unable at this time to 
determine the precise number of cellular firms which are small 
businesses.
    146. The size data provided by the SBA does not enable us to make a 
meaningful estimate of the number of cellular providers which are small 
entities because it combines all radiotelephone companies with 500 or 
more employees. The Commission therefore used the 1992 Census of 
Transportation, Communications, and Utilities, conducted by the Bureau 
of the Census, which is the most recent information available. This 
document shows that only 12 radiotelephone firms out of a total of 
1,178 such firms which operated during 1992 had 1,000 or more 
employees. Therefore, even if all 12 of these firms were cellular 
telephone companies, nearly all cellular carriers were small businesses 
under the SBA's definition. The Commission assumes, for purposes of the 
evaluations and conclusions in this FRFA, that all of the current 
cellular licensees are small entities, as that term is defined by the 
SBA. Although there are 1,758 cellular licenses, the Commission does 
not know the number of cellular licensees, since a cellular licensee 
may own several licenses.

b. Estimates for Broadband PCS Licensees. 

    147. The broadband PCS spectrum is divided into six frequency 
blocks designated A through F. Pursuant to 47 CFR 24.720(b), the 
Commission has defined ``small entity'' in the auctions for Blocks C 
and F as a firm

[[Page 6101]]

that had average gross revenues of less than $40 million in the three 
previous calendar years. This regulation defining ``small entity'' in 
the context of broadband PCS auctions has been approved by the SBA.
    148. The Commission has auctioned broadband PCS licenses in Blocks 
A through F. The Commission does not have sufficient data to determine 
how many small businesses bid successfully for licenses in Blocks A and 
B. For the C Block auction, a total of 255 qualified bidders 
participated in the auction. Of the qualified bidders, all were 
entrepreneurs--defined for this auction as entities together with 
affiliates, having gross revenues of less than $125 million and total 
assets of less than $500 million at the time the FCC Form 175 
application was filed. Of the 255 qualified bidders, 253 were ``small 
businesses''--defined for this auction as entities together with 
affiliates, having gross revenues of less than $40 million at the time 
the FCC Form 175 application was filed. After a total of 184 rounds, 
the number of winning bidders totalled 89, all of whom were small 
business entrepreneurs, who won a total of 493 licenses. To date, two 
of the winning bidders defaulted on 18 of the licenses. Those licenses 
were reauctioned in Auction #10. For the D, E, and F Block auction, the 
D and E blocks were open to all licensees; the F block was open to 
bidders who qualified as an entrepreneur--defined for this auction as 
entities, together with affiliates, having gross revenues of less than 
$125 million and total assets of less than $500 million at the time the 
FCC Form 175 application was filed. Of the 153 initial bidders for the 
three blocks, 105 qualified as entrepreneurs. The D, E, and F Block 
auction ended with 125 bidders winning 1472 licenses and the FCC 
holding 7 licenses as a result of bid withdrawals. For the D, E, and F 
Block auction, 93 of the winning bidders qualified as small entities as 
defined for that auction. Accordingly, the Commission estimates that 
48% of the winning bidders for the auction of broadband PCS licenses in 
Blocks A through F are small businesses.
c. Estimates for Point-to-Point or Point-to-Multipoint Entities.
    149. The rules adopted in this Report and Order will apply to any 
current licensee or any company which chooses to apply for a license in 
the 39 GHz band. The Commission has not developed a definition of small 
entities applicable to such licensees. The SBA definitions of small 
entity for 39 GHz band licensees are the definitions applicable to 
radiotelephone companies. The definition of radiotelephone companies 
provides that a small entity is a radiotelephone company employing 
fewer than 1,500 persons. Since the Regulatory Flexibility Act 
amendments were not in effect until the record in this proceeding was 
closed, the Commission was unable to request information regarding the 
potential number of small businesses interested in the 39 GHz frequency 
band and is unable at this time to determine the precise number of 
potential applicants which are small businesses.
    150. The size data provided by the SBA does not enable us to make a 
meaningful estimate of the number of telecommunications providers which 
are small entities because it combines all radiotelephone companies 
with 500 or more employees. The Commission therefore used the 1992 
Census of Transportation, Communications, and Utilities, conducted by 
the Bureau of the Census, which is the most recent information 
available. This document shows that only 12 radiotelephone firms out of 
a total of 1,178 such firms which operated during 1992 had 1,000 or 
more employees. Therefore, a majority of 39 GHz entities providing 
radiotelephone services could be small businesses under the SBA's 
definition.
    151. However, in the NPRM, the Commission proposed to define a 
small business as an entity that, together with affiliates and 
attributable investors, has average gross revenues for the three 
preceding years of less than $40 million. The Commission has not yet 
received approval by the SBA for this definition. The Commission 
assumes, for purposes of its evaluations and conclusions in this FRFA, 
that nearly all of the 39 GHz licensees will be small entities, as that 
term is defined by the SBA.
v. Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

Service Rules.

    152. There are some reporting requirements imposed by the Report 
and Order. In most instances, it is likely that the entities filing 
will require the services of persons with technical or engineering 
expertise to prepare reports. In order to facilitate operation in the 
39 GHz band, the Commission is not imposing separate regulatory burdens 
that may affect small businesses. Generally, all applicants will be 
required to file applications for authorization to construct and 
operate and to adhere to the technical criteria set forth in the final 
rules.

Auction Rules.

    153. All license applicants will be subject to reporting and record 
keeping requirements to comply with the competitive bidding rules. 
Specifically, applicants will apply for 39 GHz license auctions by 
filing a short-form application and will file a long-form application 
at the conclusion of the auction. Additionally, entities seeking 
treatment as ``small businesses'' will need to submit information 
pertaining to the gross revenues of the small business applicant, its 
affiliates, and certain investors in the applicant.
vi. Steps Taken to Minimize the Economic Impact on Small Entities

Service Rules.

    154. The Commission adopts service and technical rules that 
facilitate the accommodation of all proposed and existing systems in 
the 39 GHz band. The Commission believes these rules are a reasonable 
accommodation of all competing interests in this band, including small 
entities. The plans for the 39 GHz band provide both small entities and 
larger businesses the same opportunity to develop and operate viable 
systems within the band, and initiate competitive services.

Auction Rules.

    155. Section 309 (j)(3)B) of the Communications Act of 1934, as 
amended, provides that in establishing eligibility criteria and bidding 
methodologies the Commission shall, inter alia, ``promote[e] economic 
opportunity and competition and ensur[e] that new and innovative 
technologies are readily accessible to the American people by avoiding 
excessive concentration of licenses and by disseminating licenses among 
a wide variety of applicants, including small businesses, rural 
telephone companies, and businesses owned by members of minority groups 
and women. Section 309(j)(4)(A) provides that in order to promote such 
objectives, the Commission shall ``consider alternative payment 
schedules and methods of calculation, including lump sums or guaranteed 
installment payments, with or without royalty payments, or other 
schedules or methods * * * and combinations of such schedules and 
methods.'' Section 309(j)(4)(D) also requires the Commission to 
``ensure that small business, rural telephone companies, and businesses 
owned by members of minority groups and women are given the opportunity 
to participate in the provision of spectrum-based services.'' 
Therefore, it is appropriate to establish special provisions in the 39 
GHz band for competitive bidding by small businesses.
    156. The Commission notes that Congress made specific findings with 
regard to access to capital in the Small Business Credit and Business 
Opportunity Enhancement Act of 1992, that small business concerns, 
which represent higher degrees of risk in

[[Page 6102]]

financial markets than do large businesses, are experiencing increased 
difficulties in obtaining credit. The Commission believes that small 
businesses applying for 39 GHz band licenses should be entitled to some 
type of bidding credits. In awarding licenses, the Commission is 
committed to meeting the statutory objectives of promoting economic 
opportunity and competition, of avoiding excessive concentration of 
licenses, and of ensuring access to new and innovative technologies by 
disseminating licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women. The Commission concludes that 
special provisions for small businesses are appropriate for awarding 
licenses because construction of systems may require a significant 
amount of capital, and minority- and women-owned businesses will be 
able to take advantage of specific provisions that the Commission 
adopts for small businesses.
    157. The Commission has adopted various special provisions to 
encourage and facilitate participation by small entities in the 
auctions. In particular, small businesses with revenues of not more 
than $40 million are eligible for a 25 percent bidding credit, and 
small businesses with average annual gross revenues of not more than 
$15 million are eligible for a 35 percent bidding credit on all 39 GHz 
licenses. These bidding credits are not cumulative.
    158. In addition, the Commission has extended partitioning to all 
entities eligible to be licensees in the 39 GHz band. The Commission 
also concluded here to allow all 39 GHz licensees to disaggregate their 
spectrum blocks. These provisions should help facilitate market entry 
by small entities who may lack the financial resources to participate 
in the auction alone. These entities will be able to participate in the 
provision of services by purchasing a portion of a license.
vii. Significant Alternatives Considered and Rejected

Service Rules.

    159. The Commission considered and rejected several alternatives to 
the licensing plan and competitive bidding rules adopted. In response 
to a Petition for Rule Making filed by the Telecommunications Industry 
Association (TIA), the Commission initiated this proceeding. This 
Report and Order does not provide direct relief requested by TIA in 
particular areas. For example, the Commission rejected the individual 
link licensing alternative which was suggested by TIA. The Commission 
also considered and rejected proposals to license spectrum on an MTA or 
Rectangular Service Area basis because it determined that BTA licensing 
would further spectrum management and better serve the 39 GHz band 
because the wide variety of services proposed by commenters relate to 
PCS systems or are local in nature. In addition, BTAs which are smaller 
than MTAs, will facilitate the ability of smaller systems to 
participate in geographic area licensing. Therefore, based on the 
record in this proceeding, the Commission believes that BTAs would be 
more appropriate for licensing the 39 GHz band.
    160. The Commission also considered various proposals by entities 
relating to the disposition of pending 39 GHz applications. The 
processing procedures adopted are based on some proposed alternatives. 
Other proposals were rejected, such as the suggestion that the 
Commission process pending mutually exclusive applications. The 
Commission determined that pending mutually exclusive applications will 
be dismissed without prejudice, and all applicants, including small 
business entities, would be permitted to submit new applications under 
the competitive bidding rules established in this proceeding. Because 
applicants had ample opportunity to file amendments prior to the onset 
of this rule making, in order to avoid mutual exclusivity, the 
Commission believes the above procedure is the best approach. The 
Commission also considered various divergent proposals made in response 
to the build-out plan for incumbents and for new 39 GHz licensees. With 
the goal of accommodating various entities, the Commission developed 
specific construction requirements and implemented a ``substantial 
service'' showing for these entities. By rejecting such build-out 
alternatives which required the construction of significant amounts of 
links within a short time frame, the Commission adopts an alternative 
which takes into consideration concerns raised by commenters, including 
small business entities, regarding establishing services which are 
specialized and do not lend to traditional construction requirements.

Auction Rules.

    161. The Commission considered and rejected several significant 
alternatives with respect to the auction rules. The Commission rejected 
the use of any type of licensing method in favor of competitive bidding 
as the method of awarding 39 GHz licenses. The Commission concluded 
that awarding 39 GHz licenses by auction meets the congressional 
criteria in Sec. 309(j) of the Communications Act, and will likely 
promote the Act's objectives. The Commission also rejected a sequential 
or other auction design in favor of a simultaneous multiple round 
auction design because the licenses are interdependent. As to 
designated entities that may be entitled to special provisions, the 
Commission determined that based upon the record it only would extend 
such special provisions to small businesses. The Commission rejected 
offering reduced upfront or down payments and payment by installment 
payments and, instead, adopted tiered bidding credits for small 
businesses. The Commission adopted a small business definition of an 
entity with not more than $40 million in average gross revenues for the 
preceding three years. The Commission held that this definition of 
small business will accommodate the broadest cross-section of small 
businesses because it will include, at a minimum, all those entities 
recognized as small businesses in the CMRS contests for which the 
Commission has adopted or proposed small businesses definitions. Since 
the Commission rejected a straight across-the-board 10 percent bidding 
credit for qualified small businesses and, based upon the record, 
adopted tiered bidding credits for the 39 GHz service, small businesses 
with average gross revenues of not more than $40 million for the 
preceding three years will receive a 25 percent bidding credit and 
smaller businesses with average gross revenues of not more than $15 
million for the preceding three years will receive a 35 percent bidding 
credit.
viii. Report to Congress
    162. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Report and Order, in a report to 
Congress pursuant to the Small Business Regulatory Enforcement Fairness 
Act of 1996, 5 U.S.C. 801(a)(1)(A). A copy of this Final Regulatory 
Flexibility Analysis will also be published in the Federal Register.

B. Ex Parte Rules--Non-Restricted Proceeding

    163. This is a non-restricted notice and comment rulemaking 
proceeding. Ex parte presentations are permitted except during the 
Sunshine Agenda period, provided they are disclosed as provided in 
Commission Rules. See generally 47 CFR 1.1201, 1.1203, and 1.1206(a).

C. Paperwork Reduction Act

    164. Written comments by the public on the modified information 
collections are due March 9, 1998. Written

[[Page 6103]]

comments must be submitted by the Office of Management and Budget (OMB) 
on the proposed and/or modified information collections on or before 
April 7, 1998. In addition to filing comments with the Secretary, a 
copy of any comments on the information collections contained herein 
should be submitted to Dorothy Conway, Federal Communications 
Commission, Room 234, 1919 M Street, N.W., Washington D.C. 20554, or 
via the Internet to [email protected] and to Timothy Fain, OMB Desk 
Officer, 10236 NEOB, 725--17th Street, N.W., Washington D.C. 20503 or 
via the Internet to [email protected].

D. Ordering Clauses

    165. Authority for issuance of this Report and Order and Second 
Notice of Proposed Rule Making is contained in sections 4(i), 257, 
303(r), and 309(j) of the Communications Act of 1934, as amended, 47 
U.S.C. sections 154(i), 257, 303(r), and 309(j).
    166. It is ordered, that parts 1 and 101 of the Commission's Rules 
are amended as specified effective April 7, 1998. This action is taken 
pursuant to sections 4(i), 303(c), 303(f), 303(g), 303(r) and 309(j) of 
the Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 
303(c), 303(f), 303(g), 303(r) and 309(j).

List of Subjects in 47 CFR Parts 1 and 101

    Communications equipment, Radio.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Parts 1 and 101 of Chapter 1 of Title 47 of the Code of Federal 
Regulations is amended as follows:

PART 1-- PRACTICE AND PROCEDURE

    1. The authority citation for part 1 continues to read as follows:

    Authority: 47 U.S.C. 151, 154, 207, 303 and 309(j), unless 
otherwise noted.

    2. Amend Sec. 1.2102 by adding new paragraph (a)(10) and revising 
paragraph (b)(4) introductory text to read as follows:


Sec. 1.2102  Eligibility of applications for competitive bidding.

    (a) * * *
    (10) Basic trading area licenses in the 38.6-40.0 GHz band.
    (b) * * *
    (4) Applications for channels in all frequency bands, except those 
listed in paragraph (a)(10), which are used as an intermediate link or 
links in the provision of continuous, end-to-end service where no 
service is provided directly to subscribers over the frequencies. 
Examples of such intermediate links are:
* * * * *

PART 101-- FIXED MICROWAVE SERVICES

    3. The authority citation for Part 101 continues to read as 
follows:

    Authority: 47 U.S.C. Secs. 524, 303.

    4. Amend Sec. 101.13 by revising paragraph (d) to read as follows:


Sec. 101.13  Application forms and requirements for private operational 
fixed stations.

* * * * *
    (d) Application for renewal of station licenses must be submitted 
on such form as the Commission may designate by public notice. 
Applications for renewal must be made during the license term and, 
except for renewal applications in the 38.6-40.0 GHz band, should be 
filed within 90 days, but not later than 30 days, prior to the end of 
the license term. Renewal applications in the 38.6-40.0 GHz band must 
be filed eighteen months prior to the end of the license term. See 
Sec. 101.17 for renewal requirements for the 38.6-40.0 GHz frequency 
band. When a licensee submits a timely application for renewal of a 
station license, the existing license for that station will continue as 
a valid authorization until the Commission has made a final decision on 
the application. Whenever a group of station licenses in the same radio 
service are to be renewed simultaneously, a single ``blanket'' 
application may be filed to cover the entire group if the application 
identifies each station by call sign and station location. Applicants 
should note also any special renewal requirements under the rules for 
such radio station(s).
* * * * *
    5. Amend Sec. 101.15 by revising paragraph (c) to read as follows:


Sec. 101.15  Application forms for common carrier fixed stations.

* * * * *
    (c) Renewal of station license. Except for renewal of special 
temporary authorizations and authorizations in the 38.6-40.0 GHz band, 
FCC Form 415 (``Application for Authorization in the Microwave 
Services'') must be filed by the licensee between thirty (30) and sixty 
(60) days prior to the expiration date of the license sought to be 
renewed. For authorizations in the 38.6-40.0 GHz band, the licensee 
must file FCC Form 415 eighteen months prior to the expiration date of 
the license sought to be renewed. See Sec. 101.17 for renewal 
requirements for the 38.6-40.0 GHz frequency band. Whenever a group of 
station licenses in the same radio service are to be renewed 
simultaneously, a single ``blanket'' application may be filed to cover 
the entire group if the application identifies each station by call 
sign and station location. Applicants should note also any special 
renewal requirements under the rules for each radio service. When a 
licensee submits a timely application for renewal of a station license, 
the existing license continues in effect until the Commission has 
rendered a decision on the renewal application.
* * * * *
    6. Add new Sec. 101.17 to read as follows:


Sec. 101.17   Performance requirements for the 38.6-40.0 GHz frequency 
band.

    (a) All 38.6-40.0 GHz band licensees must demonstrate substantial 
service at the time of license renewal. A licensee's substantial 
service showing should include, but not be limited to, the following 
information for each channel for which they hold a license, in each BTA 
or portion of a BTA covered by their license, in order to qualify for 
renewal of that license. The information provided will be judged by the 
Commission to determine whether the licensee is providing service which 
rises to the level of ``substantial.''
    (1) A description of the 38.6-40.0 GHz band licensee's current 
service in terms of geographic coverage;
    (2) A description of the 38.6-40.0 GHz band licensee's current 
service in terms of population served, as well as any additional 
service provided during the license term;
    (3) A description of the 38.6-40.0 GHz band licensee's investments 
in its system(s) (type of facilities constructed and their operational 
status is required);
    (b) Any 38.6-40.0 GHz band licensees adjudged not to be providing 
substantial service will not have their licenses renewed.
    7. Amend Sec. 101.45 by revising paragraph (d) to read as follows:


Sec. 101.45   Mutually exclusive applications.

* * * * *
    (d) Except for applications in the 38.6-40.0 GHz band, private 
operational fixed point-to-point microwave applications for 
authorization under this Part will be entitled to be included in a 
random selection process or to comparative consideration with one or

[[Page 6104]]

more conflicting applications in accordance with the provisions of 
Sec. 1.227.(b)(4) of this chapter. Applications in the 38.6-40.0 GHz 
band are subject to competitive bidding procedures in Secs. 101.1201-
1209.
* * * * *
    8. Amend Sec. 101.51 by revising paragraph (a) introductory text to 
read as follows:


Sec. 101.51  Comparative evaluation of mutually exclusive applications.

    (a) In order to expedite action on mutually exclusive applications 
in services under this rules part where neither competitive bidding nor 
the random selection processes apply, the applicants may request the 
Commission to consider their applications without a formal hearing in 
accordance with the summary procedure outlined in paragraph (b) in this 
section if:
* * * * *
    9. Amend Sec. 101.53 by adding new paragraph (g) to read as 
follows:


Sec. 101.53  Assignment or transfer of station authorization.

* * * * *
    (g) Assignees receiving Commission authority to acquire a 38.6-40.0 
GHz license pursuant to this paragraph must meet the assignors' 
construction requirement dates. See Secs. 101.63 and 101.64 of this 
part.
    10. Amend Sec. 101.55 by revising the introductory text of 
paragraph (a) and paragraph (b)(2) to read as follows:


Sec. 101.55  Considerations involving assignment or transfer 
applications.

    (a) Licenses not authorized pursuant to competitive bidding 
procedures may not be assigned or transferred prior to completion of 
construction of the facility. However, consent to the assignment or 
transfer of control of such a license may be given prior to the 
completion of construction where:
* * * * * *
    (b) * * *
    (2) That have not been constructed, unless the authorizations were 
granted pursuant to a competitive bidding procedure; or
* * * * *
    11. Add Sec. 101.56 to read as follows:


Sec. 101.56  Partitioned service areas (PSAs) and disaggregated 
spectrum.

    (a)(1) The holder of a Basic Trading Area (BTA) authorization to 
provide service in the 38.6-40 GHz band pursuant to the competitive 
bidding process may enter into agreements with eligible parties to 
partition any portion of its service area according to county 
boundaries, or according to other geopolitical subdivision boundaries. 
Alternatively, licensees may enter into agreements or contracts to 
disaggregate portions of spectrum, provided acquired spectrum is 
disaggregated according to frequency pairs.
    (2)(i) Contracts must be filed with the Commission within 30 days 
of the date that such agreements are reached.
    (ii) The contracts must include descriptions of the areas being 
partitioned or spectrum disaggregated. The partitioned service area 
shall be defined by coordinate points at every 3 seconds along the 
partitioned service area unless an FCC recognized service area is 
utilized (i.e., Metropolitan Service Area or Rural Service Area) or 
county lines are followed. If geographic coordinate points are used, 
they must be specified in degrees, minutes, and seconds to the nearest 
second of latitude and longitude and must be based upon the 1927 North 
American Datum (NAD27). Applicants may supply geographical coordinates 
based on 1983 North American Datum (NAD83) in addition to those 
required (NAD27). In the case where an FCC recognized service area or 
county lines are utilized, applicants need only list the specific 
area(s) (through use of FCC designations or county names) that 
constitute the partitioned area.
    (3) Parties to partitioning and spectrum disaggregation contracts 
must file concurrently with such contracts the following:
    (i) An application FCC Form 415 for authority to operate a 38.6-40 
GHz service facility.
    (ii) Application for assignment to operate in the market area being 
partitioned or to operate in the market area covered by the 
disaggregated spectrum.
    (iii) A completed FCC Form 430, where applicable, if not already on 
file at the Commission.
    (b) The eligibility requirements applicable to BTA authorization 
holders also apply to those individuals and entities seeking 
partitioned or disaggregated spectrum authorizations.
    (c) Subsequent to issuance of the authorization for a partitioned 
service area, the partitioned area will be treated as a separate 
protected service area.
    (d) When any area within a BTA becomes a partitioned service area, 
the remaining counties and geopolitical subdivision within that BTA 
will be subsequently treated and classified as a partitioned service 
area.
    (e) At the time a BTA is partitioned, the Commission shall cancel 
the BTA authorization initially issued and issue a partitioned service 
area authorization to the former BTA authorization holder.
    (f) The duties and responsibilities imposed upon BTA authorization 
holders in this part, apply to those licensees obtaining authorizations 
by partitioning or spectrum disaggregation.
    (g) The build-out requirements for the partitioned service area or 
disaggregated spectrum shall be the same as applied to the BTA 
authorization holder.
    (h) The license term for the partitioned service area or 
disaggregated spectrum shall be the remainder of the period that would 
apply to the BTA authorization holder.
    (i) Licensees, except those using bidding credits in a competitive 
bidding procedure, shall have the authority to partition service areas 
or disaggregate spectrum.
    12. Amend Sec. 101.63 by revising paragraphs (a) and (d) to read as 
follows:


Sec. 101.63  Period of construction; certification of completion of 
construction.

    (a) Except for stations licensed in the 38.6-40.0 GHz band, each 
station licensed under this part must be in operation within 18 months 
from the initial date of grant. Modification of an operational station 
other than one licensed in the 38.6-40.0 GHz band must be completed 
within 18 months of the date of grant of the applicable modification 
request.
* * * * *
    (d) Except for stations licensed in the 38.6-40.0 GHz band, 
requests for extension of time to be in operation may be granted upon a 
showing of good cause, setting forth in detail the applicant's reasons 
for failure to have the facility operating in the prescribed period. 
Such requests must be submitted no later than 30 days prior to the end 
of the prescribed period to the Federal Communications Commission, 
Gettysburg, PA 17325-7245.
* * * * *
    13. Add Sec. 101. 64 to read as follows:


Sec. 101.64  Service areas.

    Service areas for 38.6-40.0 GHz service are BTAs as defined below. 
BTAs are based on the Rand McNally 1992 Commercial Atlas & Marketing 
Guide, 123rd Edition, at pages 40-44. Rand McNally organizes the 50 
States and the District of Columbia into 487 BTAs. The BTA Map is 
available for public inspection at the Wireless Telecommunications 
Bureau, Room 5322, 2025 M Street, NW., Washington, DC. The BTA service 
areas are based on the Rand McNally 1995 Commercial Atlas & marketing 
Guide, 123rd Edition, at pages 40-44, with the following additions 
licensed separately as BTA-like areas: American Samoa; Guam; Northern 
Mariana Islands; Mayaguez/ 

[[Page 6105]]

Aguadilla-Ponce, Puerto Rico; San Juan, Puerto Rico; and the United 
States Virgin Islands. The Mayaguez/Aguadilla-Ponce BTA-like service 
area consists of the following municipios: Adjuntas, Aguada, Aguadilla, 
Anasco, Arroyo, Cabo Rojo, Coamo, Guanica, Guayama, Guayanilla, 
Hormigueros, Isabela, Jayuya, Juana Diaz, Lajas, Las Marias, Maricao, 
Maunabo, Mayaguez, Moca, Patillas, Penuelas, Ponce, Quebradillas, 
Rincon, Sabana Grande, Salinas, San German, Santa Isabel, Villalba, and 
Yauco. The San Juan BTA-like service area consists of all other 
municipios in Puerto Rico.
    14. Amend Sec. 101.103 by adding paragraphs (i)(1) and (i)(2) to 
read as follows:


Sec. 101.103  Frequency coordination procedures.

* * * * *
    (i)(1) When the licensed facilities are to be operated in the band 
38,600 MHz to 40,000 MHz and the facilities are located within 16 
kilometers of the boundaries of a Basic Trading Area, each licensee 
must complete the frequency coordination process of Sec. 101.103(d) 
with respect to neighboring BTA licensees and existing licensees within 
its BTA service area that may be affected by its operation prior to 
initiating service. In addition to the technical parameters listed in 
Sec. 101.103(d), the coordinating licensee must also provide 
potentially affected parties technical information related to its 
subchannelization plan and system geometry.
    (2) Response to notification should be made as quickly as possible, 
even if no technical problems are anticipated. Any response to 
notification indicating potential interference must specify the 
technical details and must be provided to the licensee, either 
electronically or in writing, within 10 days of notification. Every 
reasonable effort should be made by all licensees to eliminate all 
problems and conflicts. If no response to notification is received 
within 10 days, the licensee will be deemed to have made reasonable 
efforts to coordinate and may commence operation without a response. 
The beginning of the 10-day period is determined pursuant to 
Sec. 101.103(d)(v).
    15. Amend Sec. 101.107 by revising the last entry in the table and 
adding new footnote 9 to read as follows:


Sec. 101.107  Frequency tolerance.

* * * * *

                           Frequency Tolerance                          
                                [Percent]                               
------------------------------------------------------------------------
                                               All                      
                                              fixed    Mobile    Mobile 
              Frequency (MHz)                  and    stations  stations
                                              based    over 3    3 watts
                                            stations    watts    or less
------------------------------------------------------------------------
                  *        *        *        *        *                 
31,300 to 40,000 \6\......................  0.03 \9\      0.03      0.03
                  *        *        *        *        *                 
------------------------------------------------------------------------
\9\ Equipment authorized to be operated in the 38,600-40,000 MHz band is
  exempt from the frequency tolerance requirement noted in the above    
  table.                                                                

    16. Amend Sec. 101.109 by adding a new footnote 7 to the entry in 
the second column for 38,600 to 40,000, and by adding a new entry at 
the end of the table to read as follows:


Sec. 101.109  Bandwidth.

* * * * *

------------------------------------------------------------------------
                                                  Maximum authorized    
            Frequency band (MHz)                      bandwidth         
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
38,600 to 40,000...........................  50 MHz \7\                 
Above 40,000...............................   (\3\)                     
                                                                        
                 *        *        *        *        *                  
------------------------------------------------------------------------
\7\ For channel block assignments in the 38,600-40,000 MHz band, the    
  authorized bandwidth is equivalent to an unpaired channel block       
  assignment or to either half of a symmetrical paired channel block    
  assignment. When adjacent channels are aggregated, equipment is       
  permitted to operate over the full channel block aggregation without  
  restriction.                                                          
Note to Footnote 7: Unwanted emissions shall be suppressed at the       
  aggregate channel block edges based on the same roll-off rate as is   
  specified for a single channel block in paragraphs 101.111(a)(ii) and 
  (iii) of this chapter.                                                

    17. Amend Sec. 101.115 by removing the entry for ``Above 31,300'' 
in the table in paragraph (c)(2), and adding the following entry and 
new footnote 14 to read as follows:


Sec. 101.115 Directional antennas.

* * * * *
    (c) * * *
    (2) * * *

                                                                                                                                                        
                                                                    Antenna Standards                                                                   
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Maximum               Minimum radiation suppression to angle in degrees from centerline of main 
                                                       beamwidth                                           beam in decibels                             
                                                        to 3 dB    Minimum  ----------------------------------------------------------------------------
          Frequency (MHz)                Category      points(1)   antenna                                                                              
                                                       (included     gain    5 deg. to   10 deg.    15 deg.    20 deg.    30 deg.    100 deg.   140 deg.
                                                       angles in    (dBi)     10 deg.     to 15      to 20      to 30      to 100     to 140     to 180 
                                                        degrees)                           deg.       deg.       deg.       deg.       deg.       deg.  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
                   *                  *                  *                  *                  *                  *                  *                  
38,600 to 40,000 \14\.............  A                        n/a         38         25         29         33         26         42         55         55
                                    B                        n/a         38         20         24         28         32         35         36        36 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\14\ Stations authorized to operate in the 38,600-40,000 MHz band may use antennas other than those meeting the Category A standard. However, the       
  Commission may require the use of higher performance antennas where interference problems can be resolved by the use of such antennas.                

    18. Amend Sec. 101.147 by redesignating paragraph (v) as (v)(1), 
revising newly redesignated (v)(1) and adding new paragraph (v)(2) to 
read as follows:


Sec. 101.147  Frequency assignments.

* * * * *
    (v)(1) Assignments in the band 38,600-40,000 MHz must be according 
to the following frequency plan:

[[Page 6106]]



----------------------------------------------------------------------------------------------------------------
                     Channel group A                                          Channel group B                   
----------------------------------------------------------------------------------------------------------------
                                         Frequency band                                          Frequency band 
              Channel No.                 limits (MHz)                 Channel No.                limits (MHz)  
----------------------------------------------------------------------------------------------------------------
1-A...................................     38,600-38,650  1-B                                      39,300-39,350
2-A...................................     38,650-38,000  2-B                                      39,350-39,400
3-A...................................     38,700-38,750  3-B                                      39,400-39,450
4-A...................................     38,750-38,800  4-B                                      39,450-39,500
5-A...................................     38,800-38,850  5-B                                      39,500-39,550
6-A...................................     38,350-38,900  6-B                                      39,550-39,600
7-A...................................     38,900-38,950  7-B                                      39,600-39,650
8-A...................................     38,950-39,000  8-B                                      39,650-39,700
9-A...................................     39,000-39,050  9-B                                      39,700-39,750
10-A..................................     39,050-39,100  10-B                                     39,750-39,800
11-A..................................     39,100-39,150  11-B                                     39,800-39,850
12-A..................................     39,150-39,200  12-B                                     39,850-39,900
13-A..................................     39,200-39,250  13-B                                     39,900-39,950
14-A..................................     39,250-39,300  14-B                                     39,950-40,000
----------------------------------------------------------------------------------------------------------------

    (2) Channel Blocks 1 through 14 are assigned for use within Basic 
Trading Areas (BTAs). Applicants are to apprise themselves of any 
grandfathered links within the BTA for which they seek a license. All 
of the channel blocks may be subdivided as desired by the licensee and 
used within its service area as desired without further authorization 
subject to the terms and conditions set forth in Sec. 101.149.
    19. Add Subpart N to Section 101 to read as follows:

Subpart N--Competitive Bidding Procedures for the 38.6-40.0 GHz Band

101.1201  38.6-40.0 GHz subject to competitive bidding.
101.1202  Competitive bidding design for 38.6-40.0 GHz licensing.
101.1203  Competitive bidding mechanisms.
101.1204  Bidding application procedures.
101.1205  Submission of upfront payments and down payments.
101.1206  Long-form applications.
101.1207  Procedures for filing petitions to deny against long-form 
applications.
101.1208  Bidding credits for small businesses.
101.1209  Definitions.

Subpart N--Competitive Bidding Procedures for the 38.6-40.0 GHz 
Band


Sec. 101.1201  38.6-40.0 GHz subject to competitive bidding.

    Mutually exclusive 38.6-40.0 GHz initial applications are subject 
to competitive bidding. The general competitive bidding procedures 
found in 47 CFR Part 1, Subpart Q will apply unless otherwise provided 
in this part.


Sec. 101.1202  Competitive bidding design for 38.6-40.0 GHz licensing.

    The following competitive bidding procedures generally will be used 
in 38.6-40.0 GHz auctions. Additional, specific procedures may be set 
forth by public notice. The Commission also may design and test 
alternative procedures. See 47 CFR Secs. 1.2103 and 1.2104. The 
Commission will employ simultaneous multiple round bidding when 
choosing from among mutually exclusive initial applications to provide 
38.6-40.0 GHz service, unless otherwise specified by the Wireless 
Telecommunications Bureau before the auction.


Sec. 101.1203  Competitive bidding mechanisms.

    (a) Sequencing. The Commission will establish and may vary the 
sequence in which 38.6-40.0 GHz licenses will be auctioned.
    (b) Grouping. The Commission will conduct a series of sequential 
auctions of three channels at a time within each BTA unless the 
Wireless Telecommunications Bureau announces, by Public Notice prior to 
the auction, an alternative auction scheme.
    (c) Minimum bid increments. The Commission will, by announcement 
before or during an auction, require minimum bid increments in dollar 
or percentage terms.
    (d) Stopping rules. The Commission will establish stopping rules 
before or during multiple round auctions in order to terminate an 
auction within a reasonable time.
    (e) Activity rules. The Commission will establish activity rules 
which require a minimum amount of bidding activity. In the event that 
the Commission establishes an activity rule in connection with a 
simultaneous multiple round auction, each bidder will be entitled to 
request and will be automatically granted a certain number of waivers 
of such rule during the auction.


Sec. 101.1204  Bidding application procedures.

    All applicants to participate in competitive bidding for 38.6-40.0 
GHz licenses must submit applications on FCC Forms 175 pursuant to the 
provisions of Sec. 1.2105 of this Chapter. The Wireless 
Telecommunications Bureau will issue a public notice announcing the 
availability of 38.6-40.0 GHz licenses and, in the event that mutually 
exclusive applications are filed, the date of the auction for those 
licenses. This public notice also will specify the date on or before 
which applicants intending to participate in a 38.6-40.0 auction must 
file their applications in order to be eligible for that auction, and 
it will contain information necessary for completion of the application 
as well as other important information such as the materials which must 
accompany the forms, any filing fee that must accompany the application 
or any upfront payment that need to be submitted, and the location 
where the application must be filed. In addition, each applicant must 
identify its status as a small business or rural telephone company.


Sec. 101.1205  Submission of upfront payments and down payments.

    (a) Each bidder in the 38.6-40.0 GHz auction will be required to 
submit an upfront payment. This upfront payment will be based upon a 
formula established by the Wireless Telecommunications Bureau and 
announced by public notice prior to the auction.
    (b) Each winning bidder in the 38.6-40.0 GHz auction shall make a 
down payment to the Commission in an amount sufficient to bring its 
total deposits up to 20 percent of its winning bid by a date and time 
to be specified by public notice, generally within ten business days 
following the close of bidding. Full payment of the balance of the 
winning bids shall be paid within ten days after public notice 
announcing that the Commission is prepared to award the license. The 
grant of the application is conditional upon receipt of full payment. 
The Commission generally will grant the license within a

[[Page 6107]]

reasonable period of time after receiving full payment.


Sec. 101.1206  Long-form applications.

    Each winning bidder will be required to submit a long-form 
application. Winning bidders must submit long-form applications within 
ten (10) business days after being notified by Public Notice that it is 
the winning bidder. Long-form applications shall be processed under the 
rules contained in parts 1 and 101 of the Commission's rules.


Sec. 101.1207  Procedures for filing petitions to deny against long-
form applications.

    The applicable procedures for the filing of petitions to deny the 
long-form applications of winning bidders contained in Sec. 1.2108 of 
the Commission's rules shall be followed by the applicant (see 47 CFR 
1.2108).


Sec. 101.1208  Bidding credits for small businesses.

    (a) A winning bidder that qualifies as a small business or a 
consortium of small businesses, (as defined in Sec. 101.1209(b)(1)(i) 
may use a bidding credit of 25 percent to lower the cost of its winning 
bid on any of the licenses in this part. A winning bidder that 
qualifies as a very small business or a consortium of very small 
businesses, (as defined in Sec. 101.1209(b)(1)(ii) may use a bidding 
credit of 35 percent to lower the cost of its winning bid on any of the 
licenses in this part.
    (b) Unjust enrichment. (1) A small business seeking transfer or 
assignment of a license to an entity that is not a small business under 
the definitions in Sec. 101.1209(b)(1)(i) and (ii), will be required to 
reimburse the government for the amount of the bidding credit, plus 
interest at the rate imposed for installment financing at the time the 
license was awarded, before transfer will be permitted. The amount of 
this penalty will be reduced over time as follows: a transfer in the 
first two years of the license term will result in a forfeiture of 100 
percent of the value of the bidding credit: in year three of the 
license term the penalty will be 75 percent; in year four the penalty 
will be 50 percent and in year five the penalty will be 25 percent, 
after which there will be no penalty. These penalties must be paid back 
to the U.S. Treasury as a condition of approval of the assignment or 
transfer.
    (2) If a small business that utilizes a bidding credit under this 
section seeks to assign or transfer control of its license to a small 
business meeting the eligibility standards for lower bidding credits or 
seeks to make any other change in ownership that would result in the 
licensee qualifying for a lower bidding credit under this section, the 
licensee must seek Commission approval and reimburse the government for 
the difference between the amount of the bidding credit obtained by the 
licensee and the bidding credit for which the assignee, transferee or 
licensee is eligible under this section as a condition of the approval 
of such assignment, transfer or other ownership change.


Sec. 101.1209  Definitions.

    (a) Scope. The definitions in this section apply to Secs. 101.1201 
through 101.1209, unless otherwise specified in those sections.
    (b) Small business and very small business. (1)(i) A small business 
is an entity that together with its affiliates and persons or entities 
that hold attributable interests in such entity and their affiliates, 
has average gross revenues that are not more than $40 million for the 
preceding three years.
    (ii) A very small business is an entity that together with its 
affiliates and persons or entities that hold attributable interests in 
such entity and their affiliates, has average gross revenues that are 
not more than $15 million for the preceding three years.
    (2) For purposes of determining whether an entity meets either the 
small business or very small business definitions set forth in 
paragraph (b)(1) of this section, the gross revenues of the entity, its 
affiliates, persons or entities holding interests in the entity and 
their affiliates shall be considered on a cumulative basis and 
aggregated.
    (3) A small business consortium is a conglomerate organization 
formed as a joint venture between or among mutually-independent 
business firms, each of which individually satisfies either definition 
of a small business in paragraphs (b)(1) and (b)(2) of this section.
    (c) Rural telephone company. A rural telephone company means a 
local exchange carrier operating entity to the extent that such 
entity--
    (A) Provides common carrier service to any local exchange carrier 
study area that does not include either--
    (i) Any incorporated place of 10,000 inhabitants or more, or any 
part thereof, based on the most recently available population 
statistics of the Bureau of the Census; or
    (ii) Any territory, incorporated or unincorporated, included in an 
urbanized area, as defined by the Bureau of the Census, as of August 
10, 1993;
    (B) Provides telephone exchange service, including exchange access, 
to fewer than 50,000 access lines;
    (C) Provides telephone exchange service to any local exchange 
carrier study area with fewer than 100,000 access lines; or
    (D) Has less than 15 per cent of its access lines in communities of 
more than 50,000 on the date of enactment of the Telecommunications Act 
of 1996.
    (d) Gross Revenues. Gross revenues shall mean all income received 
by an entity, whether earned or passive, before any deductions are made 
for costs of doing business (e.g., cost of goods sold), as evidenced by 
audited quarterly financial statements for the relevant number of 
calendar years preceding January 1, 1996, or, if audited financial 
statements were not prepared on a calendar-year basis, of the most 
recently completed fiscal years preceding the filing of the applicant's 
short-form application (Form 175). For applications filed after 
December 31, 1995, gross revenues shall be evidenced by audited 
financial statements for the preceding relevant number of calendar or 
fiscal years. If an entity was not in existence for all or part of the 
relevant period, gross revenues shall be evidenced by the audited 
financial statements of the entity's predecessor-in-interest or, if 
there is no identifiable predecessor-in-interest, unaudited financial 
statements certified by the applicant as accurate.
    (e) Affiliate. (1) Basis for affiliation. An individual or entity 
is an affiliate of an applicant or of a person holding an attributable 
interest in an applicant (both referred to herein as ``the applicant'') 
if such individual or entity:
    (i) Directly or indirectly controls or has the power to control the 
applicant, or
    (ii) Is directly or indirectly controlled by the applicant, or
    (iii) Is directly or indirectly controlled by a third party or 
parties that also controls or has the power to control the applicant, 
or
    (iv) Has an ``identity of interest'' with the applicant.
    (2) Nature of control in determining affiliation.
    (i) Every business concern is considered to have one or more 
parties who directly or indirectly control or have the power to control 
it. Control may be affirmative or negative and it is immaterial whether 
it is exercised so long as the power to control exists.

    Example for paragraph (e)(2)(i). An applicant owning 50 percent 
of the voting stock of another concern would have negative power to 
control such concern since such party can block any action of the 
other stockholders. Also, the bylaws of a

[[Page 6108]]

corporation may permit a stockholder with less than 50 percent of 
the voting to block any actions taken by the other stockholders in 
the other entity. Affiliation exists when the applicant has the 
power to control a concern while at the same time another person, or 
persons, are in control of the concern at the will of the party or 
parties with the power of control.
    (ii) Control can arise through stock ownership; occupancy of 
director, officer or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the 
concern, has a critical influence in or substantive control over the 
operations or management of the concern.

    (iii) Control can arise through management positions where a 
concern's voting stock is so widely distributed that no effective 
control can be established.

    Example for paragraph (e)(2)(iii). In a corporation where the 
officers and directors own various size blocks of stock totaling 40 
percent of the corporation's voting stock, but no officer or 
director has a block sufficient to give him or her control or the 
power to control and the remaining 60 percent is widely distributed 
with no individual stockholder having a stock interest greater than 
10 percent, management has the power to control. If persons with 
such management control of the other entity are persons with 
attributable interests in the applicant, the other entity will be 
deemed an affiliate of the applicant.

    (3) Identity of interest between and among persons. Affiliation can 
arise between or among two or more persons with an identity of 
interest, such as members of the same family or persons with common 
investments. In determining if the applicant controls or is controlled 
by a concern, persons with an identity of interest will be treated as 
though they were one person.

    Example 1. Two shareholders in Corporation Y each have 
attributable interests in the same application. While neither 
shareholder has enough shares to individually control Corporation Y, 
together they have the power to control Corporation Y. The two 
shareholders with these common investments (or identity of interest) 
are treated as though they are one person and Corporation Y would be 
deemed an affiliate of the applicant.
    Example 2. One shareholder in Corporation Y, shareholder A, has 
an attributable interest in a SMR application. Another shareholder 
in Corporation Y, shareholder B, has a nonattributable interest in 
the same SMR application. While neither shareholder has enough 
shares to individually control Corporation Y, together they have the 
power to control Corporation Y. Through the common investment of 
shareholders A and B in the SMR application, Corporation Y would 
still be deemed an affiliate of the applicant.

    (i) Spousal affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States.
    (ii) Kinship affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family member'' means father, mother, husband, wife, son, 
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father, or -mother, step-
brother, or -sister, step-son, or -daughter, half brother or sister. 
This presumption may be rebutted by showing that
    (A) The family members are estranged,
    (B) The family ties are remote, or
    (C) The family members are not closely involved with each other in 
business matters.

    Example for paragraph (e)(3)(ii). A owns a controlling interest 
in Corporation X. A's sister-in-law, B, has an attributable interest 
in an SMR application. Because A and B have a presumptive kinship 
affiliation, A's interest in Corporation X is attributable to B, and 
thus to the applicant, unless B rebuts the presumption with the 
necessary showing.

    (4) Affiliation through stock ownership. (i) An applicant is 
presumed to control or have the power to control a concern if he or she 
owns or controls or has the power to control 50 percent or more of its 
voting stock.
    (ii) An applicant is presumed to control or have the power to 
control a concern even though he or she owns, controls or has the power 
to control less than 50 percent of the concern's voting stock, if the 
block of stock he or she owns, controls or has the power to control is 
large as compared with any other outstanding block of stock.
    (iii) If two or more persons each owns, controls or has the power 
to control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any 
other stock holding, the presumption arises that each one of these 
persons individually controls or has the power to control the concern; 
however, such presumption may be rebutted by a showing that such 
control or power to control, in fact, does not exist.
    (5) Affiliation arising under stock options, convertible 
debentures, and agreements to merge. Stock options, convertible 
debentures, and agreements to merge (including agreements in principle) 
are generally considered to have a present effect on the power to 
control the concern. Therefore, in making a size determination, such 
options, debentures, and agreements will generally be treated as though 
the rights held thereunder had been exercised. However, neither an 
affiliate nor an applicant can use such options and debentures to 
appear to terminate its control over another concern before it actually 
does so.

    Example 1 for paragraph (e)(5). If company B holds an option to 
purchase a controlling interest in company A, who holds an 
attributable interest in an SMR application, the situation is 
treated as though company B had exercised its rights and had become 
owner of a controlling interest in company A. The gross revenues of 
company B must be taken into account in determining the size of the 
applicant.
    Example 2 for paragraph (e)(5). If a large company, BigCo, holds 
70% (70 of 100 outstanding shares) of the voting stock of company A, 
who holds an attributable interest in an SMR application, and gives 
a third party, SmallCo, an option to purchase 50 of the 70 shares 
owned by BigCo, BigCo will be deemed to be an affiliate of company, 
and thus the applicant, until SmallCo actually exercises its options 
to purchase such shares. In order to prevent BigCo from 
circumventing the intent of the rule which requires such options to 
be considered on a fully diluted basis, the option is not considered 
to have present effect in this case.
    Example 3 for paragraph (e)(5). If company A has entered into an 
agreement to merge with company B in the future, the situation is 
treated as though the merger has taken place.

    (6) Affiliation under voting trusts. (i) Stock interests held in 
trust shall be deemed controlled by any person who holds or shares the 
power to vote such stock, to any person who has the sole power to sell 
such stock, and to any person who has the right to revoke the trust at 
will or to replace the trustee at will.
    (ii) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests 
held in trust will be deemed controlled by the grantor or beneficiary, 
as appropriate.
    (iii) If the primary purpose of a voting trust, or similar 
agreement, is to separate voting power from beneficial ownership of 
voting stock for the purpose of shifting control of or the power to 
control a concern in order that such concern or another concern may 
meet the Commission's size standards, such voting trust shall not be 
considered valid for this purpose regardless of whether it is or is not 
recognized within the appropriate jurisdiction.

[[Page 6109]]

    (7) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the 
majority or otherwise as the controlling element of the board of 
directors and/or the management of another entity.
    (8) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the 
other concern.
    (9) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern 
for contracts and business to such a degree that one concern has 
control, or potential control, of the other concern.
    (10) Affiliation under joint venture arrangements. (i) A joint 
venture for size determination purposes is an association of concerns 
and/or individuals, with interests in any degree or proportion, formed 
by contract, express or implied, to engage in and carry out a single, 
specific business venture for joint profit for which purpose they 
combine their efforts, property, money, skill and knowledge, but not on 
a continuing or permanent basis for conducting business generally. The 
determination whether an entity is a joint venture is based upon the 
facts of the business operation, regardless of how the business 
operation may be designated by the parties involved. An agreement to 
share profits/losses proportionate to each party's contribution to the 
business operation is a significant factor in determining whether the 
business option is a joint venture.
    (ii) The parties to a joint venture are considered to be affiliated 
with each other.
    (11) Exclusion from affiliation coverage. For purposes of this 
section, Indian tribes or Alaska Regional or Village Corporations 
organized pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq.), or entities owned and controlled by such tribes 
or corporations, are not considered affiliates of an applicant (or 
licensee) that is owned and controlled by such tribes, corporations or 
entities, and that otherwise complies with the requirements of this 
section, except that gross revenues derived from gaming activities 
conducted by affiliated entities pursuant to the Indian Gaming 
Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in determining 
such applicant's (or licensee's) compliance with the financial 
requirements of this section, unless such applicant establishes that it 
will not receive a substantial unfair competitive advantage because 
significant legal constraints restrict the applicant's ability to 
access such gross revenues.

[FR Doc. 98-1731 Filed 2-5-98; 8:45 am]
BILLING CODE 6712-01-P