[Federal Register Volume 63, Number 92 (Wednesday, May 13, 1998)]
[Rules and Regulations]
[Pages 26502-26508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-12667]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 101

[CC Docket No. 92-297; FCC 98-77]


Rules and Policies for Local Multipoint Distribution Service and 
for Fixed Satellite Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This action amends the rules to adopt partitioning and 
disaggregation rules for the Local Multipoint Distribution Service 
(LMDS). This action will encourage spectrum efficiency and the more 
rapid deployment of service to the public. The effect of these rules is 
to provide LMDS licensees greater flexibility to respond to marketplace 
demands.

EFFECTIVE DATE: May 28, 1998.

FOR FURTHER INFORMATION CONTACT: Susan Magnotti of the Public Safety 
and Private Wireless Division, Wireless Telecommunications Bureau at 
202-418-0680 or via email at [email protected].

SUPPLEMENTARY INFORMATION:
    1. This is a summary of the Commission's Fourth Report and Order to 
allow partitioning and disaggregation for LMDS spectrum.
    2. On March 11, 1997, the Commission adopted the Second Report and 
Order (Second Report and Order), 62 FR 23148; April 29, 1997, Order on 
Reconsideration, and Fifth Notice of Proposed Rule Making (Fifth NPRM), 
62 FR 16514; April 7, 1997, wherein it established service rules to 
govern licensing of LMDS and competitive bidding rules to select among 
mutually exclusive LMDS applications. The Commission concluded that its 
actions would open the door for new broadband wireless services and 
that LMDS spectrum could be used to provide competition to both local 
exchange carriers (LECs) and cable television systems. It envisioned 
that our LMDS service and licensing rules would foster the future 
growth of this new service and permit LMDS licensees to satisfy a broad 
array of their customer's communications needs. In addition, the 
Commission permitted partitioning and disaggregation by LMDS licensees 
to encourage spectrum efficiency and the more rapid deployment of 
service, and to leave the decision of determining the correct size of 
licenses to the licensees and the marketplace. It concluded that 
allowing partitioning and disaggregation for LMDS spectrum would create 
powerful tools for licensees to concentrate on core areas or to deliver 
services outside of the major market areas. The Commission further 
found that LMDS partitioning and disaggregation would provide 
opportunities for small businesses seeking to enter the multipoint 
video distribution and local telephony marketplaces.
    3. In the Fifth NPRM, the Commission sought comment on specific 
procedural, administrative and operational rules to govern LMDS 
partitioning and disaggregation. It sought comment on how rights and 
obligations of LMDS licensees would be affected if such licensees were 
permitted to avail themselves of the partitioning and disaggregation 
options. It also sought comment on whether there are any technical or 
regulatory constraints unique to the LMDS service that would render any 
aspects of partitioning and disaggregation impractical or 
administratively burdensome. In this connection, the Commission noted 
that it had recently adopted specific procedures for partitioning and 
disaggregation in the broadband Personal Communications Services (PCS) 
and sought comment on whether such procedures would be appropriate for 
LMDS. A total of five comments and five reply comments were received in 
response to the Fifth NPRM.

A. Available License Area

    4. Background. In the Fifth NPRM, the Commission tentatively 
concluded that parties to a LMDS partitioning agreement should be 
afforded flexibility in defining partitioned license areas. It sought 
comment on this tentative conclusion and, in particular, asked whether 
there are any technical or other issues unique to LMDS that would 
dictate a different approach.
    5. Discussion. We conclude that LMDS licensees should have broad 
flexibility in defining partitioned license areas. As we noted in the 
Fifth NPRM, such an approach is consistent with our treatment of 
partitioning in other services, particularly broadband PCS. In 
addition, we believe that allowing LMDS licensees to partition their 
service areas along any boundaries they wish will enhance their ability 
to respond quickly to consumer demands. In this connection, we agree 
with CellularVision USA, Inc. (CellularVision) that such an approach 
will allow LMDS licensees to consider unique geographical or market 
characteristics when designing their business plans. We also are 
concerned that requiring LMDS partitioned areas to be based upon a 
uniform standard, such

[[Page 26503]]

as geopolitical boundaries or county lines, might unnecessarily 
restrict LMDS partitioning opportunities. For example, Hardin predicts 
that LMDS operations will most likely consist of cell sites with a 
small range. In this context, Hardin contends that partitioning based 
upon a minimum standard, such as geopolitical boundaries or county 
lines, would not accommodate small-scale partitioning options which may 
be desirable for LMDS spectrum. We also previously concluded that LMDS 
has the capacity to meet the more circumscribed needs of smaller 
operators and niche markets. We find that permitting partitioning into 
smaller units will further assist small operators to meet their 
business goals and will encourage the development of niche markets and 
innovative service offerings. Thus, we believe that more flexible 
partitioning will better serve the interests of LMDS licensees and the 
public.
    6. As we have in all other contexts in which we have permitted 
partitioning, we will require that parties seeking approval to 
partition an LMDS license submit a description of the partitioned 
service area. The partitioned service area must be defined by 
coordinate points at every 3 degrees along the partitioned service area 
agreed to by both parties, unless either (1) an FCC-recognized service 
area is utilized (i.e., Metropolitan Statistical Area, Rural Service 
Area or Economic Area) or (2) county lines are followed. If the 
partitioned service area includes an FCC-recognized service area or 
county and additional areas, applicants are required to identify the 
FCC-recognized service areas or county and give the aforementioned 
coordinate data for the additional areas. These geographical 
coordinates must be specified in degrees, minutes and seconds to the 
nearest second of latitude and longitude. For areas located in the 
coterminous United States and Alaska the geographical coordinates must 
be based upon the 1983 North American Datum (NAD83). For locations in 
areas such as Hawaii, Puerto Rico, the South Pacific Islands, etc. the 
geographical coordinates must be based upon the World Geodetic System 
of 1984 (WGS84). This coordinate data should be supplied as an 
attachment to the assignment application, but maps need not be 
supplied. In cases where an FCC recognized service area or county lines 
are being utilized, applicants must list the specific area(s) (through 
use of FCC designations) or counties that comprise the partitioned 
area.

B. Disaggregation Standards

    7. Background. In conjunction with the general rule permitting 
disaggregation of LMDS spectrum in the Second R&O, the Commission did 
not propose any restrictions on the amount of spectrum that licensees 
could disaggregate. In the Fifth NPRM, it nonetheless requested comment 
as to whether there should be spectrum limits on disaggregation. The 
Commission asked commenters to indicate any unique characteristics of 
LMDS which would warrant such limitations.
    8. Discussion. We conclude that no minimum or maximum limits should 
be imposed on disaggregation of LMDS spectrum. We agree with 
commenters' arguments that we should establish similar rules in LMDS 
for disaggregation as we established for other wireless services such 
as broadband PCS. We also agree with WebCel that regulatory parity will 
be achieved by adopting a similar disaggregation rule for all wireless 
services. As with partitioning, we believe that permitting market 
forces to determine whether and how much spectrum is disaggregated will 
ensure that LMDS licensees are able to use their spectrum more 
efficiently and to respond quickly to customer demand. In addition, we 
believe that affording LMDS licensees this flexibility will facilitate 
participation by small businesses in the provision of LMDS.
    9. Based on our review of the record, we are not persuaded that 
there should be any restrictions on the amount of spectrum that LMDS 
licensees can disaggregate. We disagree with Texas Instruments' 
argument that LMDS licensees cannot provide competition to LECs and 
cable television operators unless they are required to retain a 
substantial portion of their spectrum. To the contrary, we find that 
requiring LMDS licensees to retain a substantial portion of their 
spectrum could potentially exclude small businesses from entering the 
LMDS marketplace. We believe that such a result would ultimately limit, 
rather than encourage, competition. We also disagree with Texas 
Instruments' contention that LMDS has unique characteristics warranting 
a requirement that a licensee retain a predominant share of its LMDS 
spectrum. Texas Instruments argues that we should follow the example of 
our decision in the direct broadcast satellite (DBS) proceeding. In the 
DBS R&O, 60 FR 65587; December 20, 1995, we required that DBS 
licensees, after 5 years from date of license grant, use a predominant 
share of their authorized spectrum for DBS service. Texas Instruments 
argues that we should adopt a similar requirement for LMDS licensees 
with the majority of LMDS spectrum remaining with the original licensee 
and being used to provide LMDS. We disagree that LMDS licensees should 
be required to retain a certain amount of their spectrum. In the DBS 
R&O, we required licensees to use a portion of their spectrum to 
provide DBS service to ensure that this spectrum is used principally 
for DBS service. We enacted this restriction to ensure the viability of 
the DBS service and to carry out the international allocation of this 
spectrum for DBS use. By contrast, there are no similar unique 
characteristics of LMDS, particularly in light of the fact that LMDS 
licensees can provide a wide array of terrestrial services. The fact 
that licensees have the freedom under our rules to use their spectrum 
for different applications makes it potentially constraining to adopt a 
minimum disaggregation standard. Therefore, we find there is no public 
interest reason to restrict the amount of LMDS spectrum that can be 
disaggregated.

C. Combined Partitioning and Disaggregation

    10. Background. In the Fifth NPRM, the Commission tentatively 
concluded that combined partitioning and disaggregation should be 
permitted to provide LMDS licensees with the additional flexibility 
they need to respond to market forces and service demands. With 
combined partitioning and disaggregation, it contemplated that an 
entity would have the flexibility to obtain a portion of Block A or 
Block B spectrum in only a portion of the original licensee's BTA.
    11. Discussion. We conclude that permitting combined partitioning 
and disaggregation will afford interested parties flexibility to 
provide a variety of service offerings, including those of particular 
interest to niche markets. We believe that this approach will further 
our regulatory goals of facilitating the provision of competitive 
service offerings, encouraging new market entrants, and promoting 
quality service to the public.
    12. While several parties agree that combined partitioning and 
disaggregation should be permitted, WebCel and Alcatel contend that 
such an approach could be problematic. WebCel expresses concern 
regarding the potential administrative burdens associated with 
processing numerous partitioning and disaggregation requests. WebCel 
argues that such an approach would create the potential for a large 
number of applications overwhelming the Commission's processing 
resources and delaying delivery of LMDS service

[[Page 26504]]

to the public. We are unpersuaded by WebCel's speculative concern. We 
note that while this potential also theoretically exists in the other 
wireless services for which we have adopted partitioning and 
disaggregation rules, our experience has shown that we have been able 
to handle the partitioning and disaggregation applications without any 
resulting undue delay in the delivery of new services. In addition, we 
believe that any administrative burden of processing partitioning and 
disaggregation applications will be lessened by implementation of the 
Universal Licensing System (ULS) for wireless services, including LMDS, 
which is already partially on-line accepting electronically-filed 
applications. We expect that the electronic filing and mapping 
capabilities of the ULS will ultimately allow for the expeditious 
processing of LMDS partitioning and disaggregation applications.
    13. Alcatel argues that it is unclear how LMDS licensees are to 
conduct frequency coordination for partitioned and disaggregated 
licenses. Accordingly, Alcatel seeks clarification as to the frequency 
coordination obligations of LMDS partitionees and disaggregatees. We 
clarify that all LMDS licensees, including partitionees and 
disaggregatees, are required to comply with the frequency coordination 
provisions set forth in Sec. 101.103 of the Commission's Rules. We 
adopted this approach in the Second R&O and herin we do not provide an 
exception for partitioning and disaggregation. We further note that the 
identity of neighboring LMDS licensees should be readily available in 
the Commission's database, particularly with the implementation of ULS. 
Thus, we conclude that the concerns expressed by WebCel and Alcatel do 
not present sufficient reasons for not permitting combined partitioning 
and disaggregation.

D. Construction Requirements

    14. Background. LMDS licensees must provide ``substantial service'' 
to their service area within ten years. In the Fifth NPRM, the 
Commission proposed that, for partitioned LMDS licenses, the 
partitionee must certify that it will satisfy the same construction 
requirements as the original licensee. The partitionor and partitionee 
would therefore be required to meet separate substantial service 
requirements for their respective portions of the partitioned service 
area. For disaggregation, the Commission proposed that the parties 
would be required to submit a certification, signed by both the 
disaggregator and disaggregatee, stating whether one or both of the 
parties will retain responsibility for meeting the substantial service 
requirement for the service area. It proposed that, if one party takes 
responsibility for meeting the performance requirement, then actual 
performance by that party would be taken into account in a renewal 
proceeding at the end of the license term, but such performance would 
not affect the status of the other party's license. If the parties 
agreed to share the responsibility for meeting the performance 
requirement, then the performance of each of the parties would be taken 
into account in their respective renewal proceedings.
    15. Discussion Partitioned Licenses. We conclude that the public 
interest would be furthered by adopting an approach analogous to that 
used in other contexts, particularly broadband PCS, rather than 
adopting our proposal for partitioning. In other wireless services, we 
have allowed licensees the flexibility to negotiate which party will be 
responsible for meeting the applicable construction requirements. In 
each of those cases, our goal has been to ensure that licensees had the 
flexibility to structure their business plans while ensuring that 
partitioning not be used as a vehicle to circumvent the applicable 
construction requirements. We have allowed parties to partitioning 
agreements in other wireless services the flexibility to choose between 
two options for satisfying the construction requirements. For example, 
we allow broadband PCS licensees the option of either agreeing to meet 
the construction requirements for their respective portions of the 
partitioned market or for the original licensee to certify that it had 
or would meet the five- and ten-year construction requirements for the 
entire market. We adopted this second option to allow parties the 
flexibility to agree that one party would take responsibility for 
meeting the construction requirement for the entire licensed area. 
Similarly, we believe that parties interested in entering into LMDS 
partitioning arrangements should be afforded the same flexibility. 
Under the first option, the partitionor and partitionee would each 
certify that it will independently satisfy the substantial service 
requirement for its respective partitioned area. If a licensee fails to 
meet its substantial service requirement during the relevant license 
term, the non-performing licensee's authorization would be subject to 
cancellation at the end of the license term. Under the second option, 
the partitionor certifies that it has met or will meet the substantial 
service requirement for the entire market. If the partitionor fails to 
meet the substantial service standard during the relevant license term, 
however, only its license would be subject to cancellation at the end 
of the license term. The partitionee's license would not be affected by 
that failure.
    16. As indicated in the Second R&O, the availability of 
partitioning will promote and facilitate smaller-scale service 
offerings and market niches to develop which would be appropriate for 
smaller operators who could not manage an entire BTA. Our decision to 
offer two options is based on our belief that LMDS licensees may be 
motivated to enter into partitioning arrangements for different reasons 
and under various circumstances. For example, as discussed by DBC, a 
LMDS licensee might be motivated to partition its license in order to 
reduce its construction costs. In that case, the original licensee 
would have less population to cover in order to meet its substantial 
service requirement. Thus, it may find the first option most attractive 
for its purposes. Under another scenario, a LMDS licensee that has met 
or is close to meeting its substantial service requirement may be 
approached by another entity interested in serving a niche market in a 
portion of the service area. Under these circumstances, the second 
option may seem most attractive to the parties. We believe that the 
partitioning rules for LMDS should address both of these scenarios. We 
further believe that in both contexts partitioning cannot be used to 
circumvent the LMDS construction requirements. In any event, we note 
that we will examine each situation on a case-by-case basis when the 
licensees file their renewal applications and will be able to address 
any abuses of the partitioning options in that context.
    17. In addition, pursuant to CellularVision's request, we clarify 
if a partitionor and partitionee elect to meet the substantial service 
for their respective partitioned areas, then we would make an 
independent assessment of the construction efforts of the partitionor 
and partitionee based on the partitioned area, population served, and 
actual service provided. We acknowledge CellularVision's observation 
that the service offering provided by a partitionee might be quite 
different than that provided by the original licensee.
    18. Disaggregated Licenses. As we proposed in the Fourth NPRM, 61 
FR 44177; August 28, 1996, we establish

[[Page 26505]]

two options for disaggregating licensees. This approach is consistent 
with what we have done in other wireless contexts. We believe that it 
would be appropriate for either the disaggregator or the disaggregatee 
to assume full responsibility for construction within the shared 
service area, because service would be offered over the relevant 
population, even if not on the entire spectrum. As DBC points out in 
its comments, supra, we agree that this option could encourage a LMDS 
licensee to make some of its spectrum available to others. Accordingly, 
we will permit two options for meeting the construction requirements by 
disaggregators and disaggregatees. Under the first option, the 
disaggregator and disaggregatee would certify that they each will share 
responsibility for meeting the substantial service requirement for the 
geographic service area. If parties choose this option, both parties' 
performance will be evaluated at the end of the relevant license term 
and both licenses could be subject to cancellation. The second option 
would allow the parties to agree that either the disaggregator or the 
disaggregatee would be responsible for meeting the substantial service 
requirement for the geographic service area. If parties choose this 
option, and the party responsible for meeting the construction 
requirement fails to do so, only the license of the nonperforming party 
would be subject to cancellation.
    19. We continue to believe that these build-out provisions fulfill 
our obligations under Section 309(j)(4)(B). We also believe that the 
auction and service rules which we are adopting for LMDS, together with 
our overall competition and universal service policies, constitute 
effective safeguards and performance requirements for LMDS licensing. 
We believe that service to rural areas will be promoted by our proposal 
to allow partitioning and disaggregation of LMDS spectrum. The options 
established herein are intended to provide the greatest possible 
flexibility to licensees and partitionees while ensuring that rural and 
niche market areas receive LMDS services. Accordingly, we continue to 
reserve the right to impose additional, more stringent construction 
requirements on LMDS licensees in the future in the event of actual 
anticompetitive or rural service problems and if more stringent 
construction requirements can effectively ameliorate those problems.

E. License Term and Renewal Expectancy

    20. Background. LMDS licenses are granted for ten-year terms. In 
addition, an LMDS licensee involved in a comparative renewal proceeding 
may qualify for a renewal expectancy if the licensee demonstrates that 
it has provided substantial service during its license term, and that 
it has substantially complied with the Communications Act and 
applicable Commission rules and policies. In the Fifth NPRM, the 
Commission sought comment on whether our LMDS rules should provide that 
parties obtaining LMDS licenses for partitioned areas or disaggregated 
spectrum hold their license for the remainder of the original 
licensee's ten-year term. It noted that, in the Broadband PCS R&O, 62 
FR 696, January 6, 1997, the Commission found that allowing parties 
acquiring licenses through partitioning and disaggregation to ``re-
start'' the license term from the date of the grant of the assignment 
application could allow parties to circumvent our rules regarding 
license terms and unnecessarily delay service to the public. It also 
sought comment on whether LMDS partitionees and disaggregatees should 
be afforded the same renewal expectancy as other LMDS licensees.
    21. Discussion. We find that LMDS partitionees and disaggregatees 
should hold their licenses for the remainder of the original licensee's 
ten-year term. This approach is supported by the commenters and is 
consistent with our action in other wireless services. We see no reason 
to adopt a different approach for LMDS. As we did with licensees in 
other wireless services, we believe that LMDS licensees would have less 
of an incentive to fully utilize their available spectrum if they were 
permitted to wait until the end of their license term to partition a 
portion of their market or disaggregate a portion of their spectrum to 
another entity that would receive a full ten year license term. By 
limiting the license term for LMDS partitionees and disaggregatees, we 
believe that there will be maximum incentive for parties to quickly 
utilize their spectrum and expedite the delivery of LMDS services to 
the public.
    22. In addition, we will permit partitionees and disaggregatees to 
obtain a renewal expectancy on the same basis as other licensees. All 
licensees meeting the substantial service requirement will be deemed to 
have met this facet of the renewal expectancy requirement regardless of 
which of the construction options the licensees chose. CellularVision 
asks that we clarify whether LMDS partitionees and disaggregatees may 
seek a renewal expectancy that is based upon their reduced license 
period. CellularVision maintains that it would be inequitable, for 
example, to require a LMDS partitionee with a three-year initial 
license term to meet the same level of substantial service to obtain a 
renewal expectancy as the original licensee. We decline to recognize a 
``scaled-down'' substantial service construction requirement for 
partitionees and disaggregatees. Rather, we believe that parties 
interested in availing themselves of the partitioning and/or 
disaggregation opportunities should factor in their ability to meet the 
substantial service requirement when determining the timing of such 
transactions. We believe that the provisions we have made for 
construction options for partitioned and disaggregated licenses provide 
appropriate flexibility, while ensuring that a reasonable standard of 
service will be provided to the public and that licensees will not be 
able to bypass our construction requirements. Moreover, we will address 
each situation on a case-by-case basis taking into account the amount 
of time the licensee has had to employ its service along with other 
factors.

F. Competitive Bidding Issues

    23. Background. When the Commission adopted the Fifth NPRM, the 
competitive bidding rules for LMDS included installment payments and 
bidding credits for qualified entities. It also adopted rules to 
prevent unjust enrichment by such entities that seek to transfer 
licenses obtained through use of these special provisions to an entity 
that would not have qualified for them. Subsequent to our adoption of 
the Fifth NPRM, the Commission eliminated installment payments for 
LMDS. Therefore, the proposals in the Fifth NPRM concerning whether 
partitionees and disaggregatees should be able to qualify for 
installment payments and how to apportion the remaining government 
obligation between the parties are now moot.1 We note, 
however, that three levels of bidding credits are available to LMDS 
applicants. In the Fifth NPRM, the Commission sought comment on how to 
calculate unjust enrichment payments for LMDS licensees that are 
awarded bidding credits and subsequently partition or disaggregate to a 
larger business. It asked commenters to address whether the unjust 
enrichment payments should be calculated on a proportional basis, using 
population of the partitioned area and amount of

[[Page 26506]]

spectrum disaggregated as the objective measures.
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    \1\ We therefore do not need to consider the alternative 
proposals set forth by CellularVision and DBC concerning the 
handling of installment payments with respect to LMDS partitioning 
and disaggregation. See CellularVision Comments at 11-13; DBC Reply 
Comments at 5-6.
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    24. Discussion. We recently adopted a provision in Part 1 of the 
Commission's Rules for all auctionable services that follows the 
approach set forth in the Fifth NPRM for calculating unjust enrichment 
payments in the context of partitioning and disaggregation. Thus, we 
will follow the uniform procedure set forth in Part 1 of our Rules and 
calculate unjust enrichment based on population for partitioned areas 
and on the amount of spectrum for disaggregated spectrum. We note that 
population will be calculated based upon the latest available census 
data. We have consistently adopted this approach for other wireless 
services, and we agree with WebCel that this approach provides an 
objective means of calculating unjust enrichment payments in the 
context of partitioning and disaggregation. For purposes of applying 
our unjust enrichment requirements when a combined partitioning and 
disaggregation is proposed, we will use a combination of both 
population of the partitioned area and amount of spectrum disaggregated 
to make these pro rata calculations.

G. Licensing

    25. Background. Because partitioning and disaggregation involves 
the assignment of a portion of a licensee's service area or spectrum to 
another entity, in the Fifth NPRM the Commission proposed to treat the 
partitioning and disaggregation of LMDS licenses as assignments 
requiring its prior approval. It proposed to follow the existing 
assignment procedures set forth in Part 101 of our rules for purposes 
of reviewing LMDS partitioning and disaggregation transactions.
    26. Discussion. We adopt the procedures set forth in our Fifth NPRM 
for review and approval of LMDS partitioning and disaggregation 
transactions. We agree with CellularVision that all LMDS partitioning 
and disaggregation agreements should be subject to our formal 
assignment process. We decline to adopt WebCel's proposal that we 
permit parties to enter into agreements to partition and disaggregate 
without prior Commission approval so long as notification is given to 
the Commission by the original LMDS licensee upon consummation of the 
transaction. Under WebCel's proposal, the original licensee would 
retain an ownership interest in the license and would continue to be 
responsible for compliance with the Commission's rules, maintaining 
records as to the spectrum allocated and geographic areas served by the 
different parties, and engaging in frequency coordination among all 
LMDS license holders within its BTA. WebCel states that this model 
would operate like a ``landlord-tenant-subtenant'' relationship. By 
contrast, we consider partitioning and disaggregation transactions to 
be partial assignments of license, for which Commission review and 
approval is necessary under Section 310(d) of the Communications 
Act.2 Although arrangements such as that proposed by WebCel 
might be permissible, we note that the Commission requires that the 
licensee remain in control of its license, and for this determination, 
the Commission relies on the test announced in Intermountain Microwave. 
As a result, any arrangement that would result in a licensee losing 
control of its license pursuant to the Intermountain Microwave indicia 
would be inconsistent with our requirements for licensee 
responsibility.
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    \2\ 47 U.S.C. 310(d). We note that we recently determined that 
we would forbear from applying our procedures for reviewing pro 
forma transfers of control and assignments of license involving 
wireless telecommunications carriers and we decided to allow these 
carriers to simply notify the Commission after the pro forma 
transaction has been consummated. See Federal Communications Bar 
Association's Petition for Forbearance from Section 310(d) of the 
Communications Act Regarding Non-Substantial Assignments of Wireless 
Licenses and Transfers of Control Involving Telecommunications 
Carriers, Memorandum Opinion and Order, FCC 98-18 (February 4, 
1998). However, partitioning and disaggregation transactions are not 
pro forma in nature and, therefore, the rationale we followed in 
that proceeding would not apply here.
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    27. WebCel's proposal also does not offer procedures for reviewing 
transactions where licensees desire to assign a portion of their market 
or spectrum outright to another entity and do not wish to hold the 
assigned portion. We thus believe that adoption of Webcel's approach 
would run counter to our goal of providing LMDS licensees with 
flexibility to structure partitioning and disaggregation transactions 
to meet their specific business plans. We conclude that WebCel's 
proposed model is not an appropriate construct for characterizing 
partitioning and disaggregation transactions. For these reasons, we 
will not adopt the alternative proposal suggested by WebCel. The 
procedures we adopt herein correspond to the procedures we have adopted 
for reviewing partitioning and disaggregation transactions in other 
wireless services. We find that adoption of similar partitioning and 
disaggregation procedures for all wireless services will provide 
regulatory parity, will permit our processing staff to develop common 
forms and procedures for reviewing all partitioning and disaggregation 
applications, and will streamline and expedite the review of such 
applications.
    28. We will require that parties seeking approval for an LMDS 
partitioning or disaggregation transaction follow the existing 
assignment procedures set forth in Part 101 of our Rules. Such 
applications will be placed on Public Notice and will be subject to 
petitions to deny. The LMDS licensee will be required to file an FCC 
Form 702 that is signed by both the licensee and the partitionee or 
disaggregatee. The partitionee or disaggregatee will also be required 
to file an FCC Form 430 to demonstrate its qualifications, unless a 
current FCC Form 430 is already on file with the Commission.

H. Other Matters

    29. Background. In our Second R&O, we determined that two LMDS 
licenses, one for 1150 MHz and one for 150 MHz, would be awarded for 
each Basic Trading Area (BTA) and adopted an eligibility restriction 
that prohibits incumbent LECs and incumbent cable companies from 
obtaining an attributable interest in in-region 1,150 MHz LMDS licenses 
for three years. We stated, however, that incumbent LECs and incumbent 
cable companies could obtain LMDS licenses at auction and use 
partitioning as a means to divest an overlapping portion of the BTA to 
comply with the eligibility restrictions. In its comments, WebCel 
argues that the Commission should reconsider this action and should not 
permit incumbent LECs and cable companies to use partitioning as a 
means of curing eligibility problems.
    30. Discussion. We decided the issue of whether we should permit 
incumbent LECs and cable companies to use partitioning to come into 
compliance with the eligibility restrictions in our Second R&O. The 
purpose of our Fifth NPRM was not to revisit this issue but to decide 
the mechanics of implementing partitioning and disaggregation for LMDS. 
Therefore, we find that, while they were styled as ``Comments,'' a 
portion of WebCel's pleading is actually an untimely-filed petition for 
reconsideration of the eligibility rules from our Second R&O. We agree 
with Bell Atlantic, RTG and Sprint that this portion of WebCel's 
Comments should not be considered in this phase of the proceeding. In 
this connection, we addressed WebCel's arguments in the Third Order on 
Reconsideration in this proceeding and affirmed the divestiture 
provision.

[[Page 26507]]

    31. We conclude that the rules we adopt herein will provide LMDS 
licensees with the flexibility to structure partitioning and 
disaggregation agreements which meet their business needs. We have 
followed the general framework for partitioning and disaggregation that 
we have previously adopted for other wireless services in an effort to 
create regulatory parity among all licensees. As with the other service 
and licensing rules we have adopted for LMDS, we believe that this 
action will result in more efficient use of spectrum, will increase 
opportunities for small businesses and other entities to enter the LMDS 
marketplace, and will speed service to unserved areas.

I. PROCEDURAL MATTERS

A. Regulatory Flexibility Act

    32. The Final Regulatory Flexibility Analysis pursuant to the 
Regulatory Flexibility Act, 5 U.S.C. 604, is contained in the 
attachment.

B. Ordering Clauses

    33. Accordingly, it is ordered that, pursuant to the authority of 
Sections 4(i), 303(g), 303(r), and 332(a) of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 303(g), 303(r), and 332(a), 
Sec. 101.1111 of the Commission's Rules, 47 CFR 101.1111, is amended as 
set forth in the rule changes attachment.
    34. It is further ordered that the rule change adopted herein shall 
become effective July 13, 1998. This action is taken pursuant to 
Sections 4(i) and 303(r) of the Communications Act of 1934, as amended, 
47 U.S.C. 154(i) and 303(r).
    35. It is further ordered that the Director, Office of Public 
Affairs, shall send a copy of this Fourth Report and Order, including 
the Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration, in accordance with 
Section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601(a).

List of Subjects in 47 CFR Part 101

    Communications equipment, Radio.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Part 101 of title 47 of the Code of Federal Regulations is amended 
as follows:

PART 101--FIXED MICROWAVE SERVICES

    1. The authority citation for part 101 continues to read as 
follows:

    Authority: 47 U.S.C. 154, 303.

    2. Section 101.1111 is revised to read as follows:


Sec. 101.1111  Partitioning and disaggregation.

    (a) Definitions.--Disaggregation. The assignment of discrete 
portions or ``blocks'' of spectrum licensed to a geographic licensee or 
qualifying entity.
    Partitioning. The assignment of geographic portions of a licensee's 
authorized service area along geopolitical or other boundaries.
    (b) Eligibility. (1) Parties seeking approval for partitioning and 
disaggregation shall request an authorization for partial assignment of 
a license pursuant to Sec. 101.53. Parties shall submit the forms set 
forth in Sec. 101.15(e).
    (2) Licensees may apply to partition their licensed geographic 
service area or disaggregate their licensed spectrum at any time 
following the grant of their licenses.
    (c) Technical Standards.--(1) Partitioning. In the case of 
partitioning, requests for authorization for partial assignment of a 
license must include, as an attachment, a description of the 
partitioned service area. The partitioned service area shall be defined 
by coordinate points at every 3 degrees along the partitioned service 
area unless an FCC recognized service area is utilized (i.e., Major 
Trading Area, Basic Trading Area, Metropolitan Service Area, Rural 
Service Area or Economic Area) or county lines are followed. The 
geographic coordinates must be specified in degrees, minutes, and 
seconds to the nearest second of latitude and longitude and must be 
based upon the 1983 North American Datum (NAD83). 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. In such 
partitioning cases where an unjust enrichment payment is owed the 
Commission, the request for authorization for partial assignment of a 
license must include, as an attachment, a calculation of the population 
of the partitioned service area and the licensed geographic service 
area.
    (2) Disaggregation. Spectrum may be disaggregated in any amount.
    (3) Combined Partitioning and Disaggregation. The Commission will 
consider requests for partial assignment of licenses that propose 
combinations of partitioning and disaggregation.
    (d) License Term. The license term for a partitioned license area 
and for disaggregated spectrum shall be the remainder of the original 
licensee's license term as provided for in Sec. 101.67 of this chapter.
    (e) Construction Requirements. Applications requesting approval for 
partitioning or disaggregation must include a certification by each 
party that it will satisfy the construction requirement set forth in 
Sec. 101.1011 of this chapter. Failure by a party to meet its 
respective construction requirement will result in the automatic 
cancellation of its license without further Commission action.

    Note: The following attachment will not appear in the Code of 
Federal Regulations.

Attachment--Final Regulatory Flexibility Analysis

    As required by Section 603 of the Regulatory Flexibility Act 
(RFA), 5 U.S.C. 603, an Initial Regulatory Flexibility Analysis 
(IRFA) was incorporated in the Fifth Notice of Proposed Rule Making 
(Fifth NPRM) in CC Docket No. 92-297. The Commission sought written 
public comment on the proposals in the Fifth NPRM, including the 
IRFA. The Commission's Final Regulatory Flexibility Analysis in this 
Fourth Report and Order (Fourth R&O) conforms to the RFA, as amended 
by the Contract With America Advancement Act of 1996.

A. Need for and Purpose of This Action

    In the Fourth R&O, the Commission modifies the Local Multipoint 
Distribution Service (LMDS) rules to permit partitioning and 
disaggregation for all licensees. With more open partitioning and 
disaggregation, additional entities, including small businesses, may 
participate in the provision LMDS without needing to acquire 
wholesale an existing license (with all of the bundle of rights 
currently associated with the existing license). Acquiring ``less'' 
than the current license will presumably be a more flexible and less 
expensive alternative for entities desiring to enter these services.

B. Summary of Issues Raised in Response to the Initial Regulatory 
Flexibility Analysis

    None of the commenters submitted comments that were specifically 
in response to the IRFA.

C. Description and Number of Small Entities Involved

    The rules adopted in the Fourth R&O will affect all small 
businesses which avail themselves of these rule changes, including 
small businesses that will obtain LMDS licenses through auction and 
subsequently decide to partition or disaggregate, and small 
businesses who may acquire licenses through partitioning and/or 
disaggregation.
    The Commission has not developed a definition of small entities 
applicable to LMDS. In the Second Order on Reconsideration, the 
Commission adopted criteria for defining small businesses for 
purposes of determining eligibility for special provisions such as 
bidding credits. The Commission has adopted a three-tier definition 
of small businesses: businesses with gross annual revenues of not 
more than

[[Page 26508]]

$15 million, businesses with gross annual revenues of more than $15 
million but not more than $40 million and businesses with gross 
revenues of more than $40 million but not more than $75 million. We 
will use these definitions for estimating the potential number of 
entities choosing to partition or disaggregate or who may acquire 
licenses through partitioning and disaggregation that are small 
businesses.
    It is not possible to predict how many LMDS licensees meeting 
one of the above definitions will be successful at auction and 
subsequently decide to partition or disaggregate. The Commission 
plans to issue 2 licenses each for 493 Basic Trading Areas (BTAs). 
Thus, 986 licenses will be made available for authorization. It is 
expected that a significant number of successful bidders in the LMDS 
auction will satisfy one of the above definitions. There is only one 
company, CellularVision USA, Inc. (CellularVision), that is 
currently providing LMDS video services. Although the Commission 
does not collect data on annual receipts, it is assumed that 
CellularVision is a small business under all of the above outlined 
definitions. Similarly, it is not possible to determine how many of 
those entities obtaining licenses through partitioning and 
disaggregation will meet one of the above definitions. However, it 
is expected that many entities meeting one of the above definitions 
will use partitioning and disaggregation as a means to obtain LMDS 
licenses at lower costs.

D. Summary of Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    The rules adopted in the Fourth R&O will impose reporting and 
recordkeeping requirements on small businesses seeking licenses 
through partitioning and disaggregation. The information 
requirements will be used to determine whether the licensee is a 
qualifying entity to obtain a partitioned license or disaggregated 
spectrum. This information will be given in a one-time filing by any 
applicant requesting such a license. The information will be 
submitted on the FCC Form 702 which is currently in use and has 
already received Office of Management and Budget clearance. The 
Commission estimates that the average burden on the applicant is 
three hours for the information necessary to complete these forms. 
The Commission estimates that 75 percent of the respondents (which 
may include small businesses) will contract out the burden of 
responding. The Commission estimates that it will take approximately 
30 minutes to coordinate information with those contractors. The 
remaining 25 percent of respondents (which may include small 
businesses) are estimated to employ in-house staff to provide the 
information.

E. Steps Taken To Minimize Burdens on Small Entities

    The rules adopted in the Fourth R&O are designed to implement 
Congress' goal of giving small businesses, as well as other 
entities, the opportunity to participate in the provision of 
spectrum-based services and are consistent with the Communications 
Act's mandate to identify and eliminate market entry barriers for 
entrepreneurs and small businesses in the provision and ownership of 
telecommunications services.
    Allowing non-restricted partitioning and disaggregation will 
facilitate market entry by parties who may lack the financial 
resources for participation in auctions, including small businesses. 
Some small businesses may have been unable to obtain LMDS licensees 
through auction due to high bidding. By allowing open partitioning 
and disaggregation, small businesses will be able to obtain licenses 
for smaller service areas and smaller amounts of spectrum at 
presumably reduced costs, thereby providing a method for small 
businesses to enter the LMDS marketplace.
    Allowing geographic partitioning of LMDS licenses by service 
areas defined by the parties will provide an opportunity for small 
businesses to obtain partitioned LMDS license areas designed to 
serve smaller, niche markets. This will permit small businesses to 
enter the LMDS marketplace by reducing the overall cost of acquiring 
a partitioned LMDS license.
    Allowing disaggregation of spectrum in any amount will also 
promote participation by small businesses who may seek to acquire a 
smaller amount of LMDS spectrum tailored to meet the needs of their 
proposed service.

F. Significant Alternatives Considered and Rejected

    The Commission considered and rejected the following alternative 
proposals concerning LMDS partitioning and disaggregation.
    The Commission rejected a plan set forth by WebCel 
Communications, Inc. (WebCel). Instead of requiring all partitioning 
and disaggregation transactions to comply with our existing 
assignment procedures, WebCel suggested that the Commission permit 
parties to enter into agreements to partition and disaggregate 
without prior Commission approval so long as notification is given 
to the Commission by the original LMDS licensee. The Commission 
considers partitioning and disaggregation transactions to be 
essentially partial assignments of license, and Commission review 
and approval is necessary to ensure compliance with its rules. Thus, 
the Commission concluded that WebCel's proposed model is not an 
appropriate construct for characterizing partitioning and 
disaggregation transactions.
    Finally, the Commission rejected a suggestion by CellularVision 
that LMDS partitionees and disaggregatees should be allowed to 
qualify for a renewal expectancy which is based upon their reduced 
license period. The Commission found that this approach would 
contradict its construction requirements for LMDS partitionees and 
disaggregatees which require these entities to meet a separate 
substantial service requirement by the end of their license term. 
Partitionees and disaggregatees are not permitted to meet a scaled-
down substantial service construction requirement simply because of 
the fact that they had a license term of less than ten years. The 
Commission found that, by requiring LMDS partitionees and 
disaggregatees to meet the same substantial service requirement for 
renewal expectancy as all other licensees, LMDS licensees will be 
encouraged to quickly develop their markets and fully utilize their 
available spectrum.

G. Report to Congress

    The Commission shall include a copy of this Final Regulatory 
Flexibility Analysis, along with this Fourth R&O, in a report to be 
sent to Congress pursuant to the Small Business Regulatory 
Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A).

[FR Doc. 98-12667 Filed 5-8-98; 5:08 pm]
BILLING CODE 6712-01-U