[Federal Register Volume 63, Number 166 (Thursday, August 27, 1998)]
[Rules and Regulations]
[Pages 45751-45755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22946]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[FCC 95-211]


800 MHz SMR Licensees

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) addresses petitions for waiver which establishes the 
maximum period for Specialized Mobile Radio (SMR) licensees to 
construct their facilities and commence operation. The document grants 
certain licensees an additional four months to construct and commence 
operations of their licenses. The Commission partially granted the 
waiver petitions because during the pendency of the waiver petitions, 
it had changed the construction period for all new Commercial Mobile 
Radio Service (CMRS) licenses, including conventional SMR licenses, 
from eight months to twelve months. Thus, the basis for granting the 
additional four months to these licensees was to place them in the same 
posture as CMRS providers licenses after January 2, 1995, when the new 
rule took effect.

DATES: Licensees have four months from August 27, 1998 to construct and 
commence operation of their licenses.

FOR FURTHER INFORMATION CONTACT: Terry Fishel at (717) 338-2602 or 
Ramona Melson or David Judelsohn at (202) 418-7240.

SUPPLEMENTARY INFORMATION:
    1. This order addresses petitions for waiver of Section 90.633(c) 
of the Commission's Rules, which establishes the maximum period for 
Specialized Mobile Radio (SMR) licensees to construct their facilities 
and commence operation. The petitions were filed on March 15, 1994 and 
March 21, 1994, respectively, by Dr. Robert Chan and Daniel R. Goodman. 
On April 6, 1994, the Private Radio Bureau released a Public Notice 59 
FR 17547 (April 13, 1994) seeking comments on the Goodman and Chan 
petitions. Based on the facts set forth in the petitions and the 
comments filed in this matter, we conclude that the waivers requested 
by Chan and Goodman should be granted to the extent described below.
    2. The Goodman and Chan petitions are brought by or on behalf of 
approximately 4,000 individuals who have obtained 800 MHz conventional 
SMR licenses on General Category channels by using the services of one 
of

[[Page 45752]]

several companies that are the subject of an enforcement action brought 
by the Federal Trade Commission. These companies have used TV 
infomercials and telemarketing solicitations to promote SMR licenses as 
``investment opportunities'' for individuals. The typical service 
offered by these companies is to prepare SMR applications for a 
substantial fee (usually $7000 per application). The companies 
typically induce potential customers to purchase these services by 
representing that SMR licenses have great value that can be recouped 
through subsequent resale of these licenses, but do not emphasize the 
obligations to which each licensee is subject.
    3. The Commission has taken steps to protect the public against 
deception and misinformation. In December 1992, the Commission issued a 
public ``Consumer Alert'' regarding SMR licensing. Among other things, 
the alert stated that SMR licenses could be obtained directly from the 
FCC for a $35 fee, that licensees would be required to construct 
facilities within eight months or lose their licenses, and that 
licenses could not be sold or transferred prior to construction. The 
Commission also developed a consumer information packet, which is sent 
to individuals who contact the Commission after being solicited by SMR 
application companies. The Commission also assisted the Federal Trade 
Commission (FTC) in preparing a consumer information pamphlet issued in 
January 1994.
    4. The Commission has actively cooperated with the Federal Bureau 
of Investigation, the FTC and the Securities Exchange Commission in 
investigations of SMR application companies. In January 1994, one such 
investigation culminated in a lawsuit brought by the FTC in U.S. 
District Court against four companies, Metropolitan Communications 
Corp., Nationwide Digital Data Corp., Columbia Communications Services 
Corp., and Stephens Sinclair Ltd. (the ``Receivership Companies''). In 
its complaint, the FTC alleged that approximately 4,000 individuals who 
were assisted by the Receivership Companies in obtaining licenses for 
conventional SMR channels were defrauded and misled as to the FCC rules 
by the sales practices of these companies. The first phase of the 
scheme involved selling consumers application preparation services for 
FCC licenses at excessive cost. In the second phase of the scheme, 
certain defendants used misrepresentations to solicit the purchase of 
shares in partnerships that would purportedly construct and operate SMR 
systems in various cities. On January 14, 1994, the court issued a 
preliminary injunction freezing the assets of the Receivership 
Companies and their principal officers and appointed Daniel R. Goodman 
as Receiver of the Receivership Companies.
    5. Waiver Requests. On March 15, 1994, Dr. Robert Chan filed a 
petition for waiver on his own behalf as licensee of five SMR stations 
acquired through two of the Receivership Companies. Dr. Chan requested 
an additional year in which to build and place his facilities in 
operation. On March 21, 1994, Daniel Goodman, the court-appointed 
Receiver, filed a petition for waiver on behalf of all SMR licensees 
who have received licenses through the Receivership Companies. Noting 
that virtually no construction had taken place under these licenses and 
that automatic license cancellation was imminent, Goodman requested an 
eight month extension of time for all such licensees to construct and 
commence operations, starting from the petition grant date. Goodman 
also requested a 120-day emergency stay of all automatic cancellations 
of licenses during the pendency of the petition. Goodman indicated that 
its request for waiver was limited to the Commission's eight month 
construction deadline, and no request was made to waive any of the 
other requirements that apply to General Category channels.
    6. On April 21, 1994, Goodman filed a supplement to his initial 
waiver request asking that we waive the Commission's requirement of a 
separate waiver fee for each individual license covered by the 
petition. On April 29, 1994, Goodman filed another supplement 
requesting that the Commission (1) issue a stay (retroactively 
effective January 14, 1994) of any cancellation of the exclusive SMR 
authorizations during the pendency of the waiver request; (2) suspend 
the mailing of automatic cancellation notices to affected licensees; 
and, (3) if the request for waiver is denied, grant the licensees a 
120-day period from the date of such denial in which to construct their 
facilities. In this supplemental request, Goodman stated that 
petitioners needed ``an additional eight month period to construct and 
load their licensed facilities,'' indicating that compliance with the 
Commission's mobile loading requirements for the General Category 
channels was contemplated.
    7. Public Notice and Comments on Petitions. On April 6, 1994, the 
Private Radio Bureau issued a Public Notice seeking comments and 
replies on the Goodman and Chan petitions. Approximately 300 comments 
and five replies were received. Many comments in support of the Goodman 
petition were submitted by individual licensees who received their 
licenses through the services of the Receivership Companies. In 
addition, the FTC has submitted a letter to the Commission supporting 
the Goodman petition. Oppositions to the waiver requests have been 
filed by major SMR operators, frequency coordinators, and trade 
associations, including Nextel Communications, Inc., the American 
Mobile Telecommunications Association, the Association of Public-Safety 
Communications Officials-International, National Association of 
Business and Educational Radio, American Digital Communications, the 
Industrial Telecommunications Association and Council of Independent 
Communication Suppliers, Express Communications, TC3M, Inc., and Brown 
and Schwaninger.

A. Receiver's Standing as Party in Interest

    8. Background and Comments. As a threshold issue, several 
commenters argue that Goodman lacks standing to bring a waiver petition 
on behalf of multiple SMR licensees. These commenters note the apparent 
lack of an express agreement between the licensees (individually or as 
a group) and the Receiver for the latter to represent them. In 
addition, commenters assert that Goodman's status as Receiver is 
insufficient to make him a real-party-in-interest with respect to the 
licenses at issue. The Receiver's duty is to receive monies due and 
owing to the Receivership Companies so that these funds can be used to 
satisfy the debts of these companies and their creditors. Because any 
monies received from the sale of the licenses would go directly to the 
licensees and not to the Receivership Companies, commenters argue, the 
Receiver has no interest that would be affected by the request.
    9. In reply, Goodman argues that he is the proper entity to submit 
waiver requests on behalf of all the licensees. First, Goodman argues 
that he should be recognized as having standing for reasons of 
administrative convenience because requiring each licensee to file an 
individual waiver petition would be unduly burdensome. Goodman also 
contends that because many of the licensees entered into management 
agreements with the Receivership Companies, the licensees depend on the 
Receiver to take whatever actions are necessary to preserve the 
validity of their authorizations. Finally, Goodman

[[Page 45753]]

alleges that no licensee has objected to the Receiver's filing of a 
petition on behalf of all licensees.
    10. Decision. We conclude on grounds of administrative convenience 
that Goodman should be deemed to have standing to file the instant 
petition. Although this case involves multiple licenses, weighing the 
merits of the waiver request for each licensee involves evaluating a 
common fact situation rather than a diverse set of facts for each 
licensee. Because the request for waiver for all of the licensees is 
based on common facts, it would be a waste of time and resources to 
require each licensee to file individually. There is also no evidence 
that any licensee has objected to the Receiver filing the waiver 
petition on his or her behalf. For purposes of the Goodman petition, 
therefore, we believe that it is in the public interest to consider the 
Receiver as representing the interests of all licensees whose interests 
are affected by the FTC's action against the Receivership Companies.

B. Waiver of Application Fees

    11. Petition. Section 1.1102 of the Commission's Rules requires 
waiver petitions to be accompanied by a $105 fee for each rule section 
that the petitioner seeks to waive multiplied by the number of stations 
to which the petition applies. Although the Goodman petition was filed 
on behalf of multiple licensees, Goodman has submitted only a single 
$105 waiver petition fee instead of a separate fee for each affected 
license. The Chan petition was not accompanied by any fee payment. 
Goodman has requested that the Commission waive the requirement of a 
separate fee for each license and accept the single payment as 
sufficient. Goodman argues that the public interest warrants waiving 
the fee requirement because the purpose of the underlying waiver 
petition is to allay potential financial hardship to defrauded 
licensees and a fee waiver would avoid a further depletion of the 
licensees' funds.
    12. Comments. The Public Notice did not solicit comment on the 
Receiver's request for waiver of fees because it was filed subsequent 
to the release of the Public Notice. Nevertheless, a few comments on 
the issue of waiving filing fees were submitted. Express Communications 
in particular opposes waiving the fee requirement on the grounds that 
there is no provision in the rules to lump multiple requests together 
for a single fee.
    13. Decision. Section 1.1115(a) of the Commission's rules permits 
the waiver of fees where good cause is shown and where waiver would 
promote the public interest. If we were to require a separate fee for 
each licensee that is covered by the Goodman petition, the total fees 
due (based on 4,000 licensees) would total $420,000. We believe that 
waiving this fee amount is in the public interest. The Goodman petition 
was filed in an attempt to limit the financial harm caused to licensees 
by the alleged fraudulent conduct of the Receivership Companies. The 
petition also raises substantive issues that we believe should be 
decided on the merits. We therefore conclude that good cause exists to 
waive the filing fee requirement. For the same reasons, we also waive 
the fee requirement with respect to the Chan petition on our own 
motion.

C. Waiver of Construction and Operation Deadline

    14. Petition. In support of his waiver petition, Goodman contends 
that the individuals who obtained licenses through the Receivership 
Companies are threatened with an aggregate loss of $28,000,000 
(calculated based on 4,000 licenses times the $7,000 application fee 
paid by each licensee) if their licenses are allowed to expire. Goodman 
states that neither the licensees nor the Receiver have the financial 
or technical resources to construct SMR facilities pursuant to their 
authorizations within the required eight-month period. Goodman states 
that he is in the process of negotiating and finalizing the sale and 
assignment of thousands of these licenses to large, legitimate, 
publicly-traded SMR companies. Because Commission rules do not allow 
the assignment or transfer of unconstructed SMR licenses, however, 
Goodman requests that the licensees be given additional time to 
construct so that they can then sell the stations and potentially 
recoup their investment. Without such an extension, Goodman contends, 
the number of licenses that may be transferred will be substantially 
diminished. The Receiver contends that if the licensees are granted 
additional time to construct, they will be able to place in operation 
and load their channels as required by our rules.
    15. The Receiver acknowledges that many of the licensees on whose 
behalf the waiver is sought were unaware of their obligations under the 
Commission's Rules, including the intention to construct and operate 
and the eight month construction requirement. Goodman contends that 
their lack of knowledge should be excused, however, on the grounds that 
the licensees were defrauded by the Receivership Companies concerning 
their responsibilities as licensees. Goodman also notes that the 
Commission has granted extended construction periods for licensees of 
wide-area, multi-site SMR systems and urges us to treat the individual 
licensees in this case as similarly entitled to extended construction 
authority on a collective basis. Finally, Goodman argues that a waiver 
grant would not compromise efficient use of spectrum or otherwise be 
contrary to the public interest. If additional time for construction is 
allowed, he argues, the systems can be constructed and the Commission's 
policies fulfilled with only a brief delay.
    16. The Chan petition raises essentially the same issues as the 
Goodman petition with respect to the five SMR licenses held by Dr. 
Chan. Dr. Chan states that he acquired licenses through two of the 
Receivership Companies and that one of the companies, Nationwide 
Digital, had undertaken to construct and operate Dr. Chan's SMR 
facilities. Because Nationwide does not have the capability to 
construct the stations in time, Dr. Chan requests a one-year extension 
so that he can employ other business entities to construct and operate 
his SMR stations.
    17. Comments. The FTC supports the Goodman petition on the grounds 
that an extension of the construction and operation deadline would help 
to alleviate the financial injury suffered by the 4,000 licensees. 
Licensees would directly benefit by a rule waiver, the FTC contends, 
because it would give the Receiver adequate time to negotiate 
arrangements with legitimate SMR operators to manage and/or construct 
the stations. The FTC further argues that these arrangements would 
indirectly benefit other investors who have been defrauded by the 
Receivership Companies because reducing the licensees' damages will 
preserve the assets of the Receivership Companies as a source of 
redress for other claims.
    18. Many individual licensees have submitted comments in support of 
the Goodman petition. These commenters echo Goodman's argument that an 
extension of time is necessary to allow construction of their SMR 
stations because of the delay engendered by the Receivership Companies' 
fraudulent scheme.
    19. Petition opponents argue that extending the construction and 
operation deadline is an inappropriate remedy for licensees who made 
speculative and ill-advised investments. The purpose of the waiver 
request, opponents contend, is not to promote development of SMR 
service, but to

[[Page 45754]]

protect the interests of a group of licensees who hope to make a profit 
from selling their licenses to established operators. Opponents assert 
that the Commission cannot act as the guarantor of the public's 
investment decisions. Opponents also argue that licensees are charged 
with knowing and fulfilling the responsibilities of holding a license. 
If these licensees were in fact victims of fraud, opponents argue, they 
have legal remedies other than an extension of the construction and 
operation deadline. Opponents assert that the Commission would better 
serve the public interest by allowing these licenses to lapse so that 
the Commission can relicense these frequencies directly to legitimate 
operators.
    20. Decision. To obtain a waiver of our construction requirements, 
petitioners must demonstrate that their circumstances are unique, that 
there is no reasonable alternative solution within existing rules, and 
that good cause exists to justify the requested relief. The thrust of 
petitioners' argument is that they should be excused from the eight-
month construction requirement because they were the victims of fraud 
by the Receivership Companies. As discussed more fully below, we will 
waive our rules to the extent necessary to put petitioners in the same 
posture as other part 90 CMRS providers now subject to a twelve-month 
construction period under our rules. Specifically, we will grant 
petitioners a four-month extension from the effective date of this 
Memorandum Opinion and Order to construct and commence operations. A 
four-month extension augments petitioners' original eight-month 
construction period to the degree necessary to give them the twelve 
months to build their systems that we allowed for all Part 90 CMRS 
licensees in the Third Report and Order in General Docket No. 93-252. 
We emphasize, however, that all other requirements in our rules 
continue to apply. In particular, as licensees on General Category 
channels, petitioners do not earn exclusive use of their channels 
unless they have achieved loading of 70 mobiles per channel. To the 
extent that petitioners have less than 70 mobiles operating on each of 
their channels, additional licensees may be licensed to use those 
channels. We believe our decision to grant petitioners limited relief 
in this manner in no way undermines our commitment to strict 
enforcement of our construction rules, which are intended to promote 
efficient use of SMR spectrum and the availability of service to the 
public.
    21. Since the inception of the SMR service, our rules have required 
licensees to comply with strict time limits for constructing and 
loading their systems. These limits were viewed as essential to 
ensuring that SMR spectrum would be used efficiently, and to promote 
the rapid deployment of services to the public. We have enforced these 
rules strictly in order to recover unused spectrum for relicensing. We 
have particularly noted the importance of enforcing our construction 
requirements with respect to the General Category channels, on which 
the petitioners are licensed. In this regard, we have stated our intent 
``to aggressively enforce Section 90.633 of our Rules requiring that 
conventional 800 MHz systems be placed in operation eight months after 
the date of the grant of the license for the system.''
    22. Our policy of strict enforcement of our construction 
requirements has led us to deny extensions in a wide variety of 
circumstances in which the failure of SMR licensees to comply with our 
construction or loading requirements resulted from circumstances that 
were the result of the licensees' own business decisions or of risks 
commonly assumed by all licensees. For example, in P & R Temmer, an SMR 
licensee sought an extension of our construction and loading 
requirements because it had been required to change its transmitter 
site to eliminate technical problems and because of the equipment 
manufacturer's alleged reluctance to aggressively market the system to 
potential customers. In denying the waiver, we concluded that problems 
with site selection and marketing strategy were not beyond the 
licensee's control because they resulted from independent business 
judgments made by the licensee. We have applied this standard in other 
circumstances as well, denying extension requests by SMR licensees who 
have been delayed by such factors as interference from adjacent 
buildings, zoning difficulties, inability to obtain construction 
permits, and equipment delivery problems.
    23. In this respect, the facts of the present case bear a strong 
resemblance to the facts in Robert A. Baker, Receiver, a case involving 
individuals who were solicited by a company to prepare and file 
cellular applications on their behalf. Shortly before the filing 
deadline, the FTC brought a fraud action against the company and the 
court appointed a receiver to assist the victims of the alleged fraud. 
The receiver sought waiver of the deadline to enable the affected 
parties to submit applications and the request was supported by the 
FTC. In a decision affirmed by the Commission, the Common Carrier 
Bureau denied the waiver request. The Bureau concluded that the 
individual applicants were responsible for the consequences of their 
decision to use a mass application preparer, and that there was no 
evidence of compelling circumstances that would justify waiver of the 
filing deadline. If the applicants had been defrauded, the Bureau 
further stated, the appropriate remedy was to seek indemnification from 
the party that had committed the fraud, not belated insertion into the 
lottery. The Bureau concluded that the ``tribulations of a mass 
application preparer cannot excuse the individual applicants from their 
responsibilities.''
    24. We also conclude that the principles set forth in Baker are 
relevant here. Each individual licensee who hired the Receivership 
Companies bears responsibility for the decision to rely on a third 
party to act on his or her behalf in meeting the obligations imposed by 
the Commission's rules. Assuming that these licensees were defrauded by 
the Receivership Companies, they have recourse to other legal remedies 
specifically designed to provide redress. The Commission's mandate, 
however, is to allocate and assign radio spectrum to serve the public 
interest.
    25. Our decision to grant the petitions in part is motivated by our 
determination that granting the waiver is equitable in light of the 
fact that during the pendency of the Goodman and Chan requests, we 
changed our construction requirements for SMRs licensed in the General 
Category and all CMRS providers licensed under part 90 of our rules. In 
the Third Report and Order in the CMRS docket, we adopted a uniform 
twelve-month construction period for all CMRS providers licensed under 
part 90 of our rules. We indicated that such a rule change would 
eliminate the obvious disparity between Part 90 and Part 22 and would 
further the goal of comparable regulation for all substantially similar 
services. Recently, on grounds similar to our decision here, the 
Private Radio Bureau granted 220 MHz non-nationwide licensees a four-
month extension to construct their stations. Petitioners and future 
applicants should not interpret our decision today as a sign of any 
diminution of our resolve to enforce the twelve-month construction 
period that applies to General Category and other part 90 CMRS 
licensees. Like the licensees in Baker, petitioners are fully 
responsible for the consequences of their decision to use a mass 
application preparer.
    26. We nonetheless find that the request at hand are 
distinguishable from Baker and other cases in which we denied 
construction time extensions on

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the grounds that we changed our rules while the Goodman and Chan 
petitions were pending before us. In the interests of fairness, we will 
grant petitioners the relief necessary to place them in the same 
posture as other SMR licensees that are subject to a twelve-month rule. 
We will not, however, permit petitioners who have not achieved loading 
of 70 mobiles to treat their channels as exclusive. Such relief was not 
requested and, indeed, was deemed by the Receiver to be unnecessary.
    27. We are granting petitioners only limited relief, and for the 
reasons stated above. To grant this relief for the reasons stated by 
the petitioners would undermine the objectives of our construction 
requirements. As we have noted on numerous occasions, the purpose of 
the prohibition against assignment or transfer of unconstructed 
licenses is to deter speculation and trafficking in licenses. Even if 
we assume that many of the licensees at issue here were unaware of or 
misinformed about this rule, as appears likely, petitioners do not 
dispute that these licensees were primarily interested in acquiring SMR 
licenses as a form of investment that they could subsequently sell for 
a profit. We believe it would be incongruous to grant waivers to 
licensees on this basis when we have consistently denied them to 
licensees who had a bona fide intent to construct and operate SMR 
systems but were unable to construct because of adverse business 
decisions. The Commission has previously noted that frequencies in the 
800 MHz band are extremely scarce in many areas, making it difficult 
for applicants to obtain channels. Moreover, the licenses at issue here 
are for General Category frequencies, which may be licensed not only to 
SMR operators but also to public safety entities and other categories 
of private radio users.
    28. We also want to be clear that by granting limited relief for 
the reasons stated, we do not intend to reward and encourage further 
speculative activity by entities like the Receivership Companies and 
possibly invite abuse of the Commission's processes. The problem of 
application mills is one that we have encountered and continue to 
encounter in a number of services. If we were to grant a waiver on the 
grounds that such action was needed to afford relief to the unwitting 
victims of a few such companies, the result almost inevitably would be 
to encourage numerous similar requests. Furthermore, we would be 
compelled in each case to ascertain whether the licensee in fact was a 
victim of fraud or was claiming fraud as a pretext.
    Finally, the grant of a waiver for the reasons stated by 
petitioners could inadvertently become a tool used by the application 
mills themselves in their solicitation of new clients, resulting in 
more unsuitable applicants seeking Commission licenses. We do, however, 
affirm our commitment to pursue ongoing initiatives and explore new 
ways to deter the practices of application mills and alert the public 
regarding licensing fraud.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-22946 Filed 8-26-98; 8:45 am]
BILLING CODE 6712-01-P