[Federal Register Volume 63, Number 245 (Tuesday, December 22, 1998)]
[Proposed Rules]
[Pages 70727-70735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33775]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 22

[WT Docket Nos. 98-205, 96-59, GN Docket No. 93-252; FCC 98-308]


1998 Biennial Regulatory Review--Spectrum Aggregation Limits for 
Wireless Telecommunications Carriers

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this Notice of Proposed Rulemaking the Commission 
undertakes a comprehensive review of the 45 MHz Commercial Mobile Radio 
Services (CMRS) spectrum cap as part of our biennial review of the 
Commission's regulations. The Commission seeks comment on whether it 
should repeal,

[[Page 70728]]

modify or retain the 45 MHz spectrum cap. In addition, the Commission 
seeks comment on a petition, submitted by the Cellular 
Telecommunications Industry Association (CTIA), to forbear from 
enforcement of the CMRS spectrum cap pursuant to section 10 of the 
Communications Act of 1934, as amended. We also seek comment on whether 
we should retain, modify, or repeal the cellular cross-ownership rule.

DATES: Comments are due on or before January 25, 1999. Reply comments 
are due on or before February 10, 1999.

ADDRESSES: All filings must be sent to the Commission's Secretary, 
Magalie Roman Salas, Office of the Secretary, Federal Communications 
Commission, 445 Twelfth Street, S.W.; TW-A325; Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: David Krech or Pieter van Leeuwen, 
Commercial Wireless Division, Wireless Telecommunications Bureau, (202) 
418-0620.

SUPPLEMENTARY INFORMATION: This Notice of Proposed Rulemaking in WT 
Docket Nos. 98-205, 96-59, GN Docket No. 93-252, adopted November 19, 
1998, and released December 10, 1998, is available for inspection and 
copying during normal business hours in the FCC Reference Center, Room 
230, 1919 M Street N.W., Washington D.C. The complete text may be 
purchased from the Commission's copy contractor, International 
Transcription Service, Inc., 1231 20th Street, N.W., Washington D.C. 
20036 (202) 857-3800.

Synopsis of the Notice of Proposed Rulemaking:

I. Background

A. History of the CMRS Spectrum Cap

    1. The CMRS spectrum cap, 47 CFR 20.6, governs the amount of CMRS 
spectrum that can be licensed to a single entity within a particular 
geographic area. Pursuant to Sec. 20.6, a single entity may acquire 
attributable interests in the licenses of broadband Personal 
Communications Service (PCS), cellular, and Specialized Mobile Radio 
(SMR) services that cumulatively do not exceed 45 MHz of spectrum 
within the same geographic area.
    2. The CMRS spectrum cap was established in Implementation of 
Sections 3(n) and 332 of the Communications Act, GN Docket No. 93-252, 
Third Report and Order, 59 FR 59945 (November 21, 1994) (CMRS Third 
Report and Order). The Commission found that if licensees were to 
aggregate sufficient amounts of spectrum, it would be possible for 
them, unilaterally or in combination, to exclude efficient competitors, 
to reduce the quantity or quality of services provided, or to increase 
prices to the detriment of consumers. The Commission found that 
creating a cap on broadband PCS, SMR, and cellular licenses would 
prevent licensees from artificially withholding capacity from the 
market. The Commission found that a 45 MHz cap provided a minimally 
intrusive means for ensuring that the mobile communications marketplace 
remained competitive and preserved incentives for efficiency and 
innovation.
    3. To perform a spectrum cap analysis, a threshold determination 
must first be made regarding whether the CMRS offerings under 
consideration are serving markets that substantially overlap. The 
Commission adopted a simple formula for this assessment: a 
determination of whether the overlap between geographic service areas 
or licensed contours contains 10 percent or more of the market's 
population. Assuming a 10 percent population overlap, the rule next 
requires a determination of whether there is common attributable 
ownership. For purposes of the spectrum cap, equity ownership of 20 
percent or more was deemed attributable. The Commission also stated 
that in determining when cellular, broadband PCS and SMR licenses are 
held indirectly through intervening corporate entities, a multiplier 
would be used to determine attributable ownership levels, consistent 
with application of the broadcast attribution rules.
    4. In Implementation of Sections 3(n) and 332 of the Communications 
Act, GN Docket No. 93-252, Fourth Report and Order, 59 FR 61828 
(December 2, 1994) (CMRS Fourth Report and Order) the Commission 
further clarified that certain business relationships could give rise 
to attributable ownership interests for purposes of the CMRS spectrum 
cap. First, the Commission held that resale agreements will not be 
considered attributable interests because resellers can neither 
exercise control over the spectrum on which they provide service nor 
reduce the amount of service provided over that spectrum. Second, the 
Commission found that management agreements that authorize managers of 
cellular, broadband PCS or SMR systems to engage in practices or 
activities that determine or significantly influence the nature and 
types of services offered, the terms on which services are offered, or 
the prices charged for such services, give the managers an attributable 
interest in that licensee. Finally, the Commission also concluded that 
joint marketing agreements that affect pricing or service offerings 
will be attributable.
    5. In Amendment of parts 20 and 24 of the Commission's Rules--
Broadband PCS Competitive Bidding and the Commercial Mobile Radio 
Service Spectrum Cap; Amendment of the Commission's Cellular/PCS Cross-
Ownership Rule, WT Docket No. 96-59, GN Docket No. 90-314, Report and 
Order, 61 FR 33859 (July 1, 1996) (CMRS Spectrum Cap Report and Order) 
appeal pending sub nom. Cincinnati Bell Tel Co. v. FCC, No. 96-3756 
(6th Cir), recon. (BellSouth MO&O) appeal pending sub nom. BellSouth 
Corporation v. FCC, No. 97-1630 (D.C. Cir), the Commission reaffirmed 
the basic tenets of the CMRS spectrum cap and provided additional 
economic rationale for its use. Specifically, the Commission provided 
an analysis of the potential market concentrations using the 
Herfindahl-Hirschman Index (HHI), and found that a 45 MHz spectrum cap 
was necessary to prevent CMRS markets from becoming highly 
concentrated. The Commission found that such a spectrum cap was needed 
to ensure competition, and that it would adequately address concerns 
about anticompetitive behavior in the CMRS market.
    6. In addition to reviewing the general structure of the CMRS 
spectrum cap, the Commission also reconsidered the ownership and 
geographic attribution provisions of Sec. 20.6. In the CMRS Spectrum 
Cap Report and Order, the Commission revisited the use of a 20 percent 
attribution standard and found it appropriate for use in the CMRS 
spectrum cap. Although the Commission did not alter the 20 percent 
ownership attribution standard in the CMRS Spectrum Cap Report and 
Order, it did adopt a rule under which it would review requests for 
waiver of the attribution standard. See 47 CFR 20.6 Note 3. The 
Commission also eliminated the 40 percent attribution threshold for 
ownership interests held by minorities and women, but maintained it for 
small businesses and rural telephone companies. In considering changes 
to the geographic attribution standard, the Commission declined to 
alter the 10 percent overlap definition because it found that an 
overlap of 10 percent of the population is sufficiently small that the 
potential for exercise of undue market power by the cellular operator 
is slight. In addition, the Commission expanded the divestiture 
provisions by allowing parties with non-controlling, attributable 
interests in CMRS licenses to have an attributable or controlling 
interest in another CMRS application that would exceed the 45 MHz 
spectrum cap so long as they followed our post-

[[Page 70729]]

licensing divestiture procedures. In the BellSouth MO&O, Commission 
held that the CMRS spectrum cap is not limited to real time, two-way 
switched phone service, but covers a variety of services within the 
definition of CMRS.

B. Pending Proceedings Regarding the CMRS Spectrum Cap

    7. There are several proceedings pending before the Commission 
which deal with different aspects of the CMRS spectrum cap. Because the 
Commission intends for this proceeding to be a comprehensive re-
evaluation of the CMRS spectrum cap, it plans to consolidate these 
outstanding issues in this proceeding. The Commission therefore 
incorporates into this proceeding the record of the following pending 
proceedings on the CMRS spectrum cap: (1) Petitions for Reconsideration 
of CMRS Third Report and Order; (2) Petitions for Reconsideration of 
CMRS Fourth Report and Order; (3) Petitions for Reconsideration of CMRS 
Spectrum Cap Report and Order; and, (4) Implementation of Sections 3(n) 
and 332 of the Communications Act--Regulatory Treatment of Mobile 
Services, GN Docket No. 93-252, Third Further Notice of Proposed 
Rulemaking, 60 FR 26861 (May 19, 1995). In that proceeding the 
Commission examined whether the CMRS spectrum cap should be extended to 
all cellular, SMR, and broadband PCS providers regardless of whether 
they are classified as Private Mobile Radio Services (PMRS) or CMRS 
providers.

II. Notice of Proposed Rulemaking

A. Overview

    8. The Commission last reviewed the CMRS spectrum aggregation 
limits in 1996 in the CMRS Spectrum Cap Report and Order. Section 11 of 
the Communications Act requires that the Commission review regulations 
``that apply to the operation or activities of any provider of 
telecommunications service'' and ``determine whether any such 
regulation is no longer necessary in the public interest as the result 
of meaningful economic competition between providers of such service.'' 
47 U.S.C. 161. In light of the mandate in section 11 and the 
developments in the marketplace since 1996, the Commission seeks 
comment in this Notice on whether to retain, modify, or repeal the CMRS 
spectrum cap.

B. Reassessment of the CMRS Spectrum Cap

    9. Generally, the Commission believes that the spectrum cap has 
been useful in promoting competition in mobile voice services, given 
that these services were largely available from only two cellular 
companies in each locality prior to our broadband PCS auctions. The 45 
MHz limit was originally devised as the Commission prepared for its 
auction of broadband PCS spectrum, in response to concerns that 
incumbent cellular providers had incentives to impede the development 
of competing networks to preserve their competitive position. Under 
constraints imposed by the CMRS spectrum cap, the Commission awarded 
broadband PCS licenses that are now, or will soon be, competing 
directly with these cellular providers. In many localities, significant 
new entry into mobile voice services has already occurred. Moreover, 
the Commission expects that competition will develop further as 
remaining broadband PCS licensees complete the initial phases of their 
network buildouts. The Commission believes that the aggregation limit 
helped to promote the likely emergence of at least three new 
competitors in each market. In at least several markets, mobile voice 
services are now being offered by seven or more competitors. The 
competitive evolution of these markets may be traced directly to 
decisions to auction additional spectrum well-suited to the provision 
of mobile communications, and to impose limits on the extent to which 
firms were permitted to aggregate spectrum in these auctions. The 
Commission seeks comment on this assessment that the existing spectrum 
aggregation limit to date may have promoted competition in mobile voice 
markets. The Commission seeks comment on how evidence of emerging 
competition should be factored into the assessment of whether the 
current cap should be eliminated, relaxed or redefined. In particular, 
what weight should these factors be given relative to HHI calculations 
or similar measures of concentration of ownership or control? Parties 
should provide discussion or analysis supporting their views. The 
Commission seeks comment on the following issues and how they relate to 
the question of whether to retain, modify, or repeal the spectrum cap: 
(1) what are the relevant product markets?; (2) what are the relevant 
geographic markets?; and, (3) what are the relevant measures of market 
capacity (assigned spectrum, operational spectrum, subscribers, 
revenues, traffic/minutes of use, etc.)?
    10. The extent to which services are presently available in 
individual markets varies considerably. In no market have all of the 
licensed broadband PCS providers begun offering service, and in a 
number of localities, service is not yet available from any new 
entrant. For purposes of assessing the competitive nature of individual 
markets and calculating market shares, the Department of Justice's 
Merger Guidelines limit market participants to firms that currently 
produce or sell the relevant product and those described as 
``uncommitted entrants.'' Hence, for purposes of conducting an analysis 
of competition in wireless markets, the Commission seeks comment on 
whether to limit the assessment of market participants to only current 
suppliers and any other firms that have announced intentions to 
commence operations, declared their intentions to offer the relevant 
product, and will imminently begin soliciting business. Particularly in 
smaller towns and rural markets, cellular incumbents continue to hold 
competitive advantages vis-a-vis market entrants that are not very 
different from those existing when the cap was originally conceived and 
implemented. Spectrum aggregation limits may well continue to be useful 
to promote competition in at least certain areas. The Commission 
invites comment on these assessments. The Commission also solicits 
comment on whether to apply the CMRS spectrum cap on a market-by-market 
basis.
    11. The Commission also believes that with respect to mobile 
wireless services, the spectrum cap has served the purpose of 
constraining undesirable erosion of existing competition through 
mergers or acquisitions in major markets, where competition among 
multiple carriers is most advanced. For cellular and SMR incumbents 
especially, and perhaps for the early A- and B-Block broadband PCS 
entrants as well, incentives exist for operational carriers to explore 
in-market merger options. Hence, it appears likely that the spectrum 
aggregation limit has been of some value in inhibiting competition-
eroding spectrum consolidation. The Commission invites comment on these 
assessments and on the potential for consolidation of CMRS markets if 
the spectrum cap were relaxed or eliminated, and whether such 
consolidation would harm or benefit consumers. Commenters should 
provide empirical evidence on the harms or benefits of consolidation in 
CMRS markets.
    12. The Commission also invites comment on whether there are 
existing disciplinary factors in the marketplace that may independently 
minimize the likelihood that any single entity would achieve an 
anticompetitive level of ownership of CMRS spectrum in a particular 
geographic area. For example,

[[Page 70730]]

are there dis-economies of scale that will limit the size to which 
firms will grow, and thus tend to ensure that the CMRS sector will 
assume a competitive structure even in the absence of a spectrum cap? 
Is it possible that capital markets will not finance attempts by 
individual firms to acquire spectrum in amounts or construct systems of 
sizes that would threaten competition? Commenters arguing that such 
factors lessen or eliminate the need for our current spectrum cap 
should, where possible, provide specific quantifiable examples of dis-
economies, or of points at which various types of costs or risks 
associated with owning or controlling additional wireless spectrum 
outweigh potential benefits.
    13. The Commission seeks comment on whether the convergence and 
substitutability of other telecommunications networks, including 
wireline, cable, private wireless, and satellite networks among others, 
should affect the application or public interest considerations 
underlying the spectrum cap. It is important that commenters addressing 
this issue supply detailed analysis, identify all underlying 
assumptions, and provide factual support for any projections.
    14. The Commission has scheduled an auction for March 1999, that 
will include licenses for operation on C and F block frequencies. There 
are certain restrictions on the sale of entrepreneur block licenses (C 
and F blocks). The Commission invites comment on whether these rules 
are sufficient to prevent undesirable spectrum consolidation. 
Commenters should also provide their views on any relationship between 
this proceeding, including the timing of our final decision, and the 
successful completion of the upcoming C block auction.
    15. The Commission also seeks comment on whether issues regarding 
economies of scope may provide a rationale for relaxing the spectrum 
aggregation limit. The Commission invites comment generally on the 
concepts of economies of scope and scale and their relationship to 
spectrum aggregation limits.
    16. In re-assessing the CMRS spectrum cap, the Commission also 
seeks comment on whether there are other efficiency benefits or 
progress toward other public interest goals that would flow from 
changes in the cap that might counterbalance concerns about possible 
anticompetitive effects resulting from increased geographic 
concentration of ownership. For example, might a relaxed cap allow 
efficient deployment of third-generation wireless services that would 
be prevented under the present cap? Or, might a relaxed cap facilitate 
provision of fixed wireless services by CMRS firms, perhaps as 
universal service providers? What, if any, impact would altering the 
cap have on the provision of wireless services to under-served areas? 
Would an enforceable commitment to provide such service in high-cost or 
low-income areas override anticompetitive concerns?
    17. Service in rural areas. The Commission seeks comment on whether 
the relative lack of competition in certain rural and other markets 
suggests that there is a continuing need for the CMRS spectrum cap in 
those areas. Commenters should address whether the cap should be 
retained, at least in those areas until increased competition begins to 
emerge. On the other hand, the cap may affect the ability of a CMRS 
provider to attain certain economies of scale and scope. Spectrum may 
be made newly available for commercial use through partitioning 
agreements, but the economics of offering service to these lower-
density populations may nevertheless limit the extent of competitive, 
facilities-based entry. The Commission seeks comment on whether the 
existing spectrum cap may impede delivery of potentially lower-cost 
service to rural customers as economies of scope go unrealized. In 
particular, should more concentration of spectrum in rural markets be 
permitted, perhaps allowing for leveraging of existing facilities? The 
Commission seeks comment on the extent to which the current 45 MHz 
aggregation limit may be thwarting the realization of potential 
economies, and solicit evidence on the magnitude of any such savings or 
efficiencies in particular market settings.
    18. Advancement of competition in local markets. The Commission 
seeks comment on how the spectrum cap affects wireless providers' 
ability to enter into and compete in markets other than mobile voice 
service. The Commission seeks comment on the extent to which existing 
networks are capable of economically supporting the delivery of 
wireless services other than fixed or mobile voice and paging/
messaging. In particular, we invite comment on the technical and 
economic feasibility of offering dispatch, high-speed Internet, and 
other two-way data services over existing cellular, broadband PCS, and 
SMR network platforms. We also invite views on the extent to which any 
limitations on currently installed networks may be eased in the 
foreseeable future as newly available technologies are adopted. The 
Commission is especially interested in views on whether the current 
spectrum cap is enhancing or impeding the provision of wireless 
services as a competitive alternative to wireline services.
    19. Development and deployment of new technologies and services. 
The Commission seeks comment on whether the spectrum cap serves as a 
barrier to firms that wish to offer additional services or to adopt 
advanced network technologies. Specifically, the Commission seeks 
comment on whether the current aggregation limit poses an obstacle to 
the introduction of more advanced network technologies. The Commission 
also seeks comment on whether the existing spectrum limit constitutes a 
significant constraint on firms' abilities to offer wireless local loop 
or high-speed mobile data services, either on a stand-alone basis or 
bundled with mobile voice services. In particular, we invite comment on 
the extent to which companies are able to acquire and use spectrum 
outside of CMRS bands to achieve these goals. The Commission also 
invites comment on the possible use of our waiver process to consider 
petitions for supplemental spectrum that may be needed to launch new 
wireless services.

C. Modifications and Alternatives to Existing CMRS Spectrum Cap

i. Modification of Significant Overlap Threshold
    20.The CMRS spectrum cap prohibits a licensee from having more than 
45 MHz of spectrum in broadband PCS, cellular or SMR services with 
significant overlap in a geographic area. A ``significant overlap'' 
occurs when at least ten percent of the population of the PCS licensed 
service area is within the cellular geographic service area and/or SMR 
service area(s). 47 CFR 20.6(c). Therefore, a carrier's spectrum counts 
toward the spectrum cap if the carrier is licensed to serve 10 percent 
or more of the population of the designated service area.
    21. The Commission seeks comment on the effect of recent changes in 
CMRS markets, particularly concerning the emergence of broadband PCS 
carriers as competitors to cellular operators, on the rationale for a 
10 percent overlap threshold. The Commission also seek comment on the 
public interest benefits of increasing the threshold and whether those 
benefits outweigh any potential for anticompetitive concentration of 
ownership or control of CMRS licenses.
    22. The Commission seeks comment on whether a geographic overlap 
standard of greater than a 10 percent

[[Page 70731]]

overlap should be adopted. If so, what would be a more appropriate 
standard of geographic overlap and why. The Commission seeks comment on 
whether a greater overlap may facilitate anticompetitive behavior. The 
Commission also seeks comment on what degree of a permissible 
geographic overlap could promote anticompetitive conduct. In addition, 
the Commission seeks comment on whether we should permit carriers in 
high-cost and under-served markets to have a greater than 10 percent 
population overlap, and how we should define high-cost and under-served 
markets for purpose of the significant overlap threshold. The 
Commission also seeks comment on whether there is a need to allow a 
greater overlap in high-cost and under-served areas if we adopt our 
proposal to allow for a higher cap in rural areas. In addition, the 
Commission seeks comment on whether a separate geographic overlap 
standard for rural areas may be in the public interest by possibly 
encouraging a greater number of service options and better service 
quality. In the alternative, comment is requested on whether there is a 
mechanism for triggering the application of a spectrum cap in given 
geographic areas that might be superior to our current significant 
overlap standard.
ii. Modification of 45 MHz Limitation
    23. The CMRS spectrum cap allows a single entity to control up to 
45 MHz of broadband PCS, cellular, and SMR spectrum in a geographic 
area. The Commission seeks comment on whether a 45 MHz CMRS spectrum 
limitation is appropriate given increased competition in the CMRS 
marketplace. For instance, the vast majority of the broadband PCS 
licenses have been assigned and there are broadband PCS licensees 
providing service in competition with cellular carriers and each other 
in many markets. In particular, we seek comment on what would be an 
appropriate spectrum aggregation limitation in light of current and 
future prospects for competition in CMRS markets. Commenters should 
provide analytical support for any limitation that they propose.
    24. Another option would be to raise the 45 MHz limitation when 
competition in relevant markets reaches a particular level. For 
example, one possible option would permit licensees to exceed the 45 
MHz limit as long as a certain number of competitors would remain in a 
market after the assignment. The Commission seeks comment on such an 
option. How many competitors in a market would be sufficient to allow a 
licensee to exceed the 45 MHz limitation? Would the same number of 
competitors be required for wireless services other than mobile voice? 
How would the Commission identify qualifying competitors? Should 
facilities-based competitors be considered? Should other factors be 
considered in addition to the number of facilities-based carriers in a 
given market in determining when to lift the restriction? The 
Commission seeks comment on whether there should be any restraints on 
how much spectrum a licensee could obtain under such an option.
    25. A similar option would be to allow the cap to be raised/
exceeded in rural or under-served areas. The Commission seeks comment 
on the benefits that may be obtained by allowing licensees serving 
rural, high-cost areas to hold more than 45 MHz of broadband CMRS 
spectrum in those areas. The Commission also seeks comment on how to 
define those areas. One possibility would be to use rural service 
areas, or rural service areas (RSAs). Another option would be to use 
high-cost areas as defined in our universal service proceeding. The 
Commission seeks comment on these possible determinations of rural/
under-served areas. Commenters that suggest other definitions for rural 
or under-served areas are requested to precisely set out their proposed 
definition, and explain the type and number of areas that would come 
within that definition.
    26. The Commission also seeks comment whether the partnerships 
anticipated under this option would result in meaningful convergence in 
service quality and rates between urban and rural subscribers. 
Furthermore, the Commission solicits views on whether any claimed 
efficiencies of scope are likely to be commercially significant in 
magnitude for operators in rural markets. The Commission also invites 
comments on whether this option would discourage broadband PCS carriers 
from extending their digital network buildouts beyond urban and 
suburban centers.
iii. Modification of Ownership Attribution Thresholds
    27. Under the CMRS spectrum cap, ownership interests of 20 percent 
or more (40 percent if held by a small business or rural telephone 
company), including general and limited partnership interests, voting 
and non-voting stock interests or any other equity interest are 
considered attributable. 47 CFR 20.6(d)(2). Officers and directors are 
attributed with their company's holdings, as are persons who manage 
certain operations of licensees, and licensees that enter into certain 
joint marketing arrangements with other licensees. 47 CFR 20.6(d)(7). 
Stock interests held in trust are attributable only to those who have 
or share the power to vote or sell the stock. 47 CFR 20.6(d)(3). Debt 
does not constitute an attributable interest, nor are securities 
affording potential future equity interests (such as warrants, options, 
or convertible debentures) considered attributable until they are 
converted or exercised. 47 CFR 20.6(d)(5). The Commission seeks comment 
generally on whether we should modify any or all of these attribution 
criteria. Commenters should provide reasoning and factual support for 
their positions.
    28. The Commission seeks comment on whether we should modify the 20 
percent ownership benchmark. Specifically, the Commission seeks comment 
on the effect that a 20 percent attribution standard has on the ability 
of CMRS providers to obtain capital, and on the public interest 
benefits of increasing the 20 percent attribution standard. The 
Commission also seeks comment on what level to set an attribution 
standard. Commenters proposing a different standard should provide 
analytical support for their proposals. The Commission seeks comment on 
whether we should increase the benchmark as it applies to the amount of 
non-voting equity interest, or interest held by a limited partner. The 
Commission also seeks comment on whether to continue to have a separate 
40 percent attribution standard for licenses that are held by small 
businesses or rural telephone companies or whether this standard should 
also be modified.
    29. The Commission also seeks comment on whether any of the other 
provisions in our ownership attribution criteria should be modified. 
Are there any situations where an entity can acquire effective control 
over another entity that is not adequately contemplated under our 
attribution standards? Alternatively, are there situations proscribed 
by our attribution rules that are inhibiting competition? Commenters 
should be as specific as possible in identifying which, if any, 
attribution standards should be changed and in explaining the rationale 
and public interest benefits that might accompany such a change in our 
rules. The Commission also seeks comment on the waiver test for 
attribution, 47 CFR 20.6 note 3, and whether the waiver test should be 
retained if the 20 percent attribution standard is modified.

[[Page 70732]]

iv. Forbearance From Enforcing the CMRS Spectrum Cap
    30. On September 30, 1998, CTIA petitioned the Commission to 
forbear from enforcing the spectrum cap pursuant to our authority under 
section 10 of the Act, 47 U.S.C. 160. The Commission must forbear from 
applying any regulation or provision of the Act to a telecommunications 
carrier or service, or class of telecommunications carriers or 
services, in any or some of its geographic markets, if a three-pronged 
test is met. Specifically, section 10 requires forbearance, 
notwithstanding 47 U.S.C. 332(c)(1)(A), if the Commission determines 
that: (1) enforcement of such regulation or provision is not necessary 
to ensure that the charges, practices, classifications, or regulations 
by, for, or in connection with that telecommunications carrier or 
telecommunications service are just and reasonable and are not unjustly 
or unreasonably discriminatory; (2) enforcement of such regulation or 
provision is not necessary for the protection of consumers; and (3) 
forbearance from applying such provision or regulation is consistent 
with the public interest.
    31. To satisfy the first prong of section 10, CTIA relies on 
statements that the CMRS market is competitive. CTIA also argues that 
principles of antitrust law and economics provide adequate protection 
against the possibility of excessive concentration that the spectrum 
cap was designed to safeguard against. Addressing the second prong, 
CTIA contends that the Commission's section 310(d) authority is an 
appropriate vehicle for the Commission to effectuate the ``ideal 
approach [which] is to judge spectrum combinations on a case-by-case 
basis taking into account all of the relevant variables bearing upon 
competition and efficiency, including the service area overlap, the 
populations in the respective service areas, and the quantity of 
spectrum currently allocated to and * * * sought to be acquired by the 
licensee.'' CTIA argues that the third prong is met because the public 
interest is better served by a case-by-case determination of 
permissible ownership structures. According to CTIA, rigid ownership 
limitations endangers innovation and efficiency and outweighs the 
administrative burden associated with reliance upon a case-by-case 
approach to market concentration issues.
    32. The Commission seeks comment on the CTIA Forbearance Petition, 
particularly whether CTIA's arguments meet the standards of section 10 
for forbearance from the spectrum cap. In regard to the third prong of 
the test and in connection with the above questions regarding the re-
assessment of the rule under section 11, it would be useful for 
commenting parties to consider and comment upon: (i) the original 
purpose of the particular rule in question; (ii) the means by which the 
rule was meant to further that purpose; (iii) the state of competition 
in relevant markets at the time the rule was promulgated; (iv) the 
current state of competition as compared to that which existed at the 
time of the rule's adoption; (v) how any changes in competitive market 
conditions between the time the rule was promulgated and the present 
might obviate, remedy, or otherwise eliminate the concerns that 
originally motivated the adoption of the rule; and (vi) the ultimate 
effect forbearance may have on consumers.
    33. If the Commission, upon review of the record, finds that the 
requirements set out in section 10 have been satisfied, and thus the 
Commission has authority to forbear from the CMRS spectrum cap, we seek 
comment on the advantages or disadvantages of forbearing from the cap 
rather than modifying, sunsetting, or eliminating it.
    34. If the Commission forbears from enforcing the CMRS spectrum 
cap, what step the Commission should take next regarding the cap? 
Should the Commission, subsequently, in this or another proceeding, 
develop a factual record on what happened to CMRS markets without the 
spectrum cap to confirm that our conclusions about the need for the cap 
were correct?
v. Sunset CMRS Spectrum Cap
    35. The Commission seeks comment on the public interest benefits of 
establishing a sunset date for the CMRS spectrum aggregation limit in 
all or some markets. In particular, what market conditions that should 
be present before sunsetting the cap. The Commission also seeks comment 
on when these market conditions are likely to be generally present. The 
Commission also seeks comment on whether a date certain should be set 
for elimination of the spectrum aggregation limit, or if instead, the 
Commission should review the continuing need for such a restriction at 
a pre-set date, e.g., as part of the next biennial review process.
    36. One alternative to a uniform date for sunsetting the CMRS 
spectrum aggregation limit in all or some markets, would be to sunset 
the cap in selected markets based on the competitive concerns in the 
particular markets in question. The Commission seeks comment on whether 
it would be in the public interest to sunset the CMRS spectrum cap on a 
market-by-market basis, and if so, what criteria should be considered 
in determining whether to sunset the cap in a particular market. One 
approach may be to sunset the cap when a certain number of competitors 
are present in a market. The Commission seeks comment on this approach 
and what level of competition should exist before we sunset the cap in 
a particular market.
    37. Another option would be to review certain types of proposed 
transactions involving the aggregation of CMRS spectrum under our 
section 310(d). Under this approach, any transfers in connection with a 
merger or acquisition where both parties have directly competing 
operational wireless services in the same geographic market, would no 
longer be prohibited under the spectrum cap. Instead, parties to these 
transactions involving a combination of more than 45 MHz would be 
obligated to affirmatively demonstrate that the transaction is in the 
public interest. This would generally include a competitive analysis to 
evaluate whether the interests of consumers in relevant markets are 
threatened. All other transactions, including those involving 
overlapping licenses but where build-out is not complete and service is 
not operational, would continue to be subject to compliance with the 
CMRS spectrum cap. The Commission seeks comment on this approach.
vi. Eliminate CMRS Spectrum Cap
    38. The Commission seeks comment on whether elimination of the CMRS 
spectrum cap, and reliance on case-by-case determinations of ownership 
issues pursuant to section 310(d) of the Communications Act, 47 U.S.C. 
310(d), would serve the public interest. Commenters should provide 
facts and detailed analysis supporting their position. The Commission 
also seeks comment on the likelihood that anticompetitive behavior 
would result from elimination of the cap, and request that commenters 
identify what type of anticompetitive behavior is likely and establish 
causality between elimination of the cap and that behavior.
    39. The Commission seeks comment, including empirical evidence, 
whether CMRS markets are sufficiently competitive to allow for removal 
of the CMRS spectrum cap. Commenters should address any significant 
changes in CMRS markets and telecommunications markets in general that 
would directly support elimination of the CMRS spectrum cap. The

[[Page 70733]]

Commission also seeks comment regarding the administrative burden that 
would presumably be placed on the Commission's limited resources by 
reviewing ownership issues on a case-by-case basis.
    40. The Commission invites comment on the extent to which other 
Federal and state authorities, given their resources and broad 
responsibilities, would be able to effectively monitor the competitive 
effects of smaller mergers and corporate acquisitions. The Commission 
also seeks comment on the ability that Federal and state authorities 
have under antitrust laws to protect competition in cases where 
competition may not yet be adequately developed.

D. Cellular Cross-Interest Rule

    41. Section 22.942 of the Commission's rules prohibits any person 
from having a direct or indirect ownership interest in licenses for 
both cellular channel block in overlapping cellular geographic service 
areas (CGSAs). 47 CFR 22.942. Given the changes in mobile voice 
markets, and the fact that many markets no longer comprise primarily 
cellular duopolies, as in 1991 when the rule was adopted, the 
Commission seeks comment on whether to retain, modify, or repeal 
Sec. 22.942.
    42. The Commission seeks comment on whether the CMRS spectrum cap 
provides sufficient protection from anticompetitive behavior by 
cellular licenses in the same market. Commenters should also address 
whether we should eliminate the cellular cross-ownership rule if we 
decide to eliminate the CMRS spectrum cap.
    43. Where the structure of these markets has not changed 
significantly, the Commission seeks comment on whether the original 
purpose of the rule may still be served by its application. Namely, 
where cellular licensees are still the predominant providers of mobile 
voice services, is the cellular cross-interest rule may still be 
necessary to guarantee the competitive nature of the cellular industry 
and to foster the development of competing systems? The Commission 
seeks comment on whether to modify the cellular cross-ownership rule so 
that it does not apply in certain circumstances. One possibility would 
be to have the rule apply only in markets where there are a limited 
number of competitors to the cellular providers. The Commission seeks 
comment on what would be an appropriate threshold for determining in 
which markets the rule would not apply. The Commission seeks comment on 
the potential effects of such an application of the cellular cross-
ownership rule.
    44. The Commission also seeks comment on whether we should relax 
the current attribution rules related to this rule. For example, should 
an entity that controls the cellular A block be allowed to have some 
interest in the cellular B block in the same market? Further, should 
the current limit on what a non-controlling interest holder may have in 
each cellular license in a given market be relaxed? Commenters are 
asked to address the competitive and public interest implications of 
their proposals.

III. Conclusion

    45. In this Notice of Proposed Rulemaking, the Commission seeks 
comment on whether the present CMRS spectrum cap furthers the public 
interest and encourages competition, consistent with spirit of the 
Communications Act. The Commission also seeks comment on whether to 
retain, forbear from, eliminate, or modify the present cap. In 
particular, the Commission seeks comment on the petition filed by CTIA 
requesting forbearance from applying the CMRS spectrum cap. The 
Commission also seeks comment on whether we should retain, modify, or 
repeal the cellular cross-interest rule.

IV. Procedural Matters and Ordering Clauses

A. Regulatory Flexibility Analysis

    46. As required by the Regulatory Flexibility Act (RFA), see 5 
U.S.C. 603, the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible impact on small entities of 
the rules proposed in the Notice of Proposed Rulemaking (Notice) in WT 
Docket No. 98-205. Written public comments are requested on the IRFA. 
Comments on the IRFA must have a separate and distinct heading 
designating them as responses to the IRFA and must be filed by the 
deadlines for comments on the Notice. The Commission will send a copy 
of the Notice, including this IRFA, to the Chief Counsel for Advocacy 
of the Small Business Administration. In addition, the Notice and IRFA 
(or summaries thereof) will be published in the Federal Register.
    i. Need for, and objectives of, the proposed rules: 
    47. As part of its biennial regulatory review, pursuant to section 
11 of the Communications Act, 47 U.S.C. 161, the Commission solicits 
comment on whether we should retain, modify, or eliminate the 
commercial mobile radio service (CMRS) spectrum cap, 47 CFR 20.6. In 
this Notice of Proposed Rulemaking (Notice), the Commission also seeks 
comment on the petition to forbear from enforcement of the CMRS 
spectrum cap filed by the Cellular Telecommunications Industry 
Association on September 30, 1998. The discussion in the Notice is 
focused on whether to retain, modify, eliminate or forbear from 
enforcing the spectrum cap by looking at the competitive changes in the 
CMRS market, reexamining the goals that the spectrum cap was initially 
designed to achieve, and seeking comment on whether there are less 
restrictive measures, or additional public interest goals we should 
consider in determining whether to eliminate or modify the spectrum 
aggregation limits. Additionally, the Commission seeks comment on how 
our analysis may differ in the context of markets with many wireless 
competitors, as opposed to markets, for example, in rural or high-cost 
areas, where few or no broadband Personal Communications Service (PCS) 
providers may have initiated service, and whether we should consider 
the rule on a market-by-market basis. The Notice sets forth several 
different possible modifications or alterations to the cap and seeks 
comments on them, as well as other options that commenters may suggest. 
Specific issues raised for comment include: (1) expanding the allowable 
amount of geographic overlap between a licensee's various broadband 
CMRS holdings; (2) increasing the amount of spectrum that a single 
entity may hold beyond 45 MHz; (3) altering the ownership attribution 
rules associated with the spectrum cap; (4) forbearing from enforcement 
of the CMRS spectrum cap pursuant to our authority under section 10 of 
the Communications Act, 47 U.S.C. 160; (5) establishment of a sunset 
for the CMRS spectrum cap; and, (6) elimination the CMRS spectrum cap 
and reliance on a case-by-case analysis of the potential competitive 
effects of a proposed spectrum holding pursuant to section 310(d) of 
the Communications Act, 47 U.S.C. 310(d). The Commission also solicits 
comment on whether we should retain, modify, or repeal the cellular 
cross-ownership rule, 47 CFR 22.942.
    ii. Legal basis:
    48. The proposed action is authorized under sections 1, 4(i), 10, 
11, 303(g), and 303(r) of the Communications Act of 1934, as amended, 
47 U.S.C. 151, 154(i), 160, 161, 303(g) and 303(r).
    iii. Description and estimate of the number of small entities to 
which rules will apply: 

[[Page 70734]]

    49. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that will be 
affected by our rules. 5 U.S.C. 603(b)(3), 604(a)(3). The RFA generally 
defines the term ``small entity'' as having the same meaning as the 
terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' 5 U.S.C. 601(6). A small organization is 
generally ``any not-for-profit enterprise which is independently owned 
and operated and is not dominant in its field.'' 5 U.S.C. 601(4). 
Nationwide, there are 275,801 small organizations. ``Small governmental 
jurisdiction'' generally means ``governments of cities, counties, 
towns, townships, villages, school districts, or special districts, 
with a population of less than 50,000.'' 5 U.S.C. 601(5). As of 1992, 
there were 85,006 such jurisdictions in the United States.
    50. In addition, the term ``small business'' has the same meaning 
as the term ``small business concern'' under Section 3 of the Small 
Business Act. 5 U.S.C. 601(3). Under the Small Business Act, a ``small 
business concern'' is one which: (1) is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) meets 
any additional criteria established by the Small Business 
Administration (SBA). 15 U.S.C. 632.
    51. The Notice could result in rule changes that, if adopted, would 
affect all small businesses that currently are or may become licensees 
of the broadband PCS, cellular and/or specialized mobile radio (SMR) 
services. To assist the Commission in analyzing the total number of 
affected small entities, commenters are requested to provide estimates 
of the number of small entities that may be affected by any rule 
changes resulting from the Notice. The Commission estimates the 
following number of small entities may be affected by the proposed rule 
changes:
    52. Cellular Radiotelephone Service. 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 SBA rules applicable to radiotelephone companies. 
This definition provides that a small entity is a radiotelephone 
company employing no more than 1,500 persons. 13 CFR 121.20. 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 1000 or more 
employees. The 1992 Census of Transportation, Communications, and 
Utilities, conducted by the Bureau of the Census, is the most recent 
information available. This document shows that only twelve 
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 twelve 
of these firms were cellular telephone companies, nearly all cellular 
carriers were small businesses under the SBA's definition. The 
Commission assumes, for purposes this IRFA, that all of the current 
cellular licensees are small entities, as that term is defined by the 
SBA. In addition, the Commission notes that there are 1,758 cellular 
licenses; however, a cellular licensee may own several licenses. The 
most reliable source of information regarding the number of cellular 
service providers nationwide appears to be data the Commission 
publishes annually in its Telecommunications Industry Revenue report, 
regarding the Telecommunications Relay Service (TRS). The report places 
cellular licensees and Personal Communications Service (PCS) licensees 
in one group. According to the data released in November 1997, there 
are 804 companies reporting that they engage in cellular or PCS 
service. It seems certain that some of these carriers are not 
independently owned and operated, or have more than 1,500 employees; 
however, the Commission is unable at this time to estimate with greater 
precision the number of cellular service carriers qualifying as small 
business concerns under the SBA's definition. For purposes of this 
IRFA, the Commission estimates that there are fewer than 804 small 
cellular service carriers.
    53. Broadband PCS. The broadband PCS spectrum is divided into six 
frequency blocks designated A through F. The Commission has defined 
``small entity'' in the auctions for Blocks C and F as a firm that had 
average gross revenues of less than $40 million in the three previous 
calendar years. This definition of ``small entity'' in the context of 
broadband PCS auctions has been approved by the SBA. The Commission has 
auctioned broadband PCS licenses in blocks A through F. Of the 
qualified bidders in the C and F block auctions, all were 
entrepreneurs. Entrepreneurs was defined for these auctions 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. Ninety bidders, including C block 
auction winners, won 493 C block licenses and 88 bidders won 491 F 
block licenses. For purposes of this IRFA, the Commission assumes that 
all of the 90 C block broadband PCS licensees and 88 F block broadband 
PCS licensees, a total of 178 licensees, are small entities.
    54. Specialized Mobile Radio (SMR). The Commission awards bidding 
credits in auctions for geographic area 800 MHz and 900 MHz SMR 
licenses to firms that had revenues of no more than $15 million in each 
of the three previous calendar years. This regulation defining ``small 
entity'' in the context of 800 MHz and 900 MHz SMR has been approved by 
the SBA. The Commission does not know how many firms provide 800 MHz or 
900 MHz geographic area SMR service pursuant to extended implementation 
authorizations, nor how many of these providers have annual revenues of 
no more than $15 million. One firm has over $15 million in revenues. 
The Commission assumes for purposes of this IRFA that all of the 
remaining existing extended implementation authorizations are held by 
small entities, as that term is defined by the SBA. The Commission has 
held auctions for geographic area licenses in the 900 MHz SMR band, and 
recently completed an auction for geographic area 800 MHz SMR licenses. 
There were 60 winning bidders who qualified as small entities in the 
900 MHz auction. There were 10 winning bidders who qualified as small 
entities in the 800 MHz auction.
    iv. Description of reporting, record keeping and other compliance 
requirements:
    55. The Notice proposes no additional reporting, record keeping or 
other compliance measures.
    v. Steps taken to minimize the significant economic impact on small 
entities, and significant alternatives considered:
    56. The CMRS spectrum cap was established in 1994 in the CMRS Third 
Report and Order, and was reaffirmed in the CMRS Spectrum Cap Report 
and Order. Since that time, there have been several developments that 
have significantly affected CMRS markets. Through this notice the 
Commission, as part of the Commission's biennial regulatory review 
pursuant to section 11 of the Act, seeks to develop a record regarding 
whether the CMRS spectrum cap continues to make regulatory and economic 
sense in the current and foreseeable wireless telecommunications 
markets. Likewise, the Commission seeks comment on whether there 
continue to be a need for the cellular cross-interest rule. We request 
comment on whether retention, modification, elimination or forbearance 
from enforcement of the CMRS

[[Page 70735]]

spectrum cap is appropriate with respect to small business that are 
licensees of the broadband PCS, cellular and/or SMR services. We also 
request comment on whether retention, modification or elimination of 
the cellular cross-interest rule is appropriate with respect to small 
businesses that are cellular licensees.
    vi. Federal rules which overlap, duplicate, or conflict with these 
proposed rules:
    None.

B. Ex Parte Rules--Permit-But-Disclose Proceedings

    58. This is a permit-but-disclose notice and comment rulemaking 
proceeding. Ex parte presentations are permitted except during the 
Sunshine Agenda period, provided they are disclosed as provided in the 
Commission's rules. See generally 47 CFR 1.1201, 1203, and 1.1206(a).

C. Comment Dates

    59. Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments on or before 
January 25, 1999, and reply comments on or before February 10, 1999. 
Comments and reply comments should be filed in WT Docket No. 98-205. 
Comments may be filed using the Commission's Electronic Comment Filing 
System (ECFS) or by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24,121 (1998).
    60. Comments filed through the ECFS can be sent as an electronic 
file via the Internet to <http://www.fcc.gov/e-file/ecfs.html>. 
Generally, only one copy of an electronic submission must be filed. 
Comments and reply comments should be filed in WT Docket No. 98-205. In 
completing the transmittal screen, commenters should include their full 
name, Postal Service mailing address, and the applicable docket or 
rulemaking number. Parties may also submit an electronic comment by 
Internet e-mail. To get filing instructions for e-mail comments, 
commenters should send an e-mail to [email protected], and should include 
the following words in the body of the message, ``get form