[Federal Register Volume 66, Number 26 (Wednesday, February 7, 2001)]
[Rules and Regulations]
[Pages 9212-9219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3051]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 2 and 95

[WT Docket No. 98-169; FCC 00-411]


Regulatory Flexibility in the 218-219 MHz Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document the Commission denies seven petitions for 
reconsideration and affirms the 218-219 MHz Order which modified the 
regulations governing the licensing of the 218-219 MHz Service 
(formerly known as the Interactive Video and Data Service (``IVDS'')) 
to maximize the efficient and effective use of the band. The petitions 
fall into four general categories. The first category includes requests 
to change the options available under the 218-219 MHz service, 
restructuring plan. The second category includes requests to expand the 
definition of entities eligible to participate in the 218-219 MHz 
service, restructuring plan. The third category consists of 
miscellaneous requests relating to the 218-218 MHz Service 
restructuring plan. The fourth category consists of requests to expand 
the remedial bidding credit to all current and former licensees. 
Additionally, the item makes several technical modifications to conform 
the rules to the 218-219 MHz Order.

DATES: Effective April 9, 2001.

FOR FURTHER INFORMATION CONTACT: Andrea Kelly, Auctions and Industry 
Analysis Division, Wireless Telecommunications Bureau, at (202) 418-
0660.

SUPPLEMENTARY INFORMATION: This is a summary of a Second Order on 
Reconsideration of the Report and Order and Memorandum Opinion and 
Order (Order) in WT Docket No. 98-169, adopted on November 22, 2000, 
and released on December 13, 2000. The complete text of the Order is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (Room CY-A257), 445 12th Street, SW, 
Washington, DC. It may also be purchased from the Commission's copy 
contractor, International Transcription Services, Inc. (ITS, Inc.), 445 
12th Street, SW, Room CY-B400, Washington, DC 20554, (202) 314-3070. 
The Order is also available on the Internet at the Commission's web 
site: http://www.fcc.gov/wtb/documents.html.

I. Introduction

    1. On September 10, 1999, the Federal Communications Commission 
(``Commission'') issued the 218-219 MHz Order, which modified the 
regulations governing the licensing of the 218-219 MHz Service 
(formerly known as the Interactive Video and Data Service (``IVDS'')) 
to maximize the efficient and effective use of the band. See 64 FR 
59656 (November 3, 1999). The 218-219 MHz Order, among other things, 
modified service and technical rules for the band and extended the 
license term from five to ten years, eliminated the three- and five-
year construction benchmarks, and adopted a ``substantial service'' 
analysis to be assessed at the expiration of the 218-219 MHz license 
term as a condition of renewal. The Commission also adopted a 
restructuring plan for existing licensees that had participated in the 
installment payment program and that: (i) Were current in installment 
payments as of March 16, 1998; (ii) were less than ninety days 
delinquent on the last payment due before March 16, 1998; or (iii) had 
properly filed grace period requests under the former installment 
payment rules (``Eligible Licensees''). Those licensees that had paid 
in full are not eligible to participate in the restructuring plan as 
they no longer owe a debt to the Commission and no public policy goal 
would be served by allowing them to participate. Pursuant to the 
restructuring plan, Eligible Licensees must make elections on a per 
license basis, choosing among three options: (i) Reamortization and 
Resumption of Payments; (ii) Amnesty; or (iii) Prepayment (Prepayment-
Retain or Prepayment-Return). If an Eligible Licensee elects 
Reamortization and Resumption of Payments the licensee retains one or 
more of its licenses and remains in the installment payment plan. The 
loan will be ``reamortized'' over the remaining term of the license. If 
an Eligible Licensee elects Amnesty its license is returned to the 
Commission in exchange for debt forgiveness of the outstanding 
principal balance and all interest payments due thereon. The Commission 
retains the down payment. If an Eligible Licensee elects Prepayment it 
may return or retain as many licenses as it wishes. The Prepayment 
option applies to all of the licenses held by a licensee and cannot be 
combined with Amnesty or Reamortization/Resumption.
    2. ``Ineligible Entities'' are those entities that made first and 
second down payments and: (i) Made some installment payments, but were 
not current in their installment payments as of March 16, 1998, and did 
not have a grace period request on file in conformance with the former 
installment payment rules; or (ii) never made any installment payments 
and did not have a timely filed grace period request on file, in 
conformance with the former rules. See 47 CFR 95.816 (d)(3) (1994). 
Ineligible Entities are not eligible to make elections, but will be 
granted debt forgiveness for any outstanding balances owed and have 
previously paid installment payments refunded.
    3. On November 24, 1999, on our own motion, we adopted the 218-219 
MHz Reconsideration Order, 64 FR 72956 (December 29, 1999), which 
modified our 218-219 MHz Order. We eliminated the provision allowing an 
Eligible Licensee electing the Amnesty option to obtain a credit for 
seventy percent of its down payment and forego, for a period of two 
years from the start date of the next auction of the 218-219 MHz 
Service, eligibility to reacquire the surrendered licenses through 
either auction or any secondary market transaction.
    4. In response to the rulings in the 218-219 MHz Order, we received 
seven petitions for reconsideration, one opposition to the petitions, 
and no replies. We note that we did not receive any petitions for 
reconsideration in response to our sua sponte 218-219 MHz 
Reconsideration Order. After considering the arguments raised in the 
filings, we affirm the 218-219 MHz Order, as modified by the 218-219 
MHz Reconsideration Order, in its entirety. Additionally, we respond to 
certain requests for clarification contained in the filings and we make 
technical modifications to the rules.

II. Executive Summary

    5. The following is a synopsis of the major actions we adopt. In 
this Second Order on Reconsideration of the Report and Order and 
Memorandum Opinion and Order, we:
    (i) Affirm that the restructuring plan is limited to existing 
licensees that: (i) Were current in installment payments as of March 
16, 1998; (ii) were less than ninety days delinquent on the last 
payment due before March 16, 1998; or (iii) had properly filed grace 
period requests under the former installment payment rules;

[[Page 9213]]

    (ii) Decline to expand the options offered in the restructuring 
plan to include disaggregation;
    (iii) Decline to expand the options offered in the restructuring 
plan to include the return of the down payment;
    (iv) Affirm that the twenty-five percent bidding credit granted to 
all winning small business bidders in the 1994 auction of this service 
will not be extended to all winning bidders in the 1994 auction of this 
service; and
    (v) Affirm that the new part 1 rules regarding installment payments 
will apply to licensees in this service.

III. Background

    6. The 218-219 MHz Service is a short distance communications 
service that allows one-and two-way communications for both common 
carrier and private operations on a fixed or mobile basis. See 47 CFR 
95.803(a), 95.807(a). The 1992 Allocation Report and Order, 57 FR 8272 
(March 9, 1992), established the 218-219 MHz Service with a 500 
kilohertz frequency segment for two licenses in each of the 734 
cellular-defined service areas.
    7. We issued 218-219 MHz Service licenses by both random selection 
(lottery) and competitive bidding (auction). In the Omnibus Budget 
Reconciliation Act of 1993 (1993 Budget Act), Congress authorized the 
Commission to award licenses for spectrum-based services by auction. We 
subsequently determined that 218-219 MHz Service licenses should be 
awarded by competitive bidding and adopted rules and procedures for 
this licensing structure. Using these procedures, we held the first 
auction in the 218-219 MHz Service on July 28 and 29, 1994 (Auction No. 
2). On January 18, 1995, February 28, 1995, and May 17, 1995, the 
Commission conditionally granted licenses to the winning bidders, 
subject to the bidder satisfying the terms of the auction rules, 
including down payment requirements.
    8. Under the Commission's competitive bidding rules in effect at 
the time of Auction No. 2, winning bidders that qualified as small 
businesses were allowed to pay twenty percent of their net bid(s) as a 
down payment and the remaining eighty percent in installments over the 
five-year term of the license(s), with interest-only payments for the 
first two years, and interest and principal payments amortized over the 
remaining three years. See 47 CFR 95.816(d)(3). The first interest-only 
payment, due March 31, 1995, was deferred to June 30, 1995, pursuant to 
administrative action by the Office of Managing Director. Subsequently, 
the Wireless Telecommunications Bureau (Bureau) further stayed the date 
for making the initial interest-only payments pending Commission 
resolution of licensees' substantive requests related to the payment 
requirements. The Commission lifted the stay effective January 5, 1996, 
on which date licensees were required to make the interest-only 
payments back-due from March 31, 1995 and June 30, 1995. Although the 
interest-only payments due September 30, 1995 and December 31, 1995 
remained uncollected, we denied requests to set back the installment 
payment date and the first principal and interest payments were due on 
March 31, 1997.
    9. The Commission, in the 1995 IVDS Omnibus Order, and the Bureau 
in the IVDS Grace Period PN, 60 FR 39656 (August 3, 1995), cautioned 
licensees that, in accordance with Sec. 1.2110(e)(4)(ii) of our rules, 
if they individually required financial assistance, they should request 
a three-or six-month grace period during the first ninety days 
following any missed installment payments. The Bureau further cautioned 
licensees that if a licensee failed to make timely payments, absent the 
filing of a grace period request, the license would be in default. The 
Commission's rules in effect at that time provided that any licensee 
whose installment payment was more than ninety days past due was in 
default, unless the licensee properly filed a grace period request. 
Under the Commission's rules, licensees with properly filed grace 
period requests would not be held in default during the pendency of 
their requests and the interest accruing would be amortized by adding 
it to the other interest payments over the remaining term of the 
license. Upon expiration of any grace period without successful 
resumption of payment, or upon default with no such request submitted, 
the license would cancel automatically. The Commission amended the 
installment payment rules in 1998 to provide for two automatic grace 
periods of ninety days, subject to late fees. The 1998 amendment of the 
installment payment rules did not affect pending grace period requests 
filed by 218-219 MHz Service licensees.
    10. We have previously noted that deployment of the 218-219 MHz 
Service has not been successful despite previous steps we had taken to 
promote development of the 218-219 MHz Service. Moreover, those 
licensees actually deploying services are providing service different 
than that originally envisioned when the service was established. To 
promote full utilization of the service, we issued the 1998 218-219 MHz 
Flex NPRM that proposed changes to the 218-219 MHz Service licensing 
and technical rules. See 63 FR 54073 (October 8, 1998). The 218-219 MHz 
Flex NPRM also suspended, for the pendency of this rulemaking, the late 
payment fee and automatic cancellation provisions of Sec. 1.2110(f)(4) 
of our rules for licensees that were current in installment payments as 
of March 16, 1998; stayed decisions on grace period requests properly 
filed under the part 1 rules previously in effect; and proposed payment 
restructuring options. In the 218-219 MHz Order, we substantially 
adopted our proposals.
    11. Additionally, in the 218-219 MHz Order, we eliminated the 
minority- and women-owned business credits previously provided in 
Auction No. 2. At that same time, to harmonize our treatment of 
licensees in this service with the treatment of licensees in other 
services, we granted a bidding credit (Remedial Bidding Credit) to all 
winning bidders that met the small business qualifications for Auction 
No. 2.
    12. In the 218-219 MHz Order, we determined that it would serve the 
public interest to provide a variety of relief mechanisms to assist 
current 218-219 MHz Service licensees that were experiencing 
difficulties in meeting their financial obligations under the 
installment payment plan. We stated our belief that the mechanisms 
adopted afforded relief to current licensees while at the same time 
preserving the integrity of the auction process. We also recognized 
that for licensees whose licenses had cancelled, enforcement of the 
payment obligations would be unduly harsh in light of the totality of 
the circumstances. Thus, we recommended that those entities whose 
licenses had cancelled should receive debt forgiveness for their 
outstanding principal balance and accrued interest owed. We continue to 
believe that the approach adopted in the 218-219 MHz Order best serves 
the public interest. Thus, we affirm the 218-219 MHz Order, as modified 
by the 218-219 MHz Reconsideration Order. We discuss the particular 
issues raised by the petitioners, clarify certain points in the 218-219 
MHz Order, and make technical modifications to the rules.

IV. Discussion

    13. The petitioners have made a number of requests that fall into 
four general categories. The first category includes requests to change 
the options available under the restructuring plan. The second category 
includes requests to expand the definition of entities eligible to 
participate in the restructuring program. The third

[[Page 9214]]

category consists of miscellaneous requests relating to the 
restructuring plan. The fourth category consists of requests to expand 
the remedial bidding credit to all current and former licensees.

A. Options Available in the Restructuring Plan

i. Disaggregation
    14. Background. As noted, the restructuring plan offers Eligible 
Licensees three options: (i) Reamortization and Resumption of Payments; 
(ii) Amnesty; or (iii) Prepayment (Prepayment-Retain or Prepayment-
Return). Disaggregation was not proposed or adopted as a restructuring 
option.
    15. Originally, disaggregation was not allowed in this service. 
However, in the 218-219 MHz Flex Order, 63 FR 54073 (October 8, 1998), 
we proposed allowing spectrum aggregation, disaggregation, and 
partitioning as part of our overall effort to maximize the efficient 
and effective use of the 218-219 MHz frequency band. In doing so, we 
recognized that we have already adopted, and proposed adopting, 
disaggregation, and partitioning for a number of services. The proposal 
in the 218-219 MHz Flex Order to allow spectrum aggregation--in which a 
licensee could hold both 500 kHz block licenses in a 218-219 MHz 
Service market--received widespread support. Few commenters addressed 
disaggregation specifically. Those commenters that supported 
disaggregation did so based upon the general principle that regulatory 
parity with other wireless services would benefit licensees. However, 
one commenter believed that disaggregation would be impractical for 
such a small amount of spectrum, and another suggested that smaller 
amounts of spectrum would lower entry barriers for small businesses, 
but did not discuss what applications, if any, could be supported in 
the disaggregated spectrum.
    16. In adopting partitioning and disaggregation in the 218-219 MHz 
Service, we concluded that the benefits identified in the Partitioning 
Report and Order, 62 FR 696 (January 6, 1997), which we had extended to 
other wireless services, would likewise benefit the 218-219 MHz 
Service. In doing so, we noted that partitioning the geographic area of 
a license might provide sufficient flexibility to allow entry into the 
market by entities that lack sufficient resources to participate in the 
original auction.
    17. Discussion. Under Celtronix's proposal, an Eligible Licensee 
would elect to retain a portion of the spectrum for a given market and 
return the remainder to the Commission. This procedure, Celtronix 
suggests, would encourage parties to use spectrum more efficiently and 
speed service to unserved and underserved areas. Celtronix says it 
could provide service on 250 kHz--one half the bandwidth it is 
currently licensed to use, and notes that 220 MHz SMR frequencies are 
licensed in blocks smaller than 500 kHz.
    18. Although Celtronix's filings at an earlier stage of the 
proceeding supported a change in the rules to allow disaggregation, it 
first proposed disaggregation as a restructuring option in its petition 
for reconsideration. No other commenters or petitioners requested 
disaggregation as a restructuring option and, as noted above, several 
actually claimed that the existing 500 kHz blocks are insufficiently 
small for licensees to develop innovative services that will allow them 
to compete in the marketplace or to provide optimal interference 
protection.
    19. We believe that we have provided ample flexibility in the 
restructuring options offered. We recognize these options may not suit 
every licensee's particular business plan. We decline to modify the 
restructuring options without a substantial record demonstrating a 
broad-based need or desire for such a change. Based on the minimal 
record--as well as the outright skepticism of some commenters that 
channel blocks smaller than 500 kHz are practical for innovative uses--
we are doubtful that service will be developed in the portion of a 
channel block that would remain after a licensee elects disaggregation 
as a restructuring option. However, if, in the private marketplace, a 
licensee (such as Celtronix) and a third party can identify 218-219 MHz 
Service applications for which disaggregated spectrum is practical, our 
rules allow and we would encourage such a transaction because it would 
promote the rapid development of an entire 500 kHz channel block.
    20. Finally, we distinguish the 218-219 MHz spectrum from the 220 
MHz SMR frequencies identified by Celtronix. Although Celtronix is 
correct in pointing out that 220 MHz SMR frequencies are licensed in 
blocks smaller than 500 kHz, 218-219 MHz Service licensees, unlike 220 
MHz Service licensees, have TV Channel 13 protection requirements. 
Because disaggregated spectrum would provide a licensee with more 
limited interference protection options, we are even less confident 
that the marketplace would support the auction of disaggregated 
spectrum blocks in the 218-219 MHz Service. Accordingly, we decline to 
adopt Celtronix's proposal.
ii. Refunds of Down Payments
    21. Background. The 218-219 MHz Order allows for refunds of 
payments in three instances. First, Eligible Licensees that elect 
Amnesty will receive a refund of installment payments. Second, 
Ineligible Entities will receive a refund of installment payments. 
Third, Eligible Licensees that elect Prepayment, depending upon the 
number of licenses they return, might be entitled to a refund of excess 
installment payments. In the 218-219 MHz Order, we specifically 
declined to provide for the refunds of down payments. Two petitioners, 
Celtronix and Houston, request that we refund down payments. 
Specifically, Celtronix requests that we refund the down payments of 
those Eligible Licensees electing Amnesty. Houston alternatively 
suggests that we provide a credit equal to the down payments that may 
be used in future auctions.
    In essence, both petitioners are requesting that the Commission 
completely unwind the transaction and provide a full refund.
    22. Discussion. We decline to adopt the proposal to refund down 
payments as part of the restructuring plan as it would place the 
Eligible Licensees electing Amnesty in virtually the same position they 
would have occupied had the auction never taken place. In support of 
its proposal, Celtronix argues that it is inconsistent to allow 
Eligible Licensees that elect Prepayment-Return to get an 85 percent 
credit on the down payments for the returned license, when Eligible 
Licensees that elect Amnesty are not provided with a full refund on the 
down payments. Houston supports its proposal by alleging that investors 
in the service ``were victimized by slick promoters.''
    23. Providing a refund of down payments to those electing the 
Amnesty option, without an adequate counterbalancing public interest 
benefit, would undermine the integrity of the auction process by 
relieving participants of even the most basic obligation of their 
participation. Such an approach would not only be unfair to the other 
participants in the original auction, but it would encourage 
speculation in future auctions. In the 218-219 MHz Order, we considered 
and rejected a request to return a portion of the down payment. Our 
decision to allow licensees that elect Prepayment-Return to get an 85 
percent credit on the down

[[Page 9215]]

payment is justified by the public interest benefit of speeding service 
to the public. Presumably, only a licensees that reasonably believes it 
has access to adequate sources of capital and a viable business plan 
will elect Prepayment-Return. Presumably, these licensees will provide 
service to the public earlier then licensees from a subsequent auction. 
Thus, this option speeds service to the public. However, no such public 
interest benefit would accrue from providing a full refund to Eligible 
Licensees electing Amnesty. While we are sympathetic to Houston's 
allegations regarding ``slick promoters,'' we note that the 
Commission's present restructuring plan offers significant relief and 
that the Commission is not responsible for the actions of third 
parties. Accordingly, as the public interest is not served by giving 
licensees a complete refund, we reject petitioners' request.

B. Entities Eligible to Participate in the Restructuring Plan

i. Definition of Eligible Licensees
    24. Background. As noted, the 218-219 MHz Order adopted, among 
other things, a restructuring plan for existing licensees that 
participated in the installment payment plan and that: (i) were current 
in installment payments as of March 16, 1998; (ii) were less than 
ninety days delinquent on the last payment due before March 16, 1998; 
or (iii) had properly filed grace period requests under the former 
installment payment rules (``Eligible Licensees''). Other relief has 
been extended to Ineligible Entities.
    25. Discussion. One petitioner, Vista, requests that we modify the 
definition of Eligible Licensees. In support of its request, Vista 
argues that it is inequitable to allow licensees that had made no 
installment payments, but had filed a timely grace period request to 
retain their license, while refusing to permit licensees that made 
``substantial payments'' to retain their licenses. Vista also argues 
that the payment instructions provided by the Commission were 
conflicting, thus justifying a licensee's failure to make payments on 
its license or justifying a licensees failure to timely file a grace 
period request. Thus, Vista requests that the standard be modified so 
that the definition of Eligible Licensees also includes those licensees 
that have made ``substantial payments'' as of September 7, 1999, the 
date that the 218-219 MHz Order was adopted. In the alternative, Vista 
requests that former licensees be able to make a retroactive payment 
sufficient to be deemed ``current as of March 16, 1998.'' As explained, 
we reject these arguments and conclude that the approach we have 
adopted in the 218-219 MHz Order is equitable and is consistent with 
the treatment afforded licensees in other services. Accordingly, we 
decline to change the definition of Eligible Licensees.
    26. In the 218-219 MHz Order, the Commission attempted to balance 
the need to maintain the integrity of the auction system with the 
desire to assist licensees that might be experiencing financial 
difficulties. In doing so, we recognized the unique factual history of 
the 218-219 MHz Service. At the same time, we looked to the treatment 
afforded licensees in other services. Our decision to allow licensees 
that were current in installment payments (i.e. less than 90 days 
delinquent) as of March 16, 1998 to retain their licenses recognized 
that these licensees complied with our rules and attempted to fulfill 
their obligations to the Commission. Similarly, our decision to allow 
licensees that had timely filed grace period requests to retain their 
licenses stems from the licensees' ability to recognize their 
obligation to the Commission and take appropriate steps under our rules 
to request relief from their obligations in a timely manner. Allowing 
licensees that had timely filed grace period requests to retain their 
licenses is also consistent with the treatment afforded licensees in 
other services under the Part 1 Third Report and Order. See 63 FR 770 
(January 7, 1998).
    27. The test proposed by Vista is inherently subjective and would 
be unfair to licensees in other services. Administering such a 
subjective test would be difficult and would invite challenge on the 
basis of being arbitrary. Further, allowing licensees that failed to 
abide by the Commission's rules, but had made ``substantial payments'' 
to retain their licenses is inconsistent with the Commission's 
requirement that a licensee make full and timely payments. From such a 
rule current licensees, in this or other services, might conclude that 
no consequences would flow from failure to make full and timely 
payment. Accordingly, we decline to adopt the ``substantial payments'' 
test advocated by Vista.
    28. Additionally, we also reject Vista's argument that myriad 
factors created substantial confusion and uncertainty about licensees' 
payment obligations. Although the date for the initial payment was 
postponed for a period of time, even the most favorable reading of the 
Commission's orders and letters to licensees would not lead a licensee 
to believe that it was excused from its obligation to make payments, or 
that it did not need to file a grace period request if it determined 
that it could not make timely payments. To the extent there was any 
confusion as to the precise date a particular payment was due, the 
Commission took that into account by defining Eligible Licensees as 
existing licensees that had participated in the installment payment 
program and ``were current in installment payments as of March 16, 
1998.'' Thus, Vista has failed to provide a reasonable explanation of a 
licensees' failure to either make payments or file a timely grace 
period request.
    29. Finally, we decline to adopt Vista's request that licensees be 
able to make retroactive payments sufficient to be deemed ``current as 
of March 16, 1998.'' Vista's suggestion would undermine the 
Commission's rules that timely and full payment are a condition of 
retaining the license. In light of the ample notice provided licensees 
regarding the payment rules, 47 CFR 1.2110(e)(4)(ii)(1994), and the 
generous provisions for Ineligible Entities provided in the 218-219 MHz 
Order, Vista's suggestion at this late date that it be allowed to make 
retroactive payments is unsupportable. Thus, we reject Vista's proposal 
to allow former licensees to make retroactive payments.
ii. Paid in Full Licensees Are Not Eligible to Participate in the 
Restructuring Plan
    30. Background. The restructuring options in the 218-219 MHz Order 
are limited to those entities that met the small business 
qualifications of the auction, availed themselves of the installment 
payment plan, and have not paid in full. Two petitioners, Hughes and 
Hot Topics, have requested that all licensees be allowed to turn in a 
license and receive a refund.
    31. Discussion. We decline to adopt the petitioners' request as no 
public policy interest would be served by allowing all licensees to 
return their licenses and receive a refund. In support of its proposal, 
Hughes argues that the Commission has insufficient evidence before it 
to conclude that installment payment licensees were experiencing 
financial difficulties, and that alternatively, some licensees may have 
simply chosen to walk away from their financial responsibilities. Thus, 
Hughes concludes that the Commission's action is arbitrary. In the 218-
219 MHz Order, we have previously rejected Hughes arguments. Hot Topics 
contends that as the technology for the service never developed, a 
refund to all licensees is appropriate.

[[Page 9216]]

    32. For licensees utilizing installment payments, we offered a 
combination of debt restructuring for those entities that wish to 
retain their licenses and debt forgiveness to a limited number of 
current and former licensees. The relief is similar to that offered in 
the C Block Restructuring Orders, 63 FR 17111 (April 8, 1998), where 
the Commission chose to offer limited relief to licensees participating 
in the installment payment program, but not to those that paid in full. 
The restructuring plan fulfills the public policy goal of ensuring that 
the entity best qualified to provide service holds the license, and 
allows the market to determine the highest use for the license. 
However, where a licensee has paid in full for the license, nothing 
would prohibit the licensee from selling the license on the open 
market. Neither Hughes nor Hot Topics has established that a public 
policy goal would be fulfilled by unwinding the auction. By contrast, 
we risk considerable harm in adopting the proposal as it might create 
the false expectation in bidders in future auctions in this, or other 
services, that the Commission would compensate a licensee for any 
perceived loss in the value of its license. The Commission does not 
ensure the success of a service or the value of a license in the 
secondary market. Although, in a secondary market transaction, the 
licensee might receive less than the amount paid for the license, no 
public policy concerns would be raised by such a loss. As mandated by 
section 309(j) of the Communications Act, the Commission established a 
competitive bidding process that ensures that licenses are awarded to 
those that value them most highly as indicated by submitting the 
highest bid. To grant petitioners' request would encourage bidders to 
engage in insincere bidding with the expectation that the Commission 
would ensure against market difficulties encountered after license 
award.
    33. Finally, contrary to Hughes's suggestion, the Commission has 
considered evidence of the unique financial difficulties experienced by 
the 218-219 MHz Service licensees participating in the installment 
payment plan. For example, to our knowledge at least two licensees have 
filed for bankruptcy. Additionally, in the comments filed by the 
licensees in response to the 218-219 MHz Flex Order, and in the various 
grace period requests received by the Commission, licensees alleged 
that they have encountered financial difficulties particularly in 
raising capital. Accordingly, for the reasons discussed above, we 
decline to allow licenses that have paid in full to participate in the 
restructuring plan.

C. Miscellaneous Requests Relating to the Restructuring Plan

i. Grace Periods
    34. In the Part 1 Third Report and Order, we modified the 
installment payment grace period and late payment fee provisions of our 
Rules as applied to all licensees participating in an installment 
payment plan at that time. One petitioner, Celtronix, proposes to 
exempt 218-219 MHz Service licensees from the modified installment 
payment grace period and late payment fee provisions of the new part 1 
rules. Celtronix's petition in this proceeding offers the same argument 
that it previously offered in its petition for reconsideration of the 
Part 1 Third Report and Order. Specifically, Celtronix argues that 
applying these rules to 218-219 MHz Service licensees constitutes 
impermissible retroactive rulemaking. We rejected this argument in the 
Order on Reconsideration of the Part 1 Third Report and Order, See 65 
FR 52323 (August 29, 2000), and concluded that our new part 1 rules do 
not violate the prohibitions on retroactivity under the Administrative 
Procedure Act (``APA''). We see no reason to revist this issue in this 
proceeding
ii. Notes and Security Agreements
    35. Background. In the 218-219 MHz NPRM, See 63 FR 52215 (September 
30, 1998), we indicated that ``[e]very licensee electing to continue 
making installment payments would be required to execute appropriate 
loan documents, that may include a note and security agreement, as a 
condition of reamortization of its installment payment plan under the 
revised ten-year term, pursuant to Sec. 1.2110(f)(3) of the 
Commission's rules.'' In the 218-219 MHz Order, we indicated that 
Eligible Licensees electing resumption ``may be required to execute 
loan documents.'' The Implementation Procedures PN, 65 FR 35633 (June 
5, 2000), in turn, indicated that those Eligible Licensees electing 
Reamortization/Resumption would be ``required to execute loan documents 
in the form of an Installment Payment Acknowledgement.'' In general, 
the acknowledgement contains a restatement of the amount of the debt 
owed, the payment terms under the 218-219 MHz Order, and references 
other Commission rules and regulations related to the payment of 
installment debt. The Implementation Procedures PN also notes that 
``licensees may also be required to execute a Uniform Commercial Code 
financing statement (UCC-1).'' The Implementation Procedures PN further 
informs Eligible Licensees that failure to fully and timely execute and 
deliver the requisite loan document(s) as of ten business days from 
receipt will result in the automatic cancellation of the license.
    36. Discussion. One petitioner, In-Sync, argues that requiring loan 
documents, specifically notes and security agreements, is unnecessary 
and would constitute a retroactive rulemaking. We reject this argument. 
As discussed in the Implementation Procedures PN, the Bureau has 
determined not to require notes and security agreements, but will 
require the execution of other loan documents that evidence that the 
licensee understands and agrees to the restructured financing terms. 
Those licensees that do not wish to execute the required documents may 
elect Amnesty or elect Prepayment.
    37. The APA's definition of ``rule'' provides that a rule ``means 
the whole or a part of an agency statement of general or particular 
applicability and future effect designed to implement, interpret, or 
prescribe law or policy or describing the organization, procedures, or 
practice requirements of an agency * * *'' By definition, a rule has 
legal consequences only for the future. Thus, absent explicit statutory 
authority to the contrary, the APA precludes an agency from issuing 
rules that alter the past legal consequences of past actions. The 
requirement that Eligible Licensees execute loan documents does not 
violate this proscription. We have not gone back to past transactions 
and imposed penalties for conduct that was previously allowed. Rather, 
we are establishing prospective procedures to allow licensees to 
continue to meet their previously established payment obligation to the 
Commission. The mere fact that these rules deal with past transactions 
does not constitute unlawful retroactive rulemaking under the APA. 
Further, the Bureau's decision to require the execution of loan 
documents by Eligible Licensees that elect Reamortization and 
Resumption of Payments is based upon the reasonable concern that the 
Government's interests are adequately protected in the event of 
default. Accordingly, we agree with the approach adopted by the Bureau 
and reject petitioner's request.
iii. Interest Calculation
    38. Background. In the 218-219 MHz Flex Order, the Commission 
suspended the automatic cancellation rules. The effect of this was not 
to suspend the obligation of licensees to make

[[Page 9217]]

payments; rather it merely suspended the consequences of failing to 
make payment. As the underlying debt remained, a licensee was still 
permitted to make payments. In fact, some licensees have continued to 
make payments during the suspension period. However, licensees that 
failed to make payments did not face automatic cancellation.
    39. Discussion. Two petitioners, In-Sync and Celtronix, argue that 
interest should not have continued to accrue during the suspension 
period. In-Sync argues that as the 218-219 MHz Flex Order suspended the 
obligation to make the payments as of March 1998, interest should have 
not have continued to accrue during the period since March 1998. 
Additionally, both In-Sync and Celtronix argue that the 218-219 MHz 
Order is unclear and, accordingly, interest should not be calculated 
for the suspension period. Specifically, Celtronix points to the fact 
that in the 218-219 MHz Order the Commission stated that it will 
capitalize all ``accrued and unpaid'' interest into the principal 
amount as of the election date. However, in Sec. 95.816(c) of our 
rules, we stated that ``all unpaid interest'' from the grant date 
through the election date will be capitalized into the principal. From 
this, Celtronix concludes that we did not intend interest to accrue. 
Both petitioners are mistaken. As the underlying debt remained, the 
interest continued to accrue. The fact that the Commission relieved the 
licensees of one consequence of failing to make timely payments does 
not mean that the Commission intended to also relieve the licensees of 
all the consequences of failing to make payments. Further, given the 
sums involved, for at least some licensees, it would require approval 
by the Department of Justice to forgive the interest incurred during 
the suspension period. We note that the licensees had the use of the 
licenses during this period of time. As the petitioners have failed to 
provide any basis to forgive the interest, the Commission is not 
inclined to request debt forgiveness on this issue. Accordingly, 
petitioners' request is rejected.

D. Remedial Bidding Credit

    40. Background. Pursuant to statutory mandate, our auction rules 
have included provisions to encourage participation by minority- and 
women-owned entities, small businesses, and rural telephone companies. 
See 47 CFR 1.2110, 95.816(d)(3). Thus, when the auction for what is now 
the 218-219 MHz Service was conducted on July 28 and 29, 1994, (Auction 
No. 2), part 95 of the Commission's rules included provisions that 
allowed small businesses to pay eighty percent of their winning bids in 
installments. See 47 CFR 95.816(d)(3). Businesses owned by minority- 
and/or women-owned entities were also entitled to a twenty-five percent 
bidding credit that could be applied to one of the two licenses 
available in each market. See 47 CFR 95.816(d)(1). Bidders that were 
both small businesses and minority- and/or women-owned entities 
received bidding credits and were allowed to participate in the 
installment plan.
    41. At the time our rules were adopted for Auction No. 2, the 
standard of review applied to federal programs designed to enhance 
opportunities for racial minorities and women was an ``intermediate 
scrutiny standard.'' In June 1995, almost a year after the conclusion 
of Auction No. 2, the U.S. Supreme Court decided Adarand Constructors 
v. Pena, holding that racial classifications are subject to ``strict 
scrutiny'' and will be found unconstitutional unless ``narrowly 
tailored'' and in furtherance of ``compelling governmental interests.'' 
The following term, the Court decided in United States v. Virginia, 
that to successfully defend a gender based program, the government must 
demonstrate an ``exceedingly persuasive justification'' for the 
program. As explained in the 218-219 MHz Order, after Auction No. 2, 
Graceba and others raised constitutional questions concerning the 
bidding credits used in the 218-219 MHz service. In addition, the 
Commission, in the Competitive Bidding Sixth Report and Order, 60 FR 
37786 (July 21, 1995) and the Competitive Bidding Sixth Memorandum 
Opinion and Order, 61 FR 49066 (September 18, 1996), questioned whether 
the record was sufficiently developed to support the race and gender-
based provisions of the C block competitive bidding rules and the 
competitive bidding rules of other services under a strict scrutiny 
standard. In order to avoid delay of two scheduled auctions, the 
Commission decided to eliminate the race and gender based provisions 
for those auctions and instead employ a similar provision for small 
businesses. However, in light of the Commission's statutory mandate, 
the Commission commenced a series of studies to examine the minority 
and female ownership of telecommunications and electronic media 
facilities in the Unites States. Despite these efforts, in establishing 
rules for auctions in other services, we have continued to note that 
the record remains insufficient to support any racial or gender based 
provision under the standard established by the Supreme Court in 
Adarand and VMI.
    42. In the 218-219 MHz Order, consistent with the modifications 
made to the rules governing the auction of licenses in other services, 
we eliminated the minority- and women-owned business bidding credit 
previously afforded licensees in the first 218-219 MHz auction. Thus, 
all minority- and women-owned businesses lost the bidding credit they 
had previously received in the original auction in the 218-219 MHz 
Service conducted in 1994. At the same time, recognizing that we have 
provided bidding credits in other services to small businesses, we 
determined to grant a twenty-five percent bidding credit to the 
accounts of every winning bidder in the 1994 auction ``that met the 
small business qualifications for that auction.''
    43. Discussion. A few petitioners have requested that the 25 
percent credit granted to small business be applied to the accounts of 
all winning bidders regardless of whether they met the small business 
qualifications for the auction. One petitioner, Ad Hoc Coalition, 
argues that the provision of the remedial bidding credit, although 
facially neutral, was impermissibly motivated by a desire to assist 
women and minority businesses and is thus constitutionally flawed under 
Hunt v. Cromartie. Another petitioner, Hughes, argues that the 
Commission's response to the constitutional issue is inequitable as 
``all bidders in the auction suffered from the inflated prices of the 
licenses caused by the bidding credits.'' Hughes concludes that ``all 
winning bidders, whether they paid in full or not should be afforded a 
remedy.'' For the reasons discussed, we reject these arguments and 
decline to expand the remedial bidding credit to all winning bidders in 
Auction No. 2.
    44. The arguments of Hughes and Ad Hoc Coalition are based upon the 
assumption that we accorded bidding credits to all small businesses as 
a direct remedy for race and gender discrimination. That is incorrect. 
In order to address the questions raised concerning the 
constitutionality of race-and gender-based bidding credits, we 
eliminated those credits. This was the extent of the ``remedy'' 
provided for Graceba's concerns. However, as this issue was not raised 
until after the auction closed, we determined that it would be 
disruptive and unfair not to provide some form of bidding credit in 
this service, as licensees had crafted business plans in reliance upon 
the credit. Therefore, consistent with our practice in subsequent 
auctions, we

[[Page 9218]]

choose to afford all small businesses an after the fact bidding credit. 
Thus, in effect, we leveled the bidding credit benefit upward. In doing 
so, we minimized the potential for disruption to entities that had 
previously qualified for the credit, we equalized the regulatory 
treatment between the 218-219 MHz Service and the many other services 
in which we have extended bidding credits to all small businesses, and 
we fulfilled our statutory mandate of encouraging participation of 
entrepreneurs, rural telephone companies, and businesses owned by 
members of minority groups and women. The credit accorded small 
businesses thus solved a multi-faceted and complex set of regulatory 
issues. Those issues are not presented with respect to larger 
businesses such as Hughes and those represented by the Coalition, for 
Congress has not directed us to take special steps to ensure the 
participation of large companies. We, therefore, have no obligation to 
extend to such companies the same approach we have adopted toward 
smaller businesses.
    45. The remedial bidding credit affords 218-219 MHz Service 
licensees treatment similar to that afforded licensees in other 
services. Because the credit is not based on racial or gender 
classifications, it is not subject to a strict scrutiny analysis. 
Instead, our policy operates in a neutral manner and does not subject 
anyone to unequal treatment on the basis of race or gender. It 
therefore should be evaluated on the more deferential rational basis 
review.
    46. Under rational basis review, government action is permissible 
unless the varying treatment of different groups or persons is so 
unrelated to the achievement of any combination of legitimate purposes 
the government's actions are deemed irrational. In areas of social and 
economic policy, a classification that neither proceeds along suspect 
lines nor infringes fundamental constitutional rights must be upheld 
against equal protection challenge if there is any reasonably 
conceivable state of facts that could provide a rational basis for the 
classification.
    47. As we have stated previously with respect to small business 
credits, the remedial bidding credit for small businesses furthers 
Congress's objective of disseminating licenses among a wide variety of 
applicants. That reasonable objective is the basis for our decision to 
grant small business credits whether prospectively or retroactively as 
in this instance. Thus, the Commission's decision to grant remedial 
bidding credits to small businesses is entirely permissible. The fact 
that the pool of licensees eligible for the credit includes all the 
licensees that had previously been afforded the minority- and women-
owned bidding credit is immaterial to the lawfulness of our approach. 
Indeed, that correspondence is not surprising because women and 
minority businesses are frequently, although not exclusively, small 
businesses. Accordingly, we reject Ad Hoc Coalition's argument that the 
bidding credits were impermissibly motivated.
    48. With respect to Hughes comments that the existence of bidding 
credits inflated the prices paid by licensees, such a contention is 
wholly speculative. Hughes has failed to provide any evidence 
indicative of inflation in the bidding due to the existence of bidding 
credits, nor has it provided an analysis that would distinguish such 
inflation in the bidding price due to bidding credits from other 
factors. Further, as explained, the elimination of the race-and gender-
based bidding credits was the ``remedy'' provided for any alleged 
constitutional concerns. Even had Hughes provided an evidentiary basis, 
we would decline to offer the relief requested. Thus, as Hughes' 
comment is purely speculative, we dismiss it as such.

D. Technical Modifications to the Rules

    49. On our own motion, we make several technical modifications to 
conform our rules to the 218-219 MHz Order. Among these changes, we 
correct the cross-reference to Sec. 95.815(a) contained in Sec. 95.861 
of our rules to specify the interference plan discussed in the text of 
the 218-219 MHz Order, clarify that CTSs provide fixed service, and 
specify that the general part 1 transfer and assignment procedures 
apply to all 218-219 MHz Service licensees, regardless of how they 
obtained their license. Although Sec. 1.902 of the rules makes these 
transfer and assignment procedures broadly applicable to all the 
Wireless Radio Services, we conclude that the inclusion of a specific 
cross-reference to Sec. 1.948 of the rules in part 95 will aid 218-219 
MHz service licensees in meeting their obligations under our general 
part 1 rules. We also remove the individual licensing requirements for 
CTSs that may have an environmental effect or require obstruction 
marking and lighting, because we already collect this information 
elsewhere in our rules.

V. Ordering Clauses

    50. Accordingly, it is ordered that, pursuant to the authority 
granted in Sec. 4(i), 303(r), and 309(j) of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j), the petitions 
for reconsideration filed in response to the 218-219 MHz Order are 
denied.
    51. It is further ordered, that pursuant to that authority granted 
in sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i), 303(r), and 309(j), the technical 
modifications to the Commission's rules, as described herein, are 
hereby adopted. These modifications shall become effective April 9, 
2001.

List of Subjects in 47 CFR Parts 2 and 95

    Communications equipment.

Federal Communications Commission.
Shirley S. Suggs,
Chief, Publications Group.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 2 and 95 as follows:

PART 2--FREQUENCY ALLOCATIONS AND RADIO TREATY MATTERS; GENERAL 
RULES AND REGULATIONS

    1. The authority citation for part 2 continues to read as follows:

    Authority: 47 U.S.C. 154, 302, 303, 307, 336, and 337, unless 
otherwise noted.


    2. In Sec. 2.106, under the heading ``United States (US) Footnotes, 
revise Footnote US317 to read as follows:


Sec. 2.106  Table of Frequency Allocations.

* * * * *
    US317 The band 218.0-219.0 MHz is allocated on a primary basis to 
218-219 MHz Service operations.
* * * * *

PART 95--PERSONAL RADIO SERVICES

    3. The authority citation for part 95 continues to read as follows:

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
U.S.C. 154, 303.

    4. Section 95.803 is revised to read as follows:


Sec. 95.803  218-219MHz Service description.

    (a) The 218-219 MHz Service is authorized for system licensees to 
provide communication service to subscribers in a specific service 
area.
    (b) The components of each 218-219 MHz Service system are its 
administrative apparatus, its response transmitter units (RTUs), and 
one or more cell transmitter stations (CTSs). RTUs may be used in any 
location

[[Page 9219]]

within the service area. CTSs provide service from a fixed point, and 
certain CTSs must be individually licensed as part of a 218-219 MHz 
Service system. See Sec. 95.811.
    (c) Each 218-219 MHz Service system service area is one of the 
cellular system service areas as defined by the Commission, unless 
modified pursuant to Sec. 95.823.

    3. Section 95.807 is amended by revising paragraphs (a) 
introductory text, (a)(1), and (a)(4) to read as follows:


Sec. 95.807  Requesting regulatory status.

    (a) Authorizations for systems in the 218-219 MHz Service will be 
granted to provide services on a common carrier basis or a private 
(non-common carrier and/or private internal-use) basis.
    (1) Initial applications. An applicant will specify on FCC Form 601 
if it is requesting authorizations to provide services on a common 
carrier, non-common carrier or private internal-use basis, of a 
combination thereof.
* * * * *
    (4) Pre-existing licenses. Licenses granted before April 9, 2001. 
are authorized to provide services on a private (non-common carrier) 
basis. Licensees may modify this initial status pursuant to paragraph 
(a)(3) of this section.
* * * * *

    4. Section 95.811 is amended by revising paragraph (b) and adding 
paragraph (e) to read as follows:


Sec. 95.811  License requirements.

* * * * *
    (b) Each CTS where the antenna does not exceed 6.1 meters (20 feet) 
above ground or an existing structure (other than an antenna structure) 
and is outside the vicinity of certain receiving locations (see 
Sec. 1.924 of this chapter) is authorized under the 218-219 MHz System 
license. All other CTS must be individually licensed.
* * * * *
    (e) Each CTS (regardless of whether it is individually licensed) 
and each RTU must be in compliance with the Commission's environmental 
rules (see part 1, subpart I of this chapter) and the Commission's 
rules pertaining to the construction, marking and lighting of antenna 
structures (see part 17 of this chapter).

    5. Section 95.812 is amended by revising paragraph (a) to read as 
follows:


Sec. 95.812  License term.

    (a) The term of each 218-219 MHz service system license is ten 
years from the date of original grant or renewal.
* * * * *

    6. Sec. 95.816 is amended by revising the last sentence in 
paragraph (b), paragraphs (c)(3) and (c)(5) to read as follows:


Sec. 95.816  Competitive bidding procedures.

* * * * *
    (b) * * * The interest rate will equal the rate for five-year U.S. 
Treasury obligations at the grant date.
    (C) * * *
    (3) For purposes of determining whether an entity meets either of 
the definitions set forth in paragraph (c)(1) or (c)(2) of this 
section, the gross revenues of the entity, its affiliates, and 
controlling interests shall be considered on a cumulative basis and 
aggregated.
* * * * *
    (5) A consortium of small businesses (or a consortium of very small 
businesses) is a conglomerate organization formed as a joint venture 
between or among mutually independent business firms, each of which 
individually satisfies the definition in paragraph (c)(1) of this 
section (or each of which individually satisfies the definition in 
paragraph (c)(2) of this section). Where an applicant or licensee is a 
consortium of small businesses (or very small businesses), the gross 
revenues of each small business (or very small business) shall not be 
aggregated.
* * * * *

    7. Section 95.819 is revised to read as follows:


Sec. 95.819  License transferability.

    (a) A 218-219 MHz Service system license, together with all of its 
component CTS licenses, may be transferred, assigned, sold, or given 
away only in accordance with the provisions and procedures set forth in 
Sec. 1.948 of this chapter. For licenses acquired through competitive 
bidding procedures (including licenses obtained in cases of no mutual 
exclusivity), designated entities must comply with Secs. 1.2110 and 
1.2111 of this chapter (see Sec. 1.948(a)(3) of this chapter).
    (b) If the transfer, assignment, sale, or gift of a license is 
approved, the new licensee is held to the construction requirements set 
forth in Sec. 95.833.

    8. Section 95.861 is amended by revising paragraph (c) to read as 
follows:


Sec. 95.861  Interference.

* * * * *
    (c) A 218-219 MHz Service licensee must provide a copy of the plan 
required by Sec. 95.815 (a) of this part to every TV Channel 13 station 
whose Grade B predicted contour overlaps the licensed service area for 
the 218-219 MHz Service system. The 218-219 MHz Service licensee must 
send the plan to the TV Channel 13 licensee(s) within 10 days from the 
date the 218-219 MHz Service submits the plan to the Commission, and 
the 218-219 MHz Service licensee must send updates to this plan to the 
TV Channel 13 licensee(s) within 10 days from the date that such 
updates are filed with the Commission pursuant to Sec. 95.815.
* * * * *
[FR Doc. 01-3051 Filed 2-6-01; 8:45 am]
BILLING CODE 6712-01-U