[Federal Register Volume 67, Number 9 (Monday, January 14, 2002)]
[Rules and Regulations]
[Pages 1626-1643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-868]
[[Page 1626]]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 20 and 22
[WT Docket No. 01-14; FCC 01-328]
2000 Biennial Regulatory Review--Spectrum Aggregation Limits for
Commercial Mobile Radio Services
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document completes the Commission's reexamination of the
need for the Commercial Mobile Radio Service (CMRS) spectrum
aggregation limit, or ``spectrum cap,'' and cellular cross-interest
rules as part of its 2000 biennial review of the Commission's
regulations, pursuant to section 11 of the Communications Act of 1934,
as amended (Communications Act). The intended effects of this action
are to ``sunset'' the spectrum cap rule effective January 1, 2003;
permit the Commission to consider, in conjunction with the United
States Department of Justice (DOJ), substantive and processing
guidelines for the Commission's case-by-case review of transactions
that would raise concerns similar to those that the spectrum cap was
designed to address; raise the spectrum cap to 55 MHz in all markets
during the transition period; and eliminate the cellular cross-interest
rule in Metropolitan Statistical Areas (MSAs), while retaining it in
Rural Service Areas (RSAs).
DATES: Effective February 13, 2002.
FOR FURTHER INFORMATION CONTACT: Lauren Kravetz Patrich or John
Branscome, Commercial Wireless Division, Wireless Telecommunications
Bureau, at (202) 418-0620.
SUPPLEMENTARY INFORMATION: This Report and Order (``R&O'') in WT Docket
No. 01-14, FCC 01-328, adopted November 8, 2001, and released December
18, 2001, is available for inspection and copying during normal
business hours in the FCC Reference Information Center, 445 Twelfth
Street, S.W., Room CY-A257, Washington, DC 20554. The complete text may
be purchased from the Commission's duplicating contractor, Qualex
International, 445 Twelfth Street, S.W., Room CY-B402, Washington, DC
20554, (202) 863-2893. The complete text is also available under the
file name fcc01328.doc on the Commission's Internet site at
www.fcc.gov.
Synopsis of Order
I. Background
A. CMRS Spectrum Cap
1. CMRS Spectrum Aggregation Limit. The CMRS spectrum cap provides
that ``[n]o licensee in the broadband PCS, cellular, or SMR services
(including all parties under common control) regulated as CMRS * * *
shall have an attributable interest in a total of more than 45 MHz of
licensed broadband PCS, cellular, and SMR spectrum regulated as CMRS
with significant overlap in any geographic area, except that in Rural
Service Areas (RSAs), * * * no licensee shall have an attributable
interest in a total of more than 55 MHz of licensed broadband PCS,
cellular, and SMR spectrum regulated as CMRS with significant overlap
in any RSA.'' 47 CFR 20.6(a). Determining whether a ``significant
overlap'' exists is necessary because of the use of different licensing
and service areas for cellular, broadband Personal Communications
Service (PCS), and Specialized Mobile Radio (SMR) spectrum. When a PCS
license and a cellular or SMR license are involved, a significant
overlap exists when ten percent or more of the population of the
designated PCS licensed service area is within the Cellular Geographic
Service Area (CGSA) or SMR service area(s) in question.
2. History of the CMRS Spectrum Cap. The CMRS spectrum cap was
established in 1994, in anticipation of PCS licensing, and in
recognition that direct competition was likely to develop among
cellular, broadband PCS, and SMR. Previously, the Commission had
imposed service-specific limitations on the aggregation of broadband
PCS spectrum and on cellular/PCS cross-ownership. In adopting the CMRS
spectrum cap to complement these latter two rules, the Commission found
that an overall cap applicable to cellular, broadband PCS, and SMR
spectrum would add certainty to the marketplace without sacrificing the
benefits of pro-competitive and efficiency-enhancing aggregation. The
Commission explained that, if licensees were to aggregate sufficient
amounts of CMRS 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 determined that the imposition
of a cap on the amount of covered spectrum that a single entity could
control in any one geographic area would limit the ability of any
entity to increase prices artificially. The Commission also found that
a cap on broadband PCS, SMR, and cellular spectrum holdings would
prevent licensees from artificially withholding capacity from the
marketplace. The Commission concluded 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. Third Report and Order (59 FR
59945, November 21, 1994).
3. In 1996, in light of the U.S. Court of Appeals for the Sixth
Circuit's ruling in Cincinnati Bell Telephone Co. v. FCC (69 F.3d 752
(6th Cir. 1995)) remanding the cellular/PCS cross-ownership
restriction, the Commission eliminated the service-specific limitations
on the aggregation of broadband PCS spectrum and on cellular/PCS cross-
ownership, and decided to rely solely on the 45 MHz CMRS spectrum cap
to ensure that multiple service providers would be able to obtain
broadband PCS spectrum and thereby facilitate the development of
competitive markets for wireless services. The Commission analyzed
potential market concentration and again found that a 45 MHz spectrum
cap was sufficient ``to avoid excessive concentration of licenses and
promote and preserve competition'' while ``maintaining incentives for
innovation and efficiency.''
4. In the First Biennial Review Order (``First Biennial Review
Order'') (64 FR 54564, October 7, 1999), the Commission decided
substantially to retain the CMRS spectrum cap, together with the
cellular cross-interest rule, but ordered modifications to reflect
circumstances in rural areas and to permit passive institutional
investors to acquire greater non-attributable interests in CMRS
carriers. The Commission concluded that the spectrum cap remained a
simple and effective means of mitigating the competitive consequences
of the spectrum-related barriers to entry in CMRS markets, and found
that the 45 MHz limit struck the proper balance (in non-rural areas)
between preserving opportunities for competitive entry and permitting
carriers to achieve economies of scope and scale. The Commission did,
however, raise the cap to 55 MHz in RSAs. This decision was based on
findings that the potential consumer benefits in rural areas from
competitive, facilities-based entry were likely to be limited by the
economics of offering service to lower-density populations. The
Commission also amended the spectrum cap rule to provide that equity
interests of up to forty percent held by
[[Page 1627]]
passive institutional investors are not attributable. At the same time,
the Commission adopted a waiver process to meet the spectrum
requirements for third-generation (3G) and other advanced wireless
services until additional spectrum for next generation applications
could be allocated.
B. Cellular Cross-Interest Rule
5. Cellular Cross-Interest Rule. Section 22.942 of the Commission's
rules limits the ability of parties to have interests in cellular
carriers on different channel blocks in a single geographic area. 47
CFR 22.942. To the extent licensees on different channel blocks have
any degree of overlap between their respective CGSAs, the rule
prohibits any entity with an attributable interest in one licensee from
having a direct or indirect ownership interest of more than five
percent in the other licensee. An attributable interest is defined
generally to include an ownership interest of twenty percent or more,
as well as any controlling interest. However, an entity may have non-
controlling and otherwise non-attributable direct or indirect ownership
interests of less than twenty percent in licensees for different
channel blocks in overlapping CGSAs. Divestiture of interests as a
result of a transfer of control or assignment of authorization must
occur prior to consummating the transfer or assignment.
6. History of the Cellular Cross-Interest Rule. The cellular cross-
interest rule was adopted in 1991, when cellular licensees were the
predominant providers of mobile voice services. In adopting this rule,
the Commission stated that ``in a service area where only two cellular
carriers are licensed per market, the licensee on one frequency block
in a market should not own an interest in the other frequency block
licensee in the same market.'' Thus, the Commission adopted
restrictions on a party's ability to hold ownership interests in both
cellular licensees in the same geographic area ``[i]n order to
guarantee the competitive nature of the cellular industry and to foster
the development of competing systems.'' In the First Biennial Review
Order, the Commission determined that the cellular cross-interest rule
was still required to protect against substantial anticompetitive
threats from common ownership between the two cellular carriers in any
given geographic area. The Commission found that cellular carriers
served approximately eighty-six percent of nationwide mobile telephone
subscribers at the end of 1998, and determined that the percentage was
less than seventy in only a few major metropolitan markets. However,
because competition from other services had increased on the whole
since the rule's inception in 1991, the Commission relaxed the rule's
attribution standards to the current limits described above.
C. Notice of Proposed Rulemaking
7. In the Notice of Proposed Rulemaking (``NPRM'') (66 FR 9798,
February 12, 2001) (corrected at 66 FR 10567, February 15, 2001) in
this proceeding, the Commission initiated a reexamination of the need
for CMRS spectrum aggregation limits as part of its 2000 biennial
regulatory review of the Commission's telecommunications regulations.
Section 11 of the Communications Act requires the Commission, every two
years, to review all regulations that apply to ``the operations or
activities of any provider of telecommunications service'' and to
``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.'' The NPRM initiated the
Commission's second comprehensive review of the CMRS spectrum cap and
cellular cross-interest rules, the two regulations that currently limit
the aggregation of broadband CMRS spectrum.
8. The NPRM requested public comment, including the submission of
specific market data and studies, to assist the Commission's
determination of whether the CMRS spectrum aggregation rules are no
longer necessary in the public interest and, if they are necessary,
whether the Commission's existing spectrum limits should be modified.
First, comment was requested on whether spectrum aggregation limits,
including the cellular cross-interest rule, continue to enhance
meaningful competition in today's CMRS marketplace. In this regard,
comment was sought on the development of meaningful economic
competition, as well as the potential competitive consequences of
consolidation that may occur without spectrum aggregation limits. Next,
comment was requested on spectrum management and other regulatory
considerations, particularly in the context of spectrum suitable for
broadband CMRS. Under this inquiry, the Commission sought to examine
any costs that the spectrum aggregation limits may impose on the
development of advanced wireless services, the possible benefits of
prophylactic standards, and whether these standards promote efficiency.
In addition, comment was sought on how recent international
developments should affect the Commission's public interest
determination.
9. The Commission also sought comment on the implications for its
processes of DOJ's antitrust law enforcement responsibilities. The
Commission asked whether it should defer to DOJ in CMRS license
transfers, and, if so, what form such deference should take.
Specifically, the Commission asked whether all transfers resulting in
consolidation of spectrum below a certain threshold should be exempt
from competitive analysis under section 310(d) of the Communications
Act. The Commission acknowledged that antitrust laws may place adequate
focus on mergers that threaten to curtail actual competition.
Therefore, the Commission asked whether it may, and should, refrain
from independent review of the competitive effects of a transaction
that is subject to some specified level of DOJ review, and if so, what
that level should be.
10. The NPRM also requested comment on whether specific attributes
of the CMRS spectrum cap and cellular cross-interest rules should be
modified, if those rules are generally retained, to allow some of the
benefits that may arise from additional cross-ownership interests. To
the extent that certain revisions would reduce any costs of the rules
or promote public interest objectives, the Commission sought comment on
how to implement them without significantly increasing barriers to
entry for new competitors or reducing benefits to wireless consumers.
II. Discussion
A. Standard for Decision
1. Section 11 of the Communications Act
11. The Telecommunications Act of 1996 (1996 Act) (Public Law No.
104-104, 110 Stat. 56 (1996)) significantly amended the Communications
Act to permit and encourage competition in various communications
markets. Congress anticipated that the development of competition would
lead market forces to reduce the need for regulation. Section 11 of the
Communications Act, which was added by the 1996 Act, provides that
every two years the Commission shall review all regulations that apply
to ``the operations 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.'' Section 11 further
provides that in carrying out this review, the Commission ``shall
repeal or
[[Page 1628]]
modify any regulation it determines to be no longer necessary in the
public interest.''
12. Consistent with section 11, the Commission stated in the NPRM
that its fundamental inquiry is whether, as a result of meaningful
economic competition among providers of telecommunications services,
spectrum aggregation limits are no longer necessary in the public
interest. The Commission sought comment on what constitutes
``meaningful economic competition'' under section 11, and to what
degree the relevant competitive conditions have changed since the
Commission's last biennial review of these rules. If meaningful
economic competition were found to exist, the Commission asked whether
this would mean that spectrum aggregation limits have served their
purpose and are no longer in the public interest, or whether public
interest considerations nevertheless would warrant continued use of
spectrum aggregation limits.
13. Commenters differ on how section 11 should be applied and
whether there might be public interest reasons to retain spectrum
aggregation limits if meaningful economic competition exists. The
Commission, however, concludes that it need not, for purposes of this
proceeding, go beyond the plain meaning of the text of section 11 of
the Communications Act. The language places an obligation on the
Commission to ``determine'' if the regulation in question ``is no
longer necessary in the public interest as the result of meaningful
economic competition.'' Section 11 requires the Commission to determine
``whether any of these regulations are no longer in the public interest
because competition between providers renders the regulation no longer
meaningful.'' The Communications Act then explicitly provides that
``the Commission shall repeal or modify'' any regulation that it
determines is no longer necessary in the public interest as the result
of meaningful economic competition. The statutory language does not
impose any particular burdens on the opponents or proponents of a
particular rule, but rather places the burden on the Commission to make
the requisite determinations. In exercising its obligation under
section 11, the language suggests that the Commission must examine why
the rule was ``necessary'' in the first place and whether it is
necessary any longer. Thus, in making the determination whether a rule
remains ``necessary'' in the public interest once meaningful economic
competition exists, the Commission must consider whether the concerns
that led to the rule or the rule's original purposes may be achieved
without the rule or with a modified rule.
14. The primary public interest purpose underlying the original
adoption of the spectrum aggregation limits was to promote pro-
competitive ends in CMRS markets. In initially setting the spectrum cap
in 1994, the Commission's goal was to ``discourage anticompetitive
behavior while at the same time maintaining incentives for innovation
and efficiency.'' The Commission found that its ``goal of preventing
anticompetitive outcomes'' could be accomplished by creating a cap on
broadband PCS, cellular, and SMR licensees, which would ``prevent
licensees from artificially withholding capacity from the market.''
Consistent with this goal, the Commission stated that the spectrum cap
sought ``to promote diversity and competition in mobile services, by
recognizing the possibility that mobile service licensees might exert
undue market power or inhibit market entry by other service providers
if permitted to aggregate large amounts of spectrum'' Furthermore, the
absence of a spectrum cap could undermine other statutory goals related
to the promotion of competition, ``such as the avoidance of excessive
concentration of licenses and the dissemination of licenses among a
wide variety of applicants.'' In addition, the Commission found that
the cap not only promoted competition, but also benefited the public
interest by allowing review of CMRS acquisitions in an administratively
simple manner and lending certainty to the marketplace. In 1996 and
1999, the Commission reaffirmed the primary public interest purpose of
promoting pro-competition ends in the CMRS markets. In 1996, the
Commission also found that the spectrum cap, in addition to other tools
at its disposal, furthered the goals of section 309(j) of the
Communications Act. CMRS Spectrum Cap Report and Order (61 FR 33859,
July 1, 1996) (corrected at 61 FR 51233, October 1, 1996). (The
Commission notes that there are other tools to achieve goals other than
competition, including case-by-case review, as well as prescribing
license area designations and bandwidth assignments, and using bidding
credits to create opportunities for new entrants.) In adopting the
cellular cross-interest rule, the Commission acted ``[i]n order to
guarantee the competitive nature of the cellular industry and to foster
the development of competing systems.''
2. Meaningful Economic Competition
15. In the case of the spectrum cap and cellular cross-interest
rules, the Commission's inquiry focuses on the state of competition in
the consumer markets for CMRS. At the same time, the Commission
recognizes that spectrum is an input in CMRS markets. Indeed, this
recognition prompted adoption of the spectrum cap as a means of
ensuring CMRS competition in the first place. Although participants in
the mobile telephony and CMRS spectrum markets are largely the same
entities under current conditions, this could change if leasing
arrangements become more common. Secondary Markets Policy Statement (65
FR 80367, December 21, 2000). Again, the Commission emphasizes that the
markets with which it is principally concerned are the output markets
for services, and that conditions in the input markets provide only a
partial proxy measure of competition in the output markets.
Nonetheless, in the context of the output market, the state of control
over the spectrum input is a relevant factor.
16. In evaluating CMRS markets, the Commission considers both
actual and potential competition. In general, potential competition can
be as important as actual competition in promoting desirable outcomes.
In the case of CMRS, however, it appears that actual competition among
those firms already providing service has been the most significant
factor in the gains that have been achieved in recent years. There
remains relatively little potential for additional entry into urban
markets in the near term, because most licenses for currently allocated
spectrum have been constructed and put into service. In rural markets,
a significant number of licenses have not yet been put into service,
but demographic and geographic conditions generally appear to render
additional large-scale entry economically difficult to support. As
additional CMRS-suitable spectrum becomes available, the overall effect
on the CMRS marketplace of potential competition could change.
3. Necessity for Rules in the Public Interest
17. In determining whether its spectrum aggregation limits remain
necessary in the public interest, the Commission considers the original
purposes for which the rules were promulgated. The purpose underlying
the spectrum aggregation limits was to promote competition in CMRS
markets. An important consideration in determining the necessity for
regulation is the availability of other, less
[[Page 1629]]
burdensome tools to achieve these ends. In the case of the CMRS
spectrum aggregation limits, these tools include case-by-case review of
transactions by the Commission and DOJ, as well as the Commission's
ability to shape the initial distribution of licenses through the
service rules adopted with respect to specific auctions. In addition,
the Commission is also obligated, pursuant to section 332(c)(1)(C) of
the Communications Act, to continue to review (as it has done six times
already) the state of competition among CMRS providers. Specifically,
this provision states:
The Commission shall review competitive market conditions with
respect to commercial mobile services and shall include in its
annual report an analysis of those conditions. Such analysis shall
include an identification of the number of competitors in various
commercial mobile services, an analysis of whether or not there is
effective competition, an analysis of whether any of such
competitors have a dominant share of the market for such services,
and a statement of whether additional providers or classes of
providers in those services would be likely to enhance competition.
47 U.S.C. 332(c)(1)(C).
The Commission's most recent report, issued this year, has guided
its decision in this proceeding, and future reports will continue to
provide a useful tool for overseeing the changes, if any, in
competitive market conditions. Sixth Annual CMRS Competition Report
(``Sixth Annual CMRS Competition Report'') (16 FCC Rcd 13350 (2001)).
Moreover, the Commission also has at its disposal various enforcement
tools to ensure that CMRS carriers, which are common carriers under
section 332(c) and key provisions of Title II of the Communications
Act, 47 U.S.C. 332(c), 201, 202, 208, do not engage in conduct that is
anti-competitive or otherwise harm consumers due to excess
concentration of spectrum.
B. Analysis of Competition in the Mobile Telephony Markets
18. The Commission begins its analysis by considering the state of
economic competition. Various indicators confirm the presence of
meaningful economic competition in markets for CMRS. As the Commission
described in the Sixth Annual CMRS Competition Report, and as
commenters generally agree, mobile telephony markets have experienced
and continue to experience strong growth, increased competition, and
active innovation. (Although the Commission noted that it could not
warranty the accuracy or completeness of the individual data in the
Sixth Annual CMRS Competition Report, all of which were taken from
publicly available sources, the Commission finds that, cumulatively,
these data are more than adequate to inform its evaluation of
meaningful economic competition.) The Commission also finds it
important that competition in these markets has progressed
dramatically, not only since 1994, but since its last biennial review.
19. Number of Competitors and Concentration. One basic indicator of
meaningful economic competition is that most Americans have a choice of
obtaining CMRS from several different providers of service. As of the
end of 2000, about ninety-one percent of U.S. residents lived in a
county that was served, at least in part, by three or more different
mobile telephony providers, and seventy-five percent of the U.S.
population lived in a county where five or more providers offered
service. (Because the Commission's analysis was limited to publicly
available sources of information, this coverage percentage is based on
the number of operators serving any portion of a particular county.
Consequently, some counties included in this analysis may have only a
small amount of coverage from a particular provider.) Furthermore, over
133 million people lived in counties with six or more mobile telephony
providers, an increase of thirty-five percent over the previous year,
and thirty-four million people lived in counties served by seven or
more providers, a one-year increase of 170 percent. By contrast, when
the spectrum cap was first promulgated in 1994, in all but the few
markets where Nextel had then launched service, consumer choice was
limited to two cellular providers.
20. Measures of market concentration in the record show a
substantial continuing decline in concentration in most local CMRS
markets. The Commission finds that considerable entry has occurred and
that meaningful competition is present, particularly given the presence
of such earmarks of competition as falling prices, increasing output,
and improving service quality and options. Specifically, concentration
in CMRS markets, as measured by subscriber share, is falling.
Calculations submitted by economist John Hayes in both this record and
the previous biennial review proceeding show that Herfindahl-Hirschman
Indices (HHIs) in the twenty-five largest markets, calculated based on
estimated subscribed customers, have fallen by an average of fifteen to
twenty-five percent over the last two years. This downward trend in
concentration may be attributed in part to the continued construction
of new entrants' networks, which has made these mobile telephony
providers more viable competitors.
21. On the other hand, other measures of market concentration
reveal moderate to high concentration levels. Using CMRS spectrum share
as the capacity measure, the Commission has calculated HHIs of 1,270 to
1,801 for the fifty most populous MSAs, and 1,246 to 2,405 for a
sampling of eighty counties in RSAs. These figures are generally
consistent with the capacity'based HHI calculations submitted by
various commenters. The Commission emphasizes, however, that caution is
appropriate in employing such measures, whether they reveal a positive
or negative indication of concentration. Although more concentrated
markets can be less competitive and more vulnerable to anticompetitive
activity than less concentrated markets, moderate to high concentration
is not necessarily a threat to competition. For example, the Commission
has previously found that ``an HHI analysis alone is not determinative
and does not substitute for its more detailed examination of
competitive considerations.'' In the case of CMRS markets, for example,
limits to economies of scale, technological compatibility issues,
difficulties in finding a willing seller at a reasonable price, and
capital market constraints limit consolidation. Moreover, antitrust
review by the DOJ and section 310(d) review by the Commission continue
to serve as protection against levels of consolidation that would
impair competition. Furthermore, HHI measures function as indicators of
the likely competitive situation--guidelines to which other information
is added, as under the DOJ/Federal Trade Commission (FTC) approach--
rather than as the single factor upon which to make competitive
judgments, including the judgment of whether to retain the spectrum cap
rule. As the DOJ/FTC Merger Guidelines state, ``[b]ecause the specific
standards set forth in the guidelines must be applied to a broad range
of possible factual circumstances, mechanical application of those
standards may provide misleading answers to the economic questions
raised under antitrust laws.''
22. Based on the record before the Commission and publicly
available evidence, however, there appears to be a disparity in the
amount of actual competition existing in MSAs versus RSAs. In MSAs,
eighty-six percent of counties have four or more facilities-based CMRS
providers serving some portion of the county, while in RSAs, twenty-
four percent of counties have four or more facilities-based CMRS
[[Page 1630]]
providers. Further, in over half of RSA counties, two or fewer licensed
mobile telephony carriers are currently providing service. Because
these numbers include carriers that may be offering service in only a
small portion of a county, they may overstate the amount of actual
facilities-based competition, especially in RSAs. Moreover, the
Commission's licensing records show that gaps in the footprints of the
nationwide carriers tend to be greater in RSAs than in MSAs. Of the
fifty most populous MSAs, forty have five licensed nationwide carriers,
not counting Nextel, and the other ten have four. In a sampling of
fifty average population RSA counties, by contrast, sixteen have five
nationwide carriers, sixteen have four, and eighteen have fewer than
four. In a sampling of thirty less populated RSA counties, eight have
five nationwide carriers, nine have four, and thirteen have fewer than
four. Therefore, consumers in rural areas appear to have fewer choices
in terms of providers, pricing plans, and service offerings than
consumers in MSAs. Commenters generally agree that rural markets have
significantly less competition than metropolitan areas in large part
due to population density and economics.
23. Benefits to Consumers of Competition. As the CMRS marketplace
has developed, consumers in both MSAs and RSAs have realized the
benefits of competition in the form of increased output, lower prices,
and increased diversity of service offerings. For example, from 1993 to
2000, the number of subscribers using mobile phones jumped 584 percent,
the amount of revenue the sector generated climbed 384 percent, and the
number of people employed in the industry grew 364 percent. In
addition, as the Commission described in the Sixth Annual CMRS
Competition Report, and as commenters generally agree, prices in mobile
telephony markets are falling at an accelerating rate. During 2000, the
cellular telephone component of the Consumer Price Index (CPI) produced
by the United States Department of Labor decreased by 12.3 percent,
while the overall CPI increased by 3.4 percent. In comparison, the
cellular telephone component of the CPI from December 1997 to January
1999 decreased by 9.1 percent (8.4 percent annualized), while the
overall CPI increased by 1.9 percent. Several studies indicate that the
entrance of new competitors into mobile telephony markets continues to
reduce prices. Furthermore, mobile telephony service providers are
offering new and innovative pricing plans. Most of the major carriers
offer nationwide flat-rate, digital pricing plans, and several large
carriers now offer regional flat-rate, digital pricing plans as well.
Further, several carriers provide international roaming services to
their customers. Mobile telephony providers are also offering
technologically innovative services including Short Message Service
(SMS), e-mail, and web-based applications. In addition, ``churn * * *
and continued expansion of mobile networks into new and existing
markets demonstrate a high level of competition for mobile telephony
customers.''
24. To a certain degree, mobile telephony services have begun to
compete with wireline services. For some, wireless service is no longer
a complement to wireline service but has become the preferred method of
communication. According to a recent survey by the Yankee Group, about
three percent of mobile telephony subscribers rely on their wireless
phone as their only phone. In another survey conducted in January 2000,
twelve percent of respondents said they purchased a mobile phone
instead of installing an additional wireline phone. In a survey
performed for the Consumer Electronics Association, three in ten mobile
phone users, and forty-five percent of mobile phone users aged eighteen
to thirty-four years old, stated they would rather give up their home
telephone than their mobile phone. In some areas, mobile phone use has
begun to erode wireline revenue due to ``technology substitution,''
that is, the substitution of new technologies for existing ones.
BellSouth, for example, stated in February 2001 that it was exiting the
payphone business in part due to business lost to mobile phones.
25. A few mobile carriers have begun offering service plans
designed to compete directly with wireline local telephone service. For
example, Leap, through its Cricket subsidiary, now offers its
Comfortable Wireless mobile telephone service in over a dozen markets.
Leap's service allows subscribers to make unlimited local calls and
receive calls from anywhere in the world for a flat rate of
approximately $30 per month. In November 2000, Leap also claimed that
sixty percent of its customers use their wireless phones as their
primary phone. US Cellular, ALLTEL, and Rural Cellular Corporation
similarly offer flat-rate or nearly flat-rate service plans in select
markets. Several CMRS providers have received Eligible
Telecommunications Carrier status, enabling them to receive universal
service funding in certain states, and some carriers are using cellular
or broadband PCS spectrum to offer fixed wireless services.
26. Consumers have also derived benefits in recent years from
combinations as some operators have expanded their licensed service
areas through acquisitions and swaps to create nationwide service
providers. There are currently six nationwide mobile telephony
operators: AT&T, Cingular, Nextel, Sprint, Verizon, and VoiceStream.
The Commission has concluded previously that mobile telephony service
providers with nationwide service areas can achieve certain economies
of scale and increased efficiencies compared to operators with smaller
service areas.
27. Barriers to Entry. One potential threat to the continued
existence of meaningful economic competition in CMRS markets is the
barrier to entry posed by the limited availability of spectrum. Ease of
entry is an important factor when determining if firms in a given
product and geographic market will be able to exercise market power.
``[E]ntry is * * * easy if entry would be timely, likely, and
sufficient in its magnitude, character and scope to deter or counteract
the competitive effects of concern.'' In particular, we note that
antitrust authorities ``will consider timely only those committed entry
alternatives that can be achieved within two years from initial
planning to significant market impact.'' Unfettered market competition
forces prices to the level of production costs. Markets function
optimally only if one or more firms are able to enter a market or
expand current production swiftly and effectively in response to the
elevation of prices (or degradation of service) by one or more firms
attempting to exercise market power. Therefore, in evaluating the state
of the market the Commission considers whether barriers to entry exist
and, if so, how pronounced these barriers to entry are, with the
ultimate goal of determining whether potential entry would be timely,
likely, and sufficient to discipline the market.
28. The requirement to obtain access to spectrum constitutes a
barrier to facilities-based entry into the CMRS marketplace because the
supply of suitable spectrum is limited. Facilities-based mobile
telephony service cannot be offered without access to suitable
spectrum, and a government license is required to use spectrum to
provide CMRS. Some commenters argue that, because CMRS spectrum
allocations have been made, this barrier to entry has been reduced.
Other commenters, however, argue that it is typically difficult to
acquire the spectrum necessary to enter a CMRS market. One
[[Page 1631]]
commenter, in particular, emphasizes that the finite amount of spectrum
suitable for CMRS is an ``insurmountable barrier to entry.'' The
Commission finds that the limited amount of spectrum suitable for CMRS
available today creates a significant barrier to entry, at least in
MSAs. Most of the spectrum currently subject to the cap either has been
assigned or is being considered for assignment to the high bidder at
auction. In most cases, the high bidder is either an existing market
participant or its affiliate. Although some of this spectrum is
currently unused or underused, the total pool of such spectrum is
finite, and the amount that is not controlled by a provider that has
launched service, particularly in MSAs, is small.
29. Some commenters argue that availability of spectrum is not a
significant barrier to entry because other spectrum, not covered by the
cap, is a viable substitute for the provision of mobile telephony
services. Specifically, commenters identify spectrum allocated for
Mobile Satellite Service (MSS), big Low Earth Orbit (LEO) satellite
service, Multipoint Multichannel Distribution Service and Instructional
Television Fixed Service (MDS/ITFS), Wireless Communications Service
(WCS), and CMRS other than cellular, broadband PCS, and SMR, as well as
spectrum that has been (or is soon likely to be) reallocated from
television Channels 52-59 and 60-69. Much of this spectrum, however,
either is not currently allocated for mobile terrestrial use, is
subject to technical and use restrictions that prevent offering of full
mobile telephony services, or has insufficient capacity to support
significant mobile telephony competition. The Commission believes the
spectrum bands that are most likely to support additional competition
to the services offered over cellular, broadband PCS, and SMR spectrum
in the reasonably near future are the 1.7 and 2.1 GHz bands that are
being considered for mobile allocation in the Commission's so-called 3G
proceeding, and the bands reallocated from television Channels 60-69.
However, this spectrum is still at least several months away from being
assigned, and after assignment it will take time for incumbent users to
be relocated and following that for licensees to build out their
networks. Thus, although the Commission expects that 3G and Channels
60-69 spectrum will offer some potential for near-term entry over the
next few years, the availability of spectrum suitable for CMRS remains
a barrier to entry in the near term.
30. Nonetheless, there are factors that moderate concern regarding
the spectrum access barrier to entry. In particular, the need for
direct access to spectrum is not absolute because carriers can compete
in the provision of CMRS without direct access to spectrum through
resale, or a mobile virtual network operator (MVNO) arrangement.
However, it is not clear that these options have more than a limited
role today. The transition period the Commission adopts today also
helps to minimize the problem of spectrum access because, while future
allocations do not respond to the needs of the marketplace today, the
Commission expects that additional spectrum will be available at the
end of the transition period, or shortly thereafter.
31. Although access to spectrum does not appear to be a substantial
barrier to entry in RSAs, as in these areas there is typically a
significant amount of unused spectrum, the other costs of serving high-
cost and low-density areas may make it unlikely that competition in
RSAs will increase to a level rivaling that of MSAs. Specifically, the
cost of building out a network with pervasive coverage is likely to be
higher in rural than in urban areas (especially for digital networks on
1.9 GHz PCS spectrum with lower power handsets), and revenue potential
is lower. Thus, the potential revenue from initiating or expanding
service in an RSA may not be sufficient to cover the costs of building
out the network, including any opportunity costs associated with
directing resources to rural buildout instead of enhancing the
carrier's network in urban areas. In addition, it would likely be time-
consuming for a new entrant to access sufficient capital, build out its
network to a sufficient degree to effectively market its services, and
attract a sufficient subscriber base to discipline the market. Although
the Commission does not have sufficient record evidence to evaluate the
likely development of the market in RSAs, the underlying economics
appear to make it unlikely that competition in RSAs will evolve in the
near term to rival that in MSAs.
32. Other Issues. Various commenters discuss the potential for CMRS
providers to foreclose entry by anticompetitive warehousing of
spectrum. Some commenters argue that it is unlikely that carriers have
an incentive to warehouse spectrum because the cost of acquiring
spectrum and meeting the Commission's buildout requirements is high.
Other commenters, however, argue that CMRS providers have an incentive
to warehouse spectrum either by purchasing more spectrum than can be
used or by investing in inefficient technologies. Even if a carrier did
not deliberately set out to foreclose competition, one commenter
contends that the profits from doing so may be an attractive side
effect of spectrum aggregation. The Commission does not have evidence
that firms are currently holding excess spectrum in order to deter
entry or that the benefits of excluding competitors would exceed the
cost of acquiring spectrum and the free-rider problem of several
incumbents benefiting from one incumbent's expenditure. However, it is
at least a threshold possibility that because the supply of suitable
spectrum is limited, firms in CMRS markets might choose to overinvest
in spectrum in order to deter entry, depending on the costs of doing
so.
33. One commenter also suggests that collusion among CMRS providers
may warrant ongoing consideration. It notes that pricing plans for CMRS
offerings are similar among the national carriers, and price
comparisons of these plans can easily be performed, facilitating price
coordination. Further, the commenter argues that experience in the
marketplace shows carriers behaving in a largely oligopolistic fashion
by offering largely identical products at prices far above their
marginal costs. However, another commenter argues that anticompetitive
collusion is unlikely in CMRS markets because these markets have well-
capitalized actual and potential competitors, and demand is increasing.
Further, according to this commenter, it is relatively easy for
existing competitors to add capacity in response to any price increase,
and therefore firms cannot profitably reduce output and sustain a high
price for a significant period of time. Other commenters argue that the
large number of competitors and the complexities of the various pricing
plans make coordination unlikely. Although the record does not indicate
that tacit collusion is occurring or is likely to occur, CMRS markets
do meet many of the criteria that make tacit collusion sustainable.
Moreover, tacit collusion becomes more likely as the number of
competitors is reduced.
34. Conclusion. In light of all the factors discussed above, the
Commission finds that there is meaningful economic competition in CMRS
mobile telephony generally. Evidence in MSAs regarding the current
state of these markets clearly shows that the presence of multiple
competitors is effectively restraining prices, promoting innovation and
diversity, and increasing output. Based on the information
[[Page 1632]]
available, competition in RSAs appears to be less robust than in MSAs.
Finally, to the extent that competitive concerns are raised in a
particular proposed assignment or transfer of control application, as
discussed below, the Commission believes they can be addressed through
means other than the spectrum cap.
C. Repeal and Interim Modification of the Spectrum Cap
35. Currently, the Commission evaluates the competitive effects of
the acquisition of CMRS spectrum primarily through the general
application of numerical thresholds such as the spectrum cap. The
Commission could, however, fulfill its duties under section 310(d) and
other statutory provisions through case-by-case review of individual
transactions. In light of its finding of meaningful economic
competition above, the Commission concludes that long-term retention of
the spectrum cap rule is no longer necessary in the public interest,
and it therefore moves to repeal that rule. At the same time, it
concludes that it is necessary in the public interest to retain the
rule for a limited transition period to allow the market to adjust and
enable the Commission to consider guidelines for case-by-case review of
CMRS spectrum aggregation transactions. Finally, during the transition
period, the Commission modifies the rule by increasing the spectrum cap
to 55 MHz in all areas.
1. Move From Prophylactic Rule to Case-by-Case Review
36. Background. With respect to the appropriate regulatory tool for
reviewing potential effects on competition in CMRS markets, proponents
of the current spectrum cap generally favor a bright-line approach,
arguing that a bright line promotes regulatory certainty and
significantly reduces the processing time of transfer and assignment
applications. One proponent argues that determining how to apply the
rule in a particular case is easier than gathering the information that
transacting parties may be required to submit under a case-by-case
approach, such as potentially sensitive customer and market share
information. Generally, opponents of the current spectrum cap argue
that case-by-case review is preferable to a prophylactic approach
because the case-by-case approach is more flexible and reduces the
possibility of blocking transactions that are actually in the public
interest or, alternatively, permitting transactions that are not in the
public interest.
37. Discussion. The Commission concludes that it is appropriate to
move in the very near future from reliance on a prophylactic rule of
general application to pure case-by-case review. In assessing the
choice of an appropriate tool, the Commission recognizes that different
costs and benefits can be associated with bright-line rules and case-
by-case review with respect to degree of flexibility, predictability of
outcome, likelihood of rejecting beneficial (or approving harmful)
transactions, ability to account for the particular attributes of a
transaction or market, speed of decision-making, and resource demands
on the Commission and carriers.
38. On balance, and in light of the growth of both competition and
consumer demand in CMRS markets, the Commission concludes that case-by-
case review, accompanied by enforcement of sanctions in cases of
misconduct, is now preferable to the spectrum cap rule because it gives
the Commission flexibility to reach the appropriate decision in each
case, on the basis of the particular circumstances of that case. The
development of competition among CMRS carriers since the 1999 biennial
review is an important factor underlying this conclusion. The
Commission is persuaded that competition is now robust enough in CMRS
markets that it is no longer appropriate to impose overbroad, a priori
limits on spectrum aggregation that may prevent transactions that are
in the public interest. As discussed below, the Commission commits
itself to increasing Commission resources available to review spectrum
aggregation transactions and to considering appropriate guidelines for
review of future transactions, in order to continue to provide parties
with a reasonable degree of certainty and transparency as well as to
minimize the administrative costs of case-by-case review.
39. The Commission does not agree with commenters who suggest that
the spectrum cap rule should be retained to promote technologically
efficient use of spectrum. As discussed above, the Commission's purpose
in adopting the spectrum cap was to promote competition in CMRS
markets. The Commission is not persuaded that it is in the public
interest to interfere with the competitive market's creation of
incentives regarding choice of technology. Similarly, the Commission
does not agree with commenters who argue that the spectrum cap rule
should be retained to further opportunities for resale or roaming
arrangements. The Commission's case-by-case review will allow it the
flexibility to consider any such concerns raised with respect to
specific applications.
40. The Commission also is not persuaded by arguments that the
spectrum cap rule should be retained to preserve opportunities for
entrepreneurs and providers of niche services. As other commenters
point out, the spectrum cap rule does nothing in and of itself to
create opportunities for entrepreneurs, and may actually harm small
businesses by limiting their access to existing carriers as sources of
capital and management expertise. Furthermore, to the extent the
spectrum cap does create some potential opportunities for
entrepreneurs, the Commission finds this benefit is insufficient to
outweigh the benefits of moving away from a bright-line rule approach,
particularly in light of the other tools it has to help preserve
opportunities for small businesses--its ability to carry out case-by-
case review of transactions and its ability to shape the initial
distribution of licenses through the service rules adopted with respect
to specific auctions. Moreover, the Commission intends to take into
account the special needs of small businesses as it considers
processing guidelines, and the Commission believes that individualized
review will benefit small businesses as well as large.
41. Finally, the Commission notes the arguments of several parties
that, if it eliminates or increases the spectrum cap, it should take
certain other actions to ensure competition in all segments of the CMRS
marketplace. The merits of these proposals are beyond the scope of this
proceeding, irrespective of the Commission's decisions today with
regard to the spectrum cap; however, the Commission notes that a
flexible case-by-case approach will allow it to consider specific
circumstances and impacts of individual applications.
2. Case-by-Case Review
42. The public policy objectives that the Commission first
articulated in 1994 with respect to review of CMRS spectrum
acquisitions remain applicable today. The spectrum cap rule was
originally designed to ``discourage anticompetitive behavior while at
the same time maintaining incentives for innovation and efficiency.''
The Commission has also stated that the spectrum cap promotes
competition in CMRS markets, allows efficient administration of CMRS
spectrum acquisitions, and provides regulatory certainty to the
marketplace. Although the Commission decides today that the spectrum
cap rule is no longer necessary in the public interest, it must still
[[Page 1633]]
achieve the objectives that the spectrum cap was intended to promote.
The Commission believes that these objectives can now be better
achieved in the context of secondary market transactions through case-
by-case review, properly performed. Furthermore, to the extent that the
initial distribution of spectrum through auction is an issue in the
future, that is also amenable to case-by-case review, in the sense that
the Commission can shape the initial distribution through the service
rules adopted with respect to specific auctions.
43. With or without the spectrum cap rule, the Commission has an
obligation to ensure that acquisitions of CMRS spectrum do not have
anticompetitive effects that render them contrary to the public
interest. Specifically, section 310(d) of the Communications Act
requires the Commission not to approve any transfer, assignment, or
disposal of a license, or attendant rights unless it finds that the
public interest, convenience, and necessity will be served thereby.
Moreover, although strong competitive forces are evident in today's
CMRS industry, the Commission recognizes the possibility that
significant additional consolidation of control over spectrum could
have serious anticompetitive effects. Thus, the Commission intends to
perform case-by-case review of CMRS spectrum aggregation transactions
in order to fulfill its statutory mandates to promote competition,
ensure diversity of license holdings, and manage the spectrum in the
public interest. 47 U.S.C. 301, 303, 309(j), 310(d). The Commission
determines that, in order to ensure that this review is performed in a
manner that serves the public interest, it is necessary to retain the
spectrum cap rule until January 1, 2003, to enable the Commission and
the market to prepare for case-by-case review, including the
Commission's consideration of processing and/or substantive guidelines
for this process.
44. Performing Case-by-Case Review. Although, the Commission
determines that long-term retention of the spectrum cap rule is no
longer necessary to serve the procompetitive purposes for which it was
adopted, it recognizes that application of this prophylactic rule has
conferred certain advantages. In particular, the spectrum cap rule has
provided parties with guidance regarding what transactions the
Commission would likely consider to be in the public interest, enabled
parties to structure their transactions to fall within the rule, and
provided processing guidance for Commission staff. From August 2000 to
August 2001, the Wireless Telecommunications Bureau disposed of
assignments and transfers of control involving approximately 1,305
licenses (other than pro forma applications) currently covered by the
CMRS spectrum cap. The overwhelming majority of these transfers and
assignments were processed within ninety days.
45. If it were to repeal the spectrum cap immediately, without
anything further, the Commission would have neither objective
guidelines nor a body of precedent to guide the review process.
Therefore, the Commission would run the risks both that its review
would fail to produce accurate and consistent results, and that,
without benefit of either objective standards or directly applicable
precedent, applications would not be decided on a timely basis. To
perform meaningful and timely review of spectrum aggregation
transactions without the spectrum cap, the Commission may need to
develop effective guidelines for this process, as well as ensure that
sufficient resources are devoted to the task. One commenter emphasized
the importance of regulatory certainty and speed of review to enable
them to plan efficiently, invest with confidence, and reassure
providers of capital. A transition period is necessary so that the
Commission can continue to meet these needs.
46. As it develops the contours of its case-by-case regime during
the transition period, the Commission will consider what form of
guidelines might best balance the virtues of certainty and flexibility
in this review process. For example, procedural guidelines could
specify timing benchmarks and the types of information that applicants
will be expected to provide. It may also be useful to applicants and
Commission staff to identify substantive factors and benchmarks that
would make the Commission more or less likely to take a closer look at
a proposed transaction. For example, some of these factors could track
those in the DOJ/FTC Merger Guidelines, such as measures of
concentration in a market. One commenter argues that, to the extent the
Commission develops internal processing guidelines for evaluating
wireless transactions, ``it should look to the same criteria used by
[DOJ] in its antitrust analysis--the Merger Guidelines, and rely on the
kind of information and methodologies utilized by DOJ in conducting its
competition analyses.'' The Commission also will consider the most
appropriate process for developing potential guidelines, including
whether notice and comment procedures are necessary or helpful. The
Commission emphasizes, however, that it does not intend to adopt
guidelines to reinstate a bright-line rule.
47. Relationship of Commission's and DOJ's Processes. With respect
to competitive issues, applicants may currently be required to satisfy
both the Commission's review process and that of DOJ. (DOJ investigates
proposed mergers and acquisitions to determine whether they may
substantially affect competition under sections 1 and 2 of the Sherman
Antitrust Act (15 U.S.C.
1-2) and section 7 of the Clayton Act (15 U.S.C. 18)). In the NPRM, the
Commission asked whether, and under what circumstances, in its review
of transfer/assignment applications it should defer to DOJ's review of
competitive issues in a transaction. A number of parties, generally
those that favor retaining the spectrum cap, argue that the Commission
cannot leave all competitive review of CMRS markets to DOJ. One
commenter argues that the Commission bears a special responsibility
under the Communications Act for CMRS markets, different from the
antitrust authority of DOJ under the antitrust statutes. Unlike DOJ or
FTC, the commenter asserts, the Commission is under explicit statutory
mandates to promote economic opportunity; avoid excessive concentration
of licenses and disseminate licenses among a wide variety of
applicants; foster rapid deployment of new technologies, products, and
services that benefit the public; and promote the efficient use of the
spectrum. Further, the commenter argues that the Communications Act
obligates the Commission to promote competition, while DOJ is
authorized only to stop proposed transactions that would substantially
lessen competition. Therefore, the commenter argues, the Commission has
an independent role in competitive review and is not duplicating the
work of the antitrust agencies by performing competitive analysis.
48. Another commenter argues that the Commission has authority to
prevent certain anticompetitive acquisitions that DOJ does not, such as
the acquisition of licenses at auction, license swaps, and spectrum
leases. Further, the commenter argues that the Commission has an
independent responsibility to review competitive effects of
transactions because DOJ's review standard does not encompass overall
public interest considerations. Another commenter argues that the
Commission should continue to analyze the competitive effects of
license transfers and assignments because many transactions fall below
the reporting
[[Page 1634]]
threshold of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (HSR) (15 U.S.C. 18(a)) and, in light of the recent increase
in these thresholds, fewer transactions are now reportable than before.
Pursuant to 15 U.S.C. 18(a), premerger notification is required if a
transaction meets either of two thresholds: (1) one of the parties to
the transaction has annual sales or assets of more than $100 million
and the other party $10 million, and as a result of the acquisition,
the acquiring person will hold voting securities or assets worth in the
aggregate more than $50 million; or (2) the total value of the
transaction exceeds $200 million. Further, the commenter argues that
DOJ has limited resources, resulting in review of only a subset of the
transactions reported under HSR and virtually none of the transactions
that need not be reported.
49. Some parties that favor eliminating the spectrum cap argue that
the Commission's competitive analysis duplicates review by DOJ and,
therefore, is unnecessary and creates delay and uncertainty. These
parties generally believe that the Commission should review transfers
and assignments only pursuant to specific obligations imposed by the
Communications Act, e.g., the public interest standard of section
310(d) and for compliance with Commission rules, and that competitive
review of CMRS transactions should be performed exclusively by the
antitrust agencies. Another commenter argues that DOJ is better
equipped than the Commission to investigate competitive harm, but that
section 310(d) of the Communications Act provides the means for the
Commission also to investigate competitive issues as a supplement to
DOJ's responsibilities.
50. Discussion. The Commission finds that, under the statutory
regime set out by Congress, the Commission has an obligation, distinct
from that of DOJ, to consider as part of the Commission's public
interest review the anticompetitive effects of acquisitions of CMRS
spectrum, including those that occur in the secondary market. The U.S.
Court of Appeals for the District of Columbia Circuit has found that
the Commission must consider antitrust and competition effects in
making its public interest determinations under the Communications Act.
United States v. FCC (652 F.2d 72 (D.C. Cir. 1980)).
51. Further, the Commission's independent statutory obligations in
this area are sufficiently different from those of DOJ that it would be
difficult for the Commission to fulfill them were it to defer generally
to competitive assessments made by DOJ. For example, the Commission's
unique spectrum management responsibilities, including those under 47
U.S.C. 151, 301, 303, and 309(j), are affected by the level of
competition that exists in CMRS markets. In addition, while the
Commission has never chosen to exercise it, the Commission has
independent authority under sections 7 and 11 of Clayton Act (15 U.S.C.
18, 21(a)) to disapprove the acquisition of common carriers engaged in
wire or radio communications or radio transmissions of energy in any
line of commerce in any section of the country where the effects of
such an acquisition may substantially lessen competition, or tend to
create a monopoly.
52. There are also significant differences between the two
agencies' procedural responsibilities. Unlike DOJ, the Commission has
an independent statutory obligation to make a public interest
determination that is judicially reviewable, on the record, pursuant to
the APA, with regard to all applications for transfer or assignment of
licenses. By contrast, DOJ does not review all CMRS-related
transactions, is permitted to exercise prosecutorial discretion in
choosing which cases to pursue, and is not required to state the
reasons that underlie its decision to abandon individual cases. Were
the Commission to defer all competitive review to DOJ, it would
sometimes be compelled to defer to DOJ's silence on particular matters,
providing no basis for judicial review.
53. It may, however, be appropriate for the Commission to rely, at
least in part, on DOJ's analysis in certain cases where DOJ has fully
examined the competitive effects of a particular acquisition and
determined its effect on the relevant market(s)--for example, cases
where DOJ and the transacting parties have entered into a Consent
Decree. The Commission intends during its transition period to case-by-
case review to explore appropriate circumstances in which it might
either rely on DOJ's conclusions or engage in greater coordination with
DOJ with respect to these issues so as to minimize duplication of
effort between the agencies, process applications as efficiently as
possible, and minimize the burden on applicants for Commission approval
of transfers and assignments.
54. Transition Period. The Commission concludes that a transition
period, pursuant to which a modified spectrum cap will remain in effect
until January 1, 2003, is in the public interest so that applicants and
the Commission can prepare for case-by-case review of all transactions.
In addition to giving the Commission the opportunity to consider
guidelines, a transition period will also help carriers prepare for the
additional burdens that case-by-case review could impose on their
resources. In particular, the Commission believes this preparation may
be especially important for small businesses. While the Commission
believes that opportunities for small businesses can be fully protected
through a case-by-case approach, the Commission recognizes that
advancing one's positions in a case-by-case regime could require the
preparation of more detailed applications, which could require
resources that small businesses may not be immediately prepared to
commit. In addition, regulatory certainty and speed of processing are
likely to be particularly important to small businesses, which
typically are less able to withstand extended or costly administrative
processes. This demand for resources would be especially great if the
Commission were to change immediately to a case-by-case process without
first considering effective standards and procedures. The Commission
intends to take the special needs of small businesses into account in
considering its guidelines for the review of CMRS spectrum
acquisitions.
55. At the same time, the Commission finds that in the interim,
continued application of the spectrum cap, modified as discussed below,
will not result in significant distortions in the market or delay in
the introduction of beneficial services. In fact, in only relatively
few instances is any party at the spectrum cap. (In the fifty most
populous MSAs, Commission records indicate that in only four instances
is a carrier currently at the spectrum cap, and in a survey of eighty
sample RSAs the Commission found only seven instances of a party
reaching the cap.) The Commission believes increasing the spectrum cap
to 55 MHz will provide a meaningful margin to relieve capacity
constraints that some carriers may face now or are likely to encounter
within the next fourteen months. Thus, the Commission will generally
presume that transactions complying with the 55 MHz spectrum cap will
not cause undue risk of market concentration. At the same time, while
it anticipates that most transactions that are within the cap will not
raise competitive concerns, the Commission retains the discretion to
review the competitive effects of transactions that are within the
spectrum cap if an interested party provides specific evidence that
such a transaction will create an undue risk of market concentration,
or if the Commission staff independently finds
[[Page 1635]]
such evidence. In any instance in which permitting a carrier to exceed
55 MHz would be in the public interest due to capacity constraints or
otherwise, the waiver process remains available.
56. The Commission concludes that sunsetting the cap on January 1,
2003, will provide a sufficient period of time for the Commission and
industry to prepare for reliance solely on case-by-case review of CMRS
spectrum aggregation transactions. Moreover, two blocks of spectrum
that will be usable for CMRS are likely to be allocated and assigned
within this approximate timeframe or soon thereafter. First, the
Commission currently has pending a proceeding in which it has proposed
to allocate additional spectrum for the provision of 3G and other
advanced services. 3G Notice of Proposed Rulemaking (66 FR 7483,
January 23, 2001), 3G Memorandum Opinion and Order and Further Notice
of Proposed Rulemaking (``M&O'') (66 FR 47591, September 13, 2001) and
(``FNPRM'') (66 FR 47618, September 13, 2001), 3G First Report and
Order and Memorandum Opinion and Order (``First R&O'') (66 FR 53960,
October 25, 2001) and (``MO&O'') (66 FR 53973, October 25, 2001).
Second, 30 MHz of spectrum being vacated by television Channels 60-69
is scheduled to be auctioned beginning June 19, 2002. Accordingly, the
spectrum cap rule will cease to be effective on January 1, 2003. The
Commission believes that setting a date certain for repeal of this rule
provides stability to the market, and that this period gives all
parties sufficient time to prepare for the change.
3. Modification to the Spectrum Cap During the Transition Period
57. Having determined that the CMRS spectrum cap should be
eliminated, but that a transition period is necessary before it
switches to a pure case-by-case approach to analyzing CMRS assignments
and transfers of control, the Commission next considers whether to make
changes to the existing rule during the transition period. The
Commission concludes that an increase in the spectrum cap to 55 MHz in
MSAs is appropriate at this time. This modification will provide
carriers in MSAs some additional freedom to acquire spectrum during the
transition at relatively minimal competitive risk. The Commission also
concludes that because the spectrum cap in RSAs is already at 55 MHz,
no modification in RSAs is appropriate during the sunset period.
a. MSAs: 58. The current CMRS spectrum cap restricts parties to
attributable interests in 45 MHz of covered spectrum in MSAs. In the
NPRM, the Commission requested comment on whether this threshold should
be modified. The Commission first addresses the efficiency effects of
the rule and then addresses the competitive effects.
59. Efficiency Effects of the Spectrum Cap. Advocates of raising
the spectrum cap generally make two types of efficiency arguments. The
first is a long-run argument that the 45 MHz ceiling prevents service
providers from achieving minimum efficient scale, i.e., that level of
output at which long-run average costs reach a minimum. This means that
non-trivial economies of scale are going unrealized. The second
argument is that in the short run under the current ceilings, the
quantity of service demanded exceeds, or will soon exceed, the quantity
that firms can supply efficiently. That is, demand for service is, or
will be, such that firms will be forced either not to offer certain
services at all, or to distort their input choices in order to satisfy
demand. This input distortion, for example, might consist of over-
investing in cell-splitting and smart antennas because additional
spectrum input cannot be acquired.
60. The Commission agrees that both the short-run and long-run
efficiency problems, to the extent they are present, would constitute
harms imposed by the current rule, and easing them would be a benefit
of raising the CMRS cap. Based on the specific information and data in
the record, however, the Commission finds that most providers are not
constrained today by the current cap in most markets, and that it is
unlikely that total demand for voice and data services will grow so
rapidly over the next year or two that capacity constraints will become
a serious, across-the-board problem during that time. The Commission
also believes that less than 45 MHz is required to achieve minimum
efficient scale in the provision of service today.
61. The Commission does agree, however, that it may be the case
that some carriers are capacity-constrained in certain urban markets
with high population density. And the Commission agrees that it is
possible--if not likely--that demand for voice and data services will
grow so rapidly over the next fourteen months that the current 45 MHz
cap would cause significant efficiency costs. Such costs, of course,
while initially imposed on the operators, would eventually be passed on
at least in part to consumers of mobile telephony services in the form
of higher prices, poorer service, or lack of innovation. An increase in
the cap to 55 MHz, where it is now for rural areas, can help to prevent
such potential efficiency losses.
62. Competitive Effects of Relaxing the Spectrum Cap. There are
several reasons that an increase in the cap in MSAs to 55 MHz does not
pose undue risk of anticompetitive consequences during the transition
period, but that any greater increase would run an unacceptable risk of
significantly reducing competition. First, a 10 MHz increase in the cap
means that, as with the 45 MHz cap, there must in principle be at least
four competitors in each geographic market. While the current cap
permits four competitors with equal (45 MHz) spectrum holdings, the 55
MHz cap will permit three firms holding 55 MHz and a fourth holding 15
MHz. Although a firm with 15 MHz may be capacity-constrained in some
geographic areas, it will often be able to help discipline its larger
competitors. Second, the Commission notes that raising the cap to 55
MHz increases the maximum possible input-based HHI by only 350 points,
from 2,500 to 2,850. While not insignificant, this increase appears
unlikely to foster unilateral pricing power in the current marketplace.
Third, mobile telephony operators typically experience high fixed costs
and low marginal costs of production. Low marginal costs mean that
producers can potentially achieve high profits by reducing their
prices, and therefore can render tacit agreements to charge high prices
difficult to sustain.
63. The Commission also notes that, as is the case today, it
reserves the right to subject transactions involving significant
geographic overlap but resulting in consolidation below the new ceiling
to further scrutiny. There may be circumstances under which a transfer
or assignment could raise competitive concerns notwithstanding
compliance with the spectrum cap, for example, elimination of
significant actual competition. The Commission will generally presume
that transactions complying with the 55 MHz cap do not cause undue risk
of market concentration unless specific evidence to the contrary is
presented by either interested parties or through review by Commission
staff.
64. Furthermore, any concern about the possible competitive impact
of moderately increased concentration is also materially reduced by the
possibility of additional allocations of spectrum over the next two
years that will greatly increase the amount of spectrum available for
CMRS applications. In particular, the Commission's Advanced Wireless
Services proceeding is considering
[[Page 1636]]
options for substantial new allocations of spectrum for terrestrial,
fixed, and mobile services. These options include the 1710-1755 MHz
band, which has already been transferred from federal government use,
and the 2110-2150, 2160-2165 MHz Emerging Technologies band. Licensing
of these bands is likely within the next two years. Clearance of
incumbent users in each case is unlikely to be difficult, since they
are primarily fixed operators and thus multiple options for relocation
are available. Although provision of service on these bands is not
imminent, the Commission believes this quantity of spectrum and the
relative certainty that it will become available shortly after the end
of the transition period should meaningfully discourage anticompetitive
behavior during the period.
65. Balancing of Efficiency and Competitive Effects of the Spectrum
Cap. On balance, the Commission finds that it should increase the CMRS
spectrum cap to 55 MHz in MSAs. The potential harm from increasing the
cap to 55 MHz appears to be outweighed by the corresponding potential
benefits, which include facilitating improved operations, network
design, and innovation. The Commission believes any increase of less
than 10 MHz might not provide significant relief to firms that may be
capacity-constrained, because there may be indivisibilities in the
secondary market for spectrum that make acquisition in increments
smaller than 10 MHz unlikely. (For example, carriers at 40 MHz may in
effect be constrained by the 45 MHz cap because they can acquire, at
most, 5 MHz of additional spectrum and such a small block of spectrum
may not be available.) Regarding the effect of mergers or acquisitions
up to the new cap, the Commission notes that many of these may not be
acquisitions of ongoing businesses, but rather of bare licenses or
licenses with only certain physical assets. In the 50 largest MSAs, for
example, there is an average of roughly 40 MHz of unlaunched spectrum
licenses. In the ten largest MSAs, there is an average of roughly 30
MHz. Consolidation of this unused spectrum into an existing business
would not reduce actual competition, although it might have an effect
on potential competition.
66. If a firm is capacity-constrained even at the 55 MHz limit, it
may submit a waiver request. We find that waivers provide a reasonable
solution for carriers that may need spectrum above the relaxed spectrum
aggregation limit during the period until the rule sunsets. Therefore,
to the extent that a carrier can demonstrate that in a particular
geographic area the spectrum cap is currently having a significant
adverse effect on its ability to provide CMRS, the Commission will
consider granting a waiver of the cap for that geographic area. We urge
carriers requesting waivers to clearly identify what additional
services they would provide if the spectrum cap rule were waived, and
why such services cannot be provided without exceeding the cap. In
evaluating a waiver request, the Commission will also take into account
any potential adverse effects of granting the waiver, such as
diminution of competition, as well as the potential benefits from the
provision of additional services.
b. RSAs:67. CMRS markets in rural areas are significantly different
from the markets in urban areas. In particular, RSAs typically have
many fewer competitors offering two-way mobile service, and many fewer
nationwide service providers, than do MSAs. Indeed, in seventy-six
percent of RSA counties, no more than one broadband PCS provider is
competing with the cellular incumbents in any part of the county. In
the First Biennial Review Order, the Commission increased the spectrum
cap to 55 MHz in RSAs on the ground that allowing rural cellular and
broadband PCS carriers to form partnerships in certain overlapping
areas would allow these carriers to achieve economies of scope that
might facilitate deployment, while entailing little opportunity cost
because the economics of serving rural areas made it unlikely that a
large number of independent competitors would emerge in any event. In
the NPRM, the Commission asked whether, in light of the continued
lagging development of competition in rural areas, it should consider
further changes to the spectrum aggregation limits in these markets. In
particular, the Commission asked commenters to describe any benefits to
rural customers that had accrued from the previous increase in the
spectrum cap in terms of lower prices, availability of digital
services, or otherwise.
68. Some commenters argue that the spectrum cap inhibits
competition in rural areas due to the high cost of providing service
across large geographic areas, and that the most cost-effective means
of bringing broadband PCS and SMR services to rural subscribers is to
provide existing rural cellular providers the ability to acquire
additional spectrum to offer such services. Another commenter, on the
other hand, argues that removal of the spectrum cap in rural markets is
likely to reduce competition and increase costs of mobile wireless
service in those areas, given the smaller number of competitors in
rural areas. Others argue that spectrum in rural areas is currently
going unused, and that if the spectrum cap and cellular cross-interest
rules are eliminated, the Commission should take other actions to
ensure that small rural companies have the ability to obtain spectrum
and that consumers in rural areas have access to advanced services.
69. Based on the record before it, the Commission concludes that,
given the market conditions prevailing in rural areas during the
transition period, 55 MHz remains the appropriate level for the
spectrum cap in these areas until the cap is eliminated in favor of
case-by-case review. Given the smaller population and demand for
service in RSAs, it is highly unlikely that the current spectrum cap is
causing any capacity constraint or similar inefficiency. The Commission
therefore concludes that during the sunset period it should continue to
keep the spectrum cap at 55 MHz in RSAs.
D. Partial Repeal of the Cellular Cross-Interest Rule
70. In the NPRM, the Commission sought comment on the possible
repeal of the cellular cross-interest rule. Alternatively, it asked
whether the rule could be modified so that it would not apply in
certain circumstances in which other regulations would provide adequate
safeguards. The Commission suggested the possibility of continuing to
apply the rule only in markets where there are a limited number of
competitors to the existing cellular providers. Accordingly, the
Commission sought comment on whether there was a need to maintain any
cellular-specific restrictions in more urban areas, where there are
generally a larger number of competitive choices for consumers. While
noting that cellular providers maintained large market shares in MSAs,
the Commission asked whether cellular/cellular combinations remain more
anticompetitive than cellular/PCS or PCS/PCS combinations in MSAs.
Commenters were asked to provide empirical evidence and/or studies on
the relative competitive and buildout status of cellular, SMR, and
broadband PCS carriers on a market-by-market as well as comprehensive
basis.
71. The majority of commenters who address the issue recommend
elimination of the cellular cross-interest rule, particularly in MSAs.
Some argue that the rule should be eliminated in its entirety. These
commenters argue that the rule is unnecessary, outdated, and
inequitable, noting that PCS licensees are not subject to a similar
rule.
[[Page 1637]]
Moreover, they argue that meaningful competition now exists and the
rule is not necessary to prevent harmful consolidation. Another
commenter argues that, if the spectrum cap rule is retained, the
cellular cross-interest rule should be eliminated in MSAs, though
retained in RSAs, because in most MSAs, consumers have numerous
choices. One commenter argues that the cross-interest rule remains a
valuable competitive safeguard, particularly because there are still
cellular markets in rural areas in which no broadband PCS provider has
initiated service. Others argue that in the event that the spectrum cap
or cellular cross-interest rules are modified or eliminated, the
Commission must take other actions to ensure opportunities for small
businesses and provision of service to underserved areas.
1. Elimination of Cellular Cross-Interest Restriction in MSAs
72. The Commission concludes that the cellular cross-interest rule
is no longer necessary in urban markets, given the presence of numerous
competitive choices for consumers in such markets. The Commission
therefore repeals the rule in MSAs in order to provide relief from
capacity constraints and in recognition of the fact that the cellular
incumbents in MSAs no longer enjoy significant first-mover advantages.
Unlike the case of the spectrum cap, the Commission finds that no
transition period is necessary to eliminate the cellular cross-interest
restriction in MSAs.
73. In the First Biennial Review Order, the Commission concluded
that the cellular cross-interest rule was still necessary, given the
strong market position held by the two cellular carriers in virtually
all markets. The two cellular carriers held the vast majority of
subscribers in all markets and were the only providers of mobile
telephony service in many markets. The Commission therefore found that
the rule was still needed to prevent these incumbents from merging or
having significant cross-ownership interests. The Commission
recognized, however, that the cellular carriers' relative market
position was diminishing in certain markets as broadband PCS and
digital SMR service providers attracted more subscribers and began
service in more areas of the country, particularly urban markets. The
Commission then noted that it would reassess the need for a separate
cellular cross-interest rule as part of its year 2000 biennial review,
by which time it expected that the market positions of the two cellular
carriers and broadband PCS and digital SMR service providers would have
narrowed further.
74. The Commission finds today that cellular carriers no longer
possess market power in MSAs, and that the services offered by cellular
and broadband PCS providers in these markets are indistinguishable to
consumers. In MSAs, eighty-six percent of counties have four or more
facilities-based CMRS providers that are offering service in some part
of the county. Forty of the fifty most populous MSAs have six
nationwide carriers, counting Nextel, with the remaining ten MSAs
having five nationwide carriers. The significant drop in HHI
calculations based on estimated subscribers in the top twenty-five MSAs
from January 1999 to January 2001 is further indication that any market
power that cellular carriers may have been able to exercise in the past
has diminished in these urban markets. Moreover, the cellular
providers' share of mobile telephony nationwide had declined to seventy
percent by the end of 2000. In addition, most cellular carriers in MSAs
have deployed digital technology extensively throughout their networks,
and from a customer's perspective, digital service in the cellular band
is virtually identical to digital service in the PCS band.
75. Accordingly, the Commission finds no reason to view the
combination of cellular licensees in these markets less favorably than
combinations of other CMRS licensees. Moreover, because the Commission
finds that combinations of cellular carriers in MSAs are not
presumptively anticompetitive today, and because restrictions on such
combinations may be contributing to capacity constraints, it would be
inappropriate to continue applying this rule on a transitional basis.
2. Retention of Cellular Cross-Interest Restriction in RSAs
76. The Commission concludes, however, based on the record before
it, that it would not be appropriate at this time to eliminate the
cellular cross-interest rule in rural markets. The Commision therefore
retains the rule in RSAs, subject to waiver of the prohibition where it
is shown that the proposed cross-interest would not create a
significant likelihood of substantial competitive harm. The Commission
will, however, reassess the need for a cellular cross-interest
restriction in RSAs as part of its next biennial review in 2002, by
which time the Commission may have more comprehensive information
regarding the state of competition in rural markets.
77. CMRS markets in rural areas are different from the markets in
urban areas, in that, generally, the cellular providers seem to enjoy
first-mover advantages and to dominate the marketplace. In seventy-six
percent of RSA counties, no more than one broadband PCS provider is
competing with the cellular incumbents in any part of the county.
Indeed, fifty-six percent of RSA counties have two or fewer facilities-
based providers of mobile telephony offering service, presumably in
most instances the two cellular licensees. In addition, it is the
Commission's understanding that, in some areas, any competitors to the
cellular incumbents are serving only a small portion of the county,
particularly in the western United States, where many states have large
rural counties. It is also significant that cellular carriers still
control 70 percent of mobile telephony markets nationwide as of year-
end 2000, and this share is likely to be smaller in MSAs and larger in
RSAs. In the absence of a record to the contrary, these facts suggest
that the cellular carriers generally dominate the rural markets.
Moreover, due to the economics of serving rural areas, potential entry
by new competitors is likely to be difficult. Thus, based on the record
in this proceeding, it appears that a combination of interests in
cellular licensees in rural areas would more likely result in a
significant reduction in competition. In this regard, the Commission
notes that unlike the spectrum cap rule, the cellular cross-interest
rule addresses not the aggregation of spectrum, but the competitive
position of the two cellular licensees. Without more comprehensive
information in the record, however, the Commission is unable to
conclude that repeal of the cellular cross-interest rule in RSAs is
appropriate at this time.
78. In addition, the cellular cross-interest rule in RSAs is well
tailored to the harm that it seeks to prevent. Because the rule places
cellular carriers in RSAs under no special constraints in obtaining PCS
spectrum, and in most RSAs there is ample unused PCS spectrum
available, the rule does not prevent cellular carriers from increasing
their capacity or offering advanced services. The ability of cellular
carriers in rural areas to obtain PCS spectrum may provide an
additional opportunity to consumers in RSAs to have access to the same
advanced services offered to consumers in MSAs. The Commission
therefore concludes that it should continue to forbid a cellular
licensee in an RSA from holding an attributable interest in the
cellular licensee on the
[[Page 1638]]
other channel block in an overlapping CGSA. To the extent that it can
be shown that an RSA exhibits market conditions under which a specific
cellular cross-interest would not create a significant likelihood of
substantial competitive harm, such a situation can be addressed through
waiver of the cross-interest prohibition.
79. Further, the Commission rejects one commenter's arguments that
the benchmark for attributable ownership interests under the cellular
cross-interest rule should be increased from five to 20 percent, as
under the spectrum cap rule, and that the Commission should include a
provision for waiver in the case of a passive minority investor in a
licensee that has a single majority shareholder. The commenter, which
supports retention of the spectrum cap and the cellular cross-interest
rule (in both MSAs and RSAs), argues that because of the evolution of
mobile telephony since the inception of the cellular cross-interest
rule, there currently may be situations in which attributable ownership
interests of greater than five percent would pose ``no actual threat to
competition.'' In the First Biennial Review Order, the Commission found
that given the continued dominance of the cellular incumbents in CMRS
markets, allowing a party with a controlling interest in one cellular
licensee to hold up to twenty percent ownership of the other licensee
in the same market would pose a substantial threat to competition.
Specifically, significant cross-interests between the two largest
service providers in RSAs generally would create a significant
incentive for the two not to compete with one another as vigorously as
otherwise. For the reasons discussed above, the Commission concludes
that market conditions in RSAs have not changed sufficiently to
generally permit such cross-holdings of cellular interests today. The
Commission will, however, entertain requests for waiver in appropriate
circumstances. Thus, it declines to make the above-suggested revisions
to the cellular cross-interest rule.
80. In the NPRM, the Commission sought comment on whether the
cellular cross-interest rule should be modified to account for the
possible disaggregation of cellular spectrum. For example, it asked
whether the cellular cross-interest rule should be replaced by a
cellular spectrum cap of 35 MHz so as to permit combination of a 25 MHz
cellular license with up to 10 MHz of cellular spectrum on the other
channel block in the same geographic area. The Commission did not
receive any comment on this issue. In light of the absence of comment
to guide it deliberations, and in light of the lack of applications for
disaggregation of cellular spectrum, the Commission declines to modify
the rule at this time. Given the lack of record evidence regarding this
issue, the Commission believes it is more appropriate at this time to
address any such requests on a case-by-case basis.
E. Clarification and Streamlining of Divestiture Provisions
81. The current spectrum cap and cellular cross-interest rules
impose different time frames for divestiture of interests. The cellular
cross-interest rule requires that a divestiture transaction be
consummated prior to consummating the transaction that gives rise to
the need to divest. The spectrum cap rule, however, considers parties
to be in compliance with the divestiture provisions if, prior to
consummating the primary transaction, an application is filed to
transfer control of or assign any interest that would conflict with the
rule. Based on its experience over the past two years, particularly in
reviewing applications that combined cellular and PCS divestitures in
one transaction, the Commission believes that the required timing of
divestiture under these two rules should be harmonized.
82. Rather than tighten the divestiture provision in Sec. 20.6, the
Commission concludes that the better approach is to afford parties more
leeway in the timing of divestiture transactions by revising
Sec. 22.942 of its rules to permit a transaction that causes a conflict
with this rule to close as long as an application (or other request for
Commission approval) has been filed that, if granted and the
transaction is consummated, would remove the conflict. In choosing this
more lenient course, however, the Commission notes that there may be
circumstances in which a party that must divest an interest to comply
with the spectrum cap and/or cellular cross-interest restriction should
not be allowed a full 180 days to consummate a divestiture transaction.
Divestiture transactions, by definition, occur to relieve potential
anti-competitive effects of additional concentration. Therefore,
because of specific competitive consequences of individual
transactions, the Commission may decide on a case-by-case basis that it
would serve the public interest to shorten the consummation and
notification period to minimize the amount of time that such overlap
occurs.
83. The Commission also takes this opportunity to clarify certain
issues with respect to placing licenses (or interests in licenses) into
a divestiture trust. As a preliminary matter, the Commission will
revise Sec. 22.942 of its rules to state explicitly that divestiture of
licenses or interests pursuant to this rule is permitted via
divestiture trust. In the First Biennial Review Order, the Commission
stated that a licensee may divest to a trust if the trust will be of
limited duration (six months or less) and the terms of the trust are
approved by the Commission prior to the transfer of the assets to the
trust. Further, the Commission stated that: (1) The divesting party
must not have any interest in or control of the trustee; (2) the trust
agreement must clearly state that there will be no communications with
the trustee regarding the management or operation of the subject
facilities; and (3) the trustee must have the authority to dispose of
the license(s) as he or she sees fit.
84. Based on its experience over the past two years reviewing such
trust arrangements, the Commission believes that certain clarifications
are appropriate to its policy on divestiture trusts. First, with
respect to communications between the trustee and the beneficiary
(i.e., the divesting party), the Commission recognizes that the nature
of communication required between the trustee and the beneficiary will
differ depending on the nature of the trust property. For example, if
the trust property is merely equity in a licensee that the beneficiary
formerly held, very little communication between the trustee and the
beneficiary will be necessary. If, however, the trustee is holding an
entire business and managing operations, the beneficiary must have the
freedom, and the responsibility, to respond to inquiries from the
trustee, but must not be given additional knowledge about the
operations of the divested property that could be used to influence the
operations that the beneficiary retained in the affected market(s).
Second, to enable the Commission to keep track of the progress toward
ultimate divestiture, the Commission clarifies that its policy is to
require, in individual transactions, trustees to report to the
Commission every sixty days on the status of attempts to transfer the
trust property to a third party. Third, the Commission clarifies that
material revisions to an approved trust agreement that relate to the
types of provisions it has identified herein or in the First Biennial
Review Order require prior Commission approval. Fourth, the Commission
clarifies that, in the case of an approved divestiture trust, the trust
property will be attributed during the period held in
[[Page 1639]]
trust to the trustee, and because of the protections that are required
of such trusts, not to the beneficiary.
Final Regulatory Flexibility Analysis
85. As required by the Regulatory Flexibility Act of 1980, as
amended, (RFA) an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the NPRM in this proceeding. The Commission sought
written public comment on the proposals in the NPRM, including comment
on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms
to the RFA.
A. Need for, and Objectives of, the R&O
86. In the NPRM in this proceeding, as part of its biennial
regulatory review pursuant to section 11 of the Communications Act, the
Commission solicited comment on whether it should retain, modify, or
eliminate the CMRS spectrum cap and the cellular cross-interest rule.
In asking these questions, the NPRM looked at recent competitive
changes in CMRS markets, reexamined the public interest objectives that
the spectrum aggregation limits were designed to achieve, and asked
whether there were alternatives to the existing rules that would avoid
any potential public interest costs.
87. This R&O concludes that the CMRS spectrum cap is no longer
necessary in the public interest as the result of meaningful economic
competition in CMRS markets. Accordingly, the Commission provides for
the elimination or ``sunset'' of the spectrum cap rule effective
January 1, 2003. The Commission will no longer rely on this
prophylactic rule in its approach to the aggregation of CMRS spectrum,
but instead it will examine spectrum aggregation on a case-by-case
basis, along with enforcement of safeguards in cases of misconduct.
During the transition period, the Commission will consider substantive
and processing guidelines to guide its case-by-case review of
transactions that would raise concerns similar to those that the
spectrum cap was designed to address. The Commission further decides,
on the basis of the current state of competition in CMRS markets, to
raise the spectrum cap to 55 MHz in all markets during the transition
period. The Commission believes that this change should address certain
carriers' concerns about near term capacity constraints in the most
constrained urban areas during the period until the rule is eliminated
and reliance solely on case-by-case review of CMRS spectrum aggregation
is initiated, while not posing an undue risk of anti-competitive
consequences during the transition period.
88. The Commission also eliminates the cellular cross-interest rule
in MSAs without a transition period, in recognition that the cellular
carriers in these areas no longer enjoy significant first-mover
advantages. However, based on the current record, the Commission
retains the cellular cross-interest rule in RSAs, where it appears that
the cellular incumbents continue generally to dominate the market. The
Commission will reassess the continued need for the cellular cross-
interest rule in RSAs during the 2002 biennial review.
B. Summary of Significant Issues Raised by Public Comments In Response
to the IRFA
89. The Office of Advocacy of the U.S. Small Business
Administration (SBA) and the National Telephone Cooperative Association
(NTCA) filed comments in response to the IRFA. The SBA asserts that the
Commission failed to (1) clearly state its regulatory objectives, (2)
describe the impact its proposed rules would have on small businesses,
and (3) propose alternatives designed to minimize this impact. The
Commission disagrees.
90. First, the deregulatory goal of this biennial regulatory review
proceeding is clear. The Communications Act requires the Commission to
review certain of its rules biennially and determine whether those
rules are no longer necessary in the public interest as a result of
meaningful economic competition. Subsequent to making those
determinations, the Commission is directed to ``repeal or modify any
regulation it determines to be no longer in the public interest.''
Pursuant to that mandate, the Commission has reviewed whether
competitive or other developments in CMRS markets warrant elimination
or modification of any Commission regulations. In particular, in this
proceeding, the Commission reviewed whether to retain, modify or
eliminate two regulations that currently limit the aggregation of
broadband CMRS spectrum: (1) the CMRS spectrum cap and (2) the cellular
cross-interest rule. The NPRM addressed possible modifications to the
spectrum cap and cellular cross-interest rules, including, among other
things: (1) Increasing the amount of spectrum that a single entity may
hold in a given geographic area beyond 45/55 MHz; (2) modifying the
spectrum cap's ten percent population overlap threshold and/or
attribution rules; (3) eliminating or modifying the rule that limits
attributable SMR spectrum to 10 MHz; (4) altering the cellular cross-
interest rule's provisions as they relate to disaggregation of spectrum
and/or post-licensing divestiture; and (5) modifying the ownership
attribution standards under both rules. Finally, the Commission notes
that by its nature, the Commission's statutory biennial regulatory
review obligation contemplates a somewhat open-ended review of the
Commission's rules with an eye toward deregulation.
91. Second, the NPRM sufficiently described the impact the
Commission's proposed rules would have on small businesses, as required
by the RFA. SBA states, ``the Commission should explain whether lifting
the spectrum cap would tend to discourage small business new entry or
drive existing small businesses from the marketplace.'' Again, the
Commission notes that its statutory biennial regulatory review requires
it to review certain of its rules biennially and determine whether
those rules are no longer necessary in the public interest as a result
of meaningful economic competition. In the NPRM, the Commission stated:
Since [September 1999], there have been international and
economic developments that have significantly affected CMRS markets.
For example, consolidation within the CMRS industry in an effort to
create national service footprints has tended to reduce the number
of smaller entities providing broadband CMRS on a purely local
level. As part of this 2000 biennial review, we seek to develop a
record regarding whether the CMRS spectrum cap and cellular cross-
interest rule continue to make regulatory and economic sense in CMRS
markets in the current-, mid-, and long-term. In doing so, we
generally request comment on whether retention, modification, or
elimination of the CMRS spectrum cap and/or cellular cross-interest
rule is appropriate with respect to small businesses that are
licensees in the cellular, broadband PCS and/or SMR services. We
seek comment on whether there continues to be a need for these rules
to ensure that new entrants, including small businesses, have access
to spectrum licenses both at auction and in the secondary market. We
inquire whether these bright-line rules continue to create
efficiencies and reduce transaction costs for small business. We
consider the impact on small businesses if we were to adopt
alternative approaches that rely more heavily on case-by-case
review. We also seek specific comment on various aspects of these
rules that particularly affect small business, such as the [sic]
whether our September 1999 decision to increase attribution
standards to 40 percent has benefited small businesses.
92. The above-quoted language demonstrates that the Commission
raised and addressed the very issues SBA claims were absent in the
NPRM. The Commission believes it sufficiently raised questions to
obtain comment on these issues. For instance, the
[[Page 1640]]
Commission notes that the above language asks whether ``there continues
to be a need for these rules to ensure that new entrants, including
small businesses, have access to the spectrum licenses both at auction
and in the secondary market.'' Accordingly, the NPRM met the RFA's
requirements.
93. Finally, SBA states that ``the Commission should raise and
explore alternative ways to encourage nationwide networks, alleviate
spectrum shortages, or safeguard competition, and analyze how these
alternatives would affect entities with varied resources.'' As noted in
the above-quoted language, the NPRM raised a series of issues
concerning small entities, affording such entities adequate opportunity
to comment on these issues. In addition, as previously noted, biennial
regulatory review by its nature contemplates a somewhat open-ended
review of the Commission's rules with an eye toward deregulation, as
opposed to a more targeted rulemaking. The deregulatory nature of the
NPRM focuses on whether to retain, modify or eliminate two rules--the
CMRS spectrum cap and the cellular cross-interest rule--because they
may no longer be necessary in the public interest as a result of
meaningful economic competition. Therefore, within the context of its
biennial regulatory review, the Commission believes the NPRM raised and
explored the possible alternatives (i.e., whether to retain, modify or
eliminate the two rules). In addition, the NPRM sought comment on
alternative courses of action if the Commission does eliminate the
spectrum cap.
94. NTCA argues that ``[t]he unconditional raising or lifting of
the spectrum cap will likely result in further consolidation within the
CMRS industry and diminish the opportunities for smaller entities to
provide broadband CMRS service.'' Notably, NTCA does not, in its
comments on either the body of the NPRM or the IRFA, oppose modifying
or eliminating either the spectrum cap or the cellular cross-interest
rule. Nor does NTCA identify any specific inadequacy in the IRFA.
Rather, as an ``alternative to its proposed rule changes,'' NTCA urges
the Commission to take several actions unrelated to its spectrum
aggregation limits: (1) license spectrum according to smaller
geographic service territories, (2) take actions to increase the
availability of spectrum to small carriers on the secondary market, and
(3) enforce strict construction requirements against CMRS licensees.
95. The alternatives that NTCA advocates are beyond the scope of
this proceeding. Specifically, the Commission considers the size of
geographic licensing areas in the context of establishing licensing
rules for particular bands of spectrum. The Commission is considering
in another proceeding potential measures to facilitate the availability
of spectrum in secondary markets. Notice of Proposed Rulemaking (65 FR
81475, December 26, 2000). Any potential changes in the Commission's
construction requirements, or establishment of construction
requirements for newly assigned spectrum, are also best considered
separately from spectrum aggregation limits. The Commission has
considered in this R&O alternatives to eliminating the spectrum cap
rule, and has adopted measures to minimize the impact of its decision
on small entities.
96. No other comments were submitted specifically in response to
the IRFA.
C. Description and Estimate of the Number of Small Entities to Which
Rules Will Apply
97. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by their rules. The RFA generally defines the term ``small
entity'' as having the same meaning as the terms ``small
organization,'' ``small business,'' and ``small governmental
jurisdiction.'' The term ``small business'' has the same meaning as the
term ``small business concern'' 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) satisfies any
additional criteria established by the SBA. A small organization is
generally ``any not-for-profit enterprise which is independently owned
and operated and is not dominant in its field.'' Nationwide, as of
1992, there were approximately 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.'' As of 1992, there
were approximately 85,006 such jurisdictions in the United States. This
number includes 38,978 counties, cities, and towns; of these, 37,566,
or ninety-six percent, have populations of fewer than 50,000. The
Census Bureau estimates that this ratio is approximately accurate for
all governmental entities. Thus, of the 85,006 governmental entities,
the Commission estimates that 81,600 (ninety-one percent) are small
entities. According to SBA reporting data, there were 4.44 million
small business firms nationwide in 1992.
98. The rule changes adopted in this R&O will affect small
businesses that currently are or may become licensees in the cellular,
broadband PCS and/or SMR services. The Commission estimates the
following number of small entities may be affected by the proposed rule
changes:
99. Cellular Radiotelephone Service. Neither the Commission nor the
SBA has 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 (wireless)
companies. This provides that a small entity is a radiotelephone
company employing no more than 1,500 persons. According to the Bureau
of the Census, only twelve radiotelephone firms from 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. In addition, the Commission notes that there are
1,758 cellular licenses; however, a cellular licensee may own several
licenses. In addition, according to the most recent Telecommunications
Industry Revenue data, 808 carriers reported that they were engaged in
the provision of either cellular service or PCS, which are placed
together in the data. The Commission does not have data specifying the
number of these carriers that are not independently owned and operated
or have more than 1,500 employees, and thus are unable at this time to
estimate with greater precision the number of cellular service carriers
that would qualify as small business concerns under the SBA's
definition. Consequently, the Commission estimates that there are fewer
than 808 small cellular service carriers that may be affected by the
policies adopted in this R&O.
100. Broadband Personal Communications Service (PCS). The broadband
PCS spectrum is divided into six frequency blocks designated A through
F, and the Commission has held auctions for each block. The Commission
defined ``small entity''' for Blocks C and F as an entity that has
average gross revenues of less than $40 million in the three previous
calendar years. Subsequently, the Commission defined an additional
classification--``very small business''--for blocks C and F for
entities that, together with their affiliates, have had average gross
revenues of not more than $15 million
[[Page 1641]]
for the preceding three calendar years. These regulations defining
``small entity''' in the context of broadband PCS auctions and
licensing have been approved by the SBA.
101. The Commission has held six auctions of broadband PCS licenses
to date. No small businesses within the SBA-approved definition bid
successfully for licenses in the first of these auctions, Auction No.
4, in which the Commission made available licenses in blocks A and B.
In Auction No. 5, the initial C block auction, eighty-nine (89) winning
bidders qualified as small entities, winning 493 licenses. In the next
C block auction, Auction No. 10, seven (7) winning bidders qualified as
small entities, winning eighteen (18) licenses. A total of ninety-three
(93) small and very small business bidders won approximately forty
percent of the 1,479 licenses for blocks D, E, and F in the next
broadband PCS auction, Auction No. 11. In Auction No. 22, forty-eight
(48) bidders claiming small or very small business status won 277 of
the 347 licenses offered. In Auction No. 35, the most recent broadband
PCS auction, twenty-nine (29) of the thirty-five (35) winning bidders
qualified as small or very small businesses and won 247 licenses.
Accordingly, a maximum of 266 small entities have been awarded or
placed high bids on licenses in broadband PCS block auctions to date.
102. Specialized Mobile Radio (SMR). Pursuant to 47 CFR
90.814(b)(1), the Commission has defined ``small business'' for
purposes of auctioning 900 MHz SMR licenses, 800 MHz SMR licenses for
the upper 200 channels, and 800 MHz SMR licenses for the lower 230
channels on the 800 MHz band as a firm that has had average annual
gross revenues of $15 million or less in the three preceding calendar
years. The SBA has approved this small business size standard for the
800 MHz and 900 MHz auctions. The auction of the 1,020 geographic area
licenses for the 900 MHz SMR band began on December 5, 1995, and was
completed on April 15, 1996. Sixty (60) winning bidders for geographic
area licenses in the 900 MHz SMR band qualified as small businesses
under the $15 million size standard. The auction of the 525 800 MHz SMR
geographic area licenses for the upper 200 channels began on October
28, 1997, and was completed on December 8, 1997. Ten (10) winning
bidders for geographic area licenses for the upper 200 channels in the
800 MHz SMR band qualified as small businesses under the $15 million
size standard.
103. The lower 230 channels in the 800 MHz SMR band are divided
between General Category channels (the upper 150 channels) and the
lower 80 channels. The auction of the 1,050 800 MHz SMR geographic area
licenses for the General Category channels (plus three (3) 800 MHz
licenses for the upper 200 channels from a previous auction) began on
August 16, 2000, and was completed on September 1, 2000. At the close
of the auction, 1,030 licenses were won by bidders. Eleven (11) winning
bidders for geographic area licenses for the General Category channels
in the 800 MHz SMR band qualified as small businesses under the $15
million size standard. The auction of the 2,800 geographic area
licenses for the lower 80 channels of the 800 MHz SMR service began on
November 1, 2000, and was completed on December 5, 2000. Nineteen (19)
winning bidders for geographic area licenses for the lower 80 channels
in the 800 MHz SMR band qualified as small businesses under the $15
million size standard. The Commission, therefore, estimates that there
are up to 100 geographic area licensees that are small entities in the
800 MHz and 900 MHz SMR bands. In addition, there are 1,144 incumbent
site-by-site SMR licensees on the 800 and 900 MHz bands.
D. Description of Projected Reporting, Recordkeeping and Other
Compliance Requirements
104. The rules in this R&O do not impose any additional reporting,
recordkeeping or other compliance measures.
E. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
105. In this proceeding, the Commission considered whether to
retain, modify, or, alternatively, to eliminate the CMRS spectrum cap
and cellular cross-interest rules. The Commission also asked whether
there were alternatives to these rules that could avoid any potential
public interest costs. The Commission has weighed the benefits of such
alternative means of reviewing CMRS spectrum aggregation, specifically
considering whether to continue using prophylactic rules or to review
spectrum aggregation issues on a case-by-case basis.
106. As an alternative to eliminating the spectrum cap rule, the
Commission considered continuing to apply a prophylactic approach to
the potential anti-competitive effects of CMRS spectrum aggregation.
The Commission recognized that different costs and benefits can be
associated with bright-line rules and case-by-case review with respect
to degree of flexibility, predictability of outcome, likelihood of
rejecting beneficial (or approving harmful) transactions, ability to
account for the particular attributes of a transaction or market, speed
of decision-making, and resource demands on the Commission and
carriers. On balance, and in light of the growth of both competition
and consumer demand in the CMRS market, the Commission concludes that
case-by-case review, accompanied by enforcement of sanctions in cases
of misconduct, is now preferable to the spectrum cap rule because it
gives the Commission flexibility to reach the appropriate decision in
each case, on the basis of the particular circumstances of that case.
The Commission is persuaded that competition is now robust enough in
CMRS markets that it is no longer appropriate to impose overbroad, a
priori limits on spectrum aggregation that may prevent transactions
that are in the public interest.
107. The Commission believes its provision for a transition period
prior to January 1, 2003, for eliminating the spectrum cap will
minimize the impact of its decision on small businesses. The Commission
notes that several commenters argue against eliminating or increasing
the spectrum cap on the ground that the cap preserves opportunities for
entrepreneurs and providers of niche services. As other commenters
point out, however, the spectrum cap rule does nothing in and of itself
to create opportunities for entrepreneurs, and may actually harm small
businesses by limiting their access to existing carriers as sources of
capital and management expertise. To the extent the spectrum cap does
create some potential opportunities for entrepreneurs, the Commission
finds this benefit is insufficient to outweigh the benefits of moving
away from a bright-line rule approach, particularly in light of the
other tools the Commission has to help preserve opportunities for small
businesses--its ability to carry out case-by-case review of
transactions and its ability to shape the initial distribution of
licenses through the service rules adopted with respect to specific
auctions. Nevertheless, although it believes that opportunities for
small businesses can be fully protected through a case-by-case
approach, the Commission recognizes that advancing one's positions in a
case-by-case regime could require resources that small businesses may
not be immediately prepared to commit. Furthermore, regulatory
certainty and speed of processing are likely to be particularly
important to small businesses, which typically are less able
[[Page 1642]]
to withstand extended or costly administrative processes. Therefore, in
considering the adoption of guidelines and procedures, the Commission
will take account of the needs of small businesses. The Commission
fully expects that case-by-case review, properly performed, will offer
large and small businesses alike the benefits of flexibility and
attention to the specific details of a particular transaction. The
Commission also commits itself to vigorous enforcement of safeguards
against anti-competitive activity.
108. During the transition period, the Commission raises the
spectrum cap to 55 MHz in all geographic areas. The Commission
considered and rejected the alternative of leaving the spectrum cap at
45 MHz in MSAs because it determined that a 45 MHz cap may over the
next fourteen months impose capacity constraints, and ensuing costs to
consumers, on carriers in certain urban markets. The Commission also
determined that a moderate increase in the spectrum cap, under current
market conditions, does not pose an undue risk of anti-competitive
conduct during the transition period. Finally, the Commission notes
that it will continue to review the competitive consequences of
transactions that are at or below the spectrum cap if specific evidence
of competitive concerns is presented either by interested parties or
through review by Commission staff.
109. With respect to the cellular cross-interest rule, the
Commission determines that the rule is no longer necessary or
appropriate in MSAs because the cellular duopoly conditions that
prompted the rule's adoption no longer exist. Thus, under current
market conditions in MSAs, there is no reason to treat the aggregation
of cellular spectrum any differently than other aggregation of CMRS
spectrum. In RSAs, by contrast, the record, though limited on this
point, indicates that competition to the incumbent cellular licensees
is not as developed as in MSAs. Thus, based on the record in this
proceeding, it appears that a combination of interests in cellular
licensees would more likely result in a significant reduction in
competition. The Commission, therefore, retains the cellular cross-
interest rule in RSAs, subject to waiver of the rule for those RSAs
that are shown to exhibit market conditions under which cellular cross-
interests may be permissible without a significant likelihood of
substantial competitive harm.
110. Report to Congress: The Commission will send a copy of the
R&O, including this FRFA, in a report to be sent to Congress pursuant
to the Congressional Review Act, 5 U.S.C. 801(a)(1)(A). In addition,
the Commission will send a copy of the R&O, including this FRFA, to the
Chief Counsel for Advocacy of the Small Business Administration. A copy
of the R&O and FRFA (or summaries thereof) will also be published in
the Federal Register. 5 U.S.C. 604(b).
Paperwork Reduction Act Analysis
111. This R&O has been analyzed with respect to the Paperwork
Reduction Act of 1995, Public Law No. 104-13, and does not contain any
new or modified information collections subject to Office of Management
and Budget Review.
Procedural Matters and Ordering Clauses
112. Pursuant to the authority of sections 1, 4(i), 11, 303(g),
303(r), and 309(j) of the Communications Act of 1934, as amended, 47
U.S.C. 151, 154(i), 161, 303(r), and 309(j), this R&O is adopted, and
Secs. 20.6 and 22.942 of the Commission's Rules, 47 CFR 20.6, 22.942,
are amended as set forth in the R&O, effective February 13, 2002.
113. The Commission's Consumer Information Bureau, Reference
Information Center, shall send a copy of this Report and Order,
including the Final Regulatory Flexibility Analysis, to the Chief
Counsel for Advocacy of the Small Business Administration, in
accordance with paragraph 603(a) of the Regulatory Flexibility Act, 5
U.S.C. 601 et seq.
List of Subjects in 47 CFR Parts 20 and 22
Communications common carrier.
Federal Communications Commission.
William F. Caton,
Deputy Secretary.
Rule Changes
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR parts 20 and 22 as follows:
PART 20--COMMERCIAL MOBILE RADIO SERVICES
1. The authority citation for part 20 continues to read as follows:
Authority: 47 U.S.C. 154, 160, 251-54, 303, and 332 unless
otherwise noted.
2. Section 20.6 is amended by revising paragraphs (a) and (e)(4)(i)
and adding a new paragraph (f) to read as follows:
Sec. 20.6 CMRS spectrum aggregation limit.
(a) Spectrum limitation. No licensee in the broadband PCS,
cellular, or SMR services (including all parties under common control)
regulated as CMRS (see 47 CFR 20.9) shall have an attributable interest
in a total of more than 55 MHz of licensed broadband PCS, cellular, and
SMR spectrum regulated as CMRS with significant overlap in any
geographic area.
* * * * *
(e) * * *
* * * * *
(4)(i) Parties holding controlling interests in broadband PCS,
cellular, and/or SMR licensees that conflict with the attribution
threshold or geographic overlap limitations set forth in this section
will be considered to have come into compliance if they have submitted
to the Commission an application for assignment of license or transfer
of control of the conflicting licensee (see Sec. 1.948 of this chapter;
see also Sec. 24.839 of this chapter (PCS)) by which, if granted, such
parties no longer would have an attributable interest in the
conflicting license. Divestiture may be to an interim trustee if a
buyer has not been secured in the required period of time, as long as
the applicant has no interest in or control of the trustee, and the
trustee may dispose of the license as it sees fit. Where parties to
broadband PCS, cellular, or SMR applications hold less than controlling
(but still attributable) interests in broadband PCS, cellular, or SMR
licensee(s), they shall submit a certification that the applicant and
all parties to the application have come into compliance with the
limitations on spectrum aggregation set forth in this section.
* * * * *
(f) Sunset. This rule section shall cease to be effective January
1, 2003.
* * * * *
PART 22--PUBLIC MOBILE SERVICES
1. The authority citation for part 22 continues to read as follows:
Authority: 47 U.S.C. 154, 222, 303, 309, and 332.
2. Section 22.942 is amended by revising paragraphs (a) and (c) to
read as follows:
Sec. 22.942 Limitations on interests in licensees for both channel
blocks in RSAs.
(a) Controlling Interests. A licensee, an individual or entity that
owns a controlling or otherwise attributable interest in a licensee, or
an individual or entity that actually controls a licensee for one
channel block in a CGSA may not have a direct or indirect ownership
interest of more than 5 percent in the licensee, an individual or
entity that owns a controlling or otherwise attributable interest in a
licensee, or an
[[Page 1643]]
individual or entity that actually controls a licensee for the other
channel block in an overlapping CGSA, if the overlap is located in
whole or in part in a Rural Service Area (RSA), as defined in 47 CFR
22.909.
* * * * *
(c) Divestiture. Divestiture of interests as a result of a transfer
of control or assignment of authorization must occur prior to
consummating the transfer or assignment.
(1) Parties needing to divest controlling or otherwise attributable
interests set forth in this section will be considered to have come
into compliance if they have submitted to the Commission an application
for assignment of license or transfer of control of the conflicting
interest (see Sec. 1.948 of this chapter) or other request for
Commission approval by which, if granted, such parties no longer would
have an attributable interest in the conflicting interest. Divestiture
may be to an interim trustee if a buyer or acquirer of the interest has
not been secured in the required period of time, as long as the buyer
or acquirer of the interest has no interest in or control of the
trustee, and the trustee may dispose of the interest as it sees fit.
Where parties to such applications or requests for Commission approval
hold less than controlling (but still attributable) interests, they
shall submit a certification that the applicant or acquirer of the
interest and all parties to the application or request for Commission
approval have come into compliance with the limitations on interests in
licensees for both channel blocks set forth in this section.
(2) [Reserved]
* * * * *
[FR Doc. 02-868 Filed 1-11-02; 8:45 am]
BILLING CODE 6712-01-P