[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