[Federal Register Volume 68, Number 4 (Tuesday, January 7, 2003)]
[Proposed Rules]
[Pages 723-730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-219]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter 1

[WT Docket No. 02-381; FCC 02-325]


Facilitating the Provision of Spectrum-Based Services to Rural 
Areas and Promoting Opportunities for Rural Telephone Companies to 
Provide Spectrum-Based Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule; notice of inquiry.

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[[Page 724]]

SUMMARY: This document seeks comment on the effectiveness of the 
Commission's current regulatory tools in facilitating the delivery of 
spectrum-based services to rural areas. Specifically, we ask whether 
and how the Commission could modify its policies to promote the further 
development and deployment of such services to rural areas. In 
addition, we request comment on the extent to which rural telephone 
companies (``rural telcos'') and other entities seeking to serve rural 
areas have opportunities to acquire spectrum and provide spectrum-based 
services. This document fulfills a Commission commitment to develop a 
record on these matters to determine the extent to which the Commission 
has achieved these statutory goals.

DATES: Comments are due on or before February 3, 2003 and reply 
comments are due on or before February 18, 2003.

ADDRESSES: All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission. Parties 
also should send four (4) paper copies of their filings to Robert 
Krinsky, Federal Communications Commission, Room 4-B551, 445 12th 
Street, SW., Washington, DC 20554. See ``Supplementary Information'' 
for comment and reply comment filing instructions.

FOR FURTHER INFORMATION CONTACT: Robert Krinsky at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of the Notice of Inquiry 
released on December 20, 2002. The complete text of the Notice of 
Inquiry is available for public inspection and copying during regular 
business hours at the FCC Reference Information Center, Portals II, 445 
12th Street, SW., Room CY-A257, Washington, DC, 20554. The Notice of 
Inquiry may also be purchased from the Commission's duplicating 
contractor, Qualex International, Portals II, 445 12th Street, SW., 
Room CY-B402, Washington, DC 20554, telephone (202) 863-2893, facsimile 
(202) 863-2898, or via e-mail [email protected].

I. Introduction

    1. The Notice of Inquiry seeks comment on the effectiveness of our 
current regulatory tools in facilitating the delivery of spectrum-based 
services to rural areas. Specifically, we ask whether and how the 
Commission could modify its policies to promote the further development 
and deployment of such services to rural areas, pursuant to section 
309(j) of the Communications Act of 1934, as amended (``Communications 
Act''). In addition, we request comment on the extent to which rural 
telephone companies (``rural telcos'') and other entities seeking to 
serve rural areas have opportunities to acquire spectrum and provide 
spectrum-based services, pursuant to sections 309(j)(3) and 309(j)(4) 
of the Communications Act. The Notice of Inquiry fulfills a Commission 
commitment to develop a record on these matters to determine the extent 
to which the Commission has achieved these statutory goals. Based on 
the record developed in this proceeding, we will determine whether it 
would be appropriate to revise existing policies or adopt new policies 
to promote more extensive provision of spectrum-based services to rural 
areas and the acquisition of spectrum by rural telcos. While satellite 
services may, in the future, play a critical role in bringing 
telecommunications services to rural America, the Notice of Inquiry 
addresses issues related only to the provision of terrestrial wireless 
service to rural areas, not the provision of general telecommunications 
services to rural areas.

II. Background

    2. The Omnibus Budget Reconciliation Act of 1993 added section 
309(j) to the Communications Act, authorizing, but not requiring, the 
Commission to award licenses for use of the electromagnetic spectrum 
through competitive bidding where mutually exclusive applications are 
accepted for filing. In 1997, Congress expanded the Commission's 
auction authority by requiring it to award mutually exclusive license 
applications for initial applications or construction permits by 
competitive bidding unless certain specific exemptions apply. Section 
309(j) requires the Commission to promote various objectives in 
designing a system of competitive bidding. A number of those objectives 
focus on the provision of spectrum-based services to rural areas, and 
three provisions mention providing the opportunity to rural telcos to 
acquire spectrum and provide spectrum-based services. For example, 
section 309(j)(3)(A) requires the Commission to encourage the 
development and rapid deployment of new technologies, products, and 
services for the benefit of the public, ``including those residing in 
rural areas.'' Section 309(j)(3)(B) directs the Commission to 
disseminate spectrum licenses among a wide variety of applicants, 
including ``rural telephone companies.'' Section 309(j)(4)(D) requires 
the Commission to ensure that rural telcos are given the opportunity to 
acquire spectrum and provide spectrum-based services. In addition to 
the rural service objectives mandated by section 309(j), Congress 
directed the Commission to pursue other broader public interest goals 
in designing a system of competitive bidding. Specifically, section 
309(j)(3) requires the Commission to promote efficient and intensive 
use of the spectrum, encourage economic opportunity and competition, 
and recover for the public a portion of the value of the public 
spectrum.
    3. In an effort to fulfill the rural service objectives set forth 
in section 309(j), the Commission has adopted a number of policies 
intended, among other things, to encourage the provision of spectrum-
based services to rural areas and the participation of rural telcos in 
the competitive bidding for spectrum licenses. Specifically, these 
policies include: (i) The availability of small business bidding 
credits; (ii) the designation of various sizes of geographic service 
areas for spectrum licenses; (iii) the opportunity to obtain licenses 
through service area partitioning and spectrum disaggregation 
arrangements with existing licensees; and (iv) the adoption of 
construction benchmark performance requirements. In addition, apart 
from its obligation under section 309(j), the Commission has expressed 
support for the provision of telecommunications services to tribal 
lands. The Commission also established the Rural Radiotelephone 
Service, which may operate in the paired 152/158 and 454/459 MHz bands, 
and Basic Exchange Telephone Radio Systems (``BETRS''), which may 
operate in those same bands as well as on 10 channel blocks in the 816-
820/861-865 MHz bands, primarily to facilitate the provision of basic 
telephone service to remote and sparsely populated areas where wireline 
service is not feasible.
    4. In 1994, the Commission adopted small business bidding credits 
to encourage broad participation in spectrum auctions. A bidding credit 
is a payment discount on a winning bid determined at the conclusion of 
the bidding process. Small business bidding credits are available to 
businesses -- including rural telcos -- whose gross revenues do not 
exceed a specified threshold. These bidding credits are intended to 
encourage participation in the competitive bidding process by entities 
that otherwise might have difficulty gaining access to capital. Through 
the use of small business bidding credits, the Commission has sought to 
promote the participation of small businesses, rural telcos, and women- 
and minority-owned firms

[[Page 725]]

(collectively referred to as ``designated entities''), thereby 
addressing Congress's mandate to ensure diversity in the ownership of 
spectrum licenses. The Commission determines on a service-specific 
basis whether bidding credits will be offered, the eligibility criteria 
for receiving a bidding credit, and the amount of the bidding credit.
    5. However, in the Part 1 Fifth Report and Order, 65 FR 52323 
(August 29, 2000), the Commission declined to adopt a bidding credit 
specifically for rural telcos. Rather, the Commission determined to 
continue to make small business bidding credits available to entities, 
including rural telcos that meet the requisite revenue criteria. In 
2000, the Commission also began offering a tribal land bidding credit, 
the size of which is determined by the amount of tribal land area 
reached by the service provider. All telcos, including rural operators 
that fulfill the requisite criteria may obtain a tribal land bidding 
credit.
    6. Recent statistics indicate that rural telcos have actively 
participated in spectrum auctions and have had some success in winning 
licenses. A significant portion of rural telcos that have participated 
in spectrum auctions have received small business bidding credits. For 
instance, an examination of the 29 auctions completed by the Commission 
as of September 18, 2002, that offered small business bidding credits, 
reveals that 84 percent of the qualified bidders that identified 
themselves as rural telcos and 79 percent of all qualified bidders were 
eligible to receive a small business bidding credit. In the 
Commission's most recent auction for licenses in the lower 700 MHz 
Band, 89 percent of qualified bidders that identified themselves as 
rural telcos won licenses. In addition, 77 percent of all winning rural 
telco bidders in that auction received a bidding credit.
    7. In addition to bidding credits, another way in which the 
Commission has sought to enhance rural telco participation in spectrum 
auctions is by adopting service areas of varying sizes. Although in 
many services we offer licenses that cover geographic areas of only one 
size, in a number of services, we license areas of varying sizes, 
ranging from small to large, in order to attract a diverse group of 
prospective bidders. Larger entities, for instance, may seek to acquire 
licenses that cover whole regions of the country, while other entities, 
such as rural telcos, may be interested in obtaining licenses to serve 
only particular rural areas. After seeking comment, the Commission has 
varied the size of the geographic service area depending upon the 
nature of the service provided and the likely users. In services for 
which we have adopted one size of license area, such areas are usually 
larger than Rural Service Areas (``RSAs''). In determining the 
appropriate size of a license area, we seek to balance two competing 
concerns. On one hand, we seek to adopt service areas of a size that 
results in efficient and intensive use of spectrum resources. On the 
other hand, we seek to adopt licensing areas that will permit the 
dissemination of licenses among a wide variety of applicants. The 
smallest of these geographic service areas are RSAs and Metropolitan 
Statistical Areas (``MSAs''), of which there are 734 licenses 
comprising the United States and its territories. Adopting service 
rules that provide for licenses with small geographic areas allows 
bidders to target the precise areas they are interested in serving, 
rather than having to compete for expansive geographic areas that 
encompass smaller, sought-after areas. The Commission has also licensed 
spectrum according to Economic Area Groupings (``EAGs''), which make up 
six licensing areas for the entire country. Some terrestrial wireless 
services, such as narrowband Personal Communications Services (``PCS'') 
and 1670-1675 MHz, have geographic service areas that have nationwide 
coverage. Other geographic service areas fall along a range of 
intermediate sizes between RSAs and nationwide service areas, e.g., 
BTAs, Economic Areas (``EAs''), and Major Economic Areas (``MEAs'').
    8. The Commission has also adopted partitioning and disaggregation 
policies to enable service providers, including rural telcos, to 
acquire spectrum without bidding on licenses that may not be suited to 
their particular needs. ``Partitioning'' is the assignment by a 
licensee of geographic portions of the license. ``Disaggregation'' is 
the assignment by a licensee of discrete portions or ``blocks'' of 
spectrum of the license. Where permitted by our rules, licensees may 
partition or disaggregate any of their licensed spectrum to other 
entities. Obtaining spectrum through partitioning or disaggregation, 
rather than competitive bidding, is often appealing to service 
providers with limited financial resources, specific service area 
needs, or small bandwidth requirements because licenses offered at 
auction may be more costly, cover larger geographic areas, and have 
greater bandwidth than desired. For instance, the geographic service 
area of a license made available at auction may include both urban and 
rural areas. A rural telco interested in serving only a rural area may 
seek to obtain spectrum post-auction through partitioning or 
disagregation, rather than bid for a license covering an area that it 
does not intend to serve. In this manner, our partitioning and 
disaggregation policies may help service providers, such as rural 
telcos, to obtain spectrum tailored to their specialized service area 
and financial needs. The Commission's analysis of applications for 
geographic partition and spectrum disaggregation reveals that 13.5 
percent of all assignees have voluntarily identified themselves as 
rural telcos. Our analysis also demonstrates that 13.8 percent of all 
assignees (including rural and non-rural telcos) claim they are, or 
will be, serving rural areas.
    9. The Commission has sought to enhance service to rural areas by 
requiring winning bidders of spectrum licensees to meet certain 
performance requirements. Section 309(j)(4)(B) of the Act specifically 
directs the Commission to prescribe such ``performance requirements'' 
to ensure prompt delivery of service to rural areas, to prevent 
stockpiling of spectrum, and to promote investment in and rapid 
deployment of new technologies and services. Performance requirements 
include construction benchmarks. Construction benchmarks typically 
require licensees to serve either a specific portion of the geographic 
service area or a specific percentage of the population in the 
geographic service area by a certain period of time. In some instances, 
the Commission has adopted a ``substantial service'' requirement as its 
construction requirement. Under this approach, licensees are required 
to provide ``substantial service'' to either a geographic service area 
or to the population within the geographic service area within a 
specific period of time. The Commission has defined ``substantial 
service'' as ``service that is sound, favorable, and substantially 
above a level of mediocre service that would barely warrant renewal.'' 
The ``substantial service'' requirement was established to assess 
meaningful service through a measure not based on population or 
geographic metrics. Substantial service was established for 
circumstances where the Commission has determined that more flexible 
construction requirements rather than fixed benchmarks would more 
likely result in the efficient use of spectrum and the provision of 
service to rural, remote, and insular areas. The Commission may 
consider such factors as whether a licensee's operations serve

[[Page 726]]

niche markets or focus on serving populations outside of areas served 
by other licensees. The Commission has indicated that a ``substantial 
service'' construction requirement may help foster service to less 
densely populated areas. Because this requirement can be met in a 
variety of ways, the Commission has stated that it will review 
substantial service showings on a case-by-case basis. The Commission 
has rarely found that a commercial mobile radio service (``CMRS'') 
carrier has failed to meet its performance requirements.
    10. Another step the Commission has taken to encourage the 
provision of wireless services to rural areas is the retention, in 
RSAs, of the cellular cross-interest rule, which is designed to protect 
against the cellular incumbents developing cross interests that may 
create the incentive and ability to restrict the availability of 
services in those areas. The cellular cross-interest rule limits the 
ability of parties to have attributable interests in cellular carriers 
on different channel blocks in a single geographic area. In its recent 
reevaluation of this rule, the Commission determined that the cross-
interest rule was no longer necessary in MSAs because the cellular 
duopoly conditions that prompted the rule's adoption no longer existed. 
However, the Commission found that in RSAs competition to the incumbent 
cellular licensees was not as developed as in MSAs. Accordingly, the 
Commission concluded that a combination of interests in cellular 
licensees serving RSAs would more likely result in a significant 
reduction in competition in these areas. The Commission therefore 
decided to retain the cellular cross-interest rule in RSAs, subject to 
waiver of the rule based on certain conditions. The Commission noted 
that retention of the cross-interest rule in RSAs does not preclude 
cellular carriers from obtaining PCS licenses in order to expand 
capacity or offer advanced services.

III. Request for Comment

    11. Under section 309(j), the Commission has a statutory mandate to 
promote the development and deployment of wireless technologies to 
rural areas and economic opportunities for rural telcos and other 
entities seeking to serve rural areas. Indeed, as discussed, the 
Commission has implemented a number of initiatives toward achieving 
those goals. We seek to better understand the nature of spectrum supply 
and demand and the services currently provided and planned to be 
offered in rural areas. We are also interested in developing a record 
on whether there are any discrepancies between rural and urban America 
in the availability, use and cost of wireless services. Approximately 
80 percent of the U.S. population lives in metropolitan areas. However, 
our society is increasingly mobile and, therefore, ubiquitous wireless 
service is essential, not only for those living in rural areas, but 
also for individuals whose business and leisure activities take them to 
all parts of the nation. Thus, it is in the larger public interest to 
promote seamless wireless service throughout the country. By the Notice 
of Inquiry, we seek to broaden our understanding of the effect our 
current policies have had on the availability of spectrum-based 
services in rural America and on access to spectrum licenses by rural 
telcos and other entities seeking to serve rural areas. Further, we are 
interested in exploring whether it is appropriate to adopt new 
approaches in these areas. We therefore seek comment on the 
effectiveness of our current regulatory tools in facilitating the 
delivery of spectrum-based services to areas that traditionally may 
have been underserved by telecommunications providers and on our 
efforts to provide rural telcos with the opportunity to participate in 
spectrum auctions. We also invite comment on ways in which the 
Commission could modify its policies to best fulfill these statutory 
goals.
    12. At the outset, we request comment on the types of wireless 
services that are currently provided, and that are planned to be 
offered, in rural areas. We seek information on the availability of 
wireless services in rural areas and the providers of such services. We 
ask commenters to identify which service providers, in addition to 
rural telcos, are providing wireless services to rural populations. To 
the extent possible, we request that commenters provide particularized 
data on wireless coverage and provision of services to rural areas. The 
more specific data we receive, the better able we will be to tailor our 
regulations to meet our rural service goals. We particularly seek 
comment from consumer groups, community groups, State Commissions, 
local governments and others about any geographic areas that lack 
adequate wireless coverage, have inadequate quality of service, or 
inequitable pricing. We also ask commenters to identify the obstacles 
to providing wireless service in rural areas. In particular, we ask 
commenters to address the economic viability of building out in rural 
areas. In what ways, if any, can the Commission modify its rules to 
promote build-out to rural regions? We also seek comment on whether we 
should maintain a Web site that would include information that would be 
helpful to entities seeking to provide wireless services to rural 
areas. Such a Web site, for instance, could have links to other sites 
that contain information about programs and financial incentives that 
are available to those seeking to serve rural populations. Should we 
maintain a database that would provide information to prospective 
service providers, including rural carriers, on the availability of 
spectrum for initial licensing or leasing? In addition to the specific 
issues identified in the Notice of Inquiry, we also invite comment on 
any other issues within the Commission's jurisdiction that may directly 
relate to the provision of wireless service in rural areas.
    13. Apart from the rural service mandate set forth in section 
309(j), Congress also directed the Commission to pursue other public 
interest objectives in designing a system of competitive bidding, 
including the efficient and intensive use of the spectrum, the 
development and rapid deployment of new technologies and services, the 
promotion of competition, and the recovery for the public of a portion 
of the value of the spectrum. In providing comment on how the 
Commission may best fulfill the rural objectives, we ask that 
commenters also address how any proposed suggestions would further, or 
impede, the Commission's achievement of the other public interest goals 
set forth in section 309(j)(3).
    14. Finally, we recognize that issues involving spectrum leasing 
opportunities are of significant interest to rural telcos. They have 
expressed interest in gaining access to spectrum usage rights through 
secondary markets. We plan to address these matters in our proceeding 
on secondary markets.
    15. In addition, we note that rural interests have raised issues 
related to the controlling interest standard that the Commission 
adopted in the Part 1 Fifth Report and Order. In essence, they argue 
that application of this rule will inappropriately disqualify rural 
telco cooperative applicants from attaining small business bidding 
status and will frustrate the objectives of the Commission's small 
business bidding preference program and the mandates of section 309(j). 
Because we will respond to petitions for reconsideration of the Part 1 
Fifth Report and Order in a subsequent order, as part of the Part 1 
rulemaking proceeding, we do not seek comment on, and will not address 
these matters in the Notice of Inquiry.

[[Page 727]]

A. Definition of ``Rural Areas''

    16. As discussed, sections 309(j)(3) and 309(j)(4) direct the 
Commission to promote the development and deployment of spectrum-based 
services to ``rural areas.'' The statute, however, does not provide a 
definition of what constitutes a ``rural area.'' The federal government 
has multiple ways of defining ``rural,'' reflecting the multiple 
purposes for which the definitions are used. The Commission has used 
RSAs to define ``rural'' in certain instances. In the Seventh Report, 
17 FCC Rcd 12985 (2002), the Commission used three different proxy 
definitions of ``rural'' for purposes of analyzing the average number 
of competitors in rural versus non-rural counties. We compared the 
number of competitors in (i) RSA counties versus MSA counties, (ii) 
non-nodal EA counties versus nodal EA counties, and (iii) counties with 
population densities below 100 persons per square mile versus those 
with population densities above 100 persons per square mile. We request 
comment on whether and how the Commission should define ``rural area'' 
for purposes of determining the extent to which the Commission has met 
its mandate under section 309(j). In addition, we seek comment on 
whether we should adopt different definitions of what constitutes a 
``rural area'' depending upon the regulatory initiative for which the 
definition is used. Commenters should identify the factors that the 
Commission should consider when defining ``rural area.'' In addition, 
we are interested in compiling a comprehensive list of the number of 
telephone companies that meet the definition of ``rural telephone 
company'' as defined in 47 U.S.C. 153(37). The identical definition is 
also included in 47 CFR 1.2110(c)(4) and 51.5. We ask that commenters 
provide data to assist us in this effort.

B. Bidding Credits

    17. As explained, bidding credits are intended to foster broad 
participation in the competitive bidding process for licenses. A 
bidding credit reduces the amount of the winning bid paid for a license 
by a qualifying entity. The Commission requests comment on whether, and 
the extent to which, small business bidding credits have facilitated 
the participation of rural telcos in competitive bidding and the 
delivery of spectrum-based services to rural areas. Our research 
demonstrates that rural telcos often qualify as small businesses and 
are therefore eligible to receive small business bidding credits. Is 
the availability of small business bidding credits effective in 
assisting rural telcos to gain access to spectrum? Is the availability 
of such credits helpful in promoting the provision of spectrum-based 
services to rural areas? Commenters should support their responses to 
these questions with data or other empirical information. For instance, 
if commenters contend that small business bidding credits are not 
helpful in promoting rural telco participation in Commission auctions, 
commenters should provide data or statistics supporting that assertion. 
If empirical evidence demonstrates that small business bidding credits 
are not effective in facilitating the provision of wireless services to 
rural areas or the participation of rural telcos in competitive 
bidding, should the Commission adopt a bidding credit specifically for 
rural telcos or based on the provision of service to rural areas? For 
instance, should the Commission adopt a rural service bidding credit 
modeled after the tribal lands bidding credit? In responding to these 
questions, commenters should discuss why the use of small business 
bidding credits is or is not effective in creating opportunities for 
rural telcos or in spurring the provision of services to rural areas.
    18. If the Commission were to adopt a bidding credit specifically 
for rural telcos, what criteria should it use to determine eligibility 
for the credit (if it is not based on financial size) and what should 
be the size of the credit? Is it appropriate, for instance, to adopt a 
bidding credit for all rural telcos irrespective of how large or well-
financed these entities may be? When initially considering the adoption 
of a rural telco bidding credit in 1994, the Commission found that 
rural telcos do not per se have the same difficulty accessing capital 
as other groups, such as small businesses. The Commission stated that 
the parties advocating the adoption of a rural telco credit had 
``failed to demonstrate a historical lack of access to capital that was 
the basis for according bidding credits to small businesses, minorities 
and women.'' In subsequent decisions, the Commission has reiterated 
that large rural telcos do not appear to have barriers to capital 
formation similar to those faced by other designated entities. In 
commenting on this issue, parties that advocate the adoption of a 
bidding credit specifically for rural telcos should address whether we 
should consider access to capital as a factor in determining whether to 
adopt such a bidding credit. We note that rural telcos may seek below-
market rate lending through the Department of Agriculture's Rural 
Utilities Service (``RUS''). In addition, section 6103 of the recently-
enacted Farm Security and Rural Investment Act of 2002 provides loans 
and loan guarantees to construct, improve, and acquire facilities and 
equipment to provide broadband service to rural communities with 20,000 
or fewer residents. These financing options suggest that rural telcos 
may have greater ability than other designated entities to attract 
capital. We seek comment on what role these programs should play, if 
any, in our consideration of adopting an independent rural telco 
bidding credit.

C. Geographic Service Areas

    19. The sizes of geographic service areas vary on a service-by-
service basis depending upon such factors as the nature of the service 
and the likely users. We seek comment on the extent to which the size 
of the geographic service area affects the ability of rural telcos to 
acquire spectrum licenses through competitive bidding. In addition, 
commenters should discuss whether, and in what ways, the size of the 
geographic service area affects the provision of wireless services to 
rural areas. Commenters should provide data to support their positions.
    20. Does the size of the geographic service area affect the 
provision of wireless services to rural areas by entities other than 
rural telcos? Large license areas, for instance, may enable nationwide 
carriers to compete with local or regional carriers in providing 
service to rural areas. Such large areas may also provide opportunities 
for new entrants to compete on a wide-area basis in an existing 
service. With regard to commercial mobile telephony specifically, there 
is considerable industry support for the notion that relatively large 
licenses are most efficient. The original geographic scope of cellular, 
broadband PCS, and certain SMR licenses was small and, as a result, the 
licenses were assigned to a large number of entities. The predominant 
trend since then, however, has been for operators progressively to 
aggregate licenses and build large geographic footprints. The 
Commission has found that these footprint-expanding transfers and 
assignments result in important public benefits. Today, six providers 
approach nationwide status. However, less than 50 percent of the 
geographic area of the country is served by three or more carriers. 
Given this evidence, are small license areas inefficient for licenses 
of spectrum suitable for provision of mobile voice and data service? 
And for such licenses, do the interests of consumers of rural service 
diverge from the interests of rural telcos that wish to supply such 
service?

[[Page 728]]

Alternatively, does the use of small geographic licensing areas 
stimulate competition in the provision of wireless services to rural 
populations? Does the adoption of smaller service areas enable rural 
telcos to compete more effectively in spectrum auctions? If rural 
telcos win licenses covering small geographic service areas, are they 
more likely to provide services to those areas than are other service 
providers? Is there evidence that smaller geographic areas will result 
in more rapid deployment of services? Are rural carriers better 
positioned to serve the needs of rural America than nationwide 
carriers? Reliance on nationwide licenses assumes that nationwide 
carriers and local carriers are equally well positioned to serve rural 
consumer needs. Is this correct? On the other hand, are rural 
populations better served by carriers that operate on a nationwide 
basis as opposed to local carriers? For example, are nationwide 
carriers better able to offer lower prices, better roaming capability, 
or more services due to economies of scale? If the adoption of smaller 
service areas for licenses does enhance the participation and success 
of rural telcos in competitive bidding and/or the provision of services 
to rural areas, should the Commission adopt varied-sized or small-sized 
geographic service areas for all auctionable services? Are there 
particular services that are more appropriate for licensing by smaller 
geographic areas? If smaller geographic service areas promote 
competition, service, and access to spectrum by rural telcos, what size 
service areas would be most effective to achieve these benefits? In 
addition, we seek comment on whether certain auction designs, such as 
combinatorial or ``package'' bidding, facilitate license configurations 
that are efficient and likely to foster the provision of wireless 
services to rural areas.

D. Partitioning and Disaggregation

    21. Partitioning and disaggregation policies and regulations are 
designed to facilitate more efficient and intensive use of the 
spectrum, including use by rural telcos to serve rural areas. In 
paragraph eight, we provide statistics regarding partition and 
disaggregation assignees that have identified themselves as rural 
telcos, and assignees that claim that they are or will be serving rural 
areas. However, because we do not require applicants to identify 
themselves as rural telcos when applying for licenses, we cannot with 
certainty determine the extent of transactions involving rural telcos 
based solely on our licensing records. Therefore, we seek comment on 
the extent to which rural telcos have received licenses through 
geographic partitioning and spectrum disaggregation. We are interested 
in learning whether, and in what ways, partitioning and disaggregation 
policies have been helpful in providing rural telcos with access to 
spectrum. We also ask for comment on whether, and to what extent, 
partitioning and disaggregation rules have enhanced the provision of 
services to rural areas. In responding to these questions, commenters 
should provide data or other empirical information to support their 
positions. We also solicit comment on whether partitioning and 
disaggregation policies enhance competition in the provision of 
wireless services to rural areas. If partitioning and disaggregation 
facilitate the provision of services to rural areas, do sufficient 
incentives exist for both winning bidders and prospective licensees to 
participate in the spectrum partitioning and disaggregation process? 
For instance, to what extent do the potential transaction costs 
involved in partitioning and disaggregation discourage licensees from 
pursuing such options? We note that some rural interests maintain that 
such transaction costs and other factors lead licensees to avoid 
pursuing partitioning and disaggregation agreements. If sufficient 
incentives do not exist to encourage partitioning of service areas and 
disaggregation of spectrum, should the Commission adopt additional 
incentives to motivate parties to pursue these options? For example, 
should the Commission require that licensees disaggregate or partition 
under certain circumstances, such as when there is unused spectrum or 
unserved portions of geographic service areas?

E. Performance Requirements

    22. Performance requirements, such as construction benchmarks, are 
intended to help ensure that licensees promptly provide service to 
potential subscribers. The type of construction benchmark the 
Commission adopts for a license may determine whether services are 
deployed expeditiously to rural areas. For instance, depending on the 
level at which it is set, a population-based requirement may be 
achievable by a licensee providing service only to the urban areas 
covered by its license. In contrast, a geography-based benchmark 
targets the delivery of services to a percentage of a geographic area, 
rather than to a percentage of the population in an area. Because 
population is only rarely distributed uniformly across a geographic 
area, the same percentage requirement under a geography-based standard 
may result in greater geographic area and population coverage than that 
percentage under a population-based requirement.
    23. We seek comment on whether and how construction benchmarks may 
be utilized to encourage licensees to deliver wireless services to 
rural populations. To what extent are our current construction 
benchmarks effective in ensuring that spectrum-based services are 
provided to rural areas? In what instances, and under what 
circumstances, should the Commission adopt a population-based, 
geography-based, or substantial service construction benchmark? For 
example, in licensing service areas that are predominantly rural, 
should the Commission adopt geography-based construction benchmarks? 
Are there other types of construction benchmarks that would better 
promote service to rural regions? For instance, should we adopt a 
separate construction benchmark applicable only to service areas that 
constitute rural areas? Alternatively, should we revise our current 
construction benchmarks to permit service providers to serve either 
smaller portions of the population or service area if they meet a 
second construction benchmark applicable to the rural portions of a 
licensee's market? If so, commenters should explain what construction 
benchmarks we should adopt for the rural portions of the service area? 
If, as suggested, we were to require licensees to disaggregate or 
partition unused spectrum or unserved portions of geographic service 
areas, should the Commission adopt additional construction benchmarks 
to implement this requirement? If so, what penalties should the 
Commission impose on licensees for failure to timely meet such 
additional construction benchmarks? As noted, the Commission has 
generally accepted certifications of CMRS carriers that they have met 
their construction benchmarks. To what extent are our self-
certification procedures an adequate means of ensuring compliance with 
our construction benchmark requirements?
    24. In addition to employing varying types of construction 
benchmarks for auctioned licenses, the Commission has also utilized 
different models with respect to enforcing construction requirements. 
In the Cellular Radiotelephone Service, initial licensees are given 
five years to construct facilities and begin providing service to their 
market. At the end of the initial five-year period the licensee is 
allowed to ``keep what it builds'' and the remaining portions of the 
market

[[Page 729]]

become available for licensing to other parties via the cellular 
``unserved area'' licensing process. In contrast, auctioned services 
such as broadband PCS provide for an ``all or nothing'' penalty for 
failing to meet the construction benchmarks, i.e., if a licensee does 
not meet the five- or ten-year benchmark or make a showing of 
substantial service (where applicable) it forfeits the entire license 
and does not get to ``keep what it builds.'' With this past experience 
in mind, we seek comment on whether these models, a hybrid model, or 
some combination of targeted models, may be utilized to facilitate 
service in rural areas. We also seek comment on whether the Commission 
should adopt performance requirements other than construction 
benchmarks to encourage the provision of wireless services to rural 
areas.
    25. For unserved areas in the Cellular Radiotelephone Service, 
should the Commission adopt a different approach to assigning spectrum 
usage rights? Specifically, should the Commission adopt a ``commons'' 
model, which allows unlimited numbers of unlicensed users to share 
frequencies, with usage rights that are governed by technical standards 
but with no right to protection from interference? In addition, should 
the Commission amend the application filing process for cellular 
unserved areas to further encourage service providers to operate in 
rural areas? Furthermore, should the Commission apply the policy it has 
adopted with respect to unserved areas in the Cellular Radiotelephone 
Service to other services to promote wireless service in rural areas, 
i.e., allow licensees to continue to serve the areas they have built-
out, but make available for licensing to other parties those portions 
of a market that are not being served by current licensees? With 
respect to our ownership rules for the Cellular Radiotelephone Service, 
we seek comment on whether and to what extent our retention of the 
cellular cross-interest rule for RSAs advances spectrum-based services 
to rural areas. Should the Commission amend this rule to further the 
provision of wireless services to rural areas?
    26. Finally, it may be economically inefficient, and thus harmful 
to customers, to require for each wireless service the same number of 
competitors in urban and rural areas. This appears to be true, for 
example, with regard to mobile telephony. How should a performance 
requirement policy for rural areas address this issue? Economic theory 
predicts that where licensees are in competitive markets, and no market 
failures exist and transactions costs are sufficiently low, market 
forces will drive optimal decisions on what is built, where, and when. 
In that setting, build-out rules arguably would distort resource 
allocation, or at best be irrelevant. We ask parties to comment on the 
application of this economic theory to construction benchmarks that 
cover rural areas. In particular, for those services and rural markets 
where there is competition, how should we balance the putative 
efficiency harm of build-out rules against the potential equity 
benefit? Moreover, for those services and rural markets where there is 
a lack of competition, e.g., as a result of small market size not being 
able to support multiple operators, is it possible that build-out rules 
would impose efficiency costs in the form of spending on excess 
capacity?

F. Band Manager Licensing

    27. A band manager is a licensee that is specifically authorized to 
lease its licensed spectrum usage rights for use by third parties 
through private contractual agreements without having to seek prior 
Commission approval. Band managers may make their licensed spectrum 
available to facilitate all types of spectrum use that are consistent 
with the technical restrictions adopted for the particular band and in 
accordance with certain requirements imposed on the leasing 
relationship. The Commission has adopted band manager licensing for 
several bands. The band manager may subdivide its spectrum in any 
manner it chooses and make it available to any third party, consistent 
with the frequency coordination and interference rules specified for 
the particular band. Band managers are permitted to apportion spectrum 
based on both geographic area and frequency. Such spectrum 
apportionment differs from traditional geographic partitioning and 
spectrum disaggregation because it does not involve the transfer or 
assignment of the band manager's licenses to other parties. Band 
manager licensing is an innovative spectrum management approach that 
can enable parties to acquire spectrum more readily for varied uses. 
The band manager option will also enable small businesses to acquire 
spectrum in amounts to serve particular geographic areas, and for 
periods of time, that better suit their unique characteristics and 
specialized communications needs. We seek comment on whether rural 
telcos would be able to obtain more affordable access to spectrum 
through a band manager than by acquiring licenses directly at auction 
or through partitioning and disaggregation. We also seek comment on 
whether rural telcos would be more likely to obtain access to spectrum 
that is tailored to their particular needs from a band manager than by 
acquiring licenses in an auction or through partitioning and 
disaggregation. Comments should also discuss whether band manager 
licensing would promote service or enhance the quality of service to 
rural areas.

G. Technical and Operational Rules

    28. The Commission has developed technical and operational rules 
throughout its spectrum-based services in order to facilitate efficient 
use of the radio spectrum while minimizing the potential for harmful 
interference among licensees. We seek comment on the degree of 
flexibility that these regulations afford to providers of spectrum-
based services in rural areas. Are there aspects of these rules that 
could be modified or made more flexible to encourage expanded service 
to rural areas while ensuring that services remain free of harmful 
interference? For example, would increasing permissible power levels be 
beneficial for particular types of services in areas where there is 
less spectrum congestion? Commenters should explain how their proposed 
changes would satisfy the goal of expanded rural service while not 
increasing the likelihood of harmful interference to existing 
licensees.
    29. With respect to the Rural Radiotelephone Service, which 
includes BETRS, we note that as of November 2002, there were 67 active 
BETRS licenses with facilities in 17 states and 580 active Rural 
Radiotelephone licenses with facilities relatively uniformly spread 
throughout the continental United States. Of these, only one BETRS and 
two Rural Radiotelephone licenses were issued within the last two 
years. We seek comment on how we might revise the rules for these 
services to further facilitate the provision of wireless service to 
rural areas.

H. Unlicensed Spectrum

    30. We also seek comment on the extent to which unlicensed spectrum 
is being used to provide wireless services to rural communities. We ask 
commenters to identify the service providers that are utilizing 
unlicensed spectrum and the types of services they are offering. 
Further, we seek comment regarding actions the Commission could take to 
encourage or facilitate the use of unlicensed spectrum. For example, 
unlicensed operation is generally limited to very low power levels in 
order to help ensure that the operation does not interfere with 
licensed services. However, the interference

[[Page 730]]

potential of unlicensed devices may be low or negligible in rural 
communities. Should unlicensed devices be permitted to use higher 
output power levels in such environments? If so, what criteria would 
have to be met in order to qualify to use the higher power levels?

I. Eligible Telecommunications Carriers

    31. The Commission's rules concerning universal service support for 
eligible telecommunications carriers (``ETCs'') may impact deployment 
of wireless services to rural areas. Under the Communications Act, only 
carriers designated as ETCs under section 214(e) may receive federal 
universal service support. Under the Commission's rules, wireless 
carriers may be designated as ETCs and may receive universal service 
support for providing service to consumers that use wireless service as 
their only phone service as well as to consumers that also maintain 
wireline service. The Commission recently asked the Federal-State Joint 
Board on Universal Service (Joint Board) to review the ETC rules and 
provide recommendations regarding if and how these rules should be 
modified. We anticipate that the Joint Board will develop information 
on the impact of the Commission's ETC rules on deployment of wireless 
services to rural areas. In this docket, we seek comment generally on 
whether the Commission's ETC rules have promoted deployment of wireless 
service to rural areas and greater subscribership in these areas. We 
also seek to gather factual information. Specifically, we direct the 
Universal Service Administrative Corporation to provide us with 
information on the number of wireless carriers currently designated as 
ETCs, the amount of federal universal service support they have 
received, and the number of lines they serve. We ask that commenters 
provide any information available on how many of the customers served 
by wireless carrier ETCs also maintain wireline phones. How many 
customers had no phone service whatsoever until they purchased wireless 
service?

IV. Procedural Issues

A. Ex Parte Presentations

    32. This is an exempt proceeding in which ex parte presentations 
are permitted (except during the Sunshine Agenda period) and need not 
be disclosed.

B. Filing of Comments and Reply Comments

    33. We invite comment on the issues and questions set forth. 
Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415, 1.419, interested parties may file comments on or before 
February 3, 2003, and reply comments on or before February 18, 2003. 
Comments may be filed using the Commission's Electronic Comment Filing 
System (ECFS) or by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (May 1, 1998). 
Commenters that wish confidential treatment of their submissions should 
request that their submission, or specific part thereof, be withheld 
from public inspection.
    34. Comments filed through the ECFS can be sent as an electronic 
file via the Internet to <http://www.fcc.gov/e-file/ecfs.html. Generally, only one copy of an electronic 
submission must be filed. If multiple docket or rulemaking numbers 
appear in the caption of this proceeding, however, commenters must 
transmit one electronic copy of the comments to each docket or 
rulemaking number referenced in the caption. In completing the 
transmittal screen, commenters should include their full name, U.S. 
Postal Service mailing address, and the applicable docket or rulemaking 
number. Parties may also submit an electronic comment by Internet e-
mail. To get filing instructions for e-mail comments, commenters should 
send an email to [email protected], and should include the following words 
in the body of the message, ``get form.'' A sample form and directions 
will be sent in reply. Parties who choose to file by paper must file an 
original and four copies of each filing. If more than one docket or 
rulemaking number appears in the caption of this proceeding, commenters 
must submit two additional copies for each additional docket or 
rulemaking number. Filings can be sent by hand or messenger delivery, 
by commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). The Commission's contractor, 
Vistronix, Inc., will receive hand-delivered or messenger-delivered 
paper filings for the Commission's Secretary at 236 Massachusetts 
Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this 
location are 8 a.m. to 7 p.m. All hand deliveries must be held together 
with rubber bands or fasteners. Any envelopes must be disposed of 
before entering the building. Commercial overnight mail (other than 
U.S. Postal Service Express Mail and Priority Mail) must be sent to 
9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service 
first-class mail, Express Mail, and Priority Mail should be addressed 
to 445 12th Street, SW., Washington, DC 20554. All filings must be 
addressed to the Commission's Secretary, Office of the Secretary, 
Federal Communications Commission. Parties also should send four (4) 
paper copies of their filings to Robert Krinsky, Federal Communications 
Commission, Room 4-B551, 445 12th Street, SW., Washington, DC 20554.

V. Ordering Clauses

    35. Accordingly, it is ordered that, pursuant to the authority 
contained in 47 U.S.C. 151, 4(i), and 303(r) the Notice of Inquiry is 
adopted.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 03-219 Filed 1-6-03; 8:45 am]
BILLING CODE 6712-01-P