[Federal Register: December 15, 2004 (Volume 69, Number 240)]
[Rules and Regulations]
[Page 75143-75173]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de04-23]
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Part II
Federal Communications Commission
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47 CFR Parts 1, 22, 24, 27, and 90
Facilitating the Provision of Spectrum-Based Services to Rural Areas
and Promoting Opportunities for Rural Telephone Companies To Provide
Spectrum-Based Services; Final Rule and Proposed Rule
[[Page 75144]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1, 22, 24, 27, and 90
[WT Docket Nos. 02-381, 01-14, and 03-202; FCC 04-166]
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: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(``Commission'') modifies certain regulations and policies to
facilitate the deployment of wireless services in rural areas. The
Commission establishes the definition for ``rural areas'' in the
context of specific policies or regulations governing wireless
communications services. The Commission also evaluates its policies
governing the licensing of spectrum, both with respect to initial
geographic area licensing as well as subsequent re-licensing. The
Commission also takes steps to facilitate increased access to capital
for rural licensees, such as the elimination of the remaining
components of the cellular cross-interest rule, as well as the revision
of Commission policies governing security interests in wireless
licenses. Further, the Commission takes several actions designed to
increase licensee flexibility and permit more cost-effective coverage
of rural areas; for example, the Commission increases the permissible
power levels for certain wireless services that are located in rural
areas, permits certain geographic-area licensees to provide substantial
service as a means of complying with their construction requirements,
and clarifies its policies governing infrastructure sharing
arrangements.
DATES: Effective February 14, 2005, except for Sec. 1.919(c) which
contains an information collection requirement under the Paperwork
Reduction Act that has not been approved by the Office of Management
and Budget (OMB). The Commission will publish a document in the Federal
Register announcing the effective date of Sec. 1.919(c).
FOR FURTHER INFORMATION CONTACT: Allen A. Barna, Wireless
Telecommunications Bureau, at (202) 418-0620.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order portion (Report and Order) of the Commission's Report and
Order and Further Notice of Proposed Rulemaking, FCC 04-166, in WT
Docket Nos. 02-381, 01-14, and 03-202, adopted July 8, 2004, and
released September 27, 2004. Contemporaneous with this document, the
Commission publishes a Further Notice of Proposed Rulemaking (FNPRM)
(summarized elsewhere in this publication). The full text of this
document is available for public inspection during regular business
hours at the FCC Reference Information Center, 445 12th St., SW., Room
CY-A257, Washington, DC 20554. The complete text may be purchased from
the Commission's duplicating contractor: Best Copy & Printing, Inc.,
445 12th Street, SW, Room CY-B402, Washington, DC 20554, telephone 800-
378-3160, facsimile 202-488-5563, or via e-mail at fcc@bcpiweb.com.
Paperwork Reduction Act
The Report and Order contains modified information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA),
Public Law 104-13. They will be submitted to the Office of Management
and Budget (OMB) for review under Section 3507(d) of the PRA. OMB, the
general public, and other Federal agencies are invited to comment on
the modified information collection requirements contained in this
proceeding. Public and agency comments are due on or before February
14, 2005. Comments should address: (a) Whether these modified
collections of information are necessary for the proper performance of
the functions of the Commission, including whether the information
shall have practical utility; (b) the accuracy of the Commission's
burden estimates; (c) ways to enhance the quality, utility, and clarity
of the information collected; and (d) ways to minimize the burden of
the collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology. Below, the Commission continues to assess the additional
information collection burden that changes to its regulations and
policies might have on small entities including businesses with fewer
than 25 employees.
Synopsis of the Report and Order
I. Introduction
1. In this Report and Order, the Commission adopts several measures
intended to increase the ability of wireless service providers to use
licensed spectrum resources flexibly and efficiently to offer a variety
of services in a cost-effective manner. By our actions today, we take
steps to promote access to spectrum and facilitate capital formation
for entities seeking to serve rural areas or improve service in rural
areas. This Report and Order takes action affecting the provision of
commercial and private terrestrial wireless services. While the
policies and regulations discussed herein are targeted to promote
wireless services in rural areas, we note that certain of our actions
will likely have broader application to non-rural areas as well.
Accordingly, we expect these decisions will facilitate the deployment
of new and advanced wireless services, including broadband services,
and thereby foster much-needed economic development. The actions we
adopt in our Report and Order are derived from those proposed in both
the Notice of Inquiry (Rural NOI), 68 FR 723 (January 7, 2003), and the
Rural NPRM, 68 FR 64050 (November 12, 2003).
2. In this Report and Order, we modify certain regulations and
policies in order to facilitate the deployment of wireless services in
rural areas. Specifically, we take the following actions. As an initial
matter, we examine the various definitions that are used to describe
``rural areas'' and establish the presumption that, on a going-forward
basis, and unless otherwise specified in the context of specific
policies or regulations governing wireless communications services,
counties with a population density of 100 persons per square mile or
less constitute ``rural areas'' for purposes of our wireless spectrum
policies.
3. Second, we take a close look at some of our policies affecting
access to spectrum and the provision of service in rural areas. In
particular, we consider our policies governing the licensing of
spectrum, both with respect to initial licensing through the
competitive bidding process as well as subsequent re-licensing after an
authorization is returned to the Commission. We affirm that we will
continue to establish licensing areas on a service-by-service (or band-
by-band) basis as appropriate, based upon the flexibility that such an
approach provides and our past experience in determining the initial
size of service areas. We also reaffirm that when developing rules for
licensing individual services, we will consider using smaller service
areas in some spectrum blocks in order to encourage deployment in rural
areas for the service in question.
4. Third, we take steps to facilitate increased access to capital
for rural licensees. We eliminate the remaining components of the
cellular cross-interest
[[Page 75145]]
rule that currently apply only in rural service areas and transition to
case-by-case review for cellular transactions, while closely examining
those that present a significant likelihood of substantial competitive
harm in a market. We also revise our policies governing security
interests in wireless licenses and permit licensees, at their option,
to grant such interests to the Department of Agriculture's Rural
Utilities Service (RUS), subject to the Commission's prior approval of
any transfer of control.
5. Fourth, we take several actions to increase licensee flexibility
and permit more cost-effective coverage of rural areas. We amend our
regulations to increase permissible power levels for base stations in
certain wireless services that are located in rural areas or that
provide coverage to otherwise unserved areas. By this action, we
anticipate that coverage of such areas will be more economical, as
licensees may provide increased coverage of rural areas using fewer
base stations and less associated infrastructure. We also amend our
regulations to permit certain geographic-area licensees to provide
substantial service as a means of complying with their construction
requirements, thus countering existing disincentives to build out less
densely populated areas. Finally, we clarify our policies governing
infrastructure sharing and discuss the various types of infrastructure
arrangements that parties generally may enter into without the need for
Commission review.
II. Background
6. One of the Commission's primary statutory obligations, as well
as one of its principal public policy objectives, is to facilitate the
widespread deployment of facilities-based communications services to
all Americans, including those doing business in, residing in, or
visiting rural areas. In December 2002, the Commission released a Rural
NOI that sought comment on the effectiveness of its existing regulatory
tools in promoting service to rural areas and asked how we could modify
our policies to further encourage the provision of wireless services in
rural areas. In a follow-up Rural NPRM, released in October 2003, the
Commission sought to build upon the record developed in response to the
Rural NOI and sought comment regarding a variety of proposals to
eliminate unnecessary regulatory barriers and encourage the deployment
of spectrum-based services in rural areas. The Rural NPRM focused on
measures that would increase flexibility, reduce regulatory costs of
providing service to rural areas, and promote access to both spectrum
and capital resources for entities seeking to provide wireless services
in rural areas. Among other issues, the Rural NPRM sought comment on
the following policies and proposals: (1) Determining an appropriate
definition for ``rural area'' for purposes of implementing Commission
policies; (2) promoting access to ``unused'' spectrum; (3) extending a
``substantial service'' construction option to all geographic-area
licensees; (4) determining whether geographic-area licensees should
satisfy additional construction requirements after their initial
license term; (5) increasing power limits in rural areas for licensed
services; (6) evaluating the appropriate initial size of licensing
areas for geographic-area licenses; (7) fostering our partnership with
RUS and determining whether additional measures should be taken to
complement the RUS loan programs; (8) considering whether to modify
long-held restrictive policies on security interests in licenses by
permitting licensees to offer RUS security interests in their licenses;
(9) considering modification or elimination of the cellular cross-
interest rule in Rural Service Areas (RSAs); (10) clarifying our
policies with respect to infrastructure sharing; and (11) updating and
amending our rules governing the Rural Radiotelephone Service (RRS) and
Basic Exchange Telephone Radio Systems (BETRS).
7. As discussed below, the Commission's market-oriented policies
largely have been successful in promoting facilities-based competition
in the rural marketplace, especially with respect to CMRS. These
market-oriented policies, acting in concert with more historical
licensing policies, such as the cellular unserved area process, have
resulted in the widespread provision of wireless services, including in
rural areas. As the Commission noted in a recent report, 95 percent of
the total U.S. population live in counties with access to three or more
different mobile telephony providers. See Implementation of Section
6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report
and Analysis of Competitive Market Conditions with Respect to
Commercial Mobile Services, Eighth Report, 18 FCC Rcd 14783, 14793-94
paragraph 18 (2003) (Eighth Competition Report). Moreover, we are
optimistic that recent Commission initiatives will encourage the
further deployment of new and advanced wireless services in rural
areas, including broadband services. These initiatives complement
existing programs and regulations that, in our estimation, already are
working to promote wireless service in rural areas. These existing
measures include small business bidding credits and partitioning and
disaggregation. As the Commission noted in the Rural NPRM, available
data indicates that wireless service providers have taken advantage of
these existing regulatory mechanisms. We also note that there are
explicit funding programs available to support the provision of
wireless services in rural areas, including Universal Service Fund
support for service in high cost areas and RUS funds for the deployment
of broadband services.
8. In light of the record developed in response to the Rural NPRM,
we conclude that our market-oriented policies, in tandem with
substantial capital investment by licensees, generally have led to the
growth of valuable, productivity-enhancing wireless services to a vast
majority of Americans, including many who reside, work, or travel in
rural areas. Nevertheless, we also conclude that there are additional
steps that we can take in order to promote greater deployment of
wireless services in rural areas, such as eliminating disincentives to
serve or invest in rural areas, and helping to reduce the costs of
market entry, network deployment and continuing operations.
III. Report and Order
A. Definition of ``Rural''
9. Background. In the Rural NPRM, the Commission requested comment
on an appropriate definition of a ``rural area'' for use in conjunction
with each of the policies addressed in this proceeding. The Commission
sought comment on whether a uniform definition of a ``rural area''
would be appropriate, or whether the definition of a ``rural area''
should differ depending upon the particular regulatory initiative at
issue. The Commission discussed various definitions that are currently
used by the Commission or by other federal agencies as proxies for
``rural,'' and sought comment on whether one or more of these
definitions would be appropriate. Specifically, the Commission sought
comment on the following potential definitions: (1) Counties with a
population density of 100 persons or fewer per square mile; (2) RSAs;
(3) non-nodal counties within an Economic Area (EA) as defined by the
Department of Commerce's Bureau of Economic Analysis ; (4) the
definition for ``rural'' used by RUS for its broadband loan program;
(5) the
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definition for ``rural area'' used by the Commission in connection with
universal service support for schools, libraries, and rural health care
providers; (6) the definition of ``rural'' based on census tracts as
outlined by the Economic Research Service of the USDA; (7) the Census
Bureau definition of ``rural'' counties; and (8) any census tract that
is not within 10 miles of any incorporated or census-designated place
containing more than 2,500 people, and is not within a county or county
equivalent that has an overall population density of more than 500
persons per square mile of land. To the extent that commenters believed
that none of the eight definitions provided in the Rural NPRM are
appropriate, the Commission asked commenters to identify specific,
quantifiable factors that the Commission should consider when
determining whether an area is a ``rural area.''
10. Discussion. We conclude that it is appropriate to establish a
baseline definition of ``rural area'' for purposes of our regulatory
policies. Rather than discussing ``rural areas'' in abstract terms, we
believe that a baseline definition will provide clarity in situations
where the Commission does not otherwise specifically designate an
alternative definition. As noted in the Rural NPRM, we believe that
some clarification of the term is necessary in order to ensure that our
policies are appropriately tailored to promote service to consumers in
rural areas and ensure uniform understanding of how our regulatory
proposals will be implemented and evaluated. In addition, by adopting a
baseline definition of ``rural area,'' we can facilitate the evaluation
of our rural-oriented policies. By providing continuity with respect to
the meaning of a ``rural area,'' we can form a basis for comparison of
the effects of our ``rural area'' policies over time.
11. We establish a baseline definition of ``rural area'' as those
counties (or equivalent) with a population density of 100 persons per
square mile or less, based upon the most recently available Census
data. The Commission first used this definition as a proxy definition
in its annual CMRS Competition Report for purposes of analyzing the
average number of mobile telephony competitors in rural versus non-
rural counties. Our decision to adopt this specific definition over
other possible definitions is based on several factors. In order to
apply a specific definition to Commission policies, it is important
that we not make the definition difficult to administer, or so narrowly
tailored to only include what many refer to as the most rural areas. We
believe this definition achieves an appropriate balance. As noted in
the Rural NPRM, definitions based on county boundaries are easy to
administer and understand, population data based on county boundaries
are widely available to the public, and county boundaries rarely
change. Moreover, the total population of the counties that fall within
this definition of ``rural area'' closely tracks the Census Bureau's
overall population for non-urban areas; accordingly, although we do not
adopt the same definition for ``rural area'' as the Census Bureau, we
believe that we are targeting the same general population. This
definition encompasses 2,331 U.S. counties with a total population of
approximately 60 million people. These figures, based on the 2000
Census, correspond to approximately 72 percent of all U.S. counties and
21 percent of the total U.S. population.
12. We recognize, however, that the application of a single,
comprehensive definition for ``rural area'' may not be appropriate for
all purposes. Indeed, the Commission stated in the Rural NPRM that
there may be potential drawbacks of adopting a definition based solely
on county boundaries, and others expressed concern that a single
definition will not suit all situations. As noted in the Rural NPRM,
there are several well-established definitions for ``rural'' utilized
by federal agencies, and the Commission itself has employed different
proxy definitions of ``rural'' in various proceedings. We realize that
definitions of a ``rural area'' previously adopted were tailored to
specific policies, and that the 100 persons per square mile or less
definition may not be a suitable alternative in all cases. We believe,
therefore, that applying a comprehensive definition of ``rural'' to all
policies is not warranted and may instead have unintended results.
Rather than establish the 100 persons per square mile or less
designation as a uniform definition to be applied in all cases, we
instead believe that it is more appropriate to treat this definition as
a presumption that will apply for current or future Commission wireless
radio service rules, policies and analyses for which the term ``rural
area'' has not been expressly defined. By doing so, we maintain
continuity with respect to existing definitions of ``rural'' that have
been tailored to apply to specific policies, while also providing a
practical guideline.
B. Facilitating Access to Spectrum
13. Entities seeking to serve rural areas can be prevented from
doing so by lack of access to spectrum that has not yet been made
available by the Commission or that is held by others in such areas. We
do not believe spectrum is overly congested in rural areas, as demand
for spectrum in rural areas will in many cases be less than demand in
suburban or urban areas. However, we regularly hear from rural carriers
that they are unable to gain access to spectrum in rural markets,
notwithstanding their interest and the presence of unused spectrum in
the market. We therefore review our policies that affect access to
spectrum--including initial licensing determinations, subsequent
regulatory oversight of the secondary market, and our re-licensing
policies--to ensure that our policies facilitate access to spectrum in
rural areas.
14. In the following paragraphs, we focus on facilitating
opportunities for entities seeking to serve rural areas to acquire
spectrum both through initial licensing and through secondary market
transactions. We believe that the approach we take in this proceeding
will promote service in rural areas, consistent with market-based
policies that have encouraged wireless carriers to increase capital
spending on equipment and other infrastructure. One of our key
objectives is to ensure that carriers that seek to serve rural areas
are not prevented from doing so either because they lack of access to
adequate spectrum or because those that already have such spectrum lack
adequate economic or regulatory incentives to share it. Moreover, we
want to do what we can to ensure that spectrum rights flow to those who
are willing and able to put the spectrum to use in rural markets. We
recognize that this approach is not a panacea. Even where spectrum
access is not a barrier to entry, there will be certain rural areas
that are very difficult to serve because of high equipment costs, low
population density, or other economic factors. Instead of attempting at
this time to dramatically manipulate market-based spectrum policies
that have yielded tremendous benefits in prices and services for the
overwhelming majority of American consumers, we believe the better
approach is to gain more experience with secondary markets and to seek
additional comment in our FNPRM on measures to promote the provision of
service in these high-cost and underserved areas by either existing
carriers or new entrants.
15. In the sections that follow, we explain how our initial
definitions of spectrum licenses, along with our commitment to make
substantial amounts of spectrum and licenses available, should
facilitate access to
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spectrum in rural areas. To facilitate such access, we will determine
the size of geographic service areas on a service-by-service basis and
create opportunities for small service areas as appropriate. In
addition, we will continue our commitment to flexible secondary market
policies that facilitate post-auction access to spectrum. We also seek
comment in our FNPRM on additional steps that we might take to promote
spectrum access. Our goal is to ensure that the highest valued use of
spectrum is not affected significantly by regulatory methodologies that
may artificially constrain the choice of the technology used and
services provided.
1. Size of Geographic Service Areas
16. Background. For many wireless services, the Commission has
adopted geographic-area licensing. In contrast to site-based licensing,
geographic-area licensing provides licensees with flexibility to
respond to demand within a geographic market without the need for
additional licensing or authorization by the Commission. When
determining the size of geographic service areas, the Commission, after
seeking comment, considers a number of factors including the nature of
the service or services to be provided and the likely users. The
Commission has designated various sizes of geographic service areas in
order to encourage participation in spectrum auctions and to facilitate
deployment of wireless services.
17. The Act directs the Commission to design competitive bidding
systems to promote ``economic opportunity and competition and ensuring
that new and innovative technologies are readily accessible to the
American people by avoiding excessive concentration of licenses and by
disseminating licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
minority groups and women.'' Thus, the determination of geographic area
sizes becomes an integral part of a system designed to disseminate
licenses for a broad array of uses.
18. In the Rural NPRM, the Commission requested comments on the
appropriate size of geographic markets in rural areas. The Commission
recognized that the initial size of geographic service areas plays an
important role in providing the requisite access to spectrum that would
stimulate competition and result in greater wireless services in rural
areas. The Commission stated that it intends to continue establishing
geographic areas on a service-by-service basis, and sought comments on
this approach. The Commission also emphasized the importance of
selecting appropriate sized geographic service areas for reducing
transaction costs that providers may incur if it becomes necessary to
aggregate or disaggregate spectrum, or negotiate in secondary markets,
in order to meet spectrum needs.
19. Discussion. Based on our experience in past proceedings and the
record established in this one, we conclude that maintaining the
flexibility to establish geographic areas on a service-by-service basis
and promoting the use of a variety of service areas, including small
areas such as MSAs/RSAs, are in the public interest. By adopting this
framework, we seek to promote service in rural areas, encourage the
efficient utilization of spectrum, and to make spectrum and licenses
available to a wide array of licensees, including rural providers.
Furthermore, we believe that this approach provides flexibility, while
providing an opportunity for spectrum to be made available over small
areas such as MSAs/RSAs depending on the record and other
considerations relevant to the specific spectrum, thereby increasing
the likelihood of service to rural markets.
20. The approach we adopt today will afford us with the flexibility
necessary to tailor the size of licensed areas to balance the needs of
the different prospective users of the spectrum together with other
factors, including the unique characteristics of that spectrum. We
believe that this approach will provide incentives for the provision of
advanced applications and service offerings in rural areas.
21. Service-by-Service Determination in Future Proceedings.
Consistent with our tentative finding in the Rural NPRM, we intend to
continue a service-by-service approach in defining the initial scope of
licenses in the future. We find that this approach is the best method
to provide carriers adequate access to spectrum, including spectrum in
rural areas, and is consistent with the methodologies used in prior
proceedings.
22. A service-by-service approach is consistent with our statutory
mandate as well. For services subject to auction, the Commission is
required to promote various objectives in designing a system of
competitive bidding, including the development and rapid deployment of
new technologies, products, and services for the benefit of the public,
``including those residing in rural areas,'' and ``the efficient and
intensive use of spectrum.'' The flexibility afforded by a service-by-
service approach permits us to balance our various obligations. For
example, promoting efficient and intensive use of the spectrum may
require the use of large spectrum blocks or service areas to achieve
economies of scale, which in turn may conflict with promoting
opportunities for small businesses and rural service providers that may
require smaller spectrum blocks. Moreover, parties within the same
geographic areas may have competing interests. In this regard, the
flexibility afforded by a service-by-service approach allows the
Commission to consider the extent to which multiple licenses and
different sizes of geographic areas should be made available to promote
competition within the market. This approach also permits the
Commission to consider the use of large service areas if necessary to
provide for quicker build-out of facilities and deployment of new and
innovative wireless services. In some instances, the adoption of larger
areas may be more effective than the use of smaller areas where
spectrum use is to be transitioned to new services. In these
circumstances, the availability of licenses based on larger service
areas may result in a quicker and more successful transition throughout
the nation and thus enable the development and deployment of such new
services.
23. Another important element of a service-specific methodology is
that it takes into account any technical considerations associated with
particular spectrum. For example, questions of whether and when new
technologies would use the spectrum, and how much spectrum would be
required for any such new technologies may be considered in determining
the appropriate geographic areas for a particular service. In addition,
a service-by-service approach would allow the Commission to determine
whether propagation characteristics in a particular band would make it
more or less conducive to business models that are built on serving
customers over a particular size of service area. This approach would
help us to promote investment in and the rapid development of new
technologies and services.
24. We also find that a service-specific approach allows us to
consider the appropriate size of each future service area in the
context of geographic partitioning and spectrum disaggregation rules.
Geographic partitioning and spectrum disaggregation are available to
promote efficient spectrum use and economic opportunity by a wide range
of applicants, including rural telephone companies. A service-by-
service approach permits the Commission to
[[Page 75148]]
structure service areas in light of potential costs relating to
aggregation, partitioning and disaggregation for the particular
spectrum. The Commission can consider whether potentially high
transaction costs can be avoided by allowing the initial service areas
to be sized in order to meet the needs of the service providers that
want to use that spectrum.
25. The continued use of service-specific determinations of
appropriate geographic area sizes corresponds with the opportunity for
parties to take advantage of our secondary markets leasing rules. Even
if the market size or sizes that we adopt in a particular proceeding
are not necessarily the optimal size to meet the objectives of all
potential users, small carriers are still afforded the opportunity to
access appropriately sized market areas through spectrum leasing. In
the Secondary Markets Report and Order, the Commission stated that
facilitating the development of secondary markets enhances and
complements several of the Commission's major policy initiatives and
public interest objectives, including enabling the development of
additional and innovative services in rural areas. See Promoting
Efficient Use of Spectrum Through Elimination of Barriers to the
Development of Secondary Markets, WT Docket No. 00-230, Report and
Order and Further Notice of Proposed Rulemaking, 68 FR 66252 (November
25, 2003) (Secondary Markets Report and Order).
26. Based on the record, we find that the continuing development of
the benefits associated with the secondary markets policies and rules
complements a service-specific approach to determining the appropriate
size or sizes of geographic service areas. We also note that a service-
specific approach permits the Wireless Telecommunications Bureau
(Bureau) to consider whether any particular auction methodology should
be employed in light of the decisions that are made regarding the scope
of licenses for that spectrum. For example, certain comments address
the potential for use of package bidding. In order to maintain maximum
flexibility with respect to removing barriers to spectrum, however, no
particular form of auction design will be endorsed at this time,
including the use of package bidding. Rather, consistent with our
statutory obligations and with our actions in the past, the Bureau will
seek comment on auction-related procedural issues, including auction
design, prior to the start of the auctions for the individual spectrum.
This will provide an opportunity to weigh the benefits and
disadvantages of any particular bidding design prior to the start of
the auction, and will permit the auction procedures to be structured,
if necessary, to center on matters that may be of particular concern to
the likely participants in the auction and to the spectrum use,
including the number of licenses to be auctioned, the number of
spectrum blocks, and the size of the geographic service areas.
27. In conclusion, we decline to adopt any particular size of
geographic service area for future licensing at this time. Rather, as
we state above, we believe that the existence of such a wide range of
comments and views make it all the more appropriate for us to consider
issues relating to spectrum access and the scope of licenses for
particular spectrum in the context of proceedings to establish rules
for the use of that spectrum. We believe that this methodology offers
the opportunity for parties that would actually want to be involved
with the use of that spectrum to target specific issues relating to
adoption of the band plan that will help to remove barriers to entry
and increase access to the spectrum.
28. Multiple Licensing; Opportunities for Providers in Small and
Rural Areas. In our service-by-service evaluations, in certain
circumstances we have determined that it is appropriate to license
different market sizes. For example, for AWS in the 1.7 GHz and 2.1 GHz
bands, the Commission licensed the bands using a range of geographic
licensing areas in order to maintain maximum flexibility. That band
plan spreads licenses over various blocks of spectrum and uses EAs,
REAGs, and a block with 734 licenses based on RSAs/MSAs. The Commission
noted the competing needs of parties that sought large and small areas,
as well as a combination of large and small geographic licensing areas,
and found that there was sufficient spectrum to meet the competing need
for both large and small areas. The Commission determined that using a
varied selection of areas will foster service to rural areas and
promote the policy goal of disseminating licenses among a wide variety
of applicants. The Commission stated further that these smaller service
areas ``provide entry opportunities for smaller carriers, new entrants,
and rural telephone companies.'' Assignment of a variety of licenses
will also provide flexibility in service offerings, for example, where
the use of MSAs and RSAs in conjunction with other sized license areas
may allow licensees to focus on consumers that require localized use
without the need for roaming service. In future proceedings, where we
determine the size of service areas on a service-by-service basis, we
will consider licensing the spectrum over a range of various sized
geographic areas, including smaller service areas such as MSAs/RSAs,
where consistent with the record in that proceeding and with other
factors that may be relevant to the spectrum.
2. Re-Licensing vs. Market-Based Mechanisms
29. Background. In an effort to increase access to assigned
spectrum, the Commission sought comment on when, and under what
circumstances, it should apply re-licensing provisions to prospective
spectrum designations. The Commission did not propose to change the
licensing provisions for current wireless services, but rather chose to
evaluate whether it should use re-licensing as a means to increase
access to spectrum, and thus service, especially in rural areas and
whether, in the event of such re-licensing, there are particular
construction standards, such as ``complete forfeiture'' or ``keep what
you use'' that are most effective in promoting access and service in
rural areas.
30. The Commission explained that one reason it adopted its
Secondary Markets Report and Order was to enhance economic
opportunities and access for the provision of communications services
in rural areas. In that proceeding, the Commission took important first
steps to facilitate significantly broader access to valuable spectrum
resources. These flexible policies extended the Commission's reliance
on the marketplace to expand the scope of available wireless services
and devices, with the intent of promoting efficient and dynamic use of
spectrum resource for the benefit of consumers throughout the country,
including those in rural areas. The Commission also sought further
comment on various ways in which it could enhance opportunities for
spectrum access, efficiency, and innovation by removing unnecessary
regulatory barriers and implementing more market-oriented policies that
would facilitate moving spectrum to its highest valued uses.
31. Following the policies adopted in the secondary markets
proceeding, the Commission sought comment in the Rural NPRM on
different mechanisms that could potentially be used to reclaim spectrum
and increase access by others, including the cellular ``keep what you
use'' approach and the PCS ``complete forfeiture'' approach. Currently,
the process for reclaiming unused licensed spectrum differs across
services. Under the cellular ``keep what you use''
[[Page 75149]]
approach, initial licensees must construct facilities five years from
license grant and begin providing service within a predefined
geographic service area, after which licensees relinquish their
spectrum usage rights to all ``unserved areas.'' For the majority of
other geographically licensed services, including PCS, licensees are
afforded exclusive rights and a renewal expectancy for the entire
authorized area once performance requirements are met, regardless of
whether service is provided over the entire authorized area. Failure to
meet applicable benchmarks results in forfeiture of the entire license,
including the rights to operate any facilities already constructed
under the authorization.
32. The Commission explained that once spectrum has been reclaimed
there are different approaches to re-licensing that spectrum for use by
others. Under the cellular ``keep what you use'' approach, the
unconstructed portions of a market become available for site-based
licensing to other parties via the cellular ``unserved area'' licensing
process. In the alternative, the Commission explained that it could
create expanded ``overlay'' rights to unused spectrum, whereby usage
rights are auctioned to new licensees. Comment was also sought on
alternative mechanisms such as government defined easements to promote
access to spectrum in rural areas.
33. To assess how these potential re-licensing mechanisms would
work in the context of the Commission's market-oriented policies based
on flexible use of spectrum and substantial service performance
requirements, the Commission inquired generally as to what constitutes
use of spectrum by a licensee. In this context, it sought comment on
whether and how to provide a clear definition of ``use'' for all
parties to support policies for access to ``unused'' spectrum. If a
definition of ``use'' was to be adopted, the Commission explained that
licensees that construct facilities or lease their spectrum must
understand how use is construed in terms of construction requirements,
re-licensing, and other policies that may affect them so that they will
know what rights they will retain in the event they do not use their
spectrum.
34. Discussion. We decline to adopt specific re-licensing rules for
future spectrum allocations at this time. We believe our recently-
adopted secondary market-based mechanisms should be afforded a greater
opportunity to provide access to spectrum in a more efficient manner.
After considering the record established in this proceeding, we agree
generally with those who support additional time for the development of
secondary market mechanisms to move ``unused'' spectrum from licensees
to other entities that place a higher value on use of the spectrum.
Because our secondary markets policies are relatively new and the
benefits from their implementation have yet to be fully realized, we
decline to adopt re-licensing rules for future spectrum allocations at
this time.
35. This approach will allow us to examine alternative approaches
while we assess the efficacy of our secondary markets initiatives and
underlying policies in rural areas. We believe that the flexibility
that results from a simplified set of licensing rules gives licensees
freedom to determine the choice of technologies and services the market
demands and ultimately leads to more efficient spectrum use. Over the
last decade, a large percentage of spectrum has been allocated under
policies that emphasize flexible use. As in the past, numerous
commenters in this proceeding cite the benefits of applying such
policies to spectrum allocations where licensing rules rely on market-
based mechanisms. These flexible allocation policies underlie our goal
of creating an efficient secondary market that can move spectrum to its
highest valued end use. Our steps to facilitate spectrum leasing in the
secondary market, along with many other measures to encourage more
efficient use of spectrum, should facilitate greater access to spectrum
by better ensuring that licensees face significant opportunity costs
when deciding either to use spectrum for themselves or to lease it to
others.
36. In addition, we will continue to examine various alternatives
for creating incentives to increase the number and/or level of wireless
providers and services in rural areas. In particular, we recognize
that, after the initial license term, it may be appropriate in some
instances to revert to re-licensing along the lines of some of the
proposals received so that another carrier has an opportunity to
provide wireless services to such areas. In addition, we are exploring
approaches that may be more transparent and better aligned with market-
based mechanisms than proposals whose implementation might constrain
the flexible use policies underlying our secondary market-based
initiatives. We will continue to consider the potential use of re-
licensing standards (e.g., ``keep what you use'') in our FNPRM, as well
as in the context of future service-specific rulemakings.
37. In the Rural NPRM, as part of the Commission's consideration of
re-licensing versus market-based mechanisms for increasing licensed
access to ``exclusive use'' spectrum, the Commission also sought
comment on whether it should consider at this time a more general
application of alternative mechanisms for new licensed services, such
as government-defined spectrum easements. Given our current efforts to
facilitate the development of secondary markets in spectrum usage
rights in such spectrum, we believe that we should continue to take
steps to facilitate spectrum leasing in secondary markets, and that we
should evaluate other access mechanisms in the context of specific
service rulemakings. Less than a year has elapsed since our spectrum
leasing rules went into effect--a short period of time for an efficient
secondary market to develop and for its impact to be seen. As such, any
broad evaluation and comparison of secondary markets with the other
access mechanisms described in the Rural NPRM for new licenses is
premature. We note that commenting parties opposed the general
imposition of mandatory spectrum easements, many contending that
secondary markets have not yet had time to develop. We will, however,
continue to evaluate the possible future use of easements in the FNPRM.
38. Because we are not adopting any re-licensing policies at this
time, we need not define ``use'' of spectrum. As a result, it follows
that we also are not establishing any specific usage baselines for
individual services above which licensees must reach in order to
minimally comply with our substantial service policies. As we explain
below, however, we are amending our rules to permit certain geographic-
area licensees to provide substantial service as a means of complying
with their existing construction requirements, along with appropriate
rural ``safe harbors'' to increase certainty and alleviate concerns
that the substantial service requirement is overly vague. Accordingly,
we disagree with those who support strict reporting guidelines and we
will continue to rely on current rules that in many cases permit
licensees to determine the showings necessary to report their
construction. To the extent that our rules defining protected service
areas vary by service, we intend to consider harmonizing these
regulations across services in a future rulemaking.
39. As explained above, we generally believe that by maintaining
our flexible, relatively undefined use policy for geographic-area
licensees as applicable, we can increase efficient access to and use of
spectrum under our secondary markets initiatives that will permit
[[Page 75150]]
spectrum (and access) to flow to those particular uses that consumers
most demand. We note, however, that the definition of ``use'' will be
revisited, should we conclude that re-licensing policies should be
adopted as a result of our FNPRM. We make clear, however, that spectrum
in rural areas that is leased by a licensee, and for which the lessee
meets the performance requirements that are applicable to the licensee,
will be construed as ``used'' for the purposes of performance criteria
and construction requirements.
40. This is consistent with the Commission's decision in its
Secondary Markets Report and Order. We note that merely leasing
spectrum, where the lessee does not fully meet the licensee's
performance requirements, would not be considered ``use'' under this
decision. We find the record to be insufficient to declare a policy of
regulatory flexibility for system construction extension requests
arising from the failure of an unrelated lessee to live up to its
contractual obligation. Further, as we note in our discussion regarding
infrastructure sharing arrangements that, to the extent that licensees
are sharing spectrum usage rights with third parties under spectrum
leasing arrangements, such arrangements will be subject to the
policies, rules, and procedures set forth in the Secondary Markets
proceeding. Thus, to the extent that parties enter into spectrum
leasing arrangements pursuant to the Secondary Markets Report and
Order, the applicable policies, rules, and procedures relating to
performance, build-out, and discontinuance of service will apply.
Finally, we also find it premature to establish a data base of
available ``white space'' in rural areas or increase the use of
spectrum ``audits.''
C. Facilitating Access to Capital
41. In order to construct facilities and provide Americans living
or traveling in rural areas with important, innovative and advanced
services--including such services as broadband, E911, and medical
telemetry--wireless licensees must have adequate access to capital
resources. We recognize that capital formation issues may be
particularly relevant for would-be rural service providers, who may
have fewer consumers among whom to spread the costs of providing
service. Although we have existing measures to provide funding for
deployment in rural areas, such as the Universal Service Fund, we
recognize that there are additional steps that we can take to
facilitate access to capital. In the following sections, we discuss
funding resources available through RUS and outline the ways in which
we are working together with RUS to promote rural deployment. We also
examine and modify our policies governing security interests in FCC
licenses. As discussed below, we believe that relaxing our policies to
permit licensees to grant RUS a security interest in FCC licenses,
conditioned upon the prior approval of any assignment or transfer of
control of the license, will permit licensees to take full advantage of
the collateral value of their spectrum rights and reduce the risks of
lending. We also examine our cellular cross-interest rule and
transition to case-by-case review of cellular cross-interests in RSAs.
We believe that these actions will facilitate investment and financing
opportunities for licensees seeking to provide service in rural areas.
1. Rural Utilities Service (RUS) Loan Programs
42. RUS, through its Telecommunications Program, assists the
private sector in developing, planning, and financing the construction
of telecommunications infrastructure in rural America. Programs
administered by RUS include: (1) Infrastructure loans; (2) broadband
loans and grants; (3) distance learning and telemedicine loans and
grants; (4) weather radio grants; (5) local TV loan guarantees; and (6)
digital translator grants. For fiscal year 2004, no less than $2.211
billion in loans is available for the Rural Broadband Access Loan and
Loan Guarantee Program, with $2.051 billion for direct cost-of-money
loans, $80 million for direct 4 percent loans, and $80 million for loan
guarantees.
43. In order to encourage greater access and deployment of wireless
services throughout rural America, the Commission's WTB has partnered
with RUS to sponsor the ``Federal Rural Wireless Outreach Initiative''
(FCC/RUS Outreach Partnership). The FCC/RUS Outreach Partnership was
announced on July 2, 2003. The four key goals of the FCC/RUS Outreach
Partnership are to: (1) Exchange information about products and
services each agency offers to promote the expansion of wireless
telecommunications services in rural America; (2) harmonize rules,
regulations and processes whenever possible to maximize the benefits
for rural America; (3) educate partners and other agencies about
Commission, WTB and USDA/RUS offerings; and (4) expand the FCC/WTB and
USDA/RUS partnership, to the extent that it is mutually beneficial, to
other agencies and partners.
44. The Rural NPRM sought comment on what, if any, further
regulatory or policy changes should be made to complement RUS's
Telecommunications Program, and any other method of securing financing
for rural build out and operations. The Commission requested comment on
methods to help facilitate access to capital in rural areas in order to
increase the ability of wireless telecommunications providers to offer
service in rural areas. The Commission noted that an important part of
accomplishing this goal is through the promotion of federal government
financing programs. The Rural NPRM requested comment on how the
Commission can assist in making the RUS loan programs more effective.
The Commission sought comment on whether there are any Commission
regulations or policies that should be reexamined or modified to
facilitate participation in the RUS programs by wireless licensees and
service providers.
45. Discussion. We believe that the FCC/RUS Outreach Partnership
continues to be a useful means of encouraging greater access and
deployment of wireless services throughout rural America. With respect
to RUS loan program rules, we note that certain RUS policies are
statutorily mandated. To the extent that we can adopt rules or policies
that will facilitate the use of RUS loan programs, however, we will do
so. For example, as we set out below, we are modifying our policy with
respect to the grant of security interests in FCC licenses, which we
believe will enable more prospective borrowers to qualify for RUS
loans. We will continue to work with RUS and other federal agencies to
research and identify rural community wireless telecommunications needs
and strive to create program efficiencies that might assist with
exploring options to meet those needs. Further, we will continue to
work with RUS to develop rural outreach programs, materials and
workshops, which provide technical and economic information on
telecommunication technologies and funding options.
2. Conditional Security Interests to RUS
46. Background. As we noted in the Rural NPRM, the Commission's
policies with respect to commercial transactions involving FCC licenses
have evolved over time. As the Commission has gained experience in
regulating wireless licensees and as the wireless marketplace has
developed, the Commission's policies with respect to control and
capital formation issues have matured. Particularly in the last decade,
the Commission has modified its policies to address evolving licensee
[[Page 75151]]
and consumer needs, while concurrently taking appropriate measures to
safeguard its regulatory authority vis-[agrave]-vis private licensees
and to ensure compliance with its statutory responsibilities. Central
to the evolution of these market-oriented policies is the Commission's
understanding that, in order for wireless licensees to construct
facilities and deploy innovative services to all Americans, wireless
licensees must have sufficient access to capital.
47. Although the Commission has increasingly embraced market-based
transactions, recognizing the marketplace enables licensees to put
spectrum to its highest and best uses, this has not always been the
case. As a historical matter, the Commission initially was restrictive
in its policies towards market-oriented transactions. For example, the
Commission prohibited the sale of bare licenses, basing its position on
its interpretation of Sections 301 and 304 of the Communications Act.
The Commission stated that ``Section 301 and 304 provide, inter alia,
that licenses issued by the Commission convey no property interest,''
and that ``[t]o allow a permit to be transferred in a situation in
which the station seller obtains a profit, prior to the time that
programs tests have commenced, would appear to violate this
prohibition.'' The Commission subsequently changed its interpretation
of these statutory provisions, however, and has approved the for-profit
sale of unbuilt licenses and construction permits for terrestrial
wireless, broadcasting and satellite services. In the context of the
sale of an authorization of an unbuilt cellular telephone facility, the
Commission held that ``the plain language of sections 301 and 304 of
the Act does not address the sale of authorizations for stations,
whether built or unbuilt, for-profit or not for-profit,'' but
``[r]ather * * * congressional concerns that the Federal Government
retain ultimate control over radio frequencies, as against any rights,
especially property rights, that might be asserted by licensees who are
permitted to use the frequencies.'' The Commission went on to conclude
that the for-profit sale of ``whatever rights a permittee has in its
license'' to a private party, subject to prior Commission approval,
would be permissible under these statutory provisions. In 1991, the
Commission received a Petition for Declaratory Ruling regarding the
grant of security interests in the broadcasting context, and in 1992,
the Commission initiated a proceeding in the broadcast context, seeking
comment on whether we could improve access to capital by allowing
licensees to grant security interests to creditors. In 1994, the
Commission found that a ``security interest in the proceeds of the sale
of a license does not violate Commission policy.''
48. Over time, the Commission's policies for all spectrum-based
services have evolved to expressly permit licensees to grant security
interests in the stock of the licensee, in the physical assets used in
connection with its licensed spectrum, and in the proceeds from
operations associated with the licensed spectrum. Notably, the
Commission itself has taken an exclusive security interest in licenses
subject to the auction installment payment program and a senior
security interest in the proceeds of a sale of an auctioned license. In
such circumstances, and subject to the requirements and protections of
the security agreements that bind the participants in the installment
payment program, the Commission has allowed licensees to provide their
lenders a subordinated security interest in the proceeds of a license
sale. Furthermore, the Commission continues to develop and evaluate its
policies regarding security interests and control of spectrum, in order
to ensure that these policies afford licensees sufficient flexibility
consistent with the Communications Act to develop and deploy innovative
technology and keep pace with ever-changing consumer needs. In a 2000
policy statement, the Commission considered ways in which licensees may
be able to maximize their efficient use of spectrum by leveraging ``the
value of their retained spectrum usage rights to increase access to
capital,'' and indicated its intent to examine Commission policies
prohibiting security and reversionary interests in licenses.
49. The Commission noted that it had not yet taken a position on
whether its policy towards prohibiting a licensee to give a security
interest in the license itself ``is statutorily mandated or solely
dictated by regulatory policy.'' In the Secondary Markets Report and
Order, the Commission found that licensees could enter into certain
types of leasing transactions that are not deemed transfers of de facto
control under section 310(d) of the Act without prior Commission
approval, provided licensees continued to exercise effective working
control over the spectrum they lease. The Commission indicated that it
was updating its policy for interpreting de facto control in the
context of spectrum leasing, in order ``to reflect more recent
evolutionary developments in the Commission's spectrum policies,
technological advances, and marketplace trends.''
50. In the Rural NPRM, the Commission continued its examination of
its security interest policies as a means of facilitating access to
capital, consistent with its authority under the Communications Act.
Specifically, the Commission sought comment on whether permitting
licensees to grant security interests in their licenses to RUS would
result in lower costs of and greater access to capital. The Commission
noted that it would review and require prior Commission approval of an
assignment to RUS, in accordance with the Commission's transfer and
assignment policies, before RUS could assume control of a license. The
Commission also sought comment on whether modifying our policy to
permit RUS to take a security interest in FCC licenses is a natural
outgrowth of Commission and judicial developments, which recognize the
value and ability of a lender obtaining a security interest in the
licensee's stock, proceeds and other assets without infringing upon the
Commission's statutory obligations. The Commission asked whether a
licensee could grant RUS a security interest in an FCC license without
compromising the Commission's obligation to maintain control of
spectrum in the public interest and completely fulfill its applicable
mandates under the Communications Act of 1934, as amended. The
Commission sought comment on what the consequences of such a policy
shift might be, including what, if any, difference from the perspective
of RUS, a third-party lender, or the licensee, there would be on a
relaxation of the current security interest policies in the
circumstances described above. Finally, the Commission sought comment
on a concern that had been raised in the broadcasting context,
regarding the independence of broadcast stations and about the ability
of creditors to have substantial influence over a borrower station. The
Commission asked whether such dangers exist in the connection with
RUS's attainment of security interests in non-broadcasting wireless
licenses, especially as it relates to preserving and protecting
facilities-based competition and innovation by and among wireless
service providers.
51. Discussion. After careful review of the record, as well as the
judicial and regulatory developments of the past decade, we believe
that it is appropriate to adjust our policy with respect to the grant
of security interests in FCC licenses. We agree with RUS that allowing
it to obtain a security interest in an FCC license will greatly improve
[[Page 75152]]
loan security and will facilitate our roles in fulfilling the
President's goal for the universal deployment of broadband service. We
therefore modify our policy and permit commercial and private wireless,
terrestrial-based licensees to grant security interests in their FCC
licenses to RUS, conditioned upon the Commission's prior approval of
any assignment or transfer of de jure or de facto control. A licensee
therefore may grant RUS a security interest in its FCC license,
provided that the Commission approves the transaction, pursuant to its
authority under section 310(d) of the Communications Act, before the
secured party can exercise its right to foreclose on the license. We
limit this policy change to wireless, terrestrial-based licensees that
are within the scope of this proceeding. Further, any security interest
granted to RUS must be expressly conditioned, in writing as part of all
applicable financing documents, on the Commission's prior approval of
any assignment of the license or any transfer of de jure or de facto
control of the license to the secured party or other person or entity.
We also note that, in the case of a licensee operating under the
installment payment program, the Commission will retain its exclusive,
senior secured position with respect to the license. The Commission
also will retain its senior secured position with respect to the
proceeds of the sale of such license. Accordingly, we clarify that RUS
may not obtain a security interest in an FCC license in instances where
the FCC itself is a secured creditor, but may obtain a subordinated
interest in the proceeds subject to the requirements of the licensee's
installment payment obligations (e.g., those set forth in the security
agreement between the licensee and the FCC).
52. We believe that relaxing our security interest policy to permit
licensees to grant RUS a conditional security interest in their FCC
licenses will greatly enhance the value of a licensee's available
collateral by facilitating RUS's ability (as a secured party) to keep
the licensees' assets together as a package. While we acknowledge that
it may be possible for a licensee--primarily through careful corporate
structuring--to cobble together a set of interests that it can offer to
a lender as security that approximates a security package containing
the license, we believe that rural licensees will be much better served
if they can approach RUS for financing without having to incur the
potentially substantial transactional and other administrative costs
that might be necessary to create such a package.
53. Our decision to relax the current restrictions on security
interests reflects the Commission's increased reliance on market-
oriented policies to facilitate and encourage competition. At the same
time, limiting this initiative to RUS, as was proposed in the Rural
NPRM, avoids any suggestion that the Commission's recognition of a
third party property interest in an FCC license itself conveys any type
of ownership interest prohibited by the Communications Act. Although
this relaxation of our security interest policy marks the first time
that the Commission has recognized such an interest, the third party
involved (RUS) is a federal governmental agency. Thus, we do not
believe that anyone--licensees, their lenders, or the courts--would
mistakenly construe our action as a retreat from the principle of the
Communications Act that the spectrum itself is a public resource and
cannot be ``owned'' or deemed private property. This principle is
stated most explicitly in sections 301 and 304 of the Act. Section 301
provides for the control of the United States over ``all the channels
of radio transmission'' and for ``the use of such channels, but not the
ownership thereof, by persons for limited periods of time, under
licenses granted by Federal authority.'' Section 301 also states that
``no such license shall be construed to create any right, beyond the
terms, conditions, and periods of the license.'' Section 304 provides
that the Commission cannot grant any station license until ``the
applicant thereof shall have waived any claim to the use of * * * the
electromagnetic spectrum as against the regulatory power of the United
States.'' Furthermore, pursuant to section 310(d), the Commission must
review and approve license assignments and transfers of control, assess
and confirm the basic qualifications of assignees and transferees, and,
more generally, determine whether the transaction in question will
serve the public interest, convenience and necessity.
54. In view of the limitations of such provisions as sections 301,
304 and 310(d), it is clear that the Communications Act prohibits a
licensee from ``owning'' the spectrum it uses, and that the Commission
cannot grant, with a license, any such ownership interests. At the same
time, however, we recognize that a licensee holds certain ``spectrum
usage rights,'' as defined within the terms, conditions, and period of
the FCC license at the time of issuance. The Commission has used the
security interest prohibition as one bright line to mark off the point
at which a licensee's spectrum usage rights end and the government's
control of spectrum begins. By permitting RUS--but only RUS--to take a
conditional security interest in an FCC license, we maintain the heart
of this bright line: i.e., a prohibition on anyone other than the
federal government holding a property interest in something as closely
associated with spectrum as an FCC license. RUS (like the FCC) is an
agency of the United States with a particular mandate from Congress. We
believe that permitting it to obtain a security interest in an FCC
license will further its mandate and is fully consistent with the view
of spectrum as a public resource. Moreover, by conditioning any
assignment or transfer of de facto or de jure control of the license on
prior Commission approval pursuant to section 310(d), we ensure that
the Commission retains ultimate control over the spectrum. Thus, the
FCC's approval must be obtained before RUS can foreclose on a security
interest it may hold in an FCC license or before RUS or any other
entity may otherwise obtain control of the license or licensee. This
prior approval will satisfy our Congressional mandate, while at the
same time encouraging capital formation in rural areas.
55. We recognize that one could argue that a grant of a security
interest in an FCC license does not convey any ownership of spectrum,
but rather ownership of the licensee's private spectrum usage rights
associated with the FCC license. However, after carefully considering
whether this argument would support extending the relaxation of our
security interest policy to non-United States lenders, we have decided
to limit our action to RUS, as stated in the Rural NPRM. Thus, we will
maintain a bright line prohibition against private (non-government)
lenders taking a security interest in an FCC license.
56. As an additional matter, we believe that relaxing our policy to
permit the grant of conditional security interests in FCC licenses to
RUS is unlikely to result in RUS exercising inappropriate influence
over the licensee. As noted earlier, licensees may grant security
interests in the proceeds of the sale of their licenses, as well as in
their assets and stock. We have received no evidence, and we have no
reason to suspect, that RUS has used any of these types of
transactions, already permitted under our rules and policies, to
exercise inappropriate influence over any FCC licensee. In light of
these circumstances, we do not believe that permitting a licensee to
grant RUS a conditional security interest
[[Page 75153]]
in the license itself will increase the likelihood of such
inappropriate influence.
57. We note the concerns of some that modifying our policy to
permit RUS to obtain a security interest could impede the ability of a
wireless provider to obtain financing from other lenders. However, we
note that providing licensees with the ability to offer their license
as collateral would create an opportunity, not a requirement, and that
the wireless provider, as in all loan decisions, will initially
determine whether the business risks outweigh the benefits of using its
license for collateral. Licensees have the option of obtaining
financing through RUS; in the event they find RUS's terms unsuitable,
they may elect to work with private lenders. Licensees are not required
to provide RUS with a conditional security interest, although this
modification of our policy permits them to do so, at their option.
3. Cellular Cross-Interest Rule
58. Background. To facilitate additional access to capital by
cellular carriers in rural areas, the Commission sought comment
regarding whether the prohibition against cellular cross-interests in
all RSAs remains in the public interest. As set forth in Sec. 22.942
of the Commission's rules, the prohibition substantially limits the
ability of parties to have interests in cellular carriers on different
channel blocks in the same rural geographic area. To the extent
licensees on different channel blocks have any degree of overlap
between their respective cellular geographic service areas (CGSAs) in
an RSA, Sec. 22.942 prohibits any entity from having a direct or
indirect ownership interest of more than five percent in one such
licensee when it has an attributable interest in the other licensee. An
attributable interest is defined generally to include an ownership
interest of 20 percent or more or any controlling interest. An entity
may have a non-controlling and otherwise non-attributable direct or
indirect ownership interest of less than 20 percent in licensees for
different channel blocks in overlapping CGSAs within an RSA.
59. The Commission consolidated into the instant proceeding two
petitions that seek reconsideration of the decision in the December
2001 Spectrum Cap Sunset Order, which, on the basis of the state of
competition in CMRS markets, sunset the CMRS spectrum cap rule in all
markets and eliminated the cellular cross-interest rule in MSAs because
cellular carriers in urban areas no longer enjoyed first-mover,
competitive advantages. See 2000 Biennial Regulatory Review Spectrum
Aggregation Limits for Commercial Mobile Radio Services, WT Docket No.
01-14, Report and Order, 67 FR 1626 (January 14, 2002) and Final rule;
correction, 67 FR 4675 (January 31, 2002) (Spectrum Cap Sunset Order).
In March 2002, the Commission sought comment on petitions filed by
Dobson Communications Corporation, Western Wireless Corporation, and
Rural Cellular Corporation (Dobson/Western/RCC) and Cingular Wireless
LLC (Cingular) seeking reconsideration of the portion of the Spectrum
Cap Sunset Order that retained the cellular cross-interest rule in
RSAs. See Petitions for Reconsideration of Action in Rulemaking
Proceeding, 67 FR 13183 (March 21, 2002). While the Commission left the
cross-interest rule in place in RSAs, it indicated in the Spectrum Cap
Sunset Order that it would consider waiver requests and reassess the
need for the rule at a future date.
60. In the Rural NPRM, the Commission made clear that it sought to
balance its efforts to remove unnecessary regulatory barriers to
financing and investment of cellular service in rural areas with the
need to safeguard competition in RSAs. As an initial matter, it sought
comment on a tentative conclusion to retain the current cellular cross-
interest rule in RSAs with three or fewer CMRS competitors. Assuming
the Commission were to decide to retain a number-based rule, the Rural
NPRM also sought comment on how to define a ``competitor'' under such a
proposal, whether a ``competitor'' might be any CMRS provider with
significant geographic overlap with the cellular licensee, and whether
a transition period was necessary to sunset the rule for those RSAs
with four or more competitors.
61. In the alternative, the Commission sought comment on a range of
other options for modifying or eliminating the current rule in a way
that promotes investment in rural areas while retaining adequate
competitive safeguards. For example, the Commission sought comment on
whether to eliminate the prohibition for all RSAs where the ownership
interest being obtained is not a controlling interest (i.e., where the
interest is a non-controlling interest and where the transaction
otherwise would not require prior FCC approval). It sought comment on
the extent to which the waiver option has deterred or prevented
acquisition of capital in rural markets. Although a specific waiver
process has existed to address this barrier to investment in rural
areas, the Commission noted that the transactions costs and regulatory
uncertainty surrounding any waiver procedure may deter some beneficial
investment in these areas. Finally, the Commission sought comment on
the option of extending case-by-case review, as established in the
Spectrum Cap Sunset Order, to promote investment and reduce the
possibility of impeding transactions that are actually in the public
interest. The Commission recognized the important role that the
cellular cross-interest rule has provided in the past against the
possibility of significant additional consolidation of cellular
providers in rural areas, but it inquired whether the public interest
may be better served by the benefits of pure case-by-case review.
62. Discussion. Based on our review of certain arguments raised on
reconsideration and in the comments regarding the advantages of case-
by-case review, as well as developments since the release of the
Spectrum Cap Sunset Order in 2001, we find that reliance on a uniform
case-by-case review process for aggregations of spectrum and cellular
cross interests in RSAs is currently the better approach as compared to
prophylactic limits. We believe that continued application of the
cellular cross-interest rule in RSAs may impede market forces that
could drive financing and development of new services in rural and
underserved areas. Accordingly, we find that it is in public interest
to apply a more flexible approach in reviewing cellular competition in
rural areas and, as a result, we will extend our section 310(d) case-
by-case review to all cellular markets.
63. We therefore eliminate the cellular cross-interest rule in RSAs
and will utilize our case-by-case approach to review transactions where
a level of cellular cross interests arises to a substantial transfer or
assignment under section 310(d) of the Act. In addition, if a party
with a controlling or otherwise attributable interest in one cellular
licensee within an RSA obtains a non-controlling interest of more than
10 percent in the other cellular licensee in an overlapping CGSA, we
will require the licensee to notify the Commission within 30 days of
the date of consummation of the transaction by filing updated ownership
information (using an FCC Form 602) reflecting the specific level of
investment. This notification requirement will sunset at the earlier
of: (1) Five years after the release of this item, or (2) at the
cellular licensee's specific renewal deadline. By
[[Page 75154]]
employing this approach to maintain scrutiny over those cross interests
that pose a particular risk to competition in the near term, we
conclude that we have struck the proper balance between promoting
investment and protecting consumers against potential competitive harms
in rural areas.
64. Although the Commission last determined that the level of CMRS
economic competition was not meaningful enough to warrant complete
elimination of the cellular cross-interest rule pursuant to section 11
of the Act, it did not fully consider in its Spectrum Cap Sunset Order
whether a move to case-by-case review for cross interests in RSAs would
be in the public interest under the broader scope of its 2000 biennial
review of spectrum aggregations limits. To perform meaningful and
timely review of spectrum aggregation transactions without the CMRS
spectrum cap rule, the Commission explained that it needed time to
develop effective guidelines for this process, as well as to ensure
that sufficient resources were devoted to the task. In contrast,
because the concerns underlying the original purpose of the cross-
interest rule had been achieved in MSAs, the Commission was able to
immediately eliminate the rule in that context without having to
consider to any great extent the rule's necessity as compared to other,
less burdensome tools. When the Commission subsequently determined that
market conditions in rural areas had not changed sufficiently such that
it should eliminate the cellular cross-interest rule in RSAs pursuant
to section 11 of the Act, it concluded its reexamination of the rule
and did not evaluate whether it would nevertheless be in the public
interest to extend the advantages of flexible case-by-case review to
aggregation and cross interests of cellular spectrum in rural areas.
65. Notwithstanding section 11 of the Communications Act and the
Commission's past findings regarding the level of economic competition
in rural markets, we decide on reconsideration of our Spectrum Cap
Sunset Order and based on the comments filed in response to the Rural
NPRM that it is in the public interest to eliminate the cellular cross-
interest rule. Instead, parties will be permitted to file under our
case-by-case review process for substantial cross interests in all
cellular spectrum and report to the Commission a certain level of
cellular cross interests in rural areas that do not arise to an
assignment or transfer of control. Such a change in approach, supported
by adequate resources and procedures and facilitated by collection of
sufficient industry information along with appropriate enforcement
mechanisms, is currently the better approach for evaluating whether
proposed cross interests reflect opportunities for increased financing
and new services or indicate potential risks of anticompetitive market
conditions. The Commission indicated that its 2000 biennial review
would consider whether other factors beyond the impact of competition
made the cross interest rule appropriate for modification, and in this
context, we find they do.
66. Although we recognize the safeguard that the cellular cross-
interest rule has provided against the possibility of significant
additional consolidation of control over cellular spectrum in rural
areas and the attendant serious anticompetitive effects, we find that
the public interest is better served by the benefits of case-by-case
review with its greater degree of flexibility to reach the appropriate
decision in each case, reduced likelihood of prohibiting beneficial
transactions or levels of investment both in urban and rural areas, and
ability to account for the particular attributes of a transaction or
market. The greater regulatory flexibility offered by this change in
tools for review outweighs any ``guarantees'' to the competitive nature
of cellular competition in rural areas ensured by the current cross-
interest rule, as that rule may inadvertently discourage transactions
and cross interests that could be found to be in the public interest.
We believe that no cross interest or transaction should be
presumptively prohibited in RSAs and that we should consider such
proposals under an approach that is consistent with the same case-by-
case analysis that is employed in all other CMRS contexts.
67. In the Spectrum Cap Sunset Order, the Commission gave much
consideration to the availability of less burdensome case-by-case
review before it decided that the CMRS spectrum cap rule was no longer
necessary in the public interest. Given the level of competitive market
forces and the benefits of flexible case-by-case review, it determined
that it had the means to sunset the CMRS spectrum cap rule in all
markets, RSAs as well as MSAs. The Commission decided to retain the
cellular cross-interest rule in RSAs based on reasoning that the
likelihood of approving a cellular consolidation between two providers
in a given market was small and that it would be more efficient and
less costly for the Commission to maintain a prophylactic rule and to
entertain waiver requests for the small subset of transactions in RSAs
where competition was more robust. In review, given advancements in our
case-by-case processing procedures and resources since December 2001,
we believe that we can repeal the rule to better encourage transactions
and levels of financing that are in the public interest while
maintaining much of the protection afforded by the cellular cross-
interest rule. We recognize that the current waiver approach may
interfere with investment in rural areas by discouraging certain
financing in the RSA portions of a regional market but not in the MSA
portions. Our approach in essence relaxes the permitted threshold to
49.9 percent. However, for the reasons explained here, we disagree with
the argument that there is no conceivable situation where the public
interest could be served by considering such transactions in RSAs. Our
decision here is to change tools for review to a more precise standard,
and we make no determination that such proposed transactions are any
more likely to be found to be in the public interest.
68. Case-specific review, along with information resources and
enforcement mechanisms, is a more targeted process to examine the
actual competitive positions involved in a particular transaction or
level of cross interests and ensure that acquisitions of and cross
interests in spectrum do not have anticompetitive effects that render
them contrary to the public interest. As the Commission indicated in
the Spectrum Cap Sunset Order in the context of the CMRS spectrum cap
rule, we can rely on case-by-case review of CMRS spectrum aggregation
(including cross interests of cellular spectrum in rural areas) to
fulfill our statutory mandates to promote competition, ensure diversity
of license holdings, and manage the spectrum resource in the public
interest. We have been increasing the resources available to review
spectrum aggregation transactions and developing internal procedures
for review of concentration of CMRS spectrum in general, and cross
interests of cellular spectrum in rural areas in particular. While it
at first places greater resource demands on parties and the Commission,
over time, these actions will provide parties, including small
businesses, with legal precedent and a reasonable degree of certainty
and transparency regarding cross interests of cellular spectrum in
rural areas and should minimize the administrative costs of case-by-
case review for all applicants and licensees, as well as Commission
staff. In addition, we believe there may be an inequity that
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distorts the market in any area in which more than just the two
cellular licensees hold spectrum and find that the better approach to
safeguarding competition is to take account of the particular
circumstances of each market through case-specific review.
69. To review aggregations or cross interests of cellular spectrum
in rural areas, we eliminate Sec. 22.942 of the Commission's rules, 47
CFR 22.942, such that applicants and parties will only be required to
obtain prior Commission approval for transactions subject to section
310(d) of the Act. Although we are imposing a reporting requirement to
collect ownership information on certain levels of interests that do
not trigger section 310(d) review, we have adopted reporting thresholds
that reflect a comparatively higher 10 percent level of permitted cross
interest by a party with a controlling interest in a given cellular
licensee. Under Sec. 22.942, a party with a controlling interest in
one of the cellular licensees may only have a 5 percent direct or
indirect ownership interest in the other licensee in that CGSA. Under
the new reporting standard, we will allow a party with a controlling or
otherwise attributable interest in one of the cellular licensees to
have a non-controlling or otherwise non-attributable direct or indirect
ownership of up to and including 10 percent in the other cellular
licensee in overlapping CGSAs without notification. We have not been
able to determine conclusively that such cross interests pose a
significant threat to competition, and this new 10 percent threshold
will afford petitioners and commenters some relief from restrictions on
financing in the RSA portions of a regional market. Moreover, it
harmonizes the reporting threshold with our FCC Form 602 ownership
reporting requirements imposed currently on all licensees.
70. We do not make any determination here on the extent to which
cellular carriers may continue to hold a dominant market share in rural
areas or whether a consolidation of cellular licenses in RSAs would
likely result in a significant reduction in competition. We note,
however, that a concentration of interests between the two cellular
licensees in rural areas would more likely result in a significant
reduction in competition than an aggregation of additional CMRS
spectrum by such licensees. In addition, we note that different risks
to competition are present depending on whether a proposed cross
interest would be held by a telecommunications carrier or by a third-
party bank or other source of financing. By reviewing substantial
aggregations of cellular cross-interests on a case-by-case basis, as
discussed above, we retain the flexibility to evaluate individual
transactions on their own merits and account for these different
factors in determining whether approval of the transaction will serve
the public interest under section 310(d).
D. Increasing Licensee Flexibility
1. Performance Requirements
71. Background. Over the past decade, the Commission has shifted
away from site-based licensing for wireless licensees and has adopted
more flexible, geographic-area based allocations that provide licensees
with greater freedom to provide different types of services. In making
this shift, the Commission also has adopted performance benchmarks that
increase licensees' flexibility to offer a variety of services,
including service that may not require ubiquitous geographic coverage.
As a general matter, geographic-area licensees are not required to
construct their entire geographic area in order to retain their
authorizations. Instead, depending upon the specific service, the
Commission's rules may require coverage of a certain percentage of the
licensed area's population or a certain percentage of the licensed
area's geographic area. For many, but not all services, the Commission
has adopted a flexible ``substantial service'' construction standard
that allows licensees that are providing a beneficial use of the
spectrum to retain their authorizations without satisfying a prescribed
population-or geographic-based construction requirement. The
substantial service standard was intended to provide flexibility for
services with a variety of uses for the spectrum (i.e., fixed or
mobile, voice or data) or with a high level of incumbency that would
prevent a new geographic-based licensee from meeting the coverage
requirements. While the definition of ``substantial service'' is
generally consistent among wireless services, the factors that the
Commission will consider when determining if a licensee has met the
standard vary among services. Once a licensee satisfies its
construction requirement during its initial license term, the
Commission's rules currently do not require that the licensee satisfy
additional construction requirements during subsequent renewal terms
other than the standards necessary to achieve a renewal expectancy.
72. In the Rural NPRM, the Commission proposed modifications to our
construction requirements to promote licensee flexibility and the
build-out of rural areas. First, the Commission proposed to adopt a
``substantial service'' construction benchmark for all wireless
geographic area licensees that are subject to build-out requirements
but that did not have the option of meeting those requirements by
providing substantial service. Specifically, the Commission proposed to
amend its regulations to extend the substantial service construction
benchmark to the following licensees: 30 MHz broadband PCS licensees;
800 MHz SMR licensees (blocks A, B, and C); certain 220 MHz licensees;
LMS licensees; Multipoint Distribution Service and Instructional
Television Fixed Service (MDS/ITFS) licensees; and 700 MHz public
safety licensees. The Commission observed that construction benchmarks
that mandated population-or geographic-specific coverage might hinder
licensees from serving niche or less populated areas, and might
unintentionally discourage construction in rural areas. Second, the
Commission asked whether we should adopt geographic-based construction
requirements for private and commercial terrestrial wireless services
that are licensed on a geographic area basis and that do not have a
geographic-based requirement. The Commission noted that a geographic
benchmark would provide licensees who did not intend to focus
construction efforts on population centers with an alternative. Third,
the Commission asked whether we should adopt substantial service ``safe
harbors'' that are tailored to providing coverage in rural areas, and
proposed safe harbors for mobile as well as fixed services. Finally,
the Commission also asked whether requiring compliance with additional
construction requirements in license terms following initial renewal of
the license might be likely to increase build-out in rural areas.
73. Discussion. In large part, we adopt the proposal, as set forth
in the Rural NPRM, to extend the substantial service construction
benchmark to all wireless services that are licensed on a geographic
area basis. Specifically, we amend our regulations to provide a
substantial service construction benchmark for the following licensees:
30 MHz broadband PCS licensees; 800 MHz SMR licensees (blocks A, B, and
C); certain 220 MHz licensees; LMS licensees; and 700 MHz public safety
licensees. These licensees now have the option of satisfying their
construction requirements by providing substantial service or by
complying with other service-specific construction benchmarks already
available to them
[[Page 75156]]
under the Commission's rules. We decline to take any action with
respect to the MDS/ITFS and the 71-76 GHz, 81-86 GHz and 92-95 GHz (70/
80/90 GHz) bands, because construction rules for these bands recently
have been or will be addressed in service-specific proceedings.
74. Based on the record before us, we believe that modifying our
rules to permit these additional licensees to satisfy their
construction requirements by providing substantial service will
increase their flexibility to develop rural-focused business plans and
deploy spectrum-based services in more sparsely populated areas without
being bound to concrete population or geographic coverage requirements.
As the Commission noted in the Rural NPRM, particularly in cases where
a licensee has a population-based construction requirement, licensees
have both an economic and practical incentive to achieve compliance
with the Commission's build-out obligation by providing service to
urban areas. Further, current population-specific benchmarks may have
the unintended consequence of encouraging several licensees within a
particular market to provide coverage to the same populous areas. In
order to satisfy its construction obligations and safeguard its
license, even a late entrant who is the fourth or fifth competitor in a
particular area initially may choose to duplicate existing carriers'
footprints while other, more sparsely populated areas may be without
such competition or even service at all. With the additional
flexibility afforded by a substantial service option, however,
licensees will be free to develop construction plans that tailor the
deployment of services to needs that are otherwise unmet, such as the
provision of service to rural or niche markets. While a substantial
service alternative, by itself, does not guarantee that all licensees
will serve rural areas, the additional flexibility of this alternative
undoubtedly improves the likelihood of rural deployment and provides
licensees with the opportunity to target unserved rural areas.
Moreover, providing these licensees with the option of satisfying their
construction requirements by providing substantial service in their
licensed areas will increase parity among geographic area licensees.
This action promotes more equal regulatory footing with respect to
construction obligations.
75. We disagree with those who urge the adoption of a substantial
service standard only for those licensees with ``small geographic
territories.'' Our intent in providing licensees with a substantial
service option is not to mandate, but to encourage and facilitate
construction in less populated areas by providing licensees with
sufficient flexibility to develop unique business plans that do not
require ubiquitous coverage or coverage of densely populated areas. In
keeping with our market-oriented policies, we do not propose to require
licensees to deploy services where their market studies or other
analyses indicate that service would be economically unsustainable. As
we stated earlier, the adoption of the substantial service standard
provides licensees with the flexibility to provide coverage to other,
less populated areas and still satisfy its coverage requirement without
necessarily focusing on more urban population centers.
76. We also decline at this time to abandon our substantial service
performance benchmark in favor of stricter, more specific build-out
obligations, and a `keep what you use' approach similar to the
`unserved area' licensing regime established for cellular service. As
demonstrated by our trend towards licensing services on a geographic-
area basis, we believe that licensees can provide a meaningful and
socially beneficial service without providing ubiquitous service and
that providing licensees with sufficient flexibility to respond to
market fluctuations will promote the public interest. However, we
recognize that, for example because they can be used sequentially,
market-based mechanisms and re-licensing approaches (such as ``keep
what you use'') are not necessarily mutually exclusive. Accordingly,
our FNPRM will continue this discussion of the appropriate re-
licensing, and construction obligations for current and future
licensees who hold licenses beyond their first term.
77. As an additional matter, we adopt safe harbors for providing
substantial service to rural areas. As we state earlier, we adopt a
default definition of ``rural area'' as a county with a population
density of 100 persons per square mile or less, based upon the most
recent Census data. We apply this definition for purposes of these
rural-focused substantial service safe harbors. In light of the fact
that the geographic area licenses are comprised of counties, we believe
it is sensible and administratively efficient to adopt safe harbors for
geographic area licenses that also are based upon counties. With
respect to mobile wireless services, a licensee will be deemed to have
met the substantial service requirement if it provides coverage to at
least 75 percent of the geographic area of at least 20 percent of the
``rural areas'' within its licensed area. With respect to fixed
wireless services, the substantial service requirement is met if a
licensee constructs at least one end of a permanent link in at least 20
percent of the number of ``rural areas'' within its licensed area.
Licensees may satisfy these construction requirements through lease
agreements, provided these arrangements satisfy the conditions set
forth in the Secondary Markets Report and Order. As we stated in the
Rural NPRM, the use of a population density of 100 persons or fewer per
square mile is derived from our finding in the Eighth Competition
Report, which indicates that counties with population densities of 100
persons per square mile or less ``have an average of 3.3 mobile
competitors, while the more densely populated counties have an average
of 5.6 competitors.'' We believe that this population density-based
definition provides a workable and reasonable point of differentiation
between rural and non-rural areas, as we noted earlier.
78. We believe it is beneficial to adopt these safe harbors because
they provide licensees with concrete examples of how they can provide
substantial service through specific types of deployment in rural
areas, thereby increasing certainty and alleviating concerns that the
substantial service requirement is overly vague. We emphasize, however,
that these safe harbors do not constitute the only means by which a
licensee may provide substantial service. A licensee is therefore free
to meet the substantial service test by satisfying one of the safe
harbors or providing some alternative coverage to its licensed area,
depending upon the individual needs of their consumers or their own
unique business plans. We also note that the Rural NPRM provided
licensees with additional guidance by setting forth a list of factors
that we will consider in the context of determining whether a licensee
is providing substantial service to rural areas. We affirm that we will
consider these factors in evaluating substantial service showings.
Specifically, we will look at the following factors: (1) Coverage of
counties or geographic areas where population density is less than or
equal to 100 persons per square mile; (2) significant geographic
coverage; (3) coverage of unique or isolated communities or business
parks; and (4) expanding the provision of E911 services into areas that
have limited or no access to such services. While this list is not
intended to be exhaustive or exclusive, we believe it illustrates the
sorts of material factors we will consider in any rural substantial
service analysis.
[[Page 75157]]
By adopting substantial service ``safe harbors,'' as well as by
providing examples of the sorts of factors we will consider in
evaluating substantial service showings, we believe we satisfactorily
balance the competing interests of maximizing licensee flexibility
while providing some measure of certainty.
79. We decline at this time to introduce a ``very rural area'' safe
harbor or modify our safe harbors to include a population component. As
we stated above, the safe harbors are not intended to be the only means
of providing substantial service. We will take into consideration if a
licensee is serving a ``very rural area'' or a very large geographic
area.
80. We also decline to adopt a geographic-based benchmark for all
wireless geographic area services that are subject to construction
requirements but that otherwise do not have a geographic-specific
construction requirement. We believe that licensees who wish to provide
coverage to a particular geographic portion of their licensed area have
the flexibility to do so pursuant to the ``substantial service''
standard. We conclude, based upon the record in this proceeding, that
there is no demonstrated need to modify our regulations in this regard.
81. We also decline to adopt performance requirements for renewed
licenses at this time. While we recognize the concerns of existing
licensees regarding future construction requirements, we believe that
re-licensing approaches such as ``keep what you use'' and market-based
mechanisms are not necessarily mutually exclusive. While we do not make
any such changes at this time, we initiate a FNPRM to continue our
discussion of various re-licensing approaches and the merits, if any,
of construction requirements for current and future licensees holding
licensees beyond their first term.
82. We note that although we refrain from adopting renewal term
performance requirements at this time, we will continue to examine the
state of competition in rural areas and will revisit this decision in
the event we observe that licensees cease deploying new services in
rural areas and/or that secondary markets are not facilitating
sufficient access to spectrum for would-be service rural service
providers. We emphasize that, contrary to the assertions of some, the
Commission retains the right to modify the terms and conditions of FCC
licenses. The Commission's licensing system has never provided any
vested right to specific license terms. Rather, it is well established
that the Commission always retains the power to alter the terms of
existing licenses by rule making. Further, at the time Congress
introduced auctions into the licensing process, it made clear that this
mechanism for assigning licenses was not intended to change the
Commission's basic regulatory role or otherwise provide additional
rights to auction-winning licensees. Thus, no auction bidder could have
assumed that it was buying a license containing terms that the
Commission could not modify.
2. Increasing Power Limits for Certain Services
83. Background. In the Rural NPRM, the Commission observed that
``[i]ncreasing the range of radio systems is one means of making it
more economical to provide spectrum-based radio services in rural areas
by potentially lowering infrastructure costs,'' and that ``[o]ne way to
increase the range of radio systems is by increasing power levels.''
The Commission accordingly sought comment regarding whether we should
modify our regulations governing power limits for operations in rural
areas, as a means of encouraging service to these areas. Specifically,
the Commission asked whether current power limits should be increased
for stations located in rural areas and licensed under parts 22, 24,
27, 80, 87, 90, and 101 of our rules. The Commission also sought
comment regarding the implementation of higher power limits, such as
how to define ``rural area'' for purposes of increased power limits and
whether, in the case of base/mobile systems, both the base and mobile
stations must be located within a rural area. The Commission further
acknowledged that there may be certain challenges in implementing
increased power levels in rural areas and sought comment on how
increased power might increase the potential for harmful interference
to neighboring systems or otherwise limit the number of paths in a
given area.
84. Discussion. Based on the record in this proceeding, we believe
that, in principle, increasing power limits in rural areas can benefit
consumers in rural areas by reducing the costs of infrastructure and
otherwise making the provision of spectrum-based services to rural
areas more economic. When we balance this potential benefit, however,
against the potential costs of harmful interference, we recognize that
we must act carefully to ensure that increased power limits do not
cause harmful interference for other licensees. After reviewing the
record and evaluating the technical and operational rules for the
various services at issue in this proceeding, we conclude that
increasing cellular, PCS, and AWS power limits may provide measurable
benefits without creating harmful interference for co-channel or
adjacent licensees. As we discuss in the following paragraphs, we find
that the current cellular, PCS, and AWS technical and coordination
rules (with some modifications) will be sufficient to ensure that
licensees are able to utilize increased power levels at certain base
stations without causing harmful interference.
85. Cellular. We amend our regulations governing the Cellular
Radiotelephone Service and authorize increased power limits for
cellular base stations that either: (1) Are located in counties with
population densities of 100 persons or fewer per square mile, based
upon the most recently available population statistics from the Bureau
of the Census; or (2) extend coverage into cellular unserved areas, as
those areas are defined in Sec. 22.949 of the Commission's rules.
Specifically, we amend Sec. 22.913(a) of our rules to provide that the
Effective Radiated Power (ERP) of such base transmitters must not
exceed 1000 Watts. This power increase doubles permissible ERP for
selected cellular base stations; prior to this amendment, Sec.
22.913(a) provided that the ERP of base transmitters and cellular
repeaters must not exceed 500 Watts. We recognize that a ``one size
fits all'' approach to spectrum management is unlikely to yield optimal
spectral efficiency and that, particularly in areas where there is less
congestion or where other unique factors are present, it is appropriate
to amend our operating parameters to afford licensees greater
flexibility. As the Spectrum Policy Task Force noted, ``spectrum policy
must evolve towards more flexible and market-oriented regulatory
models,'' in order ``[t]o increase opportunities for technologically
innovative and economically efficient spectrum use.'' Our action today
is consistent with the recommendations of the Spectrum Policy Task
Force, which advised that the Commission explore ways of promoting
spectrum access and flexibility in rural areas, and stated that the
Commission's interference and other technical rules should ``afford
spectrum users the flexibility to operate at higher power in less
congested areas, which are typically rural, so long as such higher
power operations do not cause interference and do not receive
additional interference protection.''
86. We believe that this amendment of our regulations governing
cellular power limits will promote coverage to rural areas by making it
more
[[Page 75158]]
economical to provide service to these areas. As a result of this power
increase, cellular licensees may be able to extend their coverage area
and use fewer base stations, thereby lowering their infrastructure
costs. Relaxed limits for licensed operations will provide much-needed
relief to rural operators by substantially reducing the costs
associated with construction of such systems.'' We estimate that
increasing authorized base station power limits to 1,000 Watts ERP may
increase the distance to the licensee's Service Area Boundary (SAB) by
as much as 12.5 percent and may increase overall coverage area by as
much as 26.6 percent. Consequently, we estimate that, as a result of
this power increase, licensees may require up to 21 percent fewer cell
sites to provide the same coverage with 1,000 Watts ERP as previously
provided with 500 Watts ERP.
87. We limit this power increase to cellular base stations that are
located in rural areas or that are providing coverage to unserved
areas. We define ``rural areas'' for purposes of increased power limits
as counties with a population density of 100 persons per square mile or
less. Specifically, permitting power increases in areas where the
population density is 100 persons or less captures much of the
geographic area where service is not provided by both the A- and B-
block cellular carriers (or, in some instances, by either cellular
carrier). After conducting an analysis of current cellular licenses in
the United States, we have determined that there are 625 counties that
have some area that is not covered by the license of an A-block and/or
B-block cellular provider. Of these 625 counties, 577 of these counties
have a population density of 100 persons per square mile or less. As an
additional matter, in order to promote cellular coverage to areas that
lack cellular service but otherwise are not captured by this definition
of ``rural area,'' we amend our rules to permit carriers to use higher
power at base stations located in counties with a greater population
density, provided those base stations are providing coverage to
unserved areas, as defined by our rules. We also limit this power
increase to cellular base stations more than 72 kilometers (45 miles)
from the Mexican and Canadian borders, consistent with our current
agreements with those countries.
88. We note that some expressed concern that higher power limits
might result in harmful interference to other licensees. We have
carefully considered the concerns raised by commenters and believe that
this limited amendment of our cellular rules will increase licensee
flexibility without increasing the likelihood of harmful interference.
Our regulations governing the provision of cellular service already
contain specific safeguards that are designed to minimize the
likelihood of harmful interference by clearly defining protected
service areas for each cell site, and requiring licensee coordination
near system boundaries. We find that applying these same requirements
to higher power base stations will minimize the potential for harmful
interference. Specifically, the Service Area Boundary (SAB) of each
cellular base station is defined by a formula based on antenna height
and transmitter power, and the formula's underlying assumptions are
still valid for power levels up to 1000 Watts. Using the existing
formula, the SAB distance for a particular base station will increase
as the power level increases. However, because the rules prevent a base
station SAB from overlapping other licensees' CGSAs, such power
increases will only be permitted so long as they do not infringe upon
other licensees' systems.
89. As an additional safeguard, the Commission's rules currently
provide that licensees must coordinate channel usage at each
transmitter location within 75 miles of any transmitter locations
authorized to other licensees or proposed by tentative selectees or
other applicants. This requirement recognizes that the SAB/CGSA overlap
restriction described above permits licensees to provide service
quality signal levels up to the edge of another licensee's system
boundary. While this approach facilitates seamless coverage for
consumers, it requires careful coordination among neighboring licensees
in order to avoid interference. For years licensees have been
coordinating system frequency plans with one another in order to ensure
high levels of service quality and seamless roaming along system
boundaries. Going forward, we believe this coordination requirement
will perform equally well in coordinating high power operations.
90. Our decision here to authorize higher power levels for cellular
licensees, subject to certain safeguards to protect other cellular
services does not diminish in any way the obligations we impose today
on cellular licensees in the 800 MHz Order to protect public safety and
other non-cellular operations in the adjacent 800 MHz band from
interference. See Improving Public Safety Communications in the 800 MHz
Band Consolidating the 900 MHz Industrial/Land Transportation and
Business Pool Channels, WT Docket No. 02-55, Report and Order, Fifth
Report and Order, Fourth Memorandum Opinion and Order, and Order, FCC
04-168 (rel. August 6, 2004) (800 MHz Order) published at 69 FR 67823
(November 22, 2004). As explained in detail in the 800 MHz Order, we
adopt a specific standard defining ``unacceptable interference'' to
such operations in that band and require other licensees, including
cellular licensees, to immediately take all steps necessary, including
the implementation of Enhanced Best Practices, to abate such
interference. Cellular licensees wishing to utilize the increased power
levels authorized in this Order can do so only to the extent that they
also remain in compliance with their 800 MHz Order obligations.
91. Some have stated that increased power limits would not
necessarily facilitate increased coverage due to handset limitations or
other technical constraints. Although increasing the power of the
handset might address this issue by increasing the mobile unit's
ability to ``talk'' to the base station, we note that increasing such
power could be problematic, in light of the fact that a handset is
likely to be used in urban as well as rural areas and might introduce
interference concerns if used in an urban setting. Accordingly, we find
that there is no need to increase handset power limits at this time. We
do not believe that increasing handset power is necessary, however, in
order for cellular licensees to benefit from increased power limits.
First, nearly all cellular phones on the market today operate at power
levels well under the maximum permitted under our rules, which suggests
that our regulations already permit sufficient handset power. Today's
handsets generally utilize low power in order to comply with our RF
safety rules and to extend battery life. Second, cellular licensees may
overcome handset constraints by employing an external means of boosting
the handset's signal, or by adding amplifiers at the base station to
boost the received signal. For example, a cellular carrier may use an
external amplifier or otherwise use a tower top amplifier at the base
station. In any case, cellular technology continues to develop and we
expect that technical limitations may diminish over time as technology
evolves. Further, our action affords licensees with additional
flexibility to take advantage of new technological advancements without
being unduly constrained by Commission requirements.
92. In addition, we note that some wireless carriers are
considering the use of directional antennas to improve
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network performance, and that such antennas have the potential to help
improve communications in rural areas by achieving higher gain,
mitigating the effects of multipath, improving frequency bandwidth
performance, and providing better directional control over emissions.
As such, directional handset antennas would provide improved reception
quality at the cellular tower receiver, significant improvement of
voice quality near the edge of a cell, potentially larger cell sites
with fewer base stations, and lower power consumption in handsets,
improving battery life. Although handsets that employ directional
antennas may need to be slightly reoriented when used in certain
locations, techniques such as antenna diversity are being considered to
combat large-scale fading effects caused by shadowing from large
obstacles (e.g., buildings or other terrain features). Because
directional handset antennas have the potential to significantly
increase the strength of signals transmitted from handsets, as well as
provide efficiency benefits both to the wireless network and to battery
life, there are several benefits that could be gained from their
increased use in handsets. Importantly, directional handset antennas,
coupled with an increase in base stations' transmitted power, have the
potential to significantly improve wireless communications in many
rural areas.
93. Broadband PCS. Similar to our treatment of cellular above, we
will provide for increased power limits for broadband PCS.
Specifically, we increase power levels by 100 percent for broadband PCS
base stations located in rural areas, in parity with the cellular power
levels adopted in this proceeding. We note that broadband PCS power
levels are tied to antenna heights, so that the authorized power for a
given broadband PCS base station would vary, depending upon the
accompanying antenna height. For example, a base station with an
antenna with a height above average terrain (HAAT) of 300 meters or
less may operate at a maximum of 1640 watts peak equivalent
isotropically radiated power (EIRP). Thus, for base stations of 300
meters or less in rural areas, we will allow an increase from 1640 to
3280 watts EIRP.
94. As with the modification of our cellular regulations, we
believe that this modification of our PCS regulations will allow
licensees to increase their coverage while using fewer base stations,
thereby reducing the costs of providing service to rural areas. We
estimate that permitting broadband PCS licensees to increase their
power by 100 percent will increase the distance from the base station
to the edge of their coverage area by 17 percent and will increase the
overall coverage area by 36 percent. As a result, we estimate that a
broadband PCS licensee using increased power will require 27 percent
fewer sites in order to provide the same coverage provided using
current power limits.
95. We find that the current market-boundary signal strength limit,
in conjunction with a coordination requirement, will minimize the
potential for harmful interference among licensees. Currently,
broadband PCS licensees cannot exceed a signal strength of 47 dB[mu]V/m
at their geographic market-boundary unless neighboring licensees agree
to a higher level. This means that, regardless of the location, height,
or power level of broadband PCS base stations, the signal level at the
market-boundary may not exceed this maximum level without mutual
agreement. Therefore, we find that permitting a 100 percent increase in
power levels at broadband PCS base stations will not increase the
potential for harmful interference beyond what exists today. At the
same time, we note that the 47 dB[mu]V/m limit is a ``service quality''
signal level that promotes coverage up to the edge of the market
boundary, and seamless roaming across market boundaries in certain
instances. In other words, although there is no formal coordination
requirement, neighboring licensees must as a practical matter
coordinate frequency plans and site locations along market boundaries
in order to avoid interference. As a cautionary measure, we will
require that licensees using higher power levels coordinate operations
with all licensees within 75 miles of the relevant base station. This
requirement will supplement the existing signal strength limit and
underscore our intention that licensees must coordinate spectrum usage
along common boundaries. We note that this power increase applies only
to broadband PCS base stations, and not to mobile units. For the
reasons stated above for the 800 MHz cellular service, we find that
there is not reason to increase mobile power levels at this time.
96. We also note that the Commission is taking steps to address
interference concerns more generally and that these additional measures
might protect other licensees from harmful interference. We are
optimistic that these initiatives might effectively address
interference concerns in a flexible manner and alleviate the need to
impose detailed, service-specific coordination requirements.
97. Finally, as we did with 800 MHz cellular, we limit this power
increase to broadband PCS base stations located in counties with
population densities of less than 100 persons per square mile and those
located more than 75 miles from the Mexican and Canadian borders. As
stated above, we find that a majority of areas likely to be unserved or
underserved are located in such counties. Further, because our existing
agreements with Mexico and Canada are based on the prior maximum power
limits, we retain those limits for border areas.
98. AWS. In 2003, the Commission adopted the PCS power limit of
1640 watt EIRP for AWS base stations. See Service Rules for Advanced
Wireless Services in the 1.7 GHz and 2.1 GHz Bands, WT Docket No. 02-
353, Report and Order, 69 FR 5711 (February 6, 2004) (AWS Report and
Order). The Commission noted, however, that the Rural NPRM had proposed
an increase in the power limit for PCS operations in rural areas and
indicated that, in the event we adopted higher power limits for PCS
services, we would ``explore the possibility of similar power increases
for AWS.'' Thus, similar to our treatment of cellular and broadband PCS
above, we will provide for increased power limits for AWS.
Specifically, we increase power levels for AWS base stations located in
rural areas by 100 percent, or up to 3280 watts EIRP in parity with the
cellular and broadband PCS power levels adopted in this proceeding.
99. As with the modification of our cellular and broadband PCS
regulations, we believe that this modification of our AWS regulations
will allow licensees to increase their coverage while using fewer base
stations, thereby reducing the costs of providing service to rural
areas. We estimate that increasing authorized base station power limits
to 3280 Watts EIRP may increase the distance to the licensee's edge of
coverage by as much as 17 percent and may increase overall coverage
area by as much as 36 percent. Consequently, we estimate that, as a
result of this power increase, licensees may require up to 27 percent
fewer cell sites to provide the same coverage with 3,280 Watts EIRP as
previously provided with 1640 Watts EIRP. We estimate that permitting
AWS licensees to increase their power by 100 percent will increase the
distance from the base station to the edge of their coverage area in an
amount similar to broadband PCS, thereby requiring fewer sites in order
to provide the same
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coverage provided using current power limits.
100. As with broadband PCS, we find that the current market-
boundary signal strength limit, in conjunction with a coordination
requirement, will minimize the potential for harmful interference among
AWS licensees, and licensees in neighboring bands. Therefore, as a
cautionary measure, we will require that licensees using higher power
levels coordinate operations with all affected licensees within 75
miles of the relevant base station and with certain satellite entities.
As with broadband PCS, this requirement will supplement the existing
signal strength limit and underscore our intention that licensees must
coordinate spectrum usage along common boundaries. At present, AWS
licensees already must coordinate with nearby, incumbent co-channel and
adjacent channel Part 101 and MDS licensees. Due to concern about the
possibility of both out-of-band emission (OOBE) and receiver overload
interference from AWS base stations to BAS and CARS operations, the
Commission also has decided that AWS licensees must coordinate their
operations with affected BAS and CARS licensees. In addition to these
existing coordination requirements, higher power AWS operations must
also be coordinated with adjacent channel AWS licensees, Part 21 MDS
licensees operating above 2155 MHz, as well as all Government and non-
Government satellite entities operating in the 2025-2110 MHz band.
101. We note that this power increase applies only to AWS base
stations, and not to mobile units. For the reasons stated above for the
800 MHz cellular service, we find that there is not reason to increase
mobile power levels at this time. Finally, as we did with broadband
PCS, we limit this power increase to AWS base stations located in
counties with population densities of less than 100 persons per square
mile. As stated above, we find that a majority of areas likely to be
unserved or underserved are located in such counties.
102. Other Radio Services. At this time we will not adopt increased
power levels in other radio services. We also decline to modify power
levels for: (1) 2.3 GHz WCS facilities; or (2) licensed terrestrial
services that operate in frequency bands that are shared by satellite
services.
103. We also decline the request of one commenter that the
Commission adopt higher power limits and increased operating parameters
for the Multichannel Video Distribution and Data Service (MVDDS).
First, the Commission expressly excluded MVDDS stations licensed under
Part 101 from the scope of its power limits inquiry, noting that the
Commission recently increased power levels for all MVDDS stations in a
separate proceeding. Second, that commenter's request constitutes a
late-filed petition for reconsideration of this prior Commission
action. Furthermore, we decline to take any action with respect to
unlicensed services in this proceeding. We will incorporate comments
addressing power limits for unlicensed services into the record of the
Cognitive Radio NPRM and will respond to these comments in the context
of that proceeding.
104. In conclusion, we decline to adopt increased power limits for
any of the other radio services for which we sought comment in the
Rural NPRM, due to lack of support in the record. We note, however,
that licensees in these services may file a request for waiver of these
power limits. We will entertain waiver requests on a case-by-case
basis. Any such waiver request should demonstrate how a waiver of our
power limits will promote the public interest. In addition, licensees
seeking to obtain a waiver of our power limits must adequately address
any potential interference concerns that may arise as a result of such
increased power.
3. Infrastructure Sharing
105. Background. The Rural NPRM sought comment on whether
clarifying the Commission's policy on infrastructure sharing may
promote service in rural markets. The Commission also stated that
certain carriers in the United States have entered into sharing
arrangements, and sought comment on the extent to which infrastructure
sharing would promote service in rural areas and on the costs and
benefits associated with such arrangements in the context of
competition. Infrastructure sharing offers the potential for wireless
service providers to share facilities and other infrastructure in order
to provide spectrum-based services on a more cost-effective basis,
including service to rural areas. A key objective underlying such
arrangements is the possible reduction in costs of capital construction
in rural areas, and the creation of opportunities for enhanced and
expanded coverage. A number of infrastructure sharing arrangements have
been entered into in the United States, and some of the parties to such
transactions have claimed that these lead to lower costs associated
with expand