[Federal Register: December 27, 2004 (Volume 69, Number 247)]
[Rules and Regulations]
[Page 77521-77559]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de04-6]


[[Page 77521]]

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Part IV





Federal Communications Commission





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47 CFR Parts 1, 24, et al.



Promoting Efficient Use of Spectrum Through Elimination of Barriers to
the Development of Secondary Markets; Final Rule and Proposed Rule


[[Page 77522]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1, 24, and 90

[WT Docket No. 00-230; FCC 04-167]


Promoting Efficient Use of Spectrum Through Elimination of
Barriers to the Development of Secondary Markets

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission
(``Commission'') adopts final rules that take additional steps to
facilitate the development of more robust secondary markets in radio
spectrum usage rights. In particular, the Commission builds upon the
policies adopted in 2003 to facilitate the ability of licensees in our
Wireless Radio Services that hold ``exclusive'' authority to lease some
or all of their spectrum usage rights to third parties and to
streamline approval procedures for license assignments and transfers of
control in these Wireless Radio Services. First, the Commission adopts
immediate processing procedures for certain classes of spectrum leasing
arrangements and license transfers and assignments that do not raise
potential public interest concerns. In addition, the Commission extends
the spectrum leasing policies to additional services. The Commission
also adopts a new regulatory concept, the ``private commons.'' Finally,
the Commission addresses several petitions for reconsideration, and
revises and further clarifies the Commission's spectrum leasing
policies and rules.

DATES: Effective February 25, 2005, except for Sec. Sec.  1.913(a)(5),
1.948(j)(2), 1.2003, 1.9003, 1.9020(e)(2), 1.9030(e)(2), 1.9035(e), and
1.9080, which contain information collection requirements that have 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 these rules.

FOR FURTHER INFORMATION CONTACT: Paul Murray, Wireless
Telecommunications Bureau, at (202) 418-7240, or via the Internet at 
Paul.Murray@fcc.gov; for additional information concerning the

information collections contained in this document, contact Judith B-
Herman at (202) 418-0214, or via the Internet at 
Judith.B-Herman@fcc.gov.


SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second
Report and Order and Order on Reconsideration portion (Second Report
and Order and Order on Reconsideration, respectively) of the
Commission's Second Report and Order, Order on Reconsideration, and
Second Further Notice of Proposed Rulemaking, FCC 04-167, in WT Docket
No. 00-230, adopted on July 8, 2004, and released on September 2, 2004.
Contemporaneous with this document, the Commission issues a Second
Proposed Rule of Proposed Rulemaking (Second FNPRM), published
elsewhere in this publication. The full text of this document is
available for inspection and copying during normal business hours in
the FCC Reference Information Center, 445 12th Street, SW., Washington,
DC 20554. The complete text may be purchased from the FCC's copy
contractor, Best Copy & Printing, Inc., 445 12th Street, SW., Room CY-
B402, Washington, DC 20554. The full text may also be downloaded at:
http://www.fcc.gov. Alternative formats are available to persons with

disabilities by contacting Brian Millin at (202) 418-7426 or TTY (202)
418-7365 or at Brian.Millin@fcc.gov.

Paperwork Reduction Act

    This Second Report and Order contains two modified information
collections, as described in the Final Regulatory Flexibility Analysis,
which will become effective upon approval by the Office of Management
and Budget (OMB). The Commission, as part of its continuing effort to
reduce paperwork burdens, invites the general public to comment on the
information collection(s) contained in this Second Report and Order as
required by the Paperwork Reduction Act of 1995, Public Law 104-13.
These information collection(s) 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 new or modified information collection(s) contained in
this proceeding. Public and agency comments are due February 25, 2005.
Comments should address: (a) Whether the new or modified collection of
information is 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.

Synopsis of the Second Report and Order and Order on Reconsideration

I. Introduction

    1. In the Second Report and Order and the Order on Reconsideration,
we build on the framework established in the Report and Order portion
of the Commission's Report and Order and Further Notice of Proposed
Rulemaking in WT Docket No. 00-230 (First Report and Order), 68 FR
66252 (November 25, 2003), in which we adopted policies, rules, and
procedures designed to facilitate the ability of many Wireless Radio
Services licensees, including many small businesses, to lease spectrum
usage rights and to transfer and assign licenses to third parties. In
this Second Report and Order, we take additional steps to further
reduce regulatory delay so that spectrum leasing parties in our
Wireless Radio Services can implement certain classes of spectrum
leasing arrangements and can transfer and assign licenses in a more
timely fashion, in accordance with evolving marketplace demands and
customer needs. In the Order on Reconsideration, we address a variety
of issues addressed in the First Report and Order, including the
respective responsibilities of licensees and spectrum lessees regarding
particular service rules.
    2. As with the underlying First Report and Order, these actions
take us further down the path toward greater reliance on the
marketplace, thus expanding the scope of available wireless services
and devices and enabling more efficient and dynamic use of spectrum to
the ultimate benefit of consumers throughout the country. The steps
taken in the Second Report and Order and in the Order on
Reconsideration to facilitate the development of secondary markets in
wireless spectrum expand upon and complement several of the
Commission's major policy initiatives and public interest objectives.
These include our efforts to encourage the development of broadband
services for all Americans, promote increased facilities-based
competition among service providers, enhance economic opportunities and
access for the provision of communications services by designated
entities, and enable development of additional and innovative services
in rural areas.

II. Background

    3. In the First Report and Order, we took important first steps to
facilitate significantly broader access to valuable spectrum resources
by enabling a wide array of facilities-based providers of broadband and
other communications

[[Page 77523]]

services to enter into spectrum leasing arrangements with Wireless
Radio Service licensees. Specifically, we established two different
spectrum leasing approaches based on the scope of the rights and
responsibilities to be assumed by the spectrum lessee. Under the first
leasing option--``spectrum manager'' leasing--we enabled parties to
enter into spectrum leasing arrangements without prior Commission
approval so long as the licensee retains both de jure control of the
license and de facto control over the leased spectrum pursuant to the
updated de facto control standard for leasing. Under the second
option--``de facto transfer'' leasing--we permitted parties, pursuant
to a streamlined approval process, to enter into leasing arrangements
whereby the licensee retains de jure control of their licenses while de
facto control over the use of the leased spectrum, and associated
rights and responsibilities, are transferred for a defined period to
the spectrum lessees. Parties may enter into either long-term or short-
term de facto transfer leases, with some variation in the policies and
procedures that apply to each type. We also adopted streamlined
Commission approval procedures for license assignments and transfers of
control involving many of our Wireless Radio Services.
    4. In the Further Notice of Proposed Rulemaking portion of the
Commission's Report and Order and Further Notice of Proposed Rulemaking
in WT Docket No. 00-230 (FNPRM), 68 FR 66232 (November 25, 2003), we
sought comment on various ways in which the Commission could further
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. In particular, we sought comment on whether we
could further streamline our processing of spectrum leasing
arrangements and license assignments and transfers of control that did
not raise a specified set of potential public interest concerns--
relating to eligibility and use restrictions, foreign ownership,
designated entity/entrepreneur issues, or competition--that would merit
individualized Commission review. We requested comment on whether our
spectrum leasing policies should be extended to additional services,
and whether other actions should be taken to facilitate the development
of secondary markets in spectrum usage rights. Finally, we inquired as
to what specific steps we could take, in the context of secondary
markets, to maximize the potential public benefits enabled by advanced
technologies, such as opportunistic devices. In response to the FNPRM,
we received twenty-one (21) comments and ten (10) reply comments. Five
parties filed petitions for reconsideration of the First Report and
Order, and several parties filed oppositions or comments in response.

III. Second Report and Order

A. Spectrum Leasing Arrangements

1. Additional Streamlining of Procedures for Certain Categories of
Spectrum Leases
a. Immediate Approval of Certain Categories of de facto Transfer Leases
That Are Subject to Our Forbearance Authority
    5. Under current spectrum leasing policies and procedures, as
adopted in the First Report and Order, licensees and spectrum lessees
may enter into both long- and short-term de facto transfer leases
pursuant to streamlined application and approval procedures.
Specifically, parties that seek to enter into long-term de facto
transfer leasing arrangements submit their applications, which are then
placed on public notice and subject to further individualized
Commission review prior to grant. The applications then are approved
(or denied) by the Wireless Telecommunications Bureau (Bureau) within
twenty-one (21) days unless they are removed from streamlined
processing for further review based on potential public interest
concerns identified by the Commission or in petitions to deny. Parties
that seek to enter into short-term de facto transfer leases do so
pursuant to the same processes applicable to Special Temporary
Authority authorizations (STAs). These applications, which are not
placed on prior public notice, are acted upon by the Bureau within ten
(10) days if specified conditions are met. Consistent with our policies
for other approvals, approval of both of these types of de facto
transfer lease applications also is subject to the Commission's
reconsideration procedures.
    6. In the FNPRM, we sought comment on whether we could minimize
delay in the timely implementation of de facto transfer leases by
eliminating unnecessary regulatory review for certain classes of
spectrum leases. For de facto transfer leases subject to our
forbearance authority under Section 10 of the Communications Act, we
proposed to forbear, to the extent necessary, from requiring prior
public notice and individualized Commission review and approval for
spectrum leasing arrangements that did not raise any of a specified set
of potential public interest concerns.
    7. Consistent with the broad support by commenters for the general
forbearance proposal set forth in the FNPRM, we adopt this proposal,
with certain modifications, as discussed herein. Under the approach we
adopt, spectrum leasing parties that seek to enter into de facto
transfer spectrum leases that qualify under this forbearance approach
may file their spectrum lease application with the Commission, which in
turn will be immediately approved under the procedures set forth below.
Because we determine that de facto transfer leases meeting the
specifications described below do not raise potential public interest
concerns that would necessitate prior public notice or more
individualized review, we believe that removing this unnecessary round
of notice and regulatory review is appropriate, pursuant to our
forbearance authority. Elements of de facto transfer leasing
transactions that would not require prior public notice and
individualized Commission review.
(i) Elements of de facto Transfer Leasing Transactions That Would Not
Require Prior Public Notice and Individualized Commission Review
    8. We will permit all de facto transfer spectrum leases that are
subject to the Commission's forbearance authority and that do not
potentially raise certain specified public interest concerns to proceed
pursuant to the application and immediate grant procedures set forth
herein. If a particular de facto transfer leasing arrangement does not
raise potential concerns relating to eligibility and use restrictions,
foreign ownership restrictions, designated entity/entrepreneur
restrictions, or competition, we conclude, under our forbearance
authority, that we need no longer require prior public notice and
individualized Commission review before the spectrum lease may become
effective. Therefore, once parties file a spectrum leasing application
consistent with these requirements, it will immediately be approved
under the policies and rules we are adopting herein, and spectrum
lessees may commence operations as provided under the terms of the
lease.
    9. Eligibility and use restrictions. As proposed in the FNPRM,
parties seeking to use the application/immediate approval procedures
adopted under this forbearance approach for de facto transfer spectrum
leases must comply, inter alia, with the applicable eligibility

[[Page 77524]]

and use restrictions. Accordingly, we require that, in the spectrum
leasing application submitted to the Commission, the spectrum lessee
must certify that it meets the basic qualification requirements for
holding the license authorization associated with the lease and that it
will comply with all applicable use restrictions. We believe that
spectrum lessee compliance with these requirements is necessary
because, in many services, we continue to have eligibility and use
restrictions that were adopted in furtherance of certain public
interest objectives. While we seek to promote licensee flexibility and
facilitate secondary markets where appropriate, we do not intend for
policies adopted in this proceeding to be used as a means for evading
requirements that remain in effect for a given service. Having spectrum
lessees certify to the Commission that they will comply with applicable
eligibility and use restrictions will ensure that spectrum leasing
arrangements approved under the forbearance approach do not undermine
these policies.
    10. Consistent with the policies we adopted in the First Report and
Order, the applicable eligibility restrictions are the same for both
long-term and short-term de facto transfer leases. The applicable use
restrictions may, however, differ depending on whether a long or short-
term de facto transfer lease is involved. As provided in the First
Report and Order, we permit some additional flexibility under short-
term de facto transfer leasing with respect to one particular set of
use restrictions; specifically, we permit licensees with service
authorizations that restrict use of spectrum to non-commercial uses to
enter into short-term de facto transfer leases to allow the spectrum
lessee to use it commercially.
    11. Foreign ownership. As we generally proposed in the FNPRM, we
determine that spectrum lessees seeking to enter into de facto transfer
leases under this forbearance approach must be able to certify that
they comply with specific requirements, described below, to ensure that
the spectrum lease does not raise foreign ownership concerns under
Section 310 of the Act that remain unaddressed prior to implementation
of the lease. This approach will enable most de facto transfer leases
to proceed immediately, while ensuring that the Commission and the
Executive Branch have the opportunity to review any lease that may
raise potential foreign ownership concerns prior to that spectrum lease
going into effect.
    12. Under the policy we are adopting, the spectrum lessee must
certify that it is not a foreign government or representative thereof,
consistent with the section 310(a) requirements. Second, if the
spectrum lease involves a common carrier radio authorization, the
spectrum lessee must certify that it is not an alien or representative
thereof, a corporation organized under the laws of any foreign
government, or have more than 20 percent direct foreign ownership, in
accord with the requirements of sections 310(b)(1)-(3).
    13. Finally, consistent with our policies under section 310(b)(4),
as explained in the FNPRM, the spectrum lessee must certify either (1)
that it does not have more than 25 percent indirect foreign ownership
or (2) that it has previously obtained a declaratory ruling from the
Commission in advance of entering into the subject spectrum lease that
establishes that the spectrum lease falls within the scope of that
declaratory ruling (including the type of service and geographic
coverage area) and that there has been no change in foreign ownership
in the meantime. We emphasize that the spectrum lessee is primarily and
directly responsible for ensuring that the scope of its prior
declaratory ruling covers the proposed lease transaction. If it does
not, the spectrum lessee must obtain a supplemental ruling that would
apply to the particular transaction, and must do so prior to filing
under the new immediate approval procedures. For example, a spectrum
lessee may have previously received a ruling that approved its
acquisition of a specific group of common carrier microwave licenses,
or that approved its acquisition of a controlling interest in a carrier
that holds a specific group of common carrier microwave licenses. Such
a ruling would not cover a future spectrum lease of PCS spectrum. In
such circumstances, in order for the spectrum lessee to be able to
satisfy the certification requirement, it must first request and obtain
from the Commission a supplemental ruling to cover the spectrum leasing
arrangements involving PCS spectrum.
    14. We note that because the same foreign ownership policies apply
to both long-term and short-term de facto transfer leasing
arrangements, spectrum lessees under both of these types of de facto
transfer lease applications will be required to make these
certifications.
    15. Designated entity/entrepreneur eligibility. Because designated
entity and entrepreneur licensees have been conferred special benefits
(e.g., bidding credits, installment payment plans, or participation in
closed bidding) by the Commission, and because these licensees may
enter into long-term de facto transfer spectrum leasing arrangements
only so long as such arrangements are consistent with our policies
relating to applicable transfer restrictions and unjust enrichment
payment obligations, we believe it is both necessary and appropriate to
retain the ability to review all long-term de facto transfer spectrum
leasing arrangements involving designated entity or entrepreneur
licensees to ensure compliance with applicable policies and rules, and
thus such leasing arrangements cannot be processed under these
procedures. As we stated in the FNPRM, we do not intend for the
forbearance approach to be used as a means to evade Commission rules,
and we believe this to be especially important where the rules have
been implemented to fulfill our statutory obligations. Given, however,
that we have eliminated all of these restrictions with regard to short-
term de facto transfer leases, we determine that applications involving
short-term de facto transfer leases do not raise any potential public
interest concerns relating to our designated entity or entrepreneur
policies that would preclude the spectrum leasing parties from
proceeding under our forbearance approach.
    16. Competition. In light of the Commission's competition policies
for Wireless Radio Services, we will permit spectrum leasing parties to
proceed under our forbearance approach so long as the de facto transfer
leasing arrangement does not raise potential competition concerns that
merit prior public notice and Commission review before the application
is approved. Consistent with our competition policies, however, we will
exclude from this approach, at this time, all long-term de facto
transfer leases involving spectrum that (1) is, or may reasonably be,
used to provide interconnected mobile voice and/or data services and
(2) creates a ``geographic overlap'' with other spectrum used to
provide these services in which the spectrum lessee holds a direct or
indirect interest (of 10 percent or more), either as a licensee or as a
spectrum lessee. Because the latter class of de facto transfer leases
potentially raise competition concerns, they will continue to be
subject to case-by-case review and approval under the policies we
adopted in the First Report and Order.
    17. As we noted in the First Report and Order, assessment of
potential competitive effects of spectrum leasing transactions remains
an important element of our policies to promote

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facilities-based competition and guard against the harmful effects of
anticompetitive conduct, and we thus apply the Commission's general
competition policies to transactions involving long-term de facto
transfer spectrum leases (as well as to spectrum manager leases). The
approach we adopt herein, pursuant to our forbearance authority, is
designed to be consistent with our current competition policies with
regard to Wireless Radio Services. In examining transactions for
possible competitive harm, the Commission has primarily focused its
efforts in recent years on services that could potentially affect the
product market for mobile telephony, which includes interconnected
mobile voice and/or data services. Cellular, broadband Personal
Communications Service (PCS), and Specialized Mobile Radio (SMR)
services currently are used to provide CMRS services that potentially
affect the mobile telephony market, and expressly are subject to the
Commission's competition policies. In addition, spectrum in several
other services may currently, or at some time in the future, be used to
provide such CMRS services; these services include several services
licensed under part 27 of our rules--including the Wireless
Communications Service (WCS), Broadband Radio Service, Advanced
Wireless Service (AWS), the upper and lower 700 MHz bands, and the
1390-1392 MHz, 1392-1395/1432-1435 MHz, and 2385-2390 MHz bands--as
well as narrowband PCS, various paging services, and mobile satellite
service where the use of ancillary terrestrial components (ATC) is
permissible. Accordingly, under the policies we adopt herein, we find
that long-term de facto transfer leasing transactions that involve a
geographic overlap between or among any of these listed services, and
are to be used to provide mobile telephony service, continue to merit
public notice and case-by-case review by the Commission prior to
approval. Such transactions potentially raise public interest concerns
relating to competition, and thus will not be subject to our
forbearance approach at this time.
    18. Other public interest concerns. Finally, we note that de facto
transfer leasing arrangements that would require waiver of Commission
policies or rules, or a declaratory ruling relating to them, may not
use the streamlined processing we are adopting under this forbearance
approach. Requests for a waiver or declaratory ruling implicates other
potential public interest concerns associated with the license or
spectrum leasing authorization, and would first need to be approved by
the Commission. This policy will be applied with respect to both long-
and short-term de facto transfer leasing arrangements.
(ii) Application and Immediate Approval Procedures
    19. Application/immediate approval procedures. Consistent with the
general proposal set forth in the FNPRM, we will no longer require
prior public notice and individualized Commission review of de facto
transfer leases that meet the requirements specified above. Under the
policies and rules adopted herein, parties seeking to enter into such
leasing arrangements will notify the Commission by filing de facto
transfer lease applications, which in turn will be immediately approved
under the procedures we are adopting herein. Specifically, if the
spectrum leasing parties file their de facto transfer lease application
in the Universal Licensing System (ULS), and the application
establishes the requisite elements explained above and are otherwise
complete and the payment of the requisite filing fees have been
confirmed, the Bureau will process the application and provide
immediate approval through ULS processing. Approval will be reflected
in ULS on the next business day after filing the application. Upon
receiving approval, spectrum lessees will have the authority to
commence operations under the terms of the spectrum lease. The Bureau
also will place the approved application on public notice.
    20. Post-approval reconsideration procedures. We adopt the
reconsideration procedures set forth in the FNPRM. Accordingly, we will
place the approved de facto transfer leases on a weekly informational
public notice. Any interested party may file a petition for
reconsideration within 30 days of the public notice date. Similarly,
the Bureau will be able to reconsider the grant on its own motion
within 30 days of the public notice date, and the Commission can
reconsider the grant on its own motion within 40 days of the public
notice date.
    21. Other issues. Parties will be held accountable for any
certifications they make in the spectrum leasing applications that
enable them to take advantage of the immediate approval procedures set
forth herein. To the extent that the Commission determines, post-
approval, that any certification provided on the application, by either
the licensee or spectrum lessee, is not true, complete, correct, and
made in good faith, the Commission will be vigilant in taking
appropriate enforcement action, potentially including forfeitures or
termination of the spectrum leasing arrangement.
(iii) Compliance With Forbearance Requirements
    22. As stated above, we determine that for all qualifying de facto
transfer leases--i.e., those subject to our section 10 forbearance
authority and satisfying the elements set forth above--we will forbear
from the applicable prior public notice requirements and individualized
review requirements of sections 308, 309, and 310(d) of the
Communications Act, to the extent necessary, so that these spectrum
leases may be approved pursuant to the procedures set forth above. Our
decision to forbear meets the requirements of Section 10 of the Act,
which enables the Commission to forbear from applying any regulation or
provision of the Act to a telecommunications carrier or service, or
class of telecommunications carriers or services, in any or some of its
geographic markets, if the following three-prong test is satisfied: (1)
Enforcement of such regulation or provision is not necessary to ensure
that the charges, practices, classifications, or regulations by, for,
or in connection with that telecommunications carrier or
telecommunications service are just and reasonable and are not unjustly
or unreasonably discriminatory; (2) enforcement of such regulation or
provision is not necessary for the protection of consumers; and (3)
forbearance from applying such provision or regulation is consistent
with the public interest.
b. Immediate Approval of Certain Categories of de facto Transfer Leases
That Are Not Subject to Forbearance
    23. We will permit de facto transfer leases involving non-
telecommunications providers and carriers, and thus are not eligible
for section 10 forbearance, to proceed under the same application/
immediate approval policies as adopted above for de facto transfer
leases subject to forbearance so long as the leasing parties can
establish that the arrangements meet the same kinds of criteria as
required for telecommunications providers. These procedures comply with
the statutory requirements of Sections 308, 309, and 310(d). In
addition, our decision accords with commenters' support of our goal to
streamline de facto transfer lease transactions involving non-
telecommunications carriers in a manner similar to that adopted under
the forbearance approach.

[[Page 77526]]

    24. Under the policies we are adopting, so long as the parties
establish in their de facto transfer lease application--by provision of
sufficient information and related certifications--that the spectrum
lessee complies with the applicable eligibility, use, and foreign
ownership-related requirements, and does not seek a waiver or
declaratory ruling, the Commission will immediately approve the
application as consistent with statutory requirements and the public
interest. As with de facto transfer lease applications filed under our
forbearance approach, we will announce the grant of these de facto
transfer leases involving non-telecommunications services in a weekly
informational public notice, subject to reconsideration within 30 days
by interested parties or the Bureau, and within 40 days by the
Commission on its own motion.
    25. Streamlined processing of qualifying spectrum leases involving
non-telecommunications services serves the public interest and is
necessary in order to place substantively similar wireless spectrum
leasing transactions involving different types of licenses on a
comparable basis and to minimize unnecessary regulatory discrimination.
The policies and procedures we adopt are also consistent with the
statutory requirements of sections 308, 309, and 310(d). First,
consistent with these provisions, we continue to require an application
and approval process. In addition, in order to determine whether to
approve these transactions, the Commission requires that each
application establish a distinct set of facts and representations
concerning the particular spectrum leasing transaction before it will
be approved. Thus, before any particular spectrum lease application
will be approved, the Commission will determine, based on the
particulars of that application, that all of the criteria relevant to
establishing that the public interest would be served by the granting
of the application have been established, and the statutory
requirements for case-by-case review and approval of the application
will have been satisfied.
c. Applying the Immediate Approval Procedures to Short-Term de facto
Transfer Leases
    26. Under procedures adopted in the First Report and Order, short-
term de facto transfer leasing arrangements are processed in the same
manner as authorized pursuant to section 309(f) of the Communications
Act. Under these procedures, parties wishing to enter into short-term
arrangements must establish through requisite certifications in their
application that they qualify for these procedures and must also meet
any additional requirements associated with our STA procedures.
    27. We determine that short-term de facto transfer leasing
arrangements should qualify for processing under the application/
immediate grant procedures that we are adopting for qualifying long-
term de facto transfer leases. Accordingly, we determine to process
these arrangements under the new procedures we are adopting, and we
will no longer process them under the Special Temporary Authority (STA)
procedures.
    28. Under the policies and rules adopted in the First Report and
Order, short-term de facto transfer leases do not raise potential
public interest concerns relating to eligibility, use restrictions, or
foreign ownership that would require either prior public notice or
additional Commission review before being approved. In order to qualify
to enter into short-term de facto transfer leases, spectrum lessees are
already required, under existing policies, to meet the same eligibility
and foreign ownership restrictions that we have adopted above for
determining whether a long-term de facto transfer lease qualifies for
the application/immediate approval procedures. Short-term de facto
transfer lease applicants must also certify that they would comply with
certain applicable use restrictions. In addition, we have determined
that short-term de facto transfer leasing arrangements do not raise
potential public interest concerns relating either to designated
entity/entrepreneur or competition matters. Accordingly, these issues
do not prevent a short-term de facto transfer lease application from
qualifying for the immediate approval procedures we are adopting
herein.
    29. Eliminating the requirement that short-term de facto transfer
leases be processed under the procedures applicable to STAs enables us
to remove unnecessary regulatory requirements and simplify the
applicable rules. First, we will no longer require short-term lease
applicants to include a public interest statement in accordance with
the applicable rules derived from our STA procedures. In addition, we
will no longer require that the term of a short-term de facto transfer
lease be limited to 180 days and renewable for up to a total of 360
days. Instead, for purposes of administrative efficiency and general
clarity, we will simplify the application requirements to do away with
multiple filings, and to permit parties to enter into a short-term de
facto transfer lease for a term of up to one year (365 days) by
submitting a single application.
d. Immediate Processing of Certain Categories of Spectrum Manager
Leases
    30. The First Report and Order provided that parties entering into
spectrum manager leases are required to file the leasing notification
with the Commission within 14 days of when they execute the lease and
at least 21 days prior to commencing operations (10 days prior if the
lease is for one year or less).
    31. Upon further consideration, we have decided to revise our
policies for spectrum manager lease notifications to be consistent with
the policies for de facto transfer leases as described above.
Accordingly, where parties seek to enter into spectrum manager leases
that do not raise specified potential public interest concerns--i.e.,
those relating to eligibility, use restrictions, foreign ownership,
designated entity/entrepreneur, or competition--we will permit them to
commence operations under those leasing arrangements once they have
notified the Commission of the lease, have made the necessary
certifications to qualify for immediate processing, and have
determined, through ULS, that the notification has been successfully
processed. These immediate processing procedures for spectrum manager
leases will ensure parity in the regulatory treatment of spectrum
manager and long-term de facto transfer leasing arrangements, thus
eliminating unnecessary delay for parties seeking to enter into similar
categories of spectrum manager leases and minimizing the possibility
that our regulatory policies would be a factor in potential leasing
parties' decision-making. Our determination also grants, in part, one
party's petition for reconsideration, in which it sought elimination of
unnecessary delay between the time the licensee filed a spectrum
manager lease notification and the time in which leasing parties could
commence operation under the spectrum leasing arrangement.
    32. We adopt these similar policies for spectrum manager leases
because the public interest concerns relating to these leases are
either identical or similar to those associated with long-term de facto
transfer leases. In particular, the policies relating to eligibility
and use restrictions, foreign ownership, and competition apply with
equal force, regardless of whether the spectrum lease is a spectrum
manager lease or a long-term de facto transfer lease. In addition,
designated entity or entrepreneur licensees seeking to lease spectrum
under spectrum manager leases are subject to certain restrictions
associated with designated entity and entrepreneur

[[Page 77527]]

policies, just as long-term de facto transfer leases are subject to
certain restrictions.
    33. Accordingly, under the new policies we are adopting, if the
spectrum manager lease satisfies the same qualifying elements as
required for long-term de facto transfer leases as set forth above--and
thus does not raise potential public interest concerns regarding
eligibility and use restrictions, foreign ownership restrictions,
designated entity/entrepreneur restrictions, or competition--we do not
believe it necessary to review these notifications in advance of
operations, and the leasing parties are entitled to commence operations
once they have received the requisite confirmation through ULS. As with
de facto transfer leases, spectrum manager leases that proceed pursuant
to these immediate processing procedures are subject to post-
notification review. Under these procedures, any interested party may
file a petition for reconsideration within 30 days of the date of the
public notice listing the notification as accepted. Similarly, the
Bureau will have 30 days from the public notice date, and the
Commission 40 days, to reconsider whether the spectrum manager lease is
in the public interest.
    34. Finally, we determine to eliminate the requirement that parties
file their spectrum lease notifications within 14 days of execution of
their contractual agreement. We conclude that this requirement is
superfluous so long as parties file the lease notification within the
time frame required by our spectrum manager lease policies, either
under the newly streamlined procedures adopted in this order (for
qualifying spectrum manager leases) or at least 21 days in advance of
commencing operations (10 days in advance if the lease is no longer
than a year).
2. Extending Spectrum Leasing Policies to Additional Spectrum-Based
Services
    35. In the FNPRM, we sought comment on whether the spectrum leasing
policies should be extended to a variety of services that had been
excluded from the spectrum leasing policies adopted in the First Report
and Order. We determine that we will extend the spectrum leasing
policies to some additional Wireless Radio Services, as identified
below, but will not extend these policies to other services at this
time, as explained herein.
    36. Public Safety Services. With regard to the Public Safety
Services in part 90, we will permit public safety licensees with
exclusive use rights to lease their spectrum usage rights to other
public safety entities and entities providing communications in support
of public safety operations. We, however, decline at this time to
permit public safety licensees to enter into spectrum leasing
arrangements for commercial or other non-public safety operations.
    37. We will permit public safety licensees in these services to
enter into spectrum leasing arrangements with other public safety
entities and entities that provide communications in support of public
safety operations, consistent with the policies we adopted last year in
concerning the 4.9GHz band. We established new licensing and service
rules for the 4940-4990 MHz band (4.9 GHz band) that were designed to
increase the effectiveness of public safety communications, foster
interoperability, and further ongoing and future homeland security
initiatives within the 4.9 GHz band. We believed that these objectives
would be best accomplished by basing the eligibility criteria for being
licensed in the 4.9 GHz band on the ``public safety services''
definition set forth in section 90.523 of our rules, which the
Commission adopted in 1998 to implement section 337(f)(1) of the
Communications Act. Under this definition, ``public safety services''
are services: (A) The sole or principal purpose of which is to protect
the safety of life, health, or property; (B) that are provided--(i) by
State or local government entities; or (ii) by nongovernmental
organizations that are authorized by a government entity whose primary
mission is the provision of such services; and (C) that are not made
commercially available to the public. For the same reasons that we
decided to permit non-traditional public safety entities to be licensed
in the 4.9 GHz band for use in support of public safety operations, we
now conclude that it is appropriate to permit public safety licensees
to lease spectrum for such use. In addition, we believe that our
decision herein to permit spectrum leasing among public safety entities
achieves an appropriate balance between commenters that supported
extension of our spectrum leasing policies to these services and those
that expressed concern about possible abuses. Further, spectrum would
not be used by commercial entities to the potential detriment of public
safety operations.
    38. ITFS/MMDS services. All of the comments received in this docket
were previously transferred to and considered in WT Docket No. 03-66,
in which we comprehensively reviewed our policies and rules relating to
the Instructional Television Fixed Services (ITFS) and Multipoint
Distribution Service (MDS) services. In a recently issued order in that
proceeding, we converted the MDS service into the Broadband Radio
Service and the ITFS service into the Educational Radio Service, and
extended the secondary markets spectrum leasing policies to those
services, but included certain modifications in order to maintain the
educational purpose of ITFS. We also grandfathered pre-existing
``excess capacity'' leasing arrangements that were entered into under
the previous ITFS-specific leasing rules.
    39. Maritime services. Consistent with the spectrum leasing
policies adopted in the First Report and Order, we will extend the
spectrum leasing rules to Automated Maritime Telecommunications Systems
(AMTS) services in part 80. As discussed by commenters that supported
this extension, the AMTS service involves a geographic licensing
approach similar to another part 80 service, VHF Public Coast stations,
which also involves exclusive use licenses and already is permitted to
enter into spectrum leasing arrangements under the leasing policies
pursuant to the First Report and Order. We do not, however, extend our
spectrum leasing policies to any of our high seas public coast
stations. No commenters supported extending our spectrum leasing
policies to these services, and they differ significantly from that of
VHF Public Coast and AMTS stations. These frequencies are allocated
internationally by the International Telecommunication Union (ITU) to
facilitate interoperable radio communications among vessels of all
nations and stations on land worldwide. Flexible use is not permitted;
instead, the ITU Radio Regulations specify how each frequency may be
used (i.e., for radiotelephone, radiotelegraph, facsimile, narrow-band
direct printing, or data transmission). In addition, unlike VHF Public
Coast and AMTS stations, high seas public coast stations are not
permitted to serve units on land. Finally, high seas stations are
licensed only on a site-by-site basis. The Commission declined to adopt
a geographic licensing approach for this spectrum because of special
considerations relating to the extensive international coordination
required, the need to conform to changing international allocations and
allotments, and the fact that some of the spectrum is shared with the
Federal Government.
    40. MVDDS services. We will extend our spectrum leasing policies to
the Multichannel Video Distribution and Data Service (MVDDS) services
consistent with the comments we have received. We conclude that
licensees will have similar ``exclusive use'' rights

[[Page 77528]]

as other licensees to whom these policies currently apply, and that the
benefits of spectrum leasing should be made available to licensees and
potential spectrum lessees in these services. Consistent with the
service rules for these services, which permit partitioning along
county lines and prohibit disaggregation under any license
authorization, we will permit MVDDS licensees to lease different
geographic portions (divided along county borders) to eligible spectrum
lessees, but will permit only one entity, either the licensee or
spectrum lessee, to operate in a given geographic area.
    41. Services/authorizations involving shared frequencies. We will
not extend spectrum leasing to shared services at this time. As we
noted in the FNPRM, we had previously declined to allow leasing on
shared frequencies because parties can readily obtain access to the
spectrum by obtaining their own authorizations on shared frequencies
and they are not foreclosed from applying for authorizations by the
existence of another licensee in the same geographic area. Although we
sought comment on whether there might nonetheless be reasons to extend
spectrum leasing to shared services, commenters opposed extension of
the leasing rules to services/authorizations involving shared
frequencies services.
    42. Various part 90 services. We determine not to revise current
spectrum leasing policies with regard to part 90 services. In
particular, we will not extend these policies to Private Land Mobile
Radio (PLMR) stations below 470 MHz (including those with ``FB8''
status). These stations share spectrum below 470 MHz, and while there
is some degree of ``exclusivity'' (because the stations are trunked and
cannot share in the usual way), the operations nonetheless are still on
shared spectrum often occupied by others. Accordingly, we determine
that, consistent with our current policies regarding shared services/
authorizations, these stations should not be included among those
services to which the spectrum leasing policies apply. In addition, we
do not extend our spectrum leasing policies to non-multilateration
Location and Monitoring Service (LMS) services because licensing in
these services is shared and non-exclusive. Entities seeking access to
spectrum for these non-multilateration LMS uses can gain access to
spectrum without the need to enter into spectrum leasing arrangements
with licensees.
    43. Other services. We decline, at this time, to extend the
spectrum leasing policies to any additional services on which we had
sought comment, including the 700 MHz Guard Band Service, Amateur
Services, Personal Radio Services, Aviation Services, Cable Television
Relay Services, and satellite services.
    44. We do not believe it appropriate to extend the spectrum leasing
policies adopted in the First Report and Order to the Guard Band
Manager Service. This service already has its own distinct set of
policies and rules regarding leasing arrangements, and no commenters
proposed replacing those policies. Accordingly, we see no reason at
this time to replace those policies at this time. Nor do we extend
spectrum leasing policies to the part 97 Amateur Radio Services. An
individual Amateur Radio licensee gains access to particular bands of
spectrum after obtaining an operator license by successfully completing
the relevant exam requirements for those particular bands. The amateur
licensee must share access to the spectrum with all amateur operators
who have also successfully passed examinations for the same privileges.
    45. We also do not extend our spectrum leasing policies to
additional services among the part 95 Personal Radio Services. Apart
from the 218-219 MHz service (to which spectrum leasing policies
already apply), the Personal Radio Services are either licensed by rule
and/or operate on shared spectrum. For example, Citizens Band Radio
operators are authorized by rule to operate without individual licenses
on any of 40 channels nationwide (choosing one at a time). Radio
Control operators are authorized by rule to operate without individual
licenses on any of the radio control channels nationwide.
    46. Nor do we extend our spectrum leasing policies to our part 87
Aviation Services. No commenter proposed that the spectrum leasing
policies be applied to these services. In addition, most of the
spectrum in these services is licensed on a shared basis, and thus is
not assigned for the exclusive use of any particular licensee. Finally,
aviation safety concerns among the Aviation Services that do involve
exclusive use rights--i.e., aeronautical advisory stations (unicoms) at
uncontrolled airports and aeronautical enroute stations--recommend
against extending our spectrum leasing policies to these services. In
particular, the Commission has determined that the licensees in these
services should, for aviation safety purposes, be limited to one
operator at any one location.
    47. Finally, we do not extend our spectrum leasing policies
applicable to Wireless Radio Services to two services, the Cable
Television Relay Service and satellite services, that are administered
by bureaus outside of the Wireless Telecommunications Bureau. No
commenters proposed extending the spectrum leasing policies to these
two services, and the general policies applicable to these two services
differ, in many respects, from those administered by the Wireless
Bureau. Accordingly, we will not extend our spectrum leasing policies
to these two services at this time.
3. Spectrum Leasing Policies Applicable to Designated Entity/
Entrepreneur Licensees
    48. In the First Report and Order, we decided that designated
entity and entrepreneur licensees would be permitted to enter into a
spectrum manager lease with any qualified lessee, regardless of the
lessee's designated entity or entrepreneur eligibility, and avoid the
application of our unjust enrichment rules and transfer restrictions,
so long as the lease did not result in the lessee's becoming a
``controlling interest'' or affiliate of the licensee that would cause
the licensee to lose its designated entity or entrepreneur eligibility
under section 1.2110 of our rules. We further determined that, to the
extent that any conflict arose between the revised de facto control
standard for spectrum leasing arrangements as set forth in the First
Report and Order and the controlling interest standard in our rules for
determining designated entity and entrepreneur eligibility, we would
apply the latter in determining whether the licensee had maintained the
requisite degree of ownership and control to allow it to remain
eligible for the licenses or for other benefits such as bidding credits
and installment payments. We also decided in the First Report and Order
that designated entity and entrepreneur licensees would be allowed to
enter into long-term de facto transfer leasing arrangements subject to
any existing transfer restrictions and unjust enrichment payment
obligations.
    49. Affirmation of existing rules. We affirm the rules we
established in the First Report and Order for spectrum leasing by
designated entity and entrepreneur licensees, declining requests that
we provide such licensees with the unfettered right to lease spectrum
to any entity, without regard to our eligibility rules for designated
entities and entrepreneurs.
    50. We decline to adopt the suggestion of some commenters (one of
which is also a petitioner) that we allow designated entity and
entrepreneur licensees to lease spectrum to any

[[Page 77529]]

entity, without regard to how the spectrum lease might affect the
licensee's designated entity or entrepreneur eligibility. We believe
that adopting such a change to our rules would contravene the
requirements and objectives of Section 309(j) of the Act. Section
309(j) requires, among other things, that the Commission ensure that
small businesses are given the opportunity to participate in the
provision of spectrum-based services and that, to further this goal, it
consider the use of bidding preferences. These statutory directives
were not intended to provide generalized economic assistance to small
businesses, but rather to facilitate their ability to acquire licenses,
build out systems, and provide service. In such a way, Congress sought
to promote diversity among service providers, as well as the rapid
deployment of new technologies for the benefit of, among others, rural
customers.
    51. Section 309(j) also directs the Commission to prescribe anti-
trafficking restrictions and payment schedules as necessary to prevent
designated entity benefits from giving rise to unjust enrichment. If we
were to allow designated entities and entrepreneurs to enter into
spectrum manager leasing arrangements without considering whether the
spectrum lessee had acquired an attributable interest in the licensee,
we would run the risk that designated entity and entrepreneur
incentives would benefit, indirectly, entities that do not qualify for
such incentives in the primary market. In other words, we would be
paving the way for the very unjust enrichment Congress wanted us to
prevent.
    52. We also reject recommendations that we allow licensees to avoid
unjust enrichment payment obligations and transfer restrictions in
situations where the spectrum lessee will use the spectrum lease to
serve rural areas. Section 309(j) requires that the Commission ``seek
to promote,'' as one of many, sometimes conflicting goals, the
objective that service be developed and rapidly deployed to rural
customers, and requires further that the Commission ensure that rural
telephone companies be given the ``opportunity'' to participate in the
provision of spectrum-based services.
    53. To facilitate these ends within the context of competitive
bidding, the Commission has provided small businesses with bidding
credits and entrepreneurs with license set-asides, while specifically
declining to establish an independent bidding credit for large
telephone companies serving rural areas. When initially considering
whether to create a separate bidding credit for rural telephone
companies, the Commission determined that telephone companies providing
service in rural areas do not per se have the same difficulty accessing
capital as other groups, such as small businesses. In subsequent
decisions considering this issue, the Commission has not changed its
determination. If we provided small businesses and entrepreneurs with
the unrestricted ability to enter into spectrum leasing arrangements
with non-eligible entities planning to serve rural areas, without
regard to our eligibility rules, we would, in effect, be allowing small
business and entrepreneur incentives to benefit, indirectly, the very
entities which we had expressly found no basis for assisting in that
fashion in the primary market.
    54. For similar reasons, we also reject a suggestion that we lift
unjust enrichment repayment obligations and entrepreneur transfer
restrictions for licensees owned and controlled by Alaska Native
Corporations and Indian tribes that lease rural area spectrum rights to
non-eligible entities pursuant to long-term de facto transfer leasing
arrangements. Indian tribes and Alaska Regional or Village Corporations
already enjoy enhanced access to designated entity and entrepreneur
benefits through an exclusion from our affiliation rules available only
to them.
    55. To summarize, in affirming our rules and in declining to adopt
proposals to the contrary, we have determined that we will continue to
rely on our existing attribution rules, including our definitions of
controlling interest and affiliation, for all determinations of whether
a licensee undertaking a lease has maintained its designated entity
and/or entrepreneur eligibility. We, nonetheless, recognize that
further guidance on the application of those rules in the context of
leasing might be useful. Accordingly, we offer such guidance below.
    56. Application of Existing Attribution Rules to Spectrum Manager
Leasing Arrangements. In response to requests from two commenters (one
of which is also a petitioner), we clarify here how our attribution
rules, including the criteria set forth in Intermountain Microwave, 12
FCC Rcd 2d 559 (1963), are applied in determining whether spectrum
manager leasing arrangements by designated entity and entrepreneur
licensees satisfy our eligibility requirements. We note, as a
preliminary matter, that we expect a licensee to conduct an analysis of
possible control by, or affiliation with, the proposed spectrum lessee
before entering into a spectrum manager leasing arrangement and before
certifying that the spectrum lease does not affect the licensee's
continued designated entity or entrepreneur eligibility. That analysis
should take into account the Commission's definitions of control and
affiliation, which will help to determine, as they do in non-spectrum
leasing contexts, whether the gross revenues (and, in the case of
entrepreneurs, the total assets) of a spectrum lessee are to be
attributed to a designated entity or entrepreneur licensee. Such a
determination will be made by evaluating the licensee's Commission-
regulated business in the context of a spectrum lessee's involvement
with the licensee. For example, a spectrum lessee would become an
attributable interest holder in the licensee if the lessee were to
become an officer or director of the licensee. An attributable
affiliation might also be created if a lease called for the licensee
and spectrum lessee ``to combine their efforts, property, money, skill
and knowledge.'' Similarly, a spectrum lease might create a contractual
affiliation between licensee and spectrum lessee if the leasing
arrangement represented a significant portion of the licensee's day-to-
day business operations. While one commenter suggests that a licensee
can preserve its designated entity or entrepreneur eligibility simply
by maintaining day-to-day control over a spectrum leasing business, we
believe that, in order to satisfy the requirements of section 309(j) of
the Act and avoid unjust enrichment obligations or transfer
restrictions, the licensee cannot make spectrum leasing its primary
business and must, as discussed above, continue to provide facilities-
based network services under its licenses.
    57. In examining whether a spectrum lessee would, under a spectrum
manager lease, become a controlling interest or affiliate of the
licensee, the licensee should look to all of the relevant
circumstances, including how large a portion of its total capacity to
provide spectrum-based services would be leased, what involvement it
would have with the spectrum lessee as a result of the spectrum lease,
and what relationship the two parties have with one another apart from
the lease. Referring to an example provided by one commenter, we
conclude that a spectrum manager lease between a designated entity or
entrepreneur licensee and a non-designated entity/entrepreneur spectrum
lessee with a prior business relationship where substantially all of
the spectrum capacity of the licensee is to be leased

[[Page 77530]]

would cause the spectrum lessee to become an attributable affiliate of
the licensee. Such affiliation would render the licensee ineligible for
designated entity or entrepreneur benefits and, therefore, would make
such a spectrum lease impermissible. On the other hand, a spectrum
manager lease involving a small portion of the designated entity or
entrepreneur licensee's spectrum capacity where no relationship existed
between the licensee and spectrum lessee apart from the lease would
likely be permissible. Situations falling somewhere between these two
examples would have to be evaluated according to the individual
circumstances involved.
    58. While we direct licensees to continue to rely on our existing
attribution rules to determine whether a proposed spectrum manager
leasing arrangement would affect their continuing eligibility for
designated entity or entrepreneur benefits, we recognize that certain
of our affiliation criteria do not contemplate spectrum leasing and are
therefore incompatible with spectrum manager leasing arrangements. For
instance, under our attribution rules, affiliation generally arises
where another entity shares office space, employees, or other
facilities with a designated entity or entrepreneur licensee and,
through these sharing arrangements, gains control or potential control
of the licensee. In addition, under Intermountain Microwave, one
indication of affiliation is the use by another entity of the
licensee's facilities and equipment. However, because spectrum leasing
arrangements, by their very nature, always involve the spectrum
lessee's construction or use of facilities in the licensee's service
area and/or operation of those facilities over the licensee's
bandwidth, it would be unworkable to apply our facilities-related
indicia of affiliation in the customary manner to spectrum leasing
situations. We clarify, therefore, that a spectrum lessee's
construction or use of facilities in the licensee's service area or
over its bandwidth does not, by itself, transform the lessee into a
controlling interest or affiliate of the licensee. On the other hand,
joint use of office space, employees, or equipment or other facilities
by the licensee and the spectrum lessee might indicate affiliation and
would require an analysis of whether the spectrum lessee would, through
such use, acquire control or potential control of the licensee.
    59. Likewise, we clarify that the existence of spectrum manager
leasing arrangement does not, by itself, create an ``identity of
interest'' between the licensee and lessee resulting in an attributable
affiliation under 47 CFR 1.2110(c)(5)(i)(D). However, every designated
entity or entrepreneur licensee should take care to examine, and we
will continue to review, whether there is an identity of interest
between the licensee and its spectrum lessee beyond the mere existence
of the spectrum lease that confers attributable affiliation under our
rules. For example, members of the same family or entities with common
investments should be considered affiliates and treated, for purposes
of attribution, as one person or entity. Similarly, we clarify that a
spectrum manager leasing arrangement does not, per se, constitute a
management agreement or joint marketing arrangement resulting in the
spectrum lessee's being considered a controlling interest of the
licensee under 47 CFR 1.2110(c)(2)(ii)(H) through (c)(2)(ii)(I). We,
nonetheless, caution designated entities and entrepreneurs that
specific provisions in spectrum manager leasing arrangements, or other
agreements with their spectrum lessees, might constitute management
agreements or joint marketing arrangements. As our rules state,
``affiliation generally arises where one concern is dependent upon
another concern for contracts and business to such a degree that one
concern has control or potential control, of the other concern.''
    60. When entering into a spectrum manager leasing arrangement, the
licensee must retain both de jure and de facto control over the leased
spectrum pursuant to the updated de facto control standard. Consistent
with this requirement, a designated entity or entrepreneur licensee
cannot use this spectrum leasing vehicle to circumvent our attribution
rules. The designated entity or entrepreneur must, if it wishes to
undertake a spectrum manager lease, preserve its existing eligibility.
As we have discussed, to do so, the designated entity or entrepreneur
must evaluate and certify that nothing concerning its spectrum manager
lease alters its ongoing eligibility for the benefits it has received.
Leasing arrangements that would create a controlling interest or
attributable affiliation that altered the designated entity or
entrepreneur licensee's eligibility are prohibited. In lieu of using a
spectrum manager leasing arrangement in such a situation, designated
entities or entrepreneurs are free to undertake a de facto transfer
lease, subject to the Commission's unjust enrichment requirements and
any applicable transfer restrictions.
    61. We will also amend the language of our rules to clarify that,
subject to the other eligibility restrictions set forth in the First
Report and Order and in 47 CFR 1.9020(d) of our rules, including those
discussed above, a designated entity or entrepreneur licensee may enter
into a spectrum manager leasing arrangement with any spectrum lessee,
regardless of the lessee's eligibility for designated entity or
entrepreneur benefits.
    62. Application of Controlling Interest Standard to Designated
Entity and Entrepreneur Eligibility Determinations. Insofar as we have
determined to continue to rely upon our existing attribution rules
(including our definitions of controlling interest and affiliation) as
well as existing Commission precedent for all determinations of
designated entity and entrepreneur eligibility, we decline to follow
recommendations that we should instead rely on the new de facto control
standard adopted for leasing for our eligibility determinations. As we
have earlier explained, Congress specifically intended that, in order
to prevent unjust enrichment, the licensee receiving designated entity
benefits actually provide facilities-based services as authorized by
its license.
4. Application of the De facto Control Standard for Spectrum Leasing
With Regard to Other Issues and Types of Arrangements
    63. In the First Report and Order, we limited the application of
the revised de facto control standard to the context of spectrum
leasing arrangements, while leaving in place the existing de facto
control tests--including those based on Intermountain Microwave and
other facilities-based analyses--for designated entity and entrepreneur
eligibility issues, management agreements, and other similar types of
agreements. We sought comment on whether and how the revised de facto
control standard should be extended to apply in these and any other
contexts.
    64. Based on the record before us, we decline in this proceeding to
extend the revised de facto transfer standard applicable to spectrum
leasing arrangements to other types of arrangements outside the context
of spectrum leasing. Although commenters supported applying the revised
standard more broadly, there are significant legal and practical
difficulties that commenters have failed to address. It is not clear
from the sparse record how such a change would affect existing rules
and policies relating to management agreements or other spectrum
transactions, or what benefits would be achieved, and we are concerned
that revising our rules in these areas may cause a host of

[[Page 77531]]

unintended consequences or ambiguities.

B. Policies To Facilitate Advanced Technologies

    65. In the FNPRM, we emphasized the benefits of ``smart'' or
``opportunistic'' technologies, especially the potential for increased
access to unused spectrum. In addition, the Commission's recently
issued notice of proposed rulemaking in the Cognitive Radio proceeding,
on the use of advanced technologies, ET Docket No. 03-108, 69 FR 7397
(February 17, 2004), describes how they may enable devices to search
across many bands, sense the level of emissions, and then operate in
spectrum that is either not in use by other parties or below a certain
level of emissions. The FNPRM sought comment on the use of advanced
technologies in licensed bands in the context of secondary markets and,
in particular, requested comment on whether the Commission should focus
on advancing and improving access to spectrum by opportunistic devices
through a secondary markets approach, at least in the near term. The
FNPRM also inquired as to whether the First Report and Order provided
sufficient flexibility for more ``dynamic'' leasing arrangements made
possible by opportunistic devices.
1. Facilitating Advanced Technologies Within Existing Regulatory
Frameworks, Including Dynamic Spectrum Leasing Arrangements
    66. We clarify that our spectrum leasing policies and rules permit
parties to enter into a variety of dynamic forms of spectrum leasing
arrangements that take advantage of the capabilities associated with
advanced technologies. Such a clarification generally accords with
comments we received. For example, one commenter specifically
recommended that the Commission's secondary markets policies and rules
be expanded to accommodate ``dynamic'' spectrum leasing arrangements,
and other commenters also endorsed adoption of spectrum leasing
policies in which licensees could take fuller advantage of
technological advances, including opportunistic use devices, through
secondary markets arrangements. Consistent with these views, we clarify
that parties may enter into spectrum leasing arrangements in which
licensees and spectrum lessees share use of the same spectrum, on a
non-exclusive basis, during the term of the lease. For example, a
licensee and spectrum lessee may enter into a spectrum manager or de
facto transfer lease in which use of the same spectrum is shared with
each other by employing opportunistic devices. In another variation, a
licensee could enter into a spectrum manager lease with one party that
has access to the spectrum on a priority basis, while also leasing use
of the same spectrum to another party on a lower-priority basis, with
the requirement that the lower-priority spectrum lessee employ
opportunistic technology to avoid interfering with the priority lessee.
Of course, the licensee may not lease spectrum usage rights that exceed
the rights it currently holds and, as these examples illustrate, the
licensee may choose to lease a more restricted bundle of usage rights.
    67. Significantly, these arrangements could facilitate
opportunistic use by parties operating at the same power level and
under similar technical parameters as the licensee, or they could
promote such use at lower power levels. We also emphasize that neither
scenario would affect unlicensed operations to the extent they are
permitted in that particular licensed band pursuant to Commission rules
under part 15. For example, as set forth in Sec.  15.209 of the
Commission's rules and augmented on a band-by-band basis, part 15 users
(e.g., Ultra-Wide Band operators) can operate pursuant to applicable
technical and operational rules whether or not opportunistic use or
other advanced technologies are employed or authorized by the licensee.
We would also expect that new and innovative radiofrequency devices
would be agile enough to function on an unlicensed basis or as part of
licensed operations.
2. Private Commons
    68. To facilitate the use of advanced technologies, and thus better
promote access to and the efficient use of spectrum, we expand the
spectrum licensing framework by identifying an additional option that
may be utilized by current and future licensees and spectrum lessees.
This concept, which we call a ``private commons,'' will allow licensees
and spectrum lessees to make spectrum available to individual users or
groups of users that do not fit squarely within the current options for
spectrum leasing or within the traditional end-user arrangements
associated with the licensee's (or spectrum lessee's) subscriber-based
services and network infrastructures. New technologies enable users,
through use of advanced devices, to engage in a wide range of
communications that do not require use of a licensee's (or lessee's)
network infrastructure. To facilitate the use of these technologies, we
adopt the private commons option, which will permit, and be restricted
to, peer-to-peer communications between devices in a non-hierarchical
network arrangement that does not utilize the network infrastructure of
the licensee (or spectrum lessee).
    69. The private commons option provides a cooperative mechanism for
licensees (or lessees) to make licensed spectrum available to users
employing these advanced technologies in a manner similar to that by
which unlicensed users gain access to spectrum to suit their particular
needs, and to do so without the necessity of entering into individual
spectrum leasing arrangements under our existing rules. In the 2.4 GHz
and 5 GHz bands, for instance, users gain access and use of the
spectrum with specified types of low-power communications devices
provided they comply with technical requirements established by the
Commission and set forth in our part 15 rules. In these bands, users
then can create their own networks--such as those that are ad hoc or
``mesh'' in nature--using equipment that complies with Commission-
established requirements. The private commons option provides a
potentially complementary access model, in which licensees (or spectrum
lessees) would determine to make access available to a similar class of
users, and would do so under technical requirements for sharing use of
the licensed band established and managed by the licensee (or lessee).
The nature of these types of users' access to spectrum under this
private commons option thus differs qualitatively from the nature of
access provided to spectrum lessees under the Commission's spectrum
leasing policies and procedures. In the private commons, the licensee
(or lessee) authorizes users of devices operating at particular
technical parameters specified by the licensee (or lessee) to operate
on the licensed frequencies, consistent with the applicable technical
requirements and use restrictions under the license authorization,
using peer-to-peer (device-to-device) technologies. In spectrum leasing
arrangements, individually negotiated spectrum access rights are
provided to entities that traditionally obtained licenses and that
would then provide traditional network-based services to end-users.
    70. These private commons arrangements may take a variety of forms,
but will share a number of defining characteristics, as described
herein. The private commons option will allow for flexible uses of
licensed spectrum rights in which the licensee or lessee does not
necessarily offer services (in whole or part) over its own end-to-end
physical network of base stations, mobile stations, and other elements.
The

[[Page 77532]]

licensee or spectrum lessee, as a manager of a private commons, will
set terms and conditions for use in the private commons by users
(consistent with the terms of the license and applicable service
rules), and retain both de facto control of the use of the spectrum
within the private commons and direct responsibility for compliance
with the Commission's rules. And, while private commons arrangements
will not be subject to the same notification requirements that are
required by our spectrum leasing rules, licensees (or spectrum lessees)
managing the commons will be required at this time to notify the
Commission about any private commons they establish prior to users
being permitted to operate within that private commons.
    71. We anticipate at least two types of private commons that
licensees (or spectrum lessees) could make available to individuals or
groups of users. In the first example, a private commons could be
created by a licensee (or spectrum lessee), which may or may not
otherwise have a network infrastructure to provide services, by
granting access for a fee (e.g., on a transaction, usage, fixed, or
other basis) to users who employ smart or opportunistic wireless
devices that conform to the terms and conditions established by the
licensee (or lessee), such as a requirement that devices operating in
the licensed band use a particular technology, hardware, or software.
The users' devices may be used to engage in peer-to-peer (device-to-
device) communications, such as by becoming part of compatible ad hoc
or ``mesh'' wireless networks. Such users may need access to a
particular licensed spectrum band in lieu of (or perhaps in addition
to) gaining access to other bands that may be more heavily used or that
do not allow for the quality of service necessary for a particular
application. This type of private commons might be particularly
valuable to users that find existing bands that provide for unlicensed
operations to be crowded or otherwise less desirable.
    72. Under a second potential type of private commons arrangement,
the licensee (or spectrum lessee) would not charge an ongoing access
fee or otherwise have any direct relationship with the users. For
instance, manufacturers of smart or opportunistic devices, or the
developers of software or hardware used within such devices, may wish,
as licensees or spectrum lessees, to provide spectrum access to anyone
who purchases their devices, or devices with their hardware or
software. This type of arrangement might be particularly effective in
promoting new technologies or new uses by providing an opportunity for
equipment developers to capitalize on their investments and innovations
without having to get a license directly from the Commission, but could
arrange for users of the equipment to access the spectrum usage rights
from an existing licensee. Because a licensee (or spectrum lessee)
could offer to private commons users the interference protection rights
of its license, this arrangement could provide some additional benefits
as compared with possible lower-powered, unlicensed operation in the
same or other bands.
    73. We will require licensees and spectrum lessees that seek to
allow spectrum access on a private commons basis to notify the
Commission of the arrangement at this time. This notification will be
similar to, but simpler than, the notification required for spectrum
manager leases. It would provide certain information and certifications
regarding the general terms and conditions for spectrum access to users
in the private commons, including the term and coverage area of the
arrangement, general information on the technical requirements and the
equipment that the licensee or spectrum lessee has approved for
operation in the private commons, as well as a description of the types
of uses that are allowed. Consistent with our approach to part 15
devices, we will not require the notification to include specific
information about each individual user. We examine this notification
requirement, and the continued need for the notification, in the Second
FNPRM. We also recognize the need to clearly identify the
distinguishing elements of spectrum leases, managed private commons,
and end-user arrangements, respectively, as means to create spectrum
access. Accordingly, in the Second FNPRM, we seek comment on the
specifications necessary to make such distinctions consistent with the
Commission's regulatory and enforcement objectives, and we seek comment
on other arrangements and regulatory changes that may facilitate
spectrum access and that should be considered within a private commons
framework.

C. License Assignments and Transfers of Control

1. Immediate Approval Procedures for Certain Categories of License
Assignments and Transfers of Control
    74. In the First Report and Order, we streamlined the regulatory
process for transfers of control and license assignments in the same
Wireless Radio Services covered by our new spectrum leasing policies.
In the FNPRM, we proposed to take additional steps to remove
unnecessary delay in processing certain categories of transfers of
control and license assignments to the extent doing so would be
consistent with our statutory obligation to determine whether such
transactions would be in the public interest. In particular, we
inquired whether the policies that we adopted with regard to de facto
transfer leasing under our forbearance authority should also be applied
to license assignments and transfers of control.
    75. We adopt immediate approval procedures for the same categories
of license assignments and transfers of control involving Wireless
Radio Services as are subject to our immediate approval procedures for
de facto transfer spectrum leasing arrangements, as set forth
previously. This decision comports with the comments we received.
Accordingly, we conclude that an application for assignment or transfer
of control of Wireless Radio Service licenses qualifies for immediate
approval if, consistent with our policies for de facto transfer leases,
the application establishes, through required certifications, that the
transaction does not raise any specified potential public interest
concerns relating to eligibility and use restrictions, foreign
ownership restrictions, designated entity/entrepreneur restrictions, or
competition, or does not require a waiver or declaratory ruling. In
such cases, we will not require prior public notice or additional
individualized Commission review before the transaction is approved. In
addition, the applications must not involve license authorizations that
are subject to Commission review or investigation that potentially
affects the status of the license authorization itself. Finally, as
with the approach we adopt with regard to de facto transfer leasing,
our approval of the license assignment or transfer of control will be
placed on public notice, subject to reconsideration by interested
parties or the Bureau within 30 days, and by the Commission within 40
days. The additional streamlining of our processing of these specified
categories of license assignments and transfers of control helps us to
achieve these goals while at the same time meeting our statutory
obligations, under sections 308, 309, and 310(d), to review license
assignments and transfers of control to ensure that they are consistent
with the public interest.
    76. License assignments and transfers of control subject to our
forbearance authority. Thus, for license assignment and transfer of
control applications that

[[Page 77533]]

fall within the scope of our forbearance authority and that meet the
specified requirements (i.e., do not raise any of the potential public
interest concerns identified above) for immediate approval, we will
forbear from prior public notice and additional individualized review
requirements. We find that such forbearance satisfies each prong of the
test under section 10, and will serve the public interest.
    77. License assignments and transfers of control not subject to
forbearance. Similarly, we also determine that the streamlined approach
we are adopting for qualifying license assignments and transfers of
control involving services that are not subject to our forbearance
authority is consistent with the statutory requirements of sections
308, 309, and 310(d). Consistent with these provisions, we continue to
require an application and approval process. In addition, in order to
determine whether to approve these transactions, the Commission
requires that each application establish a distinct set of facts and
representations concerning the particular license assignment or
transfer of control application before it can be approved. Thus, before
any particular application will be approved under these immediate
approval procedures, the Commission will have determined, based on the
particulars of that application, that all of the criteria relevant to
establishing that the public interest would be served by the granting
of the application had been supplied, and the statutory requirements
for case-by-case review and approval of the application will have been
satisfied.
2. Extending the Streamlined Processing Policies Relating to License
Assignments and Transfers of Control to Additional Wireless Radio
Services
    78. In the First Report and Order, we limited our streamlined
processing policies relating to license assignments and transfers of
control to include only those services to which our spectrum leasing
policies applied. In the FNPRM, we inquired whether we should expand
these streamlined processing rules to include additional services.
    79. We will apply the streamlined processing procedures adopted in
the First Report and Order for license assignment and transfer of
control applications, as modified by this order for qualifying
applications, to all license assignment and transfer of control
applications involving Wireless Radio Services authorizations regulated
by the Bureau. Thus, under the policies we are adopting herein, license
assignment and transfer of control applications that raise potential
public interest concerns (i.e., concerns relating to eligibility and
use restrictions, foreign ownership restrictions, designated entity/
entrepreneur restrictions, or competition) will be processed according
to the 21-day processing procedures for license assignments and
transfers of control set forth in the First Report and Order, while
those applications that qualify under the immediate approval procedures
adopted in this order will be processed under the procedures adopted
for license assignments and transfers of control set forth herein. We
believe that there should be parity among these Wireless Radio Services
when it comes to processing of license assignments and transfers of
control. This will allow licensees and assignees/transferees in each
service to benefit from streamlined processing that minimizes
administrative delay, reduces transaction costs, and otherwise
generally facilitates the movement of spectrum toward new, higher
valued uses.

D. The Commission's Role in Providing Secondary Markets Information and
Facilitating Exchanges

    80. In the FNPRM, we sought comment on a variety of approaches the
Commission could take to promote access to the information needed to
make possible spectrum leases or exchanges of spectrum usage rights in
the secondary market. We also sought comment on whether the Commission
should collect additional information, support establishment of
services such as listing offers to transfer, assign, or lease, or
support the establishment of exchange mechanisms or brokering
exchanges. Finally, we invited comment on the potential for independent
third parties to emerge as ``market-makers'' that negotiate, broker, or
otherwise facilitate spectrum leasing transactions.
    81. We recognize that the Commission plays a critical role in the
development of efficient secondary markets for spectrum usage rights.
We believe that the spectrum leasing procedures established in the
First Report and Order, combined with the information made available
through our ULS database, will help in the development of these
secondary markets. At the same time, we recognize that it may be
necessary to evaluate, and perhaps expand, the information made
available by the Commission as secondary markets in spectrum usage
rights develop.
    82. We continue to believe that the private sector is better suited
both to determine what types of information parties might demand, and
to develop and maintain information on the licensed spectrum that might
be available for use by third parties. Our decision is consistent with
most of the comments we received on this question. Accordingly, while
we will continue to collect and make available to the public the basic
details related to spectrum licensees and lessees as provided in the
First Report and Order, we will not gather or provide additional
information at this time. We take no action at this time to establish
the Commission as either a market-maker or exchange, nor do we take
action to favor any particular type of private exchange mechanism.
Similarly, we decline at this time to establish requirements for
market-makers or other parties that may emerge to facilitate
transactions. We will, however, continue to monitor the development of
information services and market mechanisms in the private sector, and
are prepared to revisit this issue at a later time if circumstances
warrant.

IV. Order on Reconsideration

    83. Five groups--rural carriers represented by the Blooston Law
Firm (Blooston Rural Carriers), Cingular Wireless, First Avenue
Networks, National Telecommunications Cooperative Association (NTCA),
and Verizon Wireless--filed petitions for reconsideration seeking
clarification or revision of a number of different issues addressed in
the First Report and Order. Four parties filed responses to these
petitions.
    84. Blooston Rural Carriers, Cingular Wireless, and NTCA each
sought clarification of the licensee's responsibility for ensuring that
spectrum lessees comply with Commission policies and rules, while
Verizon Wireless sought clarification of the licensee's ability to
terminate a spectrum lease for non-compliance by the lessee. Cingular
Wireless and Verizon Wireless requested additional procedural
protections for licensees and spectrum lessees in the event the
Commission sought to terminate a spectrum lease, while Blooston Rural
Carriers, Cingular Wireless, and NTCA sought additional procedural
protections for spectrum lessees if the license was terminated, either
as a result of the licensee's bankruptcy or for some other
unanticipated reason. Blooston Rural Carriers also sought clarification
of Commission policies regarding the licensee's responsibility for
meeting application construction requirements when entering into
spectrum leasing arrangements. And, Cingular Wireless requested
clarification with respect to the licensee's responsibility for the
cost-

[[Page 77534]]

sharing obligations associated with relocation of incumbent microwave
licensees in broadband PCS spectrum. We address these issues and
petitions below. Issues raised by two of the petitioners overlap with
matters that we already have addressed in the Second Report and Order,
above. First Avenue Networks recommended that we eliminate the
requirement that parties file spectrum manager leases days in advance
of being permitted to commence operations under the lease, an issue we
addressed in the Second Report and Order, above. Cingular Wireless
sought clarification of the Commission's policies regarding spectrum
leasing by designated entities and entrepreneurs, which we also have
addressed in Second Report and Order. Because we have already
considered and addressed the substance of these petitions, we will not
discuss them further in this section.

A. Licensee Responsibility To Ensure That Spectrum Lessees Comply With
Commission Policies and Rules

1. The licensee's Responsibility To Ensure the Spectrum Lessee's
Compliance With Commission Policies and Rules
a. Spectrum Manager Leasing Arrangements
    85. Background. In the First Report and Order, we provided that
licensees in spectrum manager leasing arrangements will be held
directly accountable for lessee violations. In addition, we stated that
if the licensee or the Commission determines that there is any
violation of the Commission's rules or that the lessee's system is
causing harmful interference, the licensee must immediately take steps
to remedy the violation, resolve the interference, suspend or terminate
the operation of the system, or take other measures to prevent further
harmful interference until the situation can be remedied. Finally, if
the spectrum lessee refuses to resolve the interference, remedy the
violation, or suspend or terminate operations, either at the direction
of the licensee or by order of the Bureau or Commission, we provided
that the licensee ``must use all legal means necessary to enforce the
order,'' as codified in 47 CFR 1.9010(b)(1)(iii).
    86. In its petition for reconsideration, Cingular Wireless
contended that a spectrum manager licensee should not be held
accountable for the spectrum lessee's violations of any rules if the
licensee exercises some form of ``due diligence.'' In their petition,
Blooston Rural Carriers asserted that requiring that a spectrum manager
licensee use ``all legal means necessary'' to ensure that a spectrum
lessee does not continue to violate rules imposes an ambiguous and
potentially onerous requirement on the licensee even if the licensee
takes reasonable steps to ensure compliance; they requested that we
clarify the provision by including a ``reasonableness'' element in the
requirement.
    87. Discussion. We affirm the First Report and Order in holding
that licensees in spectrum manager leasing arrangements are directly
responsible and accountable for violations of Commission policies and
rules by their spectrum lessees, and thus we deny Cingular Wireless's
petition. In entering into spectrum manager leasing arrangements,
licensees have chosen to retain de facto control of the leased
spectrum, which includes ongoing oversight responsibilities as well as
direct accountability for ensuring their lessees' compliance with the
rules. Spectrum lessees in this type of leasing arrangement are not
held directly accountable, but instead are secondarily liable.
Accordingly, holding spectrum manager licensees directly accountable is
the only means of ensuring that some entity is directly accountable for
compliance with Commission rules pertaining to the use of the leased
spectrum. We note, however, that while licensees, as a policy and legal
matter, will be held accountable for their lessees' compliance, the
Commission retains discretion, based on the facts and circumstances
regarding the licensee's exercise of its oversight responsibilities, as
to whether and how it may proceed against the licensee when a spectrum
lessee violates Commission policies. Thus, we agree with Cingular
Wireless that the extent of a licensee's due diligence should be
considered in determining the appropriate course of action.
    88. In addition, consistent with the concerns raised by Blooston
Rural Carriers, we modify 47 CFR 1.9010(b)(1)(iii) of the Commission's
rules by adding a reasonableness element to the provision. As modified,
the rule will now state that the spectrum manager licensee must ``use
all reasonable legal means necessary to enforce compliance.'' This
clarification should ameliorate any concern that the licensee would
have to exhaust all legal means, no matter how unreasonable, to ensure
its lessees' compliance. Nevertheless, we emphasize that licensees that
enter into spectrum manager leasing arrangements must maintain de facto
control over the leased spectrum, which includes retention of the
necessary legal rights, and the responsibility for taking legal action
when necessary, to enforce their lessees' compliance with Commission
policies and rules.
b. De facto Transfer Leasing Arrangements
    89. Background. In contrast to licensee responsibilities in
spectrum manager leasing arrangements, we significantly limited
licensee responsibilities in de facto transfer leasing arrangements by
relieving licensees of primary and direct responsibility for ensuring
that their lessees' operations comply with Commission policies and
rules. We did, nonetheless, provide that licensees in de facto transfer
leases retain ``some residual responsibilities'' regarding the leased
spectrum. While noting that we were seeking to carefully limit licensee
responsibilities so as not to impede commercially viable leasing
arrangements, we also stated that it ``may be appropriate to hold the
licensee responsible in specific cases for ongoing violations or other
egregious behavior on the part of the spectrum lessee about which the
licensee has knowledge or should have knowledge.''
    90. In its petition, Cingular Wireless objected to stating that the
Commission ``may'' hold licensees potentially responsible for ``ongoing
violations'' or ``egregious behavior,'' subject to forfeitures or
license cancellation, contending that this standard is ``extremely
vague'' and provides licensees insufficient guidance. Cingular Wireless
sought either elimination of the licensee's residual responsibility
with regard to de facto transfer leases or clarification of the
standard to which the licensee would be held accountable. Blooston
Rural Carriers objected to holding the licensee accountable for what it
``should have known,'' and requested that the Commission clarify that
the licensee will have fully discharged its oversight responsibilities
if it includes certain express covenants in a spectrum lease; under
such a revised standard, if a licensee becomes aware of a violation,
the licensee would then be accountable for enforcing the lease terms.
Finally, NTCA requested in its petition that the Commission not hold
the licensee liable for its lessee's violations so long as the licensee
abides by some basic guidelines; NTCA recommended that we establish a
safe harbor for de facto transfer leasing with regard to a licensee's
residual responsibilities, but did not elaborate on what that safe
harbor would entail.
    91. Discussion. We affirm the First Report and Order and deny the
petitions

[[Page 77535]]

for reconsideration on this issue. We believe that the language in the
First Report and Order achieves the right balance with regard to the
accountability of licensees in de facto transfer leasing arrangements
for the violations of Commission policies and rules by their spectrum
lessees.
    92. In the First Report and Order, we significantly limited
licensee responsibilities in de facto transfer leasing arrangements by
relieving licensees of primary and direct responsibility for ensuring
that their lessees' operations comply with Commission policies and
rules. Instead, as we made clear in the First Report and Order,
spectrum lessees are primarily and directly responsible for ensuring
such compliance, and we will first approach the lessee when we have
questions about interference or other technical performance issues to
demand that it bring its operations into compliance. We also have the
direct authority to pursue remedies against lessees under Section
503(b) of the Communications Act. Thus, although licensees are
generally relieved of responsibility for their lessees' actions, they
are not relieved of all responsibility no matter the circumstance.
Given that licensees under this type of leasing arrangement continue to
hold de jure control of the leased spectrum, as well as non-delegable
duties regarding their license, we find that holding them potentially
accountable, in certain limited circumstances, is commensurate with
their ongoing responsibilities, as licensees, to the Commission.
    93. As we have indicated, such potential residual accountability is
quite circumscribed, and would only attach to ongoing violations or
other egregious behavior by the spectrum lessees about which the
licensee had knowledge or should have knowledge. For instance, our
rules require that any agreement between a licensee and spectrum lessee
must contain provisions that the spectrum lessee comply at all times
with applicable Commission rules. Accordingly, to the extent that a
licensee is found complicit with ongoing violations by the spectrum
lessee about which the licensee is aware and does nothing to ensure
compliance, we believe it is appropriate to hold that licensee
accountable. While we would expect that instances in which licensees
that have entered into de facto transfer leases may be held accountable
for ongoing or egregious acts of their lessees will be quite rare
indeed, we cannot relieve these licensees altogether, in all cases no
matter how egregious, for responsibility for any act of their spectrum
lessees. Finally, although we decline to adopt petitioners' proposals
for codifying dispositive rules as to what would or would not
constitute such ongoing violations or other egregious acts of a
spectrum lessee for which a licensee would be held accountable, we do
believe that the kinds of factors proposed by them could be relevant to
our case-by-case review of whether a particular licensee had in fact
appropriately exercised its residual, non-delegable duties with regard
to such actions by its spectrum lessee.
2. The Licensee's Responsibility To Terminate a Spectrum Lease for
Violations by the Spectrum Lessee
    94. Background. In the First Report and Order, we required that the
licensee always retain broad authority to terminate a lease if the
spectrum lessee was violating Commission rules. Section 1.9040(a)(i) of
our rules codified this policy in part, stating: ``The spectrum lessee
must comply at all times with applicable rules set forth in this
chapter and other applicable law, and the spectrum leasing arrangement
may be revoked, cancelled, or terminated by the licensee or Commission
if the spectrum lessee fails to comply with applicable requirements.''
    95. In its petition, Verizon Wireless asserted that the wording of
47 CFR 1.9040(a)(i) is overly broad, and would discourage potential
spectrum lessees from entering into spectrum leases. Specifically,
Verizon Wireless contended that the provision, as worded, could be read
to allow the licensee to terminate a lease for the lessee's failure to
comply with any of the Commission's rules or any other applicable law.
Such a broad interpretation, it contended, could enable a licensee to
claim the absolute right to terminate a spectrum lease even in the
event of the most minor infraction, regardless of any agreement
otherwise reached between the leasing parties. Verizon Wireless argued
that a licensee might use this provision as pretext for terminating a
lease when economic circumstances might make it no longer in the
licensee's interest to honor the leasing arrangement. Accordingly,
Verizon Wireless requested that we clarify that our rules do not create
an absolute right to terminate a lease for any violation whatsoever
regardless of the contractual terms of the spectrum lease.
    96. Discussion. In establishing policies that promote use of
spectrum leasing arrangements, we have been careful to distinguish
between the rights of licensees and spectrum lessees. Licensees, who
always retain de jure control of the license and retain certain core
obligations that cannot be delegated to spectrum lessees, always retain
greater rights and authority over the license and leased spectrum than
spectrum lessees. Consistent with these policies, we require that
licensees retain broad authority and, as provided in 47 CFR
1.9040(a)(1), that they may terminate a spectrum lease if the spectrum
lessee violates Commission rules. We did not intend, however, to
provide licensees with completely arbitrary authority to terminate a
spectrum lease for any violation whatsoever, regardless of the
contractual agreement between the parties. Such a broad reading of 47
CFR 1.9040(a)(1) could have a chilling effect on parties' incentives to
enter into a spectrum lease. Accordingly, we grant Verizon Wireless's
petition in part by clarifying our intent with regard to this
provision.
    97. We expect that leasing parties will negotiate certain terms in
their lease agreement that delineate the circumstances under which the
licensee would have the right to terminate the spectrum lease. We will
not dictate the specific terms of such a provision. We will, however,
require that those terms be consistent with the respective rights of
licensees and spectrum lessees as defined by our policies and rules on
spectrum manager and de facto transfer leases, respectively. As a
general matter, licensees entering into spectrum manager leases retain
both de jure control of the license and de facto control of the leased
spectrum, and are directly responsible to the Commission for ensuring
their lessees' compliance with Commission policies and rules.
Accordingly, such licensees' retention of the contractual right to
terminate spectrum leases for their spectrum lessees' non-compliance
must be commensurate with the licensees' retention of de facto control
over the leased spectrum and their ongoing responsibilities to the
Commission, as spectrum manager licensees, to ensure compliance. As for
de facto transfer leases, licensees retain de jure control of the
license and have certain residual responsibilities for ensuring that
spectrum lessees do not commit ongoing or other egregious violations,
as discussed previously. In sum, these licensees' retention of the
contractual right to terminate a spectrum lease for lessee non-
compliance must be commensurate with the licensees' ongoing residual
responsibilities. Thus, as long as the licensee retains sufficient
ability to ensure its spectrum lessee's compliance with Commission
policies and rules, and retains the authority to

[[Page 77536]]

terminate a spectrum leasing arrangement commensurate with the
licensee's responsibilities under our policies and rules (as discussed
above), the spectrum leasing arrangement may contain specific
provisions that offer the spectrum lessee certain protections against
the licensee's otherwise arbitrary termination of the spectrum lease.

B. Protections for Licensees and Spectrum Lessees in the Event of
Termination of the Spectrum Lease or the License

1. Procedural Protections for Licensees and Spectrum Lessees With
Regard to Commission Termination of a Spectrum Leasing Arrangement
a. Spectrum Manager Leasing Arangements
    98. Background. Under the spectrum leasing policies we adopted in
the First Report and Order, leasing parties must notify the Commission
of their spectrum manager leasing arrangement at least 21 days before
commencing operations (or, if a spectrum lease for a year or less, at
least 10 days before commencing operations). As we explained in the
First Report and Order, while Commission approval is not required for
spectrum manager leases, we determined that the Commission retains the
authority to investigate and terminate a spectrum manager leasing
arrangement under certain circumstances. Specifically, the Commission
can terminate any spectrum manager leasing arrangement to the extent it
determines, post-notification, that the arrangement constitutes an
unauthorized transfer of de facto control under our new standard or
raises foreign ownership, competitive, or other public interest
concerns.
    99. Cingular Wireless petitioned the Commission to adopt a policy
by which licensees would have the procedural protections, under
sections 312 and 316 of the Act, including notice and opportunity to be
heard, prior to the Commission deciding to terminate a spectrum manager
lease.
    100. Discussion. We conclude that the procedural protections
afforded licensees under sections 312 and 316 do not apply to decisions
by the Commission to terminate spectrum manager leasing arrangements.
Sections 312 and 316 of the Act expressly apply only to revocation or
modification of licenses or construction permits, and spectrum manager
leases, which do not involve an authorization or permit under the Act,
are neither. Accordingly, we deny Cingular Wireless's petition.
    101. We affirm and further clarify our procedures for Commission
examination, and possible termination, of spectrum manager leasing
arrangements to the extent that these arrangements do not qualify for
immediate processing under the procedures discussed in the Second
Report and Order. As noted above, leasing parties that seek to enter
into spectrum manager leases pursuant to the policies established in
the First Report and Order (i.e., those that do not qualify for
immediate processing) must file their notifications at least 21 days
before commencing operations (or, if a lease for a year or less, at
least 10 days before commencing operations), thus giving the Commission
the opportunity to review these arrangements prior to commencement of
operations. Interested parties may then seek informal guidance or a
formal determination from the Commission regarding the particular
spectrum manager lease by means of a letter, a complaint, or a petition
for reconsideration. To the extent the Bureau determines that the
leasing arrangement may raise potential public interest concerns
relating to eligibility, foreign ownership, designated entity or
entrepreneur policies, or competition, and believes further
investigation is necessary prior to commencement of operations under
the spectrum manager lease, it will take whatever steps it deems
appropriate to investigate or address those concerns, including
notifying the licensee and possibly requiring that parties not commence
operations under the lease until such concerns have been resolved. The
Commission also retains the right to terminate any lease to the extent
that it determines at any time, post-notification, that the arrangement
constitutes an unauthorized transfer of control under the de facto
control standard for spectrum leasing or otherwise is found to violate
Commission policies regarding spectrum leasing. In addition, if the
Commission determines, post-notification, that any certification
provided in the notification, by either the licensee or spectrum
lessee, is not true, complete, correct, and made in good faith, the
Commission will be vigilant in taking appropriate enforcement action,
potentially including forfeitures or termination of the spectrum
manager leasing arrangement.
b. De facto Transfer Leasing Arrangements
    102. Background. In the First Report and Order, we provided that
spectrum lessees entering into de facto transfer leases will be granted
an instrument of authorization when the Commission approves of the
leasing application, and that they will be held primarily and directly
responsible for compliance with Commission policies and rules and will
be subject to forfeiture proceedings under section 503(b) of the
Communications Act. Verizon Wireless petitioned to request that the
Commission clarify that the spectrum lessee will be subject to the same
due process protections as licensees with regard to the notice,
forfeiture, and other enforcement procedures currently applicable to
licensees, including the Commission's decision to terminate the de
facto transfer spectrum leasing authorization.
    103. Discussion. We agree with Verizon Wireless that because
spectrum lessees in de facto transfer leasing arrangements receive an
instrument of authorization, and are directly accountable to the
Commission and subject to forfeiture proceedings under section 503(b),
they are entitled to the same procedural protections as licensees
pertaining to the forfeiture proceedings. Accordingly, to the extent
the Commission pursues forfeiture actions against a de facto transfer
spectrum lessee for alleged violation of Commission policies or rules,
the spectrum lessee is entitled to the procedural protections afforded
other holders of authorizations under section 503(b).
    104. However, we do not agree with Verizon Wireless to the extent
it requests that spectrum lessees in de facto transfer leases be
accorded the same rights as licensees in cases where the Commission
decides to terminate the lease. Termination of a spectrum lease is not
the equivalent of a license revocation, and thus spectrum lessees are
not subject to the same procedural protections afforded licensees under
sections 312 and 316. As noted above, those procedural protections only
apply to revocations or modifications of licenses or construction
permits. A termination of a spectrum lease, in which a spectrum lessee
holds temporary and subsidiary rights to the leased spectrum, does not
rise to the level of either a revocation of a license or construction
permit. Thus, spectrum lessees that gain their limited and temporary
rights to access to spectrum through a spectrum leasing arrangement
with licensees are not entitled to the same procedural protections,
vis-a-vis the Commission, as a licensee that is authorized by the
Commission to hold their authorizations.

[[Page 77537]]

2. Protections for Spectrum Lessees in the Event of License Termination
    105. Background. In the First Report and Order, we stated that, in
the event the licensee's authorization was revoked or cancelled, the
spectrum lessee under either a spectrum manager or de facto transfer
lease arrangement would have to terminate its operations. As we noted,
termination was necessary because the spectrum lessee gains access to
the licensed spectrum only through the licensee's authorization. We
recognized that termination of the spectrum lease might require service
termination by the lessee and, accordingly, we stated that the
Commission would take into account the public interest in affording a
reasonable transition period to users of the service in order to
minimize disruption to consumers, ongoing businesses, and other
activities. In addition, we determined that the spectrum lessee would
have no greater right to obtain a comparable license than any other
interested parties.
    106. Three petitioners sought additional protections for spectrum
lessees in the event that the license is cancelled or terminated, or if
the licensee goes bankrupt. Specifically, Cingular Wireless requested
clarification that, in the event of an unanticipated license
termination, a valid spectrum lease does not terminate simply because
the license is sold, unless the lease so provides. Blooston Rural
Carriers, meanwhile, asserted that the Commission should provide more
protection for lessees in the event of licensee bankruptcy or license
termination. They believed that merely stating that the Commission
would provide a spectrum lessee a reasonable transition period is too
vague and does not adequately protect the spectrum lessee's
investments. Instead, Blooston Rural Carriers contended that, in event
of bankruptcy, the Commission should either require the leased spectrum
to be partitioned/disaggregated to the lessee, or require the new
licensee to assume the lease on substantially the same terms as the
original licensee. Finally, NTCA asserted that lack of certain
protections for lessees is a disincentive to spectrum leasing, and that
the Commission should provide that long-term de facto transfer lessees
retain some rights if the licensee goes bankrupt; in particular, NTCA
argued that the Commission should permit spectrum lessees to continue
operations and take over as the primary licensee, or have time to
gradually transition to other available spectrum. RTG, in reply to the
latter two petitions, generally supported Blooston Rural Carriers' and
NTCA's contentions.
    107. Discussion. Because we conclude that the First Report and
Order achieves the right balance respecting the rights of spectrum
lessees with regard to the license authorization itself, in the event
of license cancellation, we deny these petitions. Axiomatic to spectrum
leasing is that spectrum lessees do not hold the underlying license
authorization and that they lease spectrum usage rights contingent on
the licensee continuing to hold that authorization. Since spectrum
lessees do not hold the authorization, they do not, as spectrum
lessees, have the same rights as licensees. Similarly, because spectrum
lessees do not hold the license authorization, and lease spectrum only
contingent upon the licensee continuing to hold that authorization, the
lessees' rights to the leased spectrum terminates in the event the
license is cancelled and from that point forward they have no greater
rights than any other entity to the license itself.
    108. While spectrum lessees are not granted special protections by
the Commission with regard to the license itself, they are of course
free to obtain certain appropriate contractual protections from
licensees when they enter into spectrum leasing arrangements. For
instance, to address the concerns that Cingular Wireless has raised,
spectrum lessees could enter into agreements to protect their interests
in the event the licensee sells the license. Similarly, the concerns
raised in the petitions regarding the potential bankruptcy of the
licensee could be addressed contractually by requiring the licensee to
alert the spectrum lessee in the event the licensee begins to
experience financial problems that may pose a risk of bankruptcy.
Finally, as discussed above, if there is an unanticipated termination
or cancellation of the license that requires service termination by the
spectrum lessee, we provide spectrum lessees adequate protections by
affording them the opportunity to obtain certain protections during a
reasonable transition period in order to minimize disruption to
business and other activities.

C. Licensee Responsibility for Meeting Construction Obligations

    109. Background. The spectrum leasing rules adopted in the First
Report and Order permit licensees to rely on the activities of their
lessees, if they so choose, for purposes of complying with the buildout
obligations that are conditions of the license authorization. In the
event that the licensee chooses to rely on its lessee's activities, but
the lessee fails to build out, the Commission will enforce the rules
against the licensee consistent with existing rules. In their petition,
Blooston Rural Carriers argued that the Commission should be more
flexible regarding construction requirements when a licensee's failure
to meet those obligations is jeopardized by the spectrum lessee's
breach of its lease agreement with the licensee. They contended that
strict enforcement of the Commission's policy would discourage spectrum
leasing, and proposed that licensees be given a reasonable extension of
buildout deadlines if they can show that they entered into good faith,
arms-length leases with spectrum lessees and reasonably depended on the
lessees to meet the applicable buildout requirements. RTG supported
this petition.
    110. Discussion. We reaffirm the First Report and Order in holding
that meeting the applicable buildout obligations remains a condition of
the license authorization, such that a licensee is ultimately
responsible for meeting those requirements regardless of whether it
seeks to rely on spectrum lessees to meet some of those obligations. As
a condition of the license authorization, the licensee must remain
responsible to the Commission for meeting these licensee obligations,
and cannot escape those obligations by delegating them to another
entity that does not hold the license. We note that a licensee is free
to negotiate a contractual provision in its leasing agreement with a
spectrum lessee that could protect the licensee against the spectrum
lessee's failure to meet such obligations.

D. Responsibility for Compliance With Cost-Sharing Obligations for
Relocation of Microwave Licensees in Broadband PCS

    111. Background. The First Report and Order did not directly
address which entity, licensee or spectrum lessee, would be deemed the
``PCS entity'' for purposes of certain relocation responsibilities
applicable in the broadband PCS services. Under 47 CFR 24.239 through
24.253 of the Commission's rules, which govern the relocation of
microwave incumbents from certain frequencies in the 1850-1990 MHz
Broadband PCS band, any ``PCS entity'' that benefits from spectrum
clearance performed either by other PCS entities or by microwave
incumbents that voluntarily relocate must contribute to such relocation
costs.
    112. In its petition, Cingular Wireless requested that we clarify
whether, in the context of spectrum leasing and absent

[[Page 77538]]

specific lease provisions to the contrary, the licensee or the spectrum
lessee would be deemed a ``PCS entity'' under the microwave relocation
rules. In reply, the Fixed Wireless Communications Coalition asserted
that a licensee's microwave relocation obligations cannot be delegated
to spectrum lessees under either the spectrum manager or the de facto
transfer option. PCIA's Microwave Cost Sharing Clearinghouse, which
administers the cost sharing plan, contended that licensees should be
responsible for all cost-sharing obligations triggered by spectrum
lessees in spectrum manager leases, while spectrum lessees in de facto
transfer leases should assume the obligations and rights of the
licensee under the cost sharing rules because they are akin to holders
of partitioned or disaggregated spectrum.
    113. Discussion. We clarify that broadband PCS licensees are the
``PCS entities'' responsible, under Sec. Sec.  24.239 through 24.253 of
our rules, for cost sharing obligations triggered by spectrum lessees
under both spectrum manager and de facto transfer leases. Thus, we
agree with the Fixed Wireless Communications Coalition that these
responsibilities cannot be delegated to spectrum lessees, and disagree
with the contention of PCIA's Microwave Cost Sharing Clearinghouse that
spectrum lessees under de facto transfer leases are tantamount to
partitionees or disaggregatees and therefore should be treated alike
under the relocation rules. Spectrum lessees under de facto transfer
leases, unlike partitionees and disaggregatees, are not licensees and,
in particular, do not exercise de jure control over the leased
spectrum. We find that it is reasonable to hold licensees responsible
for the cost sharing obligations triggered by spectrum lessees of both
spectrum manager and de facto transfer leases because licensees may
attribute lessee buildout towards meeting their own buildout
obligations. It would be incongruous to allow licensees to benefit from
the spectrum lessees' buildout while allowing them to avoid cost-
sharing obligations triggered by such buildout. Under our
clarification, any party that is owed reimbursement under the cost-
sharing rules will have direct recourse to the licensee. We recognize
that a licensee may, by contract, account for a spectrum lessee's
obligations to the licensee should the spectrum lessee trigger a
reimbursement obligation. Finally, relocations performed by licensees
and spectrum lessees do not trigger obligations between the parties
under our rules, although leasing parties may account for this
possibility by contract.

E. Miscellaneous Additional Clarifications and Revisions

    114. Finally, on our own motion for reconsideration of the First
Report and Order, we determine that the following clarifications and
revisions are appropriate.
    115. Term of a spectrum leasing arrangement. Under the spectrum
leasing policies established in the First Report and Order, we permit
spectrum lessees to lease spectrum usage rights for any period or time
during the term of the license. We also stated that existing spectrum
leasing arrangements could also be renewable provided that the licensee
obtained renewal of the underlying license authorization. We limit the
term of spectrum leases in such a manner because spectrum lessees
cannot have any greater right to the use of licensed spectrum than the
licensee. Accordingly, although spectrum leasing parties are free to
extend an existing spectrum leasing arrangement beyond the term of the
license authorization if the license is renewed, no spectrum manager
lease notification or de facto transfer lease application can propose a
lease term that extends beyond the term of the license authorization
itself. We will clarify our rules to reflect this policy.
    116. Leasing of excess capacity by part 101 licensees. We note
that, prior to adoption of policies and rules for spectrum leasing
arrangements, as set forth in our part 1 subpart X rules, licensees in
Part 101 services have been permitted to lease excess capacity, as set
forth in 47 CFR 101.603(b) for private operational fixed services and
47 CFR 101.701 for common carriers. Nothing in our secondary markets
rules established in the First Report and Order supplants the excess
capacity leasing rules for part 101 services, and licensees may
continue to lease excess capacity consistent with 47 CFR 101.603(b) and
101.701 of our rules.
    117. Loading requirements relating to certain services. Another
issue we wish to clarify regards channel loading requirements
pertaining to applications for obtaining licenses in certain services,
and how our spectrum leasing policies will be applied with respect to
those applications. In some services, our rules require an applicant to
demonstrate that it will ``load'' a channel with a certain number of
mobile units in order to obtain exclusive use of that channel, or
require a licensee to load a channel to full capacity before it can
request additional spectrum. An applicant must demonstrate a genuine
need for the number of mobile units for which it seeks authorization,
and the uses for which those channels can be obtained are governed by
the rules governing the channel in question.
    118. The spectrum leasing rules do not relax or otherwise modify
the initial eligibility requirements for any Commission license.
Indeed, we specifically stated in the First Report and Order that the
spectrum leasing policies could not be used as a tool for evading
applicable requirements that remain in effect, and that we were not
taking any action that could lead to the evisceration of rules and
policies that have not been directly and specifically revised by us in
this proceeding. That is, an entity that does not qualify under our
existing loading rules for a particular authorization cannot use the
prospect of spectrum leasing to other entities in order to establish
its own eligibility for that license. Consequently, we hereby clarify
that an applicant's required showing of loading under our rules must
consist only of that entity's mobile units, consistent with the rules
governing the channel in question, rather than mobile units that would
be operated by spectrum lessees pursuant to the spectrum leasing rules.
Counting spectrum lessees' mobile units toward the applicant's initial
loading would in effect make the applicant eligible for something it
could not otherwise obtain under the relevant service rules. Such a
result would contravene our stated intent in the First Report and
Order.
    119. Definition of ``spectrum lessee.'' We revise the definition of
``spectrum lessee,'' as set forth in the under 47 CFR 1.9003 of our
rules, to state: ``Spectrum lessee. Any third-party entity that leases,
pursuant to the spectrum leasing rules set forth in this subpart,
certain spectrum usage rights held by a licensee. This term includes
reference to third-party entities that lease spectrum usage rights as
spectrum sublessees under spectrum subleasing arrangements.'' Such a
revision clarifies that spectrum lessees include spectrum lessees that
lease spectrum usage rights under spectrum subleasing arrangements.
    120. Section 1.9045(b). We revise the language of 47 CFR 1.9045(b)
of our rules to read as follows: ``(b) If a licensee holds a license
subject to the installment payment program rules (see Sec.  1.2110 and
related service-specific rules), the licensee and any spectrum lessee
must execute the Commission-approved financing documents. No licensee
or potential spectrum lessee may file a spectrum leasing notification
or application without having first executed such Commission-approved

[[Page 77539]]

financing documentation. In addition, they must certify in the spectrum
leasing notification