Office of Advocacy

Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

In the Matter of

1998 Biennial Regulatory Review
Spectrum Aggregation Limits
for Wireless Telecommunications Carriers

WT Docket No. 98-205(PDF File)

REPLY COMMENTS
OF THE OFFICE OF ADVOCACY
UNITED STATES SMALL BUSINESS ADMINISTRATION

The Office of Advocacy of the United States Small Business Administration ("Advocacy") submits these Reply Comments on the Federal Communications Commission’s ("FCC" or "Commission") Notice of Proposed Rulemaking ("NPRM"),(1) in the above-captioned proceeding. Congress established the Office of Advocacy in 1976 by Pub. L. No. 94-305(2)to represent the views and interests of small business within the Federal government. Its statutory duties include serving as a focal point for concerns regarding the government’s policies as they affect small business, developing proposals for changes in Federal agencies’ policies, and communicating these proposals to the agencies.(3) Advocacy also has a statutory duty to monitor and report on the Commission’s compliance with the Regulatory Flexibility Act of 1980 ("RFA"),(4) as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 ("SBREFA"), Subtitle II of the Contract with America Advancement Act.(5)

Advocacy contends that the 45 MHz Commercial Mobile Radio Service ("CMRS") spectrum cap has served a valuable and useful purpose in promoting competition, lowering entry barriers, and encouraging technological innovation. Before the Commission eliminates or otherwise alters the spectrum cap, Advocacy requests that the Commission consider the effect on small business users and small mobile service providers. While a limited relaxation of the spectrum cap may be helpful to rural carriers, elimination of the spectrum cap while small carriers are still deploying their systems will detrimentally affect their ability to survive and compete in the CMRS marketplace. Therefore, Advocacy recommends that if the Commission decides to eliminate the spectrum cap that: (1) all licenses must be assigned before the spectrum cap is relaxed; (2) the spectrum cap should only be raised – not eliminated; (3) CMRS build-out requirements should be maintained; and (4) new spectrum cap rules should be applied evenly to all markets.

1. The 45 MHz Spectrum Cap Has Allowed Competition the Time and Opportunity to Develop in the CMRS Market.

The Commission promulgated the CMRS spectrum cap in 1994, which initially imposed a cap of 40 MHz of PCS spectrum and 25 MHz of cellular spectrum.(6) However, after a court remand, the Commission changed the rule to create a single cap of 45 MHz for all CMRS spectrum.(7) The FCC is now reviewing the continued necessity of this limitation as a part of its Biennial Regulatory Review which charged the FCC to review regulations to determine if they are still necessary to the public interest as the result of meaningful economic competition between providers of the service.(8) The Commission originally adopted the 45 MHz cap as a minimally intrusive means of ensuring that new entrants to the CMRS marketplace could compete with established mobile carriers. The cap prevented market concentration and anti-competitive behavior while at the same time maintaining incentives for innovation and efficiency.(9) It also provided an incentive for larger businesses restricted by the cap to invest and partner with small providers. The spectrum cap’s existence has given independent mobile voice providers the opportunity to begin nation-wide rollouts.

The CMRS market operating under the spectrum cap rules has seen a tremendous change in its basic structure in the past few years. PCS has entered the market place as a competitor to cellular. Prices for service have fallen dramatically. Digital technology has been deployed and proven successful, and CMRS providers are now developing third generation technology. Throughout all this change, the spectrum cap has proven to be a valuable tool. It prevented market consolidation and prevented anti-competitive activities by the incumbent CMRS providers, while the new entrants erected their systems and created a customer base. With such success, the spectrum cap should not be discarded lightly and without consideration of the implications on the entire CMRS industry, including small providers.

2. The Commission Should Condition Any Raising of the Spectrum Cap to Prevent Harm to Small Businesses.

Because of the proven benefit to small business and to competition, Advocacy does not endorse the elimination of the spectrum cap. However, if the Commission should decide that some regulatory relief is warranted, Advocacy believes that four measures are necessary to prevent harm to small CMRS providers and to small business CMRS consumers.

1. All Licenses Must Be Assigned before the Spectrum Cap Is Relaxed to Allow Small Entities Time to Enter the Marketplace

The spectrum cap were designed to allow new entrants time to enter the marketplace and deploy their systems without the threat of consolidation in the marketplace or anti-competitive behavior. Small entities need this protection to raise capital and to make headway in a market dominated by established incumbents. To remove this protection, which the Commission has already deemed as necessary and appropriate,(10) before all new licensees have entered the marketplace would create a barrier to entry for these new entrants.

Section 257 of the Telecommunications Act of 1996(11)directs the Commission to promote diversity of media voices, vigorous economic competition, technical advancement, and promotion of the public interest, convenience, and necessity. Significantly, it requires the Commission to identify and eliminate market entry barriers.(12) Advocacy believes the Commission will be violating this statutory duty if it removes the spectrum cap while new entrants are still receiving licenses and have not begun to deploy their systems. The winners of the PCS C and F Block re-auction this March will be at a particular disadvantage, as they will be joining the marketplace late, and without the benefit of the spectrum cap protection.(13) Therefore, Advocacy recommends that the Commission not eliminate the spectrum cap in any market where all CMRS licenses have yet to be assigned.

Advocacy disagrees with the Cellular Telecommunications Industry Association’s ("CTIA") comments, which state that the competitive bidding set asides are sufficient to ensure that small businesses have the opportunity to compete.(14) Small businesses are extremely vulnerable when they enter a marketplace dominated by incumbents who for years have been the only licensees with the authority to provide CMRS. These entities need some measure of protection to allow them to deploy their networks and begin competing. The Commission cannot now end its efforts to ensure a diversity of ownership and opportunities for small businesses without adequate measures to level the playing field.

b. The Spectrum Cap Should Only Be Raised – Not Eliminated – to Ensure Diversity, Competition and Service to Unserved Areas

As noted previously, Advocacy does not believe the spectrum cap should be completely removed. Advocacy concurs with commenters who favor raising the limit to a higher amount.(15) By keeping a spectrum cap in place, the Commission will ensure that industry consolidation will not winnow the market down to a few large competitors. Advocacy recommends a cap level that would ensure that at least three or four competitors still exist in any market. Any higher spectrum amount could result in market concentration that would inhibit competition.

The cap protects small CMRS providers, who are more likely to provide service to niche markets, which often are left unserved by larger carriers. This promotes the Commission’s longstanding efforts to promote universal service. Advocacy believes it would be inconsistent for the Commission to increase market entry barriers for small providers by eliminating the spectrum cap in light of its universal service efforts.

c. CMRS Build-Out Requirements Should Be Maintained

Advocacy also believes that any relaxation in the spectrum cap should be tailored in such a way as to ensure that the spectrum will be utilized efficiently and service provided to the public. Unused spectrum acts as a limitation on competition and prevents consumers from receiving the benefits of new technology. A complete elimination of the spectrum cap could result in hoarding by licensees seeking to prevent competitors from entering the marketplace. To combat this possibility, Advocacy requests that the Commission maintain the various build-out requirements placed on all CMRS licensees. Licensees will not acquire spectrum unless they are prepared to offer service using the additional bandwidth within the allotted build-out period. Also, hoarding spectrum for the sake of preventing competition will be deterred, since the unused spectrum will revert to the Commission and the licensee could be subject to specific penalties.

d. New Spectrum Cap Rules Should Be Applied Evenly to All Markets

Finally, Advocacy recommends that the Commission apply any revision in the rules to all markets. Advocacy contends a case-by-case analysis is not the correct tool in this instance. A case-by-case analysis is expensive and time consuming, requiring resources that small businesses do not possess in abundance.(16) Advocacy agrees with commenters who recommend a bright-line test, which would give all competitors explicit guidelines. (17)A consistent and uniform approach will aid small business development of business plans and facilitate financing. Conversely, a case-by-case analysis would create uncertainty and confusion for small businesses, as to what is permissible and what is not, which will increase costs, discourage investment, and inhibit competition.

Conclusion

Advocacy does not endorse the elimination of the spectrum cap. Instead, if the Commission decides to relax the spectrum cap rule, Advocacy believes that the four limitations presented in these Reply Comments are necessary to prevent harm to small CMRS carriers, which provide valuable contributions to the marketplace. These four limitations are: (1) all licenses must be assigned before the spectrum cap is relaxed; (2) the spectrum cap should only be raised – not eliminated; (3) CMRS build-out requirements should be maintained; and (4) new spectrum cap rules should be applied evenly to all markets. Regardless of the Commission’s final decision, Advocacy recommends that the Commission consider the impact on CMRS carriers which have just entered the marketplace or are about to do through re-auctions before any alteration to existing rules are made.

Finally, Advocacy has reviewed the Commission’s Initial Regulatory Flexibility Analysis and found it sufficiently identified and described the issues that would affect small businesses. We commend the Commission’s effort in complying with the Regulatory Flexibility Act, as amended, and encourage the Commission to continue these good efforts in the Final Regulatory Flexibility Analysis by including "a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternatives to the rule considered by the agency which affect the impact on small entities was rejected."(18)

Respectfully submitted,

Jere W. Glover,
.Chief Counsel for Advocacy

S. Jenell Trigg,
Assistant Chief Counsel for
Telecommunications

Eric E. Menge,
Assistant Chief Counsel for
Telecommunications

Office of Advocacy
U.S. Small Business Administration
409 Third St., S.W.
Suite 7800
Washington, D.C. 20416
(202) 205-6932

February 10, 1999

FILED ELECTRONICALLY WITH THE FCC ON FEBRUARY 10, 1999

CERTIFICATE OF SERVICE

I hereby certify that a copy of the forgoing Office of Advocacy of the U.S. Small Business Administration Reply Comments to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 was hand delivered or sent by first-class mail, postage pre-paid, on the 10^th day of February 1999, to the parties listed below:

Eric E. Menge, Esq.

Mary McDermott
Senior Vice President, Chief of Staff, Government Relations
Brent Weingardt
Vice President, Government Relations
Personal Communications Industry Association
500 Montgomery St.
Suite 700
Alexandria, VA 22314

Jonathan M. Chambers
Vice President – External Affairs and Associate General Counsel
Sprint PCS
1801 K St., N.W.
Suite M112
Washington, D.C. 20006

Micahel F. Altschul
Vice President, General Counsel
Randall S. Coleman
Vice President for Regulatory Policy and Law
Cellular Telecommunications Industry Association
1250 Connecticut Ave., N.W.
Suite 800
Washington, D.C. 20036

Mark J. O’Connor
Teresa S. Werner
Piper & Marbury, L.L.P.
1200 19^th St.
7^th Floor
Washington, D.C. 20036
(Counsel for Omnipoint Communications, Inc.)

Michael R. Bennet
Caressa D. Bennet
Edward D. Kania
Bennet & Bennet, PLLC
1019 19^th St, N.W.
Suite 500
Washington, D.C. 20036
(counsel for the Rural Telecommunications Group)

ENDNOTES

1. In re 1998 Biennial Regulatory Review Spectrum Aggregation Limits for Wireless Telecommunications Carriers, Notice of Proposed Rulemaking, WT Docket No. 98-205, FCC 98-308 (rel. Dec. 10, 1998).

2. Codified as amended at 15 U.S.C. §§ 634 a-g, 637.

3. 15 U.S.C. § 634c(1)-(4).

4. Pub. L. No. 96-354, 94 Stat. 1164 (1980)(codified at 5 U.S.C. § 601 et seq.).

5. Pub. L. No. 104-121, 110 Stat. 857 (1996)(codified at 5 U.S.C. § 612(a)).

6. In re Implementation of Sections 3(n) and 332 of the Communications Act, Third Report and Order, GN Dkt. No. 93-2522, 9 FCC Rcd 7988 (1994).

7. Cincinnati Bell Tel. Co. v. FCC, 69 F.3d 752 (6th Cir. 1995); In re Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding and the Commercial Mobile Radio Service Spectrum Cap, Report and Order, WT Docket No. 96-59, 11 FCC Rcd 7824 (1996)("CMRS Spectrum Cap Report and Order").

8. 47 U.S.C. § 201.

9. CMRS Spectrum Cap Report and Order, para. 95.

10. Id., para. 105.

11. 47 U.S.C. § 257.

12. Id.

13. Comments of the Personal Communications Industry Association, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 11 (Jan. 25, 1999).

14. Comments of Cellular Telecommunications Industry Association, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 21 (Jan. 26, 1999).

15. Comments of Omnipoint Communications, Inc., to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 5 (Jan. 25, 1999); Comments of the Rural Telecommunications Group, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 11 (Jan. 26, 1999).

16. Comments of the Personal Communications Industry Association, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 16 (Jan. 25, 1999).

17. Id.; Comments of the Sprint PCS, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 2 (Jan. 25, 1999); Comments of the Rural Telecommunications Group, to the Notice of Proposed Rulemaking in WT Dkt. No. 98-205 at 12 (Jan. 26, 1999).

18. 5 U.S.C. § 604(a)(5).