*Pages 1--93 from Microsoft Word - 5803.doc* Federal Communications Commission FCC 00- 403 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Implementation of Sections 309( j) and 337 of the Communications Act of 1934 as Amended Promotion of Spectrum Efficient Technologies on Certain Part 90 Frequencies Establishment of Public Service Radio Pool in the Private Mobile Frequencies Below 800 MHz Petition for Rule Making of The American Mobile Telecommunications Association ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) WT Docket No. 99- 87 RM- 9332 RM- 9405 RM- 9705 REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULE MAKING Adopted: November 9, 2000 Released: November 20, 2000 Comment Date: 60 days after publication in the Federal Register Reply Comment Date: 90 days after publication in the Federal Register By the Commission: TABLE OF CONTENTS Paragraph # I. INTRODUCTION AND EXECUTIVE SUMMARY ......................................................................... 1 II. BACKGROUND ............................................................................................................................. 10 A. Commission Implementation of the 1993 Auction Standard ......................................................... 10 B. The Balanced Budget Act of 1997 .............................................................................................. 13 III. REPORT AND ORDER .................................................................................................................. 18 A. Framework for Determining Whether Licenses Are Subject to Auction ........................................ 18 1. Obligation to Avoid Mutual Exclusivity ............................................................................... 19 2. License Scope ...................................................................................................................... 28 3. Band Manager Licenses ....................................................................................................... 34 B. Auction Design for Private Radio Spectrum Deemed Subject to Auction ..................................... 51 1. Competitive Bidding Methodology and Design ..................................................................... 52 2. Eligibility Requirements ....................................................................................................... 54 3. Processing of New Applications ........................................................................................... 57 1 Federal Communications Commission FCC 00- 403 2 C. Exemption from Competitive Bidding for Public Safety Radio Services ...................................... 62 1. Scope of Public Safety Radio Services Exemption ................................................................ 63 2. Resolution of Mutually Exclusive Applications for Services Exempt from Competitive Bidding ................................................................................................................................ 88 D. Proposals Regarding Private Land Mobile Radio Services .......................................................... 92 1. Licensing of “Refarming” Bands .......................................................................................... 93 2. UTC Proposal To Establish a New Public Safety Radio Pool in the Private Mobile Bands Below 470 MHz ........................................................................................................ 97 3. AMTA Proposal To Restructure Licensing Framework for PLMR Services in the 450- 470 MHz Band .................................................................................................................. 104 4. Licensing of PLMR Channels in the 800 MHz Band for Use in Commercial SMR Systems ............................................................................................................................. 108 5. Revision of Part 90 Multiple Licensing Rules ..................................................................... 120 E. Section 337 Licensing for Public Safety Services ...................................................................... 127 IV. FURTHER NOTICE OF PROPOSED RULE MAKING ............................................................... 137 A. AMTA Proposal to Require New Spectrum Efficient Technologies ........................................... 137 B. Licensing of PLMR Channels in the 900 MHz Band for Use in Commercial SMR Systems ................................................................................................................................... 143 V. PROCEDURAL MATTERS ......................................................................................................... 145 A. Ex Parte Presentations ............................................................................................................. 145 B. Regulatory Flexibility Act Analyses ......................................................................................... 146 C. Final Paperwork Reduction Act of 1995 Analysis ..................................................................... 147 D. Filing Procedures ..................................................................................................................... 149 E. Further Information .................................................................................................................. 153 VI. ORDERING CLAUSES ................................................................................................................ 154 APPENDIX A: COMMENTS AND REPLY COMMENTS FILED IN WT DOCKET 99- 87 APPENDIX B: FINAL RULES APPENDIX C: FINAL REGULATORY FLEXIBILITY ANALYSIS APPENDIX D: INITIAL REGULATORY FLEXIBILITY ANALYSIS I. INTRODUCTION AND EXECUTIVE SUMMARY 1. In this Report and Order and Further Notice of Proposed Rule Making, we adopt rules and policies to implement Sections 309( j) and 337 of the Communications Act of 1934 (“ Communications Act”), as amended by the Balanced Budget Act of 1997 (“ Balanced Budget Act”), 1 which was signed into law on August 5, 1997. The Balanced Budget Act significantly revised Section 309( j) of the Communications Act, which is the principal statutory provision that governs the Commission’s auction authority for the licensing of radio services. With the Notice of Proposed Rule Making in WT Docket No. 99- 87, we initiated this proceeding and requested comment on changes to the Commission’s rules and policies to implement our revised auction authority. 2 1 Pub. L. No. 105- 33, Title III, 111 Stat. 251 (1997). 2 See Implementation of Sections 309( j) and 337 of the Communications Act of 1934 as Amended; Promotion of Spectrum Efficient Technologies on Certain Part 90 Frequencies; Establishment of Public Service Radio Pool in the Private Mobile Frequencies Below 800 MHz, WT Docket No. 99- 87, RM- 9332, RM- 9405, (continued….) 2 Federal Communications Commission FCC 00- 403 3 2. Specifically, this Report and Order sets out the general framework for exercise of the Commission’s auction authority in light of the Balanced Budget Act’s revisions to Section 309( j) of the Communications Act. 3 First, we examine how the Balanced Budget Act revised the statutory language of Section 309( j). In particular, we consider amended Section 309( j)( 1) ’s directive to use competitive bidding to resolve mutually exclusive license applications for those radio services that do not fall within one of Section 309( j)( 2) ’s auction exemptions. These statutory changes are considered in light of our continuing obligation under Section 309( j)( 6)( E) to avoid mutual exclusivity and to fulfill the public interest objectives enumerated in Section 309( j)( 3). 3. In this Report and Order, we conclude that in non- exempt services, the Commission’s authority under the Balanced Budget Act continues to permit it to adopt licensing processes that result in the filing of mutually exclusive applications where the Commission determines that such an approach would serve the public interest. We do not, however, make any changes to license assignment procedures in existing services that preclude or limit the likelihood of mutually exclusive applications, nor do we make any specific determination about what licensing procedures to adopt for future services. Rather, we will reserve for future service- specific rulemaking proceedings the question of what type of licensing mechanism to use in each case, e. g., geographic area licensing, site- by- site licensing, or any other licensing process. Moreover, any consideration of whether we should use licensing procedures in a particular service that increase the likelihood of mutually exclusive applications will be based on careful analysis of the public interest considerations of Section 309( j)( 3) as they apply to the specific characteristics, uses, and demands of the service. 4. We also conclude that in addition to other licensing mechanisms we have used previously, we should consider the use of band manager licensing as a future option for private as well as commercial services. We used the band manager concept for the first time in the 700 MHz guard bands, 4 and believe that it has the potential in other new spectrum allocations to provide private users with greater flexibility to access spectrum in amounts of bandwidth, periods of time, and geographic areas that best suit their needs. For example, we have recently initiated a proceeding to reallocate 27 MHz of spectrum in bands below 3 GHz from Federal Government to non- government use, and have sought comment on whether this spectrum could address demand in the congested private radio bands. 5 In that proceeding, we seek comment on the possibility of using band managers for some of those bands, as well as other licensing options. 5. We also define the scope of the Balanced Budget Act’s exemption from auctions for licenses and permits issued for “public safety radio services.” We conclude that this “public safety” exemption (Continued from previous page) Notice of Proposed Rule Making, 14 FCC Rcd 5206 (1999) (“ Notice”). For the reasons discussed in the Notice, this proceeding does not address satellite services. See Notice at ¶ 65. 3 See 47 U. S. C. § 309( j) (1999). 4 See Service Rules for the 746- 764 and 776- 794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules, WT Docket No. 99- 168, Second Report and Order, 15 FCC Rcd 5299, 5311- 12 at ¶ 26 (2000) (“ 700 MHz Second Report and Order”) (establishing specific requirements for Guard Band Manager licenses for the 700 MHz guard bands). 5 See Reallocation of 27 Megahertz of Spectrum Transferred from Government Use, ET Docket No. 00-221, RM- 9267, RM- 9692, RM- 9797, RM- 9854, Notice of Proposed Rule Making, FCC 00- 395, at ¶ 1 (rel. Nov. 20, 2000) (“ 27 MHz Reallocation Order”). 3 Federal Communications Commission FCC 00- 403 4 from auctions was intended to apply not only to traditional public safety services such as police, fire, and emergency medical services, but also to spectrum usage by entities such as utilities, railroads, transit systems, and others that provide essential services to the public at large and that need reliable communications in order to prevent or respond to disasters or crises affecting their service to the public. We also conclude, however, that the public safety exemption applies only to services in which these public safety uses, i. e., protection of safety of life, health, and property within the meaning of Section 309( j)( 2)( A), comprise the dominant use of the spectrum. Thus, services in which such uses are not dominant (and in which mutual exclusivity occurs) will not be exempt from auctions, even if some individual licensees in the service use the spectrum for public safety purposes as defined by the statute. 6. The Report and Order also addresses a number of proposals to amend our licensing and eligibility rules for existing private services. 6 In general, we conclude that the existing rules should be retained. Specifically, we decline a request by the American Mobile Telecommunications Association (“ AMTA”) to establish geographic area licensing and competitive bidding rules in the 450- 470 MHz band. We also decline the Utilities Telecommunications Council’s (“ UTC’s”) 7 request to create a separate radio pool of private land mobile frequencies for entities that do not qualify for the existing Public Safety Radio Pool spectrum, but that fall within the broader “public safety” exemption established by Section 309( j)( 2)( A). 7. We do make a limited change, however, to our use restrictions affecting 800 MHz Business and Industrial/ Land Transportation (“ BI/ LT”) channels, which currently prohibit commercial use by licensees. We conclude that subject to certain safeguards, BI/ LT licensees should be allowed to modify their licenses to permit commercial use, or to assign or transfer their licenses to CMRS operators for commercial use. To prevent trafficking, we will not allow such modifications, assignments, or transfers until five years after the initial grant date of the license, and we will prohibit a licensee who modifies or transfers a license under this provision from obtaining new BI/ LT spectrum in the same location for one year. 8. In addition, we address issues relating to the awarding of licenses under Section 337 of the Communications Act, which allows public safety entities (defined more narrowly than in Section 309( j)( 2)( A)) to apply for “unassigned” spectrum not otherwise allocated for public safety use. We conclude that where the Commission has proposed rules for the licensing of particular spectrum by auction, requests for licensing under Section 337 should not be deemed in the public interest once the competitive bidding process has begun except under extraordinary circumstances. Moreover, we conclude that Section 337 relief should only be available if the applicant demonstrates that there is no available public safety spectrum in any band in the geographic area where the public safety use is proposed. 9. Finally, in the Further Notice of Proposed Rule Making, we seek comment on a petition for rulemaking filed by AMTA proposing that certain Part 90 licensees be required to employ new spectrum-efficient technologies. 8 In particular, we seek further comment on the effectiveness of the Part 90 rules that 6 A list of the parties that filed pleadings and ex parte notices in the captioned proceedings, and the abbreviations used to refer to such parties, is attached at Appendix A. 7 UTC is now known as the United Telecom Council. 8 AMTA Petition for Rulemaking (RM- 9332) at 3 (filed June 19, 1998) (“ AMTA Petition I”). 4 Federal Communications Commission FCC 00- 403 5 have been adopted in the course of the Commission’s Refarming proceeding, PR Docket No. 92- 235, 9 the current pace of migration to narrowband technology, and on whether enough time has elapsed to allow us to evaluate the effectiveness of our current rules. We also seek comment on whether to permit 900 MHz BI/ LT licensees to modify their licenses to permit CMRS use. II. BACKGROUND A. Commission Implementation of the 1993 Auction Standard 10. The Omnibus Budget Reconciliation Act of 1993 (“ 1993 Budget Act”) 10 added Section 309( j) to the Communications Act, authorizing the Commission to award licenses for use of the electromagnetic spectrum through competitive bidding where mutually exclusive applications are filed. The 1993 Budget Act expressly authorized, but did not require, the Commission to use competitive bidding to choose among mutually exclusive applications for initial licenses or construction permits. 11 As we described in detail in the Notice, the Commission in a series of rulemaking proceedings adopted rules and policies to implement Section 309( j). 12 11. Pursuant to the 1993 Budget Act, Section 309( j)( 1), "General Authority," only permitted the Commission to use competitive bidding for subscriber- based services if mutual exclusivity existed among initial license applications. Section 309( j)( 6)( E) also made clear that the Commission was not relieved of its obligation in the public interest to continue to use engineering solutions, negotiation, threshold qualifications, service regulations and other means to avoid mutual exclusivity. 13 The Commission has determined that applications are “mutually exclusive” if the grant of one application would effectively 9 See Replacement of Part 90 by Part 88 to Revise the Private Land Mobile Radio Services and Modify the Policies Governing Them, PR Docket No. 92- 235, Report and Order and Further Notice of Proposed Rule Making, 10 FCC Rcd 10,076 (1995) (“ Refarming Report and Order and Further Notice”); Memorandum Opinion and Order, 11 FCC Rcd 17,676 (1996); Second Report and Order, 12 FCC Rcd 14,307 (1997); Second Memorandum Opinion and Order, 14 FCC Rcd 8642 (1999); Third Memorandum Opinion and Order, 14 FCC Rcd 10,922 (1999); Report and Order and Further Notice of Proposed Rule Making, 15 FCC Rcd 16,673 (2000) (collectively, the “Refarming Proceeding”). 10 Pub. L. No. 103- 66, Title VI, § 6002( a), 107 Stat. 312, 387 (1993). 11 47 U. S. C. § 309( j)( 1) (1996). As added by the 1993 Budget Act, Section 309( j)( 1) stated: (1) General Authority. -- If mutually exclusive applications are accepted for filing for any initial license or construction permit which will involve a use of the electromagnetic spectrum described in paragraph (2), then the Commission shall have the authority, subject to paragraph (10), to grant such license or permit to a qualified applicant through the use of a system of competitive bidding that meets the requirements of this subsection. Paragraph (10) provided a number of conditions precedent and conditions subsequent to the Commission's use of competitive bidding, which are moot. See 47 U. S. C. § 309( j)( 10). 12 See Notice at 5208- 21 ¶¶ 3- 22. See also Implementation of Section 309( j) of the Communications Act - Competitive Bidding, PP Docket No. 93- 253, Second Report and Order, 9 FCC Rcd 2348 (1994) (" Competitive Bidding Second Report and Order"); Implementation of Section 309( j) of the Communications Act - Competitive Bidding, PP Docket No. 93- 253, Second Memorandum Opinion and Order, 9 FCC Rcd 7245 (1994) (" Competitive Bidding Second M O & O"). 13 47 U. S. C. § 309( j)( 6)( E). 5 Federal Communications Commission FCC 00- 403 6 preclude the grant of one or more of the other applications. 14 Where the Commission receives only one application that is acceptable for filing for a particular license that is otherwise auctionable, there is no mutual exclusivity, and thus no auction. Therefore, mutual exclusivity is established when competing applications for a license are filed. 12. Section 309( j)( 1) also restricted the use of competitive bidding to applications for “initial” licenses or permits. 15 In addition, Section 309( j)( 2) set forth conditions beyond mutual exclusivity that had to be satisfied in order for spectrum to be auctionable. 16 Generally speaking, these conditions subjected to auction those services in which the licensee was to receive compensation from subscribers for the use of the spectrum. 17 Former Section 309( j)( 2) further directed the Commission, in evaluating the “uses to which bidding may apply,” to determine whether “a system of competitive bidding will promote the [public interest] objectives described in [Section 309( j)( 3)].” 18 Employing these criteria, the Commission identified a number of services and classes of services that were auctionable and not auctionable under the 1993 Budget Act, provided mutually exclusive applications were filed. 19 As we explained in the Notice, the 14 See Notice at 5210 ¶ 4 (citing Competitive Bidding Second Report and Order, 9 FCC Rcd at 2350 n. 5). 15 Renewal licenses were excluded from the auction process. See H. R. Rep. No. 103- 111, at 253. See also id. at 2355. 16 See 47 U. S. C. § 309( j)( 2)( A) (1996). 17 Among the services found to be auctionable under the 1993 Budget Act were narrowband and broadband Personal Communications Services, Public Mobile Services, 218- 219 MHz Service, Specialized Mobile Radio Services (SMR), Private Carrier Paging (PCP) Services, Multipoint Distribution Service (MDS), Local Multipoint Distribution Service (LMDS), 2. 3 GHz Wireless Communications Service (WCS), satellite Digital Audio Radio Service (DARS), Direct Broadcast Satellite (DBS) Service, 17 220- 222 MHz radio service, Location and Monitoring Service (LMS), and VHF Public Coast Stations, all of which involve commercial use of the spectrum. See Notice at 5212- 13 ¶ 8; see also Competitive Bidding Second Report and Order, 9 FCC Rcd at 2359 ¶¶ 62- 63. The plain language of the 1993 Budget Act also excluded traditional broadcast services from competitive bidding, because broadcast licensees do not receive compensation from subscribers. See Competitive Bidding Second Report and Order, 9 FCC Rcd at 2352 ¶ 22. 18 47 U. S. C. § 309( j)( 2)( B) (1996). Section 309( j)( 3), entitled “Design of Systems of Competitive Bidding,” directs that these factors be addressed in both identifying classes of licenses to be issued by competitive bidding, and designing particular methodologies of competitive bidding. The objectives are listed as follows: (A) the development and rapid deployment of new technologies, products, and services for the benefit of the public, including those residing in rural areas, without administrative or judicial delays; (B) promoting economic opportunity and competition and ensuring that new and innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women; (C) recovery for the public of a portion of the value of the public spectrum resource made available for commercial use and avoidance of unjust enrichment through the methods employed to award uses of that resource; and (D) efficient and intensive use of the electromagnetic spectrum. 47 U. S. C. § 309( j)( 3)( A)-( D). 19 See Notice at 5212- 14 ¶¶ 8- 9. 6 Federal Communications Commission FCC 00- 403 7 services deemed nonauctionable under the 1993 Budget Act were non- subscriber based, private and noncommercial offerings operating on a variety of frequency bands. 20 B. The Balanced Budget Act of 1997 13. In 1997, Congress revised the Commission’s auction authority. Specifically, the Balanced Budget Act of 1997 amended Section 309( j)( 1) to require the Commission to award mutually exclusive applications for initial licenses or permits using competitive bidding procedures, except as provided in Section 309( j)( 2). Sections 309( j)( 1) and 309( j)( 2) now state: (1) General Authority.-- If, consistent with the obligations described in paragraph (6)( E), mutually exclusive applications are accepted for any initial license or construction permit, then, except as provided in paragraph (2), the Commission shall grant the license or permit to a qualified applicant through a system of competitive bidding that meets the requirements of this subsection. (2) Exemptions.-- The competitive bidding authority granted by this subsection shall not apply to licenses or construction permits issued by the Commission- -( A) for public safety radio services, including private internal radio services used by State and local governments and non- government entities and including emergency road services provided by not- for- profit organizations, that-- (i) are used to protect the safety of life, health, or property; and (ii) are not made commercially available to the public; (B) for initial licenses or construction permits for digital television service given to existing terrestrial broadcast licensees to replace their analog television service licenses; or (C) for stations described in section 397( 6) 21 of this title. 22 As mentioned above, prior to the Balanced Budget Act of 1997, Sections 309( j)( 1) and 309( j)( 2) granted the Commission the authority to use competitive bidding to resolve mutually exclusive applications for initial licenses or permits if the principal use of the spectrum was for subscription- based services and competitive bidding would promote the objectives described in Section 309( j)( 3). 23 As amended by the Balanced Budget Act of 1997, Section 309( j)( 1) states that the Commission shall use competitive bidding to resolve mutually exclusive initial license or permit applications, unless one of the three exemptions provided in the statute applies. 24 14. As noted above, the Balanced Budget Act of 1997 left unchanged the restriction that competitive bidding may only be used to resolve mutually exclusive applications. Moreover, the general auction authority provision of Section 309( j)( 1) now references the obligation under Section 309( j)( 6)( E) to 20 See Notice at 5214- 19 ¶¶ 10- 17. 21 47 U. S. C. § 397( 6). Section 397( 6) defines the terms "noncommercial educational broadcast station" and "public broadcast station." 22 47 U. S. C. § 309( j)( 1), (2) (as amended by Balanced Budget Act, § 3002) (footnote added). 23 See 47 U. S. C. § 309( j)( 1) and (2) (1996). 24 See 47 U. S. C. § 309( j)( 2) (emphasis added). 7 Federal Communications Commission FCC 00- 403 8 use engineering solutions, negotiation, threshold qualifications, service regulations, or other means to avoid mutual exclusivity where it is in the public interest to do so. In addition, the portion of the Conference Report that accompanies this section of the legislation emphasizes that notwithstanding the Commission’s expanded auction authority, its determinations regarding mutual exclusivity must still be consistent with and not minimize its obligations under Section 309( j)( 6)( E). 25 15. Section 309( j)( 2), as amended by the Balanced Budget Act of 1997, exempts from auctions licenses and construction permits for public safety radio services, digital television service licenses and permits given to existing terrestrial broadcast licensees to replace their analog television service licenses, and licenses and construction permits for noncommercial educational broadcast stations and public broadcast stations. The Commission has found that the list of exemptions from our general auction authority set forth in Section 309( j)( 2) is exhaustive, rather than merely illustrative, of the types of licenses or permits that may not be awarded through a system of competitive bidding. 26 Left unchanged by the Balanced Budget Act of 1997 is Section 309( j)( 3) ’s directive to consider the public interest objectives in identifying classes of licenses and permits to be issued by competitive bidding. 16. The Conference Report for Section 3002( a) of the Balanced Budget Act of 1997 states that the exemption for public safety radio services includes “private internal radio services” used by utilities, railroads, metropolitan transit systems, pipelines, private ambulances, volunteer fire departments, and not-for- profit organizations that offer emergency road services, such as the American Automobile Association (“ AAA”). 27 The Conference Report also notes that the exemption is “much broader than the explicit definition for ‘public safety services’” included in Section 337( f)( 1) of the Communications Act, 28 for the purpose of determining eligibility for licensing in the 24 MHz of spectrum reallocated for public safety services. 29 25 The conferees expressed concern that the Commission not interpret its expanded auction authority in a manner that overlooks engineering solutions or other tools that avoid mutual exclusivity. See H. R. Conf. Rep. No. 105- 217, 105th Cong., 1st Sess., at 572 (1997) (“ Conference Report”). 26 Implementation of Section 309( j) of the Communications Act -- Competitive Bidding for Commercial Broadcast and Instructional Television Fixed Service Licenses, MM Docket No. 97- 234, First Report and Order, 13 FCC Rcd 15920, 16000 ¶ 199 (1998) (“ Commercial Broadcast Competitive Bidding First Report & Order”). 27 See Conference Report at 572. The 1997 amendments also eliminate the Commission’s authority to issue licenses or permits by random selection after July 1, 1997, with the exception of licenses or permits for noncommercial educational radio and television stations. See Balanced Budget Act at § 3002( a)( 2)( B)( 5). 28 47 U. S. C. § 337( f)( 1), added by Balanced Budget Act § 3004. See Conference Report at 572. 29 Conference Report at 572. For purposes of comparison, the definition of "public safety services" included in Section 337( f)( 1) provides: The term "public safety services" means 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 governmental entity whose primary mission is the provision of such services; and (C) that are not made commercially available to the public by the provider. (continued….) 8 Federal Communications Commission FCC 00- 403 9 17. As we discuss in greater detail below, the statutory changes to the Commission’s auction authority brought about by Balanced Budget Act primarily affect those classes of radio service that are referred to generically as “private services.” Our use of the term “private services” in the context of the 1993 Budget Act’s auction exemption referred to those radio services “that did not involve the payment of compensation to the licensee by subscribers, i. e., that were for internal use.” 30 Generally, the private radio services are used by government or business entities to meet their own internal communications needs or by individuals for personal communications, rather than to provide communications services to others. 31 In this Report and Order, we use the term “private services” broadly to refer to the family of non- broadcast, non-subscriber based fixed or mobile radio services (i. e., radio services that are for internal uses). 32 This Report and Order does not revisit any determinations made pursuant to the 1993 Budget Act of those radio services subject to competitive bidding. Rather, here we establish a framework for our future determinations of which radio services may be subject to competitive bidding. For example, we intend to use this framework to guide our decisions in regard to the spectrum bands that are the subject of a separate Notice of Proposed Rule Making in which we are proposing to reallocate 27 MHz of spectrum in bands below 3 GHz from Federal Government to non- government use. 33 III. REPORT AND ORDER A. Framework for Determining Whether Licenses Are Subject to Auction 18. In this Report and Order, we evaluate the scope of our spectrum auction authority under Section 309( j) and establish a framework for determining whether licenses are subject to auction. First, we consider how the Balanced Budget Act’s revision of our auction authority under Section 309( j) of the Communications Act affects future determinations of which services may be subject to auction. In particular, this analysis focuses on the application of the public interest factors enumerated in Section 309( j)( 3) and the Commission’s Section 309( j)( 6)( E) obligation in the public interest to avoid mutual exclusivity in application and licensing proceedings for those radio services that are not specifically exempt from auction under Section 309( j)( 2). 34 We also recognize the potential for band manager licensing of (Continued from previous page) 47 U. S. C. § 337( f)( 1). 30 See Competitive Bidding Second Report and Order, 9 FCC Rcd at 2352 ¶¶ 23- 25. 31 Many different entities use private systems for a variety of purposes, and the systems themselves operate on a number of different spectrum bands. As was explained in detail in the Notice, to date, the Commission has employed a variety of alternative licensing approaches for these private radio services. See Notice at 5214- 19 ¶¶ 11- 17. 32 Broadly speaking, the category of “private services” includes the Private Land Mobile Radio Services; parts of the Maritime and Aviation Services; the Private Operational Fixed Service; Amateur and Personal Radio Services. When used in this general sense, “private services” also includes the public safety radio services (which fall within the three aforementioned service classifications) as well as frequencies allocated to the Public Safety Radio Pool. 33 Among other things, that Notice of Proposed Rule Making seeks comment on whether that spectrum could address demand in the congested private radio bands. See 27 MHz Reallocation Order. 34 See 47 U. S. C. §§ 309( j)( 6)( E), 309( j)( 2). See also Competitive Bidding Second Report and Order, 9 FCC Rcd at 2352- 53 ¶¶ 21- 28. 9 Federal Communications Commission FCC 00- 403 10 auctionable private radio services where that licensing mechanism is likely to serve the public interest and otherwise satisfy the Commission’s overall spectrum management responsibilities and obligations under the Communications Act. 1. Obligation to Avoid Mutual Exclusivity 19. Background. In the Notice, the Commission sought comment broadly on how the Balanced Budget Act’s amendments to Section 309( j) affect its determinations of which services may be subject to auction. 35 In particular, we asked whether the express reference in Section 309( j)( 1) to the Commission’s obligation to avoid mutual exclusivity under Section 309( j)( 6)( E) changes the scope or content of that obligation. 36 We also asked how we should apply the public interest factors in Section 309( j)( 3) in establishing licensing schemes or methodologies under the Balanced Budget Act for both new and existing, commercial and private services. 37 We inquired whether the Commission’s previous analysis of its obligation under Section 309( j)( 6)( E) is still appropriate in view of the revisions to Section 309( j)( 1) and 309( j)( 2), i. e., whether we should continue to evaluate our obligation to avoid mutual exclusivity by weighing the public interest objectives of Section 309( j)( 3). 38 With respect to services currently using licensing schemes in which mutually exclusive applications are not filed, we asked whether Congress, in emphasizing our obligation to avoid mutual exclusivity, intended that we give greater weight to that obligation and less to other public interest objectives. 39 20. Discussion. Private radio service interests generally argue that the Balanced Budget Act has not expanded the Commission’s auction authority, particularly as it applies to private wireless services. 40 They argue that the added reference in Section 309( j)( 1) to the Commission’s obligation under Section 309( j)( 6)( E) to consider alternatives to mutual exclusivity requires the Commission to give greater weight to the goal of avoiding mutual exclusivity and less to other public interest objectives in determining which wireless services are potentially auctionable. 41 Under these commenters’ proposed interpretation, the 35 Notice, 14 FCC Rcd at 5222 ¶ 25. 36 Id. at 5235 ¶ 60. 37 Id. 38 Id. at 5239 ¶ 64. 39 Id. at 5235 ¶ 60. 40 See, e. g., AAR Comments at 8; API Comments at 14- 16; API Reply Comments at 3- 4; Blooston Comments at 5- 10; Blooston Reply Comments at 2- 3; Boeing at 2, 4 (“[ a] ny implementation of the Balanced Budget Act amendments of 1997 must first acknowledge that Congress flatly restricted the Commission’s competitive bidding authority with Section 309( j)( 6)( E)…”); Boeing Reply Comments at 1- 2; CellNet Reply Comments at 2- 4; Cinergy Comments at 4- 5; Cinergy Reply Comments at 2- 3; ComEd Comments at 4- 6; ComEd Reply Comments at 2- 3; CSAA Reply Comments at 4; Entergy Comments at 4- 5; Entergy Reply Comments at 2- 3; Ford Reply Comments at 2; FIT Comments at 1- 4; Intek Comments at 4- 6; ITA Comments at 4- 7; ITA Reply Comments at 2- 5; Kenwood Comments at 2- 3; LMCC Comments at 5- 6; Motorola Comments at 7- 8; Motorola Reply Comments at 2; MRFAC Comments at 6- 8; NTCC Comments at 4- 5; PCIA Comments at 4- 5; SCANA Comments at 5- 6; SCANA Reply Comments at 2- 3; Trimble Comments at 3- 6; UEC Comments at 4- 5; UTC Comments at 6. 41 See, e. g., AAR Comments at 8 (“ the Commission’s first obligation under Section 309( j)( 1) (referencing Section 309( j)( 6)( E)) is to use all appropriate methods to avoid mutual exclusivity”); API Comments (continued….) 10 Federal Communications Commission FCC 00- 403 11 Commission’s first objective in establishing a licensing mechanism for any non- auction exempt service must be to seek a method that avoids mutual exclusivity. 42 In the view of these commenters, only if the Commission determines that mutual exclusivity cannot be avoided, i. e., that the service can only be licensed through processes that result in the filing of mutually exclusive applications, can it consider the public interest factors set forth in Section 309( j)( 3) for purposes of determining the appropriate methodology to award licenses through competitive bidding. 43 21. We disagree with the interpretation of amended Section 309( j)( 1) advanced by these commenters. The obligation to consider alternatives to mutual exclusivity set forth in Section 309( j)( 6)( E) has existed since the Commission was first authorized to conduct auctions of spectrum licenses by the 1993 Budget Act. 44 The Commission has consistently interpreted this provision to mean that it has an obligation to attempt to avoid mutual exclusivity by the methods prescribed therein only when doing so would further the public interest goals of Section 309( j)( 3). 45 We conclude that the amendment of Section 309( j)( 1) by (Continued from previous page) at 15 (“ the Commission must give prior, independent consideration to its obligation to avoid mutual exclusivity, rather than continuing to weigh this obligation against the ‘public interest factors’ set forth in Section 309( j)( 3)”); Boeing Comments at 4- 5 (“ Congress intended the obligations specified in the Commission’s general auction authority of Section 309( j)( 1) to take priority over the public interest criteria found in Section 309( j)( 3)”); Boeing Reply Comments at 2; CellNet Reply Comments at 2- 4; Cinergy Comments at 5; Cinergy Reply Comments at 2- 3; ComEd Comments at 6; ComEd Reply Comments at 2- 3; Entergy Comments at 5; Entergy Reply Comments at 2- 3; Intek Comments at 4- 5; ITA Comments at 4; ITA Reply Comments at 3 (“ before using competitive bidding as a licensing mechanism, the Commission must first consider ways to avoid mutual exclusivity”); Kenwood Comments at 2- 3; LMCC Comments at 6 (“ it is clear that the Commission must first seek to avoid mutual exclusivity); Motorola at 4- 8; MRFAC Comments at 6- 8; NTCC Comments at 4- 5; PCIA Comments at 4- 5; PIRSC Comments at 3, 10; SBT Comments at 8; SCANA Comments at 6; SCANA Reply Comments at 2- 3; UEC Comments at 5; UTC Comments at 6. 42 See, e. g., API Comments at 15; Boeing Comments at 4- 5; Boeing Reply Comments at 2 (“ the Commission has a threshold responsibility to resolve mutual exclusivity before ever considering the use of competitive bidding”); CellNet Reply Comments at 2- 4; Cinergy Comments at 5; ComEd Comments at 6; CSAA Comments at 5; Entergy Comments at 5; Ford Reply Comments at 2; Intek Comments at 4- 5; ITA Comments at 4- 7; ITA Reply Comments at 3; Kenwood Comments at 2- 3; MRFAC Comments at 6- 8; NTCC Comments at 4- 5; PCIA Comments at 4- 5; PIRSC Comments at 7; SBT Comments at 8; SBT Reply Comments at 32; SCANA Comments at 6; UTC Comments at 6. 43 See, e. g., API Comments at 15; Boeing Comments at 4- 5; Boeing Reply Comments at 2; CellNet Reply Comments at 2- 4; Cinergy Comments at 5; ComEd Comments at 6; Entergy Comments at 5; Kenwood Comments at 2- 3; LMCC Comments at 5- 6; PCIA Comments at 4- 5; SCANA Comments at 6; SBT Reply Comments at 32; UEC Comments at 4- 5; UTC Comments at 7; UTC Reply Comments at 2. 44 See 47 U. S. C. § 309( j)( 6)( E) (1994). 45 See, e. g., Amendment of the Commisson’s Rules Regarding the 37.0- 38.6 GHz and 38.6- 40.0 GHz Bands, ET Docket No. 95- 183, Implementation of Section 309( j) of the Communications Act – Competitive Bidding, 37.0- 38.6 GHz and 38.6- 40.0 GHz Bands, PR Docket No. 93- 253, Memorandum Opinion and Order, 14 FCC Rcd 12428, 12441- 12445 ¶¶ 22- 28 (1999); Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging Systems, WT Docket No. 96- 18; Implementation of Section 309( j) of the Communications Act – Competitive Bidding, PR Docket No. 93- 253, Memorandum Opinion and Order on Reconsideration and Third Report and Order, 14 FCC Rcd 10030 (1999); Amendment of Part 90 of the Commission’s Rules to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band, PR Docket No. 93- 144, Second Report and Order, 12 FCC Rcd 19079, 19104 ¶ 62, 19154 ¶ 230 (1997); (continued….) 11 Federal Communications Commission FCC 00- 403 12 the Balanced Budget Act to add a cross- reference to Section 309( j)( 6)( E) serves to underscore the Commission’s pre- existing obligation, but did not change its fundamental scope or content. 46 More specifically, we conclude that the Balanced Budget Act amendments to Section 309( j) do not preclude the Commission from using licensing mechanisms for private services that permit the filing of mutually exclusive license applications if the Commission determines that it is in the public interest to do so. 22. We base our conclusion on several factors. First, nothing in the statutory language suggests that Congress intended to narrow the Commission’s discretion to use licensing mechanisms based on mutual exclusivity. The addition of a cross- reference to Section 309( j)( 6)( E) does not turn avoidance of mutual exclusivity into the paramount goal of the statute, but simply underscores that the Commission should continue to consider alternatives to mutual exclusivity as it did prior to the Balanced Budget Act, i. e., based on whether such alternatives would promote the public interest objectives in Section 309( j)( 3). Moreover, Congress did not change the language of Section 309( j)( 6)( E) itself, indicating that it did not intend to change the scope of the Commission’s obligation under that provision. Indeed, Section 309( j)( 6)( E) itself continues to state – as it did prior to the Balanced Budget Act – that the Commission has the “obligation in the public interest… to avoid mutual exclusivity, 47 which underscores that the Commission is required to avoid mutual exclusivity only if it is in the public interest to do so. 23. Finally, the plain language of Section 309( j)( 3) negates the contention that Congress intended that section to be subordinate to Section 309( j)( 6)( E). Specifically, Section 309( j)( 3) directs the Commission to consider the public interest objectives specified therein in “identifying classes of licenses and permits to be issued by competitive bidding, in specifying the eligibility and other characteristics of such licenses and permits, and in designing methodologies for use under this subsection.” 48 This language makes clear that the public interest objectives of Section 309( j)( 3) apply broadly to the threshold issue of which licenses should be subject to auction, which necessarily requires consideration in each case of whether to adopt a licensing mechanism based on mutual exclusivity. 24. Our interpretation of Section 309( j) is also supported by the legislative history of the Balanced Budget Act. In the Conference Report, Congress explicitly stated that the Balanced Budget Act expanded the scope of the auction authority previously conferred by the 1993 Budget Act. 49 However, Congress also (Continued from previous page) Amendment of Part 90 of the Commission’s Rules to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band, Memorandum Opinion and Order on Reconsideration, 12 FCC Rcd 9972, 10009- 10 ¶ 115 (1997). 46 See, e. g., DIRECTV, Inc. v. FCC, 110 F. 3d 816 (D. C. Cir. 1997)( affirming FCC decision establishing an auction procedure for assigning DBS spectrum, and noting that “[ n] othing in 309( j)( 6)( E) requires the FCC to adhere to a policy it deems outmoded ‘in order to avoid mutual exclusivity in ... licensing proceedings’”)( decided prior to enactment of the Balanced Budget Act); Benkelman Telephone Co. v. FCC, 220 F. 3d 601, petition for rehearing on other grounds pending (D. C. Cir. 2000) (denying petitions for review of FCC rulemaking orders establishing geographic area licensing system for certain paging licenses and adopting a competitive bidding procedure for mutually exclusive applications) (decided after enactment of the Balanced Budget Act). 47 47 USC § 309( j)( 6)( E) (emphasis added). 48 47 U. S. C. § 309( j)( 3) (emphasis added). 49 The portion of the Conference Report that discusses the statute’s amendments to the Commission’s auction authority is entitled “Section 3002( a) -- extension and expansion of auction authority.” Conference Report, at 572 (emphasis added). 12 Federal Communications Commission FCC 00- 403 13 expressed concern that the Commission not interpret its expanded auction authority in a way that would reduce its Section 309( j)( 6)( E) obligations: [T] he conferees emphasize that, notwithstanding its expanded auction authority, the Commission must still ensure that its determinations regarding mutual exclusivity are consistent with the Commission's obligations under section 309( j)( 6)( E). The conferees are particularly concerned that the Commission might interpret its expanded competitive bidding authority in a manner that minimizes its obligations under section 309( j)( 6)( E), thus overlooking engineering solutions, negotiations, or other tools that avoid mutual exclusivity. 50 This language from the Conference Report makes clear that Congress sought continuity rather than change in the Commission’s application of Section 309( j)( 6)( E). Contrary to the assertions of some private services commenters, 51 Congress did not intend to create a new and greater obligation to avoid mutual exclusivity, but rather sought to ensure that in exercising its expanded auction authority, the Commission would continue to give Section 309( j)( 6)( E) the same weight it had prior to the Balanced Budget Act. 52 25. We also conclude that this interpretation of the Balanced Budget Act is consistent with the Commission’s spectrum management responsibilities. Section 309( j)( 3)( D) requires the Commission to promote efficient use of the spectrum, which is a valuable and finite public resource. 53 To accomplish these objectives, the Commission must have the freedom to consider all available spectrum management tools and the discretion to evaluate which licensing mechanism is most appropriate for the services being offered. 54 Thus, as the D. C. Circuit has recognized, the Commission is not required to adopt a licensing process that avoids mutual exclusivity but undermines the public interest goals embodied in the statute. 55 Subsequent to the adoption of the Balanced Budget Act, the D. C. Circuit concluded that the Section 309( j)( 6)( E) obligation does not foreclose new licensing schemes that are likely to result in mutual exclusivity. 56 If the Commission finds such schemes to be in the public interest, the court states, it may 50 Id. 51 See, e. g., Cinergy Comments at 5; ComEd Comments at 6; Entergy Comments at 5; PIRSC Comments at 7; SCANA Comments at 6; UEC Comments at 4- 5. 52 H. R. Conf. Rep. No. 105- 217, 105 th Cong., 1 st Sess., at 572 (1997) (“ Conference Report”) (emphasis added). 53 47 U. S. C. § 309( j)( 3)( D). 54 See Amendment of the Commission’s Rules Regarding Multiple Address Systems, WT Docket No. 97- 81, Report and Order, 15 FCC Rcd 11,956, 11,962- 63 ¶¶ 12, 13- 15 (2000) (“ MAS Report and Order”) (“[ W] e believe that Section 309( j)( 6)( E) allows us to determine the licensing approach that is most appropriate for the services being offered, taking into account the dominant use of the spectrum, administrative efficiency and other related licensing issues.”). 55 See DIRECTV, Inc. v. FCC, 110 F. 3d 816, 828 (D. C. Cir. 1997) (Section 309( j)( 6)( E) does not require Commission to adhere to policy it deems outmoded in order to avoid mutual exclusivity in licensing proceedings); Benkelman Telephone Co., et al. v. FCC, 220 F. 3d 601, 606 petition for rehearing on other grounds pending (D. C. Cir. 2000). 56 Benkelman Telephone Co., et al. v. FCC, 220 F. 3d 601, 606, petition for rehearing on other grounds pending (D. C. Cir. 2000). 13 Federal Communications Commission FCC 00- 403 14 implement them “without regard to [S] ection 309( j)( 6)( E) which imposes an obligation only to minimize mutual exclusivity ‘in the public interest’ and ‘within the framework of existing policies. ’” 57 In the past, the Commission has found with respect to many services that the adoption of a licensing scheme that results in the filing of mutually exclusive applications encourages efficient use of the spectrum as mandated by Section 309( j)( 3). 58 In other instances, the Commission has determined that a licensing approach that avoids mutual exclusivity, e. g., site- based, first- come, first- served licensing, best serves the public interest. For instance, we recently decided to license certain bands of spectrum designated for Multiple Address Systems (“ MAS”) on a first- come, first- served, site- by- site basis. 59 We conclude that the Balanced Budget Act did not change the nature of the public interest analysis required of the Commission when deciding the licensing process for a particular service. Therefore, in establishing processes for assigning initial licenses, the Commission will continue to fulfill its obligation under Section 309( j)( 6)( E) and consider the public interest goals of Section 309( j)( 3). 26. We emphasize that our conclusion applies to decisions regarding the licensing of existing services as well as future services. We recognize that many private wireless licensees contend that we should avoid auctioning private wireless spectrum that is currently licensed through processes that avoid mutual exclusivity. 60 These commenters assert that where the Commission has used licensing methods in the private services that avoid the filing of mutually exclusive applications (e. g., first- come, first- served licensing, shared use, frequency coordination), the Balanced Budget Act requires us to continue using these methods and prohibits us from converting to licensing methods that would result in mutual exclusivity. 61 27. We reject this interpretation of the statute. Prohibiting the Commission from considering 57 Id. (citations omitted) (citing DIRECTV, Inc. v. FCC, 110 F. 3d 816, 828 (D. C. Cir. 1997). 58 See, e. g., Amendment of Part 90 of the Commission’s Rules to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band, PR Docket No. 93- 144, Memorandum Opinion and Order on Reconsideration, 12 FCC Rcd 9972, 10009- 10010 ¶ 115 (1997). 59 MAS Report and Order, 15 FCC Rcd at 11,973- 74 ¶ 45. See also Commercial Broadcast Competitive Bidding First Report and Order, 13 FCC Rcd at 15,920 ¶ 17 (allowing a limited period for engineering solutions or settlements by competing applicants). 60 See, e. g., AAA Comments at 6 (“ the existing system has worked well for private radio licensees, generally enabling widespread and efficient use of shared channels by many different users without interference.”); API Comments at 16; API Reply Comments at 3- 4; Blooston Comments at 7- 10; ITA Comments at 24; ITA Reply Comments at 4; Blooston Comments at 10 (“[ t] he current system of frequency coordination and first- come, first- served filing is fast, efficient and rarely results in mutual exclusivity”); Boeing Comments at 4-8; Boeing Reply Comments at 1- 3; CellNet Comments at 6- 9; CellNet Reply Comments at 2- 4; Cinergy Reply Comments at 2- 3; ComEd Reply Comments at 2- 3; CSAA Reply Comments at 4; Entergy Reply Comments at 2- 3; FIT Comments at 1- 4; Intek Comments at 4- 5; ITA Comments at 4- 7; ITA Reply Comments at 2- 5; Kenwood Comments at 3- 5; LMCC Comments at 3- 6; Mark IV Comments at 5, 10- 11; Motorola Comments at 7- 8; Motorola Reply Comments at 2; MRFAC Comments at 5; NTCC Comments at 2- 5; PCIA Comments at 2- 4; SCANA Reply Comments at 2- 3; Trimble Comments at 3- 6. 61 See, e. g., API Comments at 16; Blooston Comments at 7 (“[ t] he express language of Section 309( j), and its legislative history, unequivocally establish that the Commission is obligated to preserve the shared use licensing methodology in the private internal radio services”); Blooston Reply Comments at 3; Boeing Comments at 4- 8; Boeing Reply Comments at 1- 3; CellNet Comments at 6- 9; CellNet Reply Comments at 2- 4; ITA Comments at 4- 6; 14 Federal Communications Commission FCC 00- 403 15 changes to licensing methodologies applicable to existing services would contravene the intent of the Balanced Budget Act and restrict the Commission’s ability to act in the public interest. 62 Thus, we believe it remains fully within the Commission’s authority to convert from a licensing method that avoids mutual exclusivity to one that is based on mutual exclusivity and auctions, as we have done in the case of certain services in the past. 63 At the same time, as discussed below, we believe that in order for this option to be considered in any service, the Commission, as part of its public interest analysis, should give significant consideration to the effectiveness of existing licensing mechanisms that avoid mutual exclusivity, and should weigh the potential costs of changing such mechanisms against the potential benefits. 2. License Scope 28. Background. In the Notice, the Commission sought comment on whether the use of geographic area licensing for non- exempt private radio services would further the public interest goals of Section 309( j)( 3). 64 We solicited comment on the costs and benefits of implementing geographic area licensing in the private radio frequency bands and asked whether licensing schemes other than geographic area licensing would better serve the public interest. 65 In deciding if geographic area licensing would be appropriate for a given radio service or class of frequencies, we asked whether we should consider the actual purpose for which the spectrum is used or proposed to be used, as well as the purpose for which the spectrum is currently allocated. 66 We inquired whether the use of geographic area licensing would speed the assignment of new channels and facilitate further build- out of wide- area systems. 67 We also suggested that the shared private service bands may be so heavily used that adopting a geographic area licensing scheme may not serve any purpose because so little “white space” would be available to geographic area licensees that there would be no interest in applying for the geographic area licenses. 68 The Commission further sought comment on the likely effects of geographic area licensing on incumbent systems and potential new entrants for private radio services. 69 62 See Benkelman Telephone Co., et al. v. FCC, 220 F. 3d 601, 606, petition for rehearing on other grounds pending (D. C. Cir. 2000) (Section 309( j)( 6)( E) imposes an obligation only to minimize mutual exclusivity in the public interest and within the framework of existing policies); Orion Communications Ltd. v. FCC, 213 F. 3d 761, 763 (D. C. Cir. 2000) (notwithstanding other means of avoiding mutual exclusivity, “the statute cannot be read to direct the FCC to adopt all other means available”). 63 See, e. g., Amendment of Part 90 of the Commission's Rules to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band, PR Docket No. 93- 144, Second Report and Order, 12 FCC Rcd 19079 (1997); Amendment of the Commission's Rules Regarding the 37.0- 38.6 GHz and 38.6- 40.0 GHz Bands, ET Docket No. 95- 183, Report and Order and Second Notice of Further Rule Making, 12 FCC Rcd 18600 (1997)(“ 39 GHz Report and Order”). 64 Notice, 14 FCC Rcd at 5241 ¶¶ 66- 67. 65 Id. 66 Id. at 5241- 5242 ¶ 69. 67 Id. at 5241 ¶ 67. 68 Id. 69 Id. 15 Federal Communications Commission FCC 00- 403 16 29. Discussion. The Commission has previously concluded with respect to many commercial services that geographic area licensing is a highly efficient licensing scheme. 70 Among other benefits, it facilitates aggregation by licensees of smaller service areas into seamless regional and national service areas, allows development of strategic and regional business plans, provides licensees with greater build-out flexibility and is efficient for the Commission to administer. Our decisions to establish geographic area licensing in commercial services have been based on our commitment to serve the public interest as required by Section 309( j)( 3). 30. Private wireless licensees generally urge the Commission to retain the current non- geographic licensing schemes employed in the private radio bands. 71 They assert that existing methodologies based on first come/ first served, site- by- site licensing, and frequency coordination effectively serve the communications needs of private radio licensees. 72 They further argue that geographic area licensing would be inappropriate and counterproductive in the private radio bands. 73 Private wireless licensees state that unlike commercial service providers that seek to offer the widest possible coverage, the majority of private 70 See, e. g., Revision of Part 22 and Part 90 of the Commission's Rules to Facilitate Future Development of Paging Systems, WT Docket No. 96- 18, Second Report and Order and Further Notice of Proposed Rulemaking, 12 FCC Rcd 2732, 2744 ¶ 15 (1997). In addition, in the rule making proceeding implementing competitive bidding to award licenses in the 39 GHz band, the Commission concluded that predetermined service areas provide a more orderly structure for the licensing process and foster efficient utilization of the spectrum in an expeditious manner. 39 GHz Report and Order, 12 FCC Rcd at 18647 ¶ 101. See also 800 MHz Second Report and Order, 12 FCC Rcd 19079, 19087 ¶ 10. 71 See, e. g., Advocacy Comments at 2- 3; API Comments at 12- 14; API Reply Comments at 3- 4; Blooston Comments at 7- 10; Blooston Reply Comments at 3- 4; Boeing Comments at 4- 8; Boeing Reply Comments at 1- 3; CellNet Comments at 7- 9; CellNet Reply Comments at 2- 4; Cinergy Comments at 8, 11; Cinergy Reply Comments at 2- 3; ComEd Comments at 9, 13; ComEd Reply Comments at 2- 3; CSAA Reply Comments at 4; Entergy Comments at 8, 11; Entergy Reply Comments at 2- 3; FIT Comments at 1- 4; ICA Comments at 2, 4; Intek Comments at 4- 6; ITA Comments at 4- 7; ITA Reply Comments at 2- 5; Kenwood Comments at 3- 5; LMCC Comments at 3- 6; Mark IV Comments at 5, 10- 11; Motorola Comments at 7- 8; Motorola Reply Comments at 2; MRFAC Comments at 5; NTCC Comments at 2- 5; PCIA Comments at 2- 4; SBT Reply Comments at 2, 7- 8, 26; SCANA Comments at 9, 12- 13; SCANA Reply Comments at 2- 3; Trimble Comments at 3- 6; UEC Comments at 8, 11; UTC Comments at 20. 72 See, e. g., AAA Comments at 6; Advocacy Comments at 3; API Comments at 12- 14; Blooston Comments at 7- 12; Blooston Reply Comments at 3- 4; Boeing Comments at 4- 8; Boeing Reply Comments at 1- 3; CellNet Comments at 7- 9; CellNet Reply Comments at 2- 4; Cinergy Comments at 9, 11; Cinergy Reply Comments at 2- 3; ComEd Comments at 11, 13; ComEd Reply Comments at 2- 3; Entergy Comments at 9, 11; Entergy Reply Comments at 2- 3; FIT Comments at 1- 4, 7; Ford Reply Comments at 8; ICA Comments at 2, 4; Intek Comments at 4- 6; ITA Comments at 24; ITA Reply Comments at 4; Kenwood at 3- 5; LMCC Comments at 3- 6; Motorola Comments at 7- 8; Motorola Reply Comments at 2; NTCC Comments at 2- 3; PCIA at 2- 4; PIRSC Comments at 19; SCANA Comments at 10, 13; SCANA Reply Comments at 2- 3; UEC Comments at 9, 11; UTC Comments at 20- 21; UTC Reply Comments at 3. 73 See, e. g., API Comments at 12- 14; Blooston Comments at 7- 12; Blooston Reply Comments at 3- 12; CellNet Comments at 8- 9; CellNet Reply Comments at 2- 4; Cinergy Comments at 10- 11; ComEd Comments at 12- 13; Entergy Comments at 10, 11; FIT Comments at 4- 7; ICA Comments at 3; Intek Comments at 5; ITA Comments at 16- 17; LMCC Comments at 4- 5; MRFAC Comments at 5; SBT Reply Comments at 3; SCANA Comments at 11- 12; UEC Comments at 10- 11; UTC Comments at 20- 21; UTC Reply Comments at 4. 16 Federal Communications Commission FCC 00- 403 17 radio licensees are interested in tailoring their operations to specific geographically confined needs. 74 These licensees point out that they serve themselves in the areas in which they conduct their core activities, not the public at large across broad market areas. 75 A number of commenters also argue that the use of geographic area licensing violates Section 309( j)( 6)( E), claiming that it creates mutual exclusivity rather than avoids it. 76 31. As discussed above, we have concluded that Section 309( j)( 6)( E) does not prevent the Commission from adopting licensing processes, such as geographic area licensing, that serve the public interest but happen to result in the filing of mutually exclusive license applications. 77 We have also rejected commenters’ arguments that the Commission is required by the Balanced Budget Act to retain current site-based licensing schemes in existing private services. 78 Nonetheless, we recognize, as many commenters have pointed out, that the decision to convert from current site- based licensing methods to geographic licensing should not be made unless it is clear that the benefits of making the change outweigh the costs. 79 Based on the record in this proceeding, we see no reason to make such an across- the- board change to existing licensing processes in private services. Therefore, we will not adopt geographic area licensing rules for existing private services in this rulemaking. Instead, with respect to private services, the Commission will continue to make determinations on a service- by- service basis of whether to adopt geographic area licensing, site- by- site licensing, or any other licensing scheme based on its obligation under Section 309( j)( 6)( E) and the public interest considerations of Section 309( j)( 3). 32. We recognize that some private licensees oppose geographic area licensing because they equate it with the use of competitive bidding, which they strongly oppose in the private services. 80 Blooston, for example, contends that the adoption of auctions in private services would make it difficult for many traditional private users to obtain licenses because they would be unable to outbid commercial service 74 See, e. g., API Comments at 12- 14; Blooston Comments at 7- 12; Blooston Reply Comments at 3- 4; CellNet Comments at 8- 9; Cinergy Comments at 9; ComEd Comments at 11; Entergy Comments at 9; MRFAC Comments at 5; SCANA Comments at 10- 11; UEC Comments at 9. 75 See, e. g., API Comments at 12- 14; Blooston Comments at 8, 10- 12; Blooston Reply Comments at 3- 4; CellNet Comments at 8- 9; MRFAC Comments at 5; 76 See, e. g., AAR Comments at 7- 8; API Comments at 16; Blooston Comments at 7, 10- 12; Blooston Reply Comments at 3; Boeing Comments at 4; Boeing Reply Comments at 3; CellNet Comments at 7; CellNet Reply Comments at 3; Intek Comments at 5; ITA Comments at 6. 77 See Section III. B. 2. supra (discussing obligation to avoid mutual exclusivity under Section 309( j)( 6)( E)). Furthermore, even where we decide in a specific service that it is in the public interest to continue site- by- site licensing, such a decision does not necessarily preclude the use of auctions where competing applicants seek to operate at the same site on the same frequency. See Commercial Broadcast Competitive Bidding First Report and Order, 13 FCC Rcd 15920. 78 See supra ¶¶ 25- 27. 79 See e. g., Blooston Comments at 10- 17; 80 See, e. g., Blooston Comments at 5- 13; CellNet Comments at 7- 9; Cinergy Comments at 11; ComEd Comments at 13; Entergy Comments at 11; ITA Comments at 10; SBT Reply Comments at 26; SCANA Comments at 12- 13; UEC Comments at 11; UTC Reply Comments at 1. 17 Federal Communications Commission FCC 00- 403 18 providers seeking to use the spectrum for subscriber- based services. 81 This view incorrectly assumes that if the Commission were to adopt geographic area licensing for private radio services, it would also eliminate eligibility restrictions for such services and permit commercial entities to bid for private spectrum for commercial use. In fact, with one limited exception in the 800 MHz band, 82 we have concluded that we should not change existing eligibility and use rules for services that are currently restricted to private radio eligibles. 83 33. Moreover, even where we choose to retain eligibility restrictions on private spectrum, there may be ways in which geographic licensing could be employed to accommodate the needs of private radio users. For example, as noted above, we intend to use the framework adopted in this Report and Order to guide our decisions in regard to the separate Notice of Proposed Rule Making in which we are proposing to transfer 27 MHz of spectrum in bands below 3 GHz to non- government use. 84 In addition, as discussed below, the use of band managers could be an effective means of providing private radio users the flexibility to obtain access to the amount of spectrum, in terms of quantity, length of time, and geographic area, that best suits their needs. 85 In addition, we could tailor our auction designs and procedures in ways that serve the specialized needs of the private wireless industry. 86 3. Band Manager Licenses 34. Background. In the Notice, we sought comment on whether to establish a new class of licensee called a “band manager” in the private radio services. 87 We described band managers in the Notice as a class of Commission licensee that engages in the business of making its spectrum available for use by others through private, written contracts. 88 We solicited comment on a broad range of issues relating to how band manager licenses should be defined, and whether the public interest would be served by using band manager licensing to address current and projected needs for private internal radio services. 89 We inquired whether the concept of a band manager fits within the Commission’s overall spectrum management responsibilities and obligations under the Communications Act. 90 We also asked a number of questions about whether and when a band manager licensing approach may be more effective relative to alternative 81 Blooston Comments at 13; see also Boeing Comments at 6- 7; PIRSC Comments at 13. 82 See Section III. C. 4. infra (discussing limited availability of B/ ILT channels in the 800 MHz band for use in CMRS systems). 83 See Section III. B. 2. infra (discussing eligibility requirements for auctionable services currently allocated for private radio use). 84 See 27 MHz Reallocation Order. 85 See infra ¶¶ 35- 50. 86 See infra ¶¶ 51- 61. 87 See Notice, 14 FCC Rcd at 5247- 49 ¶¶ 88- 95. 88 See id. at 5247 ¶ 89. 89 See id. at 5247- 48 ¶¶ 90- 92. 90 See id. at 5247- 48 ¶ 90. 18 Federal Communications Commission FCC 00- 403 19 methods of licensing private internal communications services. 91 Finally, we sought comment on a full range of license implementation issues, including whether it would be necessary to have more than one band manager in each geographic license area and what types of ownership and control requirements might be appropriate for band managers in the private services. 92 35. Discussion. For the reasons discussed below, we believe that band manager licensing is a viable mechanism that should be considered for licensing in spectrum allocated for the private services. 93 This Report and Order sets forth a framework to guide our determination in future proceedings concerning private services as to the circumstances under which we might use band manager licensing as an alternative or an addition to other licensing methods. We also review some of the considerations that we might take into account in defining a band manager’s rights and responsibilities in the context of particular services. We emphasize that this Report and Order does not adopt band manager licensing in any existing private service, nor do we make any specific decision to do so in any future service. Rather, we reserve for future service- specific rulemaking proceedings the question of whether to use band manager licensing in each case. Such determinations will be based on careful analysis of the public interest considerations of Section 309( j) of the Communications Act as they apply to the specific characteristics, uses, and demands of the service. 36. Since the Notice was adopted, we have implemented a form of band manager licensing for the first time in the 700 MHz Second Report and Order. 94 In that proceeding, we concluded that band manager licensing would be an effective and efficient way to manage the 700 MHz Guard Band spectrum while minimizing the potential for harmful interference to public safety operations in adjacent bands. 95 We 91 See id. at 5248 ¶ 92. 92 See id. at 5248- 49 ¶¶ 91- 94. 93 We also regard band manager licensing as an option to be considered in spectrum in which commercial services are authorized, as evidenced by our recent decision to license band managers in the 700 MHz guard bands. (The lessees of 700 MHz guard band spectrum may be either commercial service providers or private users.) In addition, we have sought comment on whether band managers licensing would be appropriate in the 3650- 3700 MHz band (and in the 4.9 GHz band should we find that the public interest supports the pairing of these bands). See Amendment of the Commission’s Rules With Regard to the 3650- 3700 MHz Government Transfer Band, ET Docket No. 98- 237; 4.9 GHz Band Transferred from Federal Government Use, WT Docket No. 00- 32, First Report and Order and Second Notice of Proposed Rule Making, FCC 00- 363 ¶ 81 (rel. Oct. 24, 2000). However, because licensees in commercial services typically operate with fewer restrictions and in a more market- driven environment than private licensees, there may be less need in some commercial services to designate band managers as a specific “class” of licensees. Instead, a potential issue is the degree to which all commercial licensees should have the option to use some or all of their spectrum in the same manner as a band manager, i. e., to make spectrum available to third party users without the need for prior Commission approval, while retaining primary responsibility for compliance with the Commission's rules. We plan to address this issue more broadly in our upcoming secondary markets proceeding, which will address issues related to spectrum leasing in wireless services generally. See Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets, WT Docket No. 00- 230, Notice of Proposed Rule Making, FCC 00- 402 (adopted Nov. 9, 2000) (“ Secondary Markets Notice”) (Commission initiative to develop rules and policies to promote secondary markets in radio spectrum). Therefore, we defer further discussion of band managers in the commercial services context to that proceeding. 94 See 700 MHz Second Report and Order, 15 FCC Rcd at 5311- 12 at ¶ 26. 95 Id. at 5313 ¶ 30. 19 Federal Communications Commission FCC 00- 403 20 also found that band manager licensing in the 700 MHz guard bands would enable parties to more readily acquire spectrum with a minimum of Commission involvement. 96 We adopted licensing rules for Guard Band Managers that were based on specific policy objectives that we considered relevant to those bands. To ensure that Guard Band Managers would make their spectrum available to third parties, we required that Guard Band Managers act solely as spectrum brokers, prohibited them from using spectrum for their own private internal communications or to provide telecommunications services, and limited the amount of spectrum that they may lease to affiliated entities. 97 To further our objective of making the 700 MHz guard band spectrum available to a wide range of users, we adopted certain requirements to ensure fair and nondiscriminatory access to the spectrum by potential users. 98 37. Our recent adoption of Guard Band Manager licensing in the 700 MHz proceeding should help guide us in evaluating whether to adopt band manager licensing in future proceedings. 99 Nevertheless, a number of private radio commenters in the present proceeding argue that band manager licensing of private services is contrary to the public interest. 100 We agree that the use of band managers in spectrum restricted to private services may raise different issues from those that led to our decision for the 700 MHz guard band spectrum, which was open to all users, including commercial service providers and private radio eligibles. 101 There may be instances where we determine that band manager licensing is not appropriate, and where band manager licensing is adopted, we may adopt rules governing band manager activity that differ from those applicable to Guard Band Managers. As discussed below, however, we reject the view that band managers are inappropriate for private services generally. 38. A principal argument advanced by opponents of band manager licensing in private services is that in comparison to other licensing methods, band manager licensing will necessarily make it more difficult and costly for private spectrum users to obtain spectrum. 102 We do not agree. Band manager licensing is a potential response to the underlying scarcity of spectrum for private radio services. Repeatedly, we have recognized this problem and have attempted to address it through regulatory initiatives aimed at increasing spectral and economic efficiencies in the use of private radio spectrum. 103 In the absence of market- based mechanisms to promote efficient spectrum use, however, private radio spectrum has become congested and “users have little incentive to use that resource more efficiently because any privately initiated attempt to improve efficiency would confer benefits on all users of the shared spectrum, 96 See id. 97 See id. at 5324- 26 ¶¶ 56- 60. 98 See id. at 5327- 28 ¶¶ 63- 67. 99 See id. at 5311- 23 ¶¶ 25- 51. 100 See Boeing Comments at 11; FIT Comments at 6; RRS Comments at 7; SBT Comments at 21; API Reply Comments at 7. 101 We note that, even if we choose to restrict band managers in a particular service to lease only to private radio eligibles for permissible private uses, a band manager would still be considered to be engaged in a commercial activity. 102 See generally Boeing Comments at 10- 14; Western Resources 4- 5; AWWA Comments at 9. 103 See, e. g., Refarming Proceeding. 20 Federal Communications Commission FCC 00- 403 21 with only a fraction of these benefits accruing to the party undertaking the effort.” 104 By contrast, band manager licensing is a market- based mechanism that can create incentives for efficient spectrum use. Because band managers would be able to charge private users for spectrum use, users would likely be discouraged from engaging in spectrally inefficient and low value uses. In addition, band managers may realize greater economies of scale than existing private radio licensees. Finally, as in the case of the 700 MHz guard bands, we have the option of licensing more than one band manager in each license area, if we think it important to ensure that potential spectrum users have a choice of band managers. These factors will help ensure that efficiencies and cost savings associated with band manager licensing are passed on to private spectrum users. 39. We also disagree with the view that band manager licensing inevitably results in a concentration of private spectrum in the hands of a few licensees while depleting the spectrum available to others. 105 To the contrary, we believe that band manager licensing can increase the diversity of users of private spectrum. With a band manager, different types of spectrum users would have broad flexibility to satisfy their particular spectrum needs with fewer transactional costs and regulatory burdens than are associated with acquiring a full- term license under the Commission’s existing license assignment and partial assignment procedures. Because band manager licensing may result in different types of users being able to access the same spectrum, we believe that this mechanism is consistent with the congressional intent underlying Section 309( j) ’s directive to encourage diversity in licensing. 106 40. In addition to allowing for wider variety of users, band manager licensing is intended to facilitate apportionment of spectrum in a more dynamic fashion than existing licensing procedures permit, thus making spectrum more responsive to market demands and technological changes. 107 We note that the marketplace is increasingly responding to such demands, with system operators increasingly offering services that have historically been provided only over private radio frequencies. 108 Band manager licensing is likely to accelerate this trend toward more efficient use of private radio spectrum. Rather than deplete spectrum, band manager licensing approaches will be developed with the objective of affording spectrum users additional options to access spectrum to meet their particularized needs. 41. In light of these considerations, we find no merit in SBT’s assertion that band manager licensing would be “an economic disaster for local users” and small businesses. 109 We see no reason to 104 Gregory L. Rosston & Jeffrey S. Steinberg, Using Market- Based Spectrum Policy to Promote the Public Interest, 50 Fed. Comm. L. J. 87, 109 (1997)(“ Market- Based Spectrum Policy”). 105 See, e. g., Blooston Reply Comments at 10- 11; SBT Comments at 23; Boeing Comments at 11. 106 See 47 U. S. C. §309( j)( 3)( B). 107 See Principles for Reallocation of Spectrum To Encourage the Development of Telecommunications Technologies For the New Millenium, Policy Statement, 14 FCC Rcd 19,868, 19,871- 72 ¶ 12 (1999)(“ Spectrum Policy Statement”). 108 Some commenters note that they are increasing relying on commercial service providers to supply some of their communications needs. See, e. g., AAR Reply Comments at 9. On a similar note, News Corp. has unveiled plans to develop set- top boxes capable of linking electric meters to networks, a telemetry function which has historically been handled wirelessly via private radio spectrum. See “Murdoch Sees Satellites as Way to Keep News Corp. Current,” New York Times C1, C7 (June 16, 2000). 109 See SBT Comments at 18. 21 Federal Communications Commission FCC 00- 403 22 believe that small businesses would not be awarded band manager licenses. Indeed, in our recently-concluded auction of 700 MHz Guard Band Manager licenses, five of the nine winning bidders claimed small business status. 110 When licenses are awarded through competitive bidding, the Commission may – and usually does – award bidding credits and other preferences to small businesses. 111 We also disagree with SBT’s assertion that band managers would have no incentive to deal with small businesses. Band managers would be in the business of marketing and providing access to spectrum directly to eligible entities, which would give rise to economic incentives to intensively use the spectrum and permit access to as many users and types of users as possible. 42. Some commenters argue that band manager licensing is an improper delegation of the Commission’s spectrum management and licensing authority under the Communications Act. 112 We previously concluded in the 700 MHz guard band proceeding that band manager licensing is fully consistent with our statutory spectrum management obligations. 113 For a number of reasons, we continue to believe that conclusion is correct, and we reiterate it today. First, because band managers are to be licensed and regulated by the Commission, the Commission fulfills its statutory obligation under Section 309( a) to determine whether licensing of spectrum will serve the public interest, convenience, and necessity. 114 Second, we do not regard the creation of band managers as an improper delegation of our regulatory authority over the use of spectrum. Band managers must operate and make spectrum available subject to the Commission’s rules and oversight. Allowing band managers to make frequencies available to end users is analogous to the present frequency coordination process that requires applicants in some private services to use a frequency coordinator to select a frequency that will most effectively meet the applicant’s needs while minimizing interference to licensees already using a given frequency band. 115 We view band managers as engaging in activities similar to those of a coordinator, though with greater rights and responsibilities to manage the spectrum covered by its license, consistent with technical limitations and other regulations for the licensed radio bands. 43. We also reject the view that band manager licensing is inherently inconsistent with the requirements of Section 310( d) of the Communications Act. 116 Section 310( d) prohibits the transfer of a radio license or any rights thereunder without Commission approval. 117 Generally speaking, one of the 110 See “700 MHz Guard Band Auction Raises $519,892,575.00,” News Release (Sept. 21, 2000). Additional information on the results of this auction may be found on the Commission’s Auctions Web page: . 111 See 47 C. F. R. §1.2109( e). 112 See Cinergy Comments at 25; ComEd Comments at 26; Entergy Comments at 24; SCANA Comments at 26- 27; SBT Comments at 19; Ameren Comments at 25; Boeing Reply Comments at 3; Blooston II Reply Comments at 11. See generally AWWA Comments at 9; PIRSC Comments at 18. 113 See 700 MHz Second Report and Order, 15 FCC Rcd at 5319- 21 ¶¶ 42- 47. 114 See 47 U. S. C. § 309( a)( Commission authority to grant applications found to serve the public interest, convenience, and necessity). 115 See 700 MHz Second Report and Order, 15 FCC Rcd at 5320- 21 ¶ 45. 116 See 47 U. S. C. §§ 310( d). See also id. at 5321 ¶ 46. 117 47 U. S. C. §§ 310( d). In any examination of control, the Commission considers both legal (de jure) and actual (de facto) control. 22 Federal Communications Commission FCC 00- 403 23 Commission’s primary concerns in any analysis under Section 310( d) is to determine what party or parties may be held accountable for activities undertaken pursuant to a Commission license. 118 In the 700 MHz Second Report and Order, we concluded that our Guard Band Manager rules allowing licensees to lease spectrum to third parties were consistent with the requirement that licensees retain ultimate control of their licenses. 119 For example, we provided Guard Band Managers with full authority and the duty to take whatever actions are necessary to ensure third- party compliance with the Act and our rules. 120 We also stated that a Guard Band Manager has the right to suspend or terminate its lessee’s operations if the lessee’s system is causing harmful interference or otherwise violating Commission rules. 121 We believe that the approach taken in the 700 MHz Guard Band proceeding demonstrates that band manager licensing can be implemented consistently with the requirements of Section 310( d). To the extent that we adopt alternative models for band manager licensing in future service- specific proceedings, we believe that issues relating to the statutory framework for such models can and should be addressed in those proceedings. 122 44. While we conclude that band manager licensing should be considered as an option in the licensing of private services, we recognize that there are also arguments in favor of retaining the current 118 Id. For example, in the case of broadcast auxiliary facilities, the Commission has emphasized that it would hold the broadcast licensee responsible for any interference or misuse of the facilities that occurs during operation by the non- licensed user. See Amendment of Part 74, Subpart F of the Commission's Rules to Permit Shared Use of Broadcast Auxiliary Facilities with Other Broadcast and Non- broadcast Entities and to Establish New Licensing Policies for Television Broadcast Auxiliary Stations, BC Docket No. 81- 794, Report and Order, FCC 83- 153, at 12, 53 Rad. Reg. 2d (P & F) 1101, 1983 WL 183062 (1983). The principle of licensee responsibility may be found throughout the Commission’s rules. See, e. g., Implementation of Section 3( n) of the Communications Act – Regulatory Treatment of Mobile Services, GN Docket No. 93- 252, Second Report and Order, 9 FCC Rcd 1411, 1430- 31 (1994); 47 C. F. R. §§ 90.179( b)( licensee of shared radio station is responsible for assuring that facility is used in compliance with Commission rules); 21.13( f)( licensee must retain effective control where day- to- day management and operation of facilities are carried out by manager). We emphasize, however, that any analysis of de facto control over a band manager license must be considered in the context of this unique licensing scheme, and our express authorization of these activities pursuant to a band manager license application. 119 See 700 MHz Second Report and Order, 15 FCC Rcd at 5321 ¶ 46. We also required Guard Band spectrum use agreements to contain provisions under which the spectrum lessee agrees to comply with all applicable Commission rules, accept FCC oversight and enforcement consistent with the Guard Band Manager's license, and cooperate fully with any investigation or inquiry conducted by either the Commission or the Guard Band Manager. Id. These provisions ensure that the Commission has an additional means of enforcing its rules directly against the lessee. They do not, however, diminish the rights or obligations of the Guard Band Manager to exercise control as licensee. 120 Id., 15 FCC Rcd at 5322- 23 ¶ 50. 121 See 700 MHz Second Report and Order, 15 FCC Rcd at 5322- 23 ¶ 50. We also required Guard Band spectrum use agreements to contain provisions under which the spectrum lessee agrees to comply with all applicable Commission rules, accept FCC oversight and enforcement consistent with the Guard Band Manager's license, and cooperate fully with any investigation or inquiry conducted by either the Commission or the Guard Band Manager. Id. These provisions ensure that the Commission has an additional means of enforcing its rules directly against the lessee. They do not, however, diminish the rights or obligations of the Guard Band Manager to exercise control as licensee. 122 We also address issues relating to Section 310( d) as it applies to spectrum leasing in our secondary markets proceeding. See Secondary Markets Notice at ¶¶ 70- 82. 23 Federal Communications Commission FCC 00- 403 24 site- by- site licensing approach in existing private radio services, as many commenters advocate. 123 Commenters raise legitimate concerns about the costs to spectrum users, both in terms of financial costs and delays in making spectrum accessible, that may be associated with changing a licensing scheme in an existing service. In light of these considerations, we have no plans at this time to implement band manager licensing in existing private radio bands that are licensed on a site- by- site basis. 124 We will continue to evaluate this issue on an ongoing basis, however. As many of the commenters who oppose band manager licensing acknowledge, demand for private radio spectrum is increasing and available spectrum is scarce. 125 Thus, while existing licensing schemes in the private radio services may tend to avoid mutually exclusive applications, such approaches may also raise barriers to new demands for access to private radio spectrum that may have significant public benefits. Compared with transactional costs and time periods associated with acquiring a full- term license under the Commission’s existing licensing regimes, band manager licensing may have advantages because band managers may be able to complete frequency coordination and authorize wireless operations with significantly lower transactional costs and in less time. A number of commenters have observed that past Commission initiatives, such as refarming and authorization of infrastructure sharing, have increased spectral efficiency in the private radio services. 126 We believe that band manager licensing is another method that under some circumstances can help us progress towards greater efficiency in the use of private radio bands. 127 123 See, e. g., PCIA Comments at 2- 5; SBT Reply Comments at 17; API Reply Comments at 7. 124 Our experience is that the use of geographic overlay licenses in private radio services may promote spectrtum efficiency. See, e. g., Refarming Report and Order, 10 FCC Rcd at 10138- 39 ¶¶ 141- 143. Indeed, one may conceive of many scenarios under which this flexible licensing tool might be employed to alleviate congestion in encumbered frequency bands. By way of illustration, a band manager overlay licensee might aggregate unencumbered spectrum from one band with spectrum leased from an incumbent licensee in another frequency band within in its geographic license service area. The band manager could then lease the aggregated spectrum to third parties. This is not to imply that the incumbent would suffer a degradation in service, as the band manager might provide the incumbent with equipment that is more spectrally efficient or might offer to operate the incumbent’s system over other licensed frequencies as part of its bargain, provided such uses are otherwise consistent with the Commission’s rules. 125 See, e. g., Cinergy Comments at ii (“ Private radio spectrum is already insufficient to meet the needs of eligibles…”); API Comments at 22; PCIA Comments at 21- 22; Motorola Comments at 9. 126 See Motorola Comments at 9; NTCC Comments at 7- 8. 127 Indeed, we are currently considering a proposal advanced by the Association of American Railroads under which a large number of incumbent private radio licenses would be aggregated into a single band manager- type license. See “Wireless Telecommunications Bureau Seeks Comment on Association of American Railroads Petition for Modification of Licenses for Use in Advanced Train Control Systems and Positive Train Control Systems,” Public Notice, DC 00- 1171 (rel. May 26, 2000)( seeking authority to modify 1069 land mobile base stations using six 900 MHz channel pairs into single geographic license whose total area would be defined as a 140- mile zone centered on the rights- of- way of all operating rail lines in the United States). We also note that some public safety and private radio users have been required to seek regulatory relief from certain regulatory requirements in order to have the flexibility to engage in some of the types of arrangements that might be accommodated under a band manager licensing. See, e. g., “Wireless Telecommunications Bureau Seeks Comment on Western Resources, Inc. Request for Waiver to Permit Sharing of Its 900 MHz Industrial and Land Transportation Trunked Radio System With Public Safety Users,” Public Notice, DA 00- 1405 (rel. June 23, 2000). 24 Federal Communications Commission FCC 00- 403 25 45. While we are hopeful that band manager licensing can yield efficiencies in existing spectrum use, we also agree with private radio users that this is a complement to rather than a substitute for pursuing new spectrum allocations. 128 We therefore intend to continue to explore the need for new spectrum allocations to address the needs of private and public safety users. We also believe that band manager licensing should be carefully considered as a licensing option for newly- allocated spectrum. For example, we have recently initiated a proceeding to reallocate 27 MHz of spectrum in bands below 3 GHz from Federal Government to non- government use, and have sought comment on proposals for band manager licensing in portions of that spectrum. 129 46. We also believe that band manager licensing can be structured to prevent the types of problems that some commenters contend will occur, including problems of interference, 130 loss of spectrum efficiency, 131 and inadequacy of user access and service. 132 Although the rights and obligations of band managers may vary somewhat from service to service, we anticipate that band managers will generally have economic incentives to eliminate interference so as to ensure that end users receive quality service. Band managers will also be required to coordinate the use of frequencies among end user clients to minimize interference, and will be obligated to ensure that their lessees satisfy the interference protection requirements set forth in the Commission’s rules both as to incumbent private radio licensees and licensees in adjacent frequency bands. Band managers will also be responsible for resolving interference conflicts among their customers and, in the first instance, among their customers and neighboring users of spectrum licensed to other band managers or other licensees. We have recognized that one way to allow greater flexibility in the use of spectrum is to permit licensees to negotiate arrangements among themselves to control interference rather than rely on mandatory technical rules. 133 47. Band managers also have the potential to promote more efficient use of their licensed spectrum due to their financial incentive to maximize spectral efficiency and use. This incentive is likely to encourage band managers to reach private commercial agreements with incumbents, other band managers and adjacent licensees on effective spectrum management. The band manager will be responsible for managing a significant portion of spectrum and will attempt to maximize its use by finding additional third party users. In this way, band manager licensing may achieve greater efficiencies than existing licensing schemes in appropriate circumstances. Similarly, we find little merit in assertions that band managers will engage in unfair or discriminatory behavior 134 and warehouse spectrum. 135 We are confident that band managers will have incentives to open the use of the spectrum for all eligible users. Nonetheless, we will 128 Some commenters support the use of band manager licensing only for new spectrum allocations. See, e. g., USMSS Comments at 14; Joint Filers Comments at 21- 22. 129 See 27 MHz Reallocation Order at ¶¶ 26, 31- 32. 130 See, e. g., UTC Comments at 41. 131 See, e. g., AWWA Comments at 9. 132 See, e. g., id. at 8- 9. 133 See Spectrum Policy Statement, 14 FCC Rcd at 19,870- 71 at ¶ 9. 134 See, e. g., API Comments at 17; SBT Comments at 18; Cinergy Comments at 25; Entergy Comments at 25; SCANA Comments at 27; Ameren Comments at 26; ComEd Comments at 28. 135 See SBT Comments at 17; OSC Comments at 1. See generally API Reply Comments at 7. 25 Federal Communications Commission FCC 00- 403 26 consider whether it is appropriate for band managers in other bands to be subject to the same types of rules as 700 MHz Guard Band Managers regarding fair and nondiscriminatory access to the band manager’s spectrum, and limits on the type of restrictions that band managers may impose on their customers’ use of the spectrum. 136 If circumstances warrant, moreover, the Commission might consider imposing reasonable access standards or other requirements to forestall anticompetitive behavior. 137 48. In assessing whether a band manager licensing mechanism may be appropriate for a specific private services band, we intend to look at a number of factors. For example, we might consider whether there are entities who can effectively perform the functions of a band manager, and whether other licensing options may be overly cumbersome or inefficient. Our decisions on whether and how to license band managers in other bands may also be guided by our experience with the 700 MHz Guard Bands. However, the band manager rules we adopt in other bands may differ in some or all respects from our Guard Band Manager rules. As an initial matter, if we decide to license band managers in other bands, we will determine whether the spectrum should be licensed exclusively to band managers or to band managers along with other types of licensees. In considering band manager licensing, we will decide whether the band manager may be solely a broker of spectrum or may also use its licensed spectrum for its own internal communications or to provide telecommunications services. 49. If we permit band managers to use their spectrum in addition to leasing it, we will also consider whether rules are needed to ensure that band managers continue to perform their core spectrum management functions. Thus, if we determine that a band manager will not be limited to acting as a spectrum broker, we will also consider whether it is appropriate to limit the amount of spectrum that a band manager may retain for its own use. 138 In addition, we will consider whether to adopt rules concerning the types of entities that may lease spectrum from a band manager. For example, if we decide to limit the amount of spectrum that a band manager may employ for its own communications needs or service offerings, we might advance that regulatory objective by limiting the amount of spectrum that a band manager leases to affiliated entities. We may provide the band manager in a given band flexibility to lease its spectrum for a wide range of uses, including fixed or mobile, private or commercial radio services. Alternatively, we could adopt eligibility restrictions for the band managers similar to those we have historically adopted for licensees in existing private radio services. 139 50. We believe that the framework outlined above presents a workable set of guidelines in our future considerations of whether and how to license band managers in private radio services, and how to advance the policy objectives we establish for the bands under consideration. We emphasize that, where we find band manager licensing to be appropriate, we intend to seek input on how band manager licenses can 136 See, e. g., id. at 5327- 28 ¶¶ 63- 67 (establishing standards of fair and nondiscriminatory access for Guard Band Manager leasing activities). 137 In the 700 MHz proceeding, for example, we require Guard Band Managers to lease the predominant amount of their spectrum to non- affiliates. See 700 MHz Second Report and Order, 15 FCC Rcd at 5325 ¶ 59. We also remind licensees and spectrum users that state and federal antitrust and consumer protection laws may apply to their conduct. 138 See, e. g., id. at 5326 ¶ 59 (limiting amount of spectrum Guard Band Managers may lease to affiliates). 139 See, e. g., 47 C. F. R. §90.35( a) (eligibility for Part 90 licenses on Industrial/ Business Pool frequencies). 26 Federal Communications Commission FCC 00- 403 27 be most appropriately defined for the service in a manner that affords users the broad flexibility to access spectrum, maximizes efficient use of the spectrum, and yields greater benefits than site- by- site or other traditional licensing techniques. B. Auction Design for Private Radio Spectrum Deemed Subject to Auction 51. We next discuss issues of auction design and implementation for those services that were not subject to auction under the 1993 Budget Act but may be determined to be subject to auction under our revised auction authority. The services that may be determined to be subject to auction under our expanded auction authority are, by and large, private radio services which are presently licensed under procedures that generally do not result in the filing of mutually exclusive applications. Thus, we next consider issues of auction design and implementation for those services that may be subject to auction in the future. 1. Competitive Bidding Methodology and Design 52. Background. We have concluded above that Section 309( j), as amended by the Balanced Budget Act, gives the Commission authority to conduct auctions in the private services if, subject to its obligation to avoid mutual exclusivity, the Commission determines that the use of competitive bidding would serve the public interest. 140 In the event that the Commission adopts a licensing scheme that results in mutual exclusivity, the Commission seeks to develop a competitive bidding process that is tailored to the specific characteristics of the private radio services, the various purposes for which spectrum in those services is used, and the needs of the various types of entities holding licenses in those services. 141 In the Notice, we stated that Section 1.2103( a) of our rules sets forth the various types of auction designs from which we may choose to award licenses for services or classes of services subject to competitive bidding. 142 We also pointed out that under Section 309( j) the Commission has authority to design and test other auction methodologies. 143 In light of these options, we sought comment generally on the types of competitive bidding designs and methodologies to be considered for any private radio services that may be determined to be auctionable as a result of the Balanced Budget Act. 144 We also asked about the frequency with which we should conduct auctions of private radio services spectrum that we determine is auctionable, and whether we should conduct auctions at regularly scheduled intervals. 145 In addition, we asked whether certain procedures such as bidding credits and spectrum caps would be appropriate in the private radio 140 See Section III. A. 1. supra. 141 See Notice, 14 FCC Rcd at 5244 ¶ 77. 142 Id. at 5244- 45 ¶ 78; 47 C. F. R. § 1.2103( a). Alternative designs include: (1) sequential multiple-round auctions, using either oral ascending, remote and/ or on- site electronic bidding; and (2) sequential or simultaneous single round auctions, using either remote and/ or on- site electronic bidding, or sealed bids. See generally 47 C. F. R. § 1.2103( a). 143 Id. at 5244- 45 ¶ 78 (citing Amendment of Part 1 of the Commission’s Rules -- Competitive Bidding Procedures, WT Docket No. 97- 82, Order, Memorandum Opinion and Order and Notice of Proposed Rule Making, 12 FCC Rcd 5686, 5691 ¶ 6 (1997)). 144 Id. at 5245 ¶ 79. 145 Id. at 5245 ¶ 80. 27 Federal Communications Commission FCC 00- 403 28 services. 146 53. Discussion. Although we received little public comment on these issues, we believe that the specialized nature of private radio services merits consideration of changes to our general auction design and procedures. We intend to consider proposals to amend our competitive bidding methodology for specific private radio services on a service- by- service basis. We may, for instance, decide to implement procedures such as bidding credits, spectrum caps, and auctions at regularly scheduled intervals. We have provided bidding credits to eligible applicants in many of our previous auctions 147 and believe that applicants for licenses in the auctionable private radio services should also be eligible to receive such financial benefits provided they meet the necessary criteria. We further believe that scheduling auctions for licenses in the private services at regular intervals would be particularly beneficial to the private wireless industry. We recognized in the Notice that private internal radio service licensees using spectrum to conduct their day- to- day business operations may not be able to wait a significant amount of time to obtain authorizations for the frequencies they need to conduct their businesses. 148 Conducting auctions at regularly scheduled intervals of whatever spectrum we determine to be available in our inventory would ensure that private users have the opportunity to acquire the spectrum they need to operate their businesses. Further, we confirm our determination made in the Part I Third Report and Order to continue to define small businesses for purpose of private wireless auction rules based on the characteristics and capital requirements of the specific service. 149 2. Eligibility Requirements 54. Background. The Notice solicited comment on a broad range of questions relating to eligibility for participation in spectrum auctions for private radio services. 150 In particular, we sought comment on whether to restrict eligibility to participate in auctions for private wireless services so that we might be able to tailor a competitive bidding system to afford private wireless users reasonable opportunities to obtain sufficient spectrum to meet the needs of their day- to- day business operations. We requested comment on whether participation in private wireless spectrum auctions should be limited to certain types of entities, such as small businesses, non- commercial entities or public safety organizations, and whether to afford certain classes of applicants priority status in an auction. 55. Discussion. With respect to services that are currently restricted to private radio eligibles, we have no plans to change existing eligibility and use rules. Our decision of whether to use competitive bidding to assign licenses is independent of any determination relating to licensee eligibility. 146 Id. at 5247 ¶ 87. 147 See, e. g., Amendment of Part 1 of the Commission's Rules -- Competitive Bidding Procedures, WT Docket No. 97- 82, Allocation of Spectrum Below 5 GHz Transferred from Federal Government Use, ET Docket No. 94- 32, Third Report and Order and Second Further Notice of Proposed Rule Making, 13 FCC Rcd 374 (1997) (modified by Erratum, DA 98- 419 (rel. Mar. 2, 1998)) (adopting small business bidding credits). See also 47 C. F. R. § 1.2110 (definition of small business designated entities for purposes of FCC’s competitive bidding processes). 148 Notice, 14 FCC Rcd at 5245 ¶ 80. 149 See Part 1 Third Report and Order, 13 FCC Rcd at 388 ¶ 18. 150 See Notice, 14 FCC Rcd at 5245- 47 ¶¶ 81- 87. 28 Federal Communications Commission FCC 00- 403 29 56. As to newly allocated spectrum, we will make decisions on eligibility at the time we promulgate specific service rules for those bands. In recent years, the Commission has generally favored open eligibility rather than eligibility restricted to particular types of entities. We have taken this approach based on the finding that open eligibility generally promotes efficiency in spectrum markets and results in the award of licenses to those who value them most highly. 151 Nevertheless, we recognize that this general approach may not be appropriate in all cases and we may decide to restrict eligibility in particular cases if such restrictions are consistent with our spectrum management responsibilities under Section 309( j). 3. Processing of New Applications 57. Background. In the Notice, we posed a number of questions concerning the implementation of competitive bidding for services in which licenses will be assigned by auction for the first time. 152 In particular, we requested comment on measures that might be necessary to prevent applicants from using the current application and licensing processes to engage in speculative activity prior to our adoption of auction rules, such as temporary application freezes or interim rules imposing shorter time periods for construction or build- out. 153 58. Discussion. In the event we decide to adopt competitive bidding for a private radio service, we will continue to make service- by- service determinations as to whether to temporarily suspend acceptance of applications for new licenses, amendments, or major modifications, or adopt interim rules imposing shorter time periods for construction or build- out. Commenters uniformly oppose the use of application freezes, 154 noting that they can be disruptive to existing operations and can often last longer than initially anticipated. We are mindful that even short- term freezes have the potential to harm incumbents as well as potential new entrants and, by extension, the public. 155 59. We observe that the Commission has delegated authority to impose application filing freezes in the private wireless services to the Chief of the Wireless Telecommunications Bureau. 156 While we defer to 151 See generally Market- Based Spectrum Policy, at 92- 111. 152 See Notice, 14 FCC Rcd at 5249 ¶¶ 96- 97. 153 See id. 154 See, e. g., Cinergy Comments at 26- 27; UTC Comments at 24- 25; MRFAC Comments at 13; Ameren Comments at 26- 28; CellNet Comments at 17- 19; UTC Reply at 20- 22. 155 See, e. g., Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging Systems; Implementation of Section 309( j) of the Communications Act – Competitive Bidding, First Report and Order, 11 FCC Rcd 16,570, 16,581- 82 (1996). Thus, in declining requests to impose a freeze on certain private wireless license applications, we noted that we are “reluctant to freeze the acceptance of applications without evidence that there is a serious problem that cannot be resolved under current rules and procedures.” Replacement of Part 90 by Part 88 to Revise the Private Land Mobile Radio Services and Modify the Policies Governing Them and Examination of Exclusivity and Frequency Assignment Policies of the Private Land Mobile Services, PR Docket No. 92- 235, Second Memorandum Opinion and Order, 14 FCC Rcd 8642, 8649- 50 ¶ 14 (1999)( denying requests by API and UTC for imposition of freeze on channels adjacent to those used by Power or Petroleum Radio Services). 156 See 47 C. F. R. §§ 0.131; 0.331. Such decisions are procedural in nature and therefore not subject to the notice and comment requirements of the Administrative Procedure Act. See 5 U. S. C. §§ 553( b)( A); see also Neighborhood TV Co. v. FCC, 742 F. 2d 629, 637- 38 (D. C. Cir. 1984) (holding Commission's filing freeze is a (continued….) 29 Federal Communications Commission FCC 00- 403 30 the Bureau’s expertise and experience in making such determinations, we believe that the Bureau should be guided by a principle of using the least restrictive means available to deter speculative applications. Generally, the Bureau has carefully balanced the benefits and costs to incumbent users, new entrants and the public of applying such measures. 60. In exercising its delegated authority, the Bureau has generally refrained from imposing licensing freezes upon applications for private, internal use facilities on the grounds that such applications are not subject to the same speculative pressures that may be present in commercial contexts. 157 In commercial contexts our practice has been to temporarily suspend the acceptance of applications upon the adoption of competitive bidding rules and new geographic licensing schemes; 158 however, in the p