*Pages 1--198 from Microsoft Word - 31978* Federal Communications Commission FCC 03- 113 i Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets ) ) ) ) ) WT Docket No. 00- 230 REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: May 15, 2003 Released: October 6, 2003 Comment Date: December 5, 2003 Reply Comment Date: January 5, 2004 By the Commission: Chairman Powell and Commissioner Martin issuing a joint statement, Commissioners Abernathy and Adelstein issuing separate statements, Commissioner Copps dissenting and issuing a separate statement. TABLE OF CONTENTS Paragraph # I. INTRODUCTION....……………………………………………………………………………………………... 1 II. EXECUTIVE SUMMARY…….……………………………….……………………………………….. 8 A. Report and Order………..…………………………………………………………………………... 8 B. Further Notice of Proposed Rulemaking…………………………………………………………. 17 III. BACKGROUND……………………………………………………………………………………… 21 A. Policy Statement and NPRM on Secondary Markets……………………………………………... 21 B. Spectrum Policy Task Force Report……………………………………………………………… 26 IV. REPORT AND ORDER ...................................................................................................................... 32 A. Spectrum Leasing Arrangements in Wireless Radio Services....................................................... 32 1. Facilitating the Use of Spectrum Leasing Will Further the Public Interest............................. 34 a. Background....................................................................................................................... 34 b. Discussion......................................................................................................................... 39 2. Revising the Section 310( d) De Facto Control Standard for Spectrum Leasing .................... 46 a. Background....................................................................................................................... 46 b. Discussion......................................................................................................................... 51 (i) Rationale for revising the Section 310( d) de facto control standard for spectrum leasing ......................................................................................................... 54 (ii) Indicia of de facto control for spectrum leasing arrangements .................................. 64 (iii) Consistency of the new de facto control standard for spectrum leasing with Section 310( d) requirements ...................................................................................... 71 3. Wireless Radio Services Eligible for Spectrum Leasing......................................................... 82 a. Background....................................................................................................................... 82 b. Discussion......................................................................................................................... 84 4. General Applicability of Service Rules and Policies to Spectrum Leasing 1 Federal Communications Commission FCC 03- 113 ii Arrangements .......................................................................................................................... 86 a. Background....................................................................................................................... 86 b. Discussion......................................................................................................................... 91 5. Specific Policies and Procedures Applicable to Spectrum Leasing Arrangements................. 93 a. “Spectrum manager” leasing – Spectrum leasing arrangements that do not involve a transfer of de facto control under Section 310( d) ............................................. 94 (i) Background ................................................................................................................ 95 (ii) Discussion ................................................................................................................ 100 (a) Respective rights and responsibilities of licensees and spectrum lessees.......... 100 (b) Application of particular service rules and policies........................................... 108 (c) Notification ........................................................................................................ 123 b. “De facto transfer” leasing – Spectrum leasing arrangements that involve transfers of de facto control under Section 310( d).......................................................... 126 (i) Long- term de facto transfer spectrum leasing arrangements.................................... 127 (a) Background........................................................................................................ 127 (b) Discussion.......................................................................................................... 133 (i) Respective rights and responsibilities of licensees and spectrum lessees ... 135 (ii) Application of particular service rules and policies .................................... 142 (iii) Streamlined approval procedures ................................................................ 150 (ii) Temporary, short- term de facto transfer spectrum leasing arrangements ................ 160 (a) Background........................................................................................................ 161 (b) Discussion.......................................................................................................... 163 (i) Respective rights and responsibilities of licensees and spectrum lessees ... 166 (ii) Application of particular service rules and policies .................................... 172 (iii) STA approval procedures............................................................................ 181 6. Other Miscellaneous Matters Concerning Spectrum Leasing ............................................... 182 a. Background..................................................................................................................... 182 b. Discussion....................................................................................................................... 183 7. Collection of Information on Spectrum Leasing ................................................................... 190 a. Background..................................................................................................................... 190 b. Discussion....................................................................................................................... 192 B. Streamlined Approval Processes for License Assignments and Transfers of Control................. 195 1. Background ........................................................................................................................... 195 2. Discussion ............................................................................................................................. 196 C. Secondary Markets in Satellite Services...................................................................................... 204 1. Background ........................................................................................................................... 204 2. Discussion ............................................................................................................................. 209 V. FURTHER NOTICE OF PROPOSED RULEMAKING................................................................... 213 A. Achieving a More Efficient Spectrum Marketplace .................................................................... 221 1. The Commission’s Role in Providing Secondary Market Information and Facilitating Exchanges.............................................................................................................................. 221 a. Background..................................................................................................................... 221 b. Discussion....................................................................................................................... 224 2. Developing Policies That Maximize Potential Public Benefits Enabled by Advanced Technologies, Including Opportunistic Devices ................................................................... 230 a. Background..................................................................................................................... 230 b. Discussion....................................................................................................................... 233 B. Forbearance From Individualized Prior Commission Approval for Certain Categories of Spectrum Leases and Transfers of Control/ License Assignments............................................... 237 1. Background ........................................................................................................................... 237 2. Discussion ............................................................................................................................. 241 a. Forbearance with respect to certain spectrum leasing arrangements .............................. 244 2 Federal Communications Commission FCC 03- 113 iii (i) Elements of leasing transactions that would not require prior Commission approval.................................................................................................................... 246 (ii) Notification............................................................................................................... 266 (iii) Compliance with the forbearance standard .............................................................. 270 b. Eliminating prior Commission approval for spectrum leases involving non-telecommunications carriers and non- telecommunications services .............................. 275 c. Forbearance with respect to certain transfers and assignments ...................................... 278 C. Extending the Policies Adopted in the Report and Order to Additional Spectrum- Based Services........................................................................................................................................ 288 1. Background ........................................................................................................................... 288 2. Discussion ............................................................................................................................. 289 D. Application of the New De Facto Control Standard for Spectrum Leasing to Other Issues and Types of Arrangements ......................................................................................................... 315 1. Background ........................................................................................................................... 315 2. Discussion ............................................................................................................................. 316 E. Effect of Secondary Markets on Designated Entity/ Entrepreneur Policies ................................. 320 1. Background ........................................................................................................................... 320 2. Discussion ............................................................................................................................. 323 VI. CONCLUSION .................................................................................................................................. 324 VII. PROCEDURAL MATTERS.............................................................................................................. 325 A. Comment Filing Procedures ........................................................................................................ 325 B. Ex Parte Presentations ................................................................................................................. 333 C. Final Regulatory Flexibility Analysis .......................................................................................... 334 D. Paperwork Reduction Act of 1995 Analysis................................................................................ 335 E. Initial Regulatory Flexibility Analysis......................................................................................... 336 F. Contact Information ..................................................................................................................... 337 VIII. ORDERING CLAUSES.............................................................................................................. 338 APPENDICES: Appendix A – Commenting Parties Appendix B – Final Rules Appendix C – Final Regulatory Flexibility Analysis Appendix D – Initial Regulatory Flexibility Analysis 3 Federal Communications Commission FCC 03- 113 1 I. INTRODUCTION 1. Facilitating the development of secondary markets in spectrum usage rights is of critical importance as the Commission moves forward in implementing spectrum policies that increase the public benefits from the use of radio spectrum. In 2000, in its Policy Statement and Notice of Proposed Rulemaking (NPRM), the Commission proposed a framework to facilitate the development of secondary markets in spectrum usage rights. 1 It enunciated several goals to guide its efforts to eliminate regulatory barriers that hindered access to spectrum and to promote more efficient use of spectrum. These included removing regulatory uncertainty and establishing clear policies and rules concerning “spectrum leasing” arrangements in our Wireless Radio Services. 2 More recently, the Commission has sought to place the development of its secondary market policies within the larger context of the Commission’s overall spectrum policy. In 2002, the Spectrum Policy Task Force (Task Force) conducted the first- ever comprehensive and systematic review of spectrum policy at the Commission. 3 On November 15, 2002, the Task Force presented its findings and recommendations, including several regarding the Commission’s regulatory framework for developing secondary markets consistent with an integrated, market- oriented approach as well as significant technological evolution. 2. By this Report and Order, we take action to remove unnecessary regulatory barriers to the development of secondary markets in spectrum usage rights. The policies, rules, and procedures we adopt herein take important first steps to facilitate significantly broader access to valuable spectrum resources by enabling a wide array of facilities- based providers of broadband and other communications services to enter into spectrum leasing arrangements with Wireless Radio Service licensees. These flexible policies continue our evolution toward greater reliance on the marketplace to expand the scope of available wireless services and devices, leading to more efficient and dynamic use of the important spectrum resource to the ultimate benefit of consumers throughout the country. Facilitating the development of these secondary markets enhances and complements several of the Commission’s major policy initiatives and public interest objectives, including our efforts to encourage the development of broadband services for all Americans, promote increased facilities- based competition among service providers, enhance economic opportunities and access for the provision of communications services by designated entities, 4 and enable development of additional and innovative services in rural areas. 1 See generally Principles for Promoting Efficient Use of Spectrum By Encouraging the Development of Secondary Markets, Policy Statement, 15 FCC Rcd 24178 (2000) (Policy Statement); Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets, Notice of Proposed Rulemaking, 15 FCC Rcd 24203 (2000) (NPRM). The NPRM elicited nearly 60 comments and reply comments. By “spectrum usage rights,” we refer to the terms, conditions, and period of use conferred under a license. See Policy Statement at ¶ 22 (general discussion of spectrum usage rights). 2 See generally NPRM at ¶¶ 13- 65, 70- 82; Policy Statement at ¶¶ 16, 20, 29, 33- 34. In particular, the Commission proposed to remove regulatory uncertainty and clarify the respective responsibilities of licensees, spectrum lessees, and the Commission with regard to spectrum leasing arrangements, all in a manner consistent with our statutory mandates and public interest objectives. See generally NPRM at ¶¶ 3, 27- 62, 70- 82; Policy Statement at ¶¶ 1, 15, 24, 27. 3 See generally Spectrum Policy Task Force, Report, ET Docket No. 02- 135 (rel. Nov. 2002) (Spectrum Policy Task Force Report). This report is available at http:// www. fcc. gov/ sptf. 4 “Designated entities” include small businesses, rural telephone companies, and businesses owned by members of minority groups and/ or women. Through the years, the Commission has implemented policies to help ensure that these entities are given the opportunity to provide spectrum- based services, consistent with Sections 309( j)( 3) and (4) of the Communications Act. See generally 47 U. S. C. §§ 309( j)( 3), (4); 47 C. F. R. § 1.2110; Implementation of Section 309( j) of the Communications Act – Competitive Bidding, Second Report and Order, 9 FCC Rcd 2348 (1994). 4 Federal Communications Commission FCC 03- 113 2 3. Specifically, we take several important steps to facilitate and streamline the ability of spectrum users to gain access to licensed spectrum by entering into spectrum leasing arrangements that are suited to the parties’ respective needs. As a threshold matter, we revise the Commission’s de facto control standard for interpreting Section 310( d) requirements in the context of spectrum leasing, replacing the outdated Intermountain Microwave standard 5 that has been in place since 1963 with a refined standard that better accords with our contemporary market- oriented spectrum policies, fast- changing consumer demands, and technological advances. 6 Commenters in this proceeding were unanimous in recommending that we adopt the Commission’s tentative conclusion to replace this standard. The Intermountain Microwave standard, which focuses its de facto control analysis on whether licensees exercise close working control over all of the facilities using licensed spectrum, is not required by the Communications Act. Moreover, this standard impedes innovative and efficient leasing arrangements with third- party spectrum users that do not require Commission approval under the statute. The updated standard we adopt today for leasing refines the de facto control analysis, consistent with statutory requirements, by focusing instead on whether licensees continue to exercise effective working control over any spectrum they lease to others. 4. To provide the flexibility sought by commenters while continuing to fulfill our core public interest objectives, we implement two different options for spectrum leasing. One option enables licensees and “spectrum lessees” 7 to enter into leasing arrangements, without the need for Commission approval, so long as the licensee retains de facto control of the leased spectrum under the newly refined standard. The other option permits parties to enter into arrangements in which the licensee transfers de facto control to the lessee pursuant to streamlined approval procedures. These alternatives are designed to afford licensees and lessees significant flexibility to craft the type of leasing arrangement that best accords with their particular needs and the demands of the marketplace. At the same time, each option is structured to ensure that leasing occurs in a manner that is consistent with current statutory restrictions, as well as Commission policies relating to homeland security, competition, and other public interest concerns. 5. Consistent with our efforts to facilitate secondary markets in spectrum by providing for streamlined approval procedures for certain spectrum leasing arrangements that involve transfers of de facto control, we determine to implement similar streamlined Commission approval procedures for all license assignments (whether a full or partial assignment of the license) and transfers of control in the same Wireless Radio Services covered by our newly adopted spectrum leasing policies. 6. In addition to the significant steps that we take in this Report and Order, we also adopt a Further Notice of Proposed Rulemaking (Further Notice) that proposes several actions the Commission could take to further enhance spectrum access and efficient spectrum use on a wider scale. Building on the legal framework we establish today, we seek comment on how to encourage the development of information and clearinghouse mechanisms that will facilitate secondary market transactions between licensees and new users in need of access to spectrum. We also seek comment on further streamlining of application processing for leasing, transfers, and assignments, expanding leasing to additional services not covered by today’s order, and modifying or eliminating other regulatory barriers impeding secondary market transactions. 5 See Intermountain Microwave, 12 FCC 2d 559, 560 (1963). 6 The Commission is not revising or limiting the Intermountain Microwave standard in any other regulatory context at this time, but we inquire about its continued use in other areas in the Further Notice of Proposed Rulemaking. 7 We use the term “spectrum lessees” generally to refer to those entities that lease spectrum usage rights licensed by the Commission to other entities. 5 Federal Communications Commission FCC 03- 113 3 7. The Commission’s objectives in “managing” spectrum usage have significantly evolved in recent years in response to statutory, technological, and marketplace changes. We are increasingly seeking to ensure that spectrum is put to its highest valued use, which generally can be most efficiently determined by operation of market forces. In pursuit of that goal, the Commission has increasingly granted flexibility to its licensees to enable them to put spectrum to its highest and best uses, consistent with preventing unacceptable interference. Innovative technological changes and substantially increased demand have reinforced the need for the Commission to revisit its traditional approaches. It is in this vein that the Report and Order and the Further Notice posit an end goal of an overall spectrum policy under which licensees have much greater ability and incentive to make unused spectrum – whether by frequency bandwidth, geographic area, or time (or any combination thereof) – available to third parties. These parties may be current spectrum operators requiring additional spectrum to meet customer needs over either the short- or long- term, new entrants seeking to serve a limited area or narrowly targeted end- user market, small businesses trying to deliver services in rural communities, diverse entities unable or unwilling to participate in spectrum auctions or that otherwise do not have a license through which they can access spectrum to meet consumer needs, or innovative spectrum users seeking to provide services by means of opportunistic spectrum devices. II. EXECUTIVE SUMMARY A. Report and Order 8. In this Report and Order, we take several steps to facilitate the ability of most Wireless Radio Services licensees that hold “exclusive use” licenses 8 to lease spectrum usage rights to third parties seeking access to spectrum. 9. General overview of spectrum leasing policies. We make clear that, subject to the conditions set forth in this Report and Order, licensees in the Wireless Radio Services covered herein may lease some or all of their spectrum usage rights to third parties, for any amount of spectrum and in any geographic area encompassed by the license, and for any period of time within the term of the license. 9 In granting spectrum lessees and licensees the greatest amount of flexibility within the bounds of current law, we first replace the existing standard for assessing de facto control with an updated standard for spectrum leasing that better accommodates recent evolutionary developments in the Commission’s spectrum policies, technological advances, and marketplace trends, consistent with statutory requirements. We then provide parties to spectrum lease transactions two different approaches based on the scope of the rights and responsibilities to be assumed by the lessee when leasing spectrum. Under the first leasing option – “spectrum manager” leasing – we enable parties to enter into spectrum leasing arrangements without the need to obtain prior Commission approval so long as the licensee retains both de jure control 10 of the license and de facto control over the leased spectrum pursuant to the updated de facto control standard for leasing. Under the second option – “de facto transfer” leasing – we provide parties additional flexibility in structuring spectrum leasing arrangements by permitting them, pursuant to a streamlined approval process, to enter into leasing arrangements whereby licensees retain de jure 8 We adopt spectrum leasing policies for all the Wireless Radio Services that the Commission specifically proposed to affect in the NPRM. Section IV. A. 3, infra, identifies each of the covered services for which leasing is permitted pursuant to this Report and Order. 9 All covered licenses, whether their authorized operation is limited to private or non- commercial use, or not, will be permitted to engage in spectrum leasing under the terms set forth in this Report and Order. 10 De jure control means legal control, or control as a matter of law. Typically, ownership of more than 50 percent of the voting stock of a corporate licensee evidences de jure control. See generally In re Application of Fox Television Stations, Inc., Memorandum Opinion and Order, 10 FCC Rcd 8452, 8513- 14 ¶¶ 151- 153 (1995). 6 Federal Communications Commission FCC 03- 113 4 control of their licenses while de facto control over the use of the leased spectrum, and associated rights and responsibilities, are transferred for a defined period to spectrum lessees. 10. The updated de facto control standard for spectrum leasing. In order to facilitate spectrum leasing arrangements for which we find no public policy reason to require prior Commission approval, we replace our prior standard for interpreting de facto control under Section 310( d), as set forth in the 1963 Intermountain Microwave decision, with an updated standard that has been refined to reflect more recent evolutionary developments in the Commission’s spectrum policies, technological advances, and marketplace trends. 11 This new standard is generally based on our “band manager” model that the Commission first employed in 2000 in the 700 MHz Guard Band 12 and recently extended (in a modified form) to the 1390- 1392 MHz, 1670- 1675 MHz, and 2385- 2390 MHz bands and the paired 1392- 1395 and 1432- 1435 MHz bands. 13 The Intermountain Microwave standard imposes significant constraints on the development of efficient spectrum use through secondary markets because it is essentially a “facilities-based” standard that requires licensees to exercise close working control over many different aspects associated with the operation of all of the station facilities using the licensed spectrum. This standard has become increasingly out of step with the flexible, market- based spectrum policies that Congress and the Commission have developed in recent years, and it imposes unnecessary barriers to efficient and effective access to spectrum resources. 11. The refined standard that we adopt provides additional flexibility to licensees and potential spectrum lessees in that it enables these parties to enter into leasing transactions that are not deemed transfers of de facto control under Section 310( d) so long as licensees continue to exercise effective working control over the use of the spectrum they lease. As set forth herein, licensees may lease spectrum usage rights to spectrum lessees, without the need for prior Commission approval, to the extent that the licensees (1) maintain an active, ongoing oversight role to ensure that the lessee complies with all applicable Commission policies and rules, (2) retain responsibility for all interactions with the Commission required under the license related to the use of the leased spectrum (including notification requirements), and (3) remain primarily and directly accountable to the Commission for any lessee violation of these policies and rules. 12. “Spectrum manager” leasing. Under the “spectrum manager” leasing option, licensees and spectrum lessees may enter into spectrum leasing arrangements – for any amount of spectrum, in any geographic area, and for any period of time within the scope and term of the license – without the need for prior Commission approval, provided that licensees retain de facto control, as newly defined, over the leased spectrum. Under this leasing option, the licensee acts as a “spectrum manager” with regard to the spectrum rights it chooses to lease. 14 11 As discussed more fully below, we are only replacing the Intermountain Microwave standard in the context of spectrum leasing. See Section IV. A. 2. b, infra. 12 See Part 27, Subpart G (Guard Band Managers); see generally Service Rules for the 746- 764 and 776- 794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules, Second Report and Order, 15 FCC Rcd 5299 (2000) (Guard Band Manager Order). 13 See Amendments to Parts 1, 2, 27 and 90 of the Commission’s Rules to License Services in the 216-222 MHz, 1390- 1395 MHz, 1427- 1429 MHz, 1429- 1432 MHz, 1432- 1435 MHz, 1670- 1675 MHz, and 2385- 2390 MHz Government Transfer Bands, Report and Order, 17 FCC Rcd 9980 (2002) (27 MHz Report and Order), Erratum, 17 FCC Rcd 17365 (2002), modified on other grounds, Memorandum Opinion and Order, FCC 03- 204 (rel. August 19, 2003). 14 We use the term “spectrum manager” here to distinguish it from a pure “band manager” approach that was adopted in the Part 27 Guard Band Manager Services. We discuss this concept in further detail in Section IV. A. 5. a, infra. 7 Federal Communications Commission FCC 03- 113 10 Commission sought to identify ways to encourage existing licensees to lease their unused spectrum usage rights to other users and to enable licensees more readily to transfer spectrum usage rights to different users and uses pursuant to streamlined processes, with a minimum of administrative review and delay, consistent with its overall statutory authority and responsibilities. 22 23. In the NPRM, the Commission proposed to take several steps to remove unnecessary regulatory barriers and to clarify and revise Commission policies and rules to facilitate the ability of Wireless Radio Services licensees holding “exclusive use” rights to lease their spectrum usage rights to third parties. 23 As a general matter, the NPRM proposed to ensure that these licensees could enter into a wide variety of spectrum leasing arrangements with third parties, from short to long term, in small or large amounts, so as to make spectrum more easily available to additional spectrum users and for a range of uses, and to do so without the need to permanently transfer their licenses to those users. 24 It sought guidance on the types of leasing arrangements desired by interested parties, and on the respective responsibilities of licensee, spectrum lessee, and the Commission in the context of spectrum leasing. 25 Particular focus was placed on Section 310( d) requirements relating to transfers of de facto control, and whether the Intermountain Microwave standard for interpreting those requirements should be replaced. Noting that this standard impeded a variety of leasing arrangements that enabled additional users and more efficient use of spectrum, that the factors it set forth were not statutorily required, and that it was not sufficiently flexible in light of significant licensing and technological changes that had evolved in recent years, the Commission tentatively concluded to replace the Intermountain Microwave standard with a de facto control standard that permitted certain leasing arrangements to proceed without the need for prior Commission approval. 26 The Commission also requested comment on whether there were alternative approaches that would facilitate the kinds of leasing arrangements that parties sought, including those that might involve de facto transfers of control that could be approved pursuant to streamlined processes. Finally, the Commission sought comment on whether, with regard to spectrum leasing, it should forbear from various Section 310( d) requirements. 27 24. In addition to proposing the wider use of spectrum leasing arrangements in Wireless Radio Services, the Commission sought comment in the NPRM on possible ways it might improve secondary markets for Satellite Services. 28 25. Thirty- seven parties commented on the proposals set forth in the NPRM, and twenty- one filed reply comments. 29 Of these commenters, the vast majority addressed ways in which the Commission could promote secondary markets in spectrum usage rights in our Wireless Radio Services. 22 Id. at ¶¶ 1, 16, 20, 24, 26, 27, 32, 34. See also Principles for Reallocation of Spectrum to Encourage the Development of Telecommunications Technologies for the New Millennium, Policy Statement, 14 FCC Rcd 19868, 19872 ¶ 13 (1999) (Policy Statement on Principles for Spectrum Allocation) (discussion of ways to expand secondary markets for spectrum). 23 See generally NPRM at ¶¶ 1, 13 & n. 19, 24- 25 & n. 40. 24 See generally id. at ¶¶ 8, 18- 21. 25 See generally id. at ¶¶ 18- 34. 26 See id. at ¶¶ 70- 80. 27 See id. at ¶¶ 81- 82. 28 See id. at ¶¶ 66- 68. 29 Appendix A includes a list of parties filing comments and reply comments, as well as the short citation to such filings used in this Report and Order. 13 Federal Communications Commission FCC 03- 113 11 These parties included commercial carriers (including national carriers and rural carriers) 30 and related associations, 31 private carriers (including utility companies) and related associations, 32 equipment providers, 33 organizations representing small business concerns, 34 economists, 35 and entities interested in brokering the trading of spectrum usage rights. 36 The Commission also received a few comments that pertained to improving secondary markets in the Satellite Services. 37 B. Spectrum Policy Task Force Report 26. In 2002, the Commission’s staff- level Spectrum Policy Task Force undertook a comprehensive review of spectrum policy at the Commission. 38 In beginning the reexamination of 90 years of spectrum policy, the Task Force sought to assist the Commission in developing policies that are more responsive to the consumer- driven evolution of new wireless technologies, devices, and services. 39 Significant for this proceeding, the findings and recommendations submitted to the Commission in November 2002 in the Spectrum Policy Task Force Report addressed many issues relevant to the promotion of secondary markets in spectrum usage rights. 30 See generally Alaska Native Wireless Comments; AT& T Wireless Comments and Reply Comments; Blooston Rural Carriers Comments and Reply Comments; Cingular Wireless Comments and Reply Comments; Cook Inlet Comments; Leap Wireless Reply Comments; Long Lines Comments; Maritel Comments; Nextel Comments and Reply Comments; Pacific Wireless Comments; Securicor Comments; Sprint Comments; TeleCorp Reply Comments; Teligent Comments and Reply Comments; Verizon Wireless Comments; Winstar Comments and Reply Comments. 31 See generally AMTA Comments; CTIA Comments; NTCA Comments; OPASTCO Comments; RTG Comments and Reply Comments; Rural Cellular Association Comments. 32 See generally Cinergy Comments; Entergy Comments; ITA Reply Comments; Kansas City Power Comments; LMCC Comments; Charles Meehan Comments; MRFAC Reply Comments. 33 See generally Direct Wireless Comments; HYPRES Comments; PowerLoom Reply Comments; Shared Spectrum Comments; SDR Forum Comments and Reply Comments; UTStarcom Comments and Reply Comments. 34 See generally U. S. Small Business Administration Comments. 35 See generally 37 Concerned Economists Comments. 36 See generally Dynegy Reply Comments; El Paso Global Comments and Reply Comments; Enron Comments and Reply Comments; Macquarie Bank Reply Comments. 37 See generally New Skies Reply Comments; HBO Comments; PanAmSat and GE Americom Reply Comments; SIA Comments and Reply Comments; Teledesic Comments. 38 See generally Spectrum Policy Task Force Report. The Spectrum Policy Task Force was created in the spring of 2002 to assist the Commission in identifying and evaluating changes in spectrum policy that would increase the public benefits derived from the use of radio spectrum. The Task Force considered over 200 written comments from numerous types of entities, including manufacturers, wireless internet service providers, both licensed and unlicensed wireless spectrum operators, satellite operators, broadcast operators, and consumer groups. It also received several informal and formal comments from representatives of the licensed and unlicensed wireless industry, the satellite industry, the broadcast industry, the safety community, the government, and consumer groups, as well as economists, engineers, academics, consultants, telecommunications services brokers, and journalists. Id. at 2. 39 Id. at 1. 14 Federal Communications Commission FCC 03- 113 12 27. The Spectrum Policy Task Force Report provides additional support for reform of our spectrum- related policies, including our policies with respect to secondary markets. It described the explosive demand for spectrum- based services and devices, noting that advances in technologies also have significantly increased the diversity of service offerings and contributed to increased consumer demand. 40 The Task Force reported on how technological advances were enabling changes in spectrum policy and offered many options and recommendations for dealing with current and future spectrum policy challenges. For instance, smart technologies, such as software- defined radios, may allow operators to take advantage of the time dimension of radio spectrum – that is, when particular frequencies are temporarily not being used – which is not taken into account by current Commission policies. 41 28. Significantly, as in the NPRM and Policy Statement, the Spectrum Policy Task Force Report discussed the importance of policies to facilitate the ability of potential spectrum users to gain access to spectrum and pointed out that significant spectrum capacity remains untapped. Given that restrictions based on Commission policies have hindered licensees from making spectrum available to others, even in cases where a market existed to do so, the Task Force observed that granting licensees additional flexibility to make their licensed bands available to others would increase access to spectrum and minimize spectrum scarcity. 42 Accordingly, the Task Force recommended that the Commission take immediate steps to change its current spectrum policies, which reflect an environment composed of a limited number of types of operations, to reflect the increasingly dynamic and innovative nature of spectrum use. In particular, consistent with the thrust of the Policy Statement and NPRM, it recommended that the Commission strive, wherever possible, to eliminate regulatory barriers to increased spectrum access by potential users. 43 29. Key elements of a new spectrum policy. The Spectrum Policy Task Force Report outlines a broad policy framework for moving forward, identifying several key elements to an improved spectrum policy. The key elements identified by the Task Force include: allowing maximum feasible flexibility of spectrum use by both licensed and unlicensed users; clearly and exhaustively defining spectrum users’ rights and responsibilities; accounting for all potential dimensions of spectrum usage (frequency, power, space, and time); promoting efficient spectrum use; providing for continued technological advances; and, enabling efficient and reliable enforcement mechanisms to ensure regulatory compliance by all spectrum users. 44 The Task Force also recommended that the best way to implement policies that achieve these policy goals would be for the Commission to transition, to the greatest extent possible, from a “command-and- control” regulatory model to more flexible “exclusive use” and “commons” models. 45 30. Secondary markets and other approaches to expand access to spectrum. The Spectrum Policy Task Force Report discussed in some detail a framework for developing the Commission’s secondary market policies, possibly in conjunction with other policies that could expand users’ access to spectrum. 46 Specifically, the Task Force observed that there are two alternative – and possibly complementary – approaches to facilitating access to spectrum. The first approach relies on secondary 40 Id. at 12- 13. 41 Id. at 13- 14. 42 Id. at 14- 15. 43 Id. at 3- 4. 44 Id. at 4, 16- 23. 45 Id. at 5, 35- 45. 46 See generally id. at 55- 60. 15 Federal Communications Commission FCC 03- 113 13 market arrangements involving the leasing of spectrum usage rights, with “exclusive use” licensees holding the rights to determine which potential entrants could have access to the spectrum and under what conditions. The second approach allows open access to licensed spectrum for non- interfering devices through expanded use of government- defined “easements,” which would draw largely on the “commons” model. 47 31. In its recommendations to the Commission, the Task Force strongly endorsed implementing the proposed reforms that are the subject of the instant proceeding, namely giving Wireless Radio Services licensees greater flexibility to authorize others to use their licensed spectrum. 48 The Task Force further noted that recent developments in new technology, such as software- defined radio, frequency-agile radio, and spread spectrum, have heightened the importance of the access issue by making multiple dynamic and “opportunistic” uses of spectrum possible. 49 With regard to spectrum bands that have already been licensed, the Task Force recommended that the Commission look primarily to the use of secondary markets to facilitate licensees’ ability to provide access to users, including users of “opportunistic” devices, through the leasing of spectrum. 50 IV. REPORT AND ORDER A. Spectrum Leasing Arrangements in Wireless Radio Services 32. In this Report and Order, we take important first steps in establishing policies and rules to enable better functioning secondary markets in our Wireless Radio Services by facilitating the ability of parties to enter into a wide variety of spectrum leasing arrangements that meet their business and spectrum needs, and, in turn, the needs of consumers. 51 These actions, drawn from the proposals set forth in the NPRM and the record before us, will serve the public interest for a number of reasons. Facilitating spectrum leasing arrangements permits many additional spectrum users to gain ready access to spectrum, and thus enables provision of new and diverse services and applications to help meet the ever- changing needs of the public. By clearly defining the respective rights and responsibilities of licensees and spectrum lessees, we are removing unnecessary regulatory barriers to spectrum leasing, alleviating spectrum constraints, and providing new opportunities to put underutilized or fallow spectrum to efficient use, consistent with statutory requirements. 52 33. In the following sections, we first review the public interest benefits of broadly defined spectrum leasing activities that this Report and Order will facilitate. We then discuss our decision to replace the Intermountain Microwave standard for assessing de facto control under Section 310( d) with a new, more flexible standard in the context of spectrum leasing. Under this new control standard, licensees will be able to enter into spectrum leasing arrangements with third parties without the need for 47 See generally id. at 55- 58. 48 Id. at 55- 56. 49 See generally id. at 56- 57. 50 Id. at 56. The Task Force also recommended that the Commission might consider the limited use of easements at some time in the future. 51 See NPRM at ¶¶ 24- 25. The particular Wireless Radio Services affected by this Report and Order are discussed in Section IV. A. 3, infra. 52 See generally NPRM at ¶¶ 1- 4, 11- 14, 18- 20 (articulating the Commission’s particular goals relating to the instant proceeding); see also Policy Statement at ¶¶ 1- 2 (articulating the Commission’s general goals relating to secondary markets in spectrum usage rights). 16 Federal Communications Commission FCC 03- 113 14 Commission approval, so long as the licensees retain de facto control over the leased spectrum, pursuant to the new standard, and remain responsible for overseeing their lessees’ compliance with Commission policies and rules. We next discuss an alternative model for spectrum leasing responsive to comments in this proceeding. Under this model, we also will allow spectrum leasing arrangements in which licensees transfer de facto control of spectrum to lessees for a defined term pursuant to streamlined approval procedures. 1. Facilitating the Use of Spectrum Leasing Will Further the Public Interest a. Background 34. In the NPRM, the Commission proposed to revise and clarify Commission policies and rules to facilitate the ability of Wireless Radio Services licensees holding “exclusive use” rights to lease their spectrum usage rights to third parties. 53 The Commission proposed to permit these licensees to enter into a wide variety of long- or short- term spectrum leasing arrangements with third parties. 54 As proposed in the NPRM, these arrangements potentially could involve the leasing of a licensee’s spectrum usage rights for any period of time during the term of the license, in any geographic or service area, and in any quantity of spectrum. 55 The Commission also proposed that spectrum leasing arrangements be renewable to the extent that the licensee obtained a renewal of its authorization. 56 It also inquired about the possible role of “band manager” licensing as a vehicle for facilitating the leasing of spectrum. 57 Finally, the Commission requested comment on whether the concept of spectrum leasing set forth in the NPRM was appropriately defined, or whether it should be defined differently, more narrowly, or more broadly. 58 35. The Commission endeavored in the NPRM to develop and propose spectrum leasing policies that afforded licensees and spectrum lessees sufficient flexibility to enter into leasing arrangements that would meet their respective business needs and enable more efficient use of underutilized spectrum. 59 At the same time, it sought to ensure that the public interest would be served and the Commission would maintain its fundamental responsibilities for spectrum policy and for compliance with its rules and policies. 60 In pursuing these goals, the Commission proposed to establish a framework regarding the 53 See generally NPRM at ¶¶ 13- 14 & n. 19, 24- 25 & n. 40. As stated in the NPRM, the general goal of this proceeding is “to clarify Commission policies and rules, and revise them where necessary, to establish that wireless licensees have the flexibility to lease all or portions of their assigned spectrum in a manner, and to the extent, that it is consistent with the public interest and the requirements of the Communications Act.” Id. at ¶ 14. 54 See generally id. at ¶¶ 14, 18- 23. 55 See generally id. at ¶¶ 14, 20- 21, 23, 25. 56 Id. at ¶ 62. 57 See generally id. at ¶ 22; see also id. at ¶ 17. At the time the NPRM was adopted in 2000, the Commission had adopted a “band manager” licensing approach in only one service, the 700 MHz Guard Band Manager Service. See Part 27, Subpart G (Guard Band Managers); see generally Service Rules for the 746- 764 and 776- 794 MHz Bands, and Revisions to Part 27 of the Commission’s Rules, Second Report and Order, 15 FCC Rcd 5299 (2000) (Guard Band Manager Order). In 2002, the Commission adopted another variant of band manager licensing for the paired 1392- 1395 and 1432- 1435 MHz bands, and the unpaired 1390- 1392 MHz, 1670-1675 MHz, and 2385- 2390 MHz bands. See 27 MHz Report and Order, 17 FCC Rcd 9980. 58 NPRM at ¶ 23. 59 See generally id. at ¶¶ 18- 21. 60 See generally id. at ¶¶ 14, 23, 27- 34. 17 Federal Communications Commission FCC 03- 113 15 respective responsibilities of licensee, spectrum lessee, and itself in the context of spectrum leasing. 61 Under the specific approach advanced in the NPRM, the Commission tentatively concluded to revise, based on its legal authority, its interpretation of what constitutes de facto control under Section 310( d) of the Act, as set forth in the 1963 Intermountain Microwave decision and its progeny. In place of that standard, the Commission proposed a more flexible standard that would permit spectrum leasing to proceed without prior Commission approval so long as the licensee continued to exercise de facto control over the leased spectrum. 62 In particular, the Commission proposed to hold licensees “directly responsible” for their spectrum lessees’ non- compliance with the Act or Commission rules, and to take any action against licensees provided in our rules, including license revocation, for violations by spectrum lessees. 63 As an alternative to the general approach advanced in the NPRM, the Commission sought comment on whether it should permit leasing arrangements in which the lessee, instead of the licensee, would be held directly responsible for compliance with Commission policies and rules. 64 In addition, the Commission proposed to consider allowing subleasing, and sought comment on how subleasing could be implemented and whether it raised distinct issues. 65 36. All parties commenting on Wireless Radio Services favored the Commission’s goal of finding ways to promote the use of spectrum leasing arrangements, and agreed that the public interest would be served by Commission efforts to remove unnecessary regulatory barriers so as to facilitate leasing arrangements. 66 Commenters discussed the manifold benefits that would result from more flexible leasing policies. These included: promoting more efficient use of spectrum; 67 enhancing competition among new and incumbent service providers; 68 facilitating the ability of new and more diverse providers to serve the needs of their customers; 69 enabling small businesses to gain access to spectrum; 70 enhancing 61 See generally id. at ¶¶ 27- 34. 62 See generally id. at ¶¶ 70- 82. 63 See generally id. at ¶¶ 27- 34 (general framework concerning the licensee’s responsibility for lessee’s compliance). 64 Id. at ¶ 29. 65 Id. at ¶ 25. 66 See, e. g., AMTA Comments; AT& T Wireless Comments; Blooston Rural Carriers Comments; Cingular Comments; CTIA Comments; Long Lines Comments; Nextel Comments; NTCA Comments; Pacific Wireless Comments; Rural Cellular Association Comments; RTG comments; Securicor Comments; Sprint Comments; Teligent Comments; Verizon Wireless Comments; Macquarie Bank Reply Comments. 67 See, e. g., AMTA Comments at 2 (flexibility afforded by spectrum leasing could encourage efficiency by providing licensees with means to divest spectrum that may be more efficiently and profitably used by another entity or, conversely, to acquire additional increments of spectrum that their technology and customers may require); AT& T Wireless Comments at 1 (Commission’s proposal to facilitate spectrum leasing is important step towards alleviating lack of available spectrum; promoting efficient use of spectrum would improve providers’ ability to meet needs of their customers); Cingular Wireless Comments at 2 (spectrum leasing proposal would help ensure the highest and best use of spectrum); CTIA Comments at 1 (spectrum leasing proposal would foster competition and maximize efficient use of spectrum); El Paso Global Comments at 4 (allowing licensees and lessees maximum flexibility in entering into leasing arrangements would facilitate the development of a secondary market in spectrum, leading to the more efficient use of spectrum); LMCC Comments at 3 (promoting spectrum leasing and enhanced licensee flexibility would foster the more efficient use of spectrum). 68 See, e. g., CTIA Comments at 1 (spectrum leasing proposal would foster competition); Nextel Comments at 1, 5- 9 (same). 69 See, e. g., AT& T Wireless Comments at 1 (Commission’s proposal to facilitate spectrum leasing is important step towards alleviating lack of available spectrum; promoting efficient use of spectrum would improve (continued….) 18 Federal Communications Commission FCC 03- 113 16 the ability of designated entities to access additional capital; 71 and, increasing service offerings to rural customers by enabling rural telephone companies and others access to underutilized spectrum. 72 37. Commenters also generally agreed with the Commission’s proposal to provide maximum flexibility to licensees to lease some or all of their spectrum usage rights for periods of up to the term of the license, 73 and to allow these leasing arrangements to be renewed upon renewal of the license. 74 No commenters recommended that the Commission restrict spectrum leasing only to excess capacity arrangements. A number of parties commented directly on band manager licensing, contending that the Commission could draw certain lessons from this licensing model; they generally, however, opposed creating a new “class” of band manager licensee for the services affected by this proceeding or otherwise adopting certain requirements the Commission had adopted in the Guard Band Manager licensing rules. 75 While the bulk of the comments addressed issues pertaining to long- term spectrum leasing arrangements, a number of parties, including those interested in brokering spectrum usage rights, also contemplated the need for short- term leasing arrangements. 76 providers’ ability to meet needs of their customers); Kansas City Power Comments at 3- 4 (increased flexibility in FCC rules would lead to increased use of underutilized spectrum, thus contributing to the overall availability of spectrum and creating opportunities to expand existing operations and develop new services); RTG Comments at 2 (spectrum leasing would allow companies not holding licenses to offer a panoply of wireless services). 70 See, e. g., AT& T Wireless Comments at 1 (Commission’s proposal to facilitate spectrum leasing is important step towards alleviating lack of available spectrum); U. S. Small Business Administration Comments at 1 (a thriving secondary market may provide opportunity for small businesses and help reduce fallow spectrum). 71 See, e. g., Alaska Native Wireless Comments at 4- 11; Cook Inlet Comments at 7- 9. 72 See, e. g., Blooston Rural Carriers Comments at 2- 3 (relaxation of policies and rules that stand in way of innovative spectrum use arrangements would help eliminate unnecessary inhibitions on secondary markets and create incentives for larger carriers to lease to rural telephone cooperatives, thereby helping to spur rapid deployment of services to all areas of the country); NTCA Comments at 1- 4; RTG Comments at 2 (spectrum leasing would significantly increase the use of already- assigned spectrum bands and allow companies not holding licenses to offer a panoply of wireless services in unserved and underserved areas). 73 See, e. g., Alaska Native Wireless Comments at 8; AMTA Comments at 2- 3; AT& T Wireless Comments at 1- 4; Blooston Rural Carriers Comments at 3- 5; Cingular Wireless Comments at 3- 4; Cook Inlet Comments at 8; CTIA Comments at 10- 11; Nextel Comments at 7; Securicor Comments at 7- 8; RTG Comments at v, 27- 28; Rural Cellular Association Comments at 5; Teligent Comments at 2- 3; 37 Concerned Economists Comments at 2- 4. 74 See, e. g., RTG Comments at 31- 32. 75 As noted above, at the time that the NPRM was issued, the only extant “band manager” licensing scheme was found in the 700 MHz Guard Band Manager rules, set forth in Part 27, Subpart G of our rules. Most of these commenting parties opposed creating a “new class” of “band manager” licensee directly modeled on that authorized in the Guard Band Manager licensing scheme, and certain policies and restrictions the Commission has adopted for that particular licensing scheme, for the services included in the NPRM. See, e. g., AMTA Comments at 3; AT& T Wireless Comments at 11; Pacific Wireless Comments at 3; RTG Comments at 14; Teligent Reply Comments at 6- 7; but see ITA Reply Comments at 4- 6 (supporting band manager licensing framework, requiring the licensee to lease all of its spectrum to third parties). 76 See, e. g., AT& T Wireless Comments at 7; Cingular Wireless Comments at 4; Cook Inlet Comments at 10; El Paso Global Comments at 4; Macquarie Bank Reply Comments at 6; Pacific Wireless Comments at 4; RTG Comments at 27- 28; Teligent Comments at 2; Vanu Comments at 6- 7; Winstar Comments at 3, 14- 15. 19 Federal Communications Commission FCC 03- 113 17 38. In addition, all commenters embraced the Commission’s tentative determination to replace the Intermountain Microwave de facto control standard applicable to the Wireless Radio Services with a new standard more conducive to spectrum leasing. 77 Several commenters also endorsed the specific approach advanced in the NPRM. 78 Many other commenters, however, endorsed a significantly different approach to leasing, one that would allow licensees and lessees considerably more flexibility with regard to the allocation of the respective responsibilities of licensee and spectrum lessee. In particular, these commenters generally endorsed policies under which spectrum lessees could act more independently of, and without active supervision or oversight by, licensees, with spectrum lessees assuming direct and primary responsibility for compliance with Commission policies and rules. 79 Only a few comments specifically addressed whether or how subleasing should be implemented. 80 b. Discussion 39. We find in this Report and Order that revising and clarifying our policies and rules to promote the use of a wide array of spectrum leasing arrangements will serve the public interest. Consistent with the goals articulated in the NPRM, 81 we will grant those Wireless Radio Services identified in the NPRM 82 the right to lease any or all of their spectrum usage rights (i. e., in any amount of spectrum, in any geographic area covered by the license, and for any period of time during the term of the license) to third- party spectrum lessees pursuant to the policies and procedures enunciated below. We also will permit these leasing arrangements to be renewable, contingent on renewal of the underlying license authorization, and will allow certain types of subleasing provided that specified conditions are met. We find that providing the widest array of interested parties, including designated entities and others that face regulatory and market barriers in accessing spectrum resources, increased opportunities to enter into a variety of spectrum leasing arrangements with these Wireless Radio Services licensees will significantly advance our goal of promoting facilities- based competition in broadband and other communications services as well as our objective to ensure more efficient, intensive, and innovative uses of spectrum. 83 40. In this Report and Order, we establish a revised transfer of de facto control test for leasing in the Wireless Radio Services in order to better accommodate the various components of the public interest that are relevant to these services. As described herein in detail, the nature of the markets – along with the needs of the businesses and consumers within those markets – have changed dramatically, resulting in an increase in the demand for spectrum, the need for more ready access to it, and a greater emphasis on 77 See, e. g., AMTA Comments at 4; Cook Inlet Comments at 12- 13; CTIA Comments at 11- 13; El Paso Global Comments at 11; Nextel Comments at 3- 4; Pacific Wireless Comments at 6; Teligent Comments at 5- 6; Winstar Comments at 9. 78 We discuss these comments more fully in Section IV. A. 5. a( i), infra. 79 We discuss these comments more fully in Section IV. A. 5. b( i), infra. 80 See Cingular Wireless Comments at 7 n. 12 (subleasing should be prohibited absent express consent of the licensee); El Paso Global Comments at 4 (subleasing should be freely permitted); Vanu Comments at 7- 8 (to the extent the Commission adopted a “safe harbor” for spectrum leasing arrangements, it should not extend the safe harbor to subleasing arrangements). 81 NPRM at ¶¶ 20- 21, 25. 82 See Section IV. A. 3, infra. 83 We note that providing these exclusive use licensees with additional flexibility regarding the use of their licensed spectrum is consistent with the recommendations made by the Commission’s Spectrum Policy Task Force. See Spectrum Policy Task Force Report at 35- 41. 20 Federal Communications Commission FCC 03- 113 18 efficient and flexible use of spectrum. In the context of leasing, the facilities- based Intermountain Microwave standard for assessing transfers of de facto control does not adequately accommodate these changes, and to this extent it is outdated and is no longer consistent with the public interest. Moreover, using that particular standard is not essential under Section 310( d) for ensuring the integrity of other public interest goals, such as interference protection, national security, or competition. In contrast, the new spectrum- based test that we are adopting increases licensee flexibility, facilitates more efficient use of the spectrum, and will result in a more market- driven system that should better meet the needs of the public, all without compromising the other core public interest goals of the services. 41. In order to offer licensees and spectrum lessees significant flexibility with regard to the kinds of leasing arrangements they may enter into, we provide two options for spectrum leasing. The first option is consistent with the general approach proposed in the NPRM. Under this leasing option, licensees must retain de jure and de facto control of the leased spectrum (under the updated de facto control standard that replaces Intermountain Microwave in the context of leasing). The licensee acts, in effect, as a “spectrum manager” with regard to leased spectrum, and remains directly and primarily responsible for ensuring that each of its lessees complies with all applicable Commission policies and rules. 84 We also provide for a second leasing option in response to many commenters’ interest in leasing policies that would permit a different, more flexible type of arrangement than proposed in the NPRM. Under this alternative leasing option, licensees are permitted to transfer de facto control of the leased spectrum, and associated responsibilities, to spectrum lessees for the term of the lease. In “de facto transfer” leasing, spectrum lessees will be held directly and primarily responsible for compliance with applicable policies and rules. 85 42. As explained in the NPRM and the Policy Statement, we find that better functioning secondary markets will enable existing providers and new facilities- based entrants to gain more ready access to some or all of the spectrum they need to provide wireless services to the public. 86 As noted in the NPRM, the Commission has increasingly relied on flexible, market- oriented spectrum management policies as a means to help alleviate imbalances between supply and demand for spectrum. 87 Spectrum leasing provides an essential additional mechanism by which market forces can be brought to bear to address parties’ needs to obtain access to spectrum. By facilitating spectrum leasing, we advance the development of numerous secondary market arrangements in which parties can use spectrum without the necessity of acquiring a license. 88 If licensees are able to enter into a wide range of leasing arrangements with third parties with a minimum of transaction costs – anything from a small amount of spectrum in a small area for a short period, to a large amount, over a large area, for up to the term of the license – licensees and spectrum lessees will be better able to design arrangements that meet their respective business plans and thereby enable them to bring additional wireless services to the public. As a general matter, the greater the flexibility permitted by our policies and rules, the more likely it is that parties will be able to enter into mutually desirable arrangements that are based on market demands. Wider use of spectrum leasing will, in turn, help achieve fuller utilization of the spectrum resource by making more spectrum available for the purposes for which it is needed, including new broadband services. 89 84 We discuss this “spectrum manager” leasing option in detail in Section IV. A. 5. a, infra. 85 We discuss this “de facto transfer” leasing option in detail in Section IV. A. 5. b, infra. 86 NPRM at ¶ 11; see generally Policy Statement. We also note that the Task Force reached similar conclusions. See Spectrum Policy Task Force Report at 55- 59. 87 NPRM at ¶ 8. 88 See id. at ¶ 8. 89 See id. at ¶¶ 18- 20. 21 Federal Communications Commission FCC 03- 113 19 43. We also determine that facilitating the development of secondary markets in spectrum usage rights enhances and complements several of the Commission’s major policy initiatives: encouraging the availability of broadband services for all Americans; promoting increased, facilities- based competition; ensuring the provision of spectrum- based services by small businesses; and, enabling development of additional and innovative services in rural areas. 44. Robust secondary markets constitute a significant component of our broadband policies designed to bring advanced telecommunications services to all Americans. 90 Broadband service providers are increasingly turning to terrestrial wireless platforms to meet growing consumer demands for these services. 91 Facilitating the ability of such providers to gain ready access to licensed but unused or underutilized spectrum will provide an important, efficient, and more timely means of delivering these services. 92 Improved secondary markets also will serve our goal of enhancing competition among facilities- based providers. 93 By adopting the leasing policies and procedures herein, we remove unnecessary regulatory constraints, lower transaction costs, and reduce spectrum acquisition costs, so as to enable more parties to enter into voluntary leasing arrangements, thus enabling more facilities- based competition by new providers. These policies provide potential lessees a ready means of obtaining access to that spectrum (in amount, location, and duration) best suited for their business needs. They also remove regulatory uncertainty that may have prevented licensees from allowing a third party to gain access to fallow or underutilized spectrum, 94 even at an acceptable negotiated price, because the licensees either did not want to abandon their future rights to the spectrum (through permanent transfer or assignment, or through partitioning or disaggregation) or risk losing their licenses as unauthorized transfers of de facto control under Section 310( d). 95 Thus, these policies should facilitate the ability of 90 See, e. g., Inquiry Concerning the Development of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, Third Report, 17 FCC Rcd 2844, 2847- 2850 ¶ 7, 2905 ¶ 161 (2002) (Broadband Third Report and Order) (discussing a variety of Commission efforts to encourage the deployment of advanced telecommunications capabilities pursuant to Section 706 of the Telecommunications Act of 1996, including the goal of facilitating the growth of secondary markets in wireless spectrum). 91 See generally Implementation of Section 6002( b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Service, Seventh Report, 17 FCC Rcd 12985, 13038- 13063 (2002). 92 We also note that we continue to make strides to free up additional licensed spectrum resources and to provide greater flexibility to unlicensed devices to facilitate spectrum- based broadband access. See, e. g., In the Matter of Service Rules for Advanced Wireless Services in the 1. 7 GHz and 2.1 GHz Bands, Notice of Proposed Rulemaking, 17 FCC Rcd 24135 (2002); In the Matter of Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band, Notice of Inquiry, 17 FCC Rcd 25632 (2002); In the Matter of Amendment of Parts 1, 21, 73, 74 and 101 of the Commission’s Rules to Facilitate the Provision of Fixed and Mobile Broadband Access, Educational and Other Advanced Services in the 2150- 2162 and 2500- 2690 MHz Bands, Notice of Proposed Rulemaking and Memorandum Opinion and Order, 18 FCC Rcd 6722 (2003); Revision of Parts 2 and 15 of the Commission’s Rules to Permit Unlicensed National Information Infrastructure (U- NII) devices in the 5 GHz band, Notice of Proposed Rulemaking, 18 FCC Rcd 11581 (2003). 93 See, e. g., Policy Statement at ¶ 17 (noting importance of increasing facilities- based providers); Broadband Third Report and Order, 17 FCC Rcd at 2847 ¶ 6, 2897 ¶ 133 (same). 94 We note that significant amounts of spectrum remain underutilized or lie fallow. See Policy Statement at ¶ 11; Spectrum Policy Task Force Report at 10- 11 (discussing “white spaces” of spectrum not in use for significant periods of time). 95 See, e. g., Cingular Comments at 11 (noting that parties were reluctant to lease spectrum for fear that it might constitute an unauthorized transfer of control); RTG Comments at 21 (same); U. S. Small Business Administration Comments at 2, 4 (same); see also Policy Statement at ¶¶ 27- 28 (discussing licensees’ concerns (continued….) 22 Federal Communications Commission FCC 03- 113 20 licensees and potential spectrum lessees to negotiate voluntary, market- driven leasing arrangements that enable other providers or new entrants to provide facilities- based services to the public or other end- users. 45. Furthermore, the secondary markets policies we adopt will help achieve another of our goals, namely ensuring that many small businesses have significant new opportunities to provide spectrum- based services. As lessees, these entities should benefit from lower transaction and spectrum acquisition costs since they would not need to acquire a license authorization (through auction or transfer and assignment) and would only need access to the amount of spectrum specifically suited to meet their business needs. Thus, our spectrum leasing policies also help us to achieve many of the goals set forth in our designated entity policies, 96 and enable designated entities (including small businesses, rural telephone companies, and businesses owned by minority groups and women) to access additional capital through leasing arrangements that can be used to build out their networks. Finally, as discussed by commenters, a substantial amount of spectrum is underutilized in rural areas, and could be put to use through leasing arrangements. Facilitating the ability of rural telephone companies and other entities to gain access to spectrum usage rights so that they can provide new and advanced services to rural consumers should help our efforts to promote the further development and delivery of spectrum- based services to rural communities. 97 2. Revising the Section 310( d) De Facto Control Standard for Spectrum Leasing a. Background 46. As noted above, in its effort to eliminate Commission policies that unnecessarily impede the development of secondary markets in spectrum usage rights, the Commission tentatively concluded to replace its historic interpretation of the Section 310( d) 98 requirements set forth in the 1963 Intermountain Microwave decision 99 with an updated, more flexible de facto control standard that would be applied to that leasing might constitute an unauthorized transfer of de facto control under the existing Intermountain Microwave de facto control standard). 96 These policies also seek to ensure that designated entities have the opportunity to provide spectrum-based services. See generally 47 U. S. C. §§ 309( j)( 3), (4). We discuss our designated entity policies and how they apply in the context of spectrum leasing in Sections IV. A. 5. a( ii)( b), IV. A. 5. b( i)( b)( ii), IV. A. 5. b( ii)( b)( ii), infra. 97 See, e. g., Blooston Rural Carriers Comments at 2- 3; NTCA Comments at 1- 4; RTG Comments at 2. See also Policy Statement at ¶ 11; Facilitating the Provision of Spectrum- Based Services to Rural Areas and Promoting Opportunities for Rural Telephone Companies to Provide Spectrum- Based Services, Notice of Inquiry, 17 FCC Rcd 25554, 22555- 22562 ¶¶ 2- 14 (2002); Spectrum Policy Task Force Report at 58- 60 (discussing ways of promoting the development of services in rural communities, including facilitating the ability of licensees to lease spectrum to entities that could build the networks and provide the service). 98 Section 310( d) of the Act states, in pertinent part: “No … station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such … license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.” 47 U. S. C. § 310( d). 99 Intermountain Microwave, 12 FCC 2d 559 (1963). As noted in the NPRM, the Intermountain Microwave standard (and its progeny) is applied to a number of our Wireless Radio Services included within the spectrum leasing proposal. NPRM at ¶ 72; see also In the Matter of Marc Sobel, Applicant for Certain Part 90 Authorizations in the Los Angeles Area, Decision, 17 FCC Rcd 1872 (2002) (applying the Intermountain Microwave standard), recon. denied, 17 FCC Rcd 8562 (2002). As also noted in the NPRM, a related standard, set forth in the Motorola decision, pertains to our private radio services. See NPRM at ¶ 72; Applications of Motorola, Inc. for 800 MHz Specialized Mobile Radio Trunked Systems, File Nos. 507505 et al., Order (issued July 30, 1985) (Private Radio Bureau) (Motorola). 23 Federal Communications Commission FCC 03- 113 21 spectrum leasing. 100 It proposed this new Section 310( d) de facto control standard to permit parties to enter into flexible spectrum leasing arrangements, without the need for prior Commission approval, 101 so long as licensees continued to exercise sufficient actual control (as updated herein) over the leased spectrum as well as retained ultimate and direct responsibility for spectrum lessees’ compliance with the Act and Commission policies and rules. 102 Specifically, the Commission proposed that a licensee entering into a leasing arrangement must, under the new standard: “( 1) retain full responsibility for compliance with the Act and our rules with regard to any use of licensed spectrum by any lessee or sublessee; (2) certify that each spectrum lessee (or sublessee) meets all applicable eligibility requirements and complies with all applicable technical and service rules; (3) retain full authority to take all actions necessary in the event of noncompliance, including the right to suspend or terminate the lessee’s operations if such operations do not comply with the Act or Commission rules.” 103 Comment was requested on this overall approach and on the proposed new standard. 104 47. At the same time, the Commission stated that it was not proposing to revise or limit the Intermountain Microwave standard in any other regulatory context, including determinations of “control” applicable for purposes of establishing designated entity status under the competitive bidding rules. 105 In this context, the Commission requested comment on whether and how the designated entity and entrepreneur policies and rules, including those relating to unjust enrichment, should be implemented with respect to spectrum leasing arrangements between designated entity licensees and third parties that do not qualify for the same status. 106 The Commission noted that, while interested in promoting leasing, it also sought to ensure that its approach would not invite circumvention of the underlying purposes of these designated entity- related policies and rules. 107 100 See generally NPRM at ¶¶ 73- 76, 78- 80. The Commission tentatively concluded that many spectrum leasing arrangements of the nature proposed in the NPRM would likely constitute a transfer of de facto control under the Intermountain Microwave standard. Id. at ¶¶ 72- 76. The Commission was mindful that the statutory requirements of Section 310( d) impose some limitations on the types of arrangements that licensees could enter into with third parties without Commission approval. See NPRM at ¶¶ 13- 14, 70. See also Policy Statement at ¶¶ 1, 24, 27 (noting that statutory obligations must be addressed as the Commission proceeds to promote secondary markets in spectrum usage rights). 101 As noted in the NPRM, the Commission has consistently interpreted Section 310( d) as requiring prior Commission approval when licensees transfer either de jure or de facto control of their licenses to third parties. NPRM at ¶ 70; see, e. g., Lorain Journal Co. v. FCC, 351 F. 2d 824, 828- 29 (D. C. Cir. 1965) (affirming Commission precedent that “control” under Section 310( d) refers to both de jure and de facto control), cert. den., 383 U. S. 967 (1966); Telephone and Data Systems, Inc. v. FCC, 19 F. 3d 42, 48 (D. C. Cir. 1994). 102 See NPRM at ¶¶ 78- 80. 103 Id. at ¶ 79. 104 The Commission recognized, however, that even under a revised standard, certain types of spectrum leasing arrangements might constitute a transfer of de facto control under Section 310( d). See id. at ¶¶ 78- 81. 105 Id. at ¶ 77, citing Implementation of Section 309( j) of the Communications Act – Competitive Bidding, Fifth Memorandum Opinion and Order, 10 FCC Rcd 403 (1994) (Competitive Bidding Fifth MO& O) and Amendment of Part 1 of the Commission’s Rules – Competitive Bidding Procedures, Order on Reconsideration of the Third Report and Order, Fifth Report, and Fourth Notice of Proposed Rulemaking, 15 FCC Rcd 15293 (2000) (Part 1 Fifth Report and Order). 106 NPRM at ¶¶ 44- 45, 47- 48, 52- 55, 77. 107 Id. at ¶ 43. 24 Federal Communications Commission FCC 03- 113 22 48. As previously noted, all parties commenting on Intermountain Microwave urged the Commission to replace that de facto control standard with one that would allow parties to enter into spectrum leasing arrangements that would not constitute transfers of de facto control requiring Commission approval. 108 While many commenters contended that spectrum leasing would not involve transfers of de facto control under Section 310( d), 109 others indicated that leasing arrangements might well involve transfers of control of licensees’ spectrum usage rights to lessees requiring some form of FCC consent. 110 Finally, a number of commenters also stated that the Commission should consider forbearance from Section 310( d) requirements with regard to spectrum leasing arrangements. 111 49. Several parties supported the general approach advanced in the NPRM of devising a new de facto control standard that would hold licensees ultimately responsible for their lessees’ compliance with Commission rules with respect to the leased spectrum. 112 While many commenters also stated that the Commission could design a new standard that allowed leasing to proceed without the need for its approval, 113 some expressed concern that the standard proposed in the NPRM might not be consistent with Section 310( d). 114 A number of commenters objected to the proposal insofar as it required licensees to certify to their lessees’ compliance with the Act and Commission rules or engage in some form of supervision or oversight of their lessees’ activities. 115 To the extent, however, the Commission 108 See, e. g., AMTA Comments at 4; Cook Inlet Comments at 12- 13; CTIA Comments at 11- 13; El Paso Global Comments at 11; Nextel Comments at 3- 4; Pacific Wireless Comments at 6; Teligent Comments at 5- 6; Winstar Comments at 9. 109 See, e. g., AT& T Wireless Comments at 12- 14 (spectrum leasing would not constitute a transfer of de facto control); Nextel Comments at 10 (same); RTG Comments at 24 (same); Verizon Wireless Comments at 5- 9 (same); Pacific Wireless Comments at 6. 110 See, e. g., Cingular Wireless Comments at 10- 13 (forbearance may be necessary to create regulatory certainty that spectrum leasing, absent Commission approval, would not violate Section 310( d)); Leap Wireless Reply Comments at 4 (spectrum leasing probably would constitute a transfer of de facto control); Vanu Comments at 8- 9 (flexible spectrum leasing arrangements may require FCC approval under Section 310( d)). 111 See, e. g., AT& T Wireless Reply Comments at 8; Cingular Wireless Comments at 10- 13 (forbearance may be necessary to create regulatory certainty that spectrum leasing, absent Commission approval, would not violate Section 310( d)); CTIA Comments at 16; El Paso Global Comments at 12; Enron Reply Comments at 4 & n. 7; RTG Comments at 24; Winstar Comments at 11- 12. 112 See, e. g., AMTA Comments at 3- 4; AT& T Wireless Comments at 10; Nextel Comments at 12; Pacific Wireless Comments at 3. 113 See, e. g., AT& T Wireless Comments at 13; LMCC Comments at 3; Pacific Wireless Comments at 6- 7; Sprint Comments at 2. 114 See, e. g., Cingular Wireless Comments at 10- 13 (proposed standard might not be consistent with Section 310( d) requirements relating to de facto control); Cingular Wireless Reply Comments at 8 (proposed test deals more with ultimate legal control than de facto control); Leap Wireless Reply Comments at 4. Other commenters recognized that spectrum lessees could gain de facto control of the license through leasing arrangements. They contended that, in the leasing context, any activities short of transferring de jure control or ownership to the lessees should not require Commission approval under Section 310( d). See, e. g., CTIA Comments at 15 (Commission should only be concerned about actual ownership of the license); Winstar Reply Comments, Attachment at 1 (proposing to define “secondary arrangements” in the Commission’s rules such that licensees would be “found to have maintained control of their licenses as required by Section 310( d) if they retain de jure control (i. e., legal ownership) of their licenses”). 115 See, e. g., AT& T Wireless Comments at 13 (objecting to proposed requirement that licensees certify to lessees’ compliance or otherwise be required to directly supervise or verify their lessees compliance); Blooston Rural Carriers Comments at 6- 7 (objecting to any due diligence requirement); Cook Inlet Comments at 5- 7 (same); (continued….) 25 Federal Communications Commission FCC 03- 113 23 determined that some form of licensee oversight was required in order that there be no transfer of de facto control under Section 310( d), a number of commenting parties requested that the Commission provide additional specificity regarding the nature of those oversight obligations. 116 Finally, several commenters suggested that the Commission, in designing its new de facto control standard, find guidance in the approach it took in the Guard Band Manager licensing scheme. 117 50. There was no consensus regarding comments specifically directed to designated entity and entrepreneur policies and rules. Some commenters contended that allowing designated entities to lease spectrum usage rights to entities that are not similarly qualified would create an end- run around these policies and rules. 118 Others, however, argued that the designated entity eligibility rules and related unjust enrichment rules should not be applied to designated entity licensees that choose to lease to entities that would not be qualified for the same designated entity status. 119 For the most part, these latter commenters contended that, since spectrum leasing should not be deemed a transfer of de facto control under Section 310( d), leasing would not trigger application of designated entity and entrepreneur licensee policies and rules. They also argued that designated entity licensees should have the same opportunities to lease spectrum to third parties as licensees that do not qualify as designated entities. 120 b. Discussion 51. We determine in this Report and Order that the time has come to replace the Intermountain Microwave standard with a new, more flexible de facto control standard for spectrum leasing that better balances the statutory requirements of Section 310( d) with more recent statutory and policy changes affecting Wireless Radio Services. As we discuss more fully below, the Intermountain Microwave “facilities- based” control standard is outdated in that it unnecessarily impedes the Commission’s efforts to develop flexible and efficient leasing arrangements that permit third- party access to unused or underutilized spectrum usage rights (for either short or long term). We therefore adopt a new set of criteria for determining de facto control based on the licensee exercising effective working control over the use of any spectrum it leases, as opposed to direct control of the facilities themselves. In addition, these criteria require the licensee to retain full responsibility for compliance with applicable interference and non- interference related service rules by the lessee, and to be primarily responsible to the Commission for all spectrum- related transactions and filings. 52. We conclude that this new standard for determining de facto control is consistent with the statutory requirements of Section 310( d) because it ensures that the licensee retains full control over the Pacific Wireless Comments at 5 (same); Rural Cellular Association Comments at 6 (objecting to defining licensees’ responsibility in such a manner that they would be required to monitor their lessees’ compliance); Securicor Comments at 10- 11, 15- 16 (same; licensees should be able to rely on their lessees’ certifications); Teligent Comments at 6- 8 (although licensees are ultimately responsible, they should be able to reasonably rely on their lessees’ certifications of compliance). 116 See, e. g., Cingular Wireless Comments at 3- 6; RTG Comments at 10- 20. 117 See, e. g., AMTA Comments at 3- 4; ITA Reply Comments at 3- 6; LMCC Comments at 7; Nextel Comments at 12; Pacific Wireless Comments at 3; Verizon Wireless Comments at 2- 3. 118 See, e. g., Leap Wireless Reply Comments at 1- 7; RTG Comments at 27; RTG Reply Comments at 17- 19. 119 See, e. g., Alaska Native Wireless Comments at 9- 13; AT& T Wireless Comments at 8- 9; Blooston Rural Carriers at 5- 6; Cingular Wireless Comments at 8; Cook Inlet Comments at 7- 9; NTCA Comments at 6- 8; U. S. Small Business Administration Comments at 1- 4. 120 See, e. g., Alaska Native Wireless Comments at 9- 13; Cook Inlet Comments at 7- 9. 26 Federal Communications Commission FCC 03- 113 24 core spectrum management responsibilities that we require under Title III of the Act. Where the licensee retains such control over spectrum use, we also conclude that Section 310( d) does not require us to consider the lessee’s control of facilities as a determinative factor in our evaluation of de facto control. Moreover, to the extent that the lessee’s control of facilities under this model may raise policy issues within the Commission’s regulatory purview, the leasing rules and notification procedures discussed below that we adopt in this Report and Order provide the means to address them. 53. We emphasize that at this time we are replacing the Intermountain Microwave standard for assessing de facto control only in the context of spectrum leasing. 121 In the Further Notice, we ask specifically about whether we should replace the Intermountain Microwave standard with a new de facto control standard, or some other substitute, in other regulatory contexts where it is employed. 122 (i) Rationale for revising the Section 310( d) de facto control standard for spectrum leasing 54. Fundamental changes in the Commission’s spectrum policies and the licensing models in the Wireless Radio Services, including those responsive to amendments to the Communications Act, have led us to reevaluate the continued appropriateness of the Intermountain Microwave standard 123 for evaluating whether a licensee retains de facto control of its license in the context of spectrum leasing. As discussed in the NPRM, even as the Commission has continued to apply the Intermountain Microwave test since the original 1963 decision, through the years it has recognized the need to evaluate the continued viability of that test in light of changing circumstances and current realities. 124 We have broad authority to interpret the requirements of the Communications Act, 125 and have significant discretion to revise existing policies, including the Intermountain Microwave de facto control interpretation, upon providing a reasoned basis for the policy revision. 126 We now determine that, in the context of spectrum leasing, retaining the Intermountain Microwave standard for evaluating de facto control issues under Section 310( d) no longer serves the public interest. Specifically, we determine that with regard to spectrum leasing, a new de facto control standard – one that continues to require that licensees exercise sufficient working control over the use of their leased spectrum so as to be consistent with the requirements of Section 310( d), but also allows additional flexibility to licensees to enter into certain types of leasing arrangements without the need for prior Commission approval – should replace the standard set forth in Intermountain Microwave and its progeny. 55. In establishing the new standard, we first observe that the methodology for determining when de facto transfers of control occur will vary depending on a variety of factors, including the types of 121 This is consistent with the proposal set forth in the NPRM. See NPRM at ¶ 77. Specifically, we are not at this time modifying the de facto control, ownership attribution, affiliation, or similar standards that are applied in special circumstances to determine eligibility or ownership and control of a licensee or applicant. See id. 122 See Section V. D, infra. 123 In referencing the Intermountain Microwave standard, we also include the similar Motorola standard. 124 NPRM at ¶¶ 75- 76. 125 Id. at ¶ 71. Congress left the task of defining “control” to the Commission, and we are not bound by any exact formula in our determination of whether control under Section 310( d) has been transferred. Id. 126 See, e. g., Telephone and Data Systems, Inc. v. FCC, 19 F. 3d 42, 49 (D. C. Cir. 1994); Federal National Association for Better Broadcasting v. FCC, 849 F. 2d 665, 669 (D. C. Cir. 1988); Telecommunications Research and Action Center v. FCC, 800 F. 2d 1181 (D. C. Cir. 1986). 27 Federal Communications Commission FCC 03- 113 25 services at issue, the public interest requirements that are relevant to those services, and the type of control that is most relevant to such services. 127 At a minimum, the de facto transfer of control test for a particular class of services must focus on the type of control that would be necessary in order to ensure that the licensee satisfies the public interest requirements that the Commission has identified as critical to the provision of such services. Thus, as a general matter, revision of the test may be warranted as the public’s interests and needs change and the nature of a service evolves. In particular, continuing to focus on one type of control (e. g., control over facilities) may no longer constitute the best way to further the complex and sometimes competing public interest goals of today. This is the conclusion we have reached with respect to many of our Wireless Radio Services. 56. During the last several years – in response to changes in the Communications Act and as part of the Commission’s ongoing efforts to facilitate market- oriented spectrum licensing and allocation as well as deregulatory, pro- competitive policies – the Commission has made significant advances in improving its spectrum policies relating to Wireless Radio Services to serve the public interest. Congressional revisions to the Communications Act in the last two decades have provided significant new directives to the Commission that encourage and enhance its ability to fashion more flexible spectrum policies. For instance, in 1983, Congress added Section 7( a), establishing that the policy of the United States is “to encourage the provision of new technologies and services to the public.” 128 In 1993, Congress amended Title III of the 1934 Act to authorize the Commission to assign licenses through competitive bidding procedures, and directed that the Commission in designing those procedures implement policies that promote the efficient and intensive use of spectrum, opportunities for new entrants to provide spectrum- based services, and investment in and rapid deployment of new technologies and services. 129 The 1993 amendments to the Act also required that more spectrum be transferred from federal government use to commercial use, 130 and gave to the Commission the authority to forbear from enforcing certain statutory provisions and rules applicable to telecommunications services that no longer serve the public interest. 131 In the Telecommunications Act of 1996, Congress made sweeping changes to the Communications Act of 1934 – primarily in connection with wireline telecommunications services, but with significant effects on certain spectrum- based services as well 132 – in order to “promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” 133 Finally, in the Balanced Budget Act of 1997, Congress expanded the Commission’s auction authority, provided for the transfer of additional spectrum from federal 127 For example, a practice in the broadcast services that places ultimate programming decisions in the hands of a non- licensee will raise significant transfer of control issues, while in the Wireless Radio Services, programming practices have not been particularly relevant to the Commission’s transfer of control determinations. See, e. g., Cablecom- General, 87 FCC 2d 784, 788- 91 (1981) (discussing different public interest concerns regarding Section 310( d) analysis as between broadcast licensees and common carrier licensees). 128 See 47 U. S. C. § 157( a). 129 See 47 U. S. C. §§ 309( j)( 3), (4). 130 See 47 U. S. C. § 923. 131 See 47 U. S. C. § 159. 132 For example, Congress eliminated the cap on license terms for non- broadcast spectrum licenses in Section 307( c) of the 1934 Act. 47 U. S. C. § 307( c). 133 See Preamble to the Telecommunications Act of 1996. 28 Federal Communications Commission FCC 03- 113 26 government use, and granted the Commission explicit authority to allocate electromagnetic spectrum so as to promote the most efficient use of the spectrum. 134 57. For its part, the Commission has promoted innovative policies and licensing models that seek to increase communications capacity and efficiency of spectrum use, and make spectrum available to new uses and users. Of particular importance for this proceeding is the Commission’s embrace of policies that provide exclusive use licensees in the Wireless Radio Services with increased flexibility to make use of their licensed spectrum in ways that respond quickly and effectively to evolving needs (e. g., consumer demands), technologies (e. g., access- enhancing or efficiency- improving innovations), and market developments. 135 Typified by the Part 24 rules for broadband Personal Communications Services, the Part 27 rules for Wireless Communications Services, and the Part 101 rules for the 39 GHz Service, these licensing models have provided licensees increasing flexibility with regard to the applicable technical and service rules. In adopting these more flexible rules, the Commission has determined that it is in the public interest to afford Wireless Radio Services licensees significant flexibility in the design of their systems to respond readily to consumer demand for their services, thus allowing the marketplace to dictate the best uses of the licensed spectrum. 136 58. Another noteworthy step in providing new kinds of flexibility to licensees was the Commission’s introduction of the band manager licensing concept. In this context, the Commission expressly authorized licensees to be in the business of leasing their licensed spectrum to third- party users. 137 First implemented in 2000 in the 700 MHz Guard Band, the band manager licensing scheme was devised to enable spectrum users to gain access to spectrum and to build and operate their systems without the requirement that they hold individual license authorizations. 138 The Commission emphasized that band manager spectrum leasing served several public interest goals, including: providing licensees with incentives to maximize the efficient use of spectrum; enabling spectrum users to gain access to the amount of spectrum (in terms of quantity, length of time, and geographic area) that is best suited to their business needs; enabling more market- based determinations about how best and most efficiently to use 134 See 47 U. S. C. § 925 nt (Section 3002 of the Balanced Budget Act of 1997). 135 See generally NPRM at ¶¶ 93- 94 (discussing the Commission’s adoption of flexible use policies). We note that, as a general matter, the Spectrum Policy Task Force also has emphasized the benefits of the adoption of these flexible use policies. See generally Spectrum Policy Task Force Report at 3, 5, 15- 19, 21, 35- 39. We also note, of course, that the Commission’s flexible use policies are by no means limited to Wireless Radio Services. 136 See, e. g., Amendment of the Commission’s Rules Regarding the 37. 0- 38.6 GHz and 38. 6- 40.0 GHz Bands, Report and Order and Second Notice of Proposed Rulemaking, 12 FCC Rcd 18600, 18633- 34 (1997) (“ It is in the public interest to afford licensees flexibility in the design of their systems to respond readily to consumer demand for their services, thus allowing the marketplace to dictate the best uses of the band.”). 137 Through the years, the Commission has authorized various types of “excess capacity” leasing, such as that between Instructional Television Fixed Service (ITFS) and MMDS licensees and that involving FM subcarrier leasing. See generally 47 C. F. R. § 74. 931( c), (d), and (f) (ITFS leasing); 47 C. F. R. §§ 73. 293, 73. 295 (FM subcarrier leasing); see also Amendment of Part 101 of the Commission’s Rules to Streamline Processing of Microwave Applications in the Wireless Telecommunications Services, Report and Order, 17 FCC Rcd 15040 (2002) (permitting private operational fixed microwave services licensees to lease reserve capacity to common carriers); 47 C. F. R. § 101.603( b)( 1); NPRM at ¶ 16. It also permits third parties to gain access to spectrum by entering into local management agreements with broadcast licensees, provided the licensees retain de facto control of the licenses. See, e. g., Application of WGPR Inc. and CBS, Inc. For Assignment of License of WGPR- TV, Memorandum Opinion and Order, 10 FCC Rcd 8140 (1995). See also Guard Band Manager Order, 15 FCC Rcd at 5320 ¶¶ 43- 44 (discussing different types of leasing and sharing arrangements authorized by the Commission). 138 See Guard Band Manager Order, 15 FCC Rcd at 5312 ¶ 27, 5314- 5315 ¶ 33. 29 Federal Communications Commission FCC 03- 113 27 the limited spectrum resource; and, promoting the rapid development and deployment of new technologies, products, and services. 139 59. Our efforts to help promote more robust and effective secondary markets in spectrum usage rights are central to achieving additional improvement in these spectrum management policies. As underscored in the Policy Statement, the Commission’s secondary markets initiative seeks to significantly expand and enhance the existing secondary markets for spectrum usage rights to permit such rights to flow more freely among users and uses in response to economic demand, consistent with our statutory requirements. These more flexible secondary markets would make unused and underutilized spectrum held by existing licensees more readily accessible and available to other users and uses, and help to promote the development of new, spectrum efficient technologies. 140 The Commission noted also that an active secondary market – including the ability to lease spectrum usage rights to third parties (without the need to permanently transfer those rights to third parties) – would facilitate fuller utilization of spectrum by allowing more effective use of spectrum assigned to existing licensees, would increase the amount of spectrum available to prospective users, uses, and technologies, and would better ensure more effective and efficient use of the spectrum so as to maximize opportunities for new technologies, services, and users. 141 60. By its very nature, the Intermountain Microwave standard imposes significant constraints on the development of these secondary markets because it restricts the ability of licensees to make spectrum available for a defined period to third- party users that would prefer to construct and use their own facilities instead of being forced to rely on the licensees’ facilities and technology. 142 The Intermountain Microwave standard is a “facilities- based” standard that focuses on whether the licensee exercises close working control over many different aspects of the operation of the station facilities using the licensed spectrum. Specifically, applying a six factor test, the Commission examines whether the licensee: (1) has unfettered use of all station facilities and equipment; (2) controls daily operations; (3) determines and carries out the policy decisions (including preparation and filing of applications with the Commission); (4) is in charge of employment, supervision and dismissal of personnel operating the facilities; (5) is in charge of the payment of financial obligations, including expenses arising out of operations; and (6) receives the monies and profits from the operation of the facilities. 143 In sum, the Intermountain Microwave standard interprets Section 310( d) de facto control as requiring that licensees themselves exercise close working control of both the actual facilities/ equipment operating the radio frequency (RF) energy and the policy decisions (e. g., business decisions) regarding use of the spectrum. 61. The Intermountain Microwave standard for de facto control, and the particular factors specified therein, are not required by Section 310( d). In particular, the Act does not require a facilities-based de facto control standard whereby licensees are the only entities that can control the use of each facility and associated policies without Commission approval, and we conclude that such an interpretation 139 See id. at 5313- 5314 ¶¶ 29- 31. 140 See Policy Statement at ¶¶ 1- 2. 141 See id. at ¶¶ 9- 10, 12. 142 See NPRM at ¶¶ 73, 76; Policy Statement at ¶ 28. 143 See Intermountain Microwave, 12 FCC 2d at 559- 60. The Commission currently relies on the interpretation set forth in Intermountain Microwave when determining whether there has been a transfer of de facto control under Section 310( d). See, e. g., In the Matter of Marc Sobel, Applicant for Certain Part 90 Authorizations in the Los Angeles Area, Decision, 17 FCC Rcd 1872, recon. denied, 17 FCC Rcd 8562 (2002). 30 Federal Communications Commission FCC 03- 113 28 is overly circumscribed and restrictive. 144 As discussed in the NPRM, the Commission is not bound by any exact formula for determining whether de facto control has been transferred, and control determinations must necessarily turn on the particular context involved. 145 Indeed, the Commission concerns itself with different issues relating to licensee control of its licensed spectrum depending on the particular service involved (e. g., broadcast vs. Wireless Radio Service), and has broad discretion to formulate distinct policies based on practical differences, including differing public interest objectives, among the services. 146 62. Based on our assessment of the record, we conclude that the Intermountain Microwave standard is increasingly out of step with the flexible spectrum use policies we are adopting in the Wireless Radio Services and that we consider essential to furthering our obligations to promote the public interest in today’s environment. 147 Intermountain Microwave was decided at a time when it was difficult to imagine a distinction between the business and infrastructure, on the one hand, and the actual use of the spectrum license, on the other. We also note that the standard was designed in a regulatory environment that significantly predates the flexible use licensing models (including large geographic area licenses) and technological advances (e. g., software- defined radios) that are making spectrum use increasingly divisible, fungible, and capable of being accessed in various dimensions (geography, bandwidth, and time) by different users on different systems. Its consequent focus on licensee control of facilities is no longer suited to the sea change in the regulatory and technological environment affecting most of our exclusive use Wireless Radio Services. Given these dramatic changes and our goals regarding spectrum access, we do not believe it makes sense to continue to require that a licensee have immediate direct control over every facility that operates using its licensed spectrum and nearly every aspect of the business plan, financing, and operations in connection with the use of the spectrum. Continued reliance on the Intermountain Microwave standard, particularly given that it is not required by statute, would unnecessarily impede our efforts to promote more ready access to spectrum with minimal transaction costs and to ensure that spectrum is put to its most highly valued use. 63. Accordingly, we adopt a more refined interpretation of the Section 310( d) de facto control standard in the context of spectrum leasing and today’s increasingly flexible regulatory policies. This revised standard will permit licensees and spectrum users to enter into certain types of leasing arrangements, without them being deemed transfers of de facto control that would require prior Commission approval, so long as the licensee maintains effective working control of the leased spectrum and has the ongoing responsibility for ensuring compliance with applicable Commission policies and rules during the term of the lease. This modification of the de facto control standard – which focuses on ensuring the licensee’s control of the proper use of its leased spectrum (i. e., compliance with the policies and rules applicable to the service) instead of the licensee’s own control of each of the facilities using the spectrum – is an important step in updating our policies affecting spectrum leasing to support our current spectrum use objectives 148 as well as the other statutory changes discussed above. 144 We discuss our legal analysis regarding de facto control under Section 310( d) in Section IV. A. 2, infra. 145 NPRM at ¶ 71. 146 See id. at ¶ 72; cf. Cablecom- General, 87 FCC 2d 784, 788- 91 (1981) (discussing different public interest concerns regarding Section 310( d) analysis as between broadcast licensees and common carrier licensees). 147 See also Policy Statement at ¶¶ 28- 29 (discussing the unnecessary constraints that the Intermountain Microwave standard has placed on leasing arrangements, and noting the Commission’s ongoing efforts to find ways to enable third parties to gain access to spectrum). 148 See generally Policy Statement. 31 Federal Communications Commission FCC 03- 113 29 (ii) Indicia of de facto control for spectrum leasing arrangements 64. In the context of spectrum leasing, we no longer interpret de facto control under Section 310( d) as requiring that the Wireless Radio Services licensees affected by this proceeding exercise close working control over, determine the services on, and set the policies affecting the station( s) operating with the spectrum licensed to them under their authorizations. Instead, when leasing spectrum, these licensees must act as spectrum managers to ensure that the spectrum lessees comply with applicable policies and rules. Our revision of the Section 310( d) de facto control standard for spectrum leasing draws significant guidance from the band manager licensing model. 149 When establishing the new band manager service, the Commission chose not to apply the “facilities- based” licensee approach of Intermountain Microwave when evaluating de facto control issues with respect to spectrum leasing. 150 Instead, it authorized licensees to lease spectrum to third parties for use on their own facilities, and determined that so long as the licensees carried out their specified responsibilities as band managers, the spectrum leasing would not be deemed a transfer of de facto control requiring Commission approval. The Commission determined that licensees, by exercising these responsibilities, would be able to ensure that the spectrum users’ activities with regard to the leased spectrum complied with the applicable interference and other services rules permitted under the license authorization, consistent with the Commission’s public interest objectives attached to that licensing scheme. 65. For all Wireless Radio Services affected in this proceeding, we establish the following standard for interpreting whether a licensee retains de facto control for purposes of Section 310( d) when it acts as a spectrum manager when leasing spectrum to a spectrum lessee: (1) The licensee remains responsible for ensuring the lessee’s compliance with the Communications Act and all applicable policies and rules directly related to the use of the spectrum. This responsibility includes maintaining reasonable operational oversight over the leased spectrum so as to ensure that the spectrum lessee complies with all applicable technical and service rules, including safety guidelines relating to radiofrequency radiation. In addition, the licensee must retain responsibility for meeting all applicable frequency coordination obligations and resolving interference- related matters, and must retain the right to inspect the lessee’s operations and to terminate the lease to ensure compliance. (2) The licensee is responsible for all interactions with the Commission, including notification about the spectrum leasing arrangement and all Commission filings required under the license authorization and applicable service rules that are directly related to the use of the leased spectrum. 149 When band manager licensing was established in the 700 MHz Guard Band, the Commission determined that band managers constituted a “new class” of licensee that was engaged solely in the business of leasing spectrum to third parties. Guard Band Manager Order, 15 FCC Rcd at 5312 ¶ 27. In this proceeding, we use the concept of a “spectrum manager” to apply to licensees affected in this proceeding and to distinguish these licensees from the class of licensees designated as “band manager” licensees. Pursuant to this Report and Order, licensees may continue to act as traditional facilities- based licensees exclusively, or they may choose to lease some or all of their spectrum to third parties by acting as spectrum managers of the spectrum that they lease. 150 See id., 15 FCC Rcd at 5319- 5323 ¶¶ 42- 50. The Guard Band Manager Order applicable to the 700 MHz band makes no mention of Intermountain Microwave, and does not conduct a de facto control analysis that focuses on whether the licensee controls the station facilities or policies associated with them. See id. 32 Federal Communications Commission FCC 03-