FCC TO CONSIDER RULE CHANGES TO FOSTER SECONDARY MARKETS

Industry observers said that ways to ease leasing by adding flexibility to the FCC’s rules had been eyed by rural carriers, software-defined radio developers and wireless operators looking to fill in spectrum gaps. “The kicker is that the FCC needs to do it in a way that provides certainty, flexibility and a business reality to these arrangements,” an industry source said. If the rule changes have “a lot of hoops and hurdles, it’s not going to happen.”

Finding easier ways to allow leasing of underutilized spectrum gets is one of the goals of last fall’s Spectrum Policy Task Force report, which concluded access to spectrum was a bigger problem than scarcity. The FCC’s Nov. 2000 proposal and policy statement (CD Nov 13/2000 p1) outlined possible steps to remove regulatory barriers to secondary wireless markets. Agency officials have said the further notice will take a broader look beyond commercial wireless spectrum to public safety and broadcast bands. The proposal sought feedback on issues such as whether lessees should be subject to build-out and other requirements of an original licensee. It examined how lessees should face a continuum of options on how service rules applied to licensees, ranging from a lessee being subject to the same restrictions as a licensee, to scenarios in which some limits wouldn’t apply. The FCC indicated late Thurs. that an order and further notice on secondary markets would be on the May 15 meeting agenda.

The order, which runs to about 120 pages, is expected to divide leasing arrangements into several “buckets” to account for different levels of control being transferred, a source said. One category would cover leasing arrangements that didn’t amount to de jure or de facto transfer of control while another would cover agreements that amounted to de facto control by a lessee, although a licensee would retain de jure control, the source said. A 3rd bucket would include short-term leases. Different rules would be associated with each set of circumstances, the source said. An example in which a lessee had “de facto” control while a licensee kept “de jure” control could be a case in which the holder of a 10-year license completely transferred use of that spectrum to a 3rd party for 5 years but at the end of that period retained full ownership rights, the source said. The source said an example of “short-term” leasing could cover situations such as the Olympic Games in which service providers needed more capacity, but for a limited time.

Among the considerations the FCC has been assessing is how to ensure that service rules that go with a particular block of spectrum can transfer to a lessee “to make sure that you don’t lease it out to someone for a purpose it was not meant to be used for,” an industry source said. “As a licensee, you can’t give away more than you have. If you aren’t vested with the authority to do something, you can’t - - simply by leasing it -- give full authority” to someone else, the source said.

Another issue is how the FCC divides the compliance obligations of licensees versus those of lessees. The agency proposed that licensees retain ultimate responsibility for ensuring that lessees comply with FCC policies. “If the Commission holds licensees strictly liable for the actions of independent lessees, RTG [Rural Telecommunications Group] and the majority of commenters believe that a secondary market will flounder,” RTG said in an FCC filing this week. Groups representing small or rural carriers have lauded the extent to which secondary spectrum markets could provide more financial muscle for rural telcos seeking access to capital for building out their networks. One secondary market concern of rural carriers has been the reluctance of wireless operators to use partitioning and disaggregation to free up underutilized spectrum. The issue has been that although those rules were crafted to make it easier for carriers to break apart spectrum more easily to serve rural areas, there have been few regulatory incentives for doing so.

“If the Commission determines that it will follow the approach prevalent in the commercial leasing world, whereby lessors are not responsible for the torts, misdemeanors and felonies committed by independent lessees, spectrum leasing will flourish,” RTG said. It said it backed the FCC proposal to “radically alter” its Intermountain Microwave test to determine whether a licensee actually controlled its license under Sec. 310(d) of the Communications Act. That section requires that a licensee seek FCC consent before control is transferred to another party. RTG told the agency that it should place ultimate responsibility for compliance with its rules not on the lessor, but on the entity leasing the spectrum. “Not only does the Communications Act provide the Commission with jurisdiction over these spectrum lessees, but imposing these obligations on lessees focuses enforcement on the party that is directly responsible without implicating innocent licensees.”

Separately, Sprint told the FCC this week that companies should be “free to use negotiated contracts to develop terms that address unique needs of each situation.” The carrier said the Commission’s goal should be to remove hurdles so that market forces could operate, rather than to mandate the terms on which spectrum markets emerged. Sprint stressed the “widespread consensus” backing the FCC’s secondary markets proposal and the extent to which the Commission had statutory authority to carry that out. In Sec. 310(d), Congress requires the FCC to approve “transfer of control” of a radio license but doesn’t define “control.” Sprint said the Supreme Court had viewed the FCC as having broad discretion to interpret the requirements of the Act and the Commission already had determined that leasing for band managers, Instructional TV Fixed Service Licensees and fixed satellite operators was in line with Sec. 310. In a separate filing Tues., AT&T Wireless cited “the positive effect flexible leasing rules for commercial mobile services spectrum would have on the deployment of advanced wireless systems in rural areas across the United States.”

Aside from the interest of rural carriers and others, developers of software-defined radios also have been eyeing the outcome of the secondary markets issues. Last fall, FCC Chmn. Powell cited technology such as software defined radios as capable of factoring the “time dimension” of spectrum use by filling in unused spectrum gaps when a band wasn’t in use. Officials have said that could let licensees rent certain bands when available. Such technology involves a transmitter in which frequency range or modulation can be altered by changing software rather than hardware. One way that could work would be a case in which a PCS provider needed additional capacity and a licensee in another band hadn’t yet constructed its system and didn’t plan to use it for a certain period, an industry source said. Typically, a carrier would have to distribute new handsets to customers to use that spectrum, the source said. “If my customers have SDRs, I can download over the air to those radios” so those handsets are reprogrammed as often as needed to provide information on what spectrum is available. “Extend this concept a little bit and you can be leasing spectrum by the day or by the month or even by the second,” the source said. “If a particular service has a momentary lull and my cell service is overloaded, why not lease spectrum from the guy who has the momentary lull?”

One question is how enforcement fits into more flexible leasing rules, several sources said. A potential issue is that the Communications Act allows the FCC to enforce more heavily against licensees and common carriers than against other violators of its rules, an industry source said. “An issue likely to come up here is the extent of the Commission’s jurisdiction to enforce against nonlicensees.”

Another idea reportedly of interest to the FCC, but that isn’t expected to be in the order, is the usefulness of a spectrum clearinghouse. The FCC probably would support that concept but it would be run by the private sector, an industry source. It could provide a centralized database of available spectrum for those interested in leasing, the source said.

That idea has been advocated by Cantor Fitzgerald Telecom Services, which could provide such a capability, Washington attorney Andrew Lipman said. FCC officials have been “generally congenial” in recent meetings on the idea of outsourcing such a database or information clearinghouse, he said. While the proceeding is nearly 3 years old, “the interest is at least as strong as it was back then,” Lipman said. The European Union’s Directorate General XIII has been exploring the concept, as has the U.K. Radio Authority, he said. “Cantor’s interest in this is to essentially establish and run the infrastructure and framework that would permit fairly seamless trading of spectrum,” he said. “Their interest is not to be a spectrum holder themselves but to set up the processes, systems and infrastructure that would allow a market for these traded frequencies to operate.” In FCC filings, Cantor has pitched its role in such secondary markets as that of intermediary, allowing a buyer to find a seller “with a trading tool and standardized trading conditions [that] will bring transparency to the market place.” On the wireline side, there is trading of phone min., fiber capacity and satellite transponder capacity, Cantor said. There’s virtually none on the spectrum side “due to restrictive license conditions.” Lipman said the proceeding expanded on many of the market-oriented ideas in the Spectrum Policy Task Force report, including a “move away from a command-and-control approach on regulatory issues to more flexible, diversified approach.”

The earlier proposal didn’t contain potential changes for broadcasting and public safety. The Spectrum Policy Task Force developed some of those ideas and received feedback in areas such as software defined radios. The task force also raised the possibility of letting public safety operators lease underutilized spectrum under a system that would let them reclaim it on a priority basis if needed for emergencies (CD April 15 p1). The further notice is expected to cover broadcast and public safety issues.

In other areas, RTG asked the FCC to look at how it could help mitigate the risk to lessees if the licensee leasing the spectrum entered bankruptcy. The issue appeared to be what would happen if the licensee did so and tried to rescind the leases. RTG asked that the FCC consider allowing temporary operating authority by the lessee if the underlying licensee filed for bankruptcy. “In addition, the Commission should explore how bankruptcy issues may affect the robustness of any secondary market for spectrum,” RTG said. The U.S. Supreme Court’s ruling in the NextWave case, on the FCC’s role as a regulator under the Communications Act versus actions it could take under bankruptcy law, could limit the protections the agency could offer, a source said. -- Mary Greczyn

FCC Issues Agenda for Open Meeting

Along with the secondary markets item, the FCC at its agenda meeting will consider a proposal that could clear the way for Wi-Fi applications to operate in the 5 GHz band while protecting military radar that also is located there. Also on the agenda: (1) Revisiting separate affiliate requirements for Bell companies under Sec. 272 of the Telecom Act. The agency said it would look at “the appropriate classification” of Bell companies and other ILECs in providing in-region long distance service “and how changes in the competitive landscape” affect this classification. (2) Possible improvements in the operation of telecom relay services and action to resolve some outstanding regulatory issues on reconsideration.