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FEDERAL COMMUNICATIONS COMMISSION

Treasury Department

CFR Citation: 47 CFR Parts 1 and 27

Docket ID: [WT Docket No. 00-230; FCC 03-113]

NOTICE: Part III

DOCUMENT ACTION: Final rule.

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

DATES: Effective January 26, 2004, except for Sec. Sec. 1.913(a), 1.913(a)(3), 1.2002(d), 1.2003, 1.9003, 1.9020(e), 1.9030(e), and 1.9035(e), which contain information collection requirements that are not effective until approved by the Office of Management and Budget (OMB), and 1.948(j), which is effective on April 5, 2004. The agency will publish a document in the Federal Register announcing the effective date of the rules that require information collection.

DOCUMENT SUMMARY: In this document, we adopt final rules that remove unnecessary regulatory barriers to the development of more robust secondary markets in radio spectrum usage rights. First, we promote the wider use of spectrum leasing arrangements by facilitating the ability of licensees in our Wireless Radio Services that hold ``exclusive'' authority to lease some or all of their spectrum usage rights to third parties for any amount of spectrum and in any geographic area encompassed by the license, for any period of time within the term of the license. Second, we adopt streamlined approval procedures for license assignments and transfers of control in these Wireless Radio Services.

SUMMARY: Federal Communications Commission,

SUPPLEMENTAL INFORMATION

This is a summary of the Commission's Report and Order portion (Report and Order) of the Commission's Report and Order and Further Notice of Proposed Rulemaking, FCC 03113, in WT Docket No. 00230, adopted on May 15, 2003, and released on October 6, 2003. Contemporaneous with this document, the Commission issues a Further Notice of Proposed Rulemaking (published elsewhere in this publication). The full text of this document is available for inspection and copying during normal business hours in the FCC Reference Information Center, 445 12th Street, SW., Washington, DC 20554. The complete text may be purchased from the FCC's copy contractor, Qualex International, 445 12th Street, SW., Room CYB402, Washington, DC 20554. The full text may also be downloaded at: http://www.fcc.gov. Alternative formats are available to persons with
disabilities by contacting Brian Millin at (202) 4187426 or TTY (202) 4187365 or at Brian.Millin@fcc.gov. Paperwork Reduction Act

This R&O contains a new information collection as described in Section D of the Final Regulatory Flexibility Analysis in Appendix C infra. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to comment on the information collection(s) contained in this R&O as required by the Paperwork Reduction Act of 1995, Public Law 10413. It will be submitted to the Office of Management and Budget (OMB) for review under Section 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the new information collection(s) contained in this proceeding. Public and agency comments are due January 26, 2004. Comments should address: (a) Whether the new or modified collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.

OMB Control Number: 3060xxxx.

Title: Promoting Efficient Use of Spectrum through Elimination of Barriers to the Development of Secondary Markets.

Form No.: FCC Form 603.

Type of Review: New collection.

Respondents: Business or other forprofit.

Number of Respondents/Annually: 71,262.

Estimated Time per Response: 9 hrs.

Total Annual Burden: 641,311 hrs.

Total Annual Costs: $117,088,018.33

Needs and Uses: The required notifications and applications will provide the Commission with useful information about spectrum usage and helps to ensure that licensees and lessees are complying with Commission interference and noninterference related policies and rules. Similar information and verification requirements have been used in the past for licensees operating under authorizations, and such requirements will serve to minimize interference, verify that lessees are legally and technically qualified to hold licenses, and ensure compliance with Commission rules.
Synopsis of the Report and Order
I. Introduction

A. Wireless Radio Services

1. In the Report and Order, we take several actions to remove unnecessary regulatory barriers to the development of secondary markets in spectrum usage rights in the Wireless Radio Services. Specifically, we take several 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 interpretation of the de facto control standard relating to section 310(d) of the Communications Act, 47 U.S.C. 310(d), in the context of spectrum leasing, replacing the standard that has been in place since 1963 under the Intermountain Microwave decision, 12 FCC 2d 559 (1963), with a refined standard that better accords with our contemporary marketoriented spectrum policies, fastchanging consumer demands, and technological advances. 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 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.

2. We implement two different options for spectrum leasing. One option enables licensees and ``spectrum lessees'' to enter into leasing arrangements, without the need for Commission approval, so long as the licensee retains de jure control of the license and de facto control of the leased spectrum under the newly refined standard. The other option permits parties to enter into
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arrangements in which the licensee transfers de facto control to the lessee pursuant to streamlined approval procedures.

3. In addition, 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.

B. Satellite Services

4. Based on the record before us, we decline to revise the rules governing fixed and mobile satellite services in this Report and Order. We find that the current market for transponder leasing and access to unused spectrum allocated to satellite services through Special Temporary Authority appears to be working well.

II. Background

5. In November 2000, the Commission concurrently adopted the Policy Statement and the Notice of Proposed Rulemaking (NPRM), 65 FR 81475 (December 26, 2000), in this proceeding regarding secondary markets in spectrum usage rights. The Policy Statement enunciated general goals and principles for the further development of those secondary markets, while the NPRM proposed concrete steps the Commission might take to implement such policies with respect to Wireless Radio Services and Satellite Services. Thirtyseven parties commented on the proposals set forth in the NPRM, and twentyone filed reply comments.

6. In 2002, the Commission's stafflevel Spectrum Policy Task Force undertook a comprehensive review of spectrum policy. In examining 90 years of spectrum policy, the Task Force sought to assist the Commission in developing policies that are more responsive to the consumerdriven evolution of new wireless technologies, devices, and services. 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.
III. Report and Order
A. Spectrum Leasing Arrangements in Wireless Radio Services 1. Facilitating the Use of Spectrum Leasing Will Further the Public Interest

7. In this Report and Order, we find 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, we grant those licensees holding exclusive use licenses in the Wireless Radio Services identified in this Report and Order 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 herein. We also 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.

8. We establish a revised de facto transfer of control standard 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 and 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 control of the license and de facto control of the leased spectrum (under the updated de facto control standard that replaces the Intermountain Microwave standard 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. 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 second 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 this ``de facto transfer'' leasing, spectrum lessees will be held directly and primarily responsible for compliance with applicable policies and rules.
2. Revising the Section 310(d) De Facto Control Standard for Spectrum Leasing

9. We 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. The Intermountain Microwave ``facilitiesbased'' 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.
a. Rationale for Revising the Section 310(d) De Facto Control Standard for Spectrum Leasing

10. We 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 a new de facto control standardone 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 approvalshould replace the standard set forth in Intermountain Microwave and its progeny.

11. 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 thirdparty users that would prefer to construct and use their own facilities instead of being forced to rely on the licensees' facilities and technology. The Intermountain Microwave standard is a ``facilitiesbased'' 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)
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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. 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.

12. 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 facilitiesbased 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 is overly circumscribed and restrictive.

13. 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. 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.
b. Indicia of De Facto Control for Spectrum Leasing Arrangements

14. 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.

15. For all Wireless Radio Services affected in this proceeding, we establish the following two factors 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. First, 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 interferencerelated matters, and must retain the right to inspect the lessee's operations and to terminate the lease to ensure compliance. Second, 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.

16. Licensee responsibility for lessee compliance with Commission policies and rules. Under the first factor, the licensee remains fully responsible for ensuring that its lessee's operations are in compliance with the Communications Act and all applicable policies and rules directly related to the use of the spectrum. This retention of legal and actual control of the spectrum requires the licensee to take steps through contractual provisions and actual oversight and enforcement of such provisions to ensure that the spectrum lessee operates in conformance with applicable technical and use rules governing the license authorization. In addition, this means that a licensee must maintain a reasonable degree of actual working knowledge about the lessee's activities and facilities that affect its ongoing compliance with the Commission's policies and rules. These responsibilities include: coordinating operations and modifications of the lessee's system to ensure compliance with Commission rules regarding non interference with cochannel and adjacent channel licensees (and any authorized spectrum user); making all determinations as to whether an application is required for any individual lessee stations (e.g., those that require frequency coordination, submission of an Environmental Assessment under 47 CFR 1.1307, those that require international coordination, those that affect radio frequency quiet zones described in 47 CFR 1.924, or those that require notification to the Federal Aviation Administration under 47 CFR part 17); and, ensuring that the lessee complies with the Commission's safety guidelines relating to human exposure to radiofrequency (RF) radiation (e.g., 47 CFR 1.1307(b) and related rules). Furthermore, the licensee is responsible for resolving all interferencerelated matters, including conflicts between its lessee and any other lessee or licensee (or authorized spectrum user). We will permit a licensee to use agents (e.g., counsel, engineering consultants) when carrying out these responsibilities, so long as the licensee continues to exercise effective control over its agents' actions as necessary.

17. Other key elements of the licensee's continuing control are that it must be able to inspect the lessee's operations and that it must retain the right to terminate the lease in the event the spectrum lessee fails to comply with the terms of the lease and/or the Commission's requirements. If the licensee or the Commission determines that there is any violation of the Commission's rules or that the lessee's system is causing harmful interference, the licensee must immediately take steps to remedy the violation, resolve the interference, suspend or terminate the operation of the system, or take other measures to prevent further harmful interference until the situation can be remedied. If the lessee refuses to resolve the interference, remedy the violation, or suspend or terminate operations, either at the direction of the licensee or by order of the Commission, the licensee must use all legal means necessary to enforce the order.

18. Licensee responsibility for interactions with the Commission, including all filings, required under the license authorization and applicable service rules directly related to the leased spectrum. Pursuant to the second factor, the licensee is required to engage in all of the licensee interactions with the Commission that are required under the applicable service rules and policies and are directly related to the use of the spectrum. As a preliminary matter, the licensee must file the necessary notification with the Commission, [[Page 66255]]
including information establishing the spectrum lessee's eligibility to lease the spectrum pursuant to the rules applicable to this type of leasing arrangement. In addition, the licensee is responsible for making all required filings (e.g., applications, notifications, and correspondence) associated with the license authorization that are directly affected by the lessee's use of the licensed spectrum. Licensees may use agents (such as counsel and engineering consultants) to complete these electronic filings, just as they do now under current policies.

19. We will not hold the licensee responsible for the lessee's compliance with Commission rules and policies (and associated interactions with the Commission) that are not directly related to the use of the leased spectrum. To the extent a spectrum lessee provides a communications service over the leased spectrum, it may become subject to certain rules and regulatory treatment based on its provision of such service. For instance, lessees that operate as common carriers would have certain rights and obligations under Title II of the Act based on their regulatory status as service providers. Lessees acting as telecommunications carriers may also have certain funding obligations (e.g., universal service fund). Lessees may also provide other types of services (e.g., noncommon carrier services, information services, etc.) that subject them to other provisions of the Act and specified regulatory treatment independent of their status as spectrum lessees. In these circumstances, the licensee should not have any responsibility for the lessee's compliance or interactions with the Commission.

20. Reliance on contractual provisions. The obligations imposed on the licensee and lessee in the context of our revised de facto control standard may be reinforced by the terms of the contract between the parties. Thus, one would expect the spectrum leasing agreement to identify the right of the spectrum lessee to use certain frequencies within the licensee's service area. The agreement may well detail the operating parameters of the lessee's system (e.g., power, maximum antenna heights, frequencies of operation, base station location(s), area(s) of operation, and other parameters) as appropriate, depending upon the service involved and the nature of the lease. The spectrum lessee would agree to operate its system in compliance with all technical specifications for the system consistent with Commission rules. In sum, we will allow parties to determine precise terms and provisions of their contract, consistent with, and except as otherwise reflected in, the mandates, requirements, and other obligations set out in this Report and Order. We note, however, that to the extent that parties' leasing arrangements entered into pursuant to this revised de facto control standard do not in fact embody the principles set forth above, the Commission may determine that the lease constitutes an unauthorized transfer of control and pursue appropriate enforcement action.
c. Consistency of the New De Facto Control Standard for Spectrum Leasing With Section 310(d) Requirements

21. Neither the specific language of Section 310(d) nor the general statutory framework of the Communications Act requires that the Commission apply a facilitiesbased de facto control analysis when interpreting section 310(d) requirements. Rather, the specific factors employed in that type of analysis were derived from the Commission's determination, at that time, that there were a particular set of powers and responsibilities that the licensee should not relinquish in holding a license in order that the Commission conclude that the licensee had not ``transferred, assigned or disposed of in any manner'' a ``construction permit or station license, or any rights thereunder.''

22. Section 310(d)'s purpose generally is to ensure that a licensee that the Commission has already passed upon as qualified in a particular service retains both de jure and de facto control over the licensed spectrum pursuant to the Act and applicable policies and rules, remains directly accountable to the Commission for ensuring that the licensed spectrum is used in compliance with applicable policies and rules, and prevents ultimate control of the license from being delegated to a nonlicensee without Commission approval. We conclude that providing licensees with the flexibility to lease certain of their spectrum usage rights to third parties, without the need for Commission approval, is consistent with the section 310(d) requirements so long as the licensee exercises both de jure control and de facto control, as we have refined that latter standard in the spectrum leasing context.

23. While the refined de facto control standard adopted above departs from the specific factors set forth in Intermountain Microwave, the two approaches share a fundamental interpretation of statutory requirements under section 310(d). Under both approaches, a licensee's continued control over the licensed use of spectrum lies at the heart of what it means to retain the license and the rights thereunder. Where the two standards differ is in the significance attached to certain nonlicensed activities that relate to the license, and in the degree of control that a licensee must retain over its license and specific license rights to avoid a determination that it has ``transferred, assigned, or disposed of in any manner'' such license or rights.

24. Under the Intermountain Microwave analysis set forth in the Commission's 1963 decision, various specified activities, rights, roles, and obligations not covered by the license itselfsuch as the financing of station operations, the employment of station personnel, and the receipt of profits from station operationsbear on the question of whether a licensee has, in some manner, disposed of its license or any rights thereunder. The financing of station operations or the receipt of station profits, for example, were deemed to implicate section 310(d) not because the licensee had disposed of a right under the license to finance the station facilities or to receive profits (which are not, after all, rights under the license), but instead because the Commission had decided at the time of that decision that when a nonlicensee assumes this type of role, the licensee may have partially or indirectly relinquished (i.e., ``transferred, assigned, or disposed of in any manner'') its licensed right to use the spectrum. Today's wireless communications environment, however, has dramatically changed from 1963, and we can no longer generally assume that the licensee must perform nonlicensed activities identified by Intermountain Microwaveeither individually or togetherin order to conclude that the licensee has retained its license and all rights thereunder.

25. We observe that even under Intermountain Microwave, a non licensee's mere use of licensed spectrum does not necessarily imply that the licensee has transferred, assigned or disposed of the license or any license rights. The linchpin is control. If the licensee continues to hold a sufficient degree of control over the non licensee's use, there has been no transfer, assignment, or disposition. The necessary degree of control that the licensee exercises with regard to the third party's spectrum use need not be complete; so long as the licensee retains the requisite degree of control over a license right, the licensee may permit a third party certain use of the licensed spectrum without disposing of that right, even if the third party uses the
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spectrum on a daily basis without direct supervision, and even if that licensee has given the third party certain enforceable rights to continue that use.

26. We have structured the new de facto control standard to include a set of core responsibilities (described above) that a licensee must retain, and cannot delegate to a spectrum lessee, in order to maintain a level of control over a lessee's use of the spectrum sufficient to satisfy the underlying purposes of section 310(d). These
responsibilities are defined by their statutory or regulatory relevance. A licensee exercising these defined responsibilities with regard to the spectrum lessees and leased spectrum will effectively retain de facto control of the license under section 310(d), consistent with the public interest.

3. Wireless Radio Services Eligible for Spectrum Leasing

27. We will apply the spectrum leasing policies and procedures set forth in this Report and Order to all of the exclusive use licenses in the Wireless Radio Services that were included in the NPRM proposal. Thus, exclusive use licenses in the following services would be encompassed under the spectrum leasing procedures we adopt in this Report and Order: The Cellular Radiotelephone Service (part 22); the Rural Radiotelephone Service (part 22); the Offshore Radiotelephone Service (part 22); the AirGround Radiotelephone Service (part 22); the Paging and Radiotelephone Service (part 22); the narrowband Personal Communications Services (part 24); the broadband Personal
Communications Service (part 24); the Wireless Communications Service in the 698746 MHz band (part 27); the Wireless Communications Service in the 746764 MHz and 776794 MHz bands (part 27); the Wireless Communications Service in the 23052320 MHz and 23452360 MHz bands (part 27); the 220 MHz Service (excluding public safety licensees) (part 90); the Specialized Mobile Radio (SMR) Service in the 800 MHz and 900 MHz bands (including exclusive use SMR licensees in the General Category channels) (part 90); the Location and Monitoring Service (LMS) with regard to licenses for multilateration LMS systems (part 90); paging operations under part 90; the Business and Industrial/Land Transportation (B/ILT) channels (part 90) (which would include all B/ ILT channels above 512 MHz and those in the 470512 MHz band where a licensee has achieved exclusivity, but excluding B/ILT channels in the 470512 MHz band where a licensee has not achieved exclusivity and those channels below 470 MHz, including those licensed pursuant to 47 CFR 90.187(b)(2)(v)); the Local Multipoint Distribution Service (part 101); the 24 GHz Service (part 101); the 39 GHz Band (part 101); the Multiple Address Systems band (part 101); the Private Operational Fixed PointtoPoint Microwave Service (part 101); the Common Carrier Fixed PointtoPoint Microwave Service (part 101); and, the Local Television Transmission Service (part 101). New services in these parts also may be included within the spectrum leasing rules and policies adopted herein, subject to a separate determination to exclude a service in the proceeding establishing service rules. Nothing in this Report and Order is intended to supplant any existing rules or policies permitting shared operation of facilities, private carrier operation, or the sale of excess capacity on a licensee's system.

28. In addition, we will extend these leasing policies to two additional sets of exclusive use licenses: (1) VHF Public Coast Station licenses, a subset of the part 80 services, and (2) 218219 MHz Service, one of the part 95 services. Finally, we will apply these policies to the new part 27 services in the paired 13921395 MHz and 14321435 MHz bands and the unpaired 13901392 MHz, 16701675 MHz, and 23852390 MHz bands, as set forth in the order establishing these services. We permit spectrum leasing activities for all covered licensees, whether their authorized use is limited to private or non commercial operation, or not. For services where shared spectrum can become exclusive under a particular authorization as a result of surpassing loading levels as specified in the applicable rules, we will look at the specific authorization to determine whether it is exclusive on this basis such that the licensee could avail itself of our leasing procedures. Finally, in services where we have adopted licensing with a geographic service area overlay protecting incumbent Wireless Radio Service licensees, the remaining incumbents will also be permitted to engage in leasing. (To the extent an incumbent licensee is not a Wireless Radio Service licensee, as in the instance of broadcast licensees in the 700 MHz bands, we are not at this time permitting it to lease spectrum pursuant to the policies and procedures adopted herein.)

29. The following Wireless Radio Services are excluded from the leasing policies set forth in this Report and Order: the Guard Band Manager Service (part 27, subpart G); Experimental Radio, Auxiliary, Special Broadcast, and Other Program Distributional Services (part 74); Maritime Services other than VHF Public Coast Stations regulated under subpart J (part 80); Aviation Services (part 87); Public Safety Radio Services (part 90); the Location and Monitoring Service with regard to licenses for nonmultilateration LMS systems (part 90); Personal Radio Services other than the 218219 MHz Service (part 95); and the Amateur Radio Service (part 97). In addition, at this time we continue to exclude the ITFS and the Multipoint Distribution Service (MDS)/ Multichannel Multipoint Distribution Service (MMDS), parts 74 and 21 services, noting that a recent proceeding has been initiated that raises leasing issues, among others, with respect to those particular services. We also exclude the Multichannel Video Distribution and Data Service (MVDDS) because that service was not included within the scope of the NPRM and was established subsequently without any provisions regarding leasing. Finally, we also exclude public safety licensees regulated by part 90, including all public safety licensees that have obtained their licenses pursuant to section 337 authority. In the Further Notice, we consider whether to permit spectrum leasing in a number of these services.

30. In our view, leasing on shared frequencies presents implementation concerns, particularly when the shared (or non exclusive) nature of licensing on such frequencies permits interested parties to seek their own authorizations to operate and where the loading levels may convert a license on a previously shared frequency to an exclusive license. We do, however, consider in the Further Notice whether to extend our leasing policies to these and other additional services.
4. Specific Policies and Procedures Applicable to Spectrum Leasing Arrangements
a. ``Spectrum Manager'' LeasingSpectrum Leasing Arrangements That Do Not Involve a Transfer of De Facto Control Under Section 310(d)

31. Under spectrum manager leasing, licensees are not required to obtain prior Commission approval for such leases, but must notify the Commission of the lease and provide certain certifications and information regarding the spectrum lessees and the lease terms. (i) Respective Rights and Responsibilities of Licensees and Spectrum Lessees

32. Licensees' rights and responsibilities. Under spectrum [[Page 66257]]
manager leasing arrangements, we grant licensees the right to lease any or all of their spectrum usage rights to spectrum lessees, and to do so without the need for Commission approval, so long as licensees retain de jure control of the license and act as spectrum managers with regard to the leased spectrum by continuing to exercise de facto control over that spectrum, pursuant to the standard enunciated above. The Commission will hold licensees directly and primarily responsible for ensuring their lessees' compliance with the Act and applicable Commission policies and rules. Failure of a licensee to meet the criteria of the revised de facto control standard would constitute an unauthorized transfer of control under section 310(d). The licensee must also file a notification with the Commission that it has entered into a spectrum leasing arrangement. Failure to do so would subject a licensee to possible enforcement action as a substantive rule violation.

33. Since the licensee retains de facto control of the leased spectrum and is held directly accountable for lessee compliance with applicable policies and rules concerning the leased spectrum under this particular type of leasing arrangement, the Commission will look first to the licensee to exercise its responsibilities and ensure compliance. To the extent a licensee fails to ensure its lessee's compliance, the licensee will be subject to enforcement action, including
admonishments, monetary forfeitures, and/or license revocation, as appropriate, pursuant to sections 503(b) (forfeiture provisions) and 312 (license revocation provisions) of the Communications Act. We will not, however, hold licensees responsible for their lessees' compliance with Commission rules and policies that are not directly related to the use of the leased spectrum.

34. Because leasing pursuant to this option requires that spectrum lessees meet certain eligibility requirements, we will require that licensees submit appropriate certifications by the lessee as part of the lease notification. We will permit licensees to reasonably rely on those certifications. To the extent, however, that a licensee has knowledge that a spectrum lessee does not satisfy these eligibility requirements, or reasonably should have such knowledge, then allowing such leasing to proceed would violate our spectrum manager leasing policies and we will subject that licensee to appropriate enforcement action. In addition, licensees retain responsibility for maintaining compliance with applicable eligibility and ownership requirements imposed on them pursuant to the license authorization. Spectrum leasing cannot be used by licensees and lessees as a means of thwarting or abusing the basic qualifications and eligibility policies applicable to licensees.

35. Spectrum lessees' rights and responsibilities. The spectrum lessee must comply with Commission requirements associated with the license, and must maintain an ongoing relationship with the licensee from whom it leases spectrum. The lessee must certify that it meets all applicable general eligibility requirements associated with the leased spectrum (with such certifications becoming part of the notification submitted by the licensee, as noted above). The lessee's eligibility certifications will be similar to the certifications currently submitted by applicants seeking a license authorization in the particular service. We will hold the spectrum lessee directly accountable for these certifications.

36. Although we intend to enforce our operational rules and policies directly against the licensee in the first instance, as discussed above, we also determine to hold spectrum lessees independently accountable for complying with the Act and our policies and rules. The lessee also must accept Commission oversight and enforcement consistent with the license authorization. The lessee must cooperate fully with any investigation or inquiry conducted by either the Commission or the licensee, allow the Commission or the licensee to conduct onsite inspections of transmission facilities, and even suspend operations under certain conditions. Spectrum lessees who violate our rules or other federal laws potentially will be subjected to forfeitures under section 503(b) of the Communications Act, other administrative sanctions, and criminal prosecution. In addition, to the extent that lessees in their leasing activities qualify as common carriers under section 332 of the Communications Act and Title II, they may also be subject to appropriate enforcement actions.

37. We also will require both the licensee and spectrum lessee to retain a copy of the lease agreement and to make it available upon request by the Commission.

38. Subleasing. We will allow spectrum lessees to sublease their spectrum usage rights under certain conditions. Specifically, the licensee must agree to permit subleasing and must be in privity with the sublessee so that the licensee can act as spectrum manager by exercising de facto control over the subleased spectrum. Pursuant to the notification requirements for this type of leasing, the licensee also must notify the Commission about the sublease. Licensees may seek to protect themselves from the risks associated with subleasing arrangements by including provisions in their leases that prohibit the spectrum lessee from entering into a sublease.

39. Renewal. A licensee and spectrum lessee that have entered into a spectrum leasing arrangement whose term continues to the end of the current term of the license authorization may, contingent on the Commission's grant of the license renewal, extend the spectrum leasing arrangement during the term of the renewed license authorization. The licensee must notify the Commission of such an extension of the spectrum leasing arrangement on the same application it submits for license renewal.

(ii) Application of Particular Service Rules and Policies

40. Interferencerelated service rules. The interference and RF safety rules applicable to the licensee as a condition of its license authorization will also apply to the spectrum lessee. Spectrum manager licensees will have direct responsibility and accountability for ensuring that their spectrum lessees comply with these rules, including responsibility for resolving all interference disputes and complying with safety guidelines relating to radiofrequency radiation.

41. General eligibility policies and rules. Under spectrum manager leasing, we will require that spectrum lessees satisfy the eligibility and qualification requirements that are applicable to licensees under their license authorization. Specifically, as a policy matter we extend to spectrum lessees the eligibility requirements of section 310 pertaining to foreign ownership, doing so in order to both protect the national security and promote the public interest benefits of foreign investment in U.S. telecommunications markets. Accordingly, we will require that spectrum lessees meet applicable foreign ownership eligibility requirements by certifying that they meet section 310(a) requirements and, to the extent that section 310(b) applies (e.g., to the extent they are common carriers), that they meet those requirements as well. As part of the notification process for this type of leasing arrangement, each spectrum lessee must certify that it is not a foreign government or representative of a foreign government in the same manner as required of licensees pursuant to section 310(a). In addition, if the
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spectrum lessee intends to provide a service to which section 310(b) applies, it must certify that it is not an alien or representative of an alien, is not organized under the laws of a foreign government, does not have more than onefifth direct alien ownership, or either does not have more than onequarter indirect alien ownership or has obtained the necessary declaratory ruling approving its level of ownership above onequarter indirect alien ownership.

42. We will also require, as a general policy matter, that spectrum lessees satisfy the qualification requirements, including character qualifications, applicable to the licensee under the license authorization. Thus, for instance, the lessee must not be a person subject to the denial of Federal benefits under the AntiDrug Abuse Act of 1988. Similarly, the lessee must certify whether it is a person who has been convicted of a felony, had a license revoked for any reason (e.g., misrepresentation or lack of candor), had any application for initial, modification, or renewal of a station authorization, license, or construction permit denied by the Commission, or has been convicted of unlawful monopolization.

43. Use restrictions. With regard to use restrictions, where a license authorization in a particular service is flexible, and imposes few if any restrictions on the types of services that licensees may offer, spectrum lessees too will be permitted to offer any of these services regardless of the specific services being offered by the licensee. To the extent the licensee is restricted from using the licensed spectrum to offer particular services under its license authorization, we also will restrict spectrum lessees in the same manner. Thus, for example, to the extent that licensees in private services are restricted from deploying commercial services on their spectrum, we also restrict lessees from using the spectrum for commercial services.

44. Designated entity/entrepreneur policies and rules. Under this leasing option, we determine that designated entity and entrepreneur licensees will be able to undertake spectrum leasing arrangements so long as doing so is consistent with our existing designated entity and entrepreneur policies and rules. A designated entity and/or entrepreneur licensee may lease to any spectrum lessee and avoid the application of our unjust enrichment rules and/or transfer restrictions so long as the lease does not result in the lessee becoming a ``controlling interest'' or affiliate that would cause the licensee to lose its designated entity or entrepreneur status. We will require each licensee notifying the Commission about a lease involving a license still subject to entrepreneur transfer restrictions or potentially subject to unjust enrichment obligations to certify that the lease does not affect the licensee's continuing eligibility to hold a license won in closed bidding or to retain bidding credit or installment payment benefits. Accordingly, nothing we do herein alters a designated entity's or entrepreneur's obligation to comply with our attribution requirements or changes the rules regarding the fiveyear transfer restriction for C and F block licenses won in closed bidding. Where a designated entity or entrepreneur licensee that is participating in the Commission's installment payment program enters into a lease that preserves its eligibility, the licensee remains fully and solely responsible for the outstanding debt amount, as reflected in our rules and any applicable financing documents. To the extent that there is any conflict between the revised de facto control standard for spectrum leasing arrangements, as set forth in this Report and Order, and the de facto control standard in our rules for designated entities and entrepreneurs, we will apply the latter for determinations regarding whether the licensee has maintained the requisite degree of ownership and control to allow it to remain eligible for the licenses or for other benefits such as bidding credits and installment payments.

45. Construction/performance requirements. We will allow licensees to rely on the activities of their spectrum lessees for purposes of complying with the buildout requirements that are conditions of the license authorization. This reliance will be permissible whether the licensee is required to construct and operate one or more specific facilities, cover a certain percentage of geographic area, reach a certain percentage of population, or provide ``substantial service.'' In addition, we determine that applicable performance or buildout requirements remain a condition of the license, and cannot be passed on to spectrum lessees even though the activities of the latter may be ``counted'' for purposes of measuring buildout. To the extent that a licensee seeks to rely on the activities of a spectrum lessee to meet the licensee's obligation, and for some reason the lessee fails to engage in those activities, the Commission will enforce the applicable performance or buildout requirements against the licensee, consistent with our existing rules. Similarly, to the extent there are rules relating to discontinuance of operation, the Commission will enforce these rules against the licensee regardless of whether the licensee was relying on the activities of a lessee to meet particular performance requirements.

46. Policies and rules relating to competition. Assessment of potential competitive effects of transactions, whether they be transfers of control, license assignments, or spectrum leasing arrangements, remains an important element of our policies to promote facilitiesbased competition and guard against the harmful effects of anticompetitive conduct. Accordingly, we will apply the Commission's general competition policies to spectrum manager leasing arrangements.

47. Specifically, the cellular crossinterest rule and associated policies will be applied to spectrum leasing arrangements involving cellular authorizations in Rural Service Areas (RSAs). Thus, a cellular licensee in an RSA (or any entity with an attributable interest in such a licensee) would not be permitted to enter into a spectrum lease involving the other cellular spectrum block to the extent the spectrum lessee would have the authority to make decisions or otherwise engage in activities that determine or significantly influence the nature and types of services provided using the leased spectrum, the terms upon which those services are offered, or the prices charged. For leases meeting these tests, the cellular spectrum is attributable to the spectrum lessee.

48. In addition, we retain the discretion to consider the use of leased spectrum by a lessee to provide facilitiesbased commercial mobile radio services as a relevant factor when assessing marketplace competition in the Commercial Mobile Radio Services (CMRS) in transactions involving either the licensee or the spectrum lessee. As we indicated when we eliminated the CMRS spectrum cap, the Commission now evaluates the competitive effects of CMRS spectrum aggregation on a casebycase basis. In those circumstances where information on potential competitive harm comes to our attention or where serious allegations of substantial competitive harm are made, we must determine, based on a casebycase review of all relevant factors, whether services provided over both leased and licensed spectrum in specific product and geographic markets should be taken into account. Thus, the presence of a spectrum lease or other arrangement between or among CMRS providers may be attributable.

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49. Although we anticipate that most leasing arrangements will serve to enhance competition, including the entry of new facilities based competitors, we must nonetheless ensure that leasing does not enable harmful anticompetitive conduct. Because spectrum manager leases require only notification to the Commission, it is important that parties to such leases provide certain basic information to the Commission and the marketplace regarding any potential impact of the lease on facilitiesbased competition. At the same time, it is important that any such disclosure requirements not be so burdensome that they would discourage parties from using the spectrum leasing model to negotiate spectrum access arrangements that pose no competitive threat. To balance these interests, we will require, as part of the spectrum manager lease notification process, in which certain lessees provide necessary certifications relating to these policies. Specifically, if the lease involves spectrum in the cellular services in Rural Service Areas, spectrum lessees must certify that the leasing arrangements do not violate the cellular crossinterest rules. In addition, spectrum lessees leasing CMRS spectrum (which includes cellular, broadband PCS, and SMR spectrum regulated as CMRS) must disclose to the Commission whether they hold direct or indirect interests (of 10 percent or more) in any entity that already has access to 10 MHz or more of CMRS spectrum (through a license or lease) in the same geographic area. For the purpose of implementing this requirement, we define these direct or indirect interests in the same manner as defined pursuant to existing rules for wireless licensees under part 1 of our rules. In particular, a lessee must disclose whether it has a 10 percent direct or indirect interest in an entity, as defined in Sec. 1.2112 of subpart Q of our rules. We will also require these leasing parties to indicate whether the lease arrangement reduces the number of CMRS competitors in the market. Such disclosure requirements will help to ensure market transparency, and will also help the Commission to distinguish those leases that may warrant further inquiry to assess whether there is a competitive impact from the likely vast majority of leases that will have no competitive impact and require no further inquiry.

50. Regulatory classification. We determine that for those license authorizations under which licensees have the opportunity to choose whether to operate as and be regulated under a CMRS/common carrier or a PMRS/noncommon carrier structure (or both), spectrum lessees will also be entitled, to the same extent, to select their own regulatory status. In the case of a service in which the regulatory status of licensees is prescribed by rule, the lessee will be presumed to be bound by the status set forth in the rules and applied to the licensee. Under this type of spectrum leasing, to the extent that a spectrum lessee seeks to operate under a different regulatory status than the licensee or the service, the lessee will be responsible for meeting the obligations relating to its choice.

51. Various other rules, including certain statutory obligations. Under spectrum manager leasing, spectrum lessees will be subject to other statutory and related regulatory requirementsincluding Title II obligations or other requirements, such as those relating to the Communications Assistance for Law Enforcement Act (CALEA), Equal Employment Opportunity (EEO), Telecommunications Relay Service (TRS), North American Numbering Plan (NANP), universal service funds, and regulatory fee payment obligationsdepending upon the nature of their operations on the leased spectrum and the terms of the applicable statutory and/or regulatory provisions. These regulatory requirements are generally applied to entities based on the type of service they provide without regard to their status as a licensee or a lessee. For instance, such provisions may apply to common carriers or
telecommunications carriers as defined under the Communications Act. Thus, if a lessee is operating as a common carrier, it will be subject to sections 201 and 202 of the Communications Act of 1934, as amended, and the related obligations attendant to being a provider of wireless services on a common carrier basis. The applicability of these types of provisions will be independent of an entity's status as licensee or spectrum lessee.

52. While the rules and statutory requirements cited above apply to lessees as well as licensees based on the provision of service, we note that our E911 requirements expressly apply only to ``licensees'' instead of particular services. Thus, a spectrum lessee who provides facilitiesbased service does not come within the literal scope of the E911 rule. Because we do not intend that spectrum leasing be used as a means of circumventing the underlying purposes of our service rule and policies, including our E911 rules, licensees retain their E911 obligations with respect to leased spectrum. Accordingly, to the extent that a spectrum manager leasing arrangement involves a lessee providing CMRS services, the licensee must continue to ensure that the E911 obligations are being met, whether by the licensee or its lessee. (iii) Notification

53. For spectrum manager leasing, we will require that licensees provide notification to the Commission that they have entered into this type of spectrum leasing arrangement. This notification must be submitted in advance of operation, as discussed below, and failure to notify the Commission prior to operation would constitute a substantive rule violation subject to enforcement action. This notification provides us with useful information about spectrum usage and helps us to ensure that licensees and lessees are complying with our interference and noninterference related policies and rules.

54. Notification requirements. Licensees must report these leases to the Commission within 14 days of execution, and at least 21 days in advance of operation. Licensees will be required to submit the following information on each spectrum lease to the Commission: (1) Necessary information on the identity of the spectrum lessee (including necessary contact information) and its eligibility to lease spectrum; (2) the specific spectrum leased (in terms of amount, frequency, and geographic area involved), including the call sign affected by the lease; (3) the term of the lease; and (4) other information required pursuant to the policies applicable to these leasing arrangements (e.g., foreign ownership and other certifications), as discussed above. This notification will contain information similar to that submitted currently on our Form 603. Such submission will be placed on an informational public notice on a weekly basis, unless the license involved is not subject to prior public notice requirements. We include an advance notification requirement so as to allow the Commission and the public some opportunity to review the leasing arrangement prior to operation. While we will not usually require the lease parties to file a copy of the lease agreement with the notification, parties must maintain copies of the lease as well as any authorization issued by the Commission, and make them available for inspection upon request by the Commission or its representatives. For spectrum manager leasing arrangements of one year or less, licensees must provide notice at least ten days in advance of operation. In all other respects, the rules generally applicable to spectrum manager leasing
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arrangements, as enunciated above, apply to these shorterterm arrangements.

55. Commission authority to investigate and terminate the lease. The Commission retains the ability to investigate and terminate any spectrum leasing arrangement to the extent it determines, post notification, that the arrangement constitutes an unauthorized transfer of de facto control under our new standard or raises foreign ownership, competitive, or other public interest concerns. We will closely monitor leasing information and activity to ensure that licensees and lessees do not use this leasing option as a means of thwarting or abusing the Act or applicable Commission policies and rules (e.g., the basic qualifications and rules applicable to licensees). Commission review of a spectrum lease implemented under this option might be initiated if information were to come to the attention of our staffthrough the notification process or other sources (e.g., news reports or press releases)that suggested a potential problem with the lease under the applicable rules and policies. Alternatively, interested parties might seek informal guidance or a formal determination from the Commission regarding a particular lease arrangement by means of a letter to the Commission, a petition, or a complaint. Such processes are no different from current practices before the Commission where an entity may provide information to the Commission staff and pose questions about the permissibility of, for example, the terms and practices of the parties under a management agreement or other business transaction. We believe that these processes will ensure that we are able to terminate a leasing arrangement under this option where warranted in fulfillment of our statutory and public interest obligations.
b. ``De Facto Transfer'' LeasingSpectrum Leasing Arrangements That Involve Transfers of De Facto Control Under Section 310(d)

56. We also provide licensees and spectrum lessees with an alternative model for spectrum leasingone in which licensees can delegate de facto control of the leased spectrum and associated legal responsibilities to their spectrum lessees. Under this ``de facto transfer'' leasing, we include two general categories for this type of spectrum leasing: (1) ``Longterm'' leasing arrangements (i.e., leases with individual or combined terms of longer than 360 days); and (2) ``shortterm'' leasing arrangements (leases of 360 days or less). Although these leasing arrangements involve transfers of de facto control under Section 310(d) that necessitate Commission approval, we adopt significantly streamlined procedures to minimize the regulatory burdens and transaction costs imposed on parties entering into these arrangements.
(i) LongTerm De Facto Transfer Spectrum Leasing Arrangements

57. This leasing option enables licensees and spectrum lessees to enter into the kind of longterm spectrum leasing arrangements endorsed by many of the commenters. Under this option, referred to as de facto transfer leasing, licensees will be permitted to transfer de facto control of the leased spectrum to lessees pursuant to streamlined approval procedures as long as the leasing arrangements meet certain conditions. We define these longterm leases as lease arrangements involving transfer of de facto control to a spectrum lessee that do not qualify as temporary ``shortterm'' leasing (i.e., leasing of no more than 360 days duration).
(a) Respective Rights and Responsibilities of Licensees and Spectrum Lessees

58. Licensees' rights and responsibilities. Under this leasing option, licensees may lease any or all of their spectrum usage rights pursuant to spectrum lease arrangements in which they retain de jure control of their licenses but transfer de facto control of leased spectrum, and associated responsibilities, to spectrum lessees. Under these de facto transfer leases, licensees are not required to exercise the kind of operational oversight over the leased spectrum and the lessee that is prescribed for licensees with regard to spectrum manager leasing (which requires no Commission approval). We thus relieve licensees of primary and direct responsibility for ensuring that their lessees' operations comply with Commission policies and rules.

59. While licensees are relieved of many responsibilities under this leasing option, they nonetheless retain some residual responsibilities regarding the leased spectrum. The lease does not involve a complete and permanent transfer of control, and the licensee retains de jure control of the license as well as some degree of actual control, such that it retains some responsibility to the Commission for operations on spectrum encompassed within its license. While we seek to carefully limit this licensee responsibility in order not to impede commercially viable leasing arrangements, licensees who are implementing these leases cannot relinquish all rights and responsibilities of the license authorization to their lessees. Moreover, we think it is appropriate to expect our licensees to exercise an appropriate degree of care when entering into de facto transfer leasing arrangements. For instance, if a licensee engages in a sham leasing arrangement with an affiliate in an effort to enable that affiliate to undertake activities that might otherwise put the license at risk if undertaken directly by the licensee, we would subject the licensee to appropriate enforcement action. We will also hold the licensee accountable for its own violations, including those related to its lease arrangement with the lessee. In addition, we find that it may be appropriate to hold the licensee responsible in specific cases for ongoing violations or other egregious behavior on the part of the spectrum lessee about which the licensee has knowledge or should have knowledge. An example of this type of situation might include the case where a licensee allows a lessee to continue to operate on the leased spectrum despite a Commission order that the lessee cease operations.

60. Spectrum lessees' rights and responsibilities. Under de facto transfer leasing, the primary responsibility for ensuring compliance with Commission policies and rules is transferred to spectrum lessees. We will hold lessees primarily and directly responsible for complying with the interference, technical, or other service rules (including eligibility requirements) applicable to the licensee pursuant to the Act, the Commission's rules, and the terms of the underlying authorization. We determine that, under the procedures we adopt herein, spectrum lessees will be granted an instrument of authorization that brings them within the scope of our direct forfeiture procedures u

FOR FURTHER INFORMATION CONTACT Paul Murray, Wireless Telecommunications Bureau, at (202) 4187240, or via the Internet at Paul.Murray@fcc.gov; for additional information concerning the information collections contained in this document, contact Judith B. Herman at (202) 4180214, or via the Internet at Judith.BHerman@fcc.gov.