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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************** APPENDIX B FINAL REGULATORY FLEXIBILITY ANALYSIS (FRFA) Report and Order As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking (NPRM) in this proceeding. The Commission sought written public comments on the proposals in the NPRM, including on the IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA) in this Report and Order (R&O) conforms to the RFA, as amended by the Contract With America Advancement Act of 1996. I. Need For and Objectives of Action: In the R&O, we amend Parts 21 and 74 of our rules to enhance the ability of Multipoint Distribution Service ("MDS") and Instructional Television Fixed Service ("ITFS") licensees to provide two-way communication services. These services will be enhanced through the use of two-way audio, video and data communications from "response" stations, the use of booster stations with program origination capability in a cellular configuration designed to create spectrum flexibility through frequency reuse, and the use of variable bandwidth ("subchanneling" and "superchanneling") to create additional flexibility. We believe the final rule amendments will facilitate two-way transmission and other improvements to the MDS and ITFS services. II. Significant Issues Raised by the Public in Response to the Initial Analysis: No comments were received specifically in response to the IRFA contained in the NPRM. However, some commenters did raise arguments concerning the effect that certain of our proposals may have on small entities. As to whether we should increase educational usage requirements when ITFS licensees employ digital transmissions, Region IV argued that greater educational usage requirements would particularly burden small ITFS entities, by indirectly imposing financial and administrative burdens before these licensees are in a posture to assume such responsibilities. With respect to whether we should adopt a rolling one-day filing window for the submission of two- way MDS and ITFS applications, the Alliance of MDS Licensees argued that such a system would place an unbearable burden on the limited resources of incumbents, resulting in large operators having an advantage over small operators. III. Description and Number of Small Entities Involved: The RFA generally defines "small entity" as having the same meaning as the terms "small business," "small organization," and "small business concern." In addition, the term "small business" has the same meaning as the term "small business concern" under the Small Business Act. A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA. MDS: The Commission has defined "small entity" for the auction of MDS as an entity that, together with its affiliates, has average gross annual revenues that are not more than $40 million for the preceding three calendar years. This definition of a small entity in the context of MDS auctions has been approved by the SBA. The Commission completed its MDS auction in March 1996 for authorizations in 493 basic trading areas (BTAs). Of 67 winning bidders, 61 qualified as small entities. MDS is also heavily encumbered with licensees of stations authorized prior to the auction. The SBA has developed a definition of small entities for pay television services, which includes all such companies generating $11 million or less in annual receipts. This definition includes multipoint distribution systems, and thus applies to MDS licensees and wireless cable operators which did not participate in the MDS auction. Information available to us indicates that there are 832 of these licensees and operators that do not generate revenue in excess of $11 million annually. Therefore, for purposes of this FRFA, we find there are approximately 892 small MDS providers as defined by the SBA and the Commission's auction rules, and some of these providers may take advantage of our amended rules to provide two-way MDS. ITFS: There are presently 2032 ITFS licensees. All but 100 of these licenses are held by educational institutions (these 100 fall in the MDS category, above). Educational institutions may be included in the definition of a small entity. ITFS is a non-pay, non-commercial broadcast service that, depending on SBA categorization, has, as small entities, entities generating either $10.5 million or less, or $11.0 million or less, in annual receipts. However, we do not collect, nor are we aware of other collections of, annual revenue data for ITFS licensees. Thus, we find that up to 1932 of these educational institutions are small entities that may take advantage of our amended rules to provide two-way ITFS. IV. Summary of Projected Reporting, Recordkeeping and Other Compliance Requirements: The R&O adopts the following proposals that include reporting, recordkeeping, and compliance requirements: We required MDS and ITFS licensees employing two-way technology to attach labels to every subscriber transceiver in a conspicuous fashion. In addition, MDS and ITFS licensees employing two-way technology will be required to include a full explanation of the labels that appear on their transceivers, as well as reference to the applicable Commission guidelines in the instruction manuals and other information accompanying their subscriber transceivers. We required a hub station licensee to formally notify an ITFS licensee when a response station is being located in the vicinity of any of the ITFS licensee's receive sites. Specifically, we created a notification zone with a radius of 1960 feet around each ITFS receive site and we required that, at least 20 days prior to the activation of any response station within such a zone, the hub station licensee notify, by certified mail, the appropriate ITFS licensee. In addition to required information contained on FCC Forms 304 and 330, we required applicants to submit additional data in a specified formats and on diskettes accompanying the application forms. While we do not ordinarily require applicants for minor changes to ITFS facilities to prepare interference showings or serve them on potentially affected parties, we required the preparation and service of interference analyses by ITFS licensees who seek to use their associated I channels for downstream transmission. We will accept applications for MDS and ITFS response stations hubs or boosters via a rolling, one- day filing window. Each applicant will have to provide interference protection to all facilities existing or proposed prior to the filing of its application, but its application will take precedence over all subsequently filed applications. Applicants will be required to file their applications with all of their interference analyses, in both hard copy and on disk. Applicants for two-way facilities will be required to certify that they have met all requirements regarding interference protection to existing and prior proposed facilities. The applicant will also be required to certify that it has served all potentially affected parties with copies of its application and with its engineering analysis supporting its interference compliance claim. V. Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered: The following steps were taken in the R&O to minimize the significant economic impact on small entities: The rule changes adopted in the R&O to allow two-way operations for MDS and ITFS will simply our licensing system and provide greater flexibility in the use of the allotted spectrum to licensees. It is expected that such changes will further eliminate market entry barriers for small entities. By allowing for subchannelization, small entity licensees will be able to respond to the demands of the market and create unlimited number of channels to carry their current and future communications needs. Allowing superchannelization will permit small entity licensees to combine their spectrum with other small entity licensees and create larger systems to meet their particular operations and to operate at greater speeds. To permit small entity ITFS licensees with limited resources adequate time to evaluate a two-way applicant's proposed service plan, we adopted a certification procedure whereby applicants are required to certify that they have met all requirements regarding interference protection to existing and prior proposed facilities. The applicant will also be required to certify that it has served all potentially affected parties with copies of its application and with its engineering analysis supporting its interference compliance claim. In an effort to minimize the impact of our new rules on educational ITFS, many of whom are small entities, we determined that restricting ITFS eligible use to the downstream video/audio paradigm would preclude flexibility in service offerings for an ITFS licensee which leases excess channel capacity. We provided educational entities with additional flexibility to define what ITFS usage they regard as educational in an effort to permit such entities to further their educational mission. We did not expand our minimum educational usage requirement for digital ITFS transmissions and we added a requirement that 5 percent of an ITFS station's capacity be set aside for instructional purposes only. The following significant alternatives were considered in the R&O: We declined to adopt Catholic Television Network's (CTN) suggestion that greater suppression of spurious emissions is needed on the order of -60 dB for response stations operating at +48 dBm, up to -75 dB for response stations operating at +63 dBm. We found that modifications made to the spectral mask for response stations would completely eliminate the requirements that were proposed for such emissions. We did not adopt NextLevel's suggestion that a maximum suppression limit be placed on digital emitters which would effectively remove the out-of-band attenuation requirements for power levels below a certain minimum. We found that such a relaxation of out-of-band limits, in the context of a cellularized CDMA system, could result in an adverse impact on the interference environment because, unlike other services, hundreds or thousands of low power emitters may be transmitting simultaneously and the combined effects of their out-of-band emissions could be significant. In the R&O, we adopted a Methodology for calculating the interference potential of response stations. We rejected CTN's request to protect hub receivers only to a distance of 35 miles and make them secondary beyond that distance. We concluded that such a step would render hubs extremely susceptible to interference and seriously degrade the communications capabilities and reliabilities within the hub's RSA. We did not adopt EDX Engineering's alternative to Petitioners' response station interference Methodology because, for many two- way system configurations, EDX's interference calculations will inevitably give erroneous results, a shortcoming that was conceded by EDX itself. We also did not permit applicants to choose any methodology they wish for making interference calculations, as we found that this would drastically slow the evaluation of applications and almost certainly result in many Petitions to Deny, as licensees and applicants struggled to understand the differing and potentially incompatible assumptions and calculations incorporated into the various methodologies. We also decline to adopt Spike Technologies Inc.'s (Spike) recommendation that hub stations be redefined to include transmitting capability. We found that this was not necessary because booster and primary stations may be co-located with hub stations to provide transmission capability, and permitting hubs to also transmit would simply add redundancy and unnecessary complexity to the interference protection requirements of the rules. We denied CTN's request that guardbands be established separating upstream (response station) transmissions from downstream ITFS transmissions. We determined that CTN's first proposal, involving the creation of 24 MHz-wide guardbands, could result in partially or completely eliminating many MHz of potentially useful upstream spectrum on the speculative assumption that such action was necessary to protect ITFS receive sites from interference. We also found that CTN's second and third proposals, involving 6 MHz guardbands, would have effected less spectrum on the same assumption, and would have also involved the establishment of notification and testing procedures for response stations in proximity to ITFS receive sites. As for CTN's fourth guardband proposal, requiring 6 MHz guardbands within a 35 mile radius of ITFS primary transmitters, we determined that it was not the case that the proposed response station interference Methodology is "unduly complex" and will be ineffective in determining interference when the potential victim ITFS receive site is within a hub station's RSA. We did not adopt CTN's request for mandatory response station testing, as we found that it would impose an unnecessary burden on 2-way licensees. We denied CTN's request to reallocate all of the 125 kHz channels to ITFS and to use them solely for response transmissions. We found that reallocation and the complications associated with that is not necessary and that allowing the I channels to be used for point-to-multipoint transmissions promotes greater options for two-way system design and more efficient use of the spectrum. For the same reasons we declined CTN's suggestion that we render low power boosters secondary, we also declined to adopt Maryland's request that we mandate that any non-ITFS use of I channels licensed to an ITFS entity be secondary to ITFS use. We rejected the automatic grant proposal made by the Petitioners for granting without review any unopposed two-way license application after a 60-day comment period. We also did not adopt the proposal specified in the NPRM to set up a system whereby the staff would fully review the filed applications and issue a grant or denial. Instead, we adopted a certification procedure whereby applicants certify that they have met the requirements regarding interference protection to existing and prior proposed facilities and has served copies of its application on all affected parties. We determined that this approach was needed to facilitate two-way service to the public and that without it two-way service by MDS operators and/or ITFS licensees may not become a reality. The certification requirement would also protect the interests of ITFS licensees many of whom do not have the time or resources to evaluate a two-way applicants proposed service plan. In the R&O, we determined that parties will have 60 days from the date of the public notice to file petitions to deny against two-way applications. We decided that, due to the complex nature of the engineering to be filed, a 60 day petition to deny period is more reasonable that the usual 30 day period. We did not adopt HITN's suggestion that we eliminate our rule that limits eligible ITFS educational service providers to accredited institutions. We found that the primary purpose of ITFS is, and always has been to meet the needs of students enrolled in courses of formal instruction. Furthermore, we found that accredited schools have been the intended users of ITFS since the origin of the service. We decided to subject ITFS high power booster stations to educational usage requirements, separate from those to which main ITFS stations are subject. We determined, however, to not specify educational usage requirements for ITFS low power booster stations because they are authorized only to retransmit the signals of the main ITFS station, which itself is subject to educational usage requirements. In addition, we determined not to subject ITFS response stations or response station hubs to educational usage requirements, because the ITFS licensee has no control over which upstream transmissions would qualify to satisfy the requirements. We declined to adopt time-of-day requirements for measuring educational usage in order to provide ITFS licensees with the maximum flexibility to determine which uses of their spectrum enhance their formal educational mission. In the R&O, we retained two different but complementary requirements of ITFS spectral usage: a minimum of 20 hours per channel per week for educational usage, and a minimum reservation of 5% of a licensee's capacity that it may not lease. We determined that both would be difficult to measure in light of the varied forms that such usage can take. We decided that the best course would be to rely on the good faith efforts of ITFS licensees to meet these requirements and we did not institute any new, formal, proof of compliance reporting submissions in this area. VI. Report to Congress: The Commission will send a copy of the Report and Order, including this FRFA, in a report to be sent to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996. See 5 U.S.C.  801(a)(1)(A). In addition, the Commission will send a copy of the Report and Order, including the FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the Report and Order and FRFA (or summaries thereof) will also be published in the Federal Register. See 5 U.S.C.  604(b).