NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//Order, Limited Waiver of Section 24.204 of the Rules,DA-2017//$ $/24.204, Cellular eligibility/$ RECORD ONLY DA 95-2017 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In re Request of WIRELESSCO, L.P., PHILLIECO, L.P., AND SPRINT CORPORATION For Limited Waiver of Section 24.204 of the Commission's Rules ) ) ) File No. CWD-95-7 ) ) ) ) ) ORDER Adopted: September 21, 1995 Released: September 21, 1995 By the Chief, Wireless Telecommunications Bureau: I. INTRODUCTION AND BACKGROUND 1. By this Order, we resolve a July 26, 1995, request by WirelessCo, L.P., PhillieCo, L.P., and Sprint Corporation ("Petitioners"), pursuant to Sections 1.3 and 24.819(a) of the Commission's rules, 47 C.F.R.  1.3 and 24.819(a). Petitioners ask for a limited waiver of the deadline for completion of cellular divestiture for PCS providers set forth in Section 24.204 of the Commission's rules, 47 C.F.R.  24.204, ("Petitioners' Waiver Request"). 2. Section 24.204 of the Commission's rules prohibits entities with an attributable ownership interest in a cellular licensee (e.g., general partnership and other ownership interests amounting to 20 percent or more of a cellular licensee) from obtaining a 30 MHz broadband PCS license if the populations of the system's cellular geographic service area and PCS license areas overlap significantly. 3. Petitioner Sprint's wholly-owned subsidiary, Sprint Cellular, is the nation's eighth largest cellular company, providing cellular service to subscribers in 87 Metropolitan Statistical Areas ("MSAs") and Rural Service Areas ("RSAs") in fourteen states in the Midwest, Southeast, and Southwest. A new Sprint subsidiary, the Sprint Telecommunications Venture ("Sprint Telecom"), is a partner in WirelessCo, which won PCS licenses for 29 of the 51 MTAs in the broadband PCS A and B block auction, and in PhillieCo, which won a PCS license for the Philadelphia MTA. In addition to the licenses won in the auction, Sprint Telecom has acquired a limited partnership interest in the entity that owns one of the PCS licenses for the Baltimore-Washington, D.C. MTA. Sprint Telecom also expects to enter into affiliation arrangements with entities that have licenses in other markets such as the Los Angeles and Omaha MTAs. As a result of Sprint Telecom's PCS activity, Sprint's cellular subsidiary and Sprint Telecom have "significant overlap" in the Detroit, Dallas, Des Moines, Iowa, and Philadelphia Major Trading Areas ("MTAs") that requires divestiture of Sprint's cellular interests in these areas under Section 24.204 of the Commission's rules. The Commission's rules provide that an application that is granted to an entity that has significant overlap(s) of a PCS licensed area and CGSA(s) is subject to a condition that the licensee shall come into compliance with the limitations on common ownership of cellular and broadband PCS interests set forth in Section 24.204 within ninety (90) days of the final grant. Thus, absent a waiver, Sprint must divest its cellular holdings on or before September 21, 1995. Petitioners request that the Commission extend its divestiture deadline by one year, from September 21, 1995, to September 21, 1996, to allow Sprint to divest fully its cellular holding through a spin-off of its Sprint Cellular subsidiary. Petitioners request an extension of the 90- day divestiture deadline because the government approvals required to complete a spin-off of a cellular subsidiary, including a letter ruling from the Internal Revenue Service, will take approximately one year to complete. 4. In this Order, we grant Petitioners a limited waiver of Section 24.204 of the Commission's rules, thereby allowing Sprint an extension of the post-auction divestiture time period for one year, until September 21, 1996, to divest its prohibited cellular interests and come into compliance with the PCS/cellular cross-ownership rule. This waiver is conditioned upon Petitioners demonstrating that the activities of Sprint Cellular and Sprint Telecom will be separated completely during the waiver period to prevent anticompetitive practices. II. CONTENTIONS OF THE PARTIES 5. Petitioners, AT&T Wireless, and BellSouth are the only parties to comment in this proceeding. In response to a Public Notice seeking comment on Petitioners' request we received two comments and one reply comment. 6. Petitioners contend that Sprint cannot complete this spin-off by September 21, 1995, as required by the Commission's rules because of the scope of the corporate restructuring at issue, the need to obtain a letter ruling from the Internal Revenue Service, the securities filings that must be made to government agencies, and the information that must be distributed to a broad base of shareholders. Sprint notes that the divestiture rules do not require it to fully divest its cellular properties: only about one third of the population covered by Sprint's cellular system (approximately 7.9 out of 20.9 million) falls within the PCS licensing areas acquired by Sprint Telecom. Nevertheless, Sprint states that "[i]n order to meet its divestiture obligations and its partnership obligations in [several MTA markets], Sprint must divest entire partnership interests, encompassing many more cellular pops than Commission rules would require it to divest." In addition, Sprint's "clustering strategy" in many markets requires it to divest operations for which divestiture is not required "because logic and sound business sense dictate that these clusters should be divested (or held) as a unit." 7. Petitioners contend that grant of the requested waiver is appropriate because the request meets both tests of Section 24.819(a)(1) of the Commission's rules. Specifically, (1) the underlying purpose of the divestiture rule will not be served, or would be frustrated, by its application to Sprint in this instance, and grant of the request is otherwise in the public interest; and (2) the unique facts or circumstances of a particular case render application of the rule inequitable, unduly burdensome or otherwise contrary to the public interest. In addition, Sprint believes that it has met the general "good cause" standard for grant of a waiver by the Commission. 8. Petitioners contend that the waiver request meets the first test of Section 24.819(a)(1) because the "underlying purpose" of Section 24.204 is to promote competition. Sprint contends that this purpose would be frustrated absent a waiver, particularly because a primary concern for the Commission in promulgating Section 24.204 of the rules was to prevent cellular companies from hoarding PCS spectrum. Sprint claims that its proposal for a full spin-off of Sprint's cellular holdings will serve to promote competition in the cellular industry far better than the partial divestiture required by the Commission's rules because Sprint Cellular will be able to benefit from efficiencies that currently exist because of Sprints's integrated regional clusters approach to service. According to Sprint, the spin-off company will remain well-positioned to compete with incumbent cellular providers as well as emerging PCS systems. Sprint contends that grant of a waiver is otherwise in the public interest because "it will facilitate prompt introduction of PCS service to the public without causing harm to others." Sprint will not delay the introduction of competitive PCS in its cellular markets because Sprint Telecom has committed significant resources to aggressively build out a PCS system, and, moreover, the other partners in Sprint Telecom would not allow Sprint to delay PCS implementation because of Sprint's cellular holdings. Sprint clarifies that, should PCS operations begin during the waiver period in areas served by Sprint Cellular, Sprint is willing to separate completely the activities of Sprint Cellular and Sprint Telecom and ensure that no competitive information is exchanged. 9. Sprint contends that it meets the second test of Section 24.819(a)(1) because the requested waiver is uniquely appropriate for Petitioners and will help Sprint and its shareholders avoid the undue financial burden that partial divestiture would cause. Sprint claims that the requested waiver (1) would produce broader divestiture than required by Section 24.204; (2) would further the pro-competitive purposes of Section 24.204; (3) would not delay prompt introduction of PCS; and (4) would help to avoid unduly burdening Sprint and its shareholders with more than a billion dollars in tax liabilities and other costs. 10. Petitioners contend that their requested waiver is similar to waivers granted by the Commission to Cincinnati Bell Telephone ("CBT") and Pacific Telesis Group ("Pacific Telesis"). Petitioners contend the Commission waived the eligibility restrictions for participation in the broadband PCS auction so that Pacific Telesis would have sufficient time to complete a spin-off of its cellular holdings. Petitioners argue that Sprint's proposed spin- off is nearly identical to the transaction for which Pacific Telesis received a waiver because (1) petitioners' request is for a waiver of limited duration until the spin-off of Sprint Cellular can be completed; and (2) Sprint's waiver request would further advance the purposes of the Commission's cross-ownership rules. Petitioners argue that their request is similar to the waiver request granted CBT, allowing CBT time to dissolve a partnership through litigation in state court, because Petitioners seek an extension of time to receive necessary government approvals for a spin-off of Sprint Cellular. Petitioners further argue that in CBT's case, the Commission granted the extension because it recognized that the state courts were unlikely to act in time to meet the Commission's deadlines, and in Petitioners case, the Commission should recognize that the government approvals and IRS ruling needed for the spin-off will not be forthcoming prior to the deadline for divestiture. 11. AT&T Wireless supports Petitioners' waiver request. AT&T considers restrictions on the ownership of PCS and cellular systems in the same market to be unnecessary and thus, AT&T Wireless believes that the Commission should liberally grant waivers of the cross- ownership rule. 12. BellSouth opposes Petitioners' waiver request. BellSouth contends that Petitioners should come into compliance with the cellular/PCS cross-ownership limits within 90 days because all similarly situated auction winners have had to divest promptly. BellSouth claims the waiver request should be dismissed as an untimely petition for reconsideration of both the Commission's adoption of the 90-day period for divestiture and the condition imposed on Petitioners' licenses requiring compliance with the 90-day divestiture rule. BellSouth argues that Petitioners' certified, in both their short-form and long-form PCS applications, that they intended to come into compliance with Section 24.204(f) of the Commission's rules. BellSouth further argues that Petitioners knew when the rule was adopted that they would only have a short time for filing a divestiture application. In addition, BellSouth notes that the September 21, 1995, deadline applies only to the filing of applications for transfer or assignment of overlapping properties, but does not require actual divestiture by this date. 13. BellSouth contends, moreover, that Petitioners knew that a tax-free spin-off would be a complex, time-consuming process, and therefore Sprint should focus on divesting its properties which trigger cross-ownership rules. In addition, BellSouth contends that Petitioners have not demonstrated how divestiture at this time would be contrary to the public interest. BellSouth contends that Petitioners could comply with the divestiture rule by divesting to an interim trustee, who would then have six months from grant of the license to divest the property. 14. Finally, BellSouth argues that Petitioners erroneously compare their waiver request to two waivers previously granted by the Commission to Pacific Telesis and CBT. BellSouth argues that both Pacific Telesis and CBT became aware of the potential for conflict with the Commission's rules upon the rules' adoption and immediately petitioned the Commission for relief before commencement of the auctions so as to establish their bidding strategies for the auctions. Pacific Telesis's Board of Directors approved a spin-off of PacTel, a wireless subsidiary, two years before the auction rules were adopted. The Commission found that Pacific Telesis's circumstances were unique because it could not have know in 1992 when the spin-off plan was created that the divestiture rules would make Pacific Telesis ineligible to hold certain PCS licenses. CBT received a waiver of the divestiture deadline to allow it to resolve litigation concerning a cellular partnership before completing its divestiture. BellSouth argues that the CBT situation is different from that of Petitioners because the Commission granted CBT an extension due to CBT's ongoing litigation and not to carry out voluntary business plans. 15. In their reply comments, Petitioners claim that they are not seeking exemption from the PCS/Cellular cross-ownership rules, or challenging the validity of the 90-day divestiture rule as it generally applies. Responding to BellSouth's argument that Petitioners knew when the rules were adopted they would only have a short time for filing a divestiture application, Petitioners argue that even though the auction ended March 13, 1995, petitions to deny remained pending until the Wireless Bureau's June 23, 1995 Order granting the licenses. Moreover, shortly after PCS bidding was completed, the Sprint Board of Directors retained an investment banking firm to assist in evaluating its strategic alternatives, including a possible spin-off of Sprint Cellular. Sprint argues that it filed its waiver request the same day that the Sprint Board of Directors voted to pursue the tax-free spin-off which gave rise to the request for waiver and that the rules of corporate governance prevented Sprint from requesting a waiver before the Sprint Board decided that it would spin-off Sprint Cellular. Sprint claims that it would have been "wholly inappropriate for Sprint to request a waiver or to presume that the Board would decide to pursue a spin-off before the Board completed its analysis and made a decision." III. DISCUSSION 16. Section 24.819(a)(1)(i) provides that a waiver of the PCS rules is appropriate if: (1) the underlying purpose of the rule will not be served, or would be frustrated, by its application in a particular case, and (2) that grant of a waiver is otherwise in the public interest. We believe that Petitioners have satisfied this standard. First, we find that the underlying purpose of the rule would not be served in this instance by its strict application. Although Sprint could theoretically carry out a partial divestiture of its cellular properties to the extent required by the rules, we are persuaded that application of the rule would be unduly burdensome in light of the extent of Sprint's cellular holdings and the complexity of the divestiture that would be required. We also find that grant of the waiver would be in the public interest. A spin-off of the entire Sprint cellular company to its shareholders is far more pro-competitive than the more limited divestiture required by Section 24.204 of the Commission's rules. 17. Under Section 1.3 of our rules, we are authorized to grant waivers "if good cause therefore is shown." As interpreted by the courts, this requires that a petitioner demonstrate that "special circumstances warrant a deviation from the general rule and such deviation will serve the public interest." Further, the Commission's grant of a waiver must be based on articulated, reasonable standards that are predictable, workable, and not susceptible to discriminatory application. We believe Petitioners' waiver request satisfies the requirements of Section 1.3 as well as Section 24.819(a)(1) because Sprint must obtain a ruling from the IRS to complete a tax-free spin-off, and we have determined that a cellular subsidiary spin-off would serve the public interest. We believe that the differential treatment resulting from a waiver would not undermine competition or otherwise violate the Communications Act. For the reasons stated below, we find that Petitioners have made the required showing. 18. We disagree with BellSouth that the CBT waiver is not similar to this waiver. We granted CBT a waiver because the public interest was served by allowing it to bid, and the circumstances preventing CBT from being eligible to bid, litigation before the Delaware Court of Chancery, were beyond its control. Given that we have determined that a spin-off of a wireless subsidiary, Sprint Cellular, will promote competition and comport with the public interest, we are granting an extension of the divestiture rules to enable Petitioners to obtain the necessary rulings from other government agencies, including the Internal Revenue Service. Issuance of the letter ruling approving the spin-off is beyond the control of Petitioners. We disagree with BellSouth that Petitioners should have sought a waiver earlier because they knew when the rule was adopted that Sprint would have to divest. As Petitioners note in their reply comments, Sprint did not know which licenses it had won until the auction ended on March 13, 1995, petitions to deny remained pending until June 23, 1995, and the Sprint Board of Directors did not vote to pursue a tax-free spin-off which gave rise to the waiver request before us until July 26, 1995. Petitioners immediately filed a waiver request, seeking a limited time to complete divestiture. 19. We believe that BellSouth's argument that all similarly situated auction winners have to divest by the deadline, and therefore Sprint also should have to divest promptly, to be without merit. We believe that Petitioners have shown that the limited relief being sought warrants a waiver of the deadline. Sprint has indicated a willingness to keeps its cellular and PCS operations separate during the completion of its divestiture plan and therefore a waiver does not undercut the rule's purpose of preventing anticompetitive practices by current cellular operators (i.e., hoarding spectrum). 20. Thus, we grant Petitioners' waiver request and allow Sprint until on or before September 21, 1996, to complete the divestiture required by Section 24.204 of the Commission's rules. We condition this waiver, however, upon Sprint's submission of a plan to the Wireless Telecommunications Bureau's Commercial Wireless Division within sixty (60) days of the publication of this Order in the Federal Register. The plan must demonstrate how Sprint will achieve complete separation between the activities of Sprint Cellular and Sprint Telecom in areas served by Sprint Cellular. IV. ORDERING CLAUSES 21. Accordingly, IT IS THEREFORE ORDERED, pursuant to Sections 1.3 and 24.819(a) of the Commission's rules, 47 C.F.R.  1.3 and 24.819(a), and Section 4(i) of the Communications Act of 1934, 47 U.S.C.  154(i) and the authority delegated in Section 0.331 of the Commission's rules, 47 C.F.R.  0.331, that the petition for waiver of Section 24.204 of the Commission's rules, 47 C.F.R.  24.204, filed by WirelessCo, L.P., PhillieCo, L.P., and Sprint Corporation, IS GRANTED. 22. IT IS FURTHER ORDERED that Petitioners shall file a plan demonstrating that the activities of Sprint Cellular and Sprint Telecommunications Venture will be separated completely during the waiver period. This certified plan must be submitted to the Wireless Telecommunications Bureau's Commercial Wireless Division within sixty (60) days of the publication of this Order in the Federal Register. 23. IT IS FURTHER ORDERED that Petitioners shall come into compliance with the limitations on common ownership of cellular and broadband PCS interests set forth in 47 C.F.R.  24.204 on or before September 21, 1996. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Wireless Telecommunications Bureau