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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) ) Amendment to the Commission's Rules) WT Docket No. 95-157 Regarding a Plan for Sharing ) RM-8643 the Costs of Microwave Relocation) ) ) SECOND REPORT AND ORDER Adopted: February 13, 1997 Released: February 27, 1997 By the Commission: Table of Contents Paragraph No. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . .1 II. EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . .2 III. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . .3 IV. DISCUSSION. . . . . . . . . . . . . . . . . . . . . . . . .7 V. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . 29 VI. PROCEDURAL MATTERS. . . . . . . . . . . . . . . . . . . . 30 APPENDIX A - Final Rules APPENDIX B - List of Commenters APPENDIX C - Regulatory Flexibility Analysis I. INTRODUCTION 1. We initiated this proceeding to facilitate relocation of microwave users from the Emerging Technologies bands to other spectrum assignments, so that these bands could be used for Personal Communication Services (PCS) and other innovative services. In this Second Report and Order, we further amend certain aspects of our microwave relocation rules, which were first established in the Emerging Technologies proceeding and were modified and clarified in the First Report and Order and Further Notice of Proposed Rule Making in this docket. Specifically, we adjust the relocation timetables for the broadband PCS C, D, E, and F blocks by shortening the voluntary negotiation period applicable to each block for non-public safety incumbents by one year. This change will facilitate the relocation process for the most recently licensed PCS blocks and will create incentives for all parties to enter into early negotiations. We do not alter the timetable for public safety incumbents in the broadband PCS C, D, E, and F blocks. In addition, we permit microwave incumbents to participate in the cost-sharing program adopted in the First Report and Order. The cost-sharing program currently allows PCS licensees who relocate microwave incumbents to obtain reimbursement rights and collect reimbursement under the cost-sharing plan from later-entrant PCS licensees that benefit from the relocation. We believe that allowing incumbents to participate in cost-sharing when they relocate their own links will facilitate relocations, thereby expediting the deployment of PCS services to the public. II. EXECUTIVE SUMMARY 2. As we monitor and assess the microwave relocation process, we continually seek ways to accelerate the deployment of PCS services to the public in a fair and impartial manner to both PCS licensees and microwave incumbents. Accordingly, we modify certain aspects of our microwave relocation rules as follows:  We shorten the voluntary negotiation period for non-public safety microwave incumbents in the D, E, and F blocks (which will begin when long form applications are accepted for these blocks on January 30, 1997) by one year. We do not alter the one-year mandatory negotiation period for non-public safety incumbents. Thus, the total negotiation periods for all non-public safety incumbents in the D, E, and F blocks will be two years.  We adopt the same periods for the C block as for the D, E, and F blocks. Thus we shorten the voluntary negotiation period for non-public safety microwave incumbents in the C block (which began on May 22, 1996) by one year, but we do not alter the mandatory negotiation period. Like the D, E, and F blocks, the total negotiation period for C block will be two years.  Public safety incumbents in the C, D, E, and F blocks will continue to have a three-year voluntary negotiation period and a two-year mandatory period.  We allow microwave incumbents who voluntarily relocate themselves to obtain reimbursement rights and collect reimbursement under the cost-sharing formula, subject to certain safeguards (to minimize their incentive and ability to inflate relocation costs). III. BACKGROUND 3. In the Emerging Technologies proceeding, ET Docket No. 92-9, we reallocated the 1850- 1990, 2110-2150, and 2160-2200 MHz bands from private and common carrier fixed microwave services to emerging technology services. In that proceeding we established the procedures for relocating 2 GHz microwave incumbents to available frequencies in higher bands or to other media. These procedures were intended to encourage incumbents to negotiate relocation agreements with emerging technology licensees or manufacturers of unlicensed devices to accelerate the deployment of emerging technologies. 4. The relocation process established in that proceeding provided two negotiation periods that must expire before an emerging technology licensee may request involuntary relocation of the incumbent. The first is a fixed two-year period for voluntary negotiations -- three years for public safety incumbents, e.g., police, fire, and emergency medical licensees -- commencing with our acceptance of long form (Form 600) applications for emerging technology services. During that time period, the emerging technology providers and microwave licensees may negotiate any mutually acceptable relocation agreement. Such negotiations are strictly voluntary. At any time following the conclusion of the voluntary negotiation period, the emerging technology licensee may initiate a one-year mandatory negotiation period -- two years for public safety licensees. During this period the parties are required to negotiate in good faith. If the parties fail to reach an agreement during these periods, the emerging technology provider may request involuntary relocation of the existing facility. As a condition of relocation, however, the emerging technology licensee is required to pay the cost of relocating the incumbent to a comparable facility. 5. In our First Report and Order in WT Docket 95-157, we adopted a cost-sharing formula that allows a PCS licensee who relocates an incumbent microwave system to obtain reimbursement rights and collect reimbursement from later-entrant PCS licensees that benefit from the relocation under a cost-sharing plan administered by the industry. We also addressed concerns raised by PCS licensees that negotiations during the voluntary period for the A and B blocks were not progressing as fast as they should and were potentially delaying the deployment of PCS service to the public. We decided that altering the timetable for A and B block negotiation periods at that time would not be in the public interest because ongoing negotiations were likely to be interrupted, while parties re- assessed their positions to the detriment of the process and ultimately, the public interest. In the Further Notice of Proposed Rule Making (Further Notice) accompanying the First Report and Order, however, we sought comment on a proposal to shorten the voluntary negotiation period and lengthen the mandatory negotiation period for the D, E, and F blocks and on whether these same changes should apply to the C block. 6. In the Further Notice, we also considered whether to allow microwave incumbents who pay their own relocation expenses to participate in the cost-sharing plan adopted in the First Report and Order under certain conditions. To further expedite clearing of the band, we tentatively concluded that incumbents should be permitted to relocate their own links and obtain reimbursement rights pursuant to the cost-sharing plan. IV. DISCUSSION A. Voluntary and Mandatory Negotiation Periods For D, E, and F Blocks 7. Background. In the Further Notice, we sought comment on a proposal to adjust the negotiation periods for the D, E, and F blocks by shortening the voluntary negotiation period by one year and lengthening the mandatory period by one year. We indicated that we were willing to consider this proposal for the D, E, and F blocks because the auction for this spectrum had not commenced and there were no ongoing negotiations between D, E, and F licensees and incumbents. Under this approach, non-public safety incumbents would have a one-year voluntary period instead of the two-year voluntary period provided under the Commission's current rules, and a two-year mandatory negotiation period instead of the one-year mandatory negotiation period provided for under the Commission's current rules. Similarly, public safety incumbents would have a two-year voluntary period instead of a three-year period, and a three-year mandatory negotiation period instead of a two-year period. 8. Comments. Several PCS licensees and the Personal Communications Industry Association (PCIA) argue that we should eliminate the voluntary negotiation period and allow PCS licensees to commence immediately with the mandatory negotiation period once the Form 600 applications for the D, E, and F blocks have been submitted. These commenters argue that the voluntary negotiation period serves no useful purpose and that the only way to prevent certain incumbents from demanding excessive premiums is to eliminate the voluntary negotiation period. 9. The Cellular Telecommunications Industry Association (CTIA) and the Western Wireless Corporation support shortening the voluntary negotiation period for the D, E, and F blocks. They argue that shortening the voluntary negotiation period will assist all future PCS licensees by minimizing the problems that A and B block licensees encountered in voluntary negotiations with a few intractable incumbents. CTIA also notes that shortening the voluntary negotiation period will be beneficial to all parties because it will not affect the rights of incumbents who seek to negotiate a reasonable voluntary agreement. PCS licensees also stress that a shorter negotiation period is more important for D, E, and F licensees on 10 MHz blocks than for PCS licensees with 30 MHz blocks, because while both the PCS licensee and the incumbent may co-exist in a 30 MHz block, the presence of a microwave incumbent in a 10 MHz block virtually precludes the deployment of PCS services until the incumbent is relocated. 10. All microwave incumbents and two PCS licensees argue against modifying the timetable established for the voluntary and mandatory negotiation periods in the D, E, and F blocks. Those commenters contend that (1) PCS licensees failed to articulate any new arguments for adjusting the negotiation periods, and (2) the record demonstrates that the existing rules are sound and equitable and have promoted many successful agreements during the voluntary negotiation period. The Association of Public-Safety Communications Officials-International, Inc. (APCO), a communications organization representing public safety incumbents, and the Los Angeles County Sheriff's Department (LA Sheriff's Department) argue that even the current relocation rules are a significant reduction in the protection originally afforded public safety incumbents, and that further alterations to the current relocation timetable for public safety incumbents could result in a dangerous disruption of service. 11. Discussion. The comments of both PCS licensees and microwave incumbents have confirmed that most incumbents are willing to negotiate reasonable relocation agreements during the voluntary negotiation period. As many PCS licensees argue, however, the current length of the voluntary period unnecessarily provides opportunities for some incumbents to demand excessive premiums from PCS licensees after they have invested substantial amounts at auction and face competitive pressure to construct their systems and enter the market, particularly on 10 MHz blocks where PCS licensees have limited flexibility to build around incumbents. In addition, because of the staggered timing of PCS licensing, D, E, and F block licensees who are unable to negotiate voluntary agreements cannot initiate mandatory negotiations for more a than a year after their A and B block competitors have begun such negotiations. Thus, the current rules give the A and B block licensees a significant "head start" in the relocation process. 12. We agree that shortening the voluntary period for non-public safety incumbents in the D, E, and F blocks by one year will spur voluntary negotiations and speed the deployment of PCS services to the public. This modification will also enhance competitive parity by reducing the A and B block licensees' head start in the relocation process. The voluntary period for the A and B block licensees expires on April 5, 1997 (with respect to non-public safety incumbents), at which point A and B block licensees may begin mandatory negotiations. Shortening the voluntary period for D, E, and F blocks will help licensees in those blocks to initiate mandatory negotiations a year earlier than under the current rules, providing some compensation for the fact that the D, E, and F block voluntary negotiation period commenced approximately twenty-one months after the A and B block voluntary negotiation period. We therefore amend the rules and shorten the voluntary negotiation period for the D, E, and F blocks by one year for non-public safety incumbents. 13. We conclude that shortening the voluntary negotiation period for non-public safety incumbents in the D, E, and F blocks at this juncture will not adversely affect such incumbents. We note that microwave incumbents have been on notice since October 1992 that they will be required to relocate to alternative spectrum. Moreover, our experience with voluntary negotiations in the A and B blocks indicates that most incumbents who are motivated to enter into voluntary agreements are willing to do so early in the voluntary period and do not require prolonged negotiations to reach an agreement. Under the timetables adopted here, D, E, and F block incumbents will continue to have a reasonable window for voluntary negotiations and may continue to negotiate in the mandatory negotiation period. Moreover, if parties are successfully negotiating an agreement during the voluntary negotiation period and believe that more time is needed, they may agree to postpone commencement of the mandatory period. Finally, our shortening of the voluntary period does not alter our fundamental policy that incumbents must be made whole for the reasonable expense of being relocated to comparable facilities, regardless of whether relocation occurs in the voluntary period, the mandatory period, or as a result of involuntary relocation. 14. While we adopt our proposal to shorten the voluntary negotiation period for non-public safety incumbents in the D, E, and F blocks, we conclude it is unnecessary to lengthen the one-year mandatory negotiation period. Because the D, E, and F blocks are 10 MHz blocks, there are fewer links to relocate than in the 30 MHz A, B, and C blocks. In addition, no additional time should be required for mandatory negotiation in the D, E, and F blocks because many of the links will have been relocated by A, B, and C block licensees by the time the D, E, and F block licensees commence negotiations. We are encouraged, from our discussions with industry, by the speed with which relocation agreements are being negotiated and believe that a total of two years, (one year voluntary and one year mandatory) is sufficient to accommodate negotiations between non-public safety incumbents and D, E, and F block licensees. Lengthening the mandatory negotiation period by one year, on the other hand, will do little to accomplish our objective of speeding the deployment of PCS services to the public. We also do not believe that non-public safety incumbents will be harmed by a shorter combined negotiation period because in conjunction with these changes, we are providing microwave incumbents more flexibility to self-relocate by permitting them to participate in the Commission's cost-sharing plan (see, infra,  22). Consequently, we decline to increase the amount of time in the mandatory period needed to complete the relocation process for these blocks. 15. We decline to alter the voluntary or mandatory negotiation periods for public safety incumbents in the D, E, and F blocks. Under our current rules, public safety incumbents in the 2 GHz band are distinguished from non-public safety 2 GHz incumbents in that they have a three-year voluntary and a two-year mandatory negotiation period. We have given public safety incumbents more time to negotiate and relocate because of the importance of ensuring a seamless transition for facilities that support vital emergency services such as police, fire, and emergency medical treatment. In addition, the longer negotiation timetable reflects the fact that public safety agencies typically operate under greater budgetary constraints and longer planning cycles than non-public safety entities. For example, the LA Sheriff's Department notes that replacing its 2 GHz simulcast mobile network entails a lengthy review and approval process in which numerous county personnel must participate at all stages. APCO contends that for public safety agencies, the relocation process requires significant commitment of scarce agency time and resources to ensure that vital emergency communications will not be compromised or disrupted. We agree that these continue to be significant concerns that distinguish public safety incumbents from other incumbents. We further conclude that there is insufficient support in the record for modifying the negotiation timetable for public safety incumbents at this time. Even prior to the commencement of negotiations, many public safety agencies have begun to plan for relocation in reliance on the existing rules. Because changing the rules could disrupt this process, and because of the vital importance of providing the public with reliable emergency communications, we conclude that the current relocation timetable for public safety agencies in the D, E, and F blocks should be retained. 16. We do not believe that retaining the current relocation rules for public safety incumbents will adversely affect PCS licensees in the D, E, and F blocks. Because public safety incumbents account for fewer than 20 percent of the microwave facilities in all PCS blocks, PCS licensees will be able to clear most of their spectrum under the shorter timetable applicable to non-public safety licensees. In addition, our experience after twenty-one months of voluntary negotiations in the A and B blocks indicates that most public safety incumbents in those blocks have entered into voluntary negotiations with PCS licensees and are cooperating in the relocation process. Based on this experience, we anticipate that public safety agencies in the D, E, and F blocks will not wait until the conclusion of the voluntary period to begin negotiations requested by D, E, and F block licensees and will make good-faith efforts to complete the relocation process in a reasonable time. Because we believe the current rules fairly balance the interests of PCS licensees and public safety incumbents, we conclude that further alteration to the voluntary or mandatory negotiation periods for public safety incumbents is unnecessary. B. Voluntary and Mandatory Negotiation Periods For C Block 17. Background. In the Further Notice, we sought comment on whether the same adjustments proposed for the D, E, and F blocks should apply to the voluntary and mandatory negotiation periods for the C block. We recognized that the C block is different from the D, E, and F blocks because bidding for the C block licenses began under the current relocation rules of the Commission, although the Further Notice was released during the C block auction. Also, in contrast to D, E, and F blocks, the voluntary negotiation period for the C block commenced on May 22, 1996. 18. Comments. Commenters who supported elimination or modification of the D, E, and F block negotiation periods generally supported the same outcome for C block. AT&T and PCIA support shortening the voluntary negotiation period for C block, arguing that the C block auction winners were on notice prior to the end of the auction that the negotiation periods might be altered. PCIA also argues that many of the C block winners are small businesses that are more likely than A and B block licensees to be harmed by incumbents who demand large premiums. Several commenters, including microwave incumbents and A and B block licensees BellSouth and Sprint Spectrum, argue against altering the voluntary negotiation period for C block. They maintain that C block winners are no different than their A and B block competitors and that altering the period would thwart parties' reasonable expectations since C block winners presumably took the current timetables into account when bidding. APCO opposes any change for public safety incumbents in the C block, arguing that licensees and public safety incumbents have anticipated a three-year voluntary negotiation period and a two-year mandatory negotiation period. APCO also believes that further alterations to the current relocation timetable for public safety incumbents could result in a dangerous disruption of service. 19. Discussion. The C block winners are potentially at a greater disadvantage compared to A and B block winners under the current voluntary negotiation timetable. Currently the voluntary negotiation period for non-public safety incumbents and A and B block licensees will expire April 5, 1997, whereas the equivalent voluntary negotiation period for C block will expire May 22, 1998. The C block winners are small businesses that do not have financial resources similar to their A and B block competitors. It is not as feasible for a small business to pay premiums to accelerate negotiations. The purpose of the special C block bidding rules is to encourage small business participation in PCS. We believe an extended voluntary negotiation period could hinder or deter small businesses from effectively participating in the PCS business because it increases the likelihood that they will incur start-up business expenses such as relocation premiums and related costs due to extended negotiations. The Communications Act requires the Commission to eliminate market entry barriers for entrepreneurs and small businesses. We believe that modifying the negotiation periods will eliminate market entry barriers pursuant to Section 257 of the Communications Act and will assist small businesses in C block to deploy service to the consumer faster. We conclude that these factors are sufficiently compelling to justify modification of the voluntary negotiation period for non-public safety incumbents, even though negotiations have commenced. We therefore shorten the voluntary negotiation period for C block to one year for non- public safety incumbents, which will cause it to terminate on May 22, 1997. 20. Similar to our decision not to extend the mandatory negotiation period in the D, E, and F blocks, we also conclude that it is unnecessary to extend the mandatory negotiation period for non- public safety incumbents in the C block. As in the case of the D, E, and F blocks, we believe that no additional time is required for mandatory negotiations in the C block because many C block links will have been relocated by A and B block licensees by the time C block licensees commence mandatory negotiations. We also believe that a combined two-year negotiation period will be sufficient for negotiations between C block licensees and non-public safety incumbents, whereas lengthening the mandatory period by one year could delay the deployment of PCS services to the public. Also, microwave incumbents will have greater flexibility in the relocation process because we are permitting them to participate in the Commission's cost-sharing plan (see, infra,  22). In addition, by retaining the one-year mandatory negotiation period for C block, we achieve greater symmetry with the negotiations period for A and B blocks: the earliest that the mandatory negotiation period for C block will expire is now May 22, 1998 for non-public safety incumbents -- approximately the same time as the A and B block mandatory negotiation periods, which in most cases should expire April 5, 1998. This will create greater parity between C block entrepreneurs and their A and B block competitors in terms of clearing the band and offering service to the public. 21. We decline to alter the voluntary or mandatory negotiation periods for public safety incumbents in the C block for the same reasons we have articulated for the D, E, and F blocks. As modified, the voluntary negotiation period for the C block will expire on May 22, 1997 for non- public safety incumbents -- approximately the same time as the A and B block voluntary negotiation periods, which end April 5, 1997. The voluntary negotiation period for public safety incumbents in the C block will remain unchanged and will end May 22, 1999 -- approximately one year after the voluntary negotiation period for public safety incumbents in the A and B block voluntary negotiation periods end, which is April 5, 1998. C. Microwave Incumbent Participation in Cost-Sharing Plan 22. Background. In the First Report and Order, we adopted a cost-sharing plan that will allow PCS licensees that relocate microwave links outside their spectrum blocks or license areas to receive reimbursement from subsequent PCS licensees who benefit from the clearing of microwave links. We concluded that the cost-sharing plan would benefit the public interest because (1) it distributes relocation costs equitably among PCS licensees, and (2) it promotes the expeditious relocation of multi-link systems, which benefits microwave incumbents as well as PCS licensees. In the Further Notice, we tentatively concluded that microwave incumbents that relocate at their own expense should also be allowed to participate in the Commission's cost-sharing plan. We were concerned, however, that incumbents not be encouraged to inflate their relocation costs for reimbursement purposes. We therefore sought comment on whether the Commission's cost-sharing formula would suffice or whether additional safeguards were needed to protect PCS licensees who would be required to reimburse microwave incumbents under the cost-sharing plan. We also sought comment about the willingness of incumbents to voluntarily relocate themselves, given that our rules require PCS licensees to pay the costs of relocating incumbents to comparable facilities. 23. Comments. Most commenters, including microwave incumbents, PCS licensees and potential bidders for PCS licenses, support our proposal that microwave incumbents who voluntarily relocate themselves be allowed to participate in the cost-sharing plan. Several commenters argue that the risk of not being reimbursed is sufficient for incumbents to minimize costs and note that the cost-sharing formula already incorporates caps for purposes of minimizing costs. However, some commenters argue that voluntarily relocating microwave incumbents should be required to submit documentation supporting their relocation costs. 24. For purposes of cost-sharing, commenters generally support treating an incumbent who voluntarily relocates as if it were the initial PCS relocator. However, some commenters argue that depreciation should be excluded from the cost-sharing formula because the formula assumes that the voluntarily relocating microwave incumbent benefits from providing PCS service on the link that it has relocated. API proposes instead to treat the voluntarily relocating microwave incumbent as though the incumbent relocated a link outside of its geographic area, because under that scenario, depreciation is not calculated. 25. Discussion. We adopt our tentative conclusion from the Further Notice of Proposed Rule Making, to permit microwave incumbents that relocate themselves to obtain reimbursement rights and collect reimbursement under the Commission's cost-sharing plan from subsequent PCS licensees that would have interfered with the relocated link had it not been moved. We agree with PCS licensees and microwave incumbents who argue that incumbent participation will accelerate the relocation process by promoting system-wide relocations. Incumbent participation will also give microwave incumbents the option of avoiding time-consuming negotiations, allowing for faster clearing of the 2 GHz band in some instances. We believe that promoting system-wide relocation in this way may even reduce the overall cost of clearing the 2 GHz band. 26. In concluding that microwave incumbents should be allowed to participate in cost- sharing, we agree with commenters that some safeguards are needed to ensure that voluntarily relocating microwave incumbents do not seek reimbursement for unreasonable expenses. We therefore will impose the same restrictions on reimbursement of incumbents that apply to PCS licensees. These include the limitations under the cost-sharing plan on links for which reimbursement may be sought, and the monetary cap on the amount a relocator may be reimbursed for the relocation of each individual microwave link. 27. We also conclude that the cost-sharing formula, when applied to microwave incumbents, should include depreciation. First, a microwave incumbent who voluntarily relocates itself may well obtain benefits it would not realize if it waited to be relocated by a PCS licensee. Early relocation by the incumbent on a voluntary basis provides more options for obtaining alternative spectrum, more control over the relocation process, and reduces uncertainty about further operations. Depreciation ensures that the self-relocation pays for these benefits rather than passing them on to a PCS licensee who otherwise would not have relocated the incumbent until later. Second, we observed in the First Report and Order that depreciation creates an incentive for the relocator to minimize costs because its own share of the cost is not depreciated. We conclude that this element of the cost-sharing plan applies equally to microwave incumbents who relocate themselves. Therefore, we retain depreciation as an incentive for microwave incumbents who relocate themselves to minimize their relocation costs. 28. Finally, we conclude that microwave incumbents who self-relocate should be required to provide independent verification of their relocation costs. Although the cost-sharing plan already requires all relocators to keep documents of all expenses, we believe this additional safeguard is appropriate in the case of incumbents seeking reimbursement. In the case of an incumbent who self- relocates, it may be difficult for subsequent PCS licensees to verify the incumbent's costs to determine whether they are compensable under the cost-sharing plan. Therefore, any incumbent seeking reimbursement under the cost-sharing plan must submit to the clearinghouse an independent third party appraisal of its compensable relocation costs. The appraisal should be based on the actual cost of replacing the incumbent's system with comparable facilities, and should exclude the cost of any equipment upgrades that would not be reimbursable under the cost-sharing plan. V. CONCLUSION 29. The changes we make to the timetables for the voluntary and mandatory negotiation periods for the broadband PCS C, D, E, and F blocks will facilitate negotiations between microwave incumbents and PCS licensees. Allowing microwave incumbents to participate in the cost-sharing plan will also encourage more rapid system relocation and will reduce relocation costs. As a result of these changes, PCS licensees will be able to speed their deployment of service to the public. VI. PROCEDURAL MATTERS A. Regulatory Flexibility Act 30. Appendix C contains a Final Regulatory Flexibility Analysis. B. Authority 31. Authority for issuance of this Second Report and Order is contained in the Communications Act, Sections 4(i), 7, 303(c), 303(f), 303(g), 303(r), and 332, 47 U.S.C.  154(i), 157, 303(c), 303(f), 303(g), 303(r), 332, as amended. C. Ordering Clauses 32. Accordingly IT IS ORDERED that Parts 24 and 101 of the Commission's rules are amended as set forth in Appendix A and will become effective 60 days after publication in the Federal Register. 33. IT IS FURTHER ORDERED that the Regulatory Flexibility Analysis, as required by Section 604 of the Regulatory Flexibility Act, and as set forth in Appendix C is ADOPTED. 34. IT IS FURTHER ORDERED that the Secretary shall send a copy of this Second Report and Order to the Chief Counsel for Advocacy of the Small Business Administration. D. Further Information 35. For further information concerning this proceeding, contact Michael Hamra, Wireless Telecommunications Bureau, Commercial Wireless Division at (202) 418-0620. Federal Communications Commission William F. Caton, Acting Secretary APPENDIX A Final Rules 1. Part 24 of Chapter 1 of Title 47 of the Code of Federal Regulations is amended as follows: PART 24 - PERSONAL COMMUNICATIONS SERVICES 2. The authority citation for Part 24 continues to read as follows: Authority: 47 U.S.C.  154, 301, 302, 303, 309 and 332, unless otherwise noted. 3. Section 24.5 is amended by adding the definition for "Voluntarily Relocating MicrowaveIncumbent" in alphabetical order to read as follows:  24.5 Definitions. * * * * * Voluntarily Relocating Microwave Incumbent. A microwave incumbent that voluntarily relocates its licensed facilities to other media or fixed channels. * * * * * 4. Section 24.239 is amended to read as follows:  24.239 Cost-Sharing Requirements for Broadband PCS. Frequencies in the 1850-1990 MHz band listed in  101.147(c) have been allocated for use by PCS. In accordance with procedures specified in  101.69 through 101.81, PCS entities (both licensed and unlicensed) are required to relocate the existing Fixed Microwave Services (FMS) licensees in these bands if interference to the existing FMS operations would occur. All PCS entities who benefit from spectrum clearance by other PCS entities or a voluntarily relocating microwave incumbent, must contribute to such relocation costs. PCS entities may satisfy this requirement by entering into private cost-sharing agreements or agreeing to terms other than those specified in  24.243. However, PCS entities are required to reimburse other PCS entities or voluntarily relocating microwave incumbents that incur relocation costs and are not parties to the alternative agreement. In addition, parties to a private cost-sharing agreement may seek reimbursement through the clearinghouse (as discussed in  24.241) from PCS entities that are not parties to the agreement. The cost-sharing plan is in effect during all phases of microwave relocation specified in  101.69. 5. Section 24.243 is amended to read as follows:  24.243 The Cost-Sharing Formula. A PCS relocator who relocates an interfering microwave link, i.e. one that is in all or part of its market area and in all or part of its frequency band or a voluntarily relocating microwave incumbent, is entitled to pro rata reimbursement based on the following formula: RN = C x [120 - (Tm)] N 120 (a) RN equals the amount of reimbursement. (b) C equals the actual cost of relocating the link. Actual relocation costs include, but are not limited to, such items as: radio terminal equipment (TX and/or RX - antenna, necessary feed lines, MUX/Modems); towers and/or modifications; back-up power equipment; monitoring or control equipment; engineering costs (design/path survey); installation; systems testing; FCC filing costs; site acquisition and civil works; zoning costs; training; disposal of old equipment; test equipment (vendor required); spare equipment; project management; prior coordination notification under Section 101.103(d) of the Commission's rules; site lease renegotiation; required antenna upgrades for interference control; power plant upgrade (if required); electrical grounding systems; Heating Ventilation and Air Conditioning (HVAC) (if required); alternate transport equipment; and leased facilities. C also includes voluntarily relocating microwave incumbent's independent third party appraisal of its compensable relocation costs and incumbent transaction expenses that are directly attributable to the relocation, subject to a cap of two percent of the "hard" costs involved. C may not exceed $250,000 per link, with an additional $150,000 permitted if a new or modified tower is required. (c) N equals the number of PCS entities that would have interfered with the link. For the PCS relocator, N = 1. For the next PCS entity that would have interfered with the link, N=2, and so on. (d) Tm equals the number of months that have elapsed between the month the PCS relocator obtains reimbursement rights and the month that the clearinghouse notifies a later-entrant of its reimbursement obligation. A PCS relocator obtains reimbursement rights on the date that it signs a relocation agreement with a microwave incumbent. 6. Section 24.245 is amended by revising paragraphs (a) and (b) to read as follows:  24.245 Reimbursement under the Cost-Sharing Plan. (a) Registration of Reimbursement Rights. (1) To obtain reimbursement, a PCS relocator must submit documentation of the relocation agreement to the clearinghouse within ten business days of the date a relocation agreement is signed with an incumbent. (2) To obtain reimbursement, a voluntarily relocating microwave incumbent must submit documentation of the relocation to the clearinghouse within ten business days of the date that relocation occurs. (b) Documentation of Expenses. Once relocation occurs, the PCS relocator or thevoluntarily relocating microwave incumbent, must submit documentation itemizing the amount spent for items listed in paragraph (b) of  24.243. The voluntarily relocating microwave incumbent, must also submit an independent third party appraisal of its compensable relocation costs. The appraisal should be based on the actual cost of replacing the incumbent's system with comparable facilities and should exclude the cost of any equipment upgrades or items outside the scope of paragraph (b) of  24.243. The PCS relocator or the voluntarily relocating microwave incumbent, must identify the particular link associated with appropriate expenses (i.e., costs may not be averaged over numerous links). If a PCS relocator pays a microwave incumbent a monetary sum to relocate its own facilities, the PCS relocator must estimate the costs associated with relocating the incumbent by itemizing the anticipated cost for items listed in paragraph (b) of  24.243. If the sum paid to the incumbent cannot be accounted for, the remaining amount is not eligible for reimbursement. A PCS relocator may submit receipts or other documentation to the clearinghouse for all relocation expenses incurred since April 5, 1995. * * * * * 7. Section 24.247 is amended by revising paragraph (a) to read as follow:  24.247 Triggering a Reimbursement Obligation. (a) Licensed PCS. The clearinghouse will apply the following test to determine if a PCS entity preparing to initiate operations must pay a PCS relocator or a voluntarily relocating microwave incumbent in accordance with the formula detailed in  24.243: * * * * * 8. Section 24.249 is amended by revising paragraph (a) to read as follows:  24.249 Payment Issues. (a) Timing. On the day that a PCS entity files its prior coordination notice (PCN) in accordance with 101.103(d), it must file a copy of the PCN with the clearinghouse. The clearinghouse will determine if any reimbursement obligation exists and notify the PCS entity in writing of its repayment obligation, if any. When the PCS entity receives a written copy of such obligation, it must pay directly to the PCS relocator or the voluntarily relocating microwave incumbent the amount owed within thirty days, with the exception of those businesses that qualify for installment payments. A business that qualifies for an installment payment plan must make its first installment payment within thirty days of notice from the clearinghouse. UTAM's first payment will be due thirty days after its reimbursement obligation is triggered as described in  24.247(b). * * * * * 9. Part 101 of Chapter 1 of Title 47 of the Code of Federal Regulations is amended as follows: PART 101 -- FIXED MICROWAVE SERVICES 10. The authority citation for Part 101 continues to read as follows: Authority: 47 U.S.C.  154, 303, unless otherwise noted. 11. Section 101.69 is amended by revising the heading, paragraph (b) and adding new section (c) to read as follows:  101.69 Transition of the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands from the Fixed Microwave Services to Personal Communications Services and emerging technologies. Fixed Microwave Services (FMS) frequencies in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands listed in  101.147(c), (d) and (e) have been allocated for use by emerging technology (ET) services, including Personal Communications Services (PCS). The rules in this section provide for a transition period during which ET licensees may relocate existing FMS licensees using these frequencies to other media or other fixed channels, including those in other microwave bands. (a) ET licensees may negotiate with FMS licensees authorized to use frequencies in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands, for the purpose of agreeing to terms under which the FMS licensees would - (1) Relocate their operations to other fixed microwave bands or other media, or alternatively, (2) Accept a sharing arrangement with the ET licensee that may result in an otherwise impermissible level of interference to the FMS operations. (b) Except as provided in subsection (c), FMS operations in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands, with the exception of public safety facilities defined in  101.77, will continue to be co-primary with other users of this spectrum until two years after the FCC commences acceptance of applications for ET services (voluntary negotiation period), and until one year after an ET licensee initiates negotiations for relocation of the fixed microwave licensee's operations (mandatory negotiation period). In the 1910-1930 MHz band allocated for unlicensed PCS, FMS operations will continue to be co-primary until one year after UTAM, Inc. initiates negotiations for relocation of the fixed microwave licensee's operations. Except as provided in subsection (c), Public safety facilities defined in  101.77 will continue to be co-primary in these bands until three years after the Commission commences acceptance of applications for an emerging technology service (voluntary negotiation period), and until two years after an emerging technology service licensee or an emerging technology unlicensed equipment supplier or representative initiates negotiations for relocation of the fixed microwave licensee's operations (mandatory negotiation period). If no agreement is reached during either the voluntary or mandatory negotiation periods, an ET licensee may initiate involuntary relocation procedures. Under involuntary relocation, the incumbent is required to relocate, provided that the ET licensee meets the conditions of  101.75. (c) Voluntary and mandatory negotiation periods for PCS C, D, E, and F blocks are defined as follows: (1) Non-public safety incumbents will have a one-year voluntary negotiation period and a one-year mandatory negotiation period. (2) Public safety incumbents will have a three-year voluntary negotiation period and a two-year mandatory negotiation period. 12. Section 101.71 is revised to read as follows:  101.71 Voluntary Negotiations. During the voluntary negotiation period, negotiations are strictly voluntary and are not defined by any parameters. However, if the parties have not reached an agreement within one year after the commencement of the voluntary period for non-public safety entities, or within three years after the commencement of the voluntary period for public safety entities, the FMS licensee must allow the ET licensee if it so chooses to gain access to the existing facilities to be relocated so that an independent third party can examine the FMS licensee's 2 GHz system and prepare an estimate of the cost and the time needed to relocate the FMS licensee to comparable facilities. The ET licensee must pay for any such estimate. 13. Section 101.73 is amended by revising paragraph (a) to read as follows:  101.73 Mandatory Negotiations. (a) If a relocation agreement is not reached during the voluntary period, the ET licensee may initiate a mandatory negotiation period. This mandatory period is triggered at the option of the ET licensee, but ET licensees may not invoke their right to mandatory negotiation until the voluntary negotiation period has expired. * * * * * 14. Section 101.77 is amended by revising the heading and paragraph (a) to read as follows:  101.77 Public Safety Licensees in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands. (a) Public safety facilities are subject to the three-year voluntary and two-year mandatory negotiation period, except as otherwise defined supra, paragraph 101.69(c). In order for public safety licensees to qualify for extended negotiation periods, the department head responsible for system oversight must certify to the ET licensee requesting relocation that: (1) the agency is a licensee in the Police Radio, Fire Radio, Emergency Medical, Special Emergency Radio Services, or that it is a licensee of other Part 101 facilities licensed on a primary basis under the eligibility requirements of Part 90, Subparts B and C; and (2) the majority of communications carried on the facilities at issue involve safety of life and property. * * * * * 15. Section 101.79 is amended by revising the heading and paragraph (a) to read as follows:  101.79 Sunset Provisions for licensees in the 1850-1990 MHz, 2110-2150 MHz, and 2150- 2160 MHz bands. (a) FMS licensees will maintain primary status in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands unless and until an ET licensee requires use of the spectrum. ET licensees are not required to pay relocation costs after the relocation rules sunset (i.e. ten years after the voluntary period begins for the first ET licensees in the service). Once the relocation rules sunset, an ET licensee may require the incumbent to cease operations, provided that the ET licensee intends to turn on a system within interference range of the incumbent, as determined by TIA Bulletin 10-F of any standard successor. ET licensee notification to the affected FMS licensee must be in writing and must provide the incumbent with no less than six months to vacate the spectrum. After the six-month notice period has expired, the FMS licensee must turn its license back into the Commission, unless the parties have entered into an agreement which allows the FMS licensee to continue to operate on a mutually agreed upon basis. * * * * * 16. Section 101.81 is amended by revising the heading and the opening paragraph to read as follows:  101.81 Future licensing in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands. After April 25, 1996, all major modifications and extensions to existing FMS systems in the 1850-1990 MHz, 2110-2150 MHz, and 2160-2200 MHz bands will be authorized on a secondary basis to ET systems. All other modifications will render the modified FMS license secondary to ET operations, unless the incumbent affirmatively justifies primary status and the incumbent FMS licensee establishes that the modification would add to the relocation costs of ET licensees. Incumbent FMS licensees will maintain primary status for the following technical changes: * * * * * APPENDIX B Parties Filing Comments 1. American Personal Communications, L.P. (American PCS) 2. American Petroleum Institute (API) 3. American Public Power Association (APPA) 4. Association of American Railroads (AAR) 5. Association of Public-Safety Communications Officials- International, Inc. (APCO) 6. AT&T Wireless Service, Inc. (AT&T) 7. Basin Electric Power Cooperative (Basin) 8. BellSouth Corporation, BellSouth Personal Communications, Inc., BellSouth Cellular Corp. (BellSouth) 9. Cellular Telecommunications Industry Association (CTIA) 10. County of Los Angeles, Internal Services Department and Sheriff's Department (LA Sheriff's Department) 11. East River Electric Power Cooperative (East River) 12. Hughes Space and Communications International, et. al. (Hughes, et. al) 13. Omnipoint Corporation (Omnipoint) 14. Personal Communications Industry Association (PCIA) 15. PrimeCo Personal Communications, L.P. (PrimeCo) 16. South Carolina Public Service Authority (South Carolina) 17. Sprint Spectrum L.P. (Sprint Spectrum) 18. Tenneco Energy (Tenneco) 19. UTC, The Telecommunications Association (UTC) 20. Western Wireless Corporation (WWC) 21. Williams Wireless, Inc. (WWI) Parties Filing Reply Comments 1. Association of American Railroads (AAR) 2. AT&T Wireless Services, Inc. (AT&T) 3. BellSouth Corporation, BellSouth Personal Communications, Inc., and BellSouth Cellular Corp. (BellSouth) 4. Intercel, Inc. (Intercel) 5. Personal Communications Industry Association (PCIA) 6. US West, Inc. (US West) APPENDIX C Regulatory Flexibility Analysis As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rule Making in WT Docket No. 95-157. The Commission sought written comments on the proposals in the Notice, including the IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA) in this Order conforms to the RFA, as amended by the Contract With America Advancement Act of 1996. I. Need for and Purpose of the Action This Second Report and Order (i) shortens the voluntary negotiation period for all non-public safety microwave incumbents in the C, D, E, and F blocks by one year, (ii) allows the microwave incumbents who self-relocate to obtain reimbursement rights and collect reimbursement under the cost-sharing formula. The changes adopted herein will facilitate the rapid relocation of microwave facilities in the 2 GHz band and will accelerate the deployment of PCS services to the public. II. Summary of Significant Issues Raised by the Public Comments in Response to the Initial Regulatory Flexibility Analysis: No comments were submitted in response to the IRFA. However, two commenters to the Further Notice of Proposed Rule Making, raised an issue that might affect small business entities. The commenters, American Petroleum Institute (API) and the American Public Power Association (APPA) argued that shortening the voluntary negotiation periods would disrupt and impose a significant burden on microwave incumbent businesses by forcing them to negotiate an agreement during a shorter voluntary negotiation period. Both commenters believe that without a two-year voluntary negotiation period, incumbents will be forced to negotiate during the mandatory negotiation period. The Commission does not believe that successful negotiations will be forced into the mandatory negotiation period. If successful negotiations are occurring, parties may agree not to commence with the mandatory negotiation period and may continue to negotiate successfully throughout a voluntary negotiation period. III. Description and Estimate of the Number of Small Entities To Which Rule Will Apply: For purposes of this Order, the Small Business Administration (SBA) has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications Except Radiotelephone) to be a small entity when it has fewer than 1,500 employees. Estimates for Broadband PCS Services The broadband PCS spectrum is divided into six frequency blocks designated A through F. As set forth in 47 C.F.R.  24.720(b), the Commission has defined small businesses in the C and F block auctions to mean a firm that had average gross revenues of less than $40 million in the three previous calendar years. The Commission's definition of a small business has been approved by the SBA. The Commission has auctioned broadband PCS licenses in the A, B, C, D, E, and F blocks. We do not have sufficient data to determine how many small businesses bid successfully for licenses in the A and B blocks. There are 81 non-defaulting winning bidders that qualify as small entities in the C block PCS auctions. Based on this information, we conclude that the number of broadband PCS licensees affected by the decisions in this Order includes, at a minimum, the 81 non-defaulting winning bidders that qualified as small entities in the C block broadband PCS auction. The D, E, and F block auction closed January 14, 1997, but presently there have been no licenses awarded for the D, E, and F block auctions. Therefore, there are no small businesses providing these services. However, there were 125 winning bidders and the Commission anticipates a total of 1,479 licenses will be awarded in the D, E, and F blocks. Participation in the F block was limited to entrepreneurs with under $125 million in average gross revenues over the past three years. More than 40 percent of the licenses in the D, E, and F blocks were won by 93 small businesses. We estimate that most, if not all, of the small businesses will be awarded licenses. Estimates for Microwave Services Due to the nature of this private service, the Commission does not have a definition for small business with respect to microwave services. Therefore, we will utilize the SBA's definition applicable to radiotelephone companies -- i.e. an entity with less than 1,500 persons. The Census Bureau reports that there were 1,176 such companies in operation for at least one year at the end of 1992. Also, the Federal Communication Commission's Office of Engineering and Technology developed a study in 1992 that provides statistical data for all microwave incumbents in 1850 MHz to 1990 MHz bands. Specifically, the study finds that in the 1850 MHz to 1990 MHz, local governments, including public safety entities have 168 licensees; petroleum companies have 67 licenses; power companies have 164 licenses; railroad companies have 18 licenses; and all other microwave incumbents in this band have 143 licenses. However, the Commission does not have specific statistics that determine how many of these companies are small businesses. In addition, this Second Report and Order only affects microwave incumbents in PCS blocks C, D, E, and F. Therefore, this Second Report and Order does not affect all microwave incumbents in the 1850 MHz to 1990 MHz band. However, we recognize that a number of microwave incumbents have already relocated due to the current negotiations of A, B, and C block PCS licensees. We cannot determine at this time how many licensees have moved. We therefore are unable to estimate the number of microwave service providers that qualify under the SBA's definition. IV. Description, Projected Reporting, Recordkeeping and Other Compliance Requirements: In this Second Report and Order the Commission allows microwave incumbents who voluntarily relocate their links to obtain reimbursement from subsequent PCS licensees under the cost-sharing plan. Microwave incumbents that participate in the cost-sharing plan will be required to submit documentation itemizing the amount spent for the actual cost of relocating the links. The voluntarily relocating microwave incumbent will also be required to submit an independent third party appraisal of its compensable costs. See, supra, IV., C, paragraph 27. V. Significant Alternatives and Steps Taken By Agency to Minimize Significant Economic Impact on a Substantial Number of Small Entities Consistent with Stated Objectives: In the Further Notice of Proposed Rule Making we sought comment on adjusting the negotiation periods for the D, E, and F blocks by shortening the voluntary negotiation period and lengthening the mandatory negotiation period by the corresponding amount. We also sought comment on whether the same adjustments should be made in the C block. This Second Report and Order shortens the voluntary negotiation period for the C, D, E, and F blocks by one year and lengthens the mandatory negotiation period for C block by one year. We did not lengthen the mandatory negotiation period for the D, E, and F blocks because these are 10 MHz blocks and have fewer links to relocate than in the 30 MHz blocks that C block has. These alterations were made to diminish the opportunity of a few incumbents that were delaying negotiations by demanding excessive premiums from PCS licensees during the voluntary negotiation periods. Commenters to the Further Notice generally indicated that microwave incumbents were negotiating successfully during the voluntary negotiation period and did not require prolonged negotiations to reach agreement. We believe that these changes do not affect an incumbent's ability to negotiate an agreement during the voluntary negotiation period. If parties are successfully negotiating an agreement during the voluntary negotiation period, they may agree that more time is needed, thereby agreeing to postpone the commencement of the mandatory negotiation period. See, supra, IV., A, paragraph 13. These alterations will accelerate the deployment of PCS services to the consumer and still guarantee microwave incumbents full compensation for relocating. VI. Report to Congress The Commission shall send a copy of this Final Regulatory Flexibility Analysis with this Second Report and Order in a report to Congress pursuant to Section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.  801(a)(1)(A). A copy of this Regulatory Flexibility Analysis will also be published in the Federal Register.