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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 In the Matter of ) ) 1998 Biennial Regulatory Review-- ) Spectrum Aggregation Limits ) WT Docket No. 98-205 for Wireless Telecommunications Carriers ) ) Cellular Telecommunications Industry ) Association's Petition for ) Forbearance From the 45 MHz ) CMRS Spectrum Cap ) ) Amendment of Parts 20 and 24 of ) WT Docket No. 96-59 the Commission's Rules -- Broadband PCS ) Competitive Bidding and the Commercial ) Mobile Radio Service Spectrum Cap ) ) Implementation of Sections 3(n) and ) GN Docket No. 93-252 332 of the Communications Act ) ) Regulatory Treatment of Mobile Services ) NOTICE OF PROPOSED RULEMAKING Adopted: November 19, 1998 Released: December 10, 1998 Comment Date: January 25, 1999 Reply Comment Date: February 10, 1999 Comments and Reply Comments to be filed in WT Docket No. 98-205 By the Commission: Commissioners Furchtgott-Roth, Powell, and Tristani issuing separate statements. Table of Contents Paragraph I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . .1 II EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . .7 III. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 10 A. History of the CMRS Spectrum Cap . . . . . . . . . . . 10 B. Pending Issues Regarding the CMRS Spectrum Cap . . . . 19 IV. DISCUSSION. . . . . . . . . . . . . . . . . . . . . . . . 30 A. Overview . . . . . . . . . . . . . . . . . . . . . . . 30 B. Reassessment of the CMRS Spectrum Cap . . . . . . . . 32 C. Modifications and Alternatives to Existing CMRS Spectrum Cap49 1. Modification of Significant Overlap Threshold. . 50 2. Modification of 45 MHz Limitation . . . . . . . . 54 3. Modification of Ownership Attribution Thresholds. 59 4. Forbearance From Enforcing the CMRS Spectrum Cap 63 5. Sunset CMRS Spectrum Cap. . . . . . . . . . . . . 71 6. Eliminate CMRS Spectrum Cap . . . . . . . . . . . 74 D. Cellular Cross-Interest Rule . . . . . . . . . . . . 79 V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . 85 VI. PROCEDURAL AND RELATED MATTERS . . . . . . . . . . . . . 86 A. Regulatory Flexibility Analysis . . . . . . . . . . . 86 B. Ex Parte Presentations . . . . . . . . . . . . . . . . 87 C. Comment Dates . . . . . . . . . . . . . . . . . . . . 88 D. Initial Paperwork Reduction Act of 1995 Analysis . . . 92 E. Ordering Clauses . . . . . . . . . . . . . . . . . . . 93 APPENDIX A: Initial Regulatory Flexibility Analysis I. INTRODUCTION 1. In this Notice of Proposed Rulemaking we undertake a comprehensive review of the 45 MHz Commercial Mobile Radio Services (CMRS) spectrum cap as part of our biennial review of the Commission's regulations. We seek comment on whether the Commission should repeal, modify or retain the 45 MHz spectrum cap. In addition, we seek comment on a petition, submitted by the Cellular Telecommunications Industry Association (CTIA), to forbear from enforcement of the CMRS spectrum cap pursuant to section 10 of the Communications Act of 1934, as amended (the Act). 2. The CMRS spectrum cap, set out in section 20.6 of the Commission's rules, governs the amount of CMRS spectrum that can be licensed to a single entity within a particular geographic area. Pursuant to section 20.6 of the Commission's rules, a single entity may acquire attributable interests in the licenses of broadband Personal Communications Service (PCS), cellular, and Specialized Mobile Radio (SMR) services that cumulatively do not exceed 45 MHz of spectrum within the same geographic area. The CMRS spectrum cap was originally adopted in 1994 as a restriction on the amount of PCS spectrum a cellular licensee or other entity could obtain. At that time, most parts of the country received mobile voice services from two cellular providers. Thus, the purpose of the CMRS spectrum cap was to provide an expedited means of ensuring that multiple service providers would be able to obtain spectrum in each market and thus facilitate development of competitive markets for wireless services. In this proceeding, we examine whether the current rule continues to further the public interest, or whether circumstances have changed so as to warrant a modification or repeal of the CMRS spectrum cap. 3. This proceeding is part of our comprehensive review of existing Commission regulations to determine whether our rules continue to make economic and regulatory sense, pursuant to section 11 of the Communications Act. In the Telecommunications Act of 1996 (1996 Act), Congress sought to enhance competition in local and other telecommunications markets and recognized that the achievement of that goal would lessen the need for regulation of the telecommunications industry. For that reason, Congress charged the Commission with reviewing its regulations applicable to providers of telecommunications services on a biennial basis to "determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service." If we find that a regulation is no longer in the public interest, we have an affirmative obligation to repeal or modify that regulation. Commenters in this proceeding are requested to discuss how their comments relate to section 11. 4. As part of the 1996 Act, Congress also granted the Commission the regulatory flexibility to forbear from applying any regulation or any provision of the Communications Act to a telecommunications carrier. Under section 10 of the Communications Act, we must forbear from applying any regulation or provision of the Act to a telecommunications carrier or service, or class of telecommunications carriers or services, in any or some of its geographic markets if a three- pronged test is met. On September 30, 1998, CTIA filed a petition requesting that the Commission forbear from enforcing the CMRS spectrum cap. We request that interested parties submit empirical and analytical support regarding CTIA's contention that forbearance from enforcement of section 20.6 of our rules is warranted because the statutory requirements triggering exercise of our forbearance authority have been satisfied. Should the record of this proceeding support exercise of our forbearance authority, we will consider forbearance from enforcement of section 20.6 as one option for resolution of our overall review of the cap in this proceeding, but not to the exclusion of other options such as elimination or modification of section 20.6. 5. We follow several principles in considering whether an existing regulation is still necessary or if it would be appropriate to eliminate or modify that regulation. First, we believe that trusting in the operation of market forces generally better serves the public interest than regulation. The Commission should consider imposition of regulation when there is an identifiable market failure and imposition of the regulation would serve the public interest because it is targeted to correct that failure. Even in those situations, the Commission should endeavor to craft narrowly any regulation to impose only the minimum restraint on the market necessary to achieve the public interest. Second, we seek to foster vigorous competition in all telecommunications markets. For years we have attempted to facilitate competition in CMRS markets. We are also committed to bringing competition to local telecommunications markets generally, consistent with the central Congressional mandate of the 1996 Act. In this regard, we wish to ensure that there are no regulatory impediments to the evolution of wireless carriers into more effective competitors vis-…-vis the local wireline telephone companies. Third, we seek to secure the benefits of modern telecommunication services, including wireless services, for all areas of our Nation. We are committed to ensuring that rural and other areas presently under-served by telecommunications providers are not left behind by the telecommunications revolution, and we see many indications that wireless technology has a significant role to play in serving under-served and high-cost areas. Finally, we wish to ensure that our regulation promotes, rather than impedes, the introduction of innovative services and technological advances. Commenters are requested to explain how the proposals they make relate to these principles. 6. Consistent with our goals of removing unnecessary regulations and ensuring that remaining regulations serve the public interest, this proceeding will re-evaluate the need for spectrum aggregation limits. The CMRS spectrum cap was first established four years ago. Since that time, CMRS markets and the wireless telecommunications industry in general have changed considerably. We seek to determine here if those changes have affected the need for the CMRS spectrum cap, and what, if any, type of spectrum aggregation limits are appropriate at this time. II. EXECUTIVE SUMMARY 7. In this Notice of Proposed Rulemaking, we solicit comment on whether we should repeal, modify, or retain the CMRS spectrum cap. We also seek comment on the petition to forbear from enforcement of the CMRS spectrum cap filed by CTIA on September 30, 1998. We focus our discussion of whether to repeal, modify, or retain the spectrum cap by looking at the competitive changes in the CMRS market, reexamining the goals that the spectrum cap was initially designed to achieve, and seeking comment on whether there are less restrictive measures, or additional public interest goals we should consider in determining whether to eliminate or modify the spectrum aggregation limits. Additionally, we seek comment on how our analysis may differ in the context of markets with many wireless competitors, as opposed to markets, for example, in rural or high-cost areas, where few or no PCS providers may have initiated service, and whether we should consider the rule on a market-by-market basis. 8. We identify and discuss several different options for addressing CMRS spectrum aggregation issues. Specific options raised for comment, in addition to retaining the current CMRS spectrum cap, include: o Expanding the allowable amount of geographic overlap between a licensee's various broadband CMRS holdings; o Increasing the amount of spectrum that a single entity may hold beyond 45 MHz; o Altering the ownership attribution rules associated with the spectrum cap; o Forbearing from enforcing the CMRS spectrum cap pursuant to our authority under section 10 of the Act; o Establishing a sunset for the CMRS spectrum cap; and, o Eliminating the CMRS spectrum cap and relying on a case-by-case analysis pursuant to sections 308(b) and 310(d) of the Communications Act in assessing the potential competitive effects of a proposed spectrum holding by a particular entity within a geographic area. 9. We also seek comment on whether we should retain, modify, or repeal the cellular cross-ownership rule. That rule was adopted when cellular licensees were the predominant provider of mobile voice services. We seek comment on whether the introduction of new competitors in wireless telecommunications markets changes the need for this rule. III. BACKGROUND A. History of the CMRS Spectrum Cap 10. As discussed supra, the CMRS spectrum cap was established in the CMRS Third Report and Order as part of the implementation of the deregulated CMRS regime enacted by the Omnibus Budget Reconciliation Act of 1993. Prior to the adoption of the CMRS spectrum cap, the Commission had imposed service specific limitations on licensees' ability to aggregate broadband PCS spectrum. In replacing discrete PCS/cellular ownership rules, the Commission explained that an overall spectrum cap for CMRS would add certainty to the marketplace without sacrificing the benefits of pro-competitive and efficiency-enhancing aggregation. The Commission found that if licensees were to aggregate sufficient amounts of spectrum, it would be possible for them, unilaterally or in combination, to exclude efficient competitors, to reduce the quantity or quality of services provided, or to increase prices to the detriment of consumers. The Commission concluded that the imposition of a cap on the amount of spectrum that a single entity can control in any one geographic area would limit its ability to increase prices artificially. 11. To perform a spectrum cap analysis, a threshold determination must first be made regarding whether the CMRS offerings under consideration are serving markets that substantially overlap. The Commission adopted a simple formula for this assessment: a determination of whether the overlap between geographic service areas or licensed contours contains 10 percent or more of the market's population. 12. Assuming a 10 percent population overlap, the rule next requires a determination of whether there is common attributable ownership. For purposes of the spectrum cap, equity ownership of 20 percent or more was deemed attributable. The Commission also stated that in determining when cellular, broadband PCS and SMR licenses are held indirectly through intervening corporate entities, a multiplier would be used to determine attributable ownership levels, consistent with application of the broadcast attribution rules. 13. The Commission found that by creating a cap on broadband PCS, SMR, and cellular licenses, the result accomplished would "prevent licensees from artificially withholding capacity from the market." The Commission found that a 45 MHz cap provided a "minimally intrusive means" for ensuring that the mobile communications marketplace remained competitive and preserved incentives for efficiency and innovation. 14. In the CMRS Fourth Report and Order, the Commission further clarified that certain business relationships could give rise to attributable ownership interests for purposes of the CMRS spectrum cap. First, the Commission held that resale agreements will not be considered attributable interests because resellers can neither exercise control over the spectrum on which they provide service nor reduce the amount of service provided over that spectrum. Second, the Commission found that management agreements that authorize managers of cellular, broadband PCS or SMR systems to engage in practices or activities that determine or significantly influence the nature and types of services offered, the terms on which services are offered, or the prices charged for such services, give the managers an attributable interest in that licensee. Finally, the Commission also concluded that joint marketing agreements that affect pricing or service offerings will be attributable. 15. The Commission reaffirmed the basic tenets of the CMRS spectrum cap in the CMRS Spectrum Cap Report and Order and provided additional economic rationale for its use. That proceeding was initiated, in part, in response to the Sixth Circuit's remand of the Commission's PCS/cellular cross-ownership rule. In Cincinnati Bell, the court found that the Commission had not provided adequate economic justification for limiting cellular providers to only 10 MHz of PCS spectrum. In light of the court's ruling in Cincinnati Bell, the Commission sought comment on whether it should eliminate the PCS/cellular cross-ownership rule and the 40 MHz PCS spectrum cap in favor of the single 45 MHz CMRS spectrum cap. 16. In the CMRS Spectrum Cap Report and Order, the Commission found that the use of the single 45 MHz CMRS spectrum cap had advantages over maintaining three separate caps because it would give providers more flexibility to respond to changing marketplace demands. The Commission also provided additional economic analysis supporting the CMRS spectrum cap. Specifically, the Commission provided an analysis of the potential market concentrations using the Herfindahl-Hirschman Index (HHI), and found that a 45 MHz spectrum cap was necessary to prevent CMRS markets from becoming highly concentrated. The Commission found that such a spectrum cap was needed to ensure competition, and that it would adequately address concerns about anticompetitive behavior in the CMRS market. The Commission also stated that it would continue to evaluate the need for the CMRS spectrum cap under the biennial review provisions of the Act. 17. In addition to reviewing the general structure of the CMRS spectrum cap in the CMRS Spectrum Cap Report and Order, the Commission also reconsidered the ownership and geographic attribution provisions of section 20.6. In Cincinnati Bell, the court found the 20 percent attribution standard used in the PCS/cellular cross-ownership rule to be arbitrary on the grounds that it did not bear a reasonable relationship to whether a party with a minority interest in a cellular licensee actually has the ability to control that licensee. In light of the court's determination, in the CMRS Spectrum Cap Report and Order the Commission revisited the use of a 20 percent attribution standard and found it appropriate for use in the CMRS spectrum cap. Although the Commission did not alter the 20 percent ownership attribution standard in the CMRS Spectrum Cap Report and Order, it did adopt a four-prong test under which it would review requests for waiver of the attribution standard. The Commission also eliminated the 40 percent attribution threshold for ownership interests held by minorities and women, but maintained it for small businesses and rural telephone companies. In considering changes to the geographic attribution standard, the Commission declined to alter the 10 percent overlap definition because it found "that an overlap of 10 percent of the population is sufficiently small that the potential for exercise of undue market power by the cellular operator is slight." In addition, the Commission expanded the divestiture provisions by allowing parties with non-controlling, attributable interests in CMRS licenses to have an attributable or controlling interest in another CMRS application that would exceed the 45 MHz spectrum cap so long as they followed our post-licensing divestiture procedures. 18. Subsequently, the Commission held, in the context of a request to waive the cap, that the CMRS spectrum cap is not limited to real time, two-way switched phone service, but covers a variety of services within the definition of CMRS. BellSouth had filed a request for waiver of section 20.6, arguing that certain of its SMR interests should not be attributed because those networks did not compete with two-way switched voice service, but instead provided only mobile data service. It also filed a separate petition for reconsideration of the CMRS Spectrum Cap Report and Order, asking that the Commission reconsider its decision to include all SMR services within the CMRS spectrum cap, and arguing that data-only services should not be included since they do not compete with broadband PCS or cellular services. In the BellSouth MO&O, the Commission denied both BellSouth's waiver request and petition for reconsideration, concluding that SMR technology holds the potential to permit SMR licensees to offer services that are nearly identical to those offered by broadband PCS and cellular, and thus all SMR services regulated as CMRS should be included in the CMRS spectrum cap to guard against excessive spectrum aggregation, which could confer excessive market power. B. Pending Proceedings Regarding the CMRS Spectrum Cap 19. There are several proceedings pending before the Commission which deal with different aspects of the CMRS spectrum cap. Because we intend for this proceeding to be a comprehensive re-evaluation of the CMRS spectrum cap, we plan to consolidate these outstanding issues in this proceeding. We therefore incorporate into this proceeding the record of the pending proceedings on the CMRS spectrum cap set forth below. 20. Petitions for Reconsideration of CMRS Third Report and Order. In its petition for reconsideration of the CMRS Third Report and Order, SMR Won argued that attributable SMR spectrum for purposes of the spectrum cap should be capped at less than 10 MHz, because such a cap would promote further monopolization of the 800 MHz SMR market. Nextel and Motorola opposed SMR Won's petition, contending that the cap is appropriate because SMR spectrum is not available in a contiguous block on an exclusive use basis like broadband PCS and cellular spectrum. 21. Petitions for Reconsideration of CMRS Fourth Report and Order. In its petition for reconsideration of the CMRS Fourth Report and Order, McCaw Cellular argues that the joint markets and management attribution rules contained in section 20.6 are more properly addressed through enforcement of the antitrust laws than through Commission rules. According to McCaw, the use of the phrase "significantly influence" in those rules raises serious implementation and interpretation questions. No oppositions or comments were filed regarding McCaw's petition. 22. Petitions for Reconsideration of CMRS Spectrum Cap Report and Order. Three parties filed petitions for reconsideration of the Commission's actions regarding the CMRS spectrum cap in the CMRS Spectrum Cap Report and Order. As we discussed above, the Commission has already acted on the petition for reconsideration filed by BellSouth. Two other petitions, filed by Omnipoint and Radiofone, are still pending. 23. In its petition for reconsideration of the CMRS Spectrum Cap Report and Order, Omnipoint requests that the Commission reinstate the PCS/cellular cross-ownership restriction. Omnipoint argues that the economic analysis used by the Commission to justify elimination of the PCS/cellular cross-ownership rules was flawed, that in-region cellular operators possess enormous market advantages over start-up providers, and, therefore, it is appropriate to treat cellular operators differently for purposes of broadband PCS ownership and control. AT&T Wireless, Bell Atlantic NYNEX Mobile, CTIA, and Radiophone oppose Omnipoint's petition. They argue that Omnipoint does not document any anticompetitive harm in allowing cellular operators to have up to 20 MHz of PCS, and that in light of the Cincinnati Bell remand the Commission acted properly in eliminating the PCS/cellular cross-ownership rule. 24. In its petition for reconsideration of the CMRS Spectrum Cap Report and Order, Radiofone suggests applying the CMRS spectrum cap only to the wireline cellular licensee in a given geographic area. Radiofone argues that allowing the non-wireline cellular licensee to have a 30 MHz PCS license (in addition to the 25 MHz cellular license), while continuing to restrict the wireline cellular licensee to a 45 MHz restriction, would act as a trade-off to the inherent advantages that the wireline carrier has over the non-wireline carrier. Bell Atlantic NYNEX Mobile, Omnipoint, Pacific Bell Mobile Services, and Pocket Communications oppose Radiofone's petition. Bell Atlantic NYNEX argues that Radiofone's proposal discriminates against B-block (wireline) cellular licensees and that the Commission has already considered and rejected claims that wireline carriers had an unfair head start in establishing cellular service. 25. Waivers. As discussed above, in the BellSouth MO&O, the Commission denied BellSouth's request that its SMR data service not be included in the CMRS spectrum cap. Most of the other requests for permanent waiver of section 20.6 have dealt with the significant overlap provision of the rule. Poka Lambro PCS, Inc. (Poka Lambro) filed two separate requests, arguing that waiver of the spectrum cap was appropriate because its overlap only "slightly" exceeded the Commission's 10 percent threshold. The Wireless Telecommunications Bureau denied both of Poka Lambro's requests, reasoning that there was no evidence to suggest that Poka Lambro would be unable to suppress competition for CMRS service if a waiver was granted, and that Poka Lambro's situation was specifically contemplated by the rules. 26. Western Wireless Corporation (Western) has filed two separate requests seeking a permanent waiver of the ten percent significant overlap threshold requirement set forth in section 20.6(c). One of Western's requests concerns an approximately 19 percent population overlap of its B-block broadband PCS license for the Denver Major Trading Area (MTA) and various cellular markets in the Denver MTA. The other concerns an approximate 12 percent population overlap of Western's holdings in the A-block broadband PCS license for the Oklahoma City MTA and its A-block cellular licenses for Oklahoma Rural Service Areas (RSAs) 7 and 8. Western contends that divestiture of its licenses (or portions thereof) could impair its competitiveness relative to its larger regional rivals, and thereby thwart its efforts to provide better service at lower rates. Western also argues that waiving section 20.6 will promote the purpose of the underlying rules and advance the public interest by facilitating prompt introduction of broadband PCS service throughout the MTA and allowing continued public access to Western's existing cellular infrastructure and expertise without compromising the spectrum cap's purpose of deterring anticompetitive practices. 27. Triton Communications L.L.C (Triton) filed a request for a permanent waiver of the CMRS spectrum cap as applied to holdings of Triton and Telecorp PCS, Inc. (Telecorp) based on investment interests that Chase Capital Partners holds in Triton and Telecorp. Triton seeks a waiver of an approximately 12 percent population overlap in ten counties in Mississippi in which the Telecorp licenses for the B-block Memphis MTA and the F-block Memphis BTA overlap Triton's licenses for Mississippi Rural Service Areas 1, 3 and 4. Triton argues that the waiver would serve the public interest because it would allow for investment in a rural cellular provider and thus encourage the provision of CMRS service to rural populations. The Western and Triton waiver requests are pending, and will be dealt with separately from this proceeding. 28. Third FNPRM. In the Third FNPRM in GN Docket No. 93-252, the Commission examined whether the CMRS spectrum cap should be extended to all cellular, SMR, and broadband PCS providers regardless of whether they are classified as Private Mobile Radio Services (PMRS) or CMRS providers. In that proceeding the Commission questioned whether the applicability of section 20.6 should turn on the CMRS/PMRS distinction. It noted that services provided by PMRS providers may be viewed as competitive alternatives to CMRS, and thus excluding them from section 20.6 might provide a competitive advantage to PMRS providers. For those reasons, the Commission proposed to amend section 20.6 to apply to all cellular, SMR and broadband PCS licensees regardless of regulatory classification. Ten parties filed comments or reply comments in response to the Third FNPRM. Most commenters supported extending the CMRS spectrum cap to PMRS providers of SMR, cellular and broadband PCS service. 29. CTIA Forbearance Petition. On September 30, 1998, the Cellular Telecommunications Industry Association filed a Petition for Forbearance (CTIA Forbearance Petition). CTIA requests that the Commission use its authority under Section 10 of the Act to forbear from applying section 20.6 of the Commission's rules. CTIA urges the Commission to rely upon a case-by-case determination of permissible levels of horizontal ownership as part of the Section 310(d) license transfer review. IV. DISCUSSION A. Overview 30. The Commission last reviewed the CMRS spectrum aggregation limits in 1996. Since that time, there have been several developments that have significantly affected CMRS markets. Perhaps the most notable of these are the changes brought about by the deployment of digital wireless services to mass market consumers. When the CMRS spectrum cap was initially adopted, mobile voice markets in most areas of the county consisted of only two cellular carriers. Since then, however, we have issued new licenses authorizing the use of additional CMRS spectrum. In many areas of the country, broadband PCS auction winners have also pursued the opportunities presented by newer digital technologies and have begun to provide an expanded array of mobile services. Cellular and broadband PCS providers, in turn, have also begun to encounter competition from a nationwide SMR company whose capabilities have been enhanced by acquiring new spectrum rights and its own digital strategy. Competition is also emerging from providers of paging services, data services, wireless e-mail and other non-voice services. Beyond CMRS markets, there have also been profound changes in related telecommunications markets as the Commission implemented the Telecommunications Act of 1996. While we are encouraged by these developments, we recognize, however, that this emerging competition is not uniform across the country. In some areas, consumers' choices regarding wireless services continue to be limited. 31. Section 11 of the Communications Act requires that we review regulations "that apply to the operation or activities of any provider of telecommunications service" and "determine whether any such regulation is no longer necessary in the public interest as the result of meaningful economic competition between providers of such service." In light of the mandate in section 11 and the developments in the marketplace since 1996, we seek comment in this Notice on whether we should retain, modify, or repeal the CMRS spectrum cap. Specifically, we first reassess the spectrum cap, and then set out for comment possible modifications and other alternatives to the option of retaining the existing cap. B. Reassessment of the CMRS Spectrum Cap 32. Background. The CMRS spectrum cap was designed to "discourage anticompetitive behavior while at the same time maintaining incentives for innovation and efficiency." The Commission found that the CMRS spectrum cap would "further [ ] the public interest by promoting competition in CMRS services, allowing review of CMRS acquisitions in an administratively simple manner, and lend [ ] certainty to the marketplace." In its reaffirmation of the cap in the CMRS Spectrum Cap Report and Order, the Commission also found that the cap "furthers the goal of diversity of ownership that we are mandated to promote under section 309(j)" of the Communications Act. The Commission also found that a 45 MHz spectrum cap most effectively accomplished our goals by preventing cellular licensees from gaining too great a competitive advantage over new entrants in mobile wireless markets. Therefore, it decided that a "single 45 MHz CMRS cap [would] give both cellular and PCS providers more flexibility to participate in a more competitive marketplace" and counteract the superior competitive position held by cellular carriers. 33. Generally, we conduct our assessment of the competitive nature of relevant markets in large part by measuring market concentration. Concentration is typically calculated based on market shares, which may be computed using capacity, production, or sales information. Therefore, in the CMRS Spectrum Cap Report and Order, the Commission relied to a significant degree on measurements of market concentration known as "Herfindahl-Hirschman Indices" (HHI's), computed in that instance using assigned spectrum as a proxy for the market capacity of individual firms. 34. As discussed in our Third Annual CMRS Competition Report, although the evolution of the CMRS sector is still at an early stage, signs of competition are clear. In particular, progress has been made towards competitive mobile voice markets in many areas. In the wake of our licensing of broadband PCS spectrum, entry by those firms has become a reality in many local markets throughout the United States, and further entry is continuing. Consequently, we observe price and service rivalry in many markets. Cellular firms, too, are making substantial investments to provide digital service. In addition, we note that certain non-voice services, including paging and data services, also are beginning to provide competition in some markets. And although there are local variations, on average prices are falling markedly, service quality is improving, and new services are becoming available. Mobile voice markets continue to grow at a significant rate, and technological progress, too, is ongoing. We recognize, however, that these competitive developments have not yet occurred in all markets. 35. Discussion. We begin our reassessment of the spectrum cap by examining whether it has advanced the major policy goals for the cap as discussed above. Generally, we believe that the spectrum cap has been useful in promoting competition in mobile voice services, given that these services were largely available from only two cellular companies in each locality prior to our broadband PCS auctions. The 45 MHz limit was originally devised as the Commission prepared for its auction of broadband PCS spectrum, in response to concerns that incumbent cellular providers had incentives to impede the development of competing networks to preserve their competitive position. Under constraints imposed by the CMRS spectrum cap, the Commission awarded broadband PCS licenses that are now, or will soon be, competing directly with these cellular providers. In many localities, significant new entry into mobile voice services has already occurred. Moreover, we expect that competition will develop further as remaining broadband PCS licensees complete the initial phases of their network buildouts. We believe that the aggregation limit helped to promote the likely emergence of at least three new competitors in each market. In at least several markets, mobile voice services are now being offered by seven or more competitors. The competitive evolution of these markets may be traced directly to our decisions to auction additional spectrum well-suited to the provision of mobile communications, and to impose limits on the extent to which firms were permitted to aggregate spectrum in these auctions. We invite comment on our assessment that the existing spectrum aggregation limit to date may have promoted competition in mobile voice markets. We also invite comment on how evidence of emerging competition should be factored into our assessment of whether the current cap should be eliminated, relaxed or redefined. In particular, what weight should these factors be given relative to HHI calculations or similar measures of concentration of ownership or control? Parties should provide discussion or analysis supporting their views. We also seek comment on the following issues and how they relate to the question of whether to retain, modify, or repeal the spectrum cap: (1) what are the relevant product markets?; (2) what are the relevant geographic markets?; and, (3) what are the relevant measures of market capacity (assigned spectrum, operational spectrum, subscribers, revenues, traffic/minutes of use, etc.)? 36. We note that the extent to which services are presently available in individual markets varies considerably. In no market have all of the licensed broadband PCS providers begun offering service, and in a number of localities, service is not yet available from any new entrant. For purposes of assessing the competitive nature of individual markets and calculating market shares, the Merger Guidelines limit market participants to firms that currently produce or sell the relevant product and those described as "uncommitted entrants." Hence, for purposes of conducting our analysis of competition in wireless markets, we seek comment on whether we should limit our assessment of market participants to only current suppliers and any other firms that have announced intentions to commence operations, declared their intentions to offer the relevant product, and will imminently begin soliciting business. Particularly in smaller towns and rural markets, cellular incumbents continue to hold competitive advantages vis-…-vis market entrants that are not very different from those existing when the cap was originally conceived and implemented. Hence, our spectrum aggregation limits may well continue to be useful to promote competition in at least certain areas. We invite comment on these assessments. We also solicit comment on whether we should apply the CMRS spectrum cap on a market-by-market basis. 37. We also believe that with respect to mobile wireless services, the spectrum cap has served the purpose of constraining undesirable erosion of existing competition through mergers or acquisitions in major markets, where competition among multiple carriers is most advanced. For cellular and SMR incumbents especially, and perhaps for the early A- and B-Block broadband PCS entrants as well, we believe that incentives exist for operational carriers to explore in-market merger options. Hence, it appears likely that our spectrum aggregation limit has been of some value in inhibiting competition-eroding spectrum consolidation. We invite comment on these assessments. We also seek comment on the potential for consolidation of CMRS markets if we relax or eliminate the spectrum cap, and whether such consolidation would harm or benefit consumers. We request that commenters provide empirical evidence on the harms or benefits of consolidation in CMRS markets. 38. We also invite comment on whether there are existing disciplinary factors in the marketplace that may independently minimize the likelihood that any single entity would achieve an anticompetitive level of ownership of CMRS spectrum in a particular geographic area. For example, are there dis-economies of scale that will limit the size to which firms will grow, and thus tend to ensure that the CMRS sector will assume a competitive structure even in the absence of a spectrum cap? Is it possible that capital markets will not finance attempts by individual firms to acquire spectrum in amounts or construct systems of sizes that would threaten competition? Commenters arguing that such factors lessen or eliminate the need for our current spectrum cap should, where possible, provide specific quantifiable examples of dis-economies, or of points at which various types of costs or risks associated with owning or controlling additional wireless spectrum outweigh potential benefits. Because we note that many licensees have not accumulated as much as 45 MHz of CMRS spectrum, we also seek comment on whether access to capital effectively disciplines market consolidation. 39. We also seek comment on whether the convergence and substitutability of other telecommunications networks, including wireline, cable, private wireless, and satellite networks among others, should affect the application or public interest considerations underlying the spectrum cap. It is important that commenters addressing this issue supply detailed analysis, identify all underlying assumptions, and provide factual support for any projections. 40. We also note that the Commission has scheduled an auction for March 1999, that will include licenses for operation on C and F block frequencies, and that there are certain restrictions on the sale of entrepreneur block licenses (C and F blocks). We believe that our entrepreneur block rules will help ensure that this spectrum was and will be assigned in a manner that promotes rather than inhibits competition. We invite comment on whether these rules are sufficient to prevent undesirable spectrum consolidation. We also solicit views on any relationship between this proceeding, including the timing of our final decision, and the successful completion of the upcoming C block auction. 41. In two pending requests for permanent waiver of the spectrum cap, Western Wireless has argued that the CMRS spectrum cap impairs the realization of potential economies of scope or scale. The potential for economies of scale arises in connection with spectrum holdings when the unit costs of providing service decline as the carrier's spectrum holdings increase. Additional spectrum lessens a carrier's need to engage in spectrum reuse and allows for wider spacing between tower sites using any particular frequency. Economies of scope may arise if a firm can offer new products or services by leveraging existing assets to do so. For example, it may be possible for an incumbent cellular firm to offer additional services in a particular area at lower cost than would be possible for a de novo entrant, because existing facilities could be used at little or no incremental cost to furnish the second service. 42. With respect to economies of scope, we envision several scenarios that might support arguments for relaxing spectrum aggregation limitations to accommodate consumer needs. We anticipate that arguments will be made that wireless providers could offer additional services of significant value to the public (e.g., high-speed mobile data services) by acquiring spectrum in excess of our current 45 MHz limit, and that such flexibility would therefore be in the public interest. Specifically, we anticipate the argument that if they were not subject to the cap, existing providers would be able to furnish new services at lower cost relative to new entrants because incumbents can capitalize on existing facilities (e.g., towers) or other assets (e.g., brand name recognition, established customer base). We invite comment on these scenarios, or any others that we have not anticipated, where economies of scope may provide a rationale for relaxing our spectrum aggregation limit. We invite comment generally on the concepts of economies of scope and scale and their relationship to spectrum aggregation limits. 43. In re-assessing the CMRS spectrum cap, we also seek comment on whether there are other efficiency benefits or progress toward other public interest goals that would flow from changes in the cap that might counterbalance concerns about possible anticompetitive effects resulting from increased geographic concentration of ownership. For example, might a relaxed cap allow efficient deployment of third-generation wireless services that would be prevented under the present cap? Or, might a relaxed cap facilitate provision of fixed wireless services by CMRS firms, perhaps as universal service providers? What, if any, impact would altering the cap have on the provision of wireless services to under-served areas? Would an enforceable commitment to provide such service in high-cost or low-income areas override anticompetitive concerns? We explore certain of these issues below. 44. Service in rural areas. As we discussed previously, one of the principles that we will employ in evaluating the continuing need for the CMRS spectrum cap is ensuring that rural and under-served areas enjoy the benefits of modern telecommunications services. In that regard, we seek comment on whether the CMRS spectrum cap has facilitated the ubiquitous provision of wireless services. 45. We recognize that many rural and certain other markets have not yet seen the development of competition in the mobile wireless service markets to the degree that is evident in urban areas. Throughout most of the nation, including rural/high-cost areas, the Commission licensed two cellular carriers. Most cellular carriers now provide coverage throughout the entirety of their licensed service areas. As a result, cellular providers offer coverage spanning about 90 percent of the nation's territory, and 98 percent of the population based on where they reside. Hence, cellular coverage is relatively ubiquitous. By contrast, rural localities have witnessed limited entry by the new digital carriers. As of June, 1998, about 40 percent of the nation's BTAs did not have access to service from either a PCS or digital SMR provider. More recent evidence indicates that about 22 percent of the nation's population does not currently have access to service from any of these carriers. Moreover, in some outlying areas, coverage may be available but only along interstate and other major highways. Consequently, the available information suggests that many of the nation's residents living in rural and other high-cost areas do not yet have meaningful competitive alternatives to the incumbent cellular carriers. However, we invite more data specifically concerning competition in high-cost and rural markets to form a reliable basis for evaluating our policy options with respect to these markets. 46. We seek comment on whether the relative lack of competition in certain rural and other markets suggests that there is a continuing need for the CMRS spectrum cap in those areas. Commenters should address whether the cap be should be retained, at least in those areas until increased competition begins to emerge. On the other hand, we recognize that the cap may affect the ability of a CMRS provider to attain certain economies of scale and scope. Spectrum may be made newly available for commercial use through partitioning agreements, but the economics of offering service to these lower-density populations may nevertheless limit the extent of competitive, facilities-based entry. Thus, we seek comment on whether the existing spectrum cap may impede delivery of potentially lower-cost service to rural customers as economies of scope go unrealized. In particular, should we permit more concentration of spectrum in rural markets, perhaps allowing for leveraging of existing facilities? We seek comment on the extent to which the current 45 MHz aggregation limit may be thwarting the realization of potential economies, and solicit evidence on the magnitude of any such savings or efficiencies in particular market settings. 47. Advancement of competition in local markets. Another principle that we will use in our re-evaluation of the cap is the facilitation or competition in local telecommunications markets. Consequently, we seek comment on how the spectrum cap affects wireless providers' ability to enter into and compete in markets other than mobile voice service. In large measure, the development of competition involving other applications for wireless spectrum depends primarily on market-driven decisions by consumers and firms regarding the most valued uses for this spectrum. Because current demand for non-voice wireless services (mobile data, voice dispatch, messaging) seems to be met using far less spectrum than that used to provide existing voice and data services, it may not be necessary to be concerned about the adequacy of entry opportunities into these markets. But we also note that while spectrum itself may be highly fungible, networks often cannot be readily or economically reconfigured to furnish services for which they were not originally designed. Hence, if existing networks are optimized to provide a particular service (such as mobile voice), and if most of the available spectrum must be dedicated so that these systems operate efficiently, a 45 MHz spectrum limit may not be able to simultaneously ensure that adequate competition will develop in the provision of both mobile voice services and other wireless services that consumers may wish to obtain. In other words, to the extent that incumbent licensees build networks coupled with CMRS spectrum that are targeted mainly to mobile voice users, opportunities for entry and development of competition in other services may be limited in the short to medium term. We thus seek comment on the extent to which existing networks are capable of economically supporting the delivery of wireless services other than fixed or mobile voice and paging/messaging. In particular, we invite comment on the technical and economic feasibility of offering dispatch, high-speed Internet, and other two-way data services over existing cellular, broadband PCS, and SMR network platforms. We also invite views on the extent to which any limitations on currently installed networks may be eased in the foreseeable future as newly available technologies are adopted. Finally, we note that one of the primary goals of the Telecommunications Act of 1996 is to promote competition in the local telecommunications market. In that light, we seek comment on the more general issue of whether an aggregation limit would be useful for promoting competition in emerging wireless services. For example, we are especially interested in views on whether the current spectrum cap is enhancing or impeding the provision of wireless services as a competitive alternative to wireline services. 48. Development and deployment of new technologies and services. We also wish to ensure that any spectrum aggregation limits promote, rather than impede, the introduction of new services and technologies. In that regard, we seek comment on whether the spectrum cap serves as a barrier to firms that wish to offer additional services or to adopt advanced network technologies. We share the concerns expressed by CTIA about any possible impediments that may be imposed by the spectrum cap on the plans of CMRS providers to expand the array of wireless services that they will be able to offer. Specifically, some wireless carriers are examining technical options related to third-generation wireless networks that may provide a platform for delivering high-speed mobile data services. Other companies are contemplating the use of wireless spectrum to offer local exchange services. Hence, we seek comment on whether the current aggregation limit poses an obstacle to the introduction of more advanced network technologies. We also seek comment on whether the existing spectrum limit constitutes a significant constraint on firms' abilities to offer wireless local loop or high-speed mobile data services, either on a stand-alone basis or bundled with mobile voice services. In particular, we invite comment on the extent to which companies are able to acquire and use spectrum outside of CMRS bands to achieve these goals. We also invite comment on the possible use of our waiver process to consider petitions for supplemental spectrum that may be needed to launch new wireless services. C. Modifications and Alternatives to Existing CMRS Spectrum Cap 49. There are a number of options available for consideration when evaluating the geographic aggregation of CMRS spectrum by licensees. These options range from retaining the current CMRS spectrum cap to eliminating the general rule pertaining to geographic aggregation of CMRS spectrum, and instead relying on case-by-case analysis under our authority to review assignment of licenses and transfers of control pursuant to section 310(d) of the Act. Another option would be to modify the existing cap by either expanding the allowable geographic overlap, increasing the 45 MHz limitation, amending the attribution rules associated with the spectrum cap, or some combination thereof. In conjunction with retaining or modifying the spectrum cap, we could also establish a procedure for sunsetting the cap. We could also, as CTIA has requested, forbear from enforcing the spectrum cap under our authority in section 10 of the Communications Act. We discuss various alternatives to retaining the existing spectrum cap in turn. Proponents of the alternatives to the current cap should explain why the current cap is no longer in the public interest and should support their assertions with specific data and analysis. 1. Modification of Significant Overlap Threshold 50. The CMRS spectrum cap prohibits a licensee from having more than 45 MHz of spectrum in broadband PCS, cellular or SMR services with significant overlap in a geographic area. A "significant overlap" occurs when at least ten percent of the population of the PCS licensed service area is within the cellular geographic service area and/or SMR service area(s). Therefore, a carrier's spectrum counts toward the spectrum cap if the carrier is licensed to serve 10 percent or more of the population of the designated service area. 51. In the CMRS Spectrum Cap Report and Order, the Commission was concerned about the potential for existing cellular operators to exercise undue market power over the fledgling broadband PCS and SMR services. It found that a potential for the exercise of such market power was slight with a 10 percent population overlap. The Commission was also concerned that a threshold above 10 percent might lead to anticompetitive practices. We seek comment on the effect of recent changes in CMRS markets, particularly concerning the emergence of broadband PCS carriers as competitors to cellular operators, on the rationale for a 10 percent overlap threshold. We also seek comment on the public interest benefits of increasing the threshold and whether those benefits outweigh any potential for anticompetitive concentration of ownership or control of CMRS licenses. 52. As we noted previously, we have received requests for a waiver of the 10 percent geographic overlap restriction. In its request, Poka Lambro argued that "permitting it, a small business, and its parent, a rural telephone company, to both operate in the [same] BTA will serve the public interest by allowing it to bring advanced telecommunications to rural areas." Western contends that divestiture of its markets (or portions thereof) could impair its competitiveness relative to its larger regional rivals, and therefore thwart its efforts to provide better service at lower rates. Western also argues that waiving section 20.6 will promote the purpose of the underlying rules and advance the public interest by facilitating prompt introduction of broadband PCS service to the public in rural areas and allowing continued public access to Western's existing cellular infrastructure and expertise without compromising the spectrum cap's purpose of deterring anticompetitive practices. 53. We seek comment on whether a geographic overlap standard of greater than a 10 percent overlap should be adopted. If so, we seek comment on what would be a more appropriate standard of geographic overlap and why. We seek comment on whether a greater overlap may facilitate anticompetitive behavior. We also seek comment on what degree of a permissible geographic overlap could promote anticompetitive conduct. In addition, we seek comment on whether we should permit carriers in high-cost and under-served markets to have a greater than 10 percent population overlap, and how we should define high-cost and under-served markets for purpose of the significant overlap threshold. We also seek comment on whether there is a need to allow a greater overlap in high-cost and under-served areas if we adopt our proposal to allow for a higher cap in rural areas. In addition, we seek comment on whether a separate geographic overlap standard for rural areas may be in the public interest by possibly encouraging a greater number of service options and better service quality. In the alternative, we solicit comment on whether there is a mechanism for triggering the application of a spectrum cap in given geographic areas that might be superior to our current significant overlap standard. 2. Modification of 45 MHz Limitation 54. The CMRS spectrum cap allows a single entity to control up to 45 MHz of broadband PCS, cellular, and SMR spectrum in a geographic area. As we discussed previously, the Commission adopted the 45 MHz spectrum aggregation limit prior to the auctioning of the broadband PCS spectrum. In the CMRS Third Report and Order the Commission explained that 45 MHz was an appropriate cap because it would prevent excessive concentration by a single licensee, but still allow PCS operators 40 MHz of spectrum to obtain additional spectrum so that they would have incentives to offer other services and take advantage of new innovation or economies of scale. The Commission also noted that a 45 MHz cap would allow an SMR operator with 5 MHz or less to acquire both a 30 MHz and a 10 MHz broadband PCS license in the same area. 55. We seek comment on whether a 45 MHz CMRS spectrum limitation is appropriate given increased competition in the CMRS marketplace. For instance, the vast majority of the broadband PCS licenses have been assigned and there are broadband PCS licensees providing service in competition with cellular carriers and each other in many markets. An expansion of non- voice offerings has also contributed to increasing competition among CMRS services. In particular, we seek comment on what would be an appropriate spectrum aggregation limitation in light of current and future prospects for competition in CMRS markets. We request that commenters provide analytical support for any limitation that they propose. 56. Another option would be to raise the 45 MHz limitation when competition in relevant markets reaches a particular level. For example, one possible option would permit licensees to exceed the 45 MHz limit as long as a certain number of competitors would remain in a market after the assignment. We seek comment on such an option. How many competitors in a market would be sufficient to allow a licensee to exceed the 45 MHz limitation? Would the same number of competitors be required for wireless services other than mobile voice? How would we identify qualifying competitors? Should we only consider facilities-based competitors? Should we consider other factors in addition to the number of facilities-based carriers in a given market in determining when to lift the restriction? We seek comment on whether there should be any restraints on how much spectrum a licensee could obtain under such an option. 57. A similar option would be to allow the cap to be raised/exceeded in rural or under- served areas. We recognize that broadband PCS providers holding licenses covering low-density, rural, or high-cost areas, face significant economic challenges since it may be difficult for these areas to profitably support a large number of independent facilities-based competitors. Consequently, users of mobile communications services in rural areas may not be able to enjoy the same degree of competition now emerging in urban markets that may be needed to bring desired improvements in service and pricing. We seek comment on the benefits that may be obtained by allowing licensees serving rural, high-cost areas to hold more than 45 MHz of broadband CMRS spectrum in those areas. We also seek comment on how we should define those areas. One possibility would be to use rural service areas, or RSAs. Another option would be to use high-cost areas as defined in our universal service proceeding. We seek comment on these possible determinations of rural/under- served areas. Commenters that suggest other definitions for rural or under-served areas are requested to precisely set out their proposed definition, and explain the type and number of areas that would come within that definition. 58. We also seek comment whether the partnerships anticipated under this option would result in meaningful convergence in service quality and rates between urban and rural subscribers. Furthermore, we solicit views on whether any claimed efficiencies of scope are likely to be commercially significant in magnitude for operators in rural markets. We also invite comments on whether this option would discourage broadband PCS carriers from extending their digital network buildouts beyond urban and suburban centers. 3. Modification of Ownership Attribution Thresholds 59. Another option for relaxing the CMRS spectrum cap would be to modify the attribution criteria. Generally, a controlling interest in a licensee, in whatever manner exercised, including negative control, is considered an attributable interest. Under the CMRS spectrum cap, ownership interests of 20 percent or more (40 percent if held by a small business or rural telephone company), including general and limited partnership interests, voting and non-voting stock interests or any other equity interest are considered attributable. Officers and directors are attributed with their company's holdings, as are persons who manage certain operations of licensees, and licensees that enter into certain joint marketing arrangements with other licensees. Stock interests held in trust are attributable only to those who have or share the power to vote or sell the stock. Debt does not constitute an attributable interest, nor are securities affording potential future equity interests (such as warrants, options, or convertible debentures) considered attributable until they are converted or exercised. We seek comment generally on whether we should modify any or all of these attribution criteria. We ask commenters to provide reasoning and factual support for their positions. 60. We first seek comment on whether we should modify the 20 percent ownership benchmark. The Commission chose a 20 percent attribution level for broadband CMRS in order to increase the availability of capital investment. Similarly, the Commission uses a 40 percent attribution level for broadband CMRS licenses held by small businesses and rural telephone companies to allow for additional investment in such CMRS providers. We seek comment on the effect that a 20 percent attribution standard has on the ability of CMRS providers to obtain capital. We seek comment on the public interest benefits of increasing the 20 percent attribution standard. We also seek comment on what level we should set an attribution standard. Commenters proposing a different standard should provide analytical support for their proposals. Our goal is to identify situations where a minority ownership interest may comprise actual control of a company or may provide a dis-incentive for full competition. We do recognize, however, that setting an attribution limit too low may limit the availability of capital investment. We note that attribution rules for other services typically apply much lower ownership benchmarks of 5 \to 10 percent than the current 20 percent we use for the CMRS spectrum cap. We seek comment on whether we should increase the benchmark as it applies to the amount of non-voting equity interest, or interest held by a limited partner. We also seek comment on whether we should continue to have a separate 40 percent attribution standard for licenses that are held by small businesses or rural telephone companies or whether this standard should also be modified. 61. We also seek comment on whether any of the other provisions in our ownership attribution criteria should be modified. Are there any situations where an entity can acquire effective control over another entity that is not adequately contemplated under our attribution standards? Alternatively, are there situations proscribed by our attribution rules that are inhibiting competition? We request that parties be as specific as possible in identifying which, if any, attribution standards should be changed and in explaining the rationale and public interest benefits that might accompany such a change in our rules. 62. In the CMRS Spectrum Cap Report and Order, the Commission adopted a four-prong test to qualify for a waiver of our ownership attribution standards in response to concerns raised by the court in Cincinnati Bell. The test was established to allow licensees with non-controlling minority investors and potentially conflicting CMRS ownership interests to seek waivers of the spectrum cap rule where the licensee is controlled by a single majority shareholder or controlling general partner. This waiver test is based on the use of a 20 percent attribution standard. We seek comment on waiver test in general, and whether we should retain the waiver test if we modify the 20 percent attribution standard. 4. Forbearance From Enforcing the CMRS Spectrum Cap 63. Forbearance represents another option for addressing spectrum aggregation concerns in CMRS. CTIA has petitioned the Commission to forbear from enforcing the spectrum cap pursuant to our authority under section 10 of the Act. Under forbearance, the spectrum cap would continue to remain a codified rule, but the Commission would refrain from enforcing it. However, the Commission could at a later date, upon re-evaluation, determine that it would be in the public interest to again enforce the CMRS spectrum cap if forbearance seemed to be no longer warranted. Alternatively, the Commission could later decide to eliminate the rule. In contrast, if we were to eliminate the spectrum cap in this proceeding, as discussed below, we would remove the rule. 64. Under section 10, we must forbear from applying any regulation or provision of the Act to a telecommunications carrier or service, or class of telecommunications carriers or services, in any or some of its geographic markets, if a three-pronged test is met. Specifically, section 10 requires forbearance, notwithstanding section 332(c)(1)(A), if the Commission determines that: (1) enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory; (2) enforcement of such regulation or provision is not necessary for the protection of consumers; and (3) forbearance from applying such provision or regulation is consistent with the public interest. 65. To satisfy the first prong of section 10, that enforcement of the spectrum cap is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory, CTIA relies on statements that the CMRS market is competitive. CTIA also argues that principles of antitrust law and economics provide adequate protection against the possibility of excessive concentration that the spectrum cap was designed to safeguard against. 66. Addressing the second prong of the section 10 forbearance standard, CTIA seeks to show that enforcement of the spectrum cap is not necessary for the protection of consumers. CTIA contends that the Commission's section 310(d) authority is an appropriate vehicle for the Commission to effectuate the "ideal approach [which] is to judge spectrum combinations on a case- by-case basis taking into account all of the relevant variables bearing upon competition and efficiency, including the service area overlap, the populations in the respective service areas, and the quantity of spectrum currently allocated to and . . . sought to be acquired by the licensee." CTIA continues, "the bright-line, inflexible nature of the cap should yield to a more tailored, case-by-case approach." CTIA considers this flexible approach to be less restrictive, and thus better able to serve consumers. 67. CTIA argues that the third prong of the section 10 forbearance standard is met because forbearance is consistent with the public interest. In evaluating whether forbearance is consistent with the public interest, the Commission considers whether forbearance from enforcing the provision or regulation will promote competitive market conditions, including the extent to which forbearance will enhance competition among providers. In making this assessment, the Commission may consider the benefits a regulation bestows upon the public, along with any potential detrimental effects or costs of enforcing a provision. CTIA argues that the public interest is better served by a case-by-case determination of permissible ownership structures. According to CTIA, rigid ownership limitations endangers innovation and efficiency and outweighs the administrative burden associated with reliance upon a case-by-case approach to market concentration issues. 68. We seek comment on the CTIA Forbearance Petition, particularly whether CTIA's arguments meet the standards of section 10 for forbearance from the spectrum cap. In regard to the third prong of the test and in connection with the above questions regarding the re-assessment of the rule under section 11, it would be useful for commenting parties to consider and comment upon: (i) the original purpose of the particular rule in question; (ii) the means by which the rule was meant to further that purpose; (iii) the state of competition in relevant markets at the time the rule was promulgated; (iv) the current state of competition as compared to that which existed at the time of the rule's adoption; (v) how any changes in competitive market conditions between the time the rule was promulgated and the present might obviate, remedy, or otherwise eliminate the concerns that originally motivated the adoption of the rule; and (vi) the ultimate effect forbearance may have on consumers. 69. If the Commission, upon review of the record, finds that the requirements set out in section 10 have been satisfied, and thus the Commission has authority to forbear from the CMRS spectrum cap, we seek comment on the advantages or disadvantages of forbearing from the cap rather than modifying, sunsetting, or eliminating it. 70. If we forbear from enforcing the CMRS spectrum cap, we seek comment on what step the Commission should take next regarding the cap. Should we subsequently, in this or another proceeding, develop a factual record on what happened to CMRS markets without the spectrum cap to confirm that our conclusions about the need for the cap were correct? 5. Sunset CMRS Spectrum Cap 71. If we conclude in this proceeding that we should retain a CMRS spectrum aggregation limit, we recognize that at some point market conditions may change such that the rule can be eliminated. In circumstances where the Commission could foresee the necessary change in market conditions, it has established sunsets for rules or, alternatively, specified when the Commission will re-evaluate the rule. We seek comment on the public interest benefits of establishing a sunset date for the CMRS spectrum aggregation limit in all or some markets. In particular, we seek comment on the market conditions that should be present before we sunset the cap. We also seek comment on when these market conditions are likely to be generally present. We also seek comment on whether we should set a date certain for elimination of our spectrum aggregation limit, or if instead, we should review the continuing need for such a restriction at a pre- set date, e.g., as part of the next biennial review process. 72. One alternative to a uniform date for sunsetting the CMRS spectrum aggregation limit in all or some markets, would be to sunset the cap in selected markets based on the competitive concerns in the particular markets in question. We seek comment on whether it would be in the public interest to sunset the CMRS spectrum cap on a market-by-market basis, and if so, what criteria should be considered in determining whether to sunset the cap in a particular market. One approach may be to sunset the cap when a certain number of competitors are present in a market. We seek comment on this approach and what level of competition should exist before we sunset the cap in a particular market. 73. Another option would be to review certain types of proposed transactions involving the aggregation of CMRS spectrum under our section 310(d). Under this approach, any transfers in connection with a merger or acquisition where both parties have directly competing operational wireless services in the same geographic market, would no longer be prohibited under the spectrum cap. Instead, parties to these transactions involving a combination of more than 45 MHz would be obligated to affirmatively demonstrate that the transaction is in the public interest. This would generally include a competitive analysis to evaluate whether the interests of consumers in relevant markets are threatened. All other transactions, including those involving overlapping licenses but where build-out is not complete and service is not operational, would continue to be subject to compliance with the CMRS spectrum cap. We seek comment on this approach. 6. Eliminate CMRS Spectrum Cap 74. A final option for dealing with CMRS spectrum aggregation concerns would be to eliminate the CMRS spectrum cap and consider broadband CMRS spectrum ownership issues on a case-by-case basis. The Commission currently reviews mergers and other transactions under sections 214(a) and 310(d) of the Communications Act. We seek comment on whether elimination of the CMRS spectrum cap, and reliance on case-by-case determinations of ownership issues, would serve the public interest. We request that commenters provide facts and detailed analysis supporting their position. We also seek comment on the likelihood that anticompetitive behavior would result from elimination of the cap, and request that commenters identify what type of anticompetitive behavior is likely and establish causality between elimination of the cap and that behavior. 75. CTIA argues that we should forbear from our spectrum aggregation limits because the Commission's obligation to review license transfers under our public interest standard provides a sufficient basis for evaluating the aggregation of spectrum in connection with mergers and acquisitions. Indeed, CTIA contends that a case-by-case review offers the prospect for superior policy over a "one-size-fits-all" approach such as is embodied in our policy of a spectrum aggregation limit. We note that our public interest review allows for a balancing of pro- competitive and detrimental effects of a merger, and permits us to condition approval on restructuring a transaction to meet any concerns that we may have. However, we also recognize that our resources are limited. Accordingly, we seek comment on whether we should rely exclusively on our section 310(d) authority to protect against anticompetitive effects. 76. CTIA argues that the CMRS marketplace has evolved to the point where the CMRS spectrum cap is no longer necessary, and cites the Commission's Third Annual CMRS Competition Report to demonstrate the increase in the level of competition in CMRS markets. In the Third Annual CMRS Competition Report, we note that much of the deployment of new mobile telephone networks is still concentrated in urban and suburban areas and that more rural areas are still waiting for deployment of new networks. We are concerned about the potential impact on the development of competition in areas that currently have few competitors if we rely solely on a case- by-case analysis of ownership issues. We seek comment, including empirical evidence, whether CMRS markets are sufficiently competitive to allow for removal of the CMRS spectrum cap. We ask commenters to address any significant changes in CMRS markets and telecommunications markets in general that would directly support elimination of the CMRS spectrum cap. 77. CTIA argues that any administrative burdens are outweighed by the potential risk to efficiency and innovation imposed by the cap. We seek comment regarding the administrative burden that would presumably be placed on the Commission's limited resources by reviewing ownership issues on a case-by-case basis. 78. Finally, we note that other Federal and state authorities may be able to monitor anticompetitive conduct in wireless markets. We invite comment on the extent to which these authorities, given their resources and broad responsibilities, would be able to effectively monitor the competitive effects of smaller mergers and corporate acquisitions (those not meeting Hart-Scott- Rodino thresholds). We also note that these authorities operate under laws that permit intervention only where markets are tending toward becoming monopolized. They have much more limited legal authority when a merger or acquisition threatens to impede the development of competition where such competition does not yet exist or is in its infancy. We seek comment on the ability that Federal and state authorities have under antitrust laws to protect competition in cases where competition may not yet be adequately developed. D. Cellular Cross-Interest Rule 79. Section 22.942 of the Commission's rules prohibits any person from having a direct or indirect ownership interest in licenses for both cellular channel block in overlapping cellular geographic service areas (CGSAs). A party with a controlling interest in a license for one cellular channel block may not have any direct or indirect ownership interest in the license for the other channel block in the same geographic area. A party may, however, have a direct or indirect ownership interest of five percent or less in the licenses for both channel blocks. Divestiture of interests as a result of an assignment of authorization or transfer of control must occur prior to the consummation of the transfer or assignment. 80. The cellular cross-interest rule was adopted in 1991. At that time cellular licensees were the predominant providers of mobile voice services. In adopting the cross-interest rule the Commission stated that "in a service where only two cellular carriers are licensed per market, the licensee on one frequency block in a market should not own an interest in the other frequency block in the same market." Consequently, "[i]n order to guarantee the competitive nature of the cellular industry and to foster the development of competing systems" the Commission adopted restrictions on a party's ability to hold ownership interests in both cellular licenses in the same geographic area. 81. As we have discussed previously, the current mobile voice marketplace includes multiple providers in many areas. In addition to two cellular providers, many markets also have one or two operating broadband PCS providers, with other broadband PCS providers in various stages of deployment of their systems, and a digital SMR system. Given the changes in mobile voice markets, and the fact that many markets no longer comprise primarily cellular duopolies, as in 1991 when the rule was adopted, we seek comment on whether we should retain, modify, or repeal section 22.942. 82. We note that we do not have any such service-specific restrictions for either broadband PCS or SMR. In eliminating the separate spectrum cap for broadband PCS in the CMRS Spectrum Cap Report and Order, the Commission found that the CMRS spectrum cap provided sufficient protection from potential anticompetitive behavior by licenses. We seek comment on whether the CMRS spectrum cap provides sufficient protection from anticompetitive behavior by cellular licenses in the same market. We note that the primary effect of removing the cellular cross- ownership rules while maintaining the CMRS spectrum cap would be to remove the more restrictive ownership restrictions in the cellular cross-ownership rules in favor of the attribution provisions in the spectrum cap rule. Commenters should also address whether we should eliminate the cellular cross-ownership rule if we decide to eliminate the CMRS spectrum cap. 83. At the same time, we recognize that there are some markets where no PCS provider has yet initiated service. Where the structure of these markets has not changed significantly, we ask whether the original purpose of the rule may still be served by its application. Namely, where cellular licensees are still the predominant providers of mobile voice services, we ask whether the cellular cross-interest rule may still be necessary to "guarantee the competitive nature of the cellular industry and to foster the development of competing systems." Thus we seek comment on whether we should modify the cellular cross-ownership rule so that it does not apply in certain circumstances. One possibility would be to have the rule apply only in markets where there are a limited number of competitors to the cellular providers. We seek comment on what would be an appropriate threshold for determining in which markets the rule would not apply. We note that applying the rule in this fashion may result in essentially eliminating the rule in urban areas, where broadband PCS providers have generally already built out and are providing service, while maintaining the rule in rural areas, where broadband PCS providers may not be as far along in the deployment of their systems. We seek comment on the potential effects of such an application of the cellular cross- ownership rule. 84. We also seek comment on whether we should relax the current attribution rules related to this rule. For example, should we allow an entity that controls the cellular A block to have some interest in the cellular B block in the same market? Further, should we relax the current limit on what a non-controlling interest holder may have in each cellular license in a given market? Commenters are asked to address the competitive and public interest implications of their proposals. V. CONCLUSION 85. In this proceeding, we seek comment on whether our present CMRS spectrum cap furthers the public interest and encourages competition, consistent with spirit of the Act. We also seek comment on whether we should consider retaining, forbearing from, eliminating, or modifying our present cap. In particular, we seek comment on the petition filed by CTIA requesting forbearance from applying the CMRS spectrum cap. We also seek comment on whether we should retain, modify, or repeal the cellular cross-interest rule. VI. PROCEDURAL MATTERS A. Initial Regulatory Flexibility Analysis 86. As required by the Regulatory Flexibility Act, see 5 U.S.C.  603, the Commission has prepared the Initial Regulatory Flexibility Analysis (Appendix A) of the possible impact on small entities of the proposals set forth in this document. Written public comments are requested on the Initial Regulatory Flexibility Analysis. Comments on the Initial Regulatory Flexibility Analysis must be filed in accordance with the same filing deadlines as comments on the NPRM, and must have a separate and distinct heading designating them as responses to the Initial Regulatory Flexibility Analysis. The Commission's Office of Public Affairs, Reference Operations Division, will send a copy of this NPRM, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with the Regulatory Flexibility Act, see 5 U.S.C.  603(a). B. Ex Parte Rules -- Permit-But-Disclose Proceedings 87. This is a permit-but-disclose notice and comment rulemaking proceeding. Ex parte presentations are permitted except during the Sunshine Agenda period, provided they are disclosed as provided in the Commission's rules. See generally 47 C.F.R.  1.1201, 1203, and 1.1206(a). C. Comment Dates 88. Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on or before January 25, 1999, and reply comments on or before February 10, 1999. Comments and reply comments should be filed in WT Docket 98- 205. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24,121 (1998). 89. Comments filed through the ECFS can be sent as an electronic file via the Internet to . Generally, only one copy of an electronic submission must be filed. Comments and reply comments should be filed in WT Docket No. 98-205. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e- mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form