June 22, 2000
| Re: | Redesignation of the 17.7-19.7 GHz Frequency Band, Blanket Licensing of Satellite Earth Stations in the 17.7-20.2 GHz and 27.5-30.0 Frequency Bands, et al. IB Docket No. 98-172, RM-9005, RM-9118 (rel. June -- , 2000) |
I support much of today's item. The International Bureau has done a good job of balancing the interests of terrestrial and satellite service providers in developing today's Order. (1) These are complex and difficult issues, and the Bureau should be applauded for its hard work in bringing this item to closure.
I do fear, however, that this decision represents a lost opportunity to further improve our Emerging Technologies relocation policy(2) prior to the application of these bands.(3)
There appears to be some sense that the Emerging Technologies' relocation policy worked well for PCS. Therefore, the argument goes, we should apply this successful policy in other bands as well.
Although I believe there were some under-publicized bumps in that PCS road,(4) it may well be true that the Emerging Technologies relocation policy "worked" for those bands. A number of factors, however, may have obscured the actual efficiency of the Commission's Emerging Technologies relocation policy. First, PCS providers were about to enter into an almost certainly lucrative marketplace. Second, PCS could offer regional or even local service, therefore permitting only partial band clearing before revenues could flow. Third, PCS could viably use only a portion of its spectrum in the initial stages of deployment, thus sidestepping intransigent incumbents. These factors created more flexibility for PCS to make the rules "work" - regardless of whether or not they optimized efficient relocation.
In my view, however, "working" is not enough. We need to get the right answer on relocation policy.
Why is relocation policy so significant?
Current FCC relocation policy implicitly sets the entry price for new providers. Just as a business plan must incorporate an auction price, the plan must also consider the costs of incumbent relocation.(5) This is particularly true in the satellite context. Unlike PCS, satellite providers must consider the national - or even international - costs of relocation before they can make a rational assessment of the viability of their business plans. Furthermore, unlike PCS, satellite providers must evaluate relocation costs as a condition precedent to providing any revenue-producing service.(6) Thus, with a national scope and the lack of early revenue to offset subsequent relocation costs, satellite service providers face particularly high stakes in the relocation debate.
The consequences of crafting a faulty relocation policy are enormous. If the FCC sets relocation costs too high, artificially high entry costs may prevent the offering of economically efficient services. Alternatively, if relocation costs are set too low, the Commission may essentially be funding new entrants on the backs of terrestrial incumbents.
These factors legitimately prompted the Commission to take a particularly close look at relocation policy in this specific proceeding. Apart from the case-specific facts in this Order, however, the FCC must develop a generally applicable relocation policy that facilitates efficient relocation transactions in all spectrum bands and for all types of business models. The agency should not be lured into making different policies for different services based on the different business models.
The Emerging Technologies Precedent
Our current relocation rules for emerging technologies are codified in Part 101.(7) Those rules establish three "periods" for the relocation process: voluntary negotiation, mandatory negotiation, and involuntary relocation.(8) Public safety incumbents are entitled to a three-year voluntary period, followed by a two-year mandatory period. Non-public safety licensees are subject to a one-year voluntary period followed by a one-year mandatory period. Parties are required to engage in "good faith" negotiations only during the mandatory negotiation period.(9) If the parties fail to reach agreement by the end of the voluntary and mandatory negotiation periods, the new entrant may force incumbent licensees into involuntary relocation.
Under involuntary relocation, incumbents are entitled to a new system that is "comparable" to the old one.(10) The "replacement system" must be "at least equivalent to the existing system" with respect to three variables: throughput, reliability, and operating costs. Involuntary relocation disputes are to be resolved through a Commission proceeding.
Not a single transaction has ever made it to the involuntary relocation phase; thus, the Commission has never been called upon to spell out exactly what is required under our "comparability" standard.(11)
Common Goals
The fundamental basis of any relocation policy is that incumbent relocation and prompt entry by new service providers best serve both the public interest and efficient spectrum management.(12) This public interest assessment is not unlike the use of eminent domain powers by government entities to make room for a new highway or civic building.(13) Here the Commission has determined that the new services in a specific band of spectrum (like the highway or the civic building) are more valuable to the public than the old services (like the prior uses of the land). In implementing this policy, there is very little debate about the Commission's goals. The terrestrial incumbents must be relocated and made whole as promptly and efficiently as possible.(14)
However, our current rules and procedures simply do not lend a sufficient degree of clarity to the negotiating parties. Clear expectations reduce transaction costs and would expedite incumbent relocation.(15) Below, I describe some possible improvements to our relocation policy.
A Streamlined Procedure
I support today's decision to eliminate the voluntary negotiation period and shorten the negotiation period for public safety licensees. Eliminating the voluntary negotiation period requires the parties immediately to begin negotiations to resolve these relocation issues. In addition, the "comparability" criteria, formerly relegated to the involuntary relocation period, are now applicable to the mandatory negotiation period.(16) These comparability criteria should assist the negotiating parties in reaching agreements sooner.(17) Today's order also eliminates the burdensome requirement that incumbents have one year to assess the comparability of their new and relocated equipment. Now an incumbent is entitled to a "reasonable time" to assess comparability.(18) Each of these decisions is a step in the right direction.
I am still concerned, however, about the government's central role at the involuntary relocation phase. The parties would be well served by a process that is reliably prompt and provides incentives for good faith negotiations. Alternative dispute resolution procedures, such as binding arbitration, may provide the answer.
Congress has strongly supported the use of alternative dispute resolution in administrative law contexts.(19) In following this lead, the Commission has previously adopted similar alternative dispute resolution approaches.(20) For example, recently the Commission encouraged alternative dispute resolution for SMR relocation under Part 90 of our rules: "[d]isputes arising out of the costs of relocation, such as disputes over the amount of reimbursement required, will be encouraged to use expedited ADR procedures. ADR procedures provide several alternative methods such as binding arbitration, mediation, or other ADR techniques."(21) I believe a similar approach would benefit the parties in all relocation proceedings.
Binding arbitration would create an efficient "end game" for parties that cannot reach an agreement during the negotiation phase. Today, these parties would face a potentially lengthy and uncertain Commission proceeding to assess comparability. If at the end of an unsuccessful negotiation phase, however, a new entrant could choose binding arbitration, the results would be more prompt and certain.(22) Under binding arbitration, the parties would face the prospect of submitting alternative proposals to an arbitrator who would simply choose one or the other. Such a process would presumably encourage the parties to be reasonable in their relocation proposals and would largely remove the Commission from the transaction. Moreover, binding arbitration could and should be completed in a short time frame, perhaps within sixty days. Such a process would both encourage agreements and resolve any remaining disputes with minimal transaction costs.(23)
Conclusion
Relocation policy is one of the greatest challenges facing this Commission. In the years to come, we will increasingly be forced to rely on spectrum clearing as a method of freeing up spectrum for new services. This challenge creates a corresponding historic opportunity: to get relocation policy right. Only with an efficient relocation policy can the telecommunications marketplace function properly for incumbents and new entrants alike. I believe today's Order is a step in that direction. I am hopeful, however, that in future proceedings the Commission will move towards a relocation policy that provides greater certainty along with more efficient procedures.
1 Of course, in retrospect it would have been far easier to segment this band sixteen years ago, when the FSS industry first requested such a plan. See Establishment of Spectrum Utilization Policy and Amendment to Commission Rules Regarding Digital Termination Systems, 49 Fed. Reg. 37760, ¶ 41 (Sept. 26, 1984) (declining to segment the band). Unfortunately, our delay will impose costs on all parties.
2 See Redevelopment of Spectrum to Encourage Innovation in the Use of New Telecommunications Technologies, First Report and Order and Third Notice of Proposed Rulemaking, 7 FCC Rcd 6886 (1992); Second Report and Order, 8 FCC Rcd 6495 (1993); Third Report and Order and Memorandum Opinion and Order, 8 FCC Rcd 6589 (1993); Memorandum Opinion and Order, 9 FCC Rcd 1943 (1994); Second Memorandum Opinion and Order, 9 FCC Rcd 7797 (1994); see also 47 C.F.R. §§ 101.67-101.81.
3 See Re: Redesignation of the 17.7-19.7 GHz Frequency Band, Blanket Licensing of Satellite Earth Stations in the 17.7-20.2 GHz and 27.5-30.0 Frequency Bands, et al., IB Docket No. 98-172, RM-9005, RM-9118 at ¶¶ 76-84 (rel. June -- , 2000) (18 GHz Order).
4 See e.g., Rick Brand "Making Way for Wireless Telephones/ County Radio Frequencies Sold to Sprint Spectrum," Newsday, at A35 (February 25, 1997) (reporting that Sprint Corporation paid Suffolk County, New York a $4.2 million premium in order to move two of the county's microwave radio frequencies earlier than the five-year period provided for under the rules. Suffolk County originally requested a little more than $18 million for all five of its links).
5 See Testimony of Ronald T. LeMay, COO of Sprint Corporation, Senate Commerce Committee (March 27, 1996) (arguing that the high relocation costs facing new licensees significanty reduces the value of new and auctionable spectrum, resulting in the government losing between $930 million and $1.9 billion in revenues in the next round of PCS auctions. LeMay further suggests that "the impact on auctions for spectrum that is reallocated in the future could be dramatically higher"); see e.g., Letter from Mark Golden, Vice President, PCIA to Reed Hundt, Chairman of the FCC, September 22, 1995 (describing premiums demanded by some incumbents in PCS relocation process).
6 In this regard, it is also important that new entrants only be required to clear as much spectrum as is necessary to provide their service. Only when spectrum-clearing costs are tied to a particular service can licensees assess whether it is economical for them to proceed with their business plans.
7 See 47 C.F.R. §§ 101.67-101.81.
8 See 47 C.F.R. §§ 101.69 (c) and 101.75.
10 See 47 C.F.R. 101.75 (a)(3).
11 In part this is no doubt a function of the long negotiating periods: new entrants cannot afford to wait years until the involuntary relocation phase to clear out the incumbents.
12 This determination assumes, at least implicitly, that the new entrant cannot share with the incumbent service providers.
13 See Jan Paul Acton, Stanley M. Besen, Charles River Associates Inc., An Economic Analysis of Regulatory Takings and Just Compensation with an Application to Mobile Satellite Services (June 18, 1999) (asserting relocation policy parallels regulatory takings); see e.g., Olson v. United States, 292 U.S. 246, 255 (1934) (property holder must be placed "in as good a position pecuniarily as if his property had not been taken. He must be made whole but is not entitled to more."); United States v. 564.54 Acres of Land, 99 S.Ct. 1854 (1979) (holding that a property holder should recover "the fair market value of its property, rather than the cost of substitute facilities."). See also Letter from Norman P. Levanthal, Counsel for the ICO USA Service Group, to Ms. Magalie Roman Salas, Secretary, FCC, ET Docket 95-18 (dated June 21, 1999).
14 See e.g., Amendment to the Commission's Rules Regarding a Plan for Sharing the Costs of Microwave Relocation, 11 FCC Rcd 8825, ¶ 32 (1996) ("…our goal is to ensure that incumbents are no worse off than they would be if relocation were not required…").
15 See Peter Crampton, Evan Kwerel and John Williams, Efficient Relocation of Spectrum Incumbents, Paper presented at the Telecommunications Policy Research Conference, Solomons, Maryland, at 26 (1996) (on file with authors); Gregory L. Rosston and Jeffrey S. Steinberg, Using Market-Based Spectrum Policy To Promote The Public Interest, 50 Fed. Comm. L.J. 87, at 93-94 (December 1997).
16 There is little doubt that these valuation questions are quite difficult. For an interesting examination of these issues, see Crampton, supra note 15.
17 The comparability criteria today are hopelessly complex and provide little clarity or predictability of outcome. All parties would be better served by simpler rules that take into account not only reliability, throughput, and operating costs (47 C.F.R. § 101.75), but also technological neutrality and depreciation. See e.g., Letter from Mark Grannis, Counsel for Teledesic Corporation, to Commissioner Harold Furchtgott-Roth, Federal Communications Commission (dated May 1, 2000) (discussing potential windfall from effectively requiring new equipment to replace incumbents older equipment). Although simpler rules may be less precise, the diminished transaction costs may well result in a net gain for all parties concerned. Moreover, these valuation criteria only serve to set a floor price for the negotiation period. It should thus be set at the minimum value that makes incumbents whole.
18 See 18 GHz Order, supra note 3, at ¶ 82.
19 See Pub. L. 101-552, 104 Stat. 2739 (Nov. 15, 1990), reauthorized under Pub. L. 104-320, 110 Stat. 3870 (Oct. 19, 1996). (expressing Congressional intent to encourage ADR through federal agencies). 5 U.S.C. § 571 et seq. provides the guidelines whereby ADR is to take place. See e.g. § 575(a)(1) ("Arbitration may be used as an alternative means of dispute resolution whenever all parties consent. Consent may be obtained either before or after an issue in controversy has arisen"); § 577(a) ("The parties to an arbitration proceeding shall be entitled to participate in the selection of the arbitrator"); § 579(c)(1) ("The parties to the arbitration are entitled to be heard, to present evidence material to the controversy, and to cross-examine witnesses appearing at the hearing"); § 580(c) ("A final award is binding on the parties to the arbitration proceeding, and may be enforced pursuant to sections 9 through 13 of title 9").
20 See Redevelopment of Spectrum to Encourage Innovation in the Use of New Technologies, 8 FCC Rcd 6589, ¶ 38 (1993); Use of Alternative Dispute Resolution Procedures in Commission Proceedings and Proceedings in which the Commission is a Party, 6 FCC Rcd 5669 (1991) (stating that the Commission encourages the use of ADR in proceedings between parties under a Commission rule where the Commission is not a party); see also 47 C.F.R. § 76.804; 47 C.F.R. 76.1513(b).
21 See 47 C.F.R. § 90.699(f)(6).
22 Presumably an incumbent would not chose arbitration, since the default outcome is that the incumbent is permitted to maintain its facilities.
23 It may be legally required for the Commission to play a role in these proceedings. The Office of the Administrative Law Judges may provide the needed expertise for any Commission role.