FCC BEGINS REVIEW OF WHETHER WIRELESS SPECTRUM CAP IS NEEDED

Parts of wireless industry, led by CTIA, have been urging Commission strongly to lift cap of 45 MHz in most markets, except rural areas, where it is 55 MHz. Many smaller carriers have contended cap has allowed them to compete against larger rivals. Cap applies to broadband PCS, cellular and Specialized Mobile Radio (SMR) spectrum. Total of 180 MHz is subject to caps, including 120 MHz of PCS, 50 MHz of cellular, 10 MHz of attributable SMR spectrum. Cross-interest rule limits ability of company to hold stakes in cellular carriers on different channel blocks in overlapping geographic service areas. After FCC last reviewed cap issues in 1999, it established modifications for ceiling in rural areas and allowed passive institutional investors to buy higher stakes in carriers that wouldn’t apply to spectrum limits.

At core of NPRM is question whether “meaningful competition” exists between carriers so spectrum aggregation limits may have served their useful purpose. Notice asks whether limits are needed to prevent undue market concentration: “How valuable a role do spectrum limits play in preventing potentially harmful concentration versus allowing consolidations that benefit the public interest?” NPRM said “spectrum aggregation limits do not appear to have prevented the consolidation of carriers into nationwide networks with the resulting beneficial service options for consumers.” Notice asks: (1) Should capacity benchmarks such as subscriber shares “be weighted differently than in the past?” (2) Should cap apply to all CMRS providers regardless of how they use spectrum or should it apply only to mobile voice services? (3) How should geographic markets be defined, particularly in industry trend toward national footprints?

NPRM eyes FCC role in reviewing impact of wireless transactions vs. merger review conducted by DoJ. If spectrum cap were changed, notice asks whether there were other methods that would prevent consolidation that would harm competition. Agency seeks comments on whether carrier should have to make “an additional public interest showing” for proposed transactions that exceeded spectrum cap. It questions whether there are other ways of crafting spectrum threshold, such as basing it on number of competitors providing service in particular geographic market. NPRM examines implications of review by agencies such as DoJ as it relates to FCC’s public interest review under Sec. 310(d) of Communications Act. In last few years, DoJ has reached consent decrees with merging wireless carriers to address overlapping markets created by transaction, notice said. That has led to divestitures of overlappping PCS and cellular properties in transactions such as those involving GTE, Verizon, Vodafone AirTouch. “Can we, and should we, defer to the DoJ in such matters, and if so, what form should such deference take?” NPRM asks. Notice solicits feedback on whether agency should use method so transactions resulting in spectrum consolidation below specific threshold would be exempt from Sec. 310(d) competitive analysis. “Can we, and should we, eschew an independent review of the competitive implications of license transfers that are part of mergers that are subject to some specified level of DoJ review, and, if so, how should we define that level?” NPRM asks.

Comr. Furchtgott-Roth, long-time fan of doing away with spectrum aggregation limits, said he would have written NPRM to conclude tentatively that caps should be eliminated. In concurring statement, he said he supported fulfilling pledge in agency’s Biennial Review to reexamine caps. “The use of a spectrum cap is a drastic regulatory remedy that continues to search for a corresponding competitive ill,” he wrote. As recently as Nov., newly named FCC Chmn. Powell reiterated his view that spectrum cap appeared to have outlived its usefulness (CD Nov 9 p7). Powell has referred to recent national consolidation of carriers and Dept. of Justice’s purview over relevant market overlaps.

Review of whether FCC should repeal cross-ownership rule says distinctions between cellular and PCS services have diminished since last time agency examined issue. Among options rather than outright repeal of cross-interest rule would be changing it, possibly by applying it only in markets where there are limited number of competitors to existing cellular carriers. Comments are sought on whether there’s need to keep cellular-specific restrictions in more urban areas, where consumers generally have larger number of choices. National market share of cellular licensees dipped to 75% at end of 1999 from 86% at end of 1998, FCC said. Notice balances that trend against extent to which most broadband PCS operators still are building networks and don’t yet have facilities-based coverage comparable to national cellular footprint. It asks whether separate cellular cross-interest rule still is needed “or whether the cellular sector may still have the potential to undermine the level of CMRS competition we have seen so far.”

More broadly, Commission also asks about: (1) Impact of spectrum aggregation limits on ability of wireless providers to compete to provide alternative to local wireline services. (2) Implications of cap for carriers deploying next-generation services. (3) Effect of last year’s decision to raise spectrum cap to 55 MHz in rural areas. Deadline for comments is 60 days after notice is published in Federal Register, replies in 90 days.