FCC TO REPEAL SPECTRUM CAP IN 2003, LIFTING IT BY 10 MHZ NOW

Pending removal of cap creates major change in how wireless transactions will be evaluated at FCC. What FCC is actually trying to do places more burden on bureaus, Comr. Abernathy said. “It’s very easy to have bright-line tests but there are costs associated with that,” she said, saying benefits of case-by-case review outweighed those costs. Still, benefits of individualized reviews impose more burdens on staff “because it’s much harder work.” As FCC develops guidelines for processing merger applications, it will be more effective at ensuring that mergers that make sense from economic and public interest perspective move forward, she said. “Those that hit up against a wall of antitrust [issues] and too high a concentration will not go through,” Abernathy said. Comr. Martin said challenge ahead for Commission in evaluating wireless transactions on case-by- case basis will be to deal with reviews on “an expeditious basis.”

In next year, FCC Wireless Bureau Chief Thomas Sugrue said his bureau would be working on guidelines for evaluating wireless transactions “to make the process easier and more streamlined here, to allow us to move quickly and efficiently and also to make the process easier on parties on the outside.” He said at news briefing that guidelines would focus on procedural issues such as what sorts of data carriers would have to provide. Commission thinking right now is that guidelines wouldn’t be released as Notice of Proposed Rulemaking but more as program guidelines, Sugrue said.

FCC also immediately eliminated cellular cross-interest rule in Metropolitan Statistical Areas, but retained it in rural service areas. Rule limits ability of carrier to have ownership or other attributable interests in cellular licenses on different channel blocks in overlapping geographic area. Elimination of rule in urban areas recognizes that “cellular carriers in these areas no longer enjoy significant first mover advantages,” FCC said. Rule was kept for rural markets “because cellular incumbents generally continue to dominate the market in those areas,” Commission said. However, it said it would be inclined to grant waivers for rural areas that demonstrated market conditions under which cellular cross-ownership could be permissible without risking competitive harm. Rule for rural areas will be reevaluated as part of 2002 biennial review.

“By any standards,” wireless market is most competitive in telecom sector, Powell said, citing consumer churn, lower prices, innovation. “It’s fanciful to suggest that all of these benefits have flowed solely as a consequence of this single rule,” he said. “We can always quibble about more evidence and more data, but I believe that by any measure the facts are stubborn” that this market is competitive. Powell cited Telecom Act provisions that promote competition and Sec. 11 biennial review that requires FCC to determine whether rule no longer is in public interest as result of “meaningful competition.” He said: “If Congress’s Section 11 command is to ever mean anything, I have never seen a better example of its applicability.”

Proponents of keeping cap intact present “false choice, that if you eliminate the rule nothing will result but disastrous consolidation and concentration,” he said. That stance disregards fact that Congress provided regulators with tools to monitor and police such activities, he said. Move to eventually eliminate cap won’t undermine viability of Sec. 310(b) of Act, which requires FCC to consider whether license transfers are in public interest, Powell said. He countered contention by Copps that interim period before sunset date was so short as to amount to immediate elimination. If that was case, Powell said, he was surprised by continued efforts of wireless industry and Congress for immediate repeal. He said FCC had “multiple tools” to achieve public interest goals, including auction policies and service rules. “I take the view that our public interest objectives are all important but they are achieved by a mosaic of regulatory rules and policies,” he said.

“Today’s Commission approach is ready, aim, fire,” said Copps. “We have not adequately analyzed spectrum exhaustion scenarios in the short or near term.” He charged that agency hadn’t “adequately evaluated” potential for economic concentration and “wireless monopolies” in absence of cap. He said FCC hadn’t done extensive public interest evaluation required by statute on impact of such step on small business, rural consumers, ownership diversity and efficient spectrum use. Copps said he would have been willing to address cap on market-by-market basis in way “that could have addressed the particular challenges of rural America as well as the particular circumstances of other markets.” He also would have been receptive to raising cap to level that “would have met our statutory responsibilities while providing more flexibility to wireless companies.” Instead, Copps said he faced stark choice of keeping cap or eliminating it. “Let’s not kid ourselves -- this is, for some, more about corporate mergers than it is about anything else,” he said.

NTIA Dir. Nancy Victory, who exhorted Commission last month to lift cap immediately, said 2003 sunset date “can’t come soon enough” for wireless consumers. She told us: “It’s a step in the right direction. We had advocated immediate repeal but I am pleased to see that the Commission is moving toward repeal.” As for criticism by spectrum cap proponents that repeal would create major industry consolidation, Victory said there already were “safeguards in place” at federal level for reviewing such merger transactions. Besides transaction review process at FCC, Justice Dept. has process to look at such mergers, Victory said.

Justice Dept. letter was sent to Powell Wed., before FCC voted on cap. It said “regardless of the outcome,” DoJ would continue to review wireless mergers on case-by-case basis to assess potential anticompetitive consequences. “The Department will continue to safeguard competition through its enforcement activities in the industry, and does not believe removal of the spectrum cap rules will diminish its ability to do so,” letter said. It said antitrust definitions in product markets such as wireless were dynamic, citing mobile data services. “Whether the delivery of these mobile data services necessitates modification to product market definitions, or consideration of competitive effects in markets other than a single wireless mobile telephone market, may well be important questions in the future,” letter said. It said Justice so far had taken view that relevant geographic markets for mobile wireless services were “fundamentally local.” It hasn’t considered question whether there may be national market for large customers that seek carriers with presence throughout U.S., DoJ told Powell: “The Department’s competitive analysis focused more on the number of active, or soon to be active, wireless competitors and their respective shares as measured by number of subscribers rather than on spectrum.” Importantly, DoJ said it also hadn’t reached any conclusions about “ideal” number of competitors in given market.

Verizon Wireless CEO Dennis Strigl called move “important step to eliminating an artificial barrier to wireless companies that are focused on growth.” CTIA praised decision, although it said Commission didn’t follow its advice of immediate repeal rather than transition period. CTIA Pres. Tom Wheeler said: “The decision to eliminate the spectrum cap is an important down payment on overcoming the current spectrum shortage. Unfortunately, the decision delays that down payment by 13 months.” Sprint PCS is supportive of FCC decision, said Luisa Lancetti, vp-Sprint PCS regulatory affairs. Company had urged FCC to not look at spectrum cap in isolation, but in conjunction with other policy issues, such as 3G. “It’s fair to say there’s much to be determined in terms of how the case by case review will operate,” Lancetti said.

House Commerce Committee Chmn. Tauzin (R-La.) is disappointed that spectrum cap decision “did not go far enough to suit” him, spokesman Ken Johnson said. “We believe the spectrum cap should be lifted immediately.” House Telecom Subcommittee Vice Chmn. Stearns (R-Fla.) said raising cap to 55 MHz “is a tentative step in the right direction, but the cap should be repealed now instead of waiting until 2003.” In July, he introduced HR-2535 that would immediately roll back spectrum ceiling. “I will continue to push for repeal of the cap so industry can meet the growing demands for existing services and can deploy advanced services,” he said.