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Daily Rules, Proposed Rules, and Notices of the Federal Government

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 20

[WT Docket No. 12-269; FCC 12-119]

Policies Regarding Mobile Spectrum Holdings

AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
SUMMARY: In this document, the Commission seeks comment on whether to retain or modify the current case-by-case analysis used to evaluate mobile spectrum holdings in the context of transactions and auctions, as well as whether to adopt bright-line limits advocated by some providers and public interest groups. In addition, the Commission seeks comment on updating the spectrum bands that should be included in any evaluation of mobile spectrum holdings and whether to make distinctions between different bands. Further, the Commission seeks comment on the appropriate product and geographic markets and other implementation issues such as attribution rules, remedies, and possible transition issues.
DATES: Interested parties may file comments on or before November 23, 2012, and reply comments on or before December 24, 2012.
ADDRESSES: Federal eRulemaking Portal: http://www.regulations.gov.Follow the instructions for submitting comments.

Federal Communications Commission's Web site: http://www.fcc.gov/cgb/ecfs/.Follow the instructions for submitting comments.

Mail:Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although the Commission continues to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

People with Disabilities:Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by email:FCC504@fcc.govor phone: 202-418-0530 or TTY: 202-418-0432.

For detailed instructions for submitting comments and additional information on the rulemaking process,seetheSupplementary Informationsection of this document.

FOR FURTHER INFORMATION CONTACT: Christina Clearwater, Wireless Telecommunications Bureau, Spectrum and Competition Policy Division, (202) 418-1893, email atChristina.Clearwater@fcc.gov,or Nicole McGinnis, Wireless Telecommunications Bureau, Spectrum and Competition Policy Division, (202) 418-2877, email atNicole.McGinnis@fcc.gov.
SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Notice of Proposed Rulemaking (NPRM) in WT Docket No. 12-269, adopted September 28, 2012, and released September 28, 2012. The full text of the NPRM is available for inspection and copying during business hours in the FCC Reference Information Center, Portals II, 445 12th Street SW., Room CY-A257, Washington, DC 20554. It may also be purchased from the Commission's duplicating contractor at Portals II, 445 12th Street SW., Room CY-B402, Washington, DC 20554; the contractor's Web site,http://www.bcpiweb.com;or by calling (800) 378-3160, facsimile (202) 488-5563, or emailFCC@BCPIWEB.com.Copies of the NPRM also may be obtained via the Commission's Electronic Comment Filing System (ECFS) by entering the docket number WT Docket No. 12-269. Additionally, the complete item is available on the Federal Communications Commission's Web site athttp://www.fcc.gov.

I. Introduction

1. With this Notice of Proposed Rulemaking, the Commission initiates a review of its policies governing mobile spectrum holdings in order to ensure that they fulfill its statutory objectives given changes in technology, spectrum availability, and the marketplace since the Commission's last comprehensive review more than a decade ago. In the last few years, large, medium, and small providers as well as public interest groups have raised concerns about the current approach, and sought review. In addition, the Commission adopts, in a separate proceeding, a Notice of Proposed Rulemaking in GN Docket No. 12-268 soliciting comment on the framework for an incentive auction of the broadcast television spectrum, which will represent a major addition of new spectrum available for mobile broadband. The Commission initiates this proceeding to provide rules of the road that are clear and predictable, and that promote the competition needed to ensure a vibrant, world-leading, innovation-based mobile economy.

2. Since the Commission's last comprehensive review of these issues, the number of spectrum bands used for mobile wireless services has expanded; new, innovative service offerings have been rolled out; increasingly sophisticated devices have been introduced into the marketplace; and consumers have adopted these devices to access a wide array of bandwidth-intensive applications. In light of the surge in consumer demand for mobile broadband services that require greater bandwidth, spectrum—a key input in the provision of mobile wireless services—is becoming increasingly critical for all providers. In this proceeding, the Commission seeks comment on retaining or modifying the current case-by-case analysis used to evaluate mobile spectrum holdings in the context of transactions and auctions, as well as on bright-line limits advocated by some providers and public interest groups. In addition, the Commission seeks comment on updating the spectrum bands that should be included in any evaluation of mobile spectrum holdings and whether it should make distinctions between different bands. The Commission also takes a fresh look at geographic market analysis and other implementation issues such as attribution rules, remedies, and possible transition issues. This proceeding affords the Commission the opportunity to receive valuable input from a broad range of active participants in the mobile broadband industry, as well as trade associations and consumer groups, that have requested that its policies be revised to keep pace with market changes.

II. Background A. Statutory Framework

3. Section 309(j)(3)(B) of the Communications Act provides that, in designing systems of competitive bidding, the Commission shall “promot[e] economic opportunity and competition and ensur[e] that new and innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses.”1 Additionally, under the Communications Act, when reviewing a proposed license assignment or transfer application, the Commission must determine whether the applicant has demonstrated that the proposed assignment or transfer of control of licenses will serve the public interest, convenience, and necessity.2 Moreover, Congress has established the promotion of competition as a fundamental goal of the nation's mobile wireless policy.3 More recently, Congress enacted Section 6404 of theSpectrum Act,which modifies Section 309(j) to prohibit the Commission from preventing an otherwise qualified entity from participating in an auction, but reaffirms the Commission's authority “to adopt and enforce rules of general applicability, including rules concerning spectrum aggregation that promote competition.”4

147 U.S.C. 309(j)(3)(B).

247 U.S.C. 310(d).

3 See47 U.S.C. 332(a)(3), (c)(1)(C).

4Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. 112-96, Section 6404 (Spectrum Act).

B. The Commission's Policies Regarding Mobile Spectrum Holdings

4. Access to spectrum is a precondition to the provision of mobile wireless services. Ensuring the availability of sufficient spectrum is critical for promoting the competition that drives innovation and investment. Over time, the Commission has increased the amount of spectrum available for the provision of mobile wireless services, making this additional spectrum available in different frequency bands, bandwidths, and licensing areas. As discussed below, in order to address its statutory mandate, the Commission has implemented a variety of mobile spectrum aggregation policies and rules, including the cellular cross interest rule, the Personal Communications Service (PCS) cross-ownership rule, the Commercial Mobile Radio Services (CMRS) spectrum cap, and the current case-by-case spectrum aggregation analysis.

5.Cellular Services.In 1981, in establishing the rules for the licensing ofcellular service, the Commission decided to award two cellular services licenses per market—a separate allocation of 20 megahertz for incumbent wireline carriers and an allocation of 20 megahertz for other applicants.5 With two licensees per market, the Commission reasoned it would be more difficult for a single entity to dominate the cellular market nationwide.6 The Commission adopted the cellular cross-interest rule in 1991 “to guarantee the competitive nature of the cellular industry and to foster the development of competing systems.”7 The rule was adopted when only two cellular licensees provided mobile voice services in each geographic area of the U.S.8 At that time, a party with a controlling interest in one of the cellular licensees was prohibited from having more than a five percent direct or indirect ownership interest in the other licensee in the same cellular geographic service area (CGSA).9 In theSecond Biennial Review Orderin 2001, the Commission eliminated the cellular cross-interest rule in Metropolitan Statistical Areas (MSAs) after finding numerous competitive choices for consumers in urban markets.10 Later, in 2004, the Commission eliminated the cellular cross-interest rule in favor of a case-by-case review for all markets, finding that the continued application of the cellular cross-interest rule in Rural Service Areas (RSAs) could impede the development of new services in rural and underserved areas.11

5Inquiry Into the Use of the Bands 825-845 MHz and 870-890 MHz for Cellular Communications Systems; and Amendment of Parts 2 and 22 of the Commission's Rules Relative to Cellular Communications Systems, CC Docket No. 79-318,Report and Order,86 FCC 2d 469, 488-92 paras. 38-43 (1981) (Cellular Report and Order).

6 See Cellular Report and Order,86 FCC 2d at 491 para. 43.

7Amendment of Part 22 of the Commission's Rules to Provide for Filing and Processing of Applications for Unserved Areas in the Cellular Service and to Modify Other Cellular Rules, CC Docket No. 90-6,First Report and Order and Memorandum Opinion and Order on Reconsideration,6 FCC Rcd 6185, 6628 para. 104 (1991) (Cellular First Report and Order).

8 See Cellular First Report and Order,6 FCC Rcd at 6228 para. 103.

9 See Cellular First Report and Order,6 FCC Rcd at 6228 paras. 104-105.

102000 Biennial Regulatory Review—Spectrum Aggregation Limits for Commercial Mobile Radio Services, WT Docket No. 01-14,Report and Order,16 FCC Rcd 22668, 22671 para. 7, 22707 para. 84 (2001) (Second Biennial Review Order).

11 SeeFacilitating the Provision of Spectrum-Based Services to Rural Areas and Promoting Opportunities for Rural Telephone Companies to Provide Spectrum-Based Services, WT Docket No. 02-381,Report and Order and Further Notice of Proposed Rule Making,19 FCC Rcd 19078, 19113-115 paras. 63-67 (2004) (Rural Report and Order).

6.Cellular/PCS Cross-Ownership Rule.In 1993, in establishing the initial PCS service rules, the Commission imposed service-specific limitations on the aggregation of broadband PCS spectrum and on cellular/PCS cross-ownership.12 The Commission limited broadband PCS licensees to 40 megahertz of total spectrum allocated to broadband PCS,13 and limited cellular licensees to 10 megahertz of broadband PCS spectrum in their cellular service areas.14 In 1996, the Commission eliminated the service-specific limitations on the aggregation of broadband PCS spectrum and on cellular/PCS cross-ownership, and decided to rely solely on the 45 megahertz CMRS spectrum cap, implemented in 1994, “to ensure that multiple service providers would be able to obtain broadband PCS spectrum and thereby facilitate the development of competitive markets for wireless services.”15

12 SeeAmendment of the Commission's Rules to Establish New Personal Communications Services,Second Report and Order,8 FCC Rcd 7700, 7728 para. 61, 7745 para. 106 (1993) (PCS Second Report and Order).

13 See PCS Second Report and Order,8 FCC Rcd at 7728 para. 61.

14 See PCS Second Report and Order,8 FCC Rcd at 7745 para. 106.See alsoAmendment of the Commission's Rules to Establish New Personal Communications Services,Memorandum Opinion and Order,9 FCC Rcd 4957, 4984 paras. 66-67 (1994).

15 See Second Biennial Review Order,16 FCC Rcd at 22673 para. 13 (citing Amendment of Parts 20 and 24 of the Commission's Rules—Broadband PCS Competitive Bidding and the Commercial Mobile Radio Service Spectrum Cap; Amendment of the Commission's Cellular/PCS Cross-Ownership Rule, WT Docket No. 96-59,Report and Order,11 FCC Rcd 7824, 7869 para. 94 (1996),aff'd,12 FCC Rcd 14031 (1997),aff'd sub nom. BellSouth Corp.v.FCC,162 F.3d 1215 (D.C. Cir. 1999)).

7.CMRS Spectrum Cap.In 1994, the Commission implemented a spectrum cap on Cellular, broadband PCS, and Specialized Mobile Radio (SMR) spectrum to promote diversity and competition in mobile services,16 “recognizing the possibility that mobile service licensees might exert undue market power or inhibit market entry by other service providers if permitted to aggregate large amounts of spectrum.”17 The Commission found that a spectrum cap provided a “minimally intrusive means” to ensure that the mobile communications marketplace remained competitive and preserved incentives for efficiency and innovation.18 Under former Section 20.6 of the Commission's rules, no licensee in the broadband PCS, Cellular, or SMR services regulated as CMRS could have an attributable interest in more than 45 megahertz of licensed spectrum (broadband PCS, cellular, and SMR spectrum regulated as CMRS) that has significant overlap in any geographic area.19 A few years later, the Commission increased the cap to 55 megahertz in the RSAs.20 Subsequently, in theSecond Biennial Review Order,the Commission eliminated the spectrum cap effective January 1, 2003,21 in favor of case-by-case review of mobile spectrum holdings.22

16Implementation of Sections 3(n) and 332 of the Communications Act—Regulatory Treatment of Mobile Services, GN Docket No. 93-252,Third Report and Order,9 FCC Rcd 7988, 8100 para. 238, 8109 para. 263 (1994) (CMRS Third Report and Order).

17 CMRS Third Report and Order,9 FCC Rcd at 8100 para. 239.

18 See CMRS Third Report and Order,9 FCC Rcd at 7999 para. 16.

19 See1998 Biennial Regulatory Review—Spectrum Aggregation Limits for Wireless Telecommunications Carriers, WT Docket No. 98-205,Report and Order,15 FCC Rcd 9219, 9224 para. 8 (1999) (First Biennial Review Order) (quoting former 47 CFR 20.6(a)). A “significant overlap” of a PSC licensed service area, CGSA, and SMR service area occurred when at least ten percent of the population of the PCS licensed service area was within the cellular geographic service area and/or SMR service area.See id.(citing former Section 20.6(c)). The spectrum cap sunset on January 1, 2003. 47 CFR 20.6(f).

20 See First Biennial Review Order,15 FCC Rcd at 9254-57 paras. 80-84.

21 See47 CFR 20.6(f);Second Biennial Review Order,16 FCC Rcd at 22669 para. 1, 22696 para. 55. The Commission also raised the spectrum cap to 55 MHz in all markets during the sunset period.See47 CFR 20.6(a);Second Biennial Review Order,16 FCC Rcd at 22671 para. 6, 22693 para. 47.

22 See Second Biennial Review Order,16 FCC Rcd at 22670-71 para. 6.

8.Case-by-Case Analysis.Since 2003, the Commission has examined the competitive effects of proposed wireless transactions involving the transfer, assignment, or lease of Commission licenses by employing a case-by-case review. In 2008, the Commission determined that it would apply the case-by-case analysis to spectrum acquired via auction.23 Beginning in 2004, the Commission has used a two-part screen to help identify markets where the acquisition of spectrum provides particular reason for further competitive analysis.24 The Commission does not,however, limit its consideration of potential competitive harms in proposed transactions solely to markets identified by its initial screen.25 The first part of the screen considers changes in market concentration as a result of the transaction and is based on the size of the post-transaction Herfindahl-Hirschman Index (HHI)26 and the change in the HHI.27 The second part examines the amount of spectrum that is suitable and available on a market-by-market basis for the provision of mobile telephony/broadband service.28 For those markets highlighted by one or both steps in the analysis, the Commission routinely conducts detailed, market-by-market reviews to determine whether the transaction would result in an increased likelihood or ability in those markets for the combined entity to behave in an anticompetitive manner.29 The case-by-case analysis considers variables that are important in predicting the incentives and ability of service providers to successfully reduce competition on price or non-price terms, and transaction-specific public interest benefits that may mitigate or outweigh any harms arising from the transaction.30

23 SeeUnion Telephone Company, Cellco Partnership d/b/a Verizon Wireless, Applications for 700 MHz Band Licenses, Auction No. 73,Memorandum Opinion and Order,23 FCC Rcd 16787, 16791 para. 9 (2008) (Verizon Wireless-Union Tel. Order).

24 See, e.g.,Applications of Cellco Partnershipd/b/aVerizon Wireless and SpectrumCo LLC and Cox TMI, LLC for Consent to Assign AWS-1 Licenses,et al,.WT Docket No. 12-4,Memorandum Opinion and Order and Declaratory Ruling,FCC 12-95 (rel. Aug. 23, 2012) at para. 48 (Verizon Wireless-SpectrumCo Order); Application of AT&T Inc. and Qualcomm Incorporated For Consent to Assign Licenses and Authorizations, WT Docket No. 11-18,Order,26 FCC Rcd 17589, 17602 para. 31 (2011) (AT&T-Qualcomm Order); Applications of AT&T Wireless Services, Inc. and Cingular Wireless Corporation For Consent to TransferControl of Licenses and Authorizations, WT Docket No. 04-70,Memorandum Opinion and Order,19 FCC Rcd 21522, 21552 para. 58 (2004) (Cingular-AT&T Wireless Order).

25 See, e.g., Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 48;AT&T-Qualcomm Order,26 FCC Rcd at 17609-10 paras. 49-50; Applications of AT&T Inc. and Centennial Communications Corp. For Consent to Transfer Control of Licenses, Authorizations, and Spectrum Leasing Arrangements, WT Docket No. 08-246,Memorandum Opinion and Order,24 FCC Rcd 13915, 13946-48 paras. 71-74, 13952 para. 85 (2009) (AT&T-Centennial Order); Applications for the Assignment of License from Denali PCS, L.L.C. to Alaska Digitel, L.L.C. and the Transfer of Control of Interests in Alaska Digitel, L.L.C. to General Communication, Inc., WT Docket 06-114,Memorandum Opinion and Order,21 FCC Rcd 14863, 14898 para. 85 (2006).

26The Herfindahl-Hirschman Index (HHI), which is calculated by summing the squares of all provider subscriber market shares in any given market, is a commonly used measure of market concentration in competition analysis.

27The HHI screen identifies for further case-by-case market analysis those markets in which, post-transaction, the HHI would be greater than 2800 and the change in the HHI would be 100 or greater, or the change in the HHI would be 250 or greater, regardless of the level of the HHI. The HHI screen has remained the same since the Commission adopted the case-by-case review process.

28 See, e.g., Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 59;see also infradiscussion on determining spectrum that is suitable and available for the relevant product market at para. 26.

29This Notice of Proposed Rulemaking does not address the part of our review that considers changes in market concentration based on HHI, but considers only our review of mobile spectrum holdings.

30 SeeApplications of Cellco Partnershipd/b/aVerizon Wireless and Atlantis Holdings LLC For Consent to Transfer Control of Licenses, Authorizations, and Spectrum Manager andDe FactoTransfer Leasing Arrangements and Petition for Declaratory Ruling that the Transaction is Consistent with Section 310(b)(4) of the Communications Act, WT Docket No. 08-95,Memorandum Opinion and Order and Declaratory Ruling,23 FCC Rcd 17444, 17460 para. 26 (2008) (“Verizon Wireless-ALLTEL Order”).

C. Criticisms of Current Case-by-Case Analysis Approach

9. In its consideration of transactions, the Commission generally has reviewed and, when necessary, adjusted its case-by-case analysis to reflect changing industry and consumer needs. In recent years, large and small wireless providers, as well as trade associations and public interest groups, have requested that the Commission undertake an examination of its current policies regarding mobile spectrum holdings. For example, Verizon Wireless has contended that the Commission should reconsider the particular spectrum to be examined in a competitive analysis and has urged that the Commission include additional spectrum bands. AT&T has expressed concerns that the current case-by case evaluation is not clear and predictable and the spectrum screen changes from one transaction to the next. AT&T has argued that there is “more regulatory uncertainty on top of an industry that is a foundation for a lot of today's innovation, making it difficult for all of us to allocate and commit capital,” and that “we don't know how much spectrum we're allowed to hold.” Sprint Nextel has argued that the current method of evaluating spectrum holdings values spectrum equally, “regardless of whether it lies within more valuable `beachfront' bands or in higher-frequency bands of limited commercial use.” T-Mobile has argued that to further the goal of a robust marketplace, the Commission should modify its case-by-case evaluation to recognize the difference in value of spectrum above and below 1 GHz.

10. The Rural Cellular Association (RCA) has urged the Commission to “take a fresh approach to its competitive analysis” instead of “recycl[ing] the outdated spectrum screen.” RTG has urged the Commission to conduct a more in-depth competitive review of large-scale transactions, in part by adopting a lower spectrum screen that will trigger a heightened level of review and allow consideration of certain factors other than the amount of spectrum held by licensees, in order to determine whether further spectrum concentration will threaten market competition. Both RTG and Leap Wireless have contended that the case-by-case approach creates uncertainty and/or suggest that an alternative approach would provide greater clarity.31 Free Press has urged the use of a spectrum screen based on spectrum value, contending that the current spectrum screen, a “simple old analytical tool,” is insufficient to reveal changes in market power. Similarly, Public Knowledge has argued that the assumptions underlying the method used to calculate the spectrum screen have proven to be unreliable, and that the Commission should consider the long-term implications of spectrum holdings among carriers.

31 See, e.g.,RTG Reply Comments, RM No. 11498, at 1-3 (urging the Commission to consider instituting a spectrum cap); Leap Comments, RM No. 11498, at 8-9. (advocating bright-line rules). Because this Notice of Proposed Rulemaking addresses policies regarding mobile spectrum holdings from a broad perspective, we decline to initiate the more narrowly-tailored requests made in RTG's petition for rulemaking.SeeRTG Petition for Rulemaking, RM No. 11498, at 5 (proposing that the FCC impose, on a county level, a 110 MHz aggregation limit below 2.3 GHz).

D. The Current Wireless Landscape

11. During the past decade, the use of wireless services has surged as the number of spectrum bands used to provide mobile wireless services has expanded, an array of increasingly sophisticated devices has been introduced in the marketplace, and new service offerings have been rolled out. As discussed below, some of these changes could have implications for its policies regarding mobile spectrum holdings. The industry is undergoing a transformation, from an industry providing predominantly voice services to one that is increasingly focused on providing data services, particularly mobile broadband services. This transition has led to the need of competitors for more spectrum to meet the increasing demand for mobile broadband, which consumes greater amounts of bandwidth. In order to ensure that its policies continue to serve the public interest and keep pace with changing technologies and consumer needs, the Commission must consider these and other industry changes.

12. Facilitating access by all providers to valuable spectrum resources they need to serve their customers is essential given the current mobile wireless landscape. The rapid adoption of smartphones, as well as tablet computers and the wide-spread use of mobile applications, combined with deployment of high-speed 3G and 4G technologies, is driving more intensive use of mobile networks. A single smartphone can generate as much traffic as 35 basic-feature phones; a tablet asmuch traffic as 121 basic-feature phones; and a single laptop can generate as much traffic as 498 basic-feature phones.32 The adoption of smartphones alone increased at a 50 percent annual growth rate in 2011, from 27 percent of U.S. mobile subscribers in December 2010 to nearly 42 percent in December 2011.33 Moreover, global mobile data traffic is anticipated to grow eighteen-fold between 2011 and 2016.34 Indeed, a study by the Council of Economic Advisors (CEA) found that “the spectrum currently allocated to wireless is not sufficient to handle the projected growth in demand, even with technological improvements allowing for more efficient use of existing spectrum and significant investment in new facilities.”35

32 SeeCisco White Paper, Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2011-2016, at 7, February 14, 2012, available athttp://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.pdf(last visited Sept. 6, 2012).

33comScore 2012 Mobile Future in Focus (2012), available athttp://www.comscore.com/Press_Events/Presentations_Whitepapers/2012/2012_Mobile_Future_in_Focus(last visited Sept. 6, 2012). For consumers ages 25-34, eight of ten recent new phone purchases were smartphones.SeeSurvey: New U.S. Smartphone Growth by Age and Income, NIELSENWIRE, Feb. 20, 2012, available athttp://blog.nielsen.com/nielsenwire/online_mobile/survey-new-u-s-smartphone-growth-by-age-and-income/(last visited Sept. 6, 2012).

34 SeeCisco White Paper, Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2011-2016, Executive Summary, February 14, 2012, available athttp://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html(last visited Sept. 6, 2012).

35Council of Economic Advisors, The Economic Benefits of New Spectrum for Wireless Broadband at 5 (Feb. 2012), available athttp://www.whitehouse.gov/sites/default/files/cea_spectrum_report_2-21-2012.pdf (last visited Sept. 6, 2012).

13. Given the limited spectrum resources, the Commission must consider how its policies regarding mobile spectrum holdings can accommodate the increasing demand for spectrum by all providers. While there are numerous ways in which wireless service providers can increase network capacity to satisfy increasing demand, acquiring more spectrum has been the least costly way for all providers to address capacity constraints. In light of these circumstances, ensuring that the Commission's policies regarding mobile spectrum holdings promote access to spectrum is critical.36

36We note that Congress, as well as the Commission and NTIA, has taken innovative steps to bring additional spectrum suitable for mobile broadband to the commercial marketplace. For instance, Congress recently passed theSpectrum Act,which authorizes the auction and repurposing of television broadband spectrum for the provision of wireless services.SeeMiddle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, Subtitle D—Spectrum Auction Authority, Section 6401et seq.As another example, the Commission has opened a proceeding to increase the supply of spectrum for mobile broadband by providing for flexible use of 40 megahertz of spectrum assigned to the Mobile Satellite Service (MSS) in the 2 GHz Band.See, e.g.,Service Rules for Advanced Wireless Services in the 2000-2020 MHz and 2180-2200 MHz Bands, WT Docket No. 12-70,Notice of Proposed Rulemaking and Notice of Inquiry,27 FCC Rcd 3561 (2012) (AWS-4 NPRM). NTIA undertook a “fast-track” review of several bands that could be reallocated to mobile use.SeeU.S. Department of Commerce,An Assessment of the Near-Term Viability of Accommodating Wireless Broadband Systems in the 1675-1710 MHz, 1755-1780 MHz, 3500-3650 MHz, and 4200-4220 MHz, 4380-4400 MHz Bands(Oct. 2010), available athttp://www.ntia.doc.gov/reports/2010/FastTrackEvaluation_11152010.pdf(NTIA Fast Track Report) (last visited Sept. 6, 2012). Additionally, on August 13, 2012, the Commission granted T-Mobile's application for experimental special temporary authority to begin testing possible use of the 1755 MHz to 1780 MHz band on a shared basis for providing commercial mobile broadband services.See FCC Experimental Special Temporary Authorization,Call Sign No. WF9XQW, File No. 0373-EX-ST-2012, available at https://apps.fcc.gov/els/GetAtt.html?id=128554 (last visited Sept. 6, 2012).

14. Since the sunset of the spectrum cap, there also have been other changes in the wireless industry that warrant reexamination of the Commission's policies. In 2003, when the Commission eliminated the spectrum cap, there were six mobile telephone operators that analysts then described as nationwide: AT&T Wireless, Sprint PCS, Verizon Wireless, T-Mobile, Cingular Wireless (“Cingular”), and Nextel.37 Today, as a result of mergers and other transactions, there are four nationwide providers: Verizon Wireless, AT&T, T-Mobile, and Sprint Nextel.38 As of December 2003, the top six facilities-based nationwide providers served approximately 78 percent of total mobile wireless subscribers in the country.39 By December of 2009, the top four facilities-based nationwide providers had increased their combined market share to 88 percent.40 Moreover, since 2003, a number of regional and rural facilities-based providers have exited the marketplace through mergers and acquisitions, including Dobson Communications, SunCom Wireless, Rural Cellular Corporation, ALLTEL, and Centennial Communications.41 In addition, there have been significant spectrum-only transactions, such as the transaction at the end of 2011 in which AT&T acquired Qualcomm's nationwide Lower 700 MHz downlink spectrum42 and the more recent transaction in which Verizon Wireless acquired AWS-1 licenses from SpectrumCo, LLC, and Cox TMI.43

37 SeeImplementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions With Respect to Commercial Mobile Services, WT Docket No. 04-111,Ninth Report,19 FCC Rcd 20597, 20613 para. 36 (2004) (Ninth Annual CMRS Competition Report).

38 See, e.g., AT&T-Qualcomm Order,26 FCC Rcd at 17604 para. 35;AT&T-Centennial Order,24 FCC Rcd 13915;Verizon Wireless-ALLTEL Order,23 FCC Rcd 17444; Applications of Nextel Communications, Inc. and Sprint Corporation For Consent To Transfer Control of Licenses and Authorizations, WT Docket No. 05-63,Memorandum Opinion and Order,20 FCC Rcd. 13967 (2005) (Sprint-Nextel Order).

39 See Ninth Annual CMRS Competition Report,19 FCC Rcd at para. 174, A-8, Table 4.

40 See Fifteenth Mobile Wireless Competition Report,26 FCC Rcd at 9760, Table 14, and John C. Hoduliket al., US Wireless 411 Report for 4Q2010,UBS Investment Research, UBS, at 13, Table 8.

41 See Fifteenth Mobile Wireless Competition Report,26 FCC Rcd at 9722, Table 10.

42 See generally AT&T-Qualcomm Order,26 FCC Rcd 17589.

43 See generally Verizon Wireless-SpectrumCo Order,FCC 12-95.

III. Discussion

15. In the sections below, the Commission seeks comment on whether and how to revise its policies and rules regarding mobile spectrum holdings. In particular, the Commission asks that comments address how to ensure that its policies and rules afford all interested parties greater certainty, transparency and predictability to make investment and transactional decisions, while also promoting the competition needed to ensure a vibrant, increasingly mobile economy driven by innovation. First, the Commission discusses general approaches to address competitive harm resulting from foreclosing access to spectrum, including a case-by-case analysis, bright-line limits, and other methodologies, and how they might apply not only to secondary market transactions but also to initial spectrum licensing after auctions. The Commission then takes a fresh look at implementation issues under various approaches, such as which spectrum should be considered, relevant product and geographic markets, and issues relating to attribution rules, appropriate remedies and transition concerns.

16. The Commission also seeks comment on the costs and benefits of any proposals or proposed changes to policies and rules. The Commission asks that commenters take into account only those costs and benefits that directly result from the implementation of the particular approach or rule that could be adopted. Further, to the extent possible, commenters should provide specific data and information, such as actual or estimated dollar figures for each specific cost or benefit addressed, including a description of how the data or information was calculated or obtained, and any supportingdocumentation or other evidentiary support.44

44During the pendency of this proceeding, the Commission will continue to apply its current case-by-case approach to evaluate mobile spectrum holdings during our consideration of secondary market transactions and initial spectrum licensing after auctions.

A. General Approaches to Mobile Spectrum Holdings 1. Case-by-Case Analysis

17. The Commission seeks comment on its current policies regarding mobile spectrum holdings. In general, the Commission currently examines the impact of spectrum aggregation on competition, innovation, and the efficient use of spectrum on a case-by-case basis, after establishing the relevant product and geographic markets in each case.45 The Commission has applied this approach to wireless transactions, using an initial spectrum screen, since 2004,46 and to mobile spectrum acquired through competitive bidding since 2008.47 In reviewing a proposed wireless transaction, the Commission evaluates the current spectrum holdings of the acquiring firm that are “suitable” and “available” in the near term for the provision of mobile telephony/broadband services.48 The current screen identifies local markets where an entity would acquire more than approximately one-third of the total spectrum suitable and available for the provision of mobile telephony/broadband services.49 The Commission does not, however, limit its consideration of potential competitive harms in proposed transactions solely to markets identified by its initial screen.50 The Commission balances a number of factors in its analysis, considering the totality of the circumstances in each market.51 The Commission also has considered whether harms in numerous local markets may result in nationwide harms.52

45 See AT&T-Qualcomm Order,26 FCC Rcd at 17602 paras. 31-32.

46 See Cingular-AT&T Wireless Order,19 FCC Rcd at 21568-69 paras. 107-12.See also AT&T-Qualcomm Order,26 FCC Rcd at 17602 para. 31; AT&T Inc. and Cellco Partnershipd/b/aVerizon Wireless Seek FCC Consent To Assign or Transfer Control of Licenses and Authorizations and Modify a Spectrum Leasing Arrangement, WT Docket No. 09-104,Memorandum Opinion and Order,25 FCC Rcd 8704, 8720-21 para. 32 (2010) (AT&T-Verizon Wireless Order).

47 See Verizon Wireless-Union Tel. Order,23 FCC Rcd at 16791-92 para. 9.

48 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 59;AT&T-Qualcomm Order,26 FCC Rcd at 17605-06 para. 38;AT&T-Verizon Wireless Order,25 FCC Rcd at 8723-24 para. 39;AT&T-Centennial Order,24 FCC Rcd at 13934 para. 43.See infradiscussion of determining spectrum suitable and available for the relevant product market at para. 26.

49 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 59;Verizon Wireless-ALLTEL Order,23 FCC Rcd at 17473 para. 54.

50 See, e.g., Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 48;AT&T-Qualcomm Order,26 FCC Rcd at 17609-10 paras. 49-50;AT&T-Centennial Order,24 FCC Rcd 13915, 13946-48 paras. 71-74, 13952 para. 85.

51 See, e.g., Verizon Wireless-ALLTEL Order,23 FCC Rcd at 17487-88 para. 91.

52 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 76.

18. The Commission recognizes that a case-by-case approach affords flexibility to consider different circumstances, permits a variety of factors to be considered, and allows it to better tailor any remedies to the specific harm and circumstances, particularly in its review of wireless transactions. In addition to recognizing factors unique to each licensee, a case-by-case approach allows the Commission to consider the changing needs of the mobile wireless marketplace more generally. On the other hand, a case-by-case approach is time- and resource-intensive, and has been criticized for creating uncertainty as to whether a particular transaction will be approved.53 One commenter, however, has suggested generally that a case-by-case approach can provide sufficiently clear guidance to enable providers to make their transactional and investment decisions.54 The Commission seeks comment on the costs and benefits of a case-by-case analysis to consumers, wireless service providers, and others, as well as the overall effectiveness of such an approach in achieving its public policy objectives. Should the Commission change its current case-by-case analysis process? For instance, should the Commission continue to use a screen that includes a measure of spectrum holdings? Could the Commission take measures to make the process more transparent, predictable, or better tailored to promote its goals? For example, should the Commission consider a regular review of its policies and guidelines to keep pace with changing marketplace conditions? Should the Commission adopt guidelines setting forth the factors that will be considered during any review of a licensee's mobile spectrum holdings or delegate authority to the Wireless Telecommunications Bureau to do so?

53 See, e.g.,“Stephenson: Verizon/Cable Deals Could Offer Guidance From FCC,” TR Daily (June 12, 2012).

54 SeeUnion Tel. Co. Comments, RM No. 11498, at i.

19. Finally, the Commission seeks comment on the specific costs and benefits of applying a case-by-case approach to initial licenses acquired through competitive bidding. Does a case-by-case analysis afford auction participants sufficient certainty to determine whether they would be allowed to hold a given license post-auction? Does the lack of a bright-line spectrum limit deter auction participation? Further, does the lack of a bright-line rule provide an opportunity for licensees to bid on spectrum, regardless of whether they believe they ultimately would be allowed to hold the licenses, in order to raise bidding costs or foreclose other competitors from acquiring certain licenses? A case-by-case approach could result in an inefficient auction process if the Commission ultimately denies the winning bidder's application to hold a license. In addition to imposing costs on competitors, the expenditure of public or private resources and resulting delay in awarding the spectrum to another bidder impose costs on the public. The Commission seeks comment on whether there are additional measures it would need to adopt to promote an effective and efficient auction process while discouraging the potential for anticompetitive behavior. If the Commission continues its case-by-case analysis for secondary market transactions, should the Commission adopt another approach for initial licensing rather than a case-by-case analysis, such as band-specific limits adopted prior to an auction?

2. Bright-Line Limits

20. As discussed above, the Commission employed a CMRS spectrum cap to prevent excessive spectrum concentration, but eliminated that cap in 2003 and then started using the current case-by-case approach. Before employing a CMRS spectrum cap, the Commission used other bright-line limits on spectrum holdings.55 There have been many changes in the mobile wireless industry since the Commission first started using a case-by-case approach to assess spectrum concentration, as noted above, and the Commission believes that these changes warrant reevaluating that approach.56 The Commission seeks comment on whether adoption of bright-line limits would serve the public interest now, and also on the specific costs and benefits of adopting such an approach. Bright-line limits could offer providers greater certainty, clarity, and predictability regarding which licenses they could acquire. Bright-line limits might encourage auction participationor more secondary market transactions by affording parties greater certainty and predictability to develop their business plans and obtain necessary financing. On the other hand, a bright-line approach would limit the Commission's flexibility to consider individualized circumstances and to respond swiftly to the changing needs of the mobile wireless industry and consumers. If the Commission were to adopt bright-line limits, how could the Commission do so in a manner that preserves its flexibility?

55 See PCS Second Report and Order,8 FCC Rcd 7700, 7728 para. 61, 7745 para. 106.

56 See Second Biennial Review Order,16 FCC Rcd at 22694 para. 50.See suprasection II.D.: The Current Wireless Landscape.

21. The Commission seeks comment on related implementation issues with respect to applying bright-line limits to initial licenses acquired through competitive bidding as well as to licenses acquired through the secondary market. The Commission further seeks comment on whether it should consider applying a band-specific spectrum limit in the context of any band-specific service rules that are adopted prior to an auction. Such an approach would be consistent with the Commission's practice of seeking comment on spectrum aggregation issues with respect to particular spectrum bands prior to an auction, would afford auction participants greater certainty, and would allow the Commission to re-evaluate its spectrum aggregation policies in the context of newly available spectrum bands and changing industry and consumer needs.57 Further, adopting band-specific spectrum limits generally applicable to all licensees would be consistent with Section 6404 of theSpectrum Act,which recognizes the Commission's authority “to adopt and enforce rules of general applicability, including rules concerning spectrum aggregation that promote competition.”58 For instance, should the Commission consider adopting limits on the amount of spectrum that entities could acquire in the context of spectrum auctions mandated by theSpectrum Act? The Commission seeks comment on these approaches.

57 See, e.g.,Service Rules for Advanced Wireless Services in the 2155-2175 MHz Band, WT Docket No. 07-195,Notice of Proposed Rulemaking,22 FCC Rcd 17035, 17079-80 paras. 101-03 (2007).

58 Spectrum Actat Section 6404.

3. Alternative Approaches

22. The Commission seeks comment on any alternative approaches to evaluate the competitive effect of spectrum aggregation. Are there other mechanisms for evaluating spectrum aggregation that would better serve the public interest and meet the Commission's statutory objectives? In this regard, the Commission seeks comment on whether there are different ways in which it could conduct a case-by-case analysis, such as adopting a case-by-case analysis that does not include an initial spectrum screen. Another approach would be to combine some elements of a bright-line limit with a case-by-case analysis. One hybrid approach would be to adopt a bright-line threshold that, if exceeded, would trigger a heightened burden on the applicants to demonstrate that approval of the proposed transaction would be in the public interest. The Commission seeks comment on these approaches and how they could be implemented, and on any other alternatives.

B. Implementation Issues

23. Certain threshold issues would need to be considered if the Commission were to adopt any new or modified approach to reviewing mobile spectrum holdings, including establishing initial definitions such as the relevant product and geographic markets, assessing the spectrum bands that should be included, and deciding how to treat different spectrum bands. Finally, the Commission discusses attribution and remedies, and explores whether there are other factors for it to consider in this area.

1. Relevant Product Market

24. In order to assess competition in a given market, the Commission has initiated its analysis of a proposed transaction by establishing definitions for the relevant product market. In recent wireless transactions, the Commission has determined that the relevant product market is a combined “mobile telephony/broadband services” product market,59 comprised of mobile voice and data services, including mobile voice and data services provided over advanced broadband wireless networks (mobile broadband services).60 InAT&T-QualcommandVerizon Wireless-SpectrumCo,while the Commission evaluated the transaction using a combined mobile telephony/broadband market, it recognized the growing importance of mobile broadband services and focused its analysis to an increasing degree on mobile broadband services.61

59 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 53;AT&T-Qualcomm Order,26 FCC Rcd at 17603 para. 33;AT&T-Verizon Wireless Order,25 FCC Rcd at 8721 para. 35;AT&T-Centennial Order,24 FCC Rcd at 13932 para. 37. The Commission has previously determined that there are separate relevant product markets for interconnected mobile voice and data services, and also for residential and enterprise services, but found it reasonable to analyze all of these services under a combined mobile telephony/broadband services product market.See AT&T-Qualcomm Order,26 FCC Rcd at 17603 para. 33;AT&T-Verizon Wireless Order,25 FCC Rcd at 8721 at para. 35;AT&T-Centennial Order,24 FCC Rcd at 13932 para. 37.

60 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 53;AT&T-Qualcomm Order,26 FCC Rcd at 17602-03 paras. 32-33;AT&T-Verizon Wireless Order,25 FCC Rcd at 8721 para. 35;AT&T-Centennial Order,24 FCC Rcd at 13932 para. 37.

61 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at paras. 53, 70;AT&T-Qualcomm Order,26 FCC Rcd at 17602-03 para. 32, 17605 para. 38.

25. The Commission seeks comment on whether the current approach to the product market definition continues to be appropriate. Given the transition to data-centric services and the development of more spectrum-efficient technologies that will transmit voice as data,62 the Commission seeks comment on whether the relevant product market has changed and, if so, whether these changes warrant any modifications to the Commission's product market definition. For example, should the Commission modify the relevant product market definition to reflect differentiated service offerings, devices, and contract features?63 The Commission also seeks comment on whether it should separately define smaller product markets that may be nested within a larger defined product market and, if so, how it would analyze such smaller defined product markets vis-à-vis the larger defined product market. What are the costs and benefits if the Commission were to modify its product market definition versus keeping the current combined “mobile telephony/broadband services” product market or focusing the analysis on mobile broadband services? Commenters also should discuss how their particular approach for the relevant product market definition is supported by economic or antitrust theory.

62One example of changing technology is the development of “Voice Over LTE” (or “VoLTE”).See“MetroPCS Unveils First U.S. Voice Over LTE Service, Phone,” by Chloe Albanesius, PCMag.com, Aug. 8, 2012, available athttp://www.pcmag.com/article2/0,2817,2408216,00.asp(last visited Sept. 6, 2012).

63 SeeAmerican Antitrust Institute Comments, WT Docket No. 11-65, at 6; Sprint Petition To Deny, WT Docket No. 11-65, at 11-15; Free Press Petition to Deny, WT Docket No. 11-65, at 9-12; Greenlining Institute Petition To Deny, WT Docket No. 11-65, at 4, 12-13.

2. Suitable and Available Spectrum

26. In order to assess whether any particular spectrum acquisition exceeds a certain threshold of available spectrum, the Commission first must determine what spectrum it will include in its overall evaluation. Currently, the Commission includes spectrum in its case-by-case analysis if it determines that it is suitable and available for therelevant product market.64 “Suitability” is determined by whether the spectrum is capable of supporting mobile service given its physical properties and the state of equipment technology, whether the spectrum is licensed with a mobile allocation and corresponding service rules, and whether the spectrum is committed to another use that effectively precludes its use for the relevant mobile service.65 Particular spectrum is considered to be “available” if it is fairly certain that it will meet the criteria for suitable spectrum in the near term.66 In recent applications of the spectrum screen, the Commission has included cellular, PCS, SMR, and 700 MHz spectrum, as well as AWS-1 and certain BRS spectrum, where available.67

64 See Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 59;AT&T-Qualcomm Order,26 FCC Rcd at 17605-06 para. 38;AT&T-Centennial Order,24 FCC Rcd at 13935 para. 43.

65 See AT&T-Qualcomm Order,26 FCC Rcd at 17605-06 para. 38;AT&T-Centennial Order,24 FCC Rcd at 13935 para. 43;Verizon Wireless-ALLTEL Order,23 FCC Rcd at 17473 para. 53.

66 See AT&T-Qualcomm Order,26 FCC Rcd at 17606 para.38.

67 See, e.g., Verizon Wireless-SpectrumCo Order,FCC 12-95, at para. 59;AT&T-Qualcomm Order,26 FCC Rcd at 17605-06 para. 39;AT&T-Centennial Order,24 FCC Rcd at 13935 para. 43.

27. Should the Commission continue to consider spectrum based on its suitability and availability for a given product market? Are there other factors that the Commission should consider in determining whether particular spectrum bands are suitable and available for the relevant product market? The Commission seeks comment on any measures that might increase the transparency with which it determines what spectrum it would include in a case-by-case spectrum analysis or in implementing bright-line limits. For example, should the Commission adopt a regular process to add or remove existing or newly allocated spectrum bands for purposes of assessing spectrum concentration? The Commission also seeks comment on the costs and benefits of implementing a new process for identifying the spectrum to include in a case-by-case spectrum analysis. The Commission seeks comment on the legal, economic, and engineering justifications to support the existing or any modified criteria for determining the suitability and availability of spectrum.

28. While mobile wireless operators primarily have used licenses associated with three different frequency bands to provide mobile voice and, in most cases, mobile data services—cellular (in the 850 MHz band), SMR (in the 800/900 MHz band), and broadband PCS (in the 1.9 GHz band)—providers are now incorporating additional spectrum bands into their networks, such as BRS and EBS in the 2.5 GHz band, AWS in the 1.7/2.1 GHz band, and the 700 MHz band. These bands enable the provision of additional competitive mobile voice and data services.68 In several recent transactions, some parties have suggested modifying the Commission's spectrum analysis to include additional spectrum bands, such as the BRS spectrum that is not currently included in the screen, EBS, or MSS.69 Others also have argued in favor of including WCS spectrum, citing certain changes the Commission made to the WCS technical service rules that enable licensees to provide mobile broadband service in a portion of the WCS band.70 Aside from general factors the Commission should consider in determining whether spectrum is suitable and available, the Commission also seeks comment on the application of these factors to particular spectrum bands. Which spectrum bands should be included in the Commission's spectrum analysis? In particular, at what point should television broadcast spectrum that is repurposed in the incentive auction be included in the analysis?71 Commenters also should discuss at what point other spectrum bands, such as WCS and the frequencies the Commission is required to auction under theSpectrum Act, 72 should be included in the analysis. Are there any band-specific factors the Commission may want to consider in determining suitability and availability of a particular band? Further, the Commission seeks comment on whether there are any economic or technical justifications that would warrant modifying the criteria used to determine the suitability and availability of spectrum. For example, should the Commission consider factors such as channel size, potential interference issues, or conditions that may develop after the allocation and licensing of spectrum (such as technological developments that affect the timely deployment of services)? If the Commission were to modify the criteria it uses to determine the suitability and availability of spectrum, how could it do so in a manner that promotes clarity and predictability?73

68 See Fifteenth Mobile Wireless Competition Report,26 FCC Rcd at 9822-23 para. 269.

69 See, e.g., AT&T-Qualcomm Order,26 FCC Rcd at 17606-07 para. 40; AT&T-Qualcomm Application, Public Interest Statement, WT Docket No. 11-18, at 22-27.

70 See, e.g.,RCA Petition To Deny, WT Docket No. 11-18, at 10-11.See alsoAmendment of Part 27 of the Commission's Rules To Govern the Operation of Wireless Communications Services in the 2.3 GHz Band,Report and Order, 25 FCC Rcd 11710, 11711 para. 1 (2010) (WCS Report and Order),recon. pending.

71 SeeExpanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions, GN Docket No. 12-268,Notice of Proposed Rulemaking,FCC 12-118 (adopted Sept.28, 2012).

72 SeeSpectrum Act at Section 6401 (identifying the following bands 1915-1920 MHz, 1995-2000 MHz, and 2155-2180 MHz).

73We also seek comment below on whether such factors should be reflected in any valuation approach.See infraat para. 38.

29. Further, the Commission seeks comment on whether it should remove any spectrum bands from its consideration. For instance, the Commission recently indicated that, as the provision of mobile broadband services becomes increasingly central to wireless transactions, it may be appropriate to reduce the amount of suitable SMR spectrum from 26.5 megahertz to 14 megahertz to reflect the portion of SMR spectrum through which mobile broadband service can be provided.74 The Commission seeks comment on how much SMR spectrum is suitable and available in the near term for mobile broadband services.75 The Commission notes that the Upper 700 MHz D Block is to be reallocated for public safety service rather than commercial service. The Commission seeks comment, however, on whether and how, pursuant to Section 6101 of theSpectrum Act, 76 th