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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 ) IB Docket No. 95-91 ) GEN Docket No. 90-357 ) RM No. 8610 Establishment of Rules and Policies for the ) PP-24 Digital Audio Radio Satellite Service in the ) PP-86 2310-2360 MHz Frequency Band ) PP-87 REPORT AND ORDER MEMORANDUM OPINION AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: March 3, 1997 Released: March 3, 1997 Comment Date: May 2, 1997 Reply Comment Date: May 23, 1997 By the Commission: Chairman Hundt issuing a statement; Commissioner Ness approving in part, concurring in part, and issuing a statement; Commissioner Chong issuing a statement. TABLE OF CONTENTS Paragraph I. INTRODUCTION . . . . . . 1-4 II. BACKGROUND . . . . . . 5-6 III. ISSUES TO BE RESOLVED A. Public Interest Benefits and Economic Impact . . . . . . . . .7-9 1. Public Interest Benefits . . . . . . . . . . . . . . . . . .10-17 2. Impact on Terrestrial Radio Listenership . . . . . . . . . .18-21 3. Impact on Terrestrial Radio Advertising Revenues . . . . . .22-25 4. Effects on Terrestrial Stations' Profitability and Viability . . . . .26-34 5. Related Challenge to DARS Allocation . . . . . . . . . . . .35-38 B. Licensing Plan 1. Licensing Options for Satellite DARS Spectrum . . . . . . .39-41 2. Spectrum Requirements and Economic Viability . . . . . . . .42-50 3. International Coordination Obligations . . . . . . . . . . .51-58 4. Pioneer's Preference Requests. . . . . . . . . . . . . . . .59-61 5. Cut-off Issues 62-71 6. Specific Frequency Assignments and Satellite DARS Competition . . . 72-78 7. Licensing Conditions . . . . . . . . . . . . . . . . . . . 79-80 C. Service Rules for Satellite DARS 1. Classification of Service. . . . . . . . . . . . . . . . . 81-84 2. Public Interest Obligations. . . . . . . . . . . . . . . . 85-93 3. Ancillary Services . . . . . . . . . . . . . . . . . . . . .94-96 4. Technical Qualifications Service Area . . . . . . . . . . . . . . . . . . . . . . 97-99 Service Link Margin. . . . . . . . . . . . . . . . . . 100-101 Receiver Inter-operability . . . . . . . . . . . . . . 102-107 Data Compression Rates . . . . . . . . . . . . . . . . 108-109 5. Milestone Qualifications and Reporting Requirements. . . . . 110 6. License Term 111 7. Technical Rules. . . . . . . . . . . . . . . . . . . . . . . 112 PFD limits . . . . . . . . . . . . . . . . . . . . . . 113-114 Out-of-band emissions. . . . . . . . . . . . . . . . . 115-118 Telemetry beacons. . . . . . . . . . . . . . . . . . . 119-121 Cross polarization . . . . . . . . . . . . . . . . . . 122-123 D. Modification of Part 87. . . . . . . . . . . . . . . . . 124-126 E. Satellite DARS Feederlink Networks . . . . . . . . . . . 127-137 F. Further Notice of Proposed Rulemaking on Terrestrial Repeaters . . 138-142 G. Rules for Auctioning Satellite DARS Licenses . . . . . . . . 143 1. Authority to Conduct Auctions. . . . . . . . . . . . . . 144-152 2. Competitive Bidding Design and Bidding Procedures. . . . 153-162 3. Procedural and Payment Issues. . . . . . . . . . . . . . .163-169 4. Safeguards . . . . 170-173 5. Designated Entity Provisions . . . . . . . . . . . . . . 174-176 IV. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 V. ORDERING CLAUSES . . . . . . . . . . . . . . . . . . . . . . . 178-189 APPENDIX A: Amendments to 47 C.F.R. Part 25 and Part 87 of the Commission's Rules APPENDIX B: Final Regulatory Flexibility Analysis APPENDIX C: Proposed Amendments to 47 C.F.R. Part 25 of the Commission's Rules I. INTRODUCTION 1. Digital Audio Radio Service by satellite (satellite DARS) promises to provide continuous nationwide radio programming with compact disc (CD) quality sound. Motorists on the highways of America may soon be able to tune in to one of many satellite DARS channels offering a particular format without interruption or fading as they travel across the United States. This new service also has the potential to increase the variety of programming available to the listening public. Providers may, for example, offer niche channels that would serve listeners with special interests. Satellite DARS has the technological potential to serve listeners in areas of the country that have been underserved. While, to some extent, DARS will compete with local radio, we anticipate that it will also complement terrestrial radio. 2. The Commission issued its Notice of Proposed Rulemaking (Notice) in this proceeding in June 1995. After carefully reviewing the comments we have concluded that it is in the public interest to license satellite DARS. Opponents of the new service have not shown that its potential adverse impact on local radio service outweighs its potential benefits. Based on the record, we also find that an economically viable satellite DARS system will require at least 12.5 MHz of spectrum. 3. Although we originally allocated 50 MHz of spectrum for satellite DARS in the S-band (2310-2360 MHz), recently enacted legislation directed the Commission to reallocate 25 MHz of that spectrum (and an adjacent 5 MHz) for any services consistent with the allocation table and associated international agreements and to assign licenses for that 25 MHz by auction. Accordingly, in this proceeding we will designate only two licenses for satellite DARS in the 25 MHz that remains in the part of the S-band previously allocated for satellite DARS. We will award both satellite DARS licenses using competitive bidding to resolve mutual exclusivity among the current applicants, under the auction rules we adopt today. We also adopt service rules for satellite DARS licensees, including milestone requirements. Finally, we seek further comment on the proposed use of terrestrial repeaters in conjunction with satellite DARS systems. 4. Although three of the four DARS applicants applied for pioneer's preferences, we do not need to decide the matter. Following unanimous recommendations from a panel of satellite experts that no pioneer's preferences be granted for satellite DARS, all three applicants have withdrawn their applications. II. BACKGROUND 5. We will summarize the background in this proceeding, which is described in greater detail in the Notice and in prior orders. Satellite CD Radio, Inc. (CD Radio) initiated this proceeding in 1990 by filing a petition to allocate spectrum for satellite DARS and an application to provide the service. In February 1992, the World Administrative Radio Conference (WARC-92) adopted international frequency allocations for Broadcasting Satellite Service (BSS) (sound)(the international term for satellite DARS). Internationally, this band is also allocated on a primary basis to radiolocation services and fixed and mobile terrestrial services. In November 1992, the Commission established a proceeding to allocate satellite DARS spectrum domestically and announced a December 15, 1992 cut-off date for satellite DARS license applications to be considered with CD Radio's. Of the six license applicants that filed before the cut-off; four remain: CD Radio, Primosphere Limited Partnership (Primosphere), Digital Satellite Broadcasting Corporation (DSBC) and American Mobile Radio Corporation (AMRC). In January 1995, the Commission allocated the 2310-2360 MHz band for satellite DARS on a primary basis. 6. In our June 1995 Notice, we posed many questions about satellite DARS. We requested detailed information on the new service's potential economic impact on terrestrial broadcasters. The Notice asked about the most appropriate service design and regulatory classification. We sought comment on what public interest obligations to impose and queried whether providers should be permitted to offer ancillary services. The Notice proposed three possible licensing options and rules to allow expeditious licensing after an option was chosen. After the Notice was released, the Appropriations Act directed the Commission to reallocate spectrum at 2305-2320 MHz and 2345-2360 MHz for all services consistent with international allocations and to award licenses in that portion of the band using competitive bidding. As a consequence, the licenses designated pursuant to this order will be in the spectrum between 2320 and 2345 MHz. III. ISSUES TO BE RESOLVED A. Public Interest Benefits of Satellite DARS and Its Economic Impact on Terrestrial Broadcaster Service. 7. In the Notice and in prior orders, we discussed the benefits of satellite DARS proffered by the proponents. These include introduction of a new radio service to the public, a national distribution of radio programming to all areas, including underserved and unserved areas and population groups, the creation of jobs and the promotion of technological development in the satellite and receiver industries, and the improvement of U.S. competitiveness in the international economy. We sought comment on our tentative conclusion that satellite DARS offers substantial public benefits. 8. We also invited detailed comment and information on the economic impact of satellite DARS on existing radio broadcasters. We acknowledge the high level of concern that terrestrial broadcasters have expressed about satellite DARS. In addition to three associations of broadcasters, more than one hundred terrestrial radio stations owners or operators have submitted individual letters opposing satellite DARS. 9. Recognizing the significant public value of terrestrial radio service, we must weigh the potential public interest benefits of satellite DARS against its potential adverse impact on terrestrial radio. This impact is relevant "to the extent that [it] would predictably lead to serious loss of important services to consumers, taking into account the potential for future enhancements of terrestrial broadcasting by the introduction of new technologies." In the Notice we emphasized that, pursuant to Section 7 of the Communications Act, opponents of a new technology, such as satellite DARS, bear the burden of demonstrating that it is inconsistent with the public interest. We have previously noted that, "The public interest in this regard is the provision of services of value to the listening public and includes the protection of competition, not competitors." 1. Public Interest Benefits 10. Satellite DARS can offer high quality radio signals to listeners who currently receive few terrestrial radio signals. Commenters disagree concerning how many people are underserved by local radio. One respondent submitted a county-based analysis of listening diaries contending that only 6100 people in the U.S. aged 12 and over receive less than six radio signals. However, that study defined a station as "covering" a U.S. county if even one diary recorded having received its signal. Given that AM signals travel long distances at night and that such skywave signals fluctuate significantly even when useable, we believe that such diary evidence may not accurately indicate the size of the population that receives radio signals. 11. One study indicates that 722,102 persons (0.3% of U.S. population) are covered by no FM stations, 2.4 million persons (1.0% of U.S. population) are covered by one or fewer FM stations, and 22 million persons (8.9% of the U.S. population) are covered by five or fewer FM stations. The NAB criticized this study, however, because it does not include AM radio stations, even though more than 40% of all radio stations are AM stations and even though AM signals often travel much further than FM signals at night. AM signals, due to limited bandwidth and greater susceptibility to noise and interference, do not provide as high fidelity sound as FM signals. Thus, FM signal quality may be closer to the quality of that satellite DARS would provide. While we are unable to estimate an exact figure for the number of potential radio listeners who are currently underserved, we find that the record is sufficient to indicate that a significant number of persons in the U.S. receive few high quality audio signals. Satellite DARS offers the substantial benefit of providing these persons with many additional high quality audio signals. 12. It is our view that satellite DARS will particularly benefit communities where terrestrial broadcast service is less abundant. The record shows that counties with smaller populations have fewer radio stations and that smaller markets have fewer radio formats. The 33.2% of the U.S. population living in the top ten radio markets have access to an average of 26 formats, while the 18% of the U.S. population living in radio markets ranked 100-261 have access to an average of only 14.9 formats. Persons living outside these 261 ranked markets are likely to have still fewer radio formats available. Given that each satellite DARS applicant proposes to provide 20 or more channels nationwide, satellite DARS would significantly reduce the proportional discrepancy in the geographic distribution of radio service. 13. Moreover, satellite DARS can provide new services that local radio inherently cannot provide. With its national reach, satellite DARS could provide continuous radio service to the long-distance motoring public, persons living in remote areas, and may offer new forms of emergency services. 14. Satellite DARS may also be able to foster niche programming because it can aggregate small, nationally dispersed listener groups that local radio could not profitably serve. Commenters suggest that satellite DARS could fulfill a need for more educational programming, rural programming, ethnic programming, religious programming, and specialized musical programming. One nationally representative survey found that 10-27% of the respondents indicated a strong interest in accessing programming formats that are not widely available. Evidence from a survey by the National Endowment for the Arts suggests that niche marketing opportunities exist for some of the less popular radio formats. 15. We believe that licensees will have an incentive to diversify program formats and thereby provide valuable niche programming. We recognize that satellite DARS licensees are likely to provide the programming that is most profitable. Nonetheless, given that we anticipate each satellite DARS licensee will control more than 20 channels, each licensee will have an incentive to diversify programming so that one channel will not directly compete with another channel that the licensee itself controls. We have noted the importance of this incentive, particularly with respect to entertainment programming, in other proceedings. 16. In the Notice, we tentatively concluded that implementation of satellite DARS would foster the development of new technology. NAB has argued that U.S. implementation of satellite DARS is not necessary to advance satellite DARS technology. While this may be true, we nevertheless believe that U.S. implementation, by providing large-scale market-based consumer feedback and increased economic incentives for further technological advances, would foster faster and more customer oriented development. 17. We conclude that licensing operators to provide satellite DARS will yield substantial benefits to consumers. We now evaluate whether opponents have met their burden of showing that these benefits are outweighed by the potential harm to listeners from potential loss of terrestrial service resulting from increased competition from satellite DARS. 2. Impact on Terrestrial Radio Listenership 18. In the Notice, we sought comment on the effect of satellite DARS on terrestrial radio listenership. We explicitly requested commenters to consider the characteristics of satellite DARS that distinguish it from terrestrial radio. Commenters often failed to do so. Instead, several commenters implicitly assumed that satellite DARS' effect on local radio would be similar to the effect from competition generated by new local radio stations. Given the distinguishing features of satellite DARS -- it is a national service, it will require new and relatively costly equipment, and it may be offered via paid subscription -- we find that the effect of satellite DARS on terrestrial radio is likely to be significantly smaller than the effect of additional terrestrial radio stations. 19. For example, one commenter includes a consumer survey which suggests that satellite DARS would cause a decline of 11.6% in terrestrial radio listenership. The appropriate interpretation of this figure is not clear, however, because the survey did not take into account the potential cost to the consumer of satellite DARS equipment, and the subscription fee included in the survey was only half of what one satellite DARS applicant (CD Radio) has proposed. Moreover, the survey failed to consider the possible introduction of terrestrial DARS in assessing consumer interest in satellite DARS. For these reasons we believe that this survey may overestimate the likely decline in terrestrial radio listenership. And yet even in this survey 80% of respondents indicated that they would not reduce the time they spend listening to terrestrial radio if satellite DARS was available. However, we realize that surveys of predicted consumer response to a new and untried service may be somewhat unreliable. 20. By analogy, the diffusion of other new services and technologies may provide valuable perspective on the time period in which satellite DARS' may affect terrestrial radio listenership. In 1994, six years after their introduction, CD players were in just 3.2 percent of all automobiles. This experience is recent, involves high-quality audio service and roughly comparable equipment costs, and relates to automobiles, perhaps the most likely market for satellite DARS receivers. On the other hand, for the first few years after CD players' introduction there were significant technical problems with their operation in automobiles, and CD players are less convenient to operate than radios. These factors may have reduced the rate at which CD players were installed in cars. Nonetheless, CD players offer a useful example by which to evaluate the penetration profile for satellite DARS receivers. Given anticipated satellite launch dates for satellite DARS applicants (1998-1999) and the example of the diffusion of CD players, we believe it is reasonable to project that by about 2005 the over-all penetration rate of satellite DARS receivers in radio listening environments may not be significantly greater than 4%. 21. Estimating listening time diversion depends on the share of listening time allocated to satellite DARS when the listener has a choice between satellite DARS and terrestrial radio. Drawing an analogy with the diffusion of cable services indicates that established programming loses audience share relatively slowly. In 1984, about a decade after the introduction of premium cable services and the development of 24 to 36 channel cable TV systems, cable channels attracted 14% of television viewing time. After another decade, the share of cable channels in television viewing time rose to 30%. An important weakness in this analogy is that the difference between cable programming and network programming during this period is probably significantly greater than will be the difference between satellite DARS programming and terrestrial radio programming. Nonetheless, we believe that owners of satellite DARS receivers will continue to allocate a significant share of their listening time to terrestrial radio in order to hear music or news of local interest. Even with rapid, further penetration of satellite DARS receivers, we expect that satellite DARS' share of radio listening time will grow relatively slowly over decades. 3. Impact on Terrestrial Radio Advertising Revenues 22. In the Notice, we asked parties to consider advertising revenues that terrestrial radio might lose because of satellite DARS. The record indicates two possible causes of terrestrial radio revenue loss: competition with satellite DARS for advertising dollars and competition with satellite DARS for listeners' attention. 23. While we recognize that satellite DARS has significant competitive advantages in offering advertising to a national audience with satellite DARS receivers, several factors may limit the possible significance to terrestrial radio of such additional competition. First, at this time, only one out of the four satellite DARS applicants has indicated an intention to implement its system on a non-subscription, advertiser-supported basis. Second, a large share of the national radio audience is not likely to have satellite DARS receivers, at least for a significant period of time. Third, national advertising revenue amounts to only 18% of terrestrial radio advertising revenue and is on average less important for small-market stations than for large- market stations. Local advertising revenue is much more important than national advertising revenue for terrestrial radio's viability and prevalence, and, at this time, we have no evidence that satellite DARS would be able to compete for local advertising revenue. 24. More important to terrestrial radio is possible competition with satellite DARS for listener attention because this new offering could reduce the size of the local listening audience available for terrestrial radio stations to sell. We recognize that a decrease in the audience size could lead to some reduction in terrestrial station revenues. As discussed above, however, we believe the reduction would be modest, although the record leaves room for significant uncertainty. 25. Commenters have not fully analyzed the relationship between reductions in listenership and reductions in revenue. We do not necessarily agree with those commenters who assert that terrestrial radio station revenue will fall one-for-one with any fall in listenership. Because the price of local radio advertising may rise, the effect on local radio revenue may be smaller than the effect on listenership. However, regardless of the precise relationship, we do assume that a decrease in listenership will lead to a decrease in advertising revenues, if other variables are held constant. 4. Effects on Terrestrial Stations' Profitability and Viability 26. In the Notice, we asked questions about the impact of satellite DARS on the financial viability of local broadcast stations. In general, the Commission encourages competition for the provision of telecommunications services wherever possible and removes barriers for new competitors. Commenters differ sharply on the effect of satellite DARS on the profitability of terrestrial stations, with estimates of the reduction in terrestrial stations' profitability spanning 2.1-3.5% to 52%-122%. The wide range of these estimates do not allow us to judge the effect of satellite DARS on terrestrial stations' profitability. The Kagan Study, by focusing on historical indicators of revenue and profitability and not considering the time path for satellite DARS diffusion, likely overestimates the potential impact of satellite DARS on terrestrial stations profitability. The MTA Study's audience diversion figures are lower than what we believe, and we question the relevance of their use of the ratio of satellite DARS receiver owners to the total U.S. population, given that segments of the population, such as infants, are not potential satellite DARS owners. We also find their revenue loss projections to be unsubstantiated and unconvincing. 27. The record supports a finding that the impact of satellite DARS would likely be greater on small-market terrestrial stations than large-market terrestrial stations. This result is not surprising because it is likely that the introduction of a 30-channel satellite DARS system could divert a larger share of the audience in a market with only 6 stations than in a market with 60 stations. Nonetheless, the record does not establish that any predicted reduction in station profitability would harm overall station viability. 28. In fact, the record suggests that profitability figures may be a weak indicator of radio station viability. The wide range in the audience size distribution for existing radio stations suggests that most radio stations could remain viable given plausible audience reductions due to satellite DARS. Despite evidence that a large percentage of radio stations are experiencing losses, there is also evidence that overall the industry is very healthy. The value of radio station purchases in 1996 was 315% higher than in 1995 and radio station values as a multiple of cash flow also rose sharply. Factors such as debt financing and start-up costs may explain why radio stations would stay in business while reporting losses. 29. Our concern about licensing satellite DARS focuses on its impact on the provision of locally oriented radio service. Satellite DARS proponents argue that the ability to offer local content will give terrestrial broadcasters a competitive advantage. Terrestrial broadcasters argue that providing local content is a public service that depends, in effect, on cross- subsidization from more profitable programming. 30. We conclude that the record lacks systematically sampled, quantitative evidence about the listening time, revenue base, and profitability of local content. Nonetheless, if local content were relatively unprofitable for every station, one would expect competition among terrestrial stations to result in minimal local programming on most stations. Yet the record indicates that such analysis is not necessarily accurate; despite vigorous competition among stations, some stations provide much local programming, while others provide relatively little. Competition from satellite DARS may create incentives for at least some terrestrial stations to increase their emphasis on local programming in order to attempt to differentiate their service from satellite DARS. It is unclear the degree to which that might affect overall station profits. 31. In sum, although healthy satellite DARS systems are likely to have some adverse impact on terrestrial radio audience size, revenues, and profits, the record does not demonstrate that licensing satellite DARS would have such a strong adverse impact that it threatens the provision of local radio service. 32. We also note that revenue of terrestrial radio is projected to grow at a real (inflation adjusted) rate of about 4% per year. Such projected revenue should mitigate, at least to some extent, the eventual impact on terrestrial stations of satellite DARS. We also note that recently, the Commission implemented provisions of the Telecommunications Act of 1996 and repealed all terrestrial radio national ownership limits and significantly relaxed local ownership limits. These changes should lead to reduced operating costs and increased profits for terrestrial station owners that take advantage of the new rules. We expect any possible impact of satellite DARS on terrestrial radio's revenue to be relatively small and to occur over a long period of time. We reject as unnecessary a proposed phase-in and evaluation period for satellite DARS. We conclude that opponents of satellite DARS have not shown that its potentially adverse impact on local radio outweighs its potential benefits to the American radio listener. 33. There is uncertainty inherent in any attempt to predict the impact of satellite DARS on the terrestrial radio industry. The technologies, structure, and regulation of the communications industry are changing dramatically. Developments in the next decade may significantly change the market for both satellite DARS and terrestrial broadcasting. Although opponents of satellite DARS have not shown that it will have a sudden and dramatic adverse impact on terrestrial broadcasting, we cannot entirely rule out the possibility of a major adverse impact. We emphasize that we remain committed to supporting a vibrant and vital terrestrial radio service for the public. Accordingly, we will continue to monitor and evaluate the potential and actual impact of satellite DARS, particularly in small radio markets, so that we will be able to take any necessary action to safeguard the important service that terrestrial radio provides. 34. In addition, we continue to support the efforts of industry committees studying technical standards that would allow terrestrial radio broadcasters to convert to digital transmissions. When it appears that a viable systerm has been designed, we will act expeditiously to consider changes to our rules to allow AM and FM licensees to offer digital sound. We also remain open to considering other ways to encourage the continued viability of terrestrial radio if the adverse impact of satellite DARS on terrestrial radio proves to be substantially greater than we expect. 5. Related Challenge to DARS Allocation: Memorandum Opinion and Order 35. On February 17, 1995, Interep National Radio Sales, Inc. (Interep) filed a petition for reconsideration of domestic Allocation Order. Interep claims that satellite DARS could have an adverse impact on existing radio services and that, therefore, we should not allow satellite DARS operations until terrestrial DARS is licensed. Interep also suggests a number of guidelines it believes we should adopt with respect to licensing and service rules for satellite DARS. We deny the petition for the reasons given above. That is, the record evidence indicates that the public interest would be served by permitting an innovative new technology and service, satellite DARS, to become available as a competitive choice for consumers. We note that the petition does not contain any analysis which would undermine those reasons. 36. The Consumer Electronics Manufacturers Association (CEMA) argues in an exparte submission, based on its preliminary draft report on various digital audio radio technology test results, that satellite DARS cannot be successfully provided at 2.3 GHz. Specifically, CEMA argues that "S-band operations suffer from a significant and startling level of signal blockage," that to provide satellite DARS using S-band frequencies will require hundreds or thousands of gap fillers and that satellite DARS in the S-Band has "no likelihood for nationwide commercial acceptance." 37. We have decided nevertheless to license DARS in the S-Band. CEMA's testing of signal propagation focused on terrestrial technologies; CEMA tested only one generic satellite technology and did not test any of the system designs of the four satellite DARS applicants. Nor does CEMA comment on any of the specific proposals submitted by the four DARS applicants. In addition, CEMA offers no new relevant information. It has been widely known and discussed in the record that DARS providers will need to rely on terrestrial repeaters and gap fillers. As with all new services, the FCC cannot prove or disprove viability. Only the market place can make this determination. CEMA's assertion that satellite DARS is not commercially viable in the S-Band is belied by the interest of many DARS investors who apparently have concluded that a viable satellite DARS service can be offered in the S-Band. 38. Moreover, CEMA's recommendation that the FCC consider other spectrum options for satellite DARS, such as the L-Band, is beyond the scope of this proceeding. The 2310-2360 MHz band [S-Band] was allocated for satellite DARS internationally at WARC-92 and domestically in 1995. Frequencies in the L-Band, 1452-1492 MHz were considered and rejected. In the domestic Allocation Order the Commission noted that "commenters strongly favored [S-Band] over, for example, the 1.5 GHz band [L-Band]" in part because the U.S. Government and U.S. commercial mobile aeronautical telemetry (MAT) already operates in the L-Band and it would be very difficult for them to relocate entire operations to the S-band. Satellite DARS cannot share with MAT systems in the same frequency band in the same coverage area. And even if L-Band had been available, no persuasive evidence suggests that it is significantly better spectrum in which to receive satellite DARS signals. For the reasons stated above, we find CEMA's argument against proceeding to license satellite DARS applicants in the S-Band unpersuasive. B. Licensing Plan 1. Licensing Options for Satellite DARS Spectrum 39. In our Notice, we proposed three options for licensing satellite DARS systems. Under Option One, we would have assigned the entire 50 MHz of spectrum allocated for satellite DARS to the four pending applicants, giving each 12.5 MHz, or 10 MHz, if we determined that the lower 10 MHz of the band should not be assigned at the time of our Order due to international coordination constraints. Option Two was to designate less than the full amount of useable spectrum for satellite DARS and to award the remaining spectrum to new applicants. Option Two proposed licensing the four applicants and assigning them each a band segment of less than 10 MHz of spectrum. If either of the two band segments (one for pre-cut off applicants and one for new applicants) could not accommodate all applicants, we would resolve mutual exclusivity via competitive bidding. Option Three was to reopen the cut-off for satellite DARS applications and allow additional applicants to file proposals for all of the useable DARS spectrum. 40. In light of the recent legislation directing the Commission to conduct an auction for use of 25 MHz of the S-band spectrum previously allocated solely to DARS, we cannot adopt any of the three licensing options exactly as proposed in the Notice. After enactment of that legislation and the ensuing WCS Order, only 25 MHz remains exclusively for DARS. The licensing plan we adopt today for that remaining spectrum is a logical outgrowth of Option Two, modified in light of the comments received in this proceeding and the recent legislation. In determining how many licenses may be awarded for use of the remaining DARS spectrum and how those licenses should be assigned, we must first determine how much spectrum each satellite DARS licensee will require to operate an economically viable satellite DARS system. 41. In the Allocation Order, the Commission found that, based on the information available at that time, satellite DARS was the best use of all of the 50 MHz of spectrum assigned to U.S. satellite DARS by WARC-92. We requested comment on a number of issues in our Notice to help us determine the best way to make individual satellite DARS frequency assignments. Specifically, we sought comment on the following: the amount of spectrum and number of channels required for a satellite DARS system to be economically viable; the number of competitors that are necessary to ensure sufficient competition in satellite DARS; the possible number of channels per MHz capable of being delivered via satellite to a mobile user; alternative band plans that could be adopted for satellite DARS; possible uses for spectrum that is not licensed for satellite DARS, and, whether our proposal to license less than 50 MHz of spectrum would create a mutually exclusive situation among the four current applicants. Based on comments we received on these specific issues, we conclude that 12.5 MHz of spectrum is necessary to offer enough channels for an economically viable satellite DARS system. In addition, in light of the recent legislation opening 25 MHz of spectrum for use by additional services, we conclude that two licenses can be awarded. 2. Spectrum Requirements and Economic Viability 42. While we are not sure of the optimal amount of spectrum necessary for satellite DARS, it is our goal to try to determine spectrum block sizes and geographic areas that are most closely suited to provide for efficient provision of the most likely expected use. In this case, because this is a satellite service, the license areas should be nationwide and we have evaluated the evidence about the minimum spectrum block sizes necessary to economically provide satellite DARS. We begin our analysis of determining how much spectrum a single satellite DARS provider will require by considering what the record reveals about how many channels are necessary to operate an economically viable satellite DARS system. Because satellite DARS is a new service, there is an inevitable uncertainty about what precise configuration of channels will best satisfy consumer demand. The record contains no conclusive evidence establishing a specific minimum number of channels needed for a viable DARS system. We will rely on the representations of the applicants which are based on their own market research. The record indicates that a range of channels from 19 to 44 is needed for a viable service. 43. The applicants appear to base their estimated channel requirements on a cable television model in which operators bundle large and diverse packages of channels. The conclusion drawn from the cable television model is that no single channel attracts a large viewing audience, but subscribers value the service because they watch a few channels regularly and occasionally enjoy sampling a wider range of available programming. While the record does not show exactly how many channels a satellite DARS operator must offer to be economically viable, the cable television analogy demonstrates that some critical mass of channels is needed to provide sufficient programming diversity for consumers with diverse tastes. 44. More direct support for the satellite DARS applicants' projections can be found by examining digital audio services packaged with video services and delivered via cable or satellite. Two such nationwide subscription services are Digital Music Express (DMX), offered via cable, and the Primestar direct-to-home video satellite service, a DBS service. Those services each began with roughly 30 channels, but have chosen to increase the number of channels to 60. According to CD Radio, both are now expanding again to offer up to 120 channels. We presume that the satellite DARS applicants would not undertake the risk and expense of implementing satellite systems if the number of channels they propose were not enough to provide a viable service. 45. The satellite DARS applicants calculate that 12.5 MHz of spectrum would be necessary to offer a range of 19 to 44 CD quality audio channels. They contend that 12.5 MHz of spectrum is necessary to support a single viable satellite DARS system. Others commenters disagree. NAB, for instance, proposes that the satellite DARS spectrum be divided into 5 MHz band segments. DSBC and Primosphere counter that NAB's proposed spectrum plan would support a viable satellite DARS system only if at least three or more 5 MHz blocks can be aggregated. AMRC adds that it would be impossible to deliver enough high quality channels in 5 MHz of spectrum to attract a viable audience. 46. A band plan introduced by Cracker Barrel in its reply comments maintains that by using Time Division Multiplexing (TDM) technology, 30 channels of CD quality audio can be accommodated in 8.32 MHz, or 32 channels of CD quality audio could be provided in 8.32 MHz using Code Division Multiplicity (CDM) technology, and thus six operators (presumably six economically viable systems) could be accommodated in the 50 MHz initially allocated for satellite DARS. Cracker Barrel also contends that if all satellite DARS providers use the same error correction rates, then as many as eight satellite DARS licensees could be accommodated in the 50 MHz (i.e., each with a 6.25 MHz assignment) and each could offer at least 30 channels of CD quality audio. Cracker Barrel contends that its band plan does not require use of regional spot beams or a higher order modulation constellation to gain additional channels per MHz of spectrum. It asserts that by using 1/3 rate or 1/2 rate FEC as opposed to 1/4 rate as originally proposed by CD Radio and Primosphere, the bandwidth requirement for a 32 or 30 channel CD quality system could be reduced from 12.5 MHz to 8.32 MHz and 6.25 MHz respectively. 47. Satellite DARS applicants assert that Cracker Barrel's assumptions used to derive spectrum requirements do not include techniques to overcome multipath fading present in a mobile environment and do not adequately address the associated limitations on satellite power, weight, launcher capacity, international coordination, or system cost. CD Radio asserts that 12.5 MHz of bandwidth is necessary for its satellite DARS system to provide 33 channels of CD quality audio using a spatially diverse architecture, CDM, and 1/2 rate FEC, which is capable of operating at power flux-density levels that will make coordination with adjacent countries feasible. CD Radio indicates that it has changed to CDM to provide increased resilience to fading and noise. It concedes that, if it did not employ spatial diversity and instead used a single satellite, it would be possible to transmit approximately twice as many channels in a given amount of spectrum. However, CD Radio maintains that spatial diversity is key to providing high quality audio in a mobile environment. CD Radio contends that abandoning the use of spatial diversity would reduce sound quality, increase fading and blockage, and prove commercially unacceptable to its consumers. While the company notes that these problems could be addressed by increasing satellite power significantly, it points out that any such increase would only add to existing coordination difficulties with adjacent countries. 48. Primosphere maintains that, in the case of CDM technology, even though a signal is coded so that it can be selected from the other signals simultaneously sharing the channel, simultaneous channels can interfere with each other when orthogonality is lost. This sets an effective limit on the number of CDM channels that can occupy a given channel. DSBC asserts that reducing the bandwidth from 12.5 MHz to 10 MHz, or to 8.32 MHz as proposed by Cracker Barrel, while maintaining channel capacity would require greater received signal power (at least 40% more) since the primary coding for a 10 MHz system is much less robust in correcting errors than that found in a 12.5 MHz system. An increase in signal power would increase coordination difficulties with adjacent countries and add cost to satellite DARS receivers and space stations. 49. We conclude, based on the current record, that each DARS licensee will require at least 12.5 MHz to successfully implement an economically viable satellite DARS system. We believe that licensing less than 12.5 MHz would be insufficient to provide a critical mass of channels required for economic viability and could lead to significant power and cost constraints. We do not find the contrary assertions by NAB and Cracker Barrel persuasive. Moreover, the applicants' successful efforts to increase the spectrum efficiency of their proposals supports their estimate of 12.5 MHz as the minimum amount of spectrum needed. Comparing the channel and associated spectrum requirements of the applicants' original proposals with their existing comments, we calculate that, on average, the applicants have increased the number of channels they propose to provide by seven, despite an average decrease in proposed spectrum use of 14 MHz. The applicants' efforts to improve their spectrum efficiency should not be treated as a detriment. DARS applicants may participate in the WCS auction to acquire additional spectrum if they desire it. 50. While we recognize that further technological advances may result in even greater increases in spectrum efficiency, none of the commenters addressing this issue have demonstrated that they can provide a more spectrum efficient, economically viable, high quality DARS system in less than 12.5 MHz and using current state-of-the-art in satellite technology. The above discussion is indicative of the trade-offs between bandwidth and power that satellite DARS applicants have weighed in their choice of transmission schemes and technology. Because each satellite DARS licensee will be limited to a bandwidth of 12.5 MHz, the trade-offs between increased power and channel capacity is particularly critical to overall satellite system design. We will not attempt to impose our judgments in this regard on the satellite DARS licensees and we will allow licensees to use the technology, channelling plans, modulation schemes, and multiple entry techniques of their choice within their 12.5 MHz band segment. 3. International Coordination Obligations 51. Based on the recent legislation passed by Congress directing the Commission to reallocate and auction the 2305-2320 MHz and 2345-2360 MHz bands, we are licensing only the 2320-2345 MHz portion of the 2310-2360 satellite DARS band exclusively for satellite DARS. However, before satellite DARS service can be offered to the public, we will require satellite DARS licensees to complete detailed frequency coordination with existing operations in adjacent countries to prevent the potential for unacceptable interference. The goal of the coordination process is to reach agreement with affected users on an operating arrangement which harmonizes the use of the radio frequency spectrum. 52. In the Notice, we discussed potential issues that might arise during coordination of U.S. satellite DARS systems with existing operations in adjacent countries. Based on what we knew then about the relatively large number of fixed Canadian terrestrial stations licensed in the 2310-2320 MHz band, we tentatively concluded that the lowest 10 MHz in the 2310-2360 MHz band would be difficult to coordinate for satellite DARS. Indeed, one option in the Noticeproposed to license only spectrum above 2320 MHz for satellite DARS "[t]o alleviate the potentially difficult and lengthy coordination" posed by the presence of the nearly 200 Canadian terrestrial stations between 2310 and 2320 MHz. This option would seek to avoid requiring one satellite DARS licensee to be subject to coordination with a greater number of fixed terrestrial systems than other licensees. We requested comment on our tentative conclusion. 53. In the Notice we also observed that the upper portion of the 2310-2360 MHz band would likely present other potential obstacles to coordination with adjacent countries. For example, we cited a CD Radio study showing that Canada generally licenses its Mobile Aeronautical Telemetry (MAT) operations between 2350 and 2360 MHz. Despite the operation of MAT above 2350 MHz, however, certain of the satellite DARS applicants maintained that the uppermost spectrum in the DARS band should be assigned to the first licensee that met its milestone requirements. Based on this proposal, it appeared to us that the satellite DARS applicants did not expect sharing with MAT operations of adjacent countries to be an insurmountable hurdle. We requested specific comment on whether our different assessment was correct. Although the question of whether to reserve the entire S-band (2310- 2360 MHz) exclusively for satellite DARS has been determined by the recent Congressional legislation, discussed above, we discuss below terrestrial operations in the S-band that may affect future satellite DARS coordination. 54. We initiated formal negotiations with the Canadian Administration after release of our Notice. The Commission used the information from these recent meetings to re-assess the current operating environment in the 2310-2360 MHz band. In meetings with Canada following release of the Notice, International Bureau staff learned that the number of fixed terrestrial systems in the lower portion of the band has not changed significantly since we accepted satellite DARS applications for filing. However, Canada informed our staff that Canadian MAT systems are currently licensed and operating at frequencies throughout the S-band from 2329.25- 2390 MHz. Upon receipt of this new information from Canada, we forwarded it to the applicants and entered it into the public record so that the applicants' technical experts and others could provide comment. 55. The Fixed Service The applicants recognize that detailed coordination with foreign systems is unavoidable. Coordination between satellite DARS and Fixed Service systems (FS) is required because the power levels at which the applicants propose to operate their systems to achieve sufficient quality service in a mobile environment are higher than the thresholds levels which have triggered on-going bilateral coordination with adjacent countries. Detailed coordination would therefore be necessary with every FS station that is within the satellite DARS transmitting antenna gain contour unless the power levels of the proposed satellite DARS systems is reduced or measures are taken by the fixed terrestrial service to mitigate unacceptable interference from satellite DARS (e.g., re-pointing the receive antenna sufficiently away from the geostationary satellite orbit or upgrading receiver equipment). 56. According to the international allocation, adjacent countries are free to license additional fixed and mobile terrestrial systems on frequencies between 2300-2483.5 MHz. We have confirmed that Canada, alone, has licensed and will continue to license FS systems throughout the 2310-2360 MHz band. Currently, approximately 20% of the total number of systems licensed in Canada are above 2320 MHz. 57. Mobile Aeronautical Telemetry The threshold power levels necessary to protect foreign MAT systems are expected to be similar to the levels which the U.S. has established in the 1435-1525 MHz band (L-band) to safeguard its MAT systems. The U.S. quantified its need to protect its MAT systems from interference in the L-band in detailed studies which it presented to numerous International Telecommunication Union-Radiocommunication Sector Study Groups. These studies show that it would not be feasible for a satellite service to share with MAT on a co-coverage, co-frequency basis. Indeed, the U.S. has taken necessary steps to relocate its own S-band MAT operations to frequencies above 2360 MHz, recognizing that co- frequency, co-coverage operation of satellite DARS and MAT is not practical. Many of these U.S. MAT operations were relocated entirely from S-band to L-band. 58. We now know that some of the MAT assignments in Canada are used to control remotely piloted vehicles (RPVs) which require reception at the aircraft as well as at land based stations. In addition, some Canadian MAT systems are operating within a hundred miles of the U.S./Canada border, making them even more susceptible to interference from U.S. satellite DARS. Although five of the 12 MAT frequency assignments in Canada lie below 2345 MHz, we note that at least three of those assignments are repeated on center frequencies above 2345 MHz. This may indicate that there is some flexibility in the MAT operations that will help our coordination efforts in the 2320-2345 MHz band. 4. Pioneer's Preference Requests 59. In the Notice, we solicited comment on three pending requests for pioneer's preferences filed by CD Radio, DSBC, and Primosphere. No comments were filed on any of the satellite DARS pioneer's preference requests. On September 20, 1995, in compliance with new pioneer's preference rules, CD Radio, DSBC, and Primosphere each filed a supplement to their respective requests. 60. By letter dated August 30, 1996, the Commission's Office of Engineering and Technology and the International Bureau requested that a specially convened panel of four satellite technology experts ("Panel") review the three satellite DARS pioneer's preference requests and recommend to the Commission whether each of the requests should be granted. In a report dated November 18, 1996, the Panel unanimously recommended that no pioneer's preference be awarded. The Panel concluded that none of the applicants had demonstrated a seamless satellite DARS service and found that no award of a pioneer's preference could be justified on technical design grounds. On November 19, 1996, the Commission issued a Public Notice, requesting comments on the Panel report by December 3, 1996. 61. Following the release of the Panel's report, all three pioneer's preference applicants withdrew their requests. Accordingly, we do not consider whether to award any pioneer's preferences for satellite DARS. While we do not need to discuss the Panel's recommendations and report, we commend the members of the Panel for their remarkable dedication and hard work during the several weeks in which they volunteered their expertise. 5. Cut-off Issues 62. In light of the withdrawal of each request for pioneer's preference, and having determined that each DARS licensee will require 12.5 MHz, we must now determine whether to reopen the 25 MHz of spectrum that remains allocated primarily for satellite DARS to new applicants or allow only the existing applicants to resolve their mutually exclusive applications. Commenters urging reopening the cutoff for satellite DARS applications contend that it is necessary to ensure true competition and greater program diversity. Cracker Barrel, for example, asserts that it would be interested in filing an application advocating a different transmission technology that it claims will allow more operators in less spectrum. It states that because the cut-off was three years ago, the Commission cannot be sure it has the best proposals before it. It also claims that the satellite DARS proceeding was "out of order" because applications were accepted before service rules were established. Because of this situation, Cracker Barrel complains it did not learn of the licensing process until the June 1995 Notice and thus it missed the 1992 cut-off. Cracker Barrel argues that the Commission has discretion under the public interest standard to reopen a cut-off in a given proceeding. 63. Similarly, NAB asserts that technology has changed since the Commission opened and closed the application window for DARS. It states that licensing multiple applicants will bring more program diversity and more business capabilities to the service. It also argues that any equities favoring the current applicants do not justify preserving the cut-off. NAB, like Cracker Barrel, argues that the available spectrum can support additional operators. 64. Others, particularly the four current applicants, argue that the cut-off should stand. CD Radio asserts that reopening would be unlawful, inequitable, and unwise. It argues that cutoffs are reopened only in extraordinary circumstances that are absent here. CD Radio and AMRC also stress that reopening would ignore the equities favoring the current applicants, including the significant time and money invested to establish satellite DARS. Citizens for a Sound economy, a non-applicant, added that reopening the cut-off could discourage future research and development of new services by allowing new applicants a "free ride" on the current applicants' investments. 65. Primosphere argues that cut-offs are key to a successful satellite policy. They bring finality and certainty to satellite proceedings by limiting the universe of applicants, allowing them to prepare their cases against a limited set of opponents and expediting inherently complex and costly development of new services. Similarly, DSBC argues that reopening the cutoff would contravene decades of satellite procedure. It states: Unlike its process in other services, the Commission invites applicants for new satellite services to submit their applications prior to the adoption of the technical and operational rules and often prior to a final decision on the threshold question of whether proceeding to authorize any one in the service is in the public interest. The Commission repeatedly has concluded that the technical complexity and the extraordinary lead time required uniquely in the satellite services requires this previously unprecedented approach. The purpose of this approach, DSBC explains, is to guarantee long-term industry involvement in identifying the best use of spectrum and most efficient technology, thereby expediting new services. DSBC argues that satellite companies invest enormous amounts of time and money to develop new technologies and services, in reliance on the finality and certainty afforded by cutoffs and licensing rounds. Absent cutoffs, these parties would lack the incentive to risk the substantial resources required to develop and offer new satellite services to the public. 66. We agree with those commenters that assert that the Commission has authority to reopen cut-offs and that doing so in some circumstances has several important advantages, including allowing for new competitors to emerge. But we conclude that in this case, compelling policy reasons unique to satellite services militate against reopening the cut-off for satellite DARS license applications for the two licenses available. 67. Sound satellite licensing policy and precedent, and the equities of this particular proceeding support the use of cut-offs in here. In this satellite proceeding, as in others, applicants require some measure of certainty to justify the inherently long-term investment of resources required by complex and lengthy international allocation and coordination procedures that must be completed prior to inauguration of service. This unique feature of satellite services, combined with the need to most expeditiously provide new services to the public, outweigh any benefits that would accrue from accepting additional applications. Cut-off procedures provide a greater measure of certainty. Given these unique factors in licensing satellite services, the Commission regularly establishes cut-offs, accepts applications and creates processing groups before service rules are adopted or even before specific operating frequencies are established. We then rely heavily on the applicants to help develop service rules that allow them to share spectrum and expeditiously develop and deliver their new services to the public. We rely heavily on applicants to assist the U.S. in international fora to obtain spectrum allocations and we expect them to participate in the time consuming process of ITU notification and coordination. All of this activity requires significant expenditure of time and money by the applicants. Once we adopt rules, we permit applicants to amend their proposals to reflect compromises. This process expedites a complex and inherently risky venture, allowing license applicants to begin construction of their facilities immediately upon our grant of a license. The assertion by those opposing cut-offs that we do not accept applications before adopting service rules in other, very different types of services, does not justify reopening the cut-off in this satellite proceeding. 68. Reopening the cut-off in this case will not necessarily advance DARS technology. There is no reason to assume that applicants will implement outmoded technology or spend hundreds of millions of dollars to construct inefficient satellite systems. Furthermore, in any satellite service rulemaking proceeding, we always give pending applicants the opportunity to amend their applications to conform to the final rules. In reviewing applications for space station facilities, we require that proposals reflect "state-of-the-art" technology at the time of license grant. In fact, CD Radio had amended its application substantially since 1990 and will have the opportunity to do so again to reflect the adopted rules. Although Cracker Barrel claims that its proposal could use less spectrum than that proposed by CD Radio, we conclude, as discussed previously, that its proposal would not accommodate certain innovations such as spatial diversity. 69. Since CD Radio filed its original application in 1990, steps to implement the service have been well publicized. Both the government and the private sector worked to identify appropriate spectrum for satellite DARS at WARC- 92. Shortly after WARC-92, the Commission announced its intention to allocate spectrum domestically and to accept applications for operations in the S-band to be considered in conjunction with CD Radio's. Since 1992, only one entity, Cracker Barrel, has indicated interest in filing an application to provide satellite DARS. 70. Neither Cracker Barrel nor other commenters have presented compelling arguments to justify reopening the previously established cut-off for satellite DARS license applications. No commenter advocating reopening has shown any persuasive reason to depart from our satellite cut-off policy and precedent. 71. Consistent with our conclusion not to reopen the cut-off in this proceeding, we note that existing Commission rules preclude satellite DARS applicants from effecting a substantial change in beneficial ownership if they want to maintain their pre-cut-off status. Section 25.116 of the rules provides that any amended application substantially changing an applicant's ownership will be considered a newly filed application and thus would not fall within cut-off protection unless the applicant requests and is granted an exemption by the Commission. 6. Specific Frequency Assignments and Satellite DARS Competition 72. We proposed in our Notice to authorize specific satellite DARS frequency assignments upon grant of satellite DARS authorizations to begin construction. There were mixed reactions to our approach. Primosphere, asserts that the Commission should initiate international coordination in conjunction with all licensed satellite DARS systems and should assign specific frequency blocks following the conclusion of this coordination. DSBC proposes to permit licensees to select the frequency band it would like to employ at the time it certifies it has met the first milestone. This is similar to CD Radio's initial proposal that each licensee notify the Commission of the specific frequency assignment it is using at the same time it certifies to the Commission it has met the milestone and launched its first spacecraft. These alternative methods have one commonality; the exclusive frequency assignment for each satellite DARS licensee will not be known before and during the early stages of the coordination process. Indeed, it was necessary to initiate the coordination process with the ITU for each current satellite DARS system as though each system would operate over the entire 2310-2360 MHz band. Until specific frequency assignments are issued, coordination with adjacent countries for each satellite DARS system is burdensome for both the Commission and the licensees. 73. As discussed above, there is sufficient spectrum in the S-band to license only two satellite DARS systems. Dividing the available 25 MHz of spectrum into four equal segments among the four applicants would result in exclusive frequency assignments of only 6.25 MHz for each satellite DARS applicant. Because we have found that a viable and competitive satellite DARS service will require 12.5 MHz, we can license only two systems. The 2320-2345 MHz band that will remain allocated for satellite DARS will be divided into two equal 12.5 MHz segments (2320-2332.5 MHz and 2332.5-2345 MHz). We will award the two licenses for satellite DARS by using competitive bidding to resolve mutual exclusivity. Satellite DARS applicants that are winning bidders will have 30 days following the conclusion of the auction in which to amend their applications to conform with the satellite DARS service rules adopted today. 74. Using the calculation methods provided in the comments, the satellite DARS licensees will be able to provide 19 to 44 channels of CD quality audio per system in the authorized 12.5 MHz of spectrum. Sufficient spectrum is available for two spatially diverse systems. Although we decide not to reopen the processing round for satellite DARS, we are not by our action today excluding all other potential DARS providers. Indeed, it may be possible to lease channels or purchase advertising time from the licensed satellite DARS providers. 75. CD Radio had proposed that satellite DARS system operators be permitted temporarily to occupy frequency assignments other than their own, provided that their transmissions can be reconfigured to return to and thereafter use only their own frequency assignment upon launch of the satellite operated by the licensee assigned to the temporary frequency. DSBC objected to this proposal, arguing that while temporary use by the first operator(s) might avoid having frequencies lie fallow for a short time, prescribing temporary use may be disruptive and contrary to the public interest. It asserted that the temporary operator could be faced with reducing its services, discontinuing its service to its customers, or seeking to utilize frequencies that are rightfully assigned to another licensee once the temporary spectrum is no longer available for use. Primosphere, supports CD Radio's original proposal to authorize interim frequency assignments. 76. Upon review of the record, we have decided not to authorize interim operations. We have concluded that 12.5 MHz is necessary to implement a viable satellite DARS service. Nothing in the comments indicates that additional spectrum, or an interim assignment, is necessary to implement a viable system. Conversely, we find that an interim assignment could be disruptive and contrary to public interest because of possible service interruption or reduction. We therefore adopt our original proposal not to authorize interim frequency assignments. 77. Although spectrum constraints limit us to licensing just two satellite DARS systems at this time, our licensing approach nonetheless provides the opportunity for a competitive DARS service. Our goal is to create as competitive a market structure as possible, while permitting each DARS provider to offer sufficient channels for a viable service. In the Notice, we pointed out that "satellite DARS will face competition from terrestrial radio services, CD players in automobiles and homes, and audio services delivered as part of cable and satellite services," and asked whether these delivery media, coupled with fewer than four DARS providers, could ensure an effectively competitive audio services market. 78. Other audio delivery media are not, of course, perfect substitutes for satellite DARS. These media and satellite DARS all differ with respect to the programming menu (terrestrial radio can provide local programming and satellite DARS cannot), the sound quality, the cost of equipment, and the presence or absence of a subscription fee, but they all can provide music. The availability of these media, terrestrial radio in particular, varies across populated areas. Given our conclusion that satellite DARS can provide new and valuable service to the public, and given the overall competitive environment within which it will operate, we are satisfied that licensing two satellite DARS providers will serve the public interest. We agree with commenters, that there should be more than one satellite DARS license awarded. Licensing at least two service providers will help ensure that subscription rates are competitive as well as provide for a diversity of programming voices. The two DARS licensees will compete against each other for satellite DARS customers and will face additional competitive pressure from the other aural delivery media mentioned above. Accordingly, eligible auction participants may acquire only one of the two licenses being auctioned. One license will be for the use of spectrum between 2320 and 2332.5 MHz and the other for 2332.5 though 2345 MHz. 7. Licensing Conditions 79. Satellite DARS licensees' authority to operate will be conditioned upon completion of their international coordination obligations. As discussed above, and as we indicated in the Notice, both Canada and Mexico have allocated the 1452-1492 MHz frequency band (L-band) for DARS. Since U.S. satellite DARS systems will operate exclusively in the 2320-2345 MHz frequency band (S-band), coordination between U.S. satellite DARS and Digital Audio Broadcasting systems of adjacent countries is not necessary. We indicated in our Noticethat the L-band is used extensively for U.S. Government and commercial mobile aeronautical telemetry operations. Coordination between Canadian terrestrial DARS and U.S. mobile aeronautical telemetry systems at L-band has proven to be challenging. 80. Adjacent countries do, as discussed above, operate terrestrial fixed point-to- point, fixed point-to-multipoint, and mobile aeronautical telemetry systems throughout the S- band. U.S. satellite DARS systems will be required to coordinate with these terrestrial systems currently operating in the 2320-2345 MHz band. Satellite DARS licensees must submit appropriate Appendix 3 material according to the International Radio Regulations to formally complete the international coordination process. This Appendix 3 material will contain the final configurations of the satellite DARS systems. C. Service Rules for Satellite DARS in the 2320-2345 MHz Band 1. Classification of Service 81. In the Notice, the Commission sought comment on whether satellite DARS licensees should have the flexibility to determine their own regulatory classification depending on the service they are providing or whether there are reasons to justify mandating a particular type of service. We tentatively concluded that there was no reason to require that satellite DARS providers be licensed as common carriers or as broadcasters. We raised a related question, pursuant to a suggestion by the NAB, whether we should require that all licensees offer subscription service and asked for comment on the legal, policy and practical implications of such a requirement. 82. Commenters addressing these questions fall into two general groups. Those supporting implementation of satellite DARS, including the incumbent applicants, advocate that licensees be permitted to determine their own regulatory classification in order to tailor services to meet customer requirements and to respond to market demands. These commenters also emphasize the extremely high costs of constructing and launching a satellite system and state that licensees cannot afford to be restricted to purely subscription service. They state that they must be allowed to choose their own mix of subscription and advertising. One commenter suggests that satellite DARS licensees be limited to national advertising and be prohibited from accepting local or regional ads. Media Access Project argues that satellite DARS should be classified as broadcasting because the providers use public spectrum and thus should be subject to public interest requirements. 83. Commenters opposing satellite DARS argue that the service should be required to operate on a subscription only basis. NAB, for example, states that although satellite DARS would not be common carriage or broadcasting, providers should be required to restrict their service to subscription offerings in order to lessen the potential adverse impact on terrestrial broadcasters. NAB recognizes that DBS operators have been given the option to offer service as a broadcaster or by subscription but argues that treating satellite DARS like DBS in this regard is not warranted because the services operate in different competitive markets, with DBS subject to much more competition and not able to affect broadcasters as significantly as DARS. 84. The record supports a conclusion that satellite DARS licensees should be able to tailor their services to meet customer needs and that mandating a particular regulatory classification is unwarranted. There is no compelling evidence in the record that would militate in favor of requiring a broadcast classification and in fact it appears that the current applicants favor subscription service. Nor does satellite DARS appear to be a common carrier service because much of the programming offered would be subject to the editorial control of the provider. The services proposed by three of the applicants will be neither broadcast or common carrier. Flexibility for licensees to meet market demands is crucial and it may be that the viability of a satellite DARS service will depend on offering a mix of advertiser supported and subscription service. We find that a requirement that satellite DARS be entirely subscription is unwarranted. Mandating that providers charge for their services is not in the public interest and raises significant legal questions if done for the purpose of economic protectionism as advocated by several commenters. 2. Public Interest Obligations 85. The Commission's Notice requested comment on a wide variety of questions regarding the advisability of public interest obligations in the context of this service. We asked, for example, if all satellite DARS providers, including those not operating as broadcasters, should be subject to similar requirements. We solicited comment on the Commission's authority to impose such obligations on non-broadcasters. We requested information on the cost of complying with public interest obligations, and on whether the costs could be so significant as to hamper implementation of the service. Finally, we asked about the types of obligations that apply to terrestrial broadcasters, which offerings would not be included by service providers in an unregulated environment, and whether these requirements increased or decreased profitability. 86. Commenters were divided on whether the Commission should adopt public interest programming obligations for satellite DARS providers. In general, pending satellite DARS applicants proposing non-broadcast service cautioned against imposing obligations. For example, DSBC states that public interest programming obligations are not necessary to ensure diverse public oriented programming. It asserts that the economic and distribution structure of satellite DARS makes it good business to offer programming that regular broadcasters would not offer absent incentives. AMRC also expresses concern that many of the suggested service rules would not result in better service to the public but instead would make service impossible. Primosphere, the only applicant clearly proposing to operate as a broadcaster, states the Commission should strike a balance between ensuring that the public interest is served and assuring that timely introduction of service is not impeded. A non- applicant states that the Commission is not in a position to determine which services should be offered in light of rapidly changing technology and potential consumer services. Although arguing against mandatory offerings, many of the current applicants state that they plan to include public interest programming in their services. 87. Media Access Project ("MAP") urges that the Commission classify satellite DARS as broadcasting to trigger defined statutory public service obligations. In the absence of such a classification, MAP argues that broadcasters' obligations are appropriate. NAB states that imposing public interest obligations on DARS providers will, to some extent, compensate for the loss in local programming that it claims will inevitably result from implementing the service. Individual broadcasters assert that DARS providers will not keep their promises to provide niche programming but instead will offer mainstream services that will compete directly with terrestrial offerings. 88. In response to our request for proposals for possible public service rules, NAB suggested that satellite DARS licensees be held to a "promises v. performance" standard, similar to that formerly required of terrestrial broadcasters. Under this concept, operators would provide the Commission with a list of programming they propose to offer and to specifically describe ethnic or niche offerings included. They would then be subject to a periodic public interest review to determine if they have made good on their promises and to justify any substantial variations from their proposals. 89. Bonneville International Corp., a company holding broadcast licenses, advocates requiring that music programmed channels carry news, information, public service announcements and public service programming. Several commenters urge that satellite DARS providers be required to comply with Equal Employment Opportunity requirements. National Public Radio advocates either a specific reservation of channel capacity for noncommercial or educational programming or a commitment to provide a minimum amount of educational cultural, and informational programming to unserved or underserved areas. The suggestion is supported by the Minority Media and Telecommunications Council which states that satellite DARS licensees should be required to set aside channels for noncommercial public access and for minority entrepreneurial access. One commenter, a terrestrial radio station operator advocated that satellite DARS meet certain requirements for each different programming signal offered and for each different community served. NAB points out that there are certain types of local public interest programming that a national service like satellite DARS can neither provide nor replace. Entertainment Communications advocates a requirement that satellite DARS licensees serve "niche" audiences. 90. As explained above, in allocating spectrum and adopting service rules for the satellite DARS service, we have relied on the representations of satellite DARS applicants that they will provide audio programming to audiences that may be unserved or underserved by currently available audio programming. Thus, applicants have proposed new choices in audio programming which may be beneficial for the mobile public and for unserved and underserved communities, particularly in rural or remote areas. We also have considered whether it is appropriate to apply to DARS public interest requirements similar or analogous to those that govern terrestrial radio broadcasters. 91. With regard to non-programming obligations, we conclude that satellite DARS licensees must comply with the Commission's equal employment opportunity requirements. The rationale behind these requirements is a belief that a licensee can better fulfill the needs of the community, whether local or national, if it makes an effort to hire a diverse staff, including minorities and women. This rationale applies with equal force to satellite DARS. We note that no commenters opposed the imposition of EEO requirements. The Commission has a pending rulemaking proposing revision to its EEO rules. Licensees in this service will be required to comply with the current rule and with any changes adopted when the rulemaking is completed. 92. With regard to programming obligations, we agree with some of the commenters that satellite DARS service is likely to provide a new forum for political debate in this country. To ensure that there is fair treatment of federal political candidates that may seek to use this new forum, we believe that satellite DARS licensees, whether they operate on a broadcast or subscription basis, should comply with the same substantive political debate provisions as broadcasters. These provisions are the federal candidate access provision, Section 312(a)(7), and the equal opportunities provision, Section 315. As the Supreme Court stated in upholding Section 312(a)(7) against constitutional attack, these political broadcast provisions "make a significant contribution to freedom of expression by enhancing the ability of candidates to present, and the public to receive, information necessary for the effective operation of the democratic process." 93. While we are not adopting additional public interest programming obligations at this time, we reserve the right to do so. Licensees are specifically on notice that the Commission may adopt public interest requirements at a later date. If additional public interest obligations are found to be warranted, one option would be to adopt rules similar to those Congress enacted for DBS providers, including a 4-7% set-aside of capacity for noncommercial educational and informational programming. Another option would be to hold satellite DARS licensees to a `promise vs. performance' standard. 3. Ancillary Services 94. In the Notice, we discussed the possibility of satellite DARS providers offering non-DARS, or ancillary, services. We sought comment on what restrictions, if any, should apply to such services and on how to monitor compliance with any restrictions. In response, commenters favored allowing provision of ancillary services. Current satellite DARS applicants urged that the Commission allow flexibility to provide such services. Other commenters stated that allowing ancillary services will promote full and efficient use of the spectrum and could lower the price of DARS service, particularly in the early stages as satellite DARS is established. 95. Some commenters suggested particular services that would be complementary. For example, Ford Motor Co. suggested allowing data services. Radio Order Corp. urges us to allow song related voice messaging that would permit the listener to access information on a particular song during the uninterrupted music. The USDA/Forest Service National Weather Program suggests that satellite DARS providers could dedicate a channel to broadcasting potentially life-saving forest fire and emergency information. 96. The applicants have proposed a mix of ancillary services. We agree with the commenters who argue that allowing flexibility consistent with the allocation will allow providers to tailor service offerings to meet consumer needs. Because the United States successfully obtained an international allocation for satellite DARS at WARC-92, we would be concerned about any use of the spectrum that is inconsistent with the international allocation. 4. Technical Qualifications Service Area 97. The Notice contained no specific proposal for satellite DARS service area requirements. It did, however, ask whether to require satellite DARS systems to provide 50-state coverage or 50-state plus Puerto Rico/Virgin Islands coverage, as we do in the fixed-satellite service. We noted that two satellite DARS applications propose service solely to the 48 contiguous states of the United States (CONUS). Two other applicants propose coverage of the CONUS, Alaska, Hawaii, Puerto Rico and the Virgin Islands. 98. CD Radio and Primosphere assert that the Commission should not mandate that first generation satellite DARS systems provide service beyond the CONUS. Primosphere adds that requiring full 50-state coverage would require the use of satellite spot beams and additional spacecraft power. Primosphere also noted that most 12-14 GHz (Ku-band) and DBS licensees provide CONUS only coverage. CD Radio asserted that the service area is market- driven and that other applicants propose to serve Alaska, Hawaii, Puerto Rico, and the Virgin Islands CD Radio indicates also that its second generation design will include an expanded service area. 99. One benefit of a satellite system is its ability to provide nation-wide service. We recognize that 50-state coverage is not mandatory for all satellite services and a service area requirement beyond full CONUS coverage may not be practical for first generation satellite DARS systems. All of the pending applications for satellite DARS propose at least full CONUS coverage, however, and there appears to be support for such a minimum requirement. Accordingly, we conclude that satellite DARS licensees' systems must provide, at a minimum, full CONUS coverage. We strongly encourage coverage to other areas or territories of the United States where practical to do so for first generation systems. Service Link Margin 100. A concern identified in the Notice was that satellite DARS signals be available to listeners, especially mobile ones, at every location nationwide. We noted the service link margin is related to the percentage of service availability. We also noted that there was significant comment on the pending satellite DARS applications which questioned the appropriate service link margin necessary for reception in a mobile environment. We therefore proposed in our Notice that satellite DARS applicants be required to identify the service link margin for their systems and demonstrate that their systems are capable of providing that service link margin in a mobile environment, under clear sky conditions, to the geographic areas they will serve. We also sought comment on whether a specific value should be used to define an adequate service link margin for the specified service areas in urban and suburban environments and, if so, what that value is and analysis to support that value. Technical analyses were not included in initial comments to demonstrate that a particular service link margin would be necessary for mobile reception in urban and suburban environments. 101. Pending applicants assert that satellite DARS operators will have an incentive to provide sufficient margin to deliver the highest quality audio and still permit low-cost manufacture of receiver equipment. Noting also that the amount of service link margin chosen by satellite operators is affected by a variety of factors, such as use of modulation and access techniques, satellite diversity, transmission schemes, intended audience, and use of terrestrial repeaters, it would be difficult for satellite operators to define one specific value that should be used. We therefore will not require that satellite DARS licensees be capable of providing a specific value of service link margin for a given geographic area and we withdraw our proposal regarding service link margin. We will only require satellite DARS applicants to provide the information on their service link budgets that is already required by Section 25.114(c)(9) of our rules. Receiver Inter-operability 102. In general, it is our policy to avoid mandating the use of one form of technology. We conclude it is appropriate to follow that policy here because it will allow flexibility for satellite DARS licensees in designing their satellite DARS systems, and will promote innovative system designs. Indeed, in the Notice, we proposed to allow licensees to use the channelling plans, modulation schemes and multiple entry techniques of their choice. One of the underlying reasons for proposing a band segment approach to licensing the satellite DARS spectrum was to avoid imposing complex sharing arrangements among satellite DARS licensees that may result due to the diversity in the proposed satellite DARS designs. The diverse modulation and channelling techniques proposed in the pending satellite DARS applications, however, led us to seek comment in the Notice on the issue of receiver inter-operability and standards for satellite and terrestrial DARS. 103. We indicated our concern that licensing diverse satellite DARS systems could increase the cost of manufacturing a receiver that is compatible with all competing satellite DARS technologies and terrestrial formats. We therefore proposed that each applicant demonstrate that its satellite DARS system is capable of remotely tuning its individual mobile, fixed, and/or portable receivers across the allocated bandwidth 2310-2360 MHz. This rule would have been necessary if we were to license more than one band segment to a particular satellite DARS licensee, (whether as an interim assignment or in the event that a license is dismissed and the spectrum is re-divided pro-rata) but in view of our conclusion to license only two satellite DARS systems through competitive bidding, and not to permit interim frequency assignments, such a provision is no longer required. We adopt, however, the principle behind our proposed rule that satellite DARS licensees are required to design a receiver which would accommodate all satellite DARS providers. By promoting receiver inter-operability for satellite DARS, we are encouraging consumer investment in satellite DARS equipment and creating the economies of scale necessary to make satellite DARS receiving equipment affordable. This rule also will promote competition by reducing transaction costs and enhancing consumers' ability to switch between competing DARS providers. We decline to adopt a specific standard for satellite DARS receiver designs, though. This will allow licensees the flexibility to determine the most cost effective way to meet our receiver-interoperability requirements. We do not mandate that satellite DARS receivers be capable of receiving terrestrial broadcasting formats. Terrestrial and satellite DARS are at different developmental stages and we do not want to impede implementation of either service. 104. Parties contend that Commission adoption of a single, industry-developed transmission standard for satellite DARS will keep receiver costs down, minimize design complexity, and encourage competition in the marketing of receivers. The Electronic Industry Association (EIA) maintains further that satellite DARS receivers should be designed so that consumers can seamlessly switch between satellite and terrestrial based DARS systems. 105. Satellite DARS applicants share different views regarding the Commission's role in the process of receiver development. CD Radio asserts that receiver inter-operability is in the clear economic interests of all satellite DARS providers and it expects that its receiver will be fully tunable in the sense that the consumer can select the service provider of their choice. AMRC contends that creation of a common receiver capable of tuning in the entire DARS band is important in promoting consumer acceptance of the technology. Given the market incentive for receiver compatibility, DSBC asserts that it is likely that a compatible receiver standard for satellite DARS will be developed without regulatory intervention. Primosphere adds that it is committed to working with the appropriate industry organizations to develop a common receiver standard and therefore Commission action is not necessary. In a related matter, CD Radio seeks confirmation from the Commission that consumers may rely on the authorization of a satellite DARS provider and need not obtain any additional license or registration for receive- only earth stations used to obtain the service. 106. As an alternative to this Commission mandating standards we will require that a satellite DARS applicant, in its application, certify that its satellite DARS system will include a receiver design that will permit users to access all licensed DARS systems that are operational or under construction. Satellite DARS licensees, during the construction of their satellite systems, will have an opportunity to work among themselves toward a final receiver design. We agree with commenters that it is in the interest of the satellite DARS licensees, and consumers, for the licensees to come to agreement on a single DARS receiver design. We also agree with commenters that, alternatively, a single transmission standard would be in the interest of the satellite DARS providers and consumers, independent of whether it is developed by the Commission or by industry, but we will not mandate use of a certain technology. If satellite DARS licensees redesign their systems to use conforming transmission technology, receiver complexity would be minimized and receiver costs would be lowered correspondingly. We believe that, at the very least, consumers should be able to access the services from all licensed satellite DARS systems and our rule on receiver inter-operability accomplishes this. We also agree with CD Radio that it is unnecessary for satellite DARS consumers to file for a license for their receive-only terminals. Indeed, the Commission has not licensed receive-only earth stations for years in an effort to deregulate such operations. 107. Terrestrial broadcast and satellite DARS services are at different stages of development, however, and we do not intend to add delay to the progress of the satellite service with further regulatory intervention by requiring that receivers be tunable to terrestrial broadcast signals. Testing and evaluation of proposed digital audio radio technologies has been on-going since 1991. We urge satellite DARS licensees to take this information into account before they finalize their system and receiver designs. The comments indicate that satellite DARS licensees will continue to participate in the industry groups related to their service and we have good reason to believe that this is sufficient to facilitate the design of a state-of-the-art satellite DARS receiver. Data Compression Rates 108. The applicants propose various coding rates to produce near compact disc (CD) quality audio. Some applicants propose to use variable data rates to transmit a mix of audio formats where the bandwidth necessary to produce one CD quality channel, for example, would be used to provide several high quality channels at data rates which are lower than those necessary to produce CD quality. We tentatively concluded that the use of variable data rates would promote efficient use of the spectrum and that satellite DARS licensees should be permitted to implement a mix of programming formats at variable data rates. We reflected this in our proposal to require satellite DARS licensees to identify which coding scheme and coding rate(s) they plan to implement on their satellite DARS systems and require those satellite DARS systems which intend to offer audio formats other than CD quality to be capable of transmitting lower quality audio at lower data rates. We proposed to refrain from requiring a particular level of audio quality or other quality for satellite DARS and we sought comment on our tentative conclusions. We adopt, today, a rule that is consistent with our proposal for variable data rates. 109. Comments generally support the Commission proposal to allow use of variable data rates depending on the programming being offered and not to define a particular level of quality for DARS based on data rates. CD Radio asserts that satellite DARS licensees should be permitted to rely on market preferences to determine the data rates to use for particular formats and to determine the quality of the service. AMRC agrees with the Commission proposal because it intends to include some non-CD quality channels in its system. In this respect, CD Radio proposed a modification to our original proposal that would require a satellite DARS applicant to identify the compression rate it will use to transmit audio programming whether CD or other quality. We adopt this proposal and extend it to require licensees to identify the compression rates used for non-audio formats. 5. Milestone Qualifications and Reporting Requirements 110. In the Notice, we proposed to adopt financial qualifications and milestone requirements for satellite DARS licensees. Because of our decision to auction licenses, financial qualifications are unnecessary. However, we believe that strict adherence to satellite construction and operational milestones will assure that licensees are proceeding with their proposals and spectrum is used efficiently. Because of the long lead time necessary for satellite construction, we proposed that satellite DARS licensees begin construction of their space stations within one year, launch and begin operating their first satellite within four years, and begin operating their entire system within six years. We also proposed that licensees file annual reports on the status of their systems. The current applicants support the rules proposed in the Notice. Accordingly, we adopt the requirements as proposed. 6. License Term 111. In the Notice, we proposed that licenses for satellite DARS space segment facilities would be issued for ten years. We also noted that licensees choosing to operate as broadcasters would be limited by statute to a shorter term. Adoption of our original proposal would place DARS licensees that choose to be broadcasters at a disadvantage by giving them a shorter term. In addition, two different terms could cause confusion if an operator decided to change the mix of services it offered and might hamper the flexibility we intended that licensees should have in choosing formats. Accordingly, because the Communications Act limits broadcast license terms to eight years, we have determined that all satellite DARS license terms should be eight years. The license term will commence when each satellite is launched and put into operation. In addition, as proposed in the Notice, individual satellite DARS receivers will not be licensed. 7. Technical Rules 112. As one of the pending satellite DARS applicants indicates, satellite systems are a collection of technical trade-offs between satellite power, number of channels, data rates, service link margin and bandwidth. Therefore, the greater the flexibility in our technical rules, the greater the flexibility satellite DARS licensees will have in designing their systems in such a way as to meet their business plans and marketing goals. The technical rules adopted today will offer satellite DARS licensees sufficient flexibility to make necessary trade-offs and to implement systems that are viable and competitive. Power Flux-Density Limits 113. We proposed in the Notice not to apply power flux-density (pfd) limits on satellite DARS networks and we believe the record supports our tentative decision. While initially CD Radio maintained that coordination of satellite DARS systems with adjacent countries would be facilitated if all systems were required to meet a pfd level at the Earth's surface of -139 dB(W/m2/4 kHz), CD Radio now contends that it is not necessary for the Commission to re-open the issue of required pfd limits since it will be part of the coordination process. Others agree. DSBC, for instance, maintains that experience has shown that the flexibility in the international coordination process is far superior to the rigidity of pfd limits. Accordingly, Satellite DARS licenses will be conditioned on the completion of international coordination with adjacent countries. 114. It is clear that each satellite DARS licensee will need to operate its satellite(s) at a pfd level that is high enough to provide sufficient service availability and yet low enough to coordinate with terrestrial services in adjacent countries. Coordination with adjacent countries becomes an important issue because the pfd values characteristic of proposed satellite DARS systems exceed the threshold levels that have been identified by foreign administrations to protect their existing terrestrial services. Our discussion of coordination, above, provides satellite DARS applicants with a detailed understanding of the coordination issues in the 2320- 2345 MHz band. The applicants are in a better position than the Commission to make necessary power trade-offs to implement their satellite DARS systems. Moreover, since we are licensing satellite DARS providers in two separate frequency assignments, the failure of one licensee to complete coordination with adjacent countries in a timely fashion will not delay the coordination of the other licensee's system. In light of the above, we believe that adoption of a specific pfd limit is unnecessary. Satellite DARS applicants are reminded, however, that they are required to identify in their modified satellite DARS system applications the pfd at the Earth's surface from their spacecraft according to Section 25.114 (c)(11) of the Commission's rules. Out-of-Band Emissions 115. Satellite licensees are required to suppress out-of-band and spurious emissions from their space stations to the levels specified in Section 25.202(f) of the Commission's Rules. We indicated in the Notice that techniques such as spectral shaping, coding, offset quadraphase modulation and filtering, would be useful in mitigating out-of-band emissions. We sought comment, however, on whether the out-of-band emission limits in Section 25.202(f) would be sufficient to protect radiocommunication services in bands adjacent to the 2310-2360 MHz band, particularly deep space operations below 2310 MHz and U.S. MAT operations above 2360 MHz. 116. Cornell University asserts in its comments that the Arecibo Observatory in Puerto Rico, which it operates for the National Science Foundation in the 2370-2390 MHz band, would require greater protection from satellite DARS than that which is currently required by Section 25.202(f). Specifically, Cornell requests that, as a minimum, the Commission require the out- of-band emission limits of Section 25.202(f)(3) for satellite DARS emissions beyond the 2370 MHz band edge. It requests that a rule for spurious emissions, consistent with those being considered by ITU-R Task Group 1/3 be applied to satellite DARS as well. This would require an additional 9 dB of attenuation below the out-of-band emission limits required by Section 25.202(f). 117. Cornell's calculations assume that a satellite DARS licensee will be authorized to operate at a center frequency of 2355 MHz with a bandwidth of 8 MHz. Considering that satellite DARS systems will be licensed below 2345 MHz, and that we are not requiring the provision of satellite DARS to Puerto Rico and the Virgin Islands, which offers further protection to the Arecibo Observatory, attenuation of out-of-band emissions beyond the limits already required by Section 25.202(f) may not be necessary. It would be premature for the Commission to require satellite DARS licensees to meet the spurious emission limits which are currently in place as "design guidelines" and which may be reviewed again by ITU-R Study Groups. The TG 1/3 Recommendation that Cornell cites in its comments is a draft Recommendation and the issue of spurious emissions will not be finalized until the 1999 international Radiocommunication Assembly. 118. We therefore will only require satellite DARS licensees to meet out-of-band and spurious emission limits which are contained in Section 25.202(f) of our Rules. Satellite DARS licensees should, however, take cognizance of the TG 1/3 "design guidelines" and the Arecibo deep space operations in the 2370-2390 MHz when designing, constructing and operating their space stations. In a related matter, the pending satellite DARS applicants assert that they can each operate without causing harmful interference to one another. Since the pending satellite DARS applicants propose a band segment licensing approach, we presume that the out-of-band emission limits of Section 25.202(f) would provide for interference-free, intra-service satellite DARS operation. The issue of out-of-band emission limits to protect satellite DARS receivers is addressed in the Wireless Communication Services proceeding. Telemetry Beacons 119. We sought comment in the Notice on a suitable location for satellite DARS telemetry beacons. We proposed in the Notice that each system operator reduce its bandwidth occupancy by 0.1 MHz to create two 0.2 MHz assignments adjacent to the edges of the satellite DARS band for location of telemetry beacons. We also proposed an alternative location for all satellite DARS telemetry beacons at the lower edge of the 2310-2360 MHz band, considering our tentative conclusion not to immediately license the lower 10 MHz for satellite DARS. Our alternative proposal would put fewer constraints on the satellite DARS licensees (i.e., they would no longer have to reduce their bandwidth occupancy to accommodate telemetry beacons), but we indicated that further constraints would be placed on any future licensee of the lower portion of the band. We requested comment on our proposals for satellite DARS telemetry beacons and we requested comment on alternative locations. 120. In its comments, DSBC suggests that, alternatively, the 3697-3699 MHz band would be suitable for satellite DARS telemetry beacons. It contends that the 3697-3699 MHz band could readily be coordinated for satellite DARS telemetry beacons thereby retaining the total DARS band for service links. CD Radio, in its comments, proposes a modification to the satellite DARS telemetry beacon proposal in the Notice. According to CD Radio's proposal, satellite DARS licensees may reduce their assigned bandwidth occupancy to provide telemetry beacons. No other alternatives were identified for the location of satellite DARS telemetry beacons. 121. We adopt our original proposal to locate telemetry beacons for satellite DARS in the satellite DARS band, with minor modification. No parties supported the proposal made by DSBC. Further, DSBC provided no supporting information in its comments to assess the impact of satellite DARS telemetry beacons in the 3697-3699 MHz band on the Radiolocation and Aeronautical Radionavigation users of the band. DSBC indicates that Intelsat and Inmarsat and numerous other non-U.S. satellite systems make use of all or large portions of this band. These satellite systems, however, are not located in the geostationary orbit between 80 and 110 W.L., where the satellite DARS applicants propose to locate their satellites. CD Radio, on the other hand, supports the operation of satellite DARS telemetry beacons within the satellite DARS service link spectrum. CD Radio's proposal is more flexible than the proposal in our Noticebecause it does not mandate an amount of spectrum by which each satellite DARS licensee must reduce its bandwidth to accommodate telemetry beacons (i.e., 0.1 MHz). We therefore modify our original proposal to require satellite DARS licensees to accommodate telemetry beacons for their systems within their exclusively licensed bandwidth but allow each licensee the flexibility to determine the appropriate amount of spectrum necessary for its telemetry beacons. Cross Polarization 122. Cross polarized signals are orthogonal signals as seen by the receiver. This technique is used extensively in the fixed-satellite service because it facilitates reuse of frequencies to accommodate multiple signals, thereby promoting efficient use of the spectrum. In the Notice we indicated that the record was insufficient for us to analyze the benefits of potential capacity increases, if any, that may result from use of cross-polarized transmissions for satellite DARS. We proposed, however, that satellite DARS licensees be permitted to reach agreement with other satellite DARS licensees to transmit on cross polarized frequencies in frequency assignments of other licensees. The parties who reach such agreements would be required to apply to the Commission for approval of the agreement. Commission approval would be conditioned on the outcome of coordination with other administrations. 123. The satellite DARS applicants generally support this proposal. CD Radio asserts that a licensee should at least be permitted to transmit cross-polarized signals within its own frequency assignment. AMRC contends that the use of cross polarization techniques is still untested in the S-band and the availability of such techniques for DARS licensees should not be assumed. However, to the extent that cross polarization techniques become feasible, the Commission should allow its use to expand program offerings. We believe that our proposed rule for cross polarization leaves open the possibility for satellite DARS operators to use this technique, when proven feasible, to meet future market demands for their service. We received no comment in opposition to our proposal for use of cross-polarized frequencies and we adopt our original proposal, without modification. D. Modification of Part 87 124. In our Notice we indicated that modification to Part 87 of our rules (Aviation Services) would be consequential to the licensing of satellite DARS systems in the 2310-2360 MHz band. We recognized that the mobile and radiolocation services are currently allocated on a primary basis in the 2310-2360 MHz band until January 1, 1997 or until the first broadcasting- satellite (sound) system is operating and affecting or be affected by the mobile and radiolocation services in those service areas, whichever date is later. Further, our Allocation Order warned that the BSS(sound) and complementary terrestrial broadcasting service, during their implementation, should take cognizance of the expendable and reusable launch vehicle frequencies 2312.5, 2332.5 and 2352.5 MHz to minimize the impact on this mobile service use to the extent possible. 125. We proposed modification of Section 87.303, in Appendix II of our Notice, to align Part 87 with Parts 2 and 25 of our Rules. We recommended authorization of new primary assignments for mobile telemetry and telecommand operations, pursuant to Section 87.303, above 2360 MHz. Our Notice indicated that there was support from the aeronautical community to reaccommodate existing aeronautical telemetry users of the 2310-2390 MHz band to the 2360- 2390 MHz band. We proposed modification to Section 87.303 to assign telemetry and associated telecommand operations in fully operational or expendable and re-usable launch vehicles above 2360 MHz. Moreover, we suggested that any other telemetry use of the band 2310-2390 MHz would be secondary to launch vehicle use. 126. As discussed, supra, co-frequency, co-coverage operation of satellite DARS and MAT is not possible and it would not be practical to license MAT systems in the satellite DARS band on a co-primary basis. There was no opposition to our proposal to modify Section 87.303. Only DSBC and AFTRCC commented with modifications to our proposal to clarify the status of telemetry use of the 2310-2390 MHz band. Consistent with our original proposal, footnote US328 to Part 2 of our Rules, and the developments in the remainder of the 2310-2360 MHz band, we modify Section 87.303 as it pertains to the 2320-2345 MHz band. We therefore adopt the modified Section 87.303 contained in the Appendix. E. Satellite DARS Feeder Link Networks 127. In addition to satellite DARS space stations providing service downlinks in the 2320-2345 MHz band, feeder link earth stations for each satellite DARS system will be required to uplink programming information to the space station(s). We recognized in the Notice that feeder link networks are essential to deliver service to the end user and that ample contiguous spectrum is necessary to implement a viable satellite DARS system. We also recognized that satellite DARS feeder link earth stations will be few in number (i.e. one, or possibly two for redundancy, per licensee) and will operate at fixed locations. Therefore, we will authorize satellite DARS feeder link networks in fixed-satellite service (FSS) frequency allocations. 128. We indicated, however, that we would not authorize satellite DARS feeder link networks in the conventional FSS 4/6 GHz (C-band) and 12/14 GHz (Ku-band) frequency bands which are already congested with U.S. fixed-satellite service networks. We tentatively concluded that this would not be an efficient use of the FSS spectrum or the geostationary orbit. Additionally, we recognized in the Notice that the pending satellite DARS applicants propose feeder link operations in FSS bands other than the conventional 4/6 and 12/14 GHz bands. This is consistent with our tentative conclusion. Moreover, we understand that feeder link requirements for each satellite DARS system may increase or decrease depending on the amount of satellite DARS service link spectrum that is exclusively licensed to each applicant, and on the final configuration of the satellite DARS systems. For these reasons we sought comment on possible alternative non-congested FSS frequency bands that would be suitable for satellite DARS feeder link operations in the event that the frequency bands originally proposed by the applicants are not available. 129. Licensing service link spectrum in the 2320-2345 MHz band without designating spectrum for feeder link networks would result in the Commission licensing an incomplete satellite DARS system. The satellite DARS systems cannot operate without sufficient feeder link spectrum. We therefore will permit satellite DARS feeder link networks in the FSS frequency bands 7025-7075 MHz and 6725-7025 MHz (101 W.L. orbital location only), consistent with the requirements identified in the current applications. We will license satellite DARS feeder link Earth stations according to existing regulations for FSS Earth stations. 130. According to the proposals in the pending applications, the feeder link spectrum requirements for three of the four applicants can be accommodated in the 7025-7075 MHz band. Since satellite DARS systems will be operating space stations in the geostationary orbit, this 50 MHz of spectrum can be reused by satellite DARS licensees in the uplink direction, given sufficient orbital separation between the space stations. We believe that an orbital separation of at least two degrees between satellite DARS space stations is obtainable. Primosphere and CD Radio propose in their applications to use the 7025-7075 MHz band. Though AMRC proposes to use the 6530-6545 MHz band for its feeder links, it proposed no alternative bands. We believe that AMRC's feeder link spectrum requirements, too, can be accommodated in the 7025-7075 MHz band. 131. The fourth applicant, DSBC, proposes in its application to use the 6500-6855 MHz band for its feeder links. DSBC has a greater spectrum requirement than the other applicants because it proposes a system which uses multiple spot beams. Spot beams allow for greater frequency reuse of the service link spectrum but the amount of feeder link spectrum required is proportionately greater. We note also that DSBC has requested the 101 W.L. orbital position which is allocated to the U.S. in accordance with the international FSS allotment plan. The spectrum in the 6725-7025 MHz allotment band is contiguous with the 7025-7075 MHz band. By combining the 300 MHz of spectrum from the allotment plan with the 50 MHz between 7025-7075 MHz, 350 MHz of spectrum could be available to implement a satellite DARS system at 101 W.L. which uses a multiple spot beam configuration. Moreover, this proposal would be a more efficient use of the FSS allotment plan by using it to its fullest. 132. The 6725-7025 MHz allotment and 7025-7075 MHz bands are currently lightly used in the U.S. by the fixed-satellite service, in contrast to the conventional 4/6 GHz and 12/14 GHz bands. Indeed, the WRC-95 designated these frequency bands for NGSO MSS feeder link use because, globally, they are currently lightly used by the FSS. Though NGSO MSS feeder link networks are planned to operate in these frequency bands and these bands are used in the U.S. for broadcast auxiliary and Electronic News Gathering (ENG), we believe, for the reasons stated herein, that satellite DARS feeder links can share the 6725-7025 MHz allotment and 7025-7075 MHz bands with existing and planned co-primary users. 133. Regarding the sharing situation in the U.S. with broadcast auxiliary and ENG use of the bands, we identified in the Notice the sharing issues that satellite DARS operators would have to address. Initially, commenters maintained that bands allocated for broadcast auxiliary are heavily used for ENG, inter-city relays and studio-to-transmitter links, and that use of the 7 GHz band for satellite DARS feeder link operations would not be feasible. Joint Comments from broadcasters assert, however, that satellite DARS feeder links could share the 7 GHz band with broadcast operations under certain conditions. The National Association of Broadcasters (NAB) maintains that satellite DARS feeder link use of the 7 GHz band would be possible only in small markets, noting that ENG may move from the 2 GHz band to the 7 GHz band thereby crowding the 7 GHz band. CD Radio contends that, even in light of the mobile nature of ENG operations in the 7 GHz band, a carefully engineered and coordinated satellite DARS uplink may well be able to co-exist with these broadcast facilities. 134. Most of the conditions for sharing the 7 GHz band identified by the broadcasters in their Joint Comments are typically negotiated during the domestic licensing process between satellite licensees and broadcasters. The results of this domestic coordination would be reflected in the satellite DARS earth station application to demonstrate that Earth station operations would not affect other co-primary users of the band. Satellite DARS feeder link networks will be authorized as a fixed-satellite service in the 6725-7025 MHz allotment and 7025-7075 MHz bands on a co-primary basis, but Earth station operations are expected to be coordinated with pre-existing users of the spectrum before they will be licensed to operate. The Commission will authorize satellite DARS feeder link Earth stations only after the applicant demonstrates that coordination with potentially affected users in the band, including co-primary broadcast users, has been successfully completed. 135. Certain of the conditions proposed by the broadcasters would not be imposed on satellite DARS operators after the earth station licensing process is completed. For instance, satellite DARS feeder links would not be required to accept interference received from existing and planned TV broadcast auxiliary stations once the earth stations are licensed. Moreover it would be premature for the Commission to identify and adopt "keep out zones" for satellite DARS earth stations, for example in areas near major sporting arenas and around existing 7 GHz television broadcast auxiliary receive sites, as proposed by broadcasters in their comments. This detailed frequency coordination exercise will be conducted between the satellite DARS licensees and broadcasters during the domestic licensing process and in parallel with the construction and deployment of the satellite DARS systems. Nevertheless, the fact that the Joint Commenters identified conditions that would facilitate sharing in the 7 GHz band is an indication that a workable solution can be realized for satellite DARS feeder link networks to operate in the bands shared with broadcast facilities. 136. We also identified the sharing issues regarding satellite DARS feeder links and planned feeder link networks for NGSO MSS systems in the Notice. NGSO MSS feeder link networks will be transmitting in the downlink direction in the 7 GHz band while satellite DARS feeder links will be transmitting in the uplink direction in the same band (i.e. NGSO MSS feeder links will be operating "reverse band"). Coordination between the transmitting satellite DARS earth stations and receiving NGSO MSS feeder link earth stations, and between receiving DARS space stations and transmitting NGSO MSS space stations is therefore required. Primosphere asserts that because satellite DARS feeder link earth stations do not have significant geographic limitations on where they can be located, it is not expected that coordinated use of the 7 GHz band with NGSO MSS feeder link earth stations will be difficult. DSBC adds that there are no apparent problems with satellite DARS feeder link band proposals even in light of WRC-95 proposals for NGSO MSS feeder links. 137. Loral Qualcomm Partnership (LQP) asserts that any satellite DARS feeder link assignment in the 7 GHz band should be required to operate within the sharing criteria adopted at WRC-95 for sharing between GSO FSS and NGSO MSS feeder link networks. We expect satellite DARS feeder link networks, and NGSO MSS feeder link networks, to operate according to WRC-95 decisions. We believe that, based on WRC-95 decisions, geostationary satellite DARS feeder links and NGSO MSS feeder links can co-exist in the 7 GHz band. There will be relatively few feeder link earth stations for both services and sufficient distance can be maintained between the transmitting feeder link earth stations for satellite DARS and the receiving earth stations of NGSO MSS feeder links networks. Additionally, according to WRC- 95 decisions, transmitting NGSO MSS feeder link space stations must meet power flux density limits at the geostationary orbit to protect receiving space stations in the 7 GHz band. The domestic coordination process, in accordance with Section 25.130 of our Rules, will facilitate feeder link Earth station licensing of both satellite DARS and NGSO MSS systems. F. Further Notice of Proposed Rulemaking on Terrestrial Repeaters 138. As discussed above, we are not mandating a specific service link margin that satellite DARS operators must provide in a given geographic area, such as urban areas. It is important, however, for the satellite DARS systems to maintain sufficient service link margin to reproduce the original information transmitted by the satellite. In the Notice, we noted that some satellite DARS applicants intend to implement, as necessary, terrestrial repeaters, or "gap-fillers", in urban canyons and other areas where it may be difficult to receive DARS signals transmitted by a satellite. These terrestrial gap-fillers would re-transmit the information from the satellite to overcome the effects of signal blockage and multipath interference. Since we had no information in the record on the specifics of operation of these terrestrial gap-fillers, we sought comment on their operation to determine what rules should govern their use. 139. Some commenters expressed concern about use of terrestrial repeaters to complement satellite DARS. Tichenor Media Systems, for example, contends that satellite DARS should not be permitted to originate local programming through the use of terrestrial repeaters. Similarly, NAB and WFAN express concern that the use of terrestrial gap fillers would transform satellite DARS into a terrestrial based service. Indeed, in the Notice we proposed to prohibit the operation of terrestrial gap-fillers except in conjunction with an operating satellite DARS system to ensure its complementary nature and so that there would be no transformation of satellite DARS into an independent terrestrial DARS network. 140. Satellite DARS applicants provided additional information on how terrestrial gap- fillers will be used with their satellite DARS systems. The commenters agree that terrestrial repeaters would be used to improve satellite DARS service in the authorized satellite coverage areas only and on the same frequencies, and that they would not be used to extend the satellite coverage area or be used to originate programming. CD Radio and DSBC maintain that terrestrial gap-fillers will only be complementary to the satellite DARS systems because they will operate on the same frequency as the satellite transmission and only re-transmit the signals of operating satellite DARS space stations to improve service link margin in difficult propagation environments, especially in urban areas. Additional spectrum is therefore unnecessary for satellite DARS gap-fillers. Primosphere asserts further that no commercial inserts or local programming would be permitted over terrestrial gap-fillers. Furthermore, terrestrial gap- fillers will not extend satellite DARS coverage outside of the systems' already authorized service area. AMRC asserts that they will be used only to fill in coverage gaps within the authorized service area caused by various signal obstructions. Terrestrial gap-fillers will also be transparent to the end users because the receiver will automatically select the stronger of the satellite or repeater signal. 141. Several commenters suggest that regulation of terrestrial gap-fillers be as unrestrictive as possible. CD Radio favors rules to permit flexible deployment of terrestrial gap fillers without prior Commission approval or notification. Primosphere contends that it will be important for the Commission to provide a flexible scheme to implement terrestrial gap-fillers without the necessity to seek separate licenses. DSBC notes that the use of terrestrial gap-fillers for satellite DARS comports with the Commission's authorization of "boosters" as defined in Part 22 of the Commission's rules. The comments of all applicants appear to be reflected in a proposal by CD Radio, seen for the first time in its Comments to our Notice. 142. We did not set forth a specific proposal for authorizing terrestrial repeaters in the Notice. We now seek comment on our proposal to permit deployment of satellite DARS gap- fillers, on an as-needed basis by satellite DARS licensees to meet their service requirements. To accomplish