******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) Geographic Partitioning and Spectrum)WT Docket No. 96-148 Disaggregation by Commercial Mobile) Radio Services Licensees ) ) Implementation of Section 257 of the)GN Docket No. 96-113 Communications Act -- ) Elimination of Market Entry Barriers) ) REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: December 13, 1996Released: December 20, 1996 Comment Date: February 10, 1997 Reply Comment Date: February 25, 1997 Comments to be filed in WT Docket No. 96-148 only. By the Commission: TABLE OF CONTENTS Paragraph No. I.INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . .1 II.EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . .2 III.BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . .3 IV.DISCUSSION. . . . . . . . . . . . . . . . . . . . . . . . .6 A. Partitioning. . . . . . . . . . . . . . . . . . . . . .6 1. License Eligibility . . . . . . . . . . . . . . . . . .6 2. Available License Area, Restrictions on Timing of Partitioning, Matters Related to Entrepreneur Block Licensees. . . 19 a. License Area. . . . . . . . . . . . . . . . . . . . . 19 b. Non-Entrepreneur Block Licenses . . . . . . . . . . . 25 c. Entrepreneur Block Licenses . . . . . . . . . . . . . 28 3. Construction Requirements . . . . . . . . . . . . . . 37 B. Disaggregation. . . . . . . . . . . . . . . . . . . . 44 1. Timing of Disaggregation. . . . . . . . . . . . . . . 44 2. Amount of Spectrum to Disaggregate. . . . . . . . . . 47 3. Matters Related to Entrepreneur Block Licenses. . . . 52 4. Construction Requirements . . . . . . . . . . . . . . 56 C. Related Matters . . . . . . . . . . . . . . . . . . . 64 1. Combination of Partitioning and Disaggregation. . . . 64 2. Licensing . . . . . . . . . . . . . . . . . . . . . . 67 3. License Term. . . . . . . . . . . . . . . . . . . . . 73 4. Technical Rules . . . . . . . . . . . . . . . . . . . 79 5. Microwave Relocation Rules. . . . . . . . . . . . . . 82 6. Clearinghouse for Spectrum. . . . . . . . . . . . . . 90 V. FURTHER NOTICE OF PROPOSED RULEMAKING. . . . . . . . . . . 93 A. Introduction. . . . . . . . . . . . . . . . . . . . . 93 B. Discussion. . . . . . . . . . . . . . . . . . . . . . 95 1. Partitioning and Disaggregation for Cellular and GWCS 95 2. Available License Area. . . . . . . . . . . . . . . . 98 3. Amount of Spectrum to Disaggregate. . . . . . . . . .100 4. Combined Partitioning and Disaggregation. . . . . . .101 5. Construction Requirements . . . . . . . . . . . . . .102 6. License Term. . . . . . . . . . . . . . . . . . . . .108 7. GWCS Competitive Bidding Issues . . . . . . . . . . .110 8. Licensing Issues. . . . . . . . . . . . . . . . . . .112 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . .114 VII. PROCEDURAL MATTERS . . . . . . . . . . . . . . . . . . .115 A. Ordering Clauses. . . . . . . . . . . . . . . . . . .115 B. Ex Parte Rules - Non-Restricted Proceeding. . . . . .119 C. Comment Date. . . . . . . . . . . . . . . . . . . . .120 D. Initial Paperwork Reduction Act of 1995 Analysis. . .122 E. Regulatory Flexibility Act. . . . . . . . . . . . . .123 F. Further Information . . . . . . . . . . . . . . . . .124 APPENDIX A - List of Commenters APPENDIX B - Final Rule APPENDIX C - Final Regulatory Flexibility Analysis APPENDIX D - Initial Regulatory Flexibility Analysis I. INTRODUCTION 1. In this Report and Order and Further Notice of Proposed Rulemaking, we consider the proposals set forth in the Notice of Proposed Rulemaking (Notice) in WT Docket No. 96-148 concerning geographic partitioning and spectrum disaggregation by broadband personal communications service (PCS) licensees. We also consider adopting similar partitioning and disaggregation rules for cellular and General Wireless Communications Services (GWCS) licensees. The rules we adopt herein for broadband PCS will permit partitioning and disaggregation by all broadband PCS licensees. We believe these rules will provide broadband PCS licensees with desirable flexibility to determine the amount of spectrum they will occupy and the geographic area they will serve. We believe that such flexibility will (1) facilitate the efficient use of spectrum by providing licensees with the flexibility to make offerings directly responsive to market demands for particular types of service; (2) increase competition by allowing market entry by new entrants; and (3) expedite the provision of service to areas that otherwise may not receive broadband PCS service in the near term. II. EXECUTIVE SUMMARY 1. In order to meet our statutory responsibility to exercise authority and control over radio spectrum to ensure that spectrum is utilized for the benefit of all the Nation's citizens, we have adopted rules for Commercial Mobile Radio Services (CMRS) that generally permit open entry, allow flexibility, encourage technical efficiency, promote innovation and facilitate seamless networks. The Commission believes that its CMRS rules should permit licensees to respond to market forces and demands, thereby permitting and promoting the operation of competitive market forces. Such flexibility eliminates artificial market entry barriers by allowing licensees to respond to public demands for service as well as introducing innovative services and technologies. Adopting the rules proposed in this proceeding, will result in more efficient use of spectrum by allowing licensees to transfer part of their spectrum to a party that values it more highly and also promote competition by increasing the diversity of service offerings and the number of providers offering competing services. To further our goals of encouraging flexible use of CMRS spectrum, eliminating entry barriers, reducing regulatory burdens, encouraging competition, and expediting services to the largest number of users, we modify our broadband PCS rules and propose modifications to our cellular and GWCS rules as follows: A. Partitioning Broadband PCS licensees in the A, B, D, and E blocks may partition their license areas to other eligible entities at any time following the issuance of their licenses. The current restriction permitting partitioning only to rural telephone companies (rural telcos) is eliminated. Partitioning of PCS licenses is permitted based on any geographic area defined by the parties, provided that they submit information to the Commission regarding the relevant boundaries or coordinates. Entrepreneur block (C and F block) licensees may partition to other entities similarly qualified as entrepreneurs at any time following the issuance of their licenses. Entrepreneur block licensees may not partition to non-entrepreneurs during the first five years of their license term. After the first five years, partitioning to non-entrepreneurs is permitted, provided that the partitioner pays an unjust enrichment payment based on the population of the partitioned area calculated based upon the latest available census data. Separate installment payment and default obligations are established for the initial entrepreneur block licensees and the entrepreneur partitionees. When an entrepreneur block licensee paying its winning bid through installment payments partitions to a party that would qualify for installment payments, the partitionee will be permitted to make installment payments of its pro rata portion of the remaining government obligation. New financing documents (promissory notes and security agreements) will be issued to the partitioner and partitionee. The payments will be based upon the ratio of the population of the partitioned area to the population of the entire original license area calculated based upon the latest available census data. Partitionees that do not qualify for installment payments will be required to pay their entire pro rata share within 30 days of Public Notice conditionally granting the partitioning transaction. The partitioner and partitionee may choose from two construction options for the partitioned area. Under the first option, the partitionee may certify that it will satisfy the same construction requirements as the original licensee. The partitionee must meet the same five- and ten-year service requirements for its partitioned area as the original 10 MHz or 30 MHz licensee in its partitioned area. Under the second option, the partitioner certifies that it has met or will meet the five-year construction requirement and that it will meet the ten-year construction requirement for the entire market. In that case, the partitionee will only be required to meet a substantial service requirement for its partitioned area at the end of the ten-year license term. B. Disaggregation The January 1, 2000 benchmark and five-year build-out requirement as prerequisites for disaggregation are eliminated. Broadband PCS licensees in the A, B, D, and E blocks may disaggregate spectrum to other eligible entities at any time following the issuance of their licenses. Disaggregation is allowed for any amount of spectrum and there will be no requirement that the disaggregator retain a minimum amount of spectrum. Entrepreneur block (C and F block) licensees may disaggregate to other parties qualified as entrepreneurs at any time following the issuance of their licenses. Entrepreneur block licensees may not disaggregate to non-entrepreneurs for the first five years of their license term. After the first five years, entrepreneur block licensees may disaggregate to non-entrepreneurs, provided that the partitioner compensates the Federal government through an unjust enrichment payment proportionate to the amount of spectrum disaggregated. When an entrepreneur block licensee paying its winning bid through installment payments disaggregates to a party that would qualify for installment payments, the disaggregatee will be permitted to make installment payments of its pro rata portion of the remaining government obligation. New financing documents (promissory notes and security agreements) will be issued to the disaggregator and disaggregatee). The payments shall be based upon the ratio of the amount of spectrum disaggregated to the amount of spectrum licensed. Disaggregatees that do not qualify for installment payments shall be required to pay their entire pro rata share within 30 days of Public Notice conditionally granting the disaggregation transaction. Parties seeking approval of a disaggregation agreement must include a certification as to which party will be responsible for meeting the applicable five and ten-year construction requirements. The specific requirements to be met will depend on whether the spectrum being disaggregated was originally licensed as a 30 Mhz block or a 10 MHz block. In the event that the party taking responsibility for meeting the construction requirement fails to do so, that party's license will be subject to forfeiture, but the other party's license will not be affected. C. Related Matters Combined partitioning and disaggregation is permitted. The Commission's current partial assignment procedures will be used for reviewing partitioning and disaggregation requests. Upon FCC approval, partitionees and disaggregatees will hold their licenses for the remainder of the original licensees' license term and partitionees and disaggregatees may earn a renewal expectancy similar to other PCS licensees.  The 45 MHz CMRS spectrum aggregation limit applies to partitioned license areas and disaggregated spectrum. Partitionees and disaggregatees have the same rights and obligations under our microwave relocation rules as initial PCS licensees, including rights and obligations established under the cost- sharing plan adopted in WT Docket No. 95-157. Initial licensees will not be required to guarantee the relocation payments of partitionees or disaggregatees. The Commission will make information about licensed PCS spectrum publicly available in a user-friendly format to provide interested parties with information needed to identify and assess opportunities for partitioning and disaggregation. D. Further Notice of Proposed Rulemaking We seek comment on whether to permit disaggregation of cellular and GWCS spectrum and to allow more open partitioning of GWCS licenses. We propose allowing GWCS licensees to partition their license based upon any geographic area defined by the parties. We invite comment on whether minimum disaggregation standards are necessary for cellular and GWCS. We tentatively conclude that combined partitioning and disaggregation should be allowed for cellular and GWCS. We seek comment as to whether our existing cellular partitioning rule is sufficiently flexible to facilitate cellular partitioning and we propose adopting dual constructions options, similar to those adopted for broadband PCS, for GWCS partitioning. We propose limiting the license term of cellular and GWCS partitionees and disaggregatees to the remainder of the original licensee's ten-year license term and granting GWCS partitionees and disaggregatees the same renewal expectancy as other GWCS licensees. We propose using methods similar to those adopted for broadband PCS for calculating the amount of unjust enrichment payments that must be paid when a designated entity GWCS licensee partitions or disaggregates to a non-designated entity. We propose that the current cellular and GWCS partial assignment rules will be used for cellular disaggregation and for GWCS partitioning and disaggregation. III. BACKGROUND 2. Our initial regulations and policies for broadband PCS were adopted in the Broadband PCS Second Report and Order, and amended in the Broadband PCS Memorandum Opinion and Order. In the Broadband PCS Memorandum Opinion and Order, the Commission declined to adopt unrestricted geographic partitioning for broadband PCS based on its concern that licensees might use partitioning as a means of circumventing construction requirements. However, the Commission stated that it would consider the issue of geographic partitioning for rural telcos and other designated entities in a future proceeding to establish competitive bidding rules for broadband PCS. The Commission then permitted broadband PCS geographic partitioning for rural telcos in the Competitive Bidding Fifth Report and Order. The Commission observed that partitioning was one method to satisfy Congress' mandate to provide an opportunity for rural telcos to participate in the provision of broadband PCS. The Commission also found that rural telcos could take advantage of their existing infrastructure to provide broadband PCS services, thereby speeding service to rural areas. In the Competitive Bidding Further Notice of Proposed Rulemaking, the Commission sought comment on whether to extend post-auction geographic partitioning of broadband PCS licenses to women- and minority-owned businesses. 3. Section 24.229(c) of the Commission's rules permits a broadband PCS licensee that has met its five-year construction requirement to disaggregate its licensed PCS spectrum after January 1, 2000. In the Broadband PCS Memorandum Opinion and Order, the Commission reasoned that this limit on spectrum disaggregation for broadband PCS would allow the PCS market to develop and prevent anti-competitive practices with regard to disaggregation. 4. In the Notice in this docket, we proposed liberalized partitioning and disaggregation for broadband PCS licensees. We noted that the Commission presently permits, or is seeking comment on, geographic partitioning and spectrum disaggregation for several services, e.g., Multipoint Distribution Service (MDS), General Wireless Communications Service, 800 MHz Specialized Mobile Radio (SMR), paging, 220 MHz, 900 MHz SMR, 38 GHz fixed point-to-point microwave, and the Wireless Communications Service (WCS). We believe that it is appropriate at this time to liberalize our rules to allow partitioning and disaggregation for broadband PCS. The rules adopted in this Report and Order will provide licensees with the flexibility to use their spectrum more efficiently, will increase opportunities for small businesses and other entities to enter into the broadband PCS market, and will speed service to underserved or unserved areas. IV. DISCUSSION A. Partitioning 1. License Eligibility 5. Proposal. In the Notice, we tentatively concluded that allowing broadband PCS licensees to partition their service areas could lead to the creation of smaller areas that could be licensed to small businesses, including those entities that may not have had the resources to participate successfully in spectrum auctions. Additionally, we found that partitioning would allow later entrants into the telecommunications market to enter the broadband PCS market after auction. We also found that partitioning could provide a funding source to enable licensees to build out their sys- tems and provide the latest in technological enhancements to the public. We tentatively concluded that our partitioning proposals would implement, in part, the requirement of Section 257 of the Communications Act that we eliminate barriers to entry in the telecommunications market. 6. Comments. The majority of commenters support the proposals in the Notice to broaden the partitioning rules to allow entities other than rural telcos to obtain partitioned licenses. Commenters agree with the tentative conclusion in the Notice that flexible partitioning and disaggregation rules would create additional opportunities for small businesses, niche services, and rural wireless providers by reducing the amount of capital necessary to enter the business. Omnipoint observes that partitioning and disaggregation will create flexibility for licensees, allowing new services to become competitive and first-generation PCS services to grow and flourish. PCS Wisconsin contends that a more liberal partitioning policy will allow PCS spectrum to be used more efficiently and will speed service to underserved areas. US West agrees that more liberalized partitioning and disaggregation rules will enable more entities to become PCS licensees because the market will create additional, smaller, licenses. 7. The primary opponents of broadening eligibility for partitioning are the rural telcos. They advocate limiting partitioning to rural telcos or, alternatively, giving the rural telcos a "right of first refusal" to the partitioned area. The rural telcos argue that they are the best qualified to offer service to rural areas because they can build upon their existing facilities to rapidly deploy PCS. The Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) argues that there will be a loss of service for rural customers if the Commission allows open partitioning because other entities will not have the same incentives to serve rural areas. Century states that A and B block PCS licensees have been reluctant to partition to rural telcos and that the Commission's proposal will eliminate any further incentive for rural telco partitioning. Century and 3 Rivers contend that allowing PCS licensees to partition to parties other than rural telcos will result in speculation over licenses and drive up the cost of partitioning. Century also argues that unlimited partitioning could exacerbate technical compatibility problems among carriers, thus undermining the PCS licensing system. 8. Illuminet proposes that once an initial license term has passed, any portion of a license area that is not being served would be available automatically to a rural telco for a period of one year. During that one year period, the rural telco would have the exclusive right to file an application to propose service to the unserved area. 9. The rural telco commenters also contend that the Commission designed partitioning as the sole means of fulfilling the mandate of Section 309(j)(3) of the Communications Act to ensure that licenses are disseminated among a wide variety of applicants including rural telcos. The rural telcos argue that they were effectively denied access to the C block auctions because the auction participants were backed by entities with "deep pockets." These commenters argue that rural telcos relied on the Commission's promise that they could participate in the PCS service through parti- tioning and more rural telcos would have participated in the C block auctions had they known that partitioning would be available to other parties. RTG argues that the Commission cannot change its partitioning rules in the middle of the PCS auctions because the rural telcos established their business plans based upon the fact that they would be the only parties permitted to obtain partitioned licenses and, as such, they did not participate in the A, B, and C block auctions. RTG alleges that the rural telcos did not have sufficient notice to prepare for the broadband PCS auctions. 10. The rural telco commenters propose that, if partitioning is allowed for all PCS licensees, the Commission should give a right of first refusal to rural telcos whereby parties entering into a partitioning agreement would be required to notify the rural telco located within the partitioned area and offer the partitioned area to the rural telco on terms similar to those proposed in the agreement. RCA contends that the right of first refusal will ensure deployment of rural service while simultaneously promoting competition. 11. Other commenters oppose the right of first refusal proposed by the rural telcos. AT&T Wireless and US West argue that the right of first refusal would effectively grant rural telcos exclusive partitioning authority because no other party would be willing to bargain with a PCS licensee knowing that a rural telco could disrupt the transaction. AT&T Wireless also contends that the right of first refusal would be difficult to implement since a single transaction may encompass more than one rural service area and would require the consent of more than one rural telco. AT&T Wireless observes that this would cause delay and would require the parties to divide the partitioned area into smaller parts if a rural telco were to exercise its right of first refusal for only one portion of the partitioned area. PCIA notes that a partitioning agreement may be part of a larger assignment transaction and it may not be possible to separate out the partitioning agreement in the event a rural telco exercises its right of first refusal. US West argues that granting rural telcos a right of first refusal would have the practical effect of allowing only one PCS licensee to partition its license because there are six PCS licensees assigned to each area, while there may be only one rural telco serving that area. 12. Discussion. We conclude that relaxing our PCS geographic partitioning rules, as discussed herein, will help to (1) remove potential barriers to entry thereby increasing competition in the PCS marketplace; (2) encourage parties to use PCS spectrum more efficiently; and (3) speed service to unserved and underserved areas. Parties that were unsuccessful bidders or that did not participate in the PCS auctions will be able to use partitioning as a method to acquire PCS licenses after the auctions. Smaller or newly-formed entities, for example, may enter the PCS market for the first time through partitioning. Under our prior rules, such entities would have been unable to qualify for partitioning because of our rural telco restriction. By eliminating that restriction, these entities will be able to negotiate for licenses for portions of the original service area at a cost that is proportionately less than that of the full geographic market. 13. We also find that increasing the number of parties that may obtain partitioned PCS licenses will lead to more efficient use of PCS spectrum and will speed service to underserved or rural areas. PCS licensees will be able to partition portions of their markets to entities more willing to serve niche markets instead of postponing service to those areas. We believe that retaining the existing partitioning restrictions, as recommended by the rural telco commenters, would prevent additional small businesses and other entities from using partitioning to enter the broadband PCS market. In addition, restricting the number of parties that are eligible for partitioned PCS licenses only serves to unreasonably reduce the number of potential entrants into the PCS marketplace without any corresponding public interest benefit. We find that retaining the partitioning restrictions will constitute a significant barrier to entry for small businesses; therefore, we decline to adopt the proposal suggested by the rural telco commenters to limit partitioning to rural telcos. 14. The rural telco commenters claim that changing the current partitioning rules would be inconsistent with the mandate set forth in Section 309(j)(3)(B) of the Communications Act to ensure that licenses are disseminated among a wide variety of applicants including rural telcos. They contend that partitioning was the sole means by which the Commission sought to fulfill the Section 309(j)(3)(B) mandate for rural telcos. We disagree. Rural telcos are able to take advantage of the special provision for small businesses we designed in our auction rules to obtain licenses in the entrepreneur block auctions. Furthermore, Sections 309(j)(3)(A), (B), and (D) of the Communications Act direct the Commission to further the rapid deployment of new technologies for the benefit of the public including those residing in rural areas, to promote economic opportunity and competition, and to ensure the efficient use of spectrum. While encouraging rural telco participation in PCS service offerings is an important element in meeting these goals, Congress did not dictate that this should be the sole method of ensuring the rapid deployment of service in rural areas. We conclude that allowing open partitioning will further the goals of Section 309(j)(3) by allowing PCS licensees to partition to multiple entities within their markets rather than limiting partitioning to a small number of rural telcos. 15. The rural telcos argue further that they will not be able to compete for partitioned PCS licenses unless the Commission retains its current restriction because PCS licensees will be unwill- ing to partition their licenses to rural telcos and will choose to partition to CMRS providers with greater financial resources. The rural telco commenters also argue that they relied to their detriment upon the current partitioning restrictions when devising their business plans and that many of them chose not to participate in the broadband PCS auctions because they believed that they would be the only parties that could obtain partitioned PCS licenses. We are unpersuaded that our action herein will harm the rural telcos' business plans. Under the new rules adopted herein, rural telcos will be fully able to obtain partitioned PCS licenses, as they were previously. Moreover, in many instances, rural telcos are likely to be in a superior position to obtain partitioned licenses. As the rural telco commenters acknowledge, they are uniquely qualified to provide PCS service to rural areas, because they possess the existing infrastructure and local marketing knowledge in these regions. Whether or not the rural telcos may have relied on our existing partitioning rules when designing their business plans, we find that open partitioning will not adversely affect those plans because rural telcos will be able to use their technical expertise and market position to compete with other parties to obtain partitioned PCS licenses for rural areas. 16. We also decline to adopt the rural telcos' proposal to require a right of first refusal. Section 254 of the Telecommunications Act of 1996 states that, in seeking to promote its goal of universal service, the Commission should ensure that consumers from all parts of the Nation, including rural areas, have access to telecommunications and information services that is comparable to service in other, more urban areas and at rates that are comparable to the rates available in urban areas. Granting the rural telcos a right of first refusal would limit the number of parties that could obtain partitioned PCS licenses which would be at odds with our goals of encouraging participation in the PCS marketplace by as many parties as possible and reducing barriers to entry for small businesses. We find that increasing the number of potential entities that can acquire partitioned PCS licenses will result in better service and increased competition which may result in lower prices for PCS service. 17. We also find that the right of first refusal would be difficult to administer and could discourage partitioning. As several commenters observed, the area proposed in a partitioning agreement may not coincide exactly with the area for which a rural telco would have a right of first refusal or a single partitioning transaction may encompass more than one rural telcos' service area. In those cases, the consent of multiple rural telcos would be required before a partitioning transaction could be consummated. No single rural telco could exercise its right of first refusal for the entire the partitioned area. A further problem would be whether the rural telcos' right of first refusal would continue after the auction winner partitioned the license area to another party. Additionally, a partitioning agreement may be part of a larger assignment transaction. If a rural telco were to exercise its right of first refusal to acquire the partitioned area, it may not be possible to separate out the partitioning agreement to stand on its own and the entire assignment transaction could not be consummated. For these reasons, we do not believe that the right of first refusal is feasible. 2. Available License Area, Restrictions on Timing of Partitioning, and Matters Related to Entrepreneur Block Licensees a. License Area 18. Proposal. In the Notice, we proposed that partitioning be required along county lines. We tentatively found that such an approach would provide flexibility for licensees seeking to partition their licenses while minimizing the administrative burden on the Commission. We also stated that we would consider waiver requests where a proposed partitioning would not fall along county lines. 19. Comments. Most commenters disagree with our proposal that partitioning be required along county lines. Several commenters contend that counties may be too large to be viable as units for partitioning. For example, BellSouth observes that limiting partitioning to county lines may create areas that are too large to conform to the needs of small businesses. AirGate notes that one county may contain several Basic Trading Areas (BTAs), which would make partitioning along county lines impossible. Omnipoint observes that PCS licensees in the western United States would be disadvantaged by a county line approach because many BTAs in those States include only one county and, therefore, no partitioning would be allowed. BellSouth and Carolina Independents also note the additional problem that some counties have two or more rural telcos providing service, and requiring partitioning along county lines would prevent rural telcos from entering into the PCS market. 20. BellSouth suggests that the parties should be able to use any established geopolitical boundary such as county, city, town, village, township, reservation, bodies of water, mountain ranges, or Economic Areas (EAs). Omnipoint argues that the Commission has recognized the benefits of cable-based PCS services and that the Commission should permit PCS licensees to partition in a manner that reflects a cable system's service area. Carolina Independents contend that parties should be permitted to adopt partitioning boundaries that are not based on county lines if they agree to make available service area maps, information on the population count for each partitioned area, and information showing how the population figures were calculated so that the Commission would be able to easily identify boundaries and population in order to enforce cross-ownership and other regulations. 21. With respect to our proposal to permit parties to request waivers of the county line partitioning requirement, ITA argues that waivers are time consuming and they may pose an unwar- ranted hurdle to commercial transactions. PCIA agrees that requiring a waiver will delay achievement of rational PCS service arrangements and will increase the Commission's work load. 22. Discussion. We are persuaded by the commenters' arguments that limiting geographic partitioning of PCS licenses to those areas defined by county lines may not be reflective of market realities and may otherwise inhibit partitioning. As the commenters note, parties seeking a partitioned license may not desire to serve an entire county but rather a smaller niche market. Counties in some parts of the country may be too large to permit PCS partitioning because they extend across more than one BTA. We find that, if partitioning is limited to county lines, numerous parties would be required to seek a waiver of the county-line requirement, which would unnecessarily burden the Commission and the parties without any corresponding public interest benefit. 23. Based upon the record before us, we believe that permitting partitioning along any service area defined by the partitioner and partitionee is the most logical approach, provided they submit sufficient information to the Commission to maintain our licensing records. This will be the rule for all parties, including rural telcos. Partitioning applicants will be required to submit, as separate attachments to the partial assignment application, a description of the partitioned service area and a calculation of the population of the partitioned service area and licensed market. The partitioned service area must be defined by coordinate points at every 3 seconds along the partitioned service area agreed to by both parties, unless either (1) an FCC-recognized service area is utilized (i.e., Major Trading Area, Basic Trading Area, Metropolitan Service Area, Rural Service or Economic Area) or (2) county lines are followed. These geographical coordinates must be specified in degrees, minutes and seconds to the nearest second of latitude and longitude, and must be based upon the 1927 North American Datum (NAD27). Applicants may also supply geographical coordinates based on 1983 North American Datum (NAD83) in addition to those required based on NAD27. This coordinate data should be supplied as an attachment to the partial assignment application, and maps need not be supplied. In cases where an FCC recognized service area or county lines are being utilized, applicants need only list the specific area(s) (through use of FCC designations) or counties that make up the newly partitioned area. Allowing partitioning along any agreed-upon service area will provide an opportunity for PCS licensees to design flexible and efficient partitioning agreements. By providing such flexibility to licensees for determining partitioned areas, we will permit the market to decide the most suitable service areas. b. Non-entrepreneur block licenses 24. Proposal. In the Notice, we tentatively concluded that all licensees in the A, B, D, and E blocks should be permitted at any time to partition their licenses to eligible parties. In addition, we sought comments on whether we should impose an overall limit on the size of the geographic area that non-entrepreneur block licensees would be allowed to partition. 25. Comments. Sprint was the lone commenter on this issue, agreeing with the proposal in the Notice that non-entrepreneur PCS licenses should be freely transferable, in part or in entirety. 26. Discussion. We conclude that the public interest will be served by allowing non- entrepreneur block licensees to freely partition their licenses to any other qualifying entity following the issuance of the license. Since non-entrepreneur block licensees are permitted to assign their entire license after grant, we find they should be able to assign a portion of their license following the issuance of their license. As we stated in the Notice, this proposal will advance the public interest by affording non-entrepreneur licensees greater flexibility. In addition, we will not adopt a limitation on the maximum size of geographic area that PCS licensees may partition. PCS licensees will be permitted to partition their licensed market areas without limitation on the overall size of the partitioned areas consistent with our rules. c. Entrepreneur block licenses 27. Proposal. The entrepreneur blocks are designed to promote economic opportunities for a wide variety of applicants including small businesses, rural telcos, and businesses owned by minorities and women, as required by Section 309(j)(4)(C)(ii) of the Communications Act. To further this goal, we proposed that entrepreneur block licensees be permitted to partition at any time to other parties that would qualify for entrepreneur block licenses (i.e., to an entity that either holds other entrepreneur block licenses and thus at the time of auction satisfied the entrepreneur eligibility criteria, or that satisfies the entrepreneur eligibility criteria at the time of partitioning). However, we proposed certain restrictions be applied when an entrepreneur block licensee sought to partition to a non-entrepreneur. We proposed that entrepreneurs not be permitted to partition to non- entrepreneurs for the first five years of the license term and that, after the first five years, unjust enrichment requirements be applied if an entrepreneur partitions to a non-entrepreneur. Further- more, we proposed imposing unjust enrichment payments when an entrepreneur, qualifying as a small business under Section 24.720(b)(1), is awarded bidding credits or elects to pay by installment, and partitions to another entrepreneur that would not have qualified for those rights. We sought comment on the method for determining how unjust enrichment payments should be calculated, the method for handling installment payment plans, and how to apportion the payment obligations for a partitioned market. We also sought comment on whether each party should be required to guarantee all or a portion of the partitioner's original auctions-related obligation in the event of de- fault. 28. Comments. Commenters generally support the proposal in the Notice to permit partitioning of entrepreneur block licenses only to other entrepreneurs for the first five years of the license term. Century and NTCA disagree with the proposal and they contend that entrepreneur block licensees should not be permitted to partition portions of their license areas to small businesses because they contend that some entities with extensive financial resources will attempt to bid up the prices of partitioned licenses and drive rural telephone companies from the partitioning markets. NTCA argues that the Commission's proposal to allow designated entities to partition entrepreneur block licenses will result in further deterioration of any bargaining power rural telcos may have had to obtain partitioned PCS licenses and reduce those licensees' incentives to partition sparsely populated rural areas. On the other hand, Sprint argues that a complete ban on partitioning to non- entrepreneurs in the first five years of the license is unnecessary. Sprint suggests that entrepreneurs be permitted to partition up to 20 percent of their total license area and disaggregate up to 15 percent of total spectrum to non-entrepreneurs prior to the end of the first five years of the license term. Opportunities Now Enterprises, Inc. (ONE) supports the proposal to allow partitioning between entrepreneurs but argues that the threshold for determining whether a party is a small business for the purposes of entrepreneur block partitioning should be $11 million or less in annual sales. 29. Commenters also support the imposition of unjust enrichment payments for partitioning to a non-entrepreneur after the fifth year of licensing. The commenters propose that unjust enrichment should be calculated based upon the population within the partitioned area in proportion to the total population of the market license area. PCS Wisconsin contends that the price paid by the partitionee should not be considered in making this determination, but rather the determination should be made solely upon the price of the initial license based upon the corresponding proportion of the population within the partitioned area. Of the commenters opposing unjust enrichment payments, PCS Wisconsin and AirGate contend that a partitioning license holder should not be required to pay, on an accelerated basis, a portion of the outstanding principal balance which it owes under an installment payment plan because this would put a financial strain on small businesses and would constitute a barrier to entry. NextWave argues that unjust enrichment penalties would impose an unreasonable competitive disadvantage on entrepreneurial licensees and would distort the market by artificially affecting the relative values of entrepreneurial and non-entrepreneurial spectrum. AirGate contends the partitioned licensees should not be required to guarantee the payments of the partitioner for the original license acquired at auction. 30. Discussion. We will permit entrepreneur block PCS licensees to partition at any time to other parties that would be eligible for licenses in those blocks. This is consistent with our rules allowing full transfer or assignment of an entrepreneur block licensee to another eligible entrepreneur at any time. It will also further the Congressional mandate that small businesses have an opportunity to participate in the PCS marketplace. Partitioning of entrepreneur block license areas to non-entrepreneurs will not be permitted for the first five years of a entrepreneur block license term. This restriction is necessary in order to ensure that entrepreneurs do not circumvent our restrictions on full license transfers by attempting to immediately partition a portion of their licenses to non-entrepreneurs. For similar reasons, we will not adopt Sprint's proposal to allow entrepreneur block licensees to partition 20 percent of their market during the initial five years of their license term. 31. We find that our unjust enrichment requirements, as set forth in the Competitive Bidding Second Report and Order and Competitive Bidding Fifth Report and Order, should be applied if an entrepreneur block licensee partitions a portion of its license area to a non-entrepreneur, after the initial five-year license term. We also will apply our unjust enrichment rules to transactions where entrepreneurs obtain partitioned licenses from other entrepreneurs and subsequently seek to assign their partitioned license to a non-entrepreneur. We will also apply the unjust enrichment provisions to an entrepreneur block licensee that qualifies as a small business who partitions to an entity that satisfies the entrepreneur block eligibility criteria but is not a small business that would be eligible for bidding credits or installment payments. The unjust enrichment provisions for full license transfers were adopted as a means of ensuring that large companies do not become the unintended beneficiaries of special provisions meant for smaller firms, such as bidding credits and installment payments. Otherwise, an entrepreneur block licensee, having received such a special benefit, could exploit the system by seeking a full license transfer to a non-entrepreneur. We find that the same rational would apply for entrepreneur block partitioning because the entrepreneur block licensee would be transferring a portion of its market to a party that does not qualify for such benefits. We believe that such unjust enrichment requirements strike the proper balance between promoting economic opportunities for entrepreneurs while preventing abuse of our entrepreneur block benefits. 32. We will use population as the objective measure to calculate the relative value of the partitioned area for determining all of our unjust enrichment obligations. Population will be calculated based upon the latest census data. 33. Unjust Enrichment - Bidding Credits. If an entrepreneur licensee that received a bidding credit partitions a portion of its license to an entity that would not meet the eligibility standards for a bidding credit, we will require that the licensee reimburse the government for the amount of the bidding credit calculated on a proportional basis based upon the ratio of population of the partitioned area to the overall population of the licensed area. If an entrepreneur licensee that received a bidding credit partitions to an entity that would qualify for a lower bidding credit, we will require that the licensee reimburse the government for the difference between the amount of the bidding credit obtained by the licensee and the bidding credit for which the partitionee is eligible calculated on a proportional basis based upon the ratio of population of the partitioned area. 34. Unjust Enrichment - Installment Payments. As in the case of bidding credits, a partitionee's repayment obligations will vary depending on its entrepreneurial status. If an entrepreneur licensee making installment payments partitions a portion of its licensed area at any time to an entrepreneur that does not meet the applicable installment payment eligibility standards, we will require payment of principal and interest based upon a ratio of the population of the partitioned area to the overall population of the licensed area. If an entrepreneur licensee making installment payments partions to an entity that would qualify for less favorable installment payment terms, we will require the licensee to reimburse the government for the difference between the installment payment paid by the licensee and the installment payments for which the partitionee is eligible, based upon the ratio of population of the partitioned area to the overall population of the licensed area. 35. Installment Payment Issues. In partitioning cases involving installment payments, we must decide how to divide the installment payment obligations between the original licensee and the partitionee, as well as determine the procedures for default in making the payments. We find that separating the payment obligations and default provisions of the original licensee and partitionee is the best approach because it reduces each party's risk and creates payment obligations that can be enforced separately against the defaulting party without adversely affecting the other licensee. We adopt the following rules to address the various combinations of parties and the relative obligations for each in the event an entrepreneur seeks to partition its license: (a) No Continued Installment Payments. When an entrepreneur block licensee with installment payments partitions its license after the five-year holding period to a party that would not qualify for installment payments under our rules or to an entity that does not desire to pay for its share of the license with installment payments, we will first apportion the percentage of the remaining government obligation (including accrued and unpaid interest calculated on the date the partial assignment application is filed) between the partitionee and original licensee based upon the ratio of the population of the partitioned area to the population of the entire original licensed area. Under this procedure, both parties will be responsible to the U.S. Treasury for their proportionate share of the balance due including accrued and unpaid interest calculated on the date the partial assignment application is filed. We will require, as a condition of grant of the partial assignment application, that the partitionee pay its entire pro rata amount within 30 days of Public Notice conditionally granting the partial assignment application. Failure to meet this condition will result in the automatic cancellation of the grant of the partial assignment application. The partitioner will receive new financing documents (promissory note and security agreement) with a revised payment obligation, based on the remaining amount of time on the original installment payment schedule. These financing documents will replace the partitioner's existing financing documents which will be marked "superseded" and returned to the licensee upon receipt of the new financing documents. The original interest rate, established at the time of the issuance of the initial license in the market, will continue to be applied to the partitioner's portion of the remaining government obligation. We will require, as a further condition to approval of the partial assignment application, that the partitioner execute and return to the U.S. Treasury the new financing documents within 30 days of the Public Notice conditionally granting the partial assignment application. Failure to meet this condition will result in the automatic cancellation of the grant of the partial assignment application. A default on an obligation will only affect that portion of the market area held by the defaulting party. The payments to the U.S. Treasury are required notwithstanding any additional terms and conditions agreed to between or among the parties. (b) Partitioning With Continued Installment Payments. Where both parties to the partitioning arrangement qualify for installment payments under Section 24.720(b)(1), we will permit the partitionee to make installment payments on its portion of the remaining government obligation. Partitionees are free, however, to make a lump sum payment of their pro rata portion of the remaining government obligation within 30 days of the Public Notice conditionally granting the partial assignment application. Should a partitionee choose to make installment payments, we will require, as a condition to approval of the partial assignment application, that both parties execute financing documents (promissory note and security agreement) agreeing to pay the U.S. Treasury their pro rata portion of the balance due (including accrued and unpaid interest on the date the partial assignment application is filed) based upon the installment payment terms for which they would qualify. These documents must be executed and returned to the U.S. Treasury within 30 days of the Public Notice conditionally granting the partial assignment application. Either party's failure to meet this condition will result in the automatic cancellation of the grant of the partial assignment application. The original interest rate, established at the time of the issuance of the initial license in the market, will apply to both parties' portion of the remaining government obligation. Each party will receive a license for its portion of the market area and each party's financing documents will provide that a default on its obligation would only affect their portion of the market area. These payments to the U.S. Treasury are required notwithstanding any additional terms and conditions agreed to between or among the parties. 3. Construction Requirements 36. Proposal. Under our existing rules, PCS licensees are required to meet minimum construction requirements. PCS licensees in A, B, and C blocks must provide coverage to one-third of the population of the license area within five years and two-thirds of the population of the license area within ten years. PCS licensees in the D, E, and F blocks are required to provide coverage to one-fourth of the population of the license area within five years, or, alternatively, they may submit a showing demonstrating that they are providing substantial service as defined in our rules. 37. In the Notice, we proposed that both the partitioners and partitionees have two construction options to choose from when they submit their partitioning application. Under the first option, the partitioner and partitionee would be subject to the same construction requirements for their respective areas regardless of when the partitionee acquired its license. Thus, the partitionee of a 30 MHz broadband PCS license would be required to provide service to one-third of the population of its partitioned license area within five years of the license term and two-thirds of the population by the end of the ten-year license term. A partitionee of a 10 MHz broadband PCS license would have to provide service to one-fourth of the population in its partitioned area or make a showing of substantial service at the five-year benchmark. 38. Under the second option, we proposed more modest build-out requirements for a partitioned area where the original licensee has already met its five-year construction requirements and certifies in the partitioning application that it will meet the ten-year construction requirements for its entire license area. Because the original licensee would maintain its original coverage commitment with respect to the entire licensing area under this option, we tentatively concluded that the partitionee should be subject to a relaxed build-out requirement. In those cases, we proposed that the partitionee be required only to satisfy the substantial service requirement for renewal expectancy by the end of the ten-year license term. 39. Comments. Several commenters support the Commission's proposal to offer two construction options. AT&T Wireless contends that the Commission should adopt only the second option. Carolina Independents argue that imposing construction requirements on the partitioned licenses would impose greater obligations in partitioned areas than in non-partitioned areas. Carolina Independents argues that while initial licensees only have to serve a large, populous city in order to meet the construction requirements, partitioned licensees must meet construction require- ments in less populous areas, potentially with more difficult terrain, thus making compliance with the Commission's time frames impractical. 40. BellSouth and Western Wireless support the construction build-out proposal in the Notice with certain modifications. BellSouth suggests that the partitionees should have a choice between either option one or a modified version of option two whereby the parties mutually agree that they will meet the five-year and ten-year construction requirements, and the partitionee is only required to meet a more flexible ten-year construction requirement based upon population rather than substantial service. Western Wireless suggests a single construction option whereby a partitionee would be obligated to satisfy the same construction requirements as the original licensee but would be eligible for an automatic extension of time equal to the time that had lapsed between the dates of the original license grant and the date of the partitioning transfer. 41. Discussion. Given the support of several commenters, we will adopt the two alternative construction options set forth in our Notice, with some modification. Under the first option, the partitionee certifies that it will satisfy the same construction requirements as the original licensee. The partitionee then must meet the same five- and ten-year service requirements as the original 10 MHz or 30 MHz licensee in its partitioned area, while the partitioner remains responsible for meeting those requirements in the area it has retained. Under the second option, the partitioner certifies that it has already met or will meet its five-year construction requirement and that it will meet the ten-year construction requirement for the entire market. Because the partitioner retains the responsibility for meeting the construction requirements for the entire market, the partitionee will only be required to meet the substantial service requirement for its partitioned area at the end of the ten-year license term. The definition of substantial service will be that definition found at Section 24.16(a) of the rules. If a partitionee fails to meet its construction requirements, the license for the partitioned area will automatically cancel without further Commission action. 42. These construction requirements are sufficiently flexible to increase the viability and value of partitioned licenses and will facilitate partitioning, while continuing to prevent circumvention of our construction requirements. Licensees will have economic incentives to construct their systems rapidly and introduce service in their market areas because they have purchased their partitioned license areas. At the five-year benchmark, partitionees are required to file supporting documentation showing compliance with the construction requirements. Licensees failing to meet the coverage requirements will be subject to forfeiture, license cancellation, or other penalties. B. Disaggregation 1. Timing of Disaggregation 43. Proposal. Under our existing rules, broadband PCS licensees are not permitted to disaggregate spectrum until after January 1, 2000, and only after the licensee has met its five-year construction requirement. The Commission had previously concluded that allowing immediate disaggregation may impede competition in the provision of broadband PCS. In the Notice, we sought comment as to whether these restrictions are still necessary. We tentatively concluded that such restrictions may no longer be warranted. We found that disaggregation may actually lead to increased competition because it will enable additional entities to provide broadband PCS service within geographic market areas. As such, we tentatively concluded that our prohibitions on disaggregation may constitute a barrier to entry for small businesses and we proposed to eliminate them. 44. Comments. Commenters support the proposals in the Notice to allow immediate disaggregation and eliminate the requirement that a licensee have met its five-year construction requirement prior to disaggregating. PCIA contends that the current time limitations are no longer necessary and allowing earlier disaggregation will invigorate rather than impede competition. PCIA also contends that these actions will remove market barriers to achieve the objective of Section 257 of the Communications Act. 45. Discussion. We conclude that disaggregation of broadband PCS spectrum should be allowed prior to January 1, 2000, and that the condition that the licensee must first satisfy the five- year build out requirement before disaggregating should be eliminated. To the extent that disaggregation would enable other entities to provide broadband PCS within geographic market areas, we find that allowing immediate disaggregation would encourage rather than impede competition by enabling the entry of new competitors. Moreover, our current prohibition on disaggregation may constitute a barrier to entry for small businesses that lacked the resources to participate successfully at auction for 30 MHz and 10 MHz spectrum blocks. In furtherance of the mandate prescribed by Section 257 of the Communications Act, we are eliminating such market entry barriers by permitting non-entrepreneur block (A, B, D, and E block) PCS licensees to disaggregate spectrum at any time to other entities with minimum eligibility qualifications. Entrepreneur block (C and F block) licensees may disaggregate at any time to other entrepreneurs, or to non-entrepreneurs after a five-year holding period. Eliminating the current disaggregation restrictions will further the goals of reducing market entry barriers, ensuring efficient use of spectrum, expediting access to broadband PCS service, and encouraging competition. While we conclude that disaggregation should generally be allowed, we emphasize that all proposed disaggregation agreements, like partitioning agreements, will be subject to Commission review and approval under the public interest standard of Section 310 of the Act. In addition, as discussed below, disaggregatees will be subject to the CMRS spectrum cap to ensure that disaggregation is not used to accumulate large amounts of spectrum in order to preclude entry by other competitors. 2. Amount of Spectrum to Disaggregate 46. Proposal. In the Notice, we sought comment on the minimum amount of spectrum that a licensee may disaggregate. We proposed that licensees disaggregate frequencies in accordance with the pairings specified in our rules. We tentatively concluded that some grouping of frequency pairs is preferable for administrative purposes, otherwise the database necessary to track authorizations could become too cumbersome and complex and processing could be delayed or prone to error. Therefore, we tentatively concluded that we should not permit disaggregation for broadband PCS in blocks smaller than a 1 MHz block of paired frequencies (500 kHz on each frequency group), thus requiring the disaggregating licensee to retain a minimum of 1 MHz. 47. Comments. Some of the commenters agree with the proposal in the Notice that disaggregation should be in amounts of at least a 1 MHz block of paired frequencies. However, other commenters contend that disaggregation of smaller amounts of spectrum should be permit- ted. ITA and Motorola favor disaggregation in increments of 100 kHz each of paired spectrum (100 kHz plus 100 kHz for a total of 200 kHz). Motorola contends that the 1 MHz floor will unfairly advantage certain technologies over others and that the 100 kHz plus 100 kHz standard provides channels for nearly any transmission technology available. AirGate contends that disag- gregation of less than 5 MHz should not be permitted because most services require at least 10 MHz to carry voice traffic. PCS Wisconsin, Sprint, Omnipoint, and SR Telecom argue that there should be no limit on the amount of spectrum that can be disaggregated. 48. Discussion. We agree with the commenters that argue that there should be no restriction on the amount of broadband PCS spectrum that can be disaggregated. Providing the flexibility to allow parties to decide the exact amount of spectrum to be disaggregated is preferable because it will encourage more efficient use of spectrum and will permit the deployment of a broader mix of service offerings, leading to a more competitive wireless marketplace. We find that requiring parties to obtain disaggregated spectrum in a predetermined amount, such as a block of 1 MHz, may result in parties obtaining more spectrum they need, leaving some spectrum unused, and may foreclose some parties from using disaggregation as a means of obtaining the spectrum they need to provide their service offerings. We agree with Sprint that market forces and available technology, rather than regulation, should determine how much spectrum is disaggregated. Therefore, we will not restrict the amount of broadband PCS spectrum that can be disaggregated. Similarly, we will not require the disaggregator to retain a minimum amount of spectrum. While our broadband PCS rules do not contain specific channelization requirements, the rules do require compliance with emission limitations in the frequency bands immediately outside and adjacent to each of the broadband PCS frequency blocks. Therefore, while we will allow disaggregating parties to negotiate channelization plans among themselves as part of their disaggregation agreements, we will continue to require that such plans provide the necessary out-of-band emission protections to third party licensees as required by our rules. 49. We are not adopting a limit on the maximum amount of spectrum that licensees may disaggregate, provided that the disaggregatee complies with the CMRS spectrum cap. We find no evidence at this time that a maximum limitation for disaggregation is necessary. PCS licensees shall be permitted to disaggregate spectrum without limitation on the overall size of the disaggregation as long as such disaggregation is otherwise consistent with our rules. 3. Matters Relating to Entrepreneur Block Licensees 50. Proposal. Issues similar to those raised in partitioning concerning entrepreneur block licensees also arise in the context of disaggregation. As with partitioning, we tentatively concluded in the Notice that an entrepreneur block licensee should be allowed to disaggregate to other qualified parties at any time without restriction and to parties not eligible for entrepreneur block licenses after a five-year holding period. In addition, we concluded that entrepreneur block licensees that disaggregate to non-entrepreneurs after the five-year holding period should be subject to the Commission's unjust enrichment provisions on a proportional basis. In the Notice, we sought comment on how such unjust enrichment amounts should be calculated. 51. Comments. BellSouth argues that entrepreneurs should be able to disaggregate a portion of their spectrum to any entity eligible to hold a PCS license. Omnipoint argues that limiting disaggregation in the entrepreneur blocks will prevent entrepreneur licensees from swapping spectrum with other non-entrepreneur licensees in the same geographic market. Omnipoint further argues that the Commission should permit spectrum swaps for the same licensed area to permit PCS licensees to negotiate with other licensees in the market to avoid adjacent channel interference issues. Omnipoint suggests that permitting spectrum swapping for the same licensed area will lead to more efficient management of licenses and quicker introduction of PCS services. Most commenters agree that the unjust enrichment obligations should be applied on a proportional basis based upon the amount of spectrum transferred. 52. Discussion. In keeping with the proposals we are adopting in this Report and Order for partitioning, we will permit entrepreneur block licensees to disaggregate at any time to other parties that qualify as entrepreneurs. Disaggregation to entities that do not qualify as entrepreneurs is not permitted for the first five years of a license term. We disagree with BellSouth that this five-year holding period constitutes a barrier to entry into the PCS market. Entrepreneur block licensees will not be completely foreclosed from disaggregating spectrum, because they may disaggregate to other entrepreneurs without limitation and to non-entrepreneurs after the five-year holding period, subject to unjust enrichment obligations. Allowing unrestricted entrepreneur block disaggregation would be inconsistent with our five-year restriction on full license transfers to non-entrepreneurs which was designed to ensure that entrepreneurs do not take advantage of special entrepreneur block provisions by immediately seeking to transfer their licenses to non-entrepreneurs. We believe the same rational would apply to entrepreneur block disaggregation, as licensees who have benefitted from such provisions could immediately disaggregate spectrum to parties that would not qualify for such benefits. 53. We also decline to adopt Omnipoint's proposal to permit entrepreneur block licensees to swap equivalent blocks of entrepreneur spectrum with non-entrepreneurs within the same market area. The administrative burden of keeping track of such arrangements would far outweigh any benefit to the public. 54. We will follow the approach outlined for partitioning and apply unjust enrichment payments to entrepreneur block licensees that disaggregate to non-entrepreneurs after the five-year holding period and to entrepreneur block licensees that qualified for bidding credits and installment payments and that disaggregate to other entrepreneurs that would not have qualified for such benefits. All such unjust enrichment payments will be calculated based upon the ratio of the amount of spectrum disaggregated to the amount of spectrum retained by the original licensee. With respect to disaggregation from an entrepreneur block licensee to another entrepreneur that would also qualify for installment payments, we will adopt an approach similar to the one we adopted for partitioning. We will apportion the payment obligations between the disaggregator and disaggregatee based upon the amount of spectrum disaggregated and require separate payment obligations, promissory notes and default liabilities for each party. 4. Construction Requirements 55. Proposal. In the Notice, we considered two construction requirements for parties disaggregating spectrum. Under the first option, the disaggregatee obtaining spectrum from a 30 MHz licensee (A, B, or C block licensee) would be required to meet the same construction requirements as the original licensee: provide service to at least one-third of the population in the license area within five years of the license term and two-thirds of the population in the license area by the end of the ten-year license term. A disaggregatee that obtains spectrum from a 10 MHz licensee (D, E, or F block licensee) would have to provide adequate service to at least one-quarter of the population in the license area or make a showing of substantial service at the five-year bench- mark. 56. Under the second option, we proposed that if the original licensee had already met its five-year construction requirement and certifies that it will meet the ten-year construction requirement, the disaggregatee would be required only to satisfy the five-year construction requirement for the disaggregated spectrum by the end of the ten-year license term. If either the disaggregator or disaggregatee failed to meet its construction requirements, we proposed that that party's license would automatically cancel without further action by the Commission. 57. We tentatively concluded that this approach would prevent spectrum warehousing, expedite the introduction of broadband PCS service, and increase spectrum efficiency. We also proposed that the parties certify that the time remaining before the ten-year construction benchmarks is sufficient for them to meet the pertinent construction benchmarks for their respective licenses. Finally, we sought comment on how to handle construction requirements for disaggregatees who already possess a PCS license in the same geographic service area, and whether to apply disaggregation construction requirements to other CMRS licensees who obtain disaggregated PCS spectrum. 58. Comments. GTE supports the two construction options set forth in the Notice. BellSouth and AT&T Wireless, on the other hand, argue that the Commission should remove the five-year build-out requirement for disaggregation. AT&T Wireless contends that allowing flexibility in the coverage requirements would permit parties to pursue more risky competitive ventures and would result in the development of new technology and new services. BellSouth suggests if the disaggregated spectrum is 10 MHz or less, the Commission should apply the same coverage rules that apply to licensees of 10 MHz BTAs without regard to whether the original license is for 30 MHz or 10 MHz of spectrum. NextWave argues that the Commission should not base its construction requirements for disaggregated spectrum on whether the spectrum was originally licensed in 30 MHz or 10 MHz bandwidths but, rather, solely on bandwidth. Under NextWave's proposal, a disaggregatee that obtained its spectrum from a 30 MHz licensee would be subject to the same construction requirements as a disaggregatee that obtained its spectrum from a 10 MHz licensee, with the exception of having to provide service to at least one-quarter of the population or to make a showing of substantial service within the five-year benchmark. 59. Sprint suggests that the Commission allow relaxed construction requirements for new licensees even if the original licensee had not met the five-year build-out requirement, so long as the original licensee certifies that it will meet the five-year build-out requirement. Americall, in its Reply Comments, argues that disaggregated licensees should be freed from the construction obligations of the initial licensee. Americall contends that the parties should be allowed to allocate construction obligations among themselves through private agreement. 60. Discussion. We conclude that the proposed construction requirements for disaggregation set forth in the Notice would be inconsistent with the approach adopted in our partitioning rules, and that a more flexible approach is appropriate. The goal of our construction requirements in both the partitioning and disaggregation contexts is to ensure that the spectrum is used to the same degree that would have been required had the partitioning or disaggregation transaction not taken place. However, the construction requirements in our PCS rules treat geographic coverage and spectrum use differently: while our rules require PCS licensees to provide coverage to a certain amount of the population of their license areas within a specified time period, there is no requirement governing the amount of spectrum that licensees must use to meet this requirement. Thus, a licensee who disaggregates a portion of its spectrum block to another party may still meet its preexisting construction requirement in full by the using the spectrum it has retained. 61. Because our rules do not dictate a minimum level of spectrum usage by the original PCS licensee, we believe it would be inconsistent to impose separate construction requirements on both disaggregator and disaggregatee for their respective spectrum portions. This could inadvertently discourage disaggregation by imposing a heavier regulatory burden on parties who choose to disaggregate than was required of the original licensee. At the same time, we wish to ensure that the parties do not use disaggregation to circumvent our underlying construction requirements. Therefore, we adopt a flexible approach analogous to our approach in the partitioning context: we retain the underlying five and ten-year construction requirements for the spectrum block as a whole, but allow either party to meet the requirements on its disaggregated portion. Thus, a PCS licensee who disaggregates a portion of its spectrum may elect to retain responsibility for meeting the five and ten-year coverage requirements, or it may negotiate a transfer of this obligation to the disaggregatee. In either case, the rules ensure that the spectrum will be developed to at least the same degree that was required prior to disaggregation. 62. To ensure compliance with our rules, we will require that parties seeking Commission approval of a disaggregation agreement include a certification as to which party will be responsible for meeting the applicable five and ten-year construction requirements. Parties may also propose to share the responsibility for meeting the construction requirements. As part of our public interest review under Section 310(d), we will review each transaction to ensure that the party designated as responsible for meeting the construction requirements is bona fide and has the ability the meet these requirements. The specific requirements to be met will depend on whether the spectrum being disaggregated was originally licensed as a 30 Mhz block or a 10 MHz block. In the event that the only one party agrees to take responsibility for meeting the construction requirement and later fails to do so, that party's license will be subject to forfeiture, but the other party's license will not be affected. Should both parties agree to share the responsibility for meeting the construction requirements and either party later fail to do so, both parties' licenses will be subject to forfeiture. We decline to adopt the proposal set forth by some commenters that disaggregatees that already hold a broadband PCS license or other CMRS license in the same geographic market as the disaggregated spectrum should not be subject to a separate construction requirement for the disaggregated spectrum. So that our CMRS rules remain consistent and competitively neutral, disaggregatees that already hold a broadband PCS license or other CMRS license in the same geographic market will be subject to the same coverage requirements as disaggregatees who do not hold other licenses for disaggregated spectrum. C. RELATED MATTERS 1. Combination of Partitioning and Disaggregation 63. Proposal. We recognized in the Notice that parties may wish to use partitioning and disaggregation in combination. We tentatively concluded that we should permit such combinations and we sought comment on whether the partitioning rules should prevail whenever there is a conflict between the application of the partitioning and disaggregation rules. 64. Comments. Commenters agree that entities should be allowed to acquire both partitioned and disaggregated spectrum in the same markets. PCS Wisconsin argues, for example, that a party should be able to acquire 10 MHz of spectrum from a 30 MHz PCS license covering only one county of the licensee's license area. 65. Discussion. To allow parties flexibility to design the types of agreements they desire, we will permit combined partitioning and disaggregation. For example, this will allow a party to obtain a license for a single county of an A block market with only 15 MHz of spectrum. By allowing such combined partitioning and disaggregation, we believe that the goals of providing competitive service offerings, encouraging new market entrants, and ensuring quality service to the public will be advanced. We further conclude that in the event that there is a conflict in the application of the partitioning and disaggregation rules, the partitioning rules should prevail. For the purpose of applying our unjust enrichment requirements and/or for calculating obligations under installment payment plans, when a combined partitioning and disaggregation is proposed, we will use a combination of both population of the partitioned area and amount of spectrum disaggregated to make these pro rata calculations. 2. Licensing 66. Proposal. In the Notice, we proposed to follow existing partial assignment procedures for broadband PCS licenses when reviewing requests for partitioning, disaggregation, or a combination of both. Under our proposal, (1) the original licensee would file an FCC Form 490 signed by both parties; (2) the assignee would file an FCC Form 430, unless a current FCC Form 430 was on file for this party, and an FCC Form 600 defining the market area being partitioned or disaggregated; and (3) all forms would be filed together as one package under cover of the FCC Form 490. 67. Comments. GTE agrees that the current procedures and forms are sufficient to handle the filing requirements created by partitioning and disaggregation. 68. National Paging and Personal Communications Association (NPPCA) proposes that if a broadband PCS licensee and a non-small business entity enter into an agreement to partition and/or disaggregate, both parties should present a plan that includes measurable opportunities for small businesses, as that term is defined by the U.S. Small Business Administration. NPPCA proposes that the Commission appoint a spectrum oversight committee to review all such agreements between CMRS licensees and entities wanting to partition and/or disaggregate spectrum. The Committee would ensure compliance with the rules requiring that all agreements include measurable opportuni- ties for small businesses to receive reseller and/or agent agreements to provide products and services to the markets partitioned and/or disaggregated. NPPCA proposes that the oversight committee be comprised of Commission employees, small business representatives such as NPPCA, and service providers in the CMRS industry. 69. Discussion. We will adopt the licensing procedures set forth in our Notice without modification. We find that such procedures are easy to administer and provide an appropriate method for reviewing partitioning and disaggregation proposals. We decline to adopt the proposal of NPPCA to adopt a mandatory requirement that parties seeking the approval of a partitioning or disaggregation arrangement submit a plan which includes measurable opportunities for small businesses and that all such arrangements be reviewed by a CMRS spectrum oversight committee. We find that requiring that such information be filed or that an oversight committee review such transactions would discourage parties from entering into partitioning and disaggregation agreements since there would be no formal rules or policies to determine whether such agreements would be approved. This would stand as a substantial entry barrier to small businesses. We find that, under the application review procedures we adopt herein, all partitioning and disaggregation agreements will be subject to public comment and will be reviewed by the Commission for compliance with our rules. We conclude that market forces should dictate whether licensees enter into the types of reseller and agent agreements cited by NPPCA. 70. We will follow existing partial assignment procedures for broadband PCS licenses in reviewing requests for geographic partitioning, disaggregation, or a combination of both. Such applications will be placed on Public Notice and will be subject to petitions to deny. A licensee will be required to file an FCC Form 490 that is signed by both the licensee and the qualifying entity. With respect to partitioning, the FCC Form 490 must include the attachment defining the partitioned license area, as discussed in paragraph 24 infra. In addition, for partitioning, the FCC Form 490 must include an attachment demonstrating the population of the partitioned license area, as discussed in paragraph 24 infra. Partial assignment applications that are filed seeking partitioning or disaggregation in the entrepreneur blocks must include an attachment demonstrating compliance with the five year entrepreneur block holding period. The qualifying entity will also be required to file an FCC Form 430 unless a current FCC Form 430 is already on file with the Commission. An FCC Form 600 must be filed by the qualifying entity to receive authorization to operate in the market area being partitioned or to operate the disaggregated spectrum or to modify an existing license of the qualifying entity to include the new/additional market area being partitioned or the spectrum that is disaggregated. Any requests for a partitioned license or disaggregated spectrum must contain the FCC Forms 490, 430, and 600 and be filed as one package under cover of the FCC Form 490. 71. The 45 MHz CMRS spectrum cap contained in Section 20.6 of the rules applies to partitioned license areas and disaggregated spectrum. We note that, in the context of partitioning, we will determine compliance with the spectrum cap based on the post-partitioning populations of each licensees' partitioned market. This means that neither the partitioner nor the partitionee may count the population in the other party's portion of the market in determining its own compliance with the spectrum cap. Furthermore, by signing FCC Forms 490 and 600, the parties will certify that grant of the partial assignment application would not cause either party to be in violation of the spectrum aggregation limit contained in Section 20.6 of the rules. 3. License Term 72. Proposal. PCS licenses are issued for initial ten-year terms. after which the PCS licensee may seek to renew its license for an additional ten-year term. If the licensee demonstrates that it has provided substantial service during its past license term and has substantially complied with the Commission's rules, policies, and the Communications Act, it is granted a renewal expectancy. Substantial service is defined as service that is sound, favorable, and substantially above a level of mediocre service that might just minimally warrant renewal. In the Notice, we proposed that partitionees be authorized to hold their licenses for the remainder of the partitioner's original ten-year license term and that they be granted a similar renewal expectancy based on the substantial service standard. We proposed that parties acquiring disaggregated spectrum would hold their licenses for the remainder of the disaggregator's original license term and would be afforded the same renewal expectancy as other PCS licensees. We sought comment on whether a licensee acquiring spectrum in a geographic area in which it is already a licensee should be allowed to apply its original license term to the newly-acquired spectrum. 73. Comments. Most commenters support the proposal in the Notice to establish license terms that will allow a partitionee to hold its license for the remainder of the original licensee's ten- year license term. AT&T Wireless and NextWave argue, however, that an existing broadband PCS licensee that acquires a partitioned licensed or disaggregated portion of spectrum in a market in which it is already a licensee should be allowed to apply its original license term to the partitioned license or disaggregated spectrum. If substantial service requirements have not been met, PCS Wisconsin contends that the partitioned area should revert to the original license holder. 74. Several commenters agree with the proposal to apply the remaining license term of the original license to disaggregated spectrum. Sprint contends that disaggregated licensees should be granted a new ten-year license term to run from the date of disaggregation. Commenters agree that disaggregated licensees should be granted the same renewal expectancy as the original licensees. Sprint also agrees with the proposal in the Notice to permit disaggregating licensees with existing licenses in the same area to hold the newly disaggregated spectrum for the term of that licensee's original PCS license. 75. Discussion. We will allow partitionees and disaggregatees to hold their licenses for the remainder of the original licensee's ten-year license term. Partitionees and disaggregatees may also earn a renewal expectancy on the same basis as other PCS licensees. We note that this approach is similar to the existing partitioning provisions for rural telcos and to the partitioning provisions we recently adopted for MDS. This is also consistent with the licensing rules for full and partial transfers or assignments in paging, narrowband PCS, and broadband PCS. 76. We conclude that this approach is the easiest to administer and prevents a PCS licensee from obtaining greater license rights than were originally granted under the terms of the original license, while allowing existing PCS licensees flexibility to manage their licenses using market principles. We decline to adopt Sprint's proposal to grant a disaggregatee a new ten-year license term beginning from the date it acquires disaggregated spectrum. To permit parties acquiring disaggregated spectrum to "re-start" the license term from the date of the grant of the partial assignment application could unnecessarily delay service to the affected areas. We believe our action will prevent licensees from using partitioning and disaggregation to circumvent our established license term rules. Businesses contemplating entry into the PCS market would have minimum incentive, under Sprint's approach, to quickly utilize all of their available spectrum if they could wait until the end of their license terms to enter into a partitioning or disaggregation agreement and grant the partitionee or disaggregatee a new ten-year license term. By limiting the license term of the partitionee or disaggregatee, we ensure that there will be maximum incentive for parties to pursue available spectrum as quickly as practicable, thus expediting the delivery of PCS services to the public. 77. We also decline to adopt AT&T Wireless and NextWave's proposals to permit an existing broadband PCS licensee acquiring a partitioned license or disaggregated spectrum in a market in which it is already a licensee to apply its original license term to the partitioned license or spectrum. Such a proposal would be burdensome to administer because the processing staff would be required to determine the licensee's other licenses in the market and calculate the correct expiration date for the partitioned or disaggregated license. We find that such an administrative burden would outweigh the benefit that may result from such a proposal. 4. Technical Rules 78. Proposal. In the Notice, we proposed that our current technical rules for service area boundary limits and protections as well as coordination and negotiation between licensees, be applied to partitioned license areas. We sought comment on what changes, if any, were needed in our interference and other operational rules. 79. Comments. Motorola argues that disaggregation rules should be both technology and application neutral. To allow optimum usage of the spectrum and the broadest choice of technolo- gy, Motorola contends the rules should be flexible to permit deployment of any technology for any intended use. 80. Discussion. We find that our existing technical rules are sufficient for application in the partitioning and disaggregation contexts and that no additional technical rules are required at this time. Should technical difficulties arise, however, we shall take whatever action is necessary to alleviate any technical or interference problems that result from partitioning or disaggregation, including appropriate modifications to our technical rules. 5. Microwave Relocation 81. Overview. In the Notice, we sought comments on how to implement the microwave cost sharing plan for partitionees and disaggregatees. We noted that, under the plan, later entrant PCS licensees will be required to pay reimbursement costs when they have actually benefitted from the spectrum-clearing efforts of another party, according to a cost-sharing formula that takes into account the amounts paid to relocate a particular microwave link and the number of PCS licensees that would have interfered with the link. We tentatively concluded that a new entrant, such as a partitionee or disaggregatee, should be treated as any other later entrant PCS licensee for purposes of the relocation cost-sharing plan. 82. Comments. The American Petroleum Institute (API), a national trade association representing approximately 300 companies in the petroleum and natural gas industry, urges the Commission to safeguard the integrity of the microwave relocation cost-sharing plan recently adopted in WT Docket No. 95-157. API observes that a license transferee, with limited resources, would be more likely to default on the cost-sharing reimbursement obligations, thus denying the relocators and self-relocating incumbents the reimbursement payments to which they are entitled. API also notes that a further impediment to cost-sharing would be that the initial relocators may be required to obtain reimbursement from many more parties than originally anticipated, which could result in delays. API recommends that the PCS auction winners that partition and/or disaggregate their licenses retain all their cost-sharing reimbursement responsibilities associated with the entire original license area and spectrum block. The original licensee would be able to seek compensation from the entities to whom they transferred license rights. API also asks the Commission to clarify that the recipients of partitioned and/or disaggregated licenses are required to protect microwave incumbents from harmful interference in accordance with the Commission's rules. API additionally suggests that the original licensee should have ultimate responsibility for resolving interference problems. 83. API supports the proposal in the Notice that new entrant licensees may satisfy their cost- sharing obligations with installment payments if the transferee would be eligible for an installment plan equivalent to that enjoyed by the transferring licensee, but only to the extent that, if the transferring licensee was not eligible for installment payments, the transferee also would be ineligible. API also argues that the transferee of an entrepreneurial block license should not be entitled to a more generous installment payment plan than that available to the original licensee. 84. UTC also asks the Commission to clarify that partitionees and disaggregatees must comply with the established requirements to coordinate with and protect the operations of incumbent fixed microwave licensees and to comply with the microwave relocation policies set forth by the Commission. UTC suggests that to ensure that partitionees and disaggregatees are aware of their obligations to protect and, if necessary, relocate incumbent fixed microwave systems, the parties to any assignment or transfer application should be required to identify in the application all microwave facilities with which the proposed partitionee/disaggregatee may have to coordinate. 85. CTIA and GTE contend that new entrants to PCS should be treated equally with respect to microwave relocation issues. Sprint agrees with the Commission's proposal to subject new entrants under partitioning and disaggregation to microwave relocation cost-sharing. Sprint contends that the new entrants should only pay for those relocations where they would actually cause interference. PCIA, in Reply Comments, disagrees with API's proposal that auction winners should retain ultimate responsibility for cost-sharing obligations, and contends that a new entrant who gains its license through partitioning or disaggregation should be treated as any other subsequent PCS licensee for purposes of microwave relocation cost-sharing. PCIA agrees with the proposal in the Notice that the later entrants should have the obligation to reimburse the initial licensee if they have benefitted from the spectrum-clearing efforts of another party. 86. API, in Reply Comments, states that it is not opposed to the participation of PCS license transferees in the cost-sharing plan, provided that the initial PCS licensees are charged with the ultimate responsibility for the cost-sharing obligations. API notes that the PCS auction winners have assumed certain obligations and responsibilities with respect to the entire license area and spectrum block. API argues that if the PCS licensees do not want to guarantee the relocation costs for the entire service area or spectrum block, they can either not partition and/or disaggregate, or they can demand compensation from the transferee. 87. Discussion. We conclude that partitionees and disaggregatees should be treated the same as all other PCS licensees with respect to microwave relocation issues. In particular, partitionees will have the same rights and obligations as other broadband PCS licensees under the cost-sharing plan adopted in Microwave Relocation First Report and Order. Thus, partitionees and disaggregatees may seek reimbursement under the plan if they relocate incumbents and they will be required to pay their share of microwave relocation costs if they benefit from the spectrum-clearing efforts of another party, according to the cost-sharing formula adopted by the Commission. 88. We decline to follow API's suggestion that the original PCS licensee be required to guarantee payments under the cost-sharing plan by the partitionee or disaggregatee. To require licensees to guarantee such payments would be unfair because the original licensees would have no control over the actions of the partitionees and disaggregatees. API has not given any reason that partitionees and disaggregatees should be treated differently than other late-entrant PCS licensees with respect to microwave relocation costs. We find that API's proposal would unnecessarily complicate our existing microwave relocation cost-sharing plan without any public interest benefit. 6. Clearinghouse for Spectrum 89. Proposal. In the Notice, we observed that from time to time, the Commission has received requests for limited or discrete amounts of spectrum, sometimes for small geographic areas. We sought comment on whether we should establish an electronic database accessible to the public with information about licensed PCS spectrum and whether we should encourage the development of private clearinghouses of PCS spectrum information. 90. Comments. Commenters support the idea of independent clearinghouses for information on geographic areas open for partitioning and spectrum available through disaggregation. NRTC states that it would be well-positioned to serve as spectrum clearinghouse and would be willing to comply with any Commission requirements. ITA, in its Reply Comments, notes that PCIA and ITA have been designated clearinghouses for microwave relocation and suggests that the Commission should create a similar clearinghouse in this proceeding for partitioned area and disaggregated spectrum. 91. Discussion. The record demonstrates support for making information on licensed PCS spectrum contained in the Commission's database more readily accessible to the public. While we decline to create a Commission-based resource of information, we will continue to make available, in a user-friendly manner, information contained in our existing databases, concerning geographic areas open to partitioning and spectrum that would be available through disaggregation. We believe that such information will benefit businesses seeking to enter the PCS marketplace, as well as the general public. We also believe that such information will help to speed the delivery of broadband PCS service to underserved and unserved areas, as parties interested in providing service to such areas will be able to use the information in the database to design their systems. Although a few entities have offered to serve as commercial clearinghouses of PCS spectrum information, we decline to establish an official Commission clearinghouse. Nevertheless, we encourage private entities to develop their own databases of information on partitioning and disaggregation. V. FURTHER NOTICE OF PROPOSED RULEMAKING A. Introduction 92. In the preceding Report and Order, we expand our rules to permit geographic partitioning and disaggregation for broadband PCS licensees. We have previously examined partitioning and disaggregation issues for other services on a per-service basis. As we noted in the Report and Order, we presently permit, or are seeking comment on, geographic partitioning and spectrum disaggregation for most wireless services, including Multipoint Distribution Service (MDS), General Wireless Communications Service (GWCS), 800 MHz Specialized Mobile Radio (SMR), paging, 220 MHz, 900 MHz SMR, 38 GHz fixed point-to-point microwave, and the Wireless Communications Service (WCS). However, there are other services in which partitioning and disaggregation have either not been proposed or have been adopted on a more limited basis than the PCS rules we adopt today. For example, while partitioning is allowed for cellular licensees, there are no rules on disaggregation. Similarly, GWCS licensees are permitted to partition only to rural telcos and currently there is no rule for GWCS disaggregation. 93. We believe that it is appropriate at this time to consider whether to permit full partitioning and disaggregation in cellular, GWCS and any other services that are licensed on a geographic area basis, or in spectrum blocks of sufficient size to make disaggregation practical. As we indicate in the Report and Order, we find partitioning and disaggregation to be an effective means of providing PCS licensees with the flexibility they need to tailor their service offerings to meet market demands. In addition, the Report and Order concludes that partitioning and disaggregation may be used to overcome entry barriers through the creation of smaller licenses that require less capital, thereby facilitating greater participation by small businesses, rural telcos, and minority- and female-owned businesses. Therefore, we seek comment on whether these benefits similarly justify extension of partitioning and disaggregation to other services. B. Discussion 1. Partitioning and Disaggregation for Cellular and GWCS Services 94. Cellular. We seek comment as to whether to permit cellular disaggregation. Commenters should address whether there are technical or other constraints, unique to the cellular service, that would make disaggregation either impractical or administratively burdensome. Commenters should address whether regulatory or technological changes expected in the near future may provide the opportunity for cellular licensees to disaggregate portions of their licensed spectrum to other parties. For example, the Commission recently concluded that cellular providers should have the flexibility to provide both fixed and mobile services. We seek comment as to whether such regulatory changes may create a demand for cellular disaggregation and whether, in anticipation of such changes, the Commission should adopt interim disaggregation rules for cellular. 95. GWCS. In the GWCS Second Report and Order, we adopted partitioning rules for GWCS licensees but we limited partitioning only to the rural telcos. Maximum Service Television, Inc. (MSTV) filed a Petition for Reconsideration of the GWCS Second Report and Order requesting, inter alia, that the Commission permit GWCS licensees to freely partition their licenses to entities other than rural telcos. We agree with MSTV that allowing more open partitioning of GWCS licensees may add flexibility to the service and allow the spectrum to be used more efficiently, however, there are specific questions that must be resolved before open partitioning of GWCS licenses can be implemented. We shall examine those questions in this proceeding. 96. In this Further Notice of Proposed Rulemaking, we seek comment as to whether open partitioning of GWCS licenses should be permitted similar to the proposal for open partitioning we have adopted herein for broadband PCS licensees. In addition, we seek comment as to whether GWCS licensees should be permitted to disaggregate their spectrum. We also seek comment as to whether there are technical or regulatory constraints unique to the GWCS service that would render disaggregation impractical or administratively burdensome. Further, we recognize that there are special competitive bidding issues, similar to those raised in the broadband PCS context, that must be resolved if we permit open partitioning and disaggregation for GWCS. We shall address those issues separately in paragraphs 110 through 111 infra. 2. Available License Area 97. In the Report and Order, we find that allowing partitioning of broadband PCS licenses along any service area defined by the parties is the most logical approach. We conclude that allowing the parties to define the partitioned PCS service area would enable licensees to design flexible and efficient partitioning agreements which would permit marketplace forces to determine the most suitable service areas. Section 22.947(b) of the rules provides that a cellular licensee may partition portions of its cellular market to other eligible parties. The parties are free to define the license area or "CGSA" of the new partitioned cellular system. Because the cellular partitioning rule is sufficiently flexible to permit parties to freely define the partitioned license area, we do not propose to modify the cellular rules at this time. 98. GWCS service areas are based on Economic Areas. Similar to the former rule for broadband PCS partitioning, GWCS licensees must partition along an established geopolitical boundary, such as county lines, the partitioned area must include the wireline service area of the rural telco and it must be reasonably related to the rural telco's wireline service area. In the Report and Order we eliminate the restriction that limited partitioning of broadband PCS licenses to rural telcos and we find that requiring PCS partitioning along county lines may be too restrictive and, therefore, may discourage partitioning. We seek comment on whether and how our existing partitioning rule for GWCS, which requires partitioning along established geopolitical boundaries and along an area that is reasonably related to a rural telco's wireline service area, should be modified, if we choose to open partitioning of GWCS licenses to entities other than rural telcos. We tentatively conclude that a more flexible approach, similar to the one we adopted for broadband PCS, is appropriate for GWCS. Partitioning of GWCS licenses would be permitted based on any license area defined by the parties. We seek comment on whether this proposal is consistent with our licensing of GWCS based on Economic Areas and whether there are any technical or other issues unique to GWCS that might impede the adoption of a flexible approach to defining the partitioned license area. 3. Amount of Spectrum to Disaggregate 99. We seek comment as to whether minimum disaggregation standards are necessary for cellular and GWCS. We seek to determine whether technological and administrative considerations warrant the adoption of such standards. Cellular licenses are currently issued for a 25 MHz block of spectrum and GWCS licenses for 5 MHz blocks. GWCS licensees are also permitted to obtain multiple 5 MHz blocks and are subject to a 15 MHz GWCS spectrum aggregation limit. We find that any such standards we adopt should be sufficiently flexible so as to encourage disaggregation while providing a standard which is consistent with our technical rules and by which the Commission will be able to track disaggregated spectrum and review disaggregation proposals in an expeditious fashion. 4. Combined Partitioning and Disaggregation 100. We seek comment as to whether combined partitioning and disaggregation should be permitted for cellular and GWCS services. We tentatively conclude that we should permit such combinations to provide parties the flexibility they need to respond to market forces and demands for service relevant to their particular locations and service offerings. 5. Construction Requirements 101. Cellular. The cellular service has a unique procedure for ensuring that a licensee provides service to its entire market. A cellular licensee has the exclusive right, for the first five years following the issuance of the initial authorization for the first cellular system in its market (the "five-year build-out period"), to expand its system within its market. After that five year period expires, eligible parties are allowed to file applications (generally referred to as "unserved area" or "Phase II" applications) for any portion of the cellular market that is unserved. This procedure encourages cellular licensees to build-out their entire market or risk losing an unserved area to another party. With respect to partitioning, whenever a partitioning agreement is executed, the parties must define in their agreements whether the partitioner shall retain the "expansion rights" for the partitioned portion of the market or whether the partitionee shall have those rights. Should the partitionee obtain the expansion rights for all or some of the unserved portion of the market, the partitionee would have the remainder of the original licensee's five-year build-out period to complete expansion to the remaining unserved portion of the market or be subject to unserved area applications. The cellular licensee must, therefore, decide whether to retain the rights to build-out the remaining unserved portion of its market or whether to cede those rights to the partitionee who will take responsibility for build-out. 102. While we do not propose to modify our existing cellular build-out procedures, we seek comment as to whether the cellular partitioning rule is sufficiently flexible to increase the viability and value of partitioned cellular licenses and to facilitate cellular partitioning while preventing circumvention of the cellular build-out procedures. We invite comment as to whether the existing cellular rules might be amended to further facilitate cellular partitioning and what types of alternative partitioning mechanisms might be adopted. 103. In addition, we seek comment as to whether we should adopt a disaggregation certification procedure similar to the type adopted for broadband PCS. We propose requiring parties seeking Commission approval of a cellular disaggregation agreement to include a certification as to which party will be responsible for building out the remainder of the market. Should that party fail to build out, we propose that the unserved portion of the market would be subject to Phase II or unserved area applications. We seek comment as to whether such an approach is feasible for cellular disaggregation given the distinctive nature of the cellular build-out rules. 104. GWCS. The GWCS service has construction requirements that are similar to those for broadband PCS. A GWCS licensee must offer service to one-third of the population in the area in which it is licensed within five years of its initial license grant date and offer service to two-thirds of the population in the area in which it is licensed within ten years of its initial license grant date. A partitionee is responsible for meeting the construction requirements for its partitioned area. In the Report and Order, we adopt two construction options for broadband PCS partitioning and a certification procedure for broadband PCS disaggregation. These procedures give the parties the flexibility to choose how to apportion the responsibility for meeting our broadband PCS construction requirements. In addition, we require that, at the five-year benchmark, broadband PCS partitionees file supporting documentation showing compliance with the construction requirements. Since the construction requirements for GWCS are similar to those for broadband PCS, we seek comment as to whether we should amend our existing partitioning rule for GWCS to allow dual construction options for GWCS partitioning and adopt a certification procedure for GWCS disaggregation similar to the procedure we have adopted for broadband PCS. 105. For example, under the first construction option for GWCS partitioning, the partitionee would certify that it will satisfy the same construction requirement as the original GWCS licensee for its partitioned license area. Under the second construction option, the original GWCS licensee may certify that it has or will meet its five-year construction requirement and that it will meet the ten-year construction requirement for the entire license area. Since the original GWCS licensee retains responsibility for meeting the construction requirements, we believe that the partitionee should be permitted to meet a less substantial construction requirement. We seek comment as to what lesser construction requirement would be appropriate. In the broadband PCS rules we adopt in the Report and Order, the partitionee must only meet the substantial service requirement for renewal expectancy for the partitioned license area. Since there is a similar substantial service renewal expectancy standard for GWCS licensees, we propose to adopt the same reduced construction requirements for GWCS partitionees. 106. As for GWCS disaggregation, we propose adopting a procedure similar to the one adopted for broadband PCS and proposed for cellular. Under such an approach, the disaggregating parties would be required to submit a certification, signed by both the disaggregator and disaggregatee, as to which of the parties will retain responsibility for meeting the five and ten-year construction requirements for the GWCS market. The parties would be permitted to share responsibility for meeting the construction requirements. The party or parties taking responsibility for meeting the construction requirements would be subject to license forfeiture for failing to meet the construction requirements. 6. License Term 107. Both cellular and GWCS licenses are granted for ten year terms, after which the licensee may seek to renew its license for an additional ten-year term. Both cellular and GWCS licensees that demonstrate that they have provided substantial service during their past license terms and have substantially complied with the Commission's rules, policies, and the Communications Act, will be granted a renewal expectancy. Neither the cellular nor GWCS rules specifically state the license term or the renewal procedure for partitioned licensees. In the cellular context, the procedure has been for the partitioned license term to begin anew from the date the partial assignment application is granted. 108. In the Report and Order, we find that allowing parties acquiring a partitioned license or disaggregated spectrum to "re-start" the license term from the date of the grant of the partial assignment application could allow parties to circumvent our established license term rules and unnecessarily delay service. We seek comment as to whether our cellular and GWCS rules should be similarly amended to provide that parties obtaining partitioned cellular or GWCS licenses or disaggregated spectrum hold their license for the remainder of the original licensee's ten-year license term. In addition, we seek comment as to whether GWCS partitionees and disaggregatees should be afforded the same renewal expectancy as other GWCS licensees. We tentatively conclude that limiting the license term of the partitionee or disaggregatee is necessary to ensure that there is maximum incentive for parties to pursue available spectrum as quickly as practicable. 7. GWCS Competitive Bidding Issues 109. Unique competitive bidding issues, similar to those in broadband PCS, arise in the context of GWCS partitioning and disaggregation. Our competitive bidding rules for GWCS include provisions for installment payments and bidding credits for designated entities. We adopted rules to prevent unjust enrichment by designated entities seeking to transfer licenses obtained through use of one of these special benefits. We tentatively conclude that GWCS partitionees and disaggregatees that would qualify as designated entities should be permitted to pay their pro rata share of the remaining government obligation via installment payments. We seek comment as to the exact mechanisms for apportioning the remaining government obligation between the parties and whether there are any unique circumstances that would make devising such a scheme for the GWCS service more difficult than for broadband PCS. Since GWCS service areas are allotted on a geographic basis, similar to broadband PCS, we propose using population as the objective measure to calculate the relative value of the partitioned area and amount of spectrum disaggregated as the objective measure for disaggregation. 110. We seek comment on whether to apply unjust enrichment rules to designated entity GWCS licensees that partition or disaggregate to non-designated entities. Commenters should address whether the unjust enrichment payments should be calculated on a proportional basis, using population of the partitioned area and amount of spectrum disaggregated as the objective measures. We further seek comment as to how to enforce unjust enrichment payments for designated entity GWCS licensees paying via installment payments and those that were awarded bidding credits that partition or disaggregate to non-designated entities. We tentatively propose using methods similar to those adopted for broadband PCS for calculating the amount of the unjust enrichment payments that must be paid in those circumstances. 8. Licensing Issues 111. Partial assignment procedures are not used for cellular partitioning. Instead, whenever a cellular licensee enters into a partitioning agreement, the partitionee must file an application (FCC Form 600) for a new cellular system covering the partitioned market. Since this procedure provides the appropriate level of review of the partitioning transaction, we propose no modification at this time. However, should we permit cellular disaggregation, we seek comment on the method we should devise for reviewing cellular disaggregation transactions. 112. Since there are existing partial assignment rules for both cellular and GWCS, we propose utilizing partial assignment procedures, similar to those adopted for broadband PCS, to review cellular disaggregation and GWCS partitioning and disaggregation transactions. Partial assignment applications would be placed on public notice and subject to petitions to deny. The parties would be required to submit an FCC Form 490, an FCC Form 600 and, if necessary, an FCC Form 430, together as one package under cover of the FCC Form 490. We invite comment whether any additional procedures are necessary for reviewing these applications. VI. CONCLUSION 113. The partitioning and disaggregation proposals we have adopted herein are consistent with a pro-competitive policy framework. These rules will eliminate barriers to entry for small businesses seeking to enter the PCS marketplace and will promote the rapid creation of a competitive market for the provision of PCS services. These rules also meet the Congressional objectives to further the rapid development of new technologies for the benefit of the public including those residing in rural areas, without administrative delay, to promote economic opportunity and competition, and to ensure that new technologies are available by avoiding excessive concentration of licenses. VII. PROCEDURAL MATTERS A. Ordering Clauses 114. Accordingly, IT IS ORDERED that, pursuant to the authority of Sections 4(i), 257, 303(g), 303(r), and 332(a) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 257, 303(g), 303(r), and 332(a), Part 24 of the Commission's Rules, 47 C.F.R.  24, IS AMENDED as set forth in Appendix B below. 115. Accordingly, IT IS ORDERED that, pursuant to the authority of Sections 4(i), 257, 303(g), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 257, 303(g), 303(r), and 309(j), a FURTHER NOTICE OF PROPOSED RULEMAKING is hereby ADOPTED. 116. IT IS FURTHER ORDERED that the rules adopted herein WILL BECOME EFFECTIVE sixty days after date of publication in the Federal Register. This action is taken pursuant to Sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303(r), 309(j). B. Ex Parte Rules -- Non-Restricted Proceedings 117. This is a non-restricted notice and comment rule making proceeding. Ex parte presentations are permitted except during the Sunshine Agenda period, provided they are disclosed as provided in the Commission's rules. See generally 47 C.F.R.  1.1201, 1203, and 1.1206(a). C. Comment Dates 118. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415 and 1.419, interested parties may file comments to the Further Notice of Proposed Rule Making on or before February 10, 1997, and reply comments on or before February 25, 1997. To file formally in this proceeding, you must file an original and four copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original plus nine copies. You should send comments and reply comments to Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center of the Federal Communications Commission, Room 239, 1919 M Street, N.W., Washington, D.C. 20554. D. Initial Paperwork Reduction Act of 1995 Analysis 119. The Further Notice of Proposed Rule Making contains either a proposed or modified information collection. As part of its continuing effort to reduce paperwork burdens, we invite the general public and the Office of Management and Budget to take this opportunity to comment on the information collections contained in this Further Notice of Proposed Rule Making, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due at the same time as other comments on this Further Notice of Proposed Rule Making; OMB comments are due on or before 60 days after the publication in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. 120. Written comments by the public on the proposed and/or modified information collections are due February 10, 1997. Written comments must be submitted by the Office of Management and Budget (OMB) on the proposed and/or modified information collections on or before 60 days after the publication in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collections contained herein should be submitted to both of the following: Dorothy Conway, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to dconway@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 - 17th Street, N.W., Washington, DC 20503 or via the Internet at fain_t@al.eop.gov. For additional information regarding the information collections contained herein, contact Dorothy Conway above. E. Regulatory Flexibility Act 121. The Final Regulatory Flexibility Analysis pursuant to the Regulatory Flexibility Act, 5 U.S.C.  604, is contained in Appendix C. With respect to the Further Notice of Proposed Rulemaking, an Initial Regulatory Flexibility Analysis is contained in Appendix D. As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603, the Commission has prepared the Initial Regulatory Flexibility Analysis of the expected impact on small entities of the proposals suggested in this document. Written public comments are requested on the Initial Regualtory Flexibility Analysis. In order to fullfil the mandate of the Contract with America Advancement Act of 1996 regarding the Final Regulatory Flexibility Analysis we ask a number of questions in our Initial Regulatory Flexibility Analysis regarding the prevalence of small businesses in the cellular and GWCS industries. Comments on the Initial Regulatory Flexibility Analysis must be filed in accordance with the same filing deadlines as comments on the Further Notice of Proposed Rulemaking, but they must have a separate and distinct heading designating them as responses to the Initial Regulatory Flexibility Analysis. The Secretary shall send a copy of this Further Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with Section 603(a) of the Regulatory Flexibility Act, 5 U.S.C.  603(a). F. Further Information 122. For further information concerning this proceeding, contact Shaun A. Maher, Esq. at (202) 418-0620, internet: smaher@fcc.gov, Legal Branch, Commercial Wireless Division, Wireless Telecommunications Bureau, Federal Communications Commission, Washington, D.C. 20554. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A Comments Ad Hoc Rural Telecommunications Group (RTG) AirGate Wireless, L.L.C. (AirGate) American Petroleum Institute (API) AT&T Wireless Services, Inc. (AT&T Wireless) BellSouth Corporation (BellSouth) Carolina Independents (Carolina Independents) Cellular Telecommunications Industry Association (CTIA) Center for Training and Careers (CTC) Century Personal Access Network, Inc. (Century) Cook Inlet Region, Inc. (Cook Inlet) GTE Service Corporation (GTE) Illuminet and the Independent Alliance (Illuminet) Industrial Telecommunications Association, Inc. (ITA) Liberty Cellular, Inc. (Liberty) Motorola, Inc. National Paging and Personal Communications Association (NPPCA) National Rural Telecommunications Cooperative (NRTC) National Telephone Cooperative Association (NTCA) NextWave Telecom, Inc. (NextWave) Omnipoint Corporation (Omnipoint) Opportunities Now Enterprises, Inc. (ONE) Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) PCS Wisconsin, LLC Personal Communications Industry Association (PCIA) Rural Cellular Association (RCA) Sprint Spectrum L.P. (Sprint) SR Telecom, Inc. 3 Rivers PCS, Inc. and Montana Wireless, Inc. (3 Rivers) United States Hispanic Chamber of Commerce United States Telephone Association (USTA) US West, Inc. UTC Western Wireless Corporation (Western Wireless) Yelm Telephone Company (Yelm) Reply Comments Ad Hoc Rural Telecommunications Group (RTG) Americall International, LLC (Americall) American Petroleum Institute (API) AT&T Wireless Services, Inc. (AT&T Wireless) Carolina Independents (Carolina Independents) Industrial Telecommunications Association, Inc. (ITA) Motorola, Inc. Omnipoint Corporation (Omnipoint) Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO) Personal Communications Industry Association (PCIA) Rural Telephone Finance Cooperative (RTFC) US West, Inc. Wireless North, Inc. APPENDIX B Part 24 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows: 1.Section 24.229 is amended by deleting subsection (c). Revised Section 24.229 reads as follows: Sec. 24.229 Frequencies. The frequencies available in the Broadband PCS service are listed in this section in accordance with the frequency allocations table of of Section 2.106 of this chapter. (a) The following frequency blocks are available for assignment on an MTA basis: Block A: 1850-1865 MHz paired with 1930-1945 MHz; and Block B: 1870-1885 MHz paired with 1950-1965 MHz. (b) The following frequency blocks are available for assignment on a BTA basis: Block C: 1895-1910 MHz paired with 1975-1990 MHz; Block D: 1865-1870 MHz paired with 1945-1950 MHz; Block E: 1885-1890 MHz paired with 1965-1970 MHz; and Block F: 1890-1895 MHz paired with 1970-1975 MHz. 2. Section 24.707 is amended by removing the following parenthetical phrase from the third sentence: "(and applicants seeking partitioned licenses pursuant to agreements with auction winners under  24.714)." Revised Section 24.707 reads as follows: Sec. 24.707 Long-form applications. Each winning bidder will be required to submit a long-form application on FCC Form 600, as modified, within ten (10) business days after being notified that it is the winning bidder. Applications on FCC Form 600 shall be submitted pursuant to the procedures set forth in Subpart I of this Part and  1.2107 (c) and (d) of this Chapter and any associated Public Notices. Only auction winners will be eligible to file applications on FCC Form 600 for initial broadband PCS licenses in the event of mutual exclusivity between applicants filing Form 175. Winning bidders need not complete Schedule B to Form 600. 3. Section 24.714 is amended by replacing it with the following new Section 24.714: Sect. 24.714 Partitioned Licenses and Disaggregated Spectrum (a) Eligibility. (1) Parties seeking approval for partitioning and disaggregation shall request an authorization for partial assignment of a license pursuant to  24.839. (2) Broadband PCS licensees in spectrum blocks A, B, D, and E may apply to partition their licensed geographic service area or disaggregate their licensed spectrum at any time following the grant of their licenses. (3) Broadband PCS licensees in spectrum blocks C and F may not partition their licensed geographic service area or disaggregate their licensed spectrum for the first five years of the license term unless it is to an entity that meets the eligibility criteria set forth in  24.709 at the time the request for partial assignment of license is filed or to an entity that holds license(s) for frequency blocks C and F that met the isaggregation of broadband PCS licenses in spectrum blocks C and F must include an attachment demonstrating compliance with this section. (b) Technical Standards. (1) Partitioning. In the case of partitioning, requests for authorization for partial assignment of a license must include, as attachments, a description of the partitioned service area and a calculation of the population of the partitioned service area and the licensed geographic service area. The partitioned service area shall be defined by coordinate points at every 3 seconds along the partitioned service area unless an FCC recognized service area is utilized (i.e., Major Trading Area, Basic Trading Area, Metropolitan Service Area, Rural Service Area or Economic Area) or county lines are followed. The geographic coordinates must be specified in degrees, minutes, and seconds to the nearest second of latitude and longitude and must be based upon the 1927 North American Datum (NAD27). Applicants may supply geographical coordinates based on 1983 North American Datum (NAD83) in addition to those required (NAD27). In the case where an FCC recognized service area or county lines are utilized, applicants need only list the specific area(s) (through use of FCC designations or county names) that constitute the partitioned area. (2) Disaggregation. Spectrum may be disaggregated in any amount. (3) Combined Partitioning and Disaggregation. The Commission will consider requests for partial assignment of licenses that propose combinations of partitioning and disaggregation. (c) Unjust Enrichment. (1) Installment Payments. Licensees in frequency Blocks C and F making installment payments that partition their licenses or disaggregate their spectrum to entities not meeting the eligibility standards for installment payments, will be subject to the provisions concerning unjust enrichment as set forth in  1.2111 and 24.716(d). (2) Bidding Credits. Licensees in frequency Blocks C and F that received a bidding credit and partition their licenses or disaggregate their spectrum to entities not meeting the eligibility standards for such a bidding credit, will be subject to the provisions concerning unjust enrichment as set forth in  1.2110(f) and 24.717(c). (3) Apportioning Unjust Enrichment Payments. Unjust enrichment payments for partitioned license areas shall be calculated based upon the ratio of the population of the partitioned license area to the overall population of the license area and by utilizing the most recent census data. Unjust enrichment payments for disaggregated spectrum shall be calculated based upon the ratio of the amount of spectrum disaggregated to the amount of spectrum held by the licensee. (d) Installment Payments. (1) Apportioning the Balance on Installment Payment Plans. When a winning bidder elects to pay for its license through an installment payment plan pursuant to  1.2110(e) or 24.716, and partitions its licensed area or disaggregates spectrum to another party, the outstanding balance owed by the licensee on its installment payment plan (including accrued and unpaid interest) shall be apportioned between the licensee and partitionee or disaggregatee. Both parties will be responsible for paying their proportionate share of the outstanding balance to the U.S. Treasury. In the case of partitioning, the balance shall be apportioned based upon the ratio of the popisaggregation, the balance shall be apportioned based upon the ratio of the amount of spectrum disaggregated to the amount of spectrum allocated to the licensed area. (2) Parties Not Qualified For Installment Payment Plans. (i) When a winning bidder elects to pay for its license through an installment payment plan, and partitions its license or disaggregates spectrum to another party that would not qualify for an installment payment plan or elects not to pay for its share of the license through installment payments, the outstanding balance owed by the licensee (including accrued and unpaid interest) shall be apportioned according to  24.714(d)(1). (ii) The partitionee or disaggregatee shall, as a condition of the approval of the partial assignment application, pay its entire pro rata amount within 30 days of Public Notice conditionally granting the partial assignment application. Failure to meet this condition will result in a rescission of the grant of the partial assignment application. (iii) The licensee shall be permitted to continue to pay its pro rata share of the outstanding balance and shall receive new financing documents (promissory note, security agreement) with a revised payment obligation, based on the remaining amount of time on the original installment payment schedule. These financing documents will replace the licensee's existing financing documents which shall be marked "superseded" and returned to the licensee upon receipt of the new financing documents. The original interest rate, established pursuant to  1.2110(e)(3)(i) at the time of the grant of the initial license in the market, shall continue to be applied to the licensee's portion of the remaining government obligation. We will require, as a further condition to approval of the partial assignment application, that the licensee execute and return to the U.S. Treasury the new financing dois condition will result in the automatic cancellation of the grant of the partial assignment application. (iv) A default on the licensee's payment obligation will only affect the licensee's portion of the market. (3) Parties Qualified For Installment Payment Plans. (i) Where both parties to a partitioning or disaggregation agreement qualify for installment payments, the partitionee or disaggregatee will be permitted to make installment payments on its portion of the remaining government obligation, as calculated according to  24.714(d)(1). (ii) Each party will be required, as a condition to approval of the partial assignment application, to execute separate financing documents (promissory note, security agreement) agreeing to pay their pro rata portion of the balance due (including accrued and unpaid interest) based upon the installment payment terms for which they qualify under the rules. The financing documents must be returned to the U.S. Treasury within thirty (30) days of the Public Notice conditionally granting the partial assignment application. Failure by either party to meet this condition will result in the automatic cancellation of the grant of the partial assignment application. The interest rate, established pursuant to  1.2110(e)(3)(i) at the time of the grant of the initial license in the market, shall continue to be applied to both parties' portion of the balance due. Each party will receive a license for their portion of the partitioned market or disaggregated spectrum. (iii) A default on an obligation will only affect that portion of the market area held by the defaulting party. (iv) Partitionees and disaggregatees that qualify for installment payment plans may elect to pay some of their pro rata portion of the balance due in a lump sum payment to the U.S. Treasury and to pay the remaictrum shall be the remainder of the original licensee's license term as provided for in  24.15. (f) Construction Requirements. (1) Requirements for Partitioning. Parties seeking authority to partition must meet one of the following construction requirements: (i) The partitionee may certify that it will satisfy the applicable construction requirements set forth in  24.203 for the partitioned license area; or (ii) The original licensee may certify that it has or will meet its five-year construction requirement and will meet the ten-year construction requirement, as set forth in  24.203, for the entire license area. In that case, the partitionee must only satisfy the requirements for "substantial service," as set forth in  24.16(a), for the partitioned license area by the end of the original ten-year license term of the licensee. (iii) Applications requesting partial assignments of license for partitioning must include a certification by each party as to which of the above construction options they select. (iv) Partitionees must submit supporting documents showing compliance with the respective construction requirements within the appropriate five- and ten-year construction benchmarks set forth in  24.203. (v) Failure by any partitionee to meet its respective construction requirements will result in the automatic cancellation of the partitioned or disaggregated license without further Commission action. (2) Requirements for Disaggregation. Parties seeking authority to disaggregate must submit with their partial assignment application a certification signed by both parties stating which of the parties will be responsible for meeting the five- and ten-year construction requirements for the PCS market as set forth in  24.203. Parties may agree to share responsibility for meeting the construction requirements. Parties that accept responsibility for meeting the construction requirements and later fail to do so will be subject to license forfeiture without further Commission action. APPENDIX C Final Regulatory Flexibility Analysis Report and Order As required by Section 603 of the Regulatory Flexibility Act (RFA), 5 U.S.C.  603, an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking (Notice) in WT Docket No. 96-148. The Commission sought written public comment on the proposals in the Notice, including the IRFA. The Commission's Final Regulatory Flexibility Analysis in this Report and Order conforms to the RFA, as amended by the Contract With America Advancement Act of 1996. A. Need for and Purpose of this Action: In this Report and Order the Commission modifies the broadband PCS rules to permit partitioning and disaggregation for all Part 24 licenses. The proposals adopted herein also implement Congress' goal of giving small businesses the opportunity to participate in the provision of spectrum-based services in accordance with 47 U.S.C.  309(j)(4)(D) and to reduce entry barriers for small businesses in accordance with 47 U.S.C.  257. With more open partitioning and disaggregation, additional entities, including small businesses, may participate in the provision of broadband PCS service without needing to acquire wholesale an existing license (with all of the bundle of rights currently associated with the existing license). Acquiring "less" than the current license will presumably be a more flexible and less expensive alternative for entities desiring to enter these services. B. Summary of Issues Raised in Response to the Initial Regulatory Flexibility Analysis: Only one commenter, National Telephone Cooperative Association (NTCA), submitted comments that were specifically in response to the IRFA. NTCA argues that the Commission is required under the RFA to identify significant alternatives to the proposed rules in order to accomplish the stated objectives of Sections 309(j) and 257 of the Communications Act of 1934, as amended (Communications Act). Specifically, NTCA argues that the Commission must consider the right of first refusal approach suggested by some commenters as an alternative to allowing open partitioning of PCS licenses and how it might minimize significant economic impacts on rural telcos. NTCA contends that, for the purposes of determining which businesses are to be included in an RFA analysis, the Commission should adopt the U.S. Small Business Administration's (SBA) definition of small business, which is any company with fewer than 1,500 employees. In the Report and Order, significant alternatives were identified and considered in order to further the mandates of Sections 309(j) and 257 of the Communications Act. In addition, significant consideration was given to the rural telcos' right of first refusal approach for partitioning; however, the Commission concluded that such an approach was unworkable and would actually discourage partitioning. Finally, the Commission declined to adopt NTCA's suggestion to utilize the SBA definition of small business (businesses with fewer than 1,500 employees). As noted below, the existing definition of small business (firms with revenues of less than $40 million in each of the last three years) was used in the PCS C-Block auction and was approved by the SBA. We also note that we have found incumbent LECs to be "dominant in their field of operation" since the early 1980's, and we consistently have certified under the RFA that incumbent LECs are not subject to regulatory flexibility analyses because they are not small businesses. We have made similar determinations in other areas. C. Description and Number of Small Entities Involved The rules adopted in the Report and Order will affect all small businesses which avail themselves of these rule changes, including small businesses currently holding broadband PCS licenses who choose to partition and/or disaggregate, and small businesses who may acquire licenses through partitioning and/or disaggregation. The rules will also affect rural telephone companies which, under the current rules, have the exclusive right to obtain partitioned broadband PCS licenses. Small businesses will be defined for these purposes as firms that have revenues of less than $40 million in each of the last three calendar years. This definition was used in the PCS C-Block auction and approved by the SBA. The definition of "rural telephone company" shall be that definition found at Section 24.720(e) of the rules. The broadband PCS spectrum is divided into six frequency blocks designated A through F. The Commission has auctioned broadband PCS licenses in blocks A, B, and C. The Commission does not have sufficient information to determine whether any small businesses within the SBA- approved definition bid successfully for licenses in the A or B block PCS auctions. There were 89 winning bidders that qualified as small businesses in the C block PCS auctions. Based upon this information, the Commission concludes that the number of broadband PCS licensees affected by the rules adopted herein includes the 89 winning bidders that qualified as small entities in the block C broadband PCS auctions. The Commission anticipates that a total of 10,370 PCS licensees or potential licensees could take the opportunity to partition or disaggregate a license or obtain a license through partitioning and/or disaggregation. This estimate is based on the total number of broadband PCS licenses auctions and subject to auction, 2,074, and our estimate that each license would probably not be partitioned and/or disaggregated to more than five parties. Currently, the C and F block licensees and potential licensees (holding a total of 986 licenses) must be small businesses or entrepreneurs with average gross revenues over the past three years of less than $125 million. Under the rules adopted in the Report and Order, they will be permitted to partition and/or disaggregate to other qualified entrepreneurs at any time and to non-entrepreneurs after the first five years of their license term. The A, B, D, and E block licensees and potential licensees (holding a total of 1,088 licenses) will also be permitted under the proposed rules to partition and/or disaggregate to small businesses. The Commission is presently conducting auctions for the D, E, and F blocks of broadband PCS spectrum. The Commission anticipates that a total of 1,479 licenses will be awarded in the D, E, and F block PCS auctions. Eligibility for the F block licenses is limited to entrepreneurs with average revenues of less than $125 million. It is not possible to estimate the number of licenses that will be awarded to small businesses in the F block nor is it possible to estimate how many small businesses will win the D or E block licenses. We believe that it is possible that small businesses will constitute a significant number of the up to 10,370 PCS licensees or potential licensees who could take the opportunity to partition and/or disaggregate or who could obtain a license through partitioning and/or disaggregation. D. Summary of Projected Reporting, Recordkeeping and Other Compliance Requirements: The rules adopted in the Report and Order will impose reporting and recordkeeping requirements on small businesses seeking licenses through partitioning and disaggregation. The information requirements will be used to determine whether the licensee is a qualifying entity to obtain a partitioned license or disaggregated spectrum. This information will be given in a one-time filing by any applicant requesting such a license. The information will be submitted on the FCC Form 490 (or 430 and/or 600 filed as one package under cover of the Form 490) which are currently in use and have already received OMB clearance. The Commission estimates that the average burden on the applicant is three hours for the information necessary to complete these forms. The Commission estimates that 75 percent of the respondents (which may include small businesses) will contract out the burden of responding. The Commission estimates that it will take approximately 30 minutes to coordinate information with those contractors. The remaining 25 percent of respondents (which may include small businesses) are estimated to employ in-house staff to provide the information. E. Steps Taken to Minimize Burdens on Small Entities: The rules adopted in the Report and Order are designed to implement Congress' goal of giving small businesses, as well as other entities, the opportunity to participate in the provision of spectrum-based services and are consistent with the Communications Act's mandate to identify and eliminate market entry barriers for entrepreneurs and small businesses in the provision and ownership of telecommunications services. Allowing non-restricted partitioning of PCS licenses will facilitate market entry by parties who may lack the financial resources for participation in PCS auctions, including small businesses. Some small businesses may have been unable to be winning bidders at the PCS auctions due to high bidding and would have been unable to qualify for partitioning because of our current restriction which permits partitioning of PCS licenses to only rural telephone companies (rural telcos). By eliminating this restriction, small businesses will be able to obtain partitioned PCS licenses for smaller service areas at presumably reduced costs, thereby providing a method for small businesses to enter the PCS marketplace. Similarly, allowing immediate disaggregation of PCS licenses will facilitate the entry of new competitors to the provision of PCS services, many of whom will be small businesses seeking to acquire a smaller amount of PCS spectrum at a reduced cost. Allowing geographic partitioning of PCS licenses by services areas defined by the parties rather than only by county lines will provide an opportunity for small businesses to obtain partitioned PCS license areas designed to serve smaller, niche markets. This will permit small businesses to enter the PCS marketplace by reducing the overall cost of acquiring a partitioned PCS license. Allowing disaggregation of spectrum in any amount will also promote participation by small businesses who may seek to acquire a smaller amount of PCS spectrum tailored to meet the needs of their proposed service. The Commission's proposals to allow non-entrepreneur block licensees to partition or disaggregate to any party and to allow entrepreneurs to partition or disaggregate to other entrepreneurs at any time and to non-entrepreneurs after a five year holding period will significantly increase the opportunities for small businesses to enter the PCS marketplace. Allowing entrepreneur partitionees and disaggregatees to pay their proportionate share of the remaining government obligation through installment payments will provide a further opportunity for small businesses to participate in the provision of PCS services. The Commission's decision to allow partitioning parties to choose between two construction requirements will provide small businesses with more flexibility to construct their systems at a rate that is determined by market forces, thus allowing them to conserve their resources. F. Significant Alternatives Considered and Rejected: The Commission considered and rejected a number of alternative proposals concerning partitioning and disaggregation. The rural telcos argued that the Commission should either retain the current partitioning restriction or adopt a right of first of refusal approach that would require partitioning parties to notify the rural telco and offer it the partitioned license area under similar terms and conditions. The Commission found that retaining the current partitioning restriction would prevent small businesses from using partitioning to enter the broadband PCS market. Since retaining the partitioning restriction would constitute a significant barrier to entry for small businesses, the Commission declined to continue to limit partitioning to rural telcos. The Commission found that the right of first refusal would be difficult to implement and could discourage partitioning. Areas proposed in partitioning agreements may not coincide exactly with areas for which a rural telco may have a right of first refusal. A single partitioning transaction may encompass more than one rural telco's service area, or a partitioning agreement may be part of a larger assignment transaction. Parties would be unwilling to enter into partitioning agreements not knowing how much of an area would ultimately be partitioned or whether they could consummate the transaction. This determination will make it easier for non-rural-telcos, including some small business entities, to enter partitioning agreements. The Commission declined to adopt the proposal set forth in the Notice to limit partitioning to areas defined by county lines. The Commission was convinced by the majority of commenters that geographic partitioning along county lines is too restrictive. The Commission found that parties seeking a partitioned license may not desire to serve an entire county but rather a smaller niche market. Therefore, the Commission found that allowing partitioning along service areas defined by the parties would allow the parties to design flexible partitioning agreements. The Commission rejected proposals to permit partitioning and disaggregation during the first five years of an entrepreneur's license term. While allowing entrepreneurs to immediately partition or disaggregate to non-entrepreneurs may have resulted in additional entities participating in the provision of PCS services, the Commission concluded that the five year holding period restriction is necessary in order to ensure that entrepreneurs do not take advantage of the special entrepreneur block benefits by immediately partitioning a portion of their licenses or disaggregating a portion of their spectrum to parties that would not have qualified at auction, on their own merits, for such benefits. Furthermore, limiting partitioning and disaggregation during the first five years of an entrepreneur's license term will increase the possibility that small businesses will be able to acquire PCS licenses. The Commission declined to adopt proposals to apply a new license term to partitioned license areas and disaggregated spectrum. Under this approach, entities obtaining partitioned licenses or disaggregated spectrum would receive a new ten-year license term beginning from the date of the Commission approved the partitioning or disaggregation. The Commission found that permitting parties to "re-start" their license term would effectively allow a licensee to extend its license term and could lead to circumvention of our license term rules. The Commission rejected the proposal to require disaggregation of broadband PCS spectrum in blocks of 1 MHz of paired frequencies (500 kHz plus 500 kHz). The Commission found that requiring parties to obtain that large a block of spectrum could act as a barrier to entry for entities that did not require that much spectrum to provide service. Finally, the Commission declined the proposal put forth by some commenters that PCS licensees be required to assume the obligations and responsibilities for microwave relocation costs for their entire license area and spectrum block even if they partition a portion of their license area or disaggregate a portion of their spectrum to another party. The Commission found that requiring licensees to guarantee the payments of partitionees and disaggregatees would be unfair because licensees would not have control over the actions of partitionees and disaggregatees and because there was no reason to treat those parties differently than other late-entrant PCS licensees with respect to microwave relocation costs. G. Report to Congress The Commission shall include a copy of this Final Regulatory Flexibility Analysis, along with this Report and Order, in a report to be sent to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.  801(a)(1)(A). A copy of this Final Regulatory Flexibility Analysis will also be published in the Federal Register. APPENDIX D INITIAL REGULATORY FLEXIBILITY ANALYSIS Further Notice of Proposed Rulemaking As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the policies and rules proposed in this Further Notice of Proposed Rulemaking (Further Notice). Written public comments are requested on the IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments on the Further Notice as provided in section VII(C). Reason for Action: This rulemaking proceeding was initiated to secure comment on proposals to modify our cellular and General Wireless Communications Service (GWCS) rules to permit partitioning and disaggregation for all licensees in those services. The proposals advanced in the Further Notice are also designed to implement Congress' goal of giving small businesses the opportunity to participate in the provision of spectrum-based services in accordance with Sections 257 and 309(j) of the Communications Act of 1934, as amended (the Communications Act). Objectives: The Commission proposes to change its rules for cellular and GWCS to facilitate the efficient use of cellular and GWCS spectrum, increase competition, and expedite the provision of cellular and GWCS services in the near term. These proposals seek to increase the level of small business participation in the provision of cellular and GWCS services. The Commission considers whether to modify the existing cellular rules to provide for more flexible partitioning and to allow disaggregation of cellular spectrum for the first time. In addition, the Commission proposes to allow GWCS licensees to partition and disaggregate to entities that are eligible for GWCS licenses. Designated entity GWCS licensees will be allowed to partition or disaggregate to non- designated entities, subject to unjust enrichment payments. Entities that qualify for installment payments will be permitted to pay their pro rata share of the remaining government obligation via installment payments. The Commission proposes to establish license terms that permit cellular and GWCS partitionees to hold partitioned licenses and disaggregatees to hold disaggregated spectrum for the remaining duration of the original ten-year license term. The Commission also proposes to establish construction requirements for GWCS partitioning to ensure expedient access to GWCS service in partitioned areas, to ensure coverage and to increase spectrum efficiency. Finally, the Commission proposes to allow combined partitioning and disaggregation for cellular and GWCS services and to follow the existing partial assignment procedures for cellular and GWCS. Legal Basis: The proposed action is authorized under Sections 4(i), 303(r) and 309(j) of the Communications Act of 1934, as amended. Reporting, Recordkeeping, and Other Compliance Requirements: The proposals under consideration in this Further Notice include the possibility of imposing reporting and recordkeeping requirements on small businesses seeking licenses through the proposed partitioning and disaggregation rules. The information requirements would be used to determine whether the licensee was qualified to obtain a partitioned license or disaggregated spectrum. This information will be a one-time filing by an applicant requesting cellular disaggregation or GWCS partitioning or disaggregation. This information will be submitted on FCC Forms 490 (and 430 and/or 600 filed as one package under cover of the Form 490) which are currently in use and have already received OMB clearance. We estimate that the average burden on the applicant is three hours for the information necessary to complete these forms. We estimate that 75 percent of the respondents (which may include small businesses) will contract out the burden of responding. We estimate that it will take approximately 30 minutes to coordinate information with those contractors. The remaining 25 percent of respondents (which may include small businesses) are estimated to employ in-house staff to provide the information. Federal Rules Which Overlap, Duplicate or Conflict With These Rules: None. Description, Potential Impact, and Number of Small Entities Involved: The rule changes proposed in this proceeding will affect all small businesses which avail themselves of these rule changes, including small businesses currently holding cellular licenses who choose to partition and/or disaggregate, and small businesses who may acquire licenses through partitioning and/or disaggregation. The Commission is required to estimate in its Final Regulatory Flexibility Analysis the number of small entities to which a rule will apply, provide a description of such entities, and assess the impact of the rule on such entities. To assist the Commission in this analysis, commenters are requested to provide information regarding how many total cellular and GWCS entities, existing and potential, would be affected by the proposed rules in the Further Notice. In particular, we seek estimates of how many cellular and GWCS entities, existing or potential, will be considered small businesses. "Small business" is defined here as a firm that has revenues of less than $40 million in each of the last three calendar years. This definition was adopted for the GWCS service. We seek comment as to whether this definition is appropriate in this context. Additionally, we request each commenter to identify whether it is a small business under this definition. If the commenter is a subsidiary of another entity, this information should be provided for both the subsidiary and the parent corporation or entity. The Commission anticipates that a total of 8,465 cellular licensees or potential licensees could take the opportunity to partition or disaggregate a license or obtain a license through partitioning and/or disaggregation. This estimate is based upon the current number of existing cellular licensees (1,693) and our estimate that each license would probably not be partitioned and/or disaggregated to more than five parties. We estimate that a significant number of the cellular and GWCS licensees and potential licensees who take the opportunity to partition and/or disaggregate a license or who could obtain a license through partitioning and/or disaggregation will be small businesses. SBA has not developed a definition of small entities specifically applicable to cellular. The closest applicable definition under SBA rules is radiotelephone (wireless) companies. According to SBA's definition, a small business radiotelephone company is one employing fewer than 1,500 persons. According to our most recent data, there are 1,693 existing cellular licensees. We are unable at this time to estimate the number of cellular service carriers that would qualify as small business concerns under SBA's definition. We estimate that fewer than 1,693 small entity cellular service carriers may be affected by the decisions and rules adopted in this Further Notice. Significant Alternatives Minimizing the Impact on Small Entities Consistent with the Stated Objectives: The proposals advanced in the Further Notice are designed to implement Congress' goal of giving small businesses, as well as other entities, the opportunity to participate in the provision of spectrum-based services. The impact on small entities in the proposals in the Further Notice is the opportunity to enter the cellular and GWCS market through partitioning and disaggregation. With more open partitioning and disaggregation, additional entities, including small businesses, may participate in the provision of cellular and GWCS services without needing to acquire wholesale an existing license (with all of the bundle of rights currently associated with the existing license). Acquiring "less" than the current license will presumably be a more flexible and less expensive alternative for entities desiring to enter these services. The rule changes proposed in the Further Notice by the Commission are consistent with the Communications Act's mandate to identify and eliminate market entry barriers for small business in the provision and ownership of telecommunications services, and the mandate under Section 309(j) of the Communications Act, to utilize auctions to ensure that small, minority and women- owned businesses and rural telcos have an opportunity to participate in the provision of spectrum- based services. The proposals in the Further Notice, if implemented, will facilitate market entry by parties, including small businesses, that may lack the financial resources for participation in cellular and GWCS services. The alternative is to continue to allow GWCS partitioning only for rural telcos. Limiting GWCS partitioning to rural telcos would not permit other small businesses to obtain partitioned licenses or to partition to other parties, and thus would not promote the participation of small business in the provision of GWCS service. In the Further Notice, the Commission proposes facilitating GWCS partitioning by offering a choice between two different build-out options, which could be negotiated by the parties. The Commission tentatively concludes that these proposed flexible build-out requirements, if adopted, will encourage partitioning to entities that have a sincere interest in providing GWCS service and will thereby expedite the provision of service to geographic areas that otherwise may not receive it as quickly. This Further Notice solicits comments on a variety of proposals discussed herein. Any significant alternatives presented in the comments will be considered.