NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//R&O, Plan for Sharing the Costs of Microwave Relocation, FCC 96-196//$ $/ 15.307, Coordination with fixed microwave service/$ $/ 22.602, Transition of the 2110-2130 and 2160-2180 MHz Channel to emerging technologies/$ $/ 24.239, Cost-Sharing Requirements for Broadband PCS/$ FOR RECORD ONLY Before the FEDERAL COMMUNICATIONS COMMISSION FCC 96-196 Washington, D.C. 20554 Amendment to the Commission's Rules ) WT Docket No. 95-157 Regarding a Plan for Sharing ) RM-8643 the Costs of Microwave Relocation) FIRST REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULE MAKING Comment Date: May 28, 1996 Reply Comment Date: June 7, 1996 Adopted: April 25, 1996 Released: April 30, 1996 By the Commission: Chairman Hundt and Commissioner Quello issuing separate statements. Table of Contents Paragraph I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 II. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . .2 III. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 IV. FIRST REPORT AND ORDER A. Microwave Relocation Rules. . . . . . . . . . . . . . . . . . . 10 1. Voluntary Negotiations. . . . . . . . . . . . . . . . . . . . . 10 2. Mandatory Negotiations. . . . . . . . . . . . . . . . . . . . . 16 3. Involuntary Relocation. . . . . . . . . . . . . . . . . . . . . 23 a. Comparable Facilities . . . . . . . . . . . . . . . . . . . . . 24 b. Relocating Individual Links . . . . . . . . . . . . . . . . . . 35 c. Transaction Expenses. . . . . . . . . . . . . . . . . . . . . . 39 d. Twelve-Month Trial Period . . . . . . . . . . . . . . . . . . . 44 e. Request for Clarification of Involuntary Relocation Procedures. 51 4. Public Safety Certification . . . . . . . . . . . . . . . . . . 53 5. Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . 58 6. Ten Year Sunset . . . . . . . . . . . . . . . . . . . . . . . 60 B. Cost-Sharing Plan. . . . . . . . . . . . . . . . . . . . . . . 69 1. Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2. Dispute Resolution Under the Cost-Sharing Plan. . . . . . . . . 78 3. Administration of the Cost-Sharing Plan . . . . . . . . . . . . 81 C. Licensing Issues. . . . . . . . . . . . . . . . . . . . . . . . 86 D. Application to Other Emerging Technology Licensees. . . . . . . 90 V. FURTHER NOTICE OF PROPOSED RULE MAKING. . . . . . . . . . . . . . . 93 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .100 VII. PROCEDURAL MATTERS A. Regulatory Flexibility Act. . . . . . . . . . . . . . . . . . .101 B. Ex Parte Rules. . . . . . . . . . . . . . . . . . . . . . . . .106 C. Comment Period. . . . . . . . . . . . . . . . . . . . . . . . 107 D. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . .108 E. Ordering Clauses. . . . . . . . . . . . . . . . . . . . . . . .109 F. Further Information . . . . . . . . . . . . . . . . . . . . . .120 APPENDIX A - Mechanics of the Cost-Sharing Plan APPENDIX B - Final Rules APPENDIX C - List of Commenters APPENDIX D - Initial Regulatory Flexibility Analysis I. INTRODUCTION 1. By this First Report and Order and Further Notice of Proposed Rule Making, we change and clarify certain aspects of the microwave relocation rules adopted in our Emerging Technologies proceeding, ET Docket No. 92-9. We also adopt a plan for sharing the costs of relocating microwave facilities currently operating in the 1850 to 1990 MHz ("2 GHz") band, which has been allocated for use by broadband Personal Communications Services ("PCS"). Our plan establishes a mechanism whereby PCS licensees that incur costs to relocate microwave links receive reimbursement for a portion of those costs from other PCS licensees that also benefit from the resulting spectrum clearance. We condition the cost-sharing plan, however, on selection of one or more entities or organizations to administer the plan. Finally, we seek further comment on whether to adjust the negotiation periods by shortening the voluntary negotiation period and lengthening the mandatory negotiation period for the D, E, and F blocks, and whether the negotiation periods for the C block should be subject to the same adjustment. We also seek comment on whether microwave incumbents should be permitted to seek reimbursement from PCS licensees through participation in the cost-sharing plan. We believe that the rules adopted and proposed herein, along with the implementation of an industry sponsored cost- sharing plan, will expedite the clearing of the 2 GHz band in an equitable and efficient manner. II. EXECUTIVE SUMMARY 2. This Executive Summary summarizes the principal changes and clarifications we are making to the rules we adopted in the Emerging Technologies proceeding, the decisions we have made regarding the cost-sharing plan that we proposed in our Notice of Proposed Rule Making, and the issues on which we seek further comment. The First Report and Order:  requires that, if the parties have not reached an agreement within one year after the commencement of the voluntary period (or, for A and B block licensees, on the effective date of the new rules), the incumbent must allow the PCS licensee to gain access to its facilities so that an independent third party can prepare an estimate of the cost to relocate the incumbent to comparable facilities;  clarifies that, if an agreement is not reached by negotiation, the PCS licensee has no obligation to pay for premiums during an involuntary relocation. "Premiums" could include replacing the analog facilities with digital facilities, paying all of the incumbent's transactions costs, or relocating an entire system as opposed to just the interfering links;  clarifies that, with respect to mandatory negotiations, we will (1) consider common law principles when interpreting the obligation to negotiate in good faith, (2) require the parties to share pertinent information, (3) place the burden on the party alleging bad faith to provide the Commission with cost estimates for comparable facilities, and (4) consider the following factors when evaluating claims of failure to negotiate in good faith: efforts to obtain estimates of the actual cost of relocating the incumbent to comparable facilities, whether either party has withheld information relevant to relocation, the type of premium requested, if any, and the proportionality of such payment requests to actual relocation costs;  clarifies that a facility will be deemed comparable for purposes of involuntary relocation if it is equivalent with respect to (1) communications throughput, (2) system reliability, and (3) operating costs;  limits compensation to incumbents for increased recurring costs associated with the replacement facilities to a five-year time period during an involuntary relocation and limits reimbursement of incumbents' transactional costs during an involuntary relocation to two percent of the "hard costs" involved;  clarifies that the twelve-month trial period in our rules applies only if an involuntary relocation occurs. Therefore, if the parties decide that a trial period should be established for relocations that occur during the voluntary or mandatory period, the trial period must be provided for in the contract;  requires that microwave incumbents still operating in the 2 GHz band ten years after the voluntary period has commenced will be required to pay for their own relocation expenses if an emerging technology licensee requires use of the spectrum;  requires that public safety licensees self-certify that they meet the criteria for extended negotiation periods;  substantially adopts the cost-sharing plan proposed in the Cost-Sharing Notice; the plan is conditioned on selection of an industry administrator to administer the cost-sharing clearinghouse;  adopts our interim licensing policy for 2 GHz microwave systems, which permits a grant of primary status only for the following limited number of minor technical changes: decreases in power, minor changes in antenna height, minor location changes (up to two seconds), any data correction which does not involve a change in the location of the existing facility, reductions in authorized bandwidths, minor changes in structure heights, changes in ground elevation (but preserving centerline height), and changes in equipment; all other modifications will be permitted on a secondary basis, unless (1) the incumbent affirmatively justifies primary status, and (2) the incumbent establishes that the modification would not add to the relocation costs of PCS licensees. The Further Notice of Proposed Rule Making seeks comment on:  whether the negotiation period for the D, E, and F blocks should be adjusted by shortening the voluntary period by one year (i.e., to one year for non-public safety incumbents and two years for public safety incumbents); and lengthening the mandatory negotiation period for these blocks by a corresponding year (i.e., to two years for non-public safety incumbents and three years for public safety incumbents);  whether the negotiation periods for the C block should be subject to the same adjustments as the negotiation periods for the D, E, and F blocks; and  whether microwave incumbents should be permitted to seek reimbursement from PCS licensees through the cost-sharing plan. III. BACKGROUND A. Relocation Rules Established in Emerging Technologies Docket No. 92-9 3. In the First Report and Order and Third Notice of Proposed Rule Making in ET Docket No. 92-9, we reallocated the 1850-1990, 2110-2150, and 2160-2200 MHz bands from private and common carrier fixed microwave services to emerging technology services. We also established procedures for 2 GHz microwave incumbents to be relocated to available frequencies in higher bands or to other media, by encouraging incumbents to negotiate voluntary relocation agreements with emerging technology licensees or manufacturers of unlicensed devices when frequencies used by the incumbent are needed to implement the emerging technology. The ET First Report and Order stated that, should negotiations fail, the emerging technology licensee could request involuntary relocation of the incumbent, provided that the emerging technology service provider pays the cost of relocating the incumbent to a comparable facility. 4. In our 1993 Third Report and Order in ET Docket No. 92-9, as modified on reconsideration by our 1994 Memorandum Opinion and Order, we established additional details of the transition plan to enable emerging technology providers to relocate incumbent facilities. The relocation process consists of two negotiation periods that must expire before an emerging technology licensee may request involuntary relocation. The first is a fixed two-year period for voluntary negotiations -- three years for public safety incumbents, e.g., police, fire, and emergency medical -- commencing with our acceptance of applications for emerging technology services, during which the emerging technology providers and microwave licensees may negotiate any mutually acceptable relocation agreement. Negotiations are strictly voluntary. If no agreement is reached, the emerging technology licensee may initiate a one-year mandatory negotiation period -- or two-year mandatory period if the incumbent is a public safety licensee - - during which the parties are required to negotiate in good faith. 5. Should the parties fail to reach an agreement during the mandatory negotiation period, the emerging technology provider may request involuntary relocation of the existing facility. Involuntary relocation requires that the emerging technology provider (1) guarantee payment of all costs of relocating the incumbent to a comparable facility; (2) complete all activities necessary for placing the new facilities into operation, including engineering and frequency coordination; and (3) build and test the new microwave (or alternative) system. Once comparable facilities are made available to the incumbent microwave operator, the Commission will amend the 2 GHz license of the incumbent to secondary status. After relocation, the microwave incumbent is entitled to a one-year trial period to determine whether the facilities are indeed comparable, and if they are not, the emerging technology licensee must remedy the defects or pay to relocate the incumbent back to its former or an equivalent 2 GHz frequency. 6. Under these procedures, it is possible for a relocation agreement between a PCS licensee and a microwave incumbent to have spectrum-clearing benefits for other PCS licensees as well. First, some microwave spectrum blocks overlap with one or more PCS blocks, because the spectrum in the 1850-1990 MHz band was assigned differently in the two services. Second, incumbents' receivers may be susceptible to adjacent or co-channel interference from PCS licensees in more than one PCS spectrum block. For example, a microwave link located partially in Block A, partially in Block D, and adjacent to Block B, may cause interference to or receive interference from PCS licensees that are licensed in each of those blocks. Third, because most 2 GHz microwave licensees operate multi-link systems, PCS licensees may be asked to relocate links that do not directly encumber their own spectrum or service area in order to obtain the microwave incumbent's voluntary consent to relocate. Finally, UTAM, Inc., the frequency coordinator for the PCS spectrum designated for unlicensed devices, expects that some licensed PCS providers will have to relocate links in the unlicensed band that are paired with links in licensed PCS spectrum. 7. Because we are licensing PCS providers at different times and multiple PCS licensees may benefit from the relocation of a microwave system or even a single link, the first PCS licensee in the market potentially bears a disproportionate share of relocation costs. Subsequent PCS licensees to enter the market may therefore obtain a windfall. As a result of this potential "free rider" problem, the first PCS licensee in the market might not relocate a link or might delay its deployment of PCS if it believes that another PCS licensee will relocate the link first, thus paying for some or all of the relocation costs. In addition, unless cost- sharing is adopted, PCS licensees might not engage in relocation that is cost-effective if viewed from an industry-wide perspective. For example, a link that encumbers two PCS blocks might not be moved if the cost is greater than the benefit to any single licensee, even though the joint benefit received by two or more licensees exceeds the cost of relocating the link. B. Pacific Bell Petition for Rulemaking 8. In 1994, PCIA proposed a cost-sharing plan to alleviate the free rider problem, which we found to be attractive in theory but dismissed as underdeveloped. On May 5, 1995, Pacific Bell ("PacBell") filed a Petition for Rulemaking. In its petition, PacBell proposed a detailed cost-sharing plan in which PCS licensees on all blocks, licensed and unlicensed, would share in the cost of relocating microwave stations. On May 16, 1995, we requested comment on PacBell's proposal. Most parties that commented on PacBell's Petition for Rulemaking supported the cost-sharing concept, although the comments reflected some differences regarding the details of the proposal. On October 12, 1995, we adopted a Notice of Proposed Rule Making, which sought comment on a modified version of the plan proposed by PacBell. A list of commenters is attached as Appendix C. IV. FIRST REPORT AND ORDER 9. In the Cost-Sharing Notice, we proposed a number of changes and clarifications to the microwave relocation rules adopted in the Emerging Technologies docket. We suggested that additional guidance with respect to certain aspects of our rules would facilitate negotiations, reduce disputes, and expedite deployment of PCS. As explained below, we adopt many of the changes and clarifications we proposed, along with some suggestions made by commenters. By adopting these rule changes and clarifications, as well as the cost-sharing plan discussed in Section B, infra, we intend to expedite the clearing of the 2 GHz band and the introduction of PCS to the public, while protecting the rights of incumbents. We seek to promote an efficient and equitable relocation process, which minimizes transaction costs and maximizes benefits for all parties, including incumbents, PCS licensees, and the public. A. Microwave Relocation Rules 1. Voluntary Negotiations 10. Background. In the ET Third Report and Order, we established a voluntary period during which parties are encouraged to negotiate and reach agreement on relocation but are not required to do so. As we stated in the Cost-Sharing Notice, negotiations are strictly voluntary during this period and are not defined by any parameters. We also observed that the existing relocation procedures for microwave incumbents adopted in the Emerging Technologies docket were the product of extensive comment and deliberation prior to the initial licensing of PCS. Thus, we stated that our intent was not to reopen that proceeding, because we believe that the general approach to relocation in our existing rules is sound and equitable. Nevertheless, we sought comment on whether additional information about the value of the incumbent's 2 GHz system and the anticipated cost of relocation would help to facilitate negotiations. For example, we suggested that two independent cost estimates -- prepared by third parties not associated or otherwise affiliated with either the incumbent licensee or the PCS provider -- could be filed with the Commission by parties that have not reached an agreement within one year after the commencement of the voluntary negotiation period. 11. Comments. Despite the fact that we did not propose to alter the basic structure or length of the relocation negotiation periods in the Cost-Sharing Notice, some PCS licensees request that we shorten or dispose of the voluntary period. They argue that incumbents are abusing the relocation process by demanding large premium payments or refusing to negotiate, and that the deployment of PCS is being delayed as a result. Microwave incumbents, on the other hand, dispute that such actions are widespread and argue that we should not make the changes requested by PCS licensees because, inter alia, any such changes would be beyond the scope of this proceeding. 12. In response to our inquiry about whether independent cost estimates should be required during the voluntary period, PCS licensees express their support and contend that such a requirement would facilitate stalled negotiations. PCIA states that independent cost estimates that are disaggregated by link would give the parties an independent basis around which to come to an agreement, which would reduce the need to utilize dispute resolution procedures. Western Wireless Corporation asserts, however, that requiring such estimates during the voluntary period as it now stands would be an exercise in frustration, because the parties are not even obligated to negotiate in good faith during the voluntary period. Microwave incumbents argue that adopting such a requirement would impose an affirmative obligation on the parties during the voluntary period, which contradicts the voluntary nature of this period. 13. Discussion. We agree with commenters who argue that the public interest would not be served by changing the rules regarding the voluntary period for the A and B blocks at this time. First, the A and B block licensees who are now negotiating with incumbents were on notice of the voluntary period when they bid for their licenses, and they presumably have factored the length of the period and the potential cost of relocation into their bids. They have offered no persuasive justification to shorten the period now. Second, we note that many voluntary agreements have already been reached or are now being negotiated between A and B block licensees and incumbents. We are concerned that altering the voluntary period could inadvertently delay the deployment of PCS, because negotiations are likely to be interrupted while parties reassess their bargaining positions. Nevertheless, we agree with PCS licensees that changing the negotiation period for blocks other than the A and B blocks may not raise the same concerns, because negotiations in these blocks have not commenced. Therefore, in the Further Notice of Proposed Rule Making below, we seek comment on the possibility of adjusting the voluntary and mandatory negotiation periods for the D, E, and F blocks. We also seek comment on whether the same adjustments should be made to the negotiation periods for the C block. 14. Whether or not the negotiation periods are changed, we also agree with PCS licensees that additional information about the value of an incumbent's system, the estimated amount of time it would take to relocate the incumbent, and the anticipated cost of relocation may help facilitate negotiations during the voluntary period, as we suggested in the Cost-Sharing Notice. Therefore, we require that, if the parties have not reached an agreement within one year after the commencement of the voluntary period, the incumbent must allow the PCS licensee, if the PCS licensee so chooses, to gain access to the microwave facilities to be relocated so that an independent third party can examine the incumbent's 2 GHz system and prepare an estimate of the cost and the time needed to relocate the incumbent to comparable facilities. The PCS licensee must pay for any such cost estimate. Because the one-year anniversary of the commencement of the voluntary period for A and B block licensees has already passed, this requirement shall become effective for the A and B block on the effective date of the rules adopted in this proceeding. We disagree with incumbents that a cost estimate paid for by the PCS licensee changes the nature of the voluntary period, because participation in negotiations remains voluntary. 15. Finally, although we are not altering the basic structure or length of the voluntary period for A and B block PCS licensees, we emphasize that our rules provide incentives for voluntary agreements. We have stated in the past that PCS licensees may choose to offer incumbents premiums to relocate quickly. "Premiums" could include: replacing the analog facilities with digital facilities, paying all of the incumbent's transactions costs, or relocating an entire system as opposed to just the interfering links. These incentives are available only to microwave incumbents who consent to relocation by negotiation. By contrast, PCS licensees are not obligated to pay for such premiums during an involuntary relocation, which is discussed in Section IV(A)(3), infra. 2. Mandatory Negotiations 16. Background. If a relocation agreement is not reached during the voluntary period, the PCS licensee may initiate a mandatory negotiation period. Like the voluntary period, the mandatory period is intended as a period of negotiation between the parties resulting in a contractual relocation agreement. The major difference between the voluntary period and the mandatory period is that (1) an incumbent may not refuse to negotiate once the mandatory period has commenced, and (2) the parties are required to negotiate in good faith. 17. PCS licensees have requested that we provide guidance with respect to what constitutes good faith in the context of mandatory negotiations. In the Cost-Sharing Notice, we proposed that, for purposes of the mandatory period, an offer by a PCS licensee to replace a microwave incumbent's system with comparable facilities would be considered a good faith offer; whereas, failure on the part of an incumbent to accept an offer of comparable facilities would create a rebuttable presumption that the incumbent is not acting in good faith. We also sought comment on the appropriate penalty to impose on a licensee who does not negotiate in good faith during the mandatory period. 18. Comments. PCS licensees support clarification of how the term good faith will be applied during the mandatory negotiation period, because they believe that additional guidance will facilitate negotiations. CTIA also encourages us to establish rules which declare that demands by microwave incumbents that exceed twice the cost of comparable facilities are prima facie unreasonable and are evidence of bad faith during the mandatory period. Furthermore, many PCS licensees argue that they should not have to pay to relocate an incumbent that does not negotiate in good faith. CTIA recommends that microwave incumbents who fail to negotiate in good faith should have their licenses revoked and should lose their right to be relocated to new spectrum. PCIA suggests that, if the incumbent fails to negotiate in good faith, the relocating PCS provider should only be required to tender a cash payment to the incumbent in an amount not to exceed the greater of two independent appraisals of what constitutes comparable replacement facilities. U.S. Airwaves contends that it is premature to decide what penalty to apply if either party refuses to negotiate in good faith. 19. By contrast, microwave incumbents argue that the clarification we proposed reflects an improper level of government management of negotiations and has no rightful place in the Commission's rules. They also claim that enforcement of such a standard would be administratively burdensome on the Commission and may delay the relocation process. Moreover, they assert that clarification of the term good faith is unnecessary, because local, state, and federal laws and regulations already govern how the term is applied in the context of contract negotiations. Commenters also express uncertainty and confusion over how our proposed clarification of the term good faith would apply in practice. For example, incumbents voice concern over whether a counteroffer by an incumbent would constitute an act of bad faith. In addition, incumbents claim that the proposed clarification is one-sided. They suggest that, if the provision is retained, a reciprocal obligation of good faith should be imposed on PCS licensees, which would require them to accept the incumbent's assessment of what constitutes comparable facilities. Finally, microwave incumbents emphasize that the same penalties that apply to them should also be imposed on PCS licensees who fail to negotiate in good faith. 20. Discussion. As the comments on this issue demonstrate, the question of whether parties are negotiating in good faith typically requires consideration of all the facts and circumstances underlying the negotiations, and thus is likely to depend on the specific facts in each case. We are concerned that creating a presumption that a party is acting in good or bad faith, as proposed in the Cost-Sharing Notice, may slow down resolution of disputes by prompting parties to bring claims of "bad faith" to the Commission prematurely rather than focusing on resolving the underlying disputes through the negotiation process. For these reasons, we decline to adopt our proposal creating a presumption that a party who declines an offer of comparable facilities is acting in bad faith. Instead, we conclude that good faith should be evaluated on a case-by-case basis under basic principles of contract law. Nevertheless, we agree with those commenters who suggest that guidance with respect to the factors we will consider if a dispute arises over good faith would be helpful. 21. First, we believe that good faith requires each party to provide information to the other that is reasonably necessary to facilitate the relocation process. For example, upon request by a PCS licensee, we expect incumbents to allow inspection of their facilities by the PCS licensee and to provide any other information that the PCS licensee needs in order to evaluate the cost of relocating the incumbent to comparable facilities. Second, when evaluating claims that a party has not negotiated in good faith, we will consider, inter alia, the following factors: (1) whether the PCS licensee has made a bona fide offer to relocate the incumbent to comparable facilities; (2) if the microwave incumbent has demanded a premium, the type of premium requested (e.g., whether the premium is directly related to relocation, such as system-wide relocations and analog-to-digital conversions, versus other types of premiums) and whether the value of the premium as compared to the cost of providing comparable facilities is disproportionate (i.e., whether there is a lack of proportion or relation between the two); (3) what steps the parties have taken to determine the actual cost of relocation to comparable facilities; and (4) whether either party has withheld information requested by the other party that is necessary to estimate relocation costs or to facilitate the relocation process. 22. To ensure that parties do not bring frivolous bad faith claims, we will also require any party alleging a violation of our good faith requirement to provide an independent estimate of the relocation costs of the facilities in question. Independent estimates must include a specification for the comparable facility and a statement of the costs associated with providing that facility to the incumbent licensee. These cost estimates are similar to the cost estimates that we require if a dispute arises over comparable facilities during the involuntary relocation period. We believe that requiring such estimates will assist us in determining whether the parties are negotiating in good faith. Finally, we agree with those commenters who argue that penalties for failure to negotiate in good faith should be imposed on a case-by-case basis. We emphasize, however, that we intend to use the full realm of enforcement mechanisms available to us in order to ensure that licensees bargain in good faith. 3. Involuntary Relocation 23. If no agreement is reached during either the voluntary or mandatory negotiation period, a PCS licensee may initiate involuntary relocation procedures. Under involuntary relocation, the incumbent is required to relocate, provided that the PCS licensee meets the conditions under our rules for making the incumbent whole, such as providing the incumbent with comparable facilities. a. Comparable Facilities 24. Background. Our rules require PCS licensees to provide microwave incumbents with comparable facilities as a condition for involuntary relocation. In the Emerging Technologies docket, we stated that, in any case brought to us for resolution, we would require that facilities be equal to or superior to existing facilities to be considered comparable. To determine comparability, we said that we would consider, inter alia, system reliability, capability, speed, bandwidth, throughput, overall efficiency, bands authorized for such services, and interference protection. PCS licensees subsequently urged us to specify the elements that constitute a comparable facility in order to remove ambiguity and expedite negotiations. 25. In the Cost-Sharing Notice, we proposed to clarify the definition of comparable facilities by using the following three factors to determine when a facility is comparable: communications throughput, system reliability, and operating cost. We defined communications throughput as the amount of information transferred within the microwave system for a given amount of time, system reliability as the amount of time it takes for information to be accurately transferred within the system, and operating cost as the cost to operate and maintain the system. Thus, we proposed that a replacement facility would be presumed comparable if the new system's communications throughput and reliability are equal to or greater than that of the system to be replaced, and the operating costs of the replacement system are equal to or less than those of the existing system. We also suggested that comparable replacement facilities could be provided by "trading off" system parameters, which would permit the PCS licensee to compensate for certain factors by substituting others, provided that overall comparability is achieved in the three essential areas we have identified. 26. Comments. Overall, microwave incumbents, PCS licensees, and other commenters agree that the three factors we identified are the most critical for purposes of determining comparability. PCS licensees support clarification as a means of adding certainty to the process, facilitating negotiations, and reducing the number of disputes that may otherwise arise. Although microwave incumbents generally agree that we have identified the three most important factors of comparability, they express concern that permitting PCS licensees to trade off system parameters will allow them to compromise on certain aspects of comparability by attempting to compensate with other factors. More specifically, incumbents argue that PCS licensees should not be permitted to cut corners on one aspect of comparability, such as reliability, and make up for it in another aspect, such as operating costs or throughput. UTC contends that PCS licensees do not have sufficient knowledge or expertise regarding the incumbent's operational requirements to dictate appropriate trade-offs. By contrast, PCS licensees emphasize that permitting parties to trade-off system parameters promotes flexibility. They stress that comparability should be defined in terms of functionality and performance, rather than whether an offer is made to provide identical equipment. 27. Discussion. We conclude that the factors we identified -- communications throughput, system reliability, and operating costs -- will be the three factors used to determine when a facility is comparable. As we stated in the Cost-Sharing Notice, we believe that providing guidance with respect to the term comparable facilities will facilitate negotiations and reduce disputes. The record in this proceeding also supports adoption of the factors we have identified. Each factor is discussed in more detail below. 28. Throughput. We define communications throughput as the amount of information transferred within the system in a given amount of time. For analog systems the throughput is measured by the number of voice channels, and for digital systems it is measured in bits per second ("bps"). Therefore, if analog facilities are being replaced by analog facilities, the PCS licensee will be required to provide the incumbent with an equivalent number of 4 kHz voice channels. If an existing digital system is being replaced by digital facilities, the PCS licensee will be required to provide the incumbent with equivalent data loading bps in order for the system to be considered comparable. We agree with commenters that the more difficult issue will be determining equivalent throughput when analog equipment is being replaced with digital equipment, which can be like comparing "apples with oranges." If disputes arise, we will determine on a case-by-case basis whether comparable throughput has been achieved. For guidance, we plan to refer to other parts of our rules where analog-digital comparisons have been made, such as the minimum channel loading requirements for fixed point-to-point microwave systems in Section 21.710(d). 29. We also conclude that, during involuntary relocation, PCS licensees will only be required to provide incumbents with enough throughput to satisfy their needs at the time of relocation, rather than to match the overall capacity of the system, as some microwave incumbents suggest. For example, we will not require that a 2 GHz incumbent with 5 MHz of bandwidth be relocated to a 5 MHz bandwidth, 6 GHz location when its current needs only justify a 1.25 MHz bandwidth system. If a dispute arises, we will determine what an incumbent's needs are by looking at actual system use rather than total capacity at the time of relocation. We expressly adopted channelization plans for the 6 GHz band with bandwidth requirements ranging from 400 kHz to 30 MHz to increase the efficiency of use by point-to-point microwave operations. Although we recognize that this policy may affect an incumbent's ability to increase its capacity over time, we agree with PCS licensees that the public interest would not be served if spectrum is automatically held in reserve for all incumbents with the expectation that some may require additional capacity in the future. Our goal is to foster efficient use of the spectrum, which would be thwarted if all incumbents are relocated to systems with capacity that exceeds their current needs. Also, limiting spectrum to current needs serves the public interest, because we believe that it will promote the development of spectrum-efficient technology capable of increasing capacity without increasing bandwidth. 30. Reliability. We define system reliability as the degree to which information is transferred accurately within the system. As stated in the Cost-Sharing Notice, the reliability of a system is a function of equipment failures (e.g., transmitters, feed lines, antennas, receivers, battery back-up power, etc.), the availability of the frequency channel due to propagation characteristic (e.g., frequency, terrain, atmospheric conditions, radio-frequency noise, etc.), and equipment sensitivity. We define comparable reliability as that equal to the overall reliability of the incumbent system, and we will not require the system designer to build the radio link portion of the system to a higher reliability than that of the other components of the system. For example, if an incumbent system had a radio link reliability of 99.9999 percent, but an overall reliability of only 99.999 percent because of limited battery back-up power, we require that the new system have a radio link reliability of 99.999 percent to be considered comparable. For digital data systems this would be measured by the percent of time the bit error rate ("BER") exceeds a desired value, and for analog or digital voice transmissions this would be measured by the percent of time that audio signal quality met an established threshold. If an analog voice system is replaced with a digital voice system the resulting frequency response, harmonic distortion, signal-to-noise ratio, and reliability would be the factors considered. We decline to adopt AUE's request that we include a "system age" component that takes into account how the age of a given system can affect system reliability, because we do not have enough information to determine how age will affect a given system. Moreover, we believe that older equipment of high quality may be as reliable as newer equipment of low quality. 31. Operating Costs. We define operating costs as the cost to operate and maintain the microwave system. These costs fall into several categories. First, the incumbent must be compensated for any increased recurring costs associated with the replacement facilities (e.g., additional rental payments, increased utility fees). Although we originally proposed that recurring costs should be limited to a ten-year license term, we are persuaded by PCS licensees that a five-year time period -- which is the length of a microwave license in the 1850-1990 MHz band -- is a more appropriate time frame, because it strikes an appropriate balance between the burden placed on PCS licensees who must relocate many incumbents, and the burden placed on incumbents that are being forced to relocate. Furthermore, we believe that the five-year time period is not unfair to incumbents because, by five years from now, many incumbents would have been forced to bear some of these costs themselves -- such as increased rents -- if they had not already been relocated by PCS licensees. Moreover, we are also persuaded that a five-year time period provides incumbents with sufficient time for budget planning and resource allocation to meet such expenses once the five-year period expires. Finally, we conclude that a PCS licensee is permitted but not required to satisfy its obligation by making a lump-sum payment based on present value using current interest rates, as suggested by some incumbents. 32. Second, increased maintenance costs must be taken into consideration when determining whether operating costs are comparable. As several commenters point out, maintenance costs associated with analog systems are frequently higher than the costs for equivalent digital systems, because manufacturers are producing mostly digital equipment and analog replacement parts can be difficult to find. We decline to adopt API's suggestion that "serviceability"-- which would require that access to those elements essential to restoration of service be equal to or greater than the original system -- should be adopted as a fourth element, however, because we believe that the ease of servicing the equipment will affect repair costs, which will be factored into operating costs. Furthermore, we agree with incumbents that, in some instances, the operating costs of 6 GHz analog equipment might be so high that analog replacement facilities would not qualify as comparable. On the other hand, if an available analog replacement system would provide equivalent technical capability without increasing the incumbent's operating costs or sacrificing any of the other factors we have identified, we agree with PCS licensees that such an analog system would be acceptable. In sum, our goal is to ensure that incumbents are no worse off than they would be if relocation were not required, not to guarantee incumbents superior systems at the expense of PCS licensees. 33. Trade Offs. We also conclude that comparable replacement facilities may not be provided by trading off any of the system parameters discussed above. Thus, we agree with incumbents that PCS licensees should not be permitted to compromise on one aspect of comparability, such as system reliability, by compensating with another factor, such as increased throughput. Based on the record in this proceeding, we believe that the factors we have identified are central to the concept of comparability, and therefore the replacement system provided to an incumbent during an involuntary relocation must be at least equivalent to the incumbent's existing system with respect to system reliability, throughput, and operating costs. However, other aspects of the system (e.g., bandwidth) do not have to be equivalent to the incumbent's original 2 GHz system. As PCS licensees point out, it might be possible to achieve comparability with respect to the three main factors, even though all of the features on the replacement equipment are not identical to those of the original system. Other media, such as land lines, would also be acceptable, provided that comparability is achieved. 34. Depreciation. In the Cost-Sharing Notice, we also sought comment on whether and how depreciation of equipment and facilities should be taken into account, and whether it would be appropriate for a PCS licensee to compensate an incumbent only for the depreciated value of the old equipment. Some PCS licensees contend that depreciation should be taken into account during the mandatory period as a means of encouraging incumbents to accept offers during the voluntary period. We are persuaded by incumbents, however, that compensation for the depreciated value of old equipment would not enable them to construct a comparable replacement system without imposing costs on the incumbent, which would be inconsistent with our relocation rules. We therefore conclude that the depreciated value of old equipment should not be a factor when determining comparability. b. Relocating Individual Links 35. Background. In the Emerging Technologies docket, we concluded that PCS licensees are obligated to pay to relocate incumbents to comparable facilities when the PCS systems pose an interference problem to the incumbents' microwave links. In the Cost-Sharing Notice, we stated that, while we encourage PCS licensees to relocate an entire microwave system at once -- including non-interfering links outside the PCS licensee's particular service area -- we do not regard this as a requirement under involuntary relocation. With respect to those links that do cause interference, however, PCS licensees must provide incumbents with a seamless transition from the old facilities to the replacement facilities. Thus, it may be both more efficient and more cost- effective in many instances for the parties to relocate all of the links in a system at once, rather than to relocate only a few links and provide the necessary equipment for the microwave incumbent to operate in two different bands simultaneously. 36. Comments. Microwave incumbents strongly oppose the relocation of a single link if the link is part of a larger, multi- link system. They argue that selected link-by-link relocation will destabilize the integrity of microwave systems, reduce manageability, impair throughput, and increase operational costs. Although UTC agrees that a PCS licensee's relocation obligation extends only to those specific microwave paths to which the PCS licensee causes interference, it argues that the obligation to provide a seamless transition may require the PCS licensee to relocate additional links or pay the additional costs associated with integrating replacement links in different bands. By contrast, PCS licensees contend that incumbents' concerns are overstated. PCS PrimeCo, for example, points out that incumbents who are phasing in digital technology are voluntarily converting a few links at a time, which necessarily involves a network comprised of a combination of analog and digital links. 37. Discussion. We affirm our decision in Emerging Technologies docket that PCS licensees are obligated to pay to relocate incumbents to comparable facilities only with respect to the specific microwave links for which their systems pose an interference problem. Thus, we clarify that PCS licensees are not under an obligation to move an incumbent's entire system at once, unless all of the links in the incumbent's system would be subject to interference by the PCS licensee. Although system- wide relocations may be preferable and less disruptive to the incumbent, we conclude that it would be inappropriate to increase a PCS licensee's monetary obligation, e.g., by requiring it to pay to relocate links that it never intended to move, after the licenses have already been auctioned. In fact, several commenters -- particularly those bidding in the C block auction -- have stated in their comments that they are intentionally designing their systems in such a way that existing links will not have to be relocated. Moreover, incumbents are not harmed by this policy because, as PCS licensees point out, many incumbents already operate networks that consist of both 2 GHz and 6 GHz links or a combination of digital and analog technology. Furthermore, our rules protect microwave operations by requiring PCS licensees to provide incumbents with a seamless transition from their old facilities to the replacement facilities. Thus, if providing a seamless transition requires it, PCS licensees must relocate additional links or pay for additional costs associated with integrating the new links into the old system, such as employing a different modulation technique to preserve the system's overall integrity. If problems arise, the PCS licensee is required under our rules to remedy the situation. 38. To ease the burden on incumbents, we have adopted a cost-sharing plan to promote the relocation of all links in a system at the same time, which is discussed in Section IV(B), supra. By enabling PCS licensees to collect reimbursement from subsequent licensees that benefit from the relocation, we believe that our cost-sharing plan will promote a larger number of system-wide relocations. c. Transaction Expenses 39. Background. In the Emerging Technologies docket, we stated on several occasions that emerging technology providers will be required to pay all costs associated with relocation. In the Cost-Sharing Notice, however, we sought comment on whether we should narrow this rule by requiring that reimbursement for relocation costs should be limited to the actual costs associated with providing a replacement system, e.g., equipment and engineering expenses. We proposed to exclude extraneous expenses, such as fees for attorneys and consultants, that are incurred by the incumbent without the advance approval of the PCS relocator. We sought comment on whether such extraneous expenses should be considered "premium payments" that are not reimbursable after the voluntary negotiation period has concluded. 40. Comments. Microwave incumbents argue that they should be reimbursed for all expenses they incur as a result of relocation, and that they should not be required to seek the PCS licensee's prior approval. They contend that the exclusion of such expenses contradicts the principle of full compensation for relocation costs that was adopted in the ET Third Report and Order. According to incumbents, relocation negotiations are highly technical, and the exclusion of such fees would deprive them of the ability to contribute meaningfully and effectively to the negotiation process. In addition, APCO asserts that incumbents, especially public safety licensees with limited budgets, should be entitled to reimbursement for reasonable internal expenses as well. As an example, APCO states that an incumbent may choose to commit the time of its own engineers and attorneys (rather than hiring outside experts) and, in such circumstances, the incumbent should be reimbursed for that overhead, based on standard accounting principles. Nonetheless, some incumbents recognize the potential for abuse if fees for attorneys and consultants are fully reimbursable without limitation. As a way to contain such expenses, CIPCO suggests that we impose a cap, such as $5,000 per link for legal expenses. Cox & Smith suggest that maximum fees could be established based on the number of paths being relocated or on a percentage of the total "hard" costs involved in the relocation (e.g., equipment, new towers, site acquisition). 41. PCS licensees insist that they should not have to pay for attorney and consultant fees incurred by incumbents. They argue that some incumbents are hiring costly consultants in an effort to extract premiums from PCS licensees, and that they should not be required to pay such fees for incumbents that view the relocation process as a profit-making business opportunity. As a solution, Sprint Telecommunications Venture proposes that PCS licensees be responsible for paying only those costs which can be legitimately and reasonably tied to the relocation process. BellSouth suggests that legal and consulting fees be recoverable only if an agreement is reached during the voluntary period, so that incumbents will have an incentive to reach an agreement prior to the mandatory period. 42. Discussion. We conclude that incumbents should be reimbursed only for legitimate and prudent transaction expenses that are directly attributable to an involuntary relocation, subject to a cap of two percent of the "hard" costs involved (e.g., equipment, new towers, site acquisition). Although we proposed in the Cost-Sharing Notice that PCS licensees should not be required to reimburse incumbents for any "extraneous" expenses, such as fees for attorneys and consultants, we are persuaded by commenters that some reimbursement for outside assistance is necessary, because not all incumbents have expertise in these fields within their organizations. We conclude that PCS licensees are not required to pay incumbents for internal resources devoted to the relocation process, however, because such expenses are difficult to determine and would be too hard for a PCS licensee to verify. Moreover, the benefits incumbents receive as a result of relocation, such as superior equipment, are likely to outweigh any internal costs they incur. 43. To prevent abuses, PCS licensees will not be required to reimburse incumbents for transaction costs that exceed two percent of the hard costs associated with an involuntary relocation. Rather than adopt a cap on the dollar amount that can be spent on transaction expenses, we believe that a percentage of the total hard costs, as suggested by Cox & Smith, is more appropriate. Therefore, if complicated and costly actions, such as land acquisition, are required to accomplish relocation, the permissible amount of reimbursement for transaction costs would be higher. We also believe that a two-percent cap is reasonable and strikes a fair balance between the concerns of PCS licensees and microwave incumbents. We derived two percent from CIPCO's suggested cap of $5,000 per link, which is two-percent of $250,000 -- the amount we have determined to be the average cost of relocating a link. Furthermore, PCS licensees will not be required to pay for transaction costs incurred by incumbents during the voluntary or mandatory negotiation periods once an involuntary relocation is initiated, nor will they be required to pay for fees that cannot be legitimately tied to the provision of comparable facilities, such as consultant fees for determining how much of a premium payment PCS licensees would be willing to pay. We agree with PCS licensees that they should not have to reimburse incumbents for such fees, because it would encourage incumbents to view the relocation process as a business opportunity. Furthermore, requiring PCS licensees to pay such fees does not serve the public interest, because added expenses are likely to be passed on to the public in the form of increased PCS subscriber fees. d. Twelve-Month Trial Period 44. Background. Our existing rules provide a twelve-month period for relocated microwave incumbents to ensure that their new facilities are comparable. If the new facility is found not to be comparable during the first twelve months of operation, our rules provide that the PCS licensee must either cure the problem, restore the incumbent to its original frequency, or relocate it to an equivalent 2 GHz frequency. The purpose of the twelve-month trial period is to ensure that microwave incumbents have a full opportunity to operate their new systems under real-world operating conditions and to obtain redress from the PCS licensee if the new system does not perform comparably to the old system or pursuant to agreed-upon terms. In the Cost- Sharing Notice, we proposed to clarify that this period should begin when the incumbent starts using its new system. We also tentatively concluded that the right to a twelve month trial period resides with the incumbent as a function of our relocation rules, regardless of whether the incumbent has previously surrendered its license. If the incumbent has retained its 2 GHz authorization during the twelve-month trial period, however, it should surrender the license at the conclusion of that period. 45. Comments. Most commenters agree with our proposals, but suggest that some rules need further clarification. A number of commenters request that we clarify that the twelve-month trial period only applies if an involuntary relocation occurs and that, during the voluntary period, the parties may agree to any length trial period or none at all. PCIA, UTAM, and others also argue that we should not hold PCS providers responsible for the performance of relocated systems which they did not construct. Some PCS licensees argue that our current rules may unduly delay or inhibit the deployment of PCS and, therefore, suggest rule changes such as (1) reducing the trial period to one month, or (2) clarifying that, if the new facilities are not comparable, the PCS licensee may provide comparable service by some means other than relocation back to 2 GHz spectrum. 46. Microwave incumbents oppose reduction of the twelve-month trial period. They argue that microwave facilities can be affected by both climate and vegetation, so a full year trial period is necessary to determine whether any foliage or weather changes affect the operation of the replacement system. Incumbents also contend that, if a problem arises, the twelve-month trial period should either freeze or begin again after the problem is resolved to ensure that the problem does not arise again. In addition, the Kansas Department of Transportation asks that we clarify whether the PCS licensee is obligated to remedy a problem after the twelve-month period has expired if the problem was reported prior to the end of the twelve-month period. 47. Discussion. As a preliminary matter, we clarify that the twelve-month trial period is only automatic if an involuntary relocation occurs. Therefore, if the parties decide that a trial period should be established for relocations that occur during the voluntary and mandatory period, they must provide for such a period in the relocation contract. 48. Because our proposed clarifications to the twelve-month trial period received broad record support, we adopt the following clarifications to Section 94.59(e) of our rules: (1) the trial period will commence on the date that the incumbent begins full operation (as opposed to testing) on the replacement link; and (2) an incumbent's right to a twelve-month trial period resides with the incumbent as a function of our relocation rules, regardless of whether the incumbent has previously surrendered its license. If, however, a microwave licensee has retained its 2 GHz authorization during the trial period, it is required to return the license to the Commission at the conclusion of that period. We decline to adopt the suggestion that the twelve-month trial period should be extended or begin again if a problem arises. We conclude that incumbents are adequately protected without such an extension because, by the end of the twelve month period, our rules require that they be operating on facilities that are comparable. If at the end of the twelve months the PCS licensee has still failed to meet this requirement, it must relocate the incumbent back to its former or equivalent 2 GHz frequencies. Thus, the expiration of the twelve-month period does not leave the incumbent without further recourse. 49. As a related matter, we clarify that, even after the PCS licensee has initiated the involuntary relocation process, a mutually acceptable agreement will still be permissible. If the parties do sign an agreement specifying their own terms, we will treat the agreement in the same manner as we treat agreements that are consummated during the voluntary and mandatory periods, and the parties will be bound by contract rather than our rules. We agree with commenters that neither incumbents nor PCS licensees are harmed by such a policy, because neither party is obligated to enter into such an agreement. If the agreement falls through, however, the incumbent will be subject to involuntary relocation. 50. Finally, we decline to reduce the trial period to one month as suggested by PCS licensees. We agree with incumbents that twelve months is an appropriate time period, because it gives the incumbent the opportunity to ensure that the facilities function properly during changes in climate and vegetation. We also take this opportunity to clarify that PCS licensees are not required to leave the incumbent's former 2 GHz spectrum vacant during the twelve-month trial period. We agree with PCIA that requiring PCS licensees to hold this spectrum in reserve would delay the deployment of PCS for at least one year, which does not serve the public interest. We also clarify that, if the microwave incumbent demonstrates that the new facilities are not comparable to the former facilities, the PCS licensee must remedy the defects or pay to relocate the microwave licensee to one of the following: its former or equivalent 2 GHz channels, another comparable frequency band, a land-line system, or any other facility that qualifies as comparable. e. Request for Clarification of Involuntary Relocation Procedures 51. Background. In an ex parte letter submitted on April 15, 1996, AT&T Wireless and six other PCS licensees urge the Commission to clarify or amend its rules governing involuntary relocation. These parties contend that "the Commission's procedures are vague with respect to the procedures to be followed at the end of the mandatory negotiation period." They note that under our existing rules, a PCS licensee requesting an incumbent to relocate involuntarily must guarantee payment of relocation costs, complete all activities necessary to place the new facilities into operation, and build and test the replacement system. They further note, however, that the rules do not specify whether the parties must agree on relocation costs, what constitutes an adequate relocation system, or the time frame in which relocation is to occur. AT&T Wireless, et al., express concern that the lack of specific procedures for involuntary relocation may create incentives for microwave incumbents to prolong negotiations beyond the expiration of the mandatory negotiation period and cause further delays in the relocation process. Therefore, AT&T Wireless, et al., request that the Commission either (1) require microwave incumbents to vacate their 2 GHz frequencies by the end of the mandatory negotiation period, or (2) automatically convert microwave licenses to secondary status immediately upon expiration of the mandatory negotiation period. 52. Discussion. We believe that AT&T Wireless, et al., have raised legitimate issues regarding the procedures for implementing involuntary relocation at the conclusion of the mandatory negotiation period. The issues raised in their letter, however, were not included in the Cost-Sharing Notice, nor were they raised in any of the regularly filed comments or reply comments in this proceeding. Because of the relative lateness of the parties' ex parte filing and the lack of opportunity for other parties to comment, we decline to address these issues at this time. Nevertheless, we encourage the parties to the April 15 letter or any other interested parties to file a petition for rulemaking on the issues raised in the letter. 4. Public Safety Certification 53. Background. In the ET Third Report and Order, we concluded that a select group of public agencies should qualify for extended voluntary and mandatory negotiation periods under our rules. Section 94.59 of our rules limits the privilege of extended negotiation periods to the following licensees: Part 94 facilities currently licensed on a primary basis under the eligibility requirements of Section 90.19, Police Radio Service; Section 90.21, Fire Radio Service; Section 90.27, Emergency Medical Radio Services; and Subpart C of Part 90, Special Emergency Radio Services, provided that the majority of communications carried on those facilities are used for police, fire, or emergency medical services operations involving safety of life and property. Licensees of other Part 94 facilities licensed on a primary basis under the eligibility requirements of Part 90, Subparts B and C, are permitted to request similar treatment upon demonstrating that the majority of the communications carried on those facilities are used for operations involving safety of life and property. 54. PCIA requested that we allow PCS licensees access to information essential to confirm that a microwave licensee qualifies for the extended transition period reserved for emergency public safety uses. In the Cost-Sharing Notice, we agreed with PCIA that PCS licensees should have a readily available means of confirming a microwave licensee's public safety status for purposes of our relocation rules. We proposed that the public safety licensee should be required to establish: (1) that it qualifies as a service listed in Section 94.59(f) of our rules (see classifications listed in previous paragraph), (2) that it is a licensee in one or more of these services, and (3) that the majority of communications carried on the facilities involve safety of life and property. We also proposed that the public safety licensee should be required to provide such documentation to the PCS licensee promptly upon request. If the incumbent failed to provide the PCS licensee with the requisite documentation, we proposed that the PCS licensee would be permitted to presume that special treatment is inapplicable to the incumbent. 55. Comments. APCO, which represents numerous public safety incumbents, argues that PCS licensees should not be allowed to force government agencies to meet burdensome reporting requirements regarding the nature of their communications traffic. The City of San Diego further states that our proposal is unworkable, because there is no objective, quantitative measure for making a satisfactory public safety demonstration. To address these concerns, the City of San Diego suggests that we should allow public safety entities to self-certify that they meet the appropriate criteria. PacBell urges us to reject the self-certification method, however, because it contends that self-certification places the determination in the hands of a party that is biased in favor of claiming public safety status. PacBell suggests that a public safety licensee's capacity should be determined by the initial channel loading contained in the incumbent's Form 402 application, and that the incumbent should only qualify for extended relocation if over half of those channels carry communications involving the safety of life or property. AT&T proposes that we require public safety licensees to petition the Commission immediately to obtain public safety status, and that the public safety licensee be required to certify to the PCS licensee that it has obtained such status as soon as the petition is granted. As a related matter, PCIA argues that, in addition to requiring appropriate documentation, the Commission should narrow the definition of public safety by requiring those incumbents seeking longer negotiation periods to establish that substantially all -- rather than a majority -- of the communications carried on their facilities involve safety of life and property. PCIA claims that narrowing the definition even further is appropriate because the extended relocation periods can delay the deployment of PCS. 56. Discussion. We agree with PCS licensees that certification is necessary to ensure that only those public safety incumbents meriting special status are allowed the advantages of extended negotiation periods. We also agree with incumbents, however, that self-certification is appropriate, because self-certification will not burden public agencies with time-consuming reporting requirements. We decline to adopt the suggestion made by AT&T that all public safety incumbents should be required to apply to the Commission for certification, because such a requirement would be administratively burdensome for the Commission and could delay negotiations. Furthermore, we believe that PacBell's concerns about biased public agencies are overstated, because we do not believe public agencies will be inclined to falsify the certification. 57. We conclude that, in order for a public safety licensee to qualify for extended negotiation periods under our rules, the department head responsible for system oversight must certify to the PCS licensee requesting relocation that: (1) the agency is a licensee in the Police Radio, Fire Radio, Emergency Medical, Special Emergency Radio Services, or that it is a licensee of other Part 94 facilities licensed on a primary basis under the eligibility requirements of Part 90, Subparts B and C; and (2) the majority of communications carried on the facilities at issue involve safety of life and property. A public safety licensee must provide certification within 30 days of a request from a PCS licensee or the PCS licensee may presume that special treatment is inapplicable to the incumbent. If an incumbent falsely certifies to a PCS licensee that it qualifies for the extended time periods, the incumbent will be in violation of our rules and subject to appropriate penalties. Such an incumbent would also immediately become subject to the non-public safety time periods. 5. Dispute Resolution 58. Because relocations that occur pursuant to agreements arrived at during the voluntary and mandatory period are relocations pursuant to private contracts, we anticipate that parties will pursue common law contract remedies if a dispute arises. Thus, if parties do not agree to use alternative dispute resolution techniques, we expect that they will file suit in a court of competent jurisdiction. 59. To the extent that disputes arise over violation of the Commission's rules (e.g., the good faith requirement, involuntary relocation procedures), we have stated that parties are encouraged to use ADR techniques. Commenters agree that resolution of such disputes entirely by our adjudication processes would be time consuming and costly to all parties. Therefore, we continue to encourage parties to employ ADR techniques when disputes arise. 6. Ten Year Sunset 60. Background. In the initial Notice of Proposed Rule Making in the Emerging Technologies docket, adopted on January 16, 1992, we proposed to allow unrelocated microwave incumbents to continue to occupy their 2 GHz frequency for a fixed period of time -- possibly 10-15 years -- at which time they would be converted to secondary status. We suggested a 10-15 year time frame, because we estimated that most 2 GHz equipment would be completely amortized or need replacement by the time the period expired. In the ET Third Report and Order, we decided not to make incumbent facilities secondary on a fixed date, but we reserved the option of revisiting the issue in the future. 61. In the Cost-Sharing Notice, we sought comment on whether we should place some time limit on a PCS licensee's obligation to provide comparable facilities. As an example, we cited to our decision in GEN Docket 82-334, which gave private operational fixed microwave stations in the 12 GHz band five years to relocate their facilities, after which time they became secondary to the Direct Broadcast Satellite ("DBS") Service. In the Cost-Sharing Notice, we tentatively concluded that microwave incumbents should not retain primary status indefinitely on spectrum licensed for PCS and, therefore, microwave incumbents that are still operating in the 1850-1990 MHz band on April 4, 2005, should be made secondary on that date. 62. Comments. We received a considerable number of comments on this issue, particularly from incumbents with microwave links in rural areas. They argue, inter alia, that such a policy will encourage PCS licensees to "wait out" incumbents, and will increase the likelihood that incumbents will have to assume the costs of their own relocation. Many incumbents point out that the deployment of PCS is likely to be delayed in rural areas and, therefore, the sunset date is likely to penalize those entities with extensive rural networks. APCO also argues that some incumbents (including public safety licensees) may still be operating links in urban areas after 2005, because 6 GHz and other replacement bands may not be able to accommodate all of the current 2 GHz licensees. Moreover, incumbents contend that such a policy is not "spectrum efficient," because microwave incumbents might be forced to vacate frequencies that PCS licensees may never need or use. As an alternative, incumbents suggest that, if clearing the band is a priority, the Commission should modify its proposal by imposing a requirement that all 2 GHz licensees must offer to relocate all incumbents in their frequency block before the year 2005. Assuming that we adopt such a sunset, UTC points out that the 2005 date unfairly impacts those incumbents in the C, D, E, and F bands, which have not yet been licensed for PCS, because those incumbents will have less than ten years to negotiate or plan for relocation. 63. One microwave incumbent, CIPCO, agrees that a ten-year period is adequate to complete relocation from 2 GHz. CIPCO submits that, even if all paths are not relocated by that time, it should be able to determine potential exposure and schedule any necessary non-reimbursed relocations. Furthermore, CIPCO anticipates that, given the rural nature of its service territory, it will be able to operate some paths on a secondary basis indefinitely. 64. PCS licensees support our proposal to convert the remaining incumbents operating in the 2 GHz band to secondary status in the year 2005. BellSouth argues that microwave incumbents would not be harmed significantly by such a conversion, because their equipment should be fully amortized by the year 2005. UTAM also supports our proposal, arguing (1) that the entire unlicensed spectrum band must be cleared of all microwave incumbents in order to have full deployment of unlicensed PCS devices -- particularly nomadic devices, and (2) that ten years is ample time for necessary relocations to take place. Other PCS licensees agree with the ten-year time period, but assert that incumbents should be converted to secondary status sooner if no agreement is reached by the end of the mandatory negotiation period, or if the incumbent negotiates in bad faith. 65. Discussion. As we stated in the Cost-Sharing Notice, we continue to believe that an emerging technology licensee's obligation to relocate 2 GHz microwave incumbents should not continue indefinitely; however, we are also persuaded by incumbents that immediate conversion to secondary status in the year 2005 may not be necessary, especially with respect to rural links that would not interfere with any PCS systems. To strike a fair balance between these competing interests, we conclude that 2 GHz microwave incumbents will retain primary status unless and until an emerging technology licensee requires use of the spectrum, but that the emerging technology licensee will not be obligated to pay relocation costs after the relocation rules sunset, i.e., ten years after the voluntary period begins for the first emerging technology licensees in the service (which is April 4, 2005, for PCS licensees and unlicensed PCS). Once the relocation rules sunset, an emerging technology licensee may require the incumbent to either cease operations or pay to relocate itself to alternate facilities, provided that the emerging technology licensee intends to turn on a system within interference range of the incumbent, as determined by TIA Bulletin 10-F or any standard successor thereto. Notification must be in writing, and the emerging technology licensee must provide the incumbent with no less than six months to vacate the spectrum. After the six-month notice period has expired, the incumbent will be required to turn its 2 GHz license back into the Commission, unless the parties have entered into an agreement which allows the incumbent to continue to operate on a mutually agreed upon basis. We conclude that our decision promotes spectrum efficiency, because it allows microwave incumbents to continue to operate in the 2 GHz band until their spectrum is needed by an emerging technology licensee. 66. We believe that a sunset date for our microwave relocation rules serves the public interest, because it provides certainty to the process and prevents the emerging technology licensee from being required to pay for relocation expenses indefinitely. Moreover, we agree with commenters that ten years provides incumbents with sufficient time (1) to negotiate a relocation agreement or (2) to plan for relocation themselves. In fact, well over ten years will have passed since we first announced our intention to reallocate 2 GHz spectrum to foster the introduction of emerging technologies services in 1992. In other services, we have provided incumbents with even less time to complete relocation. For example, private operational fixed microwave stations in the 12 GHz band received only five years to relocate their facilities before they became secondary to the Direct Broadcast Satellite ("DBS") Service. 67. We also believe that adopting a sunset date is important, because it will provide 2 GHz microwave incumbents with an incentive to relocate to other bands when it comes time to change or replace their equipment. At the current time, our licensing records indicate that most 2 GHz microwave incumbents use analog equipment. APCO contends that operating 2 GHz analog microwave systems is becoming infeasible, because analog systems are now outdated and replacement parts will soon be difficult, if not impossible, to find. APCO also states that most incumbents have long-term plans to replace their analog systems with digital systems once the useful life of current equipment has expired and/or adequate funding has been found. As BellSouth points out, by the time the sunset date arrives, much of the microwave equipment operating today at 2 GHz is likely to be either fully amortized or in need of replacement. We believe that informing 2 GHz incumbents that they will have to cover their own relocation expenses after ten years will encourage incumbents to relocate to another band when they replace existing equipment. By contrast, if emerging technology licensees are required to pay to relocate incumbents regardless of when the relocation occurs, incumbents will have little incentive to make such a transition to an alternate band voluntarily. For similar reasons, we reject the argument by incumbents that PCS licensees should be required to make relocation offers prior to the sunset date to all incumbents located within their market area. Again, incumbents would have no incentive to change out their own systems voluntarily if they knew that PCS licensees would be required to cover the expenses for them at a later date. Furthermore, even if we had not reallocated the spectrum, these incumbents would have had to plan ahead for repair costs, replacement equipment, and infrastructure improvement. Given that most incumbents will incur significant expenses in any event when they replace their analog system with digital equipment, we believe that providing an incentive to incumbents to relocate voluntarily at the same time they purchase new equipment serves the public interest. In sum, we believe that the benefits of imposing a sunset date outweigh the burdens, if any, that such a date may impose. 68. Finally, we believe that six months is a reasonable amount of time for most incumbents to relocate their facilities, especially because they will have been on notice for ten years that they might be requested to move. Nevertheless, we acknowledge that special circumstances might warrant an extension of the six-month period in some instances to enable the incumbent to complete relocation activities. If the incumbent is unable to move or cannot complete relocation in time, we encourage the parties to negotiate a mutually acceptable solution. In the event that the parties cannot agree on a schedule or an alternative arrangement, we will entertain extension requests on a case-by-case basis. However, we intend to grant such extensions only if the incumbent can demonstrate that: (1) it cannot relocate within the six-month period (e.g., because no alternative spectrum or other reasonable option is available), and (2) the public interest would be harmed if the incumbent is forced to terminate operations (e.g., if public safety communications services would be disrupted). B. Cost-Sharing Plan 1. Overview 69. Background. In the Cost-Sharing Notice, we proposed a cost-sharing plan that would allow PCS licensees that relocate microwave links outside their license areas to receive reimbursement from later-entrant PCS licensees that benefit from the clearing of their spectrum. Under the proposal, PCS licensees would receive "reimbursement rights" once they sign a relocation agreement with a microwave incumbent. Subsequent PCS licensees that would have caused harmful interference to relocated links would be required to reimburse the holder of the reimbursement rights for a pro rata share of the actual cost of relocating microwave facilities. The pro rata share that each new PCS provider pays would be calculated according to a cost- sharing formula that considers, among other things, the date that the PCS licensee begins service, the amount paid to relocate the link, and the number of licensees that have previously contributed to paying the relocation cost of the link. We also proposed that a non-profit clearinghouse be established to administer the cost-sharing plan. 70. Comments. Most commenters, including microwave incumbents, A and B block PCS licensees, and potential bidders in future PCS auctions, generally support our proposed cost-sharing plan, although each group suggested minor modifications. A and B block PCS licensees ask, among other things, that we clarify that private cost-sharing agreements unrelated to the plan adopted by the Commission are permissible. Microwave incumbents request permission to be included in the cost-sharing plan in order to collect reimbursement from subsequent PCS licensees if they choose to relocate their own links. A few potential bidders for future PCS licenses argue that the benefit of being first in the marketplace far outweighs the burden of bearing the costs of relocation, and that such costs should not be passed on to subsequent licensees. 71. Discussion. We adopt our proposed plan with a few modifications suggested by commenters. We believe that cost- sharing serves the public interest because (1) it will distribute relocation costs more equitably among PCS licensees, and (2) it will promote the relocation of entire microwave systems at once, which will benefit microwave incumbents. We also believe that cost-sharing will accelerate the relocation process for the PCS band as a whole, thus promoting more rapid deployment of service to the public. Furthermore, we conclude that the benefits of cost-sharing outweigh the costs that may be incurred by licensees who become subject to reimbursement obligations. Under the plan, these licensees will be required to pay reimbursement obligations only when they have benefitted from the spectrum-clearing efforts of another party. Moreover, as discussed in greater detail below, we are adopting limits on reimbursement to ensure that licensees subject to the plan do not bear a disproportionate cost. We conclude that these provisions amply protect the interests of such licensees. 72. Under our cost-sharing plan, a PCS licensee obtains reimbursement rights for a particular link on the date that it signs a relocation agreement with the microwave incumbent operating on the link at issue. Within ten business days of the date the agreement is signed, the PCS licensee submits documentation of the agreement to a non-profit clearinghouse, which will be selected by the Wireless Telecommunications Bureau ("Bureau") as discussed in Section IV(B)(3), infra. If the clearinghouse has not yet been selected, the PCS relocator will be responsible for submitting documentation of a relocation agreement within ten business days of the date that the Bureau announces that the clearinghouse has been established and has begun operation. 73. Prior to commencing commercial operation, each PCS licensee is required to send a prior coordination notification ("PCN") to all existing users in the area. At the same time, each PCS licensee shall file a copy of the PCN with the clearinghouse. The clearinghouse will then apply an objective test to determine whether the proposed base station would have posed an interference problem to the relocated link. If the test shows that the proposed base station is close enough to have posed an interference problem, the clearinghouse will notify the subsequent licensee that it is required to reimburse the PCS relocator under the cost-sharing formula for a portion of the expenses the relocator incurred to move the link. UTAM will be required to reimburse PCS relocators who relocate microwave links that were operating in the unlicensed PCS band. 74. The clearinghouse will determine the amount that the subsequent PCS licensee must pay the relocator through the use of a cost-sharing formula. The formula takes into consideration such factors as the actual amount paid to relocate the link and the number of PCS licensees that would have interfered with the link. All calculations will be done an a per-link basis. The reimbursement amount also decreases over time to reflect the fact that the initial PCS relocator has received the benefit of being first to market, and to ensure that the PCS relocator pays the largest amount, which we believe will provide an incentive to the relocator to limit relocation expenses. As an additional protection for later-entrants, we have imposed a cap of $250,000 per link, with an additional $150,000 if a new or modified tower is required, on the amount that a PCS relocator may recoup for the relocation of each individual microwave link. PCS relocators are entitled to full reimbursement, up to the cap, for relocating non- interfering links fully outside their market area or licensed frequency band. Also, costs that are incurred prior to the selection of a clearinghouse will be reimbursable after a clearinghouse is established. 75. Once a PCS licensee receives written notification from the clearinghouse of its reimbursement obligation, it must pay the entire amount owed within thirty days, with the exception of those small businesses that qualify for installment payments under our auction rules. UTAM will be required to reimburse a PCS relocator once a county is cleared of enough microwave links to enable unlicensed PCS devices to operate. Because UTAM receives its funding in small increments over an extended period of time, UTAM will be permitted to satisfy its reimbursement obligation by making quarterly installment payments to the PCS relocator over a period of five years, at an interest rate of prime plus three percent. The following time line provides an overview of the cost-sharing process: 76. A detailed discussion of the mechanics of our cost-sharing plan is attached as Appendix A, which is incorporated by reference into this First Report & Order. The cost-sharing plan will sunset for all PCS licensees ten years after the date that voluntary negotiations commenced for A and B block licensees, on April 4, 2005. However, the sunset date will not eliminate the existing obligations of PCS licensees that are paying their portion of relocation costs on an installment basis. Those licensees must continue their payments until the obligation is satisfied. Finally, while we conclude that the cost-sharing plan is in the public interest, we are conditioning our adoption of these rules on a approval of an entity or organization to administer the plan, as discussed further in Section IV(B)(3), infra. Once an administrator is selected, the cost-sharing rules will take effect. 77. Participation in Cost-Sharing Plan. By this Report and Order, we mandate that all PCS licensees benefitting from spectrum clearance by other PCS licensees must contribute to such relocation costs. As we emphasized in the Cost-Sharing Notice, however, PCS licensees remain free to negotiate alternative cost-sharing terms. We also agree with commenters that allowing PCS licensees to enter into such private agreements serves the public interest, because it adds flexibility to the cost- sharing process and may enable such parties to save both time and the administrative expense of seeking reimbursement from a clearinghouse. We therefore conclude that licensees are not required to participate in our cost-sharing plan if they enter into alternative cost-sharing agreements. We also agree with commenters that all parties to a separate agreement will still be liable under the cost-sharing plan to other PCS licensees that incur relocation expenses. Finally, we conclude that parties to a private cost-sharing agreement may also seek reimbursement through the clearinghouse from PCS licensees that are not parties to the agreement. 2. Dispute Resolution Under the Cost-Sharing Plan 78. Background. In the Cost-Sharing Notice, we proposed that disputes arising out of the cost-sharing plan should be brought, in the first instance, to the clearinghouse for resolution. To the extent that disputes cannot be resolved by the clearinghouse, we stated that parties should be encouraged to use ADR procedures, such as binding arbitration, mediation, or other ADR techniques. We also asked whether parties should be required to submit independent appraisals of the incumbent's system to the clearinghouse at the time such disputes are brought to the clearinghouse for resolution. Finally, we sought comment on the appropriate penalty for failure to comply with cost-sharing obligations. 79. Comments. Commenters offer different views concerning the appropriate method of dispute resolution. Some licensees believe that the clearinghouse should resolve disputes to the extent possible and, if the dispute cannot be resolved, ADR should be required. However, BellSouth disagrees that the clearinghouse should be required to attempt to resolve disputes and argues instead that all disputes should proceed immediately to ADR. US Airwaves believes that dispute resolution should be flexible: first, use of the clearinghouse should be required, then use of ADR, and finally use of the court system. Also, US Airwaves argues that failure to comply with cost-sharing obligations should not be considered by the Commission when deciding renewal and/or transfer and assignment cases. 80. Discussion. We agree with those commenters who argue that disputes arising out of the cost-sharing plan, such as disputes over the amount of reimbursement required, should be brought to the clearinghouse first for resolution. At the time the dispute is brought to the clearinghouse, the parties will be required to submit appropriate documentation, e.g., an independent appraisal of the equipment expenses at issue, to support their position. To the extent that disputes cannot be resolved by the clearinghouse, we encourage parties to use expedited ADR procedures, such as binding arbitration, mediation, or other ADR techniques. At this time, we do not designate a specific penalty for failure to comply with cost-sharing requirements; however, we emphasize that we intend to use the full realm of enforcement mechanisms available to us in order to ensure that reimbursement obligations are satisfied. 3. Administration of the Cost-Sharing Plan 81. Background. In our proposal, we recommended that an industry-supported clearinghouse be established to administer the cost-sharing proposal. The clearinghouse would maintain all of the cost and payment records related to the relocation of each link and would determine the cost-sharing obligation of subsequent PCS licensees. We sought comment on such issues as how the clearinghouse should be funded and whether records should be kept confidential. 82. Comments. A number of microwave incumbents support the establishment of a non-profit clearinghouse, but voice concerns about the confidentiality of the information filed with the clearinghouse. AAR believes that all microwave incumbents should be allowed to inspect and verify information pertaining to their systems, but SoCal argues that unless strict limitations are placed on access to the information filed with the clearinghouse, the confidentiality of PCS relocation agreements will be breached. AAR suggests that initial rules concerning the clearinghouse should be established in an open process, which incorporates the comments and balances the needs of all interested parties. PCS licensees also generally support the concept of an industry-supported clearinghouse. BellSouth recommends that the organization selected as clearinghouse should present a viable business plan for equitably securing start-up expenses and on-going funding, that it should have demonstrable experience with spectrum management, and that it should be fully operational 90 days from the date of selection. Sprint agrees with the concept of a clearinghouse, provided that the entity does not make any engineering decisions and serves only an administrative function. Some commenters suggest that PCS licensees with private agreements should not be required to fund the clearinghouse's activities, except to the extent that they use the clearinghouse to obtain reimbursement from licensees that are not parties to the private agreement. 83. On September 6, 1995, PCIA first stated its desire to serve as the clearinghouse administrator, a desire which it reiterated in comments filed on November 30, 1995. PCIA states that it has the necessary qualifications and resources, and that it has extensively explored the structure and functions of the clearinghouse. Chester Telephone, et al., PacBell, and Sprint support designation of PCIA as the clearinghouse. UTC opposes PCIA as the clearinghouse, stating that a PCS trade industry association is not a neutral third party. In an ex parte presentation, filed April 18, 1996, ITA states that it also stands willing and able to serve as the designated clearinghouse administrator. ITA urges the Commission to solicit proposals from all entities having an interest in serving as the clearinghouse administrator, which would provide organizations with the opportunity to propose innovative procedures and safeguards that would promote the reimbursement process. 84. Discussion. We agree with those commenters who suggest that the clearinghouse administrator should be selected through an open process. We also believe it is essential for the plan to be administered by industry to the fullest extent possible. Therefore, before we implement the plan, we will seek specific proposals from parties who wish to act as administrator and will request public comment on any such proposals. 85. We delegate to the Wireless Bureau the authority to select one or more entities to create and administer a neutral, not- for-profit clearinghouse. Selection shall be based on criteria established by the Bureau. The Bureau shall publicly announce the criteria and solicit proposals from qualified parties. Once such proposals have been received, and an opportunity has elapsed for public comment on them, the Bureau shall make its selection. When the Bureau selects an administrator, it shall announce the effective date of the cost-sharing rules. C. Licensing Issues 86. Background. In the Cost-Sharing Notice, we stated that allowing additional primary site grants in the 2 GHz band now that relocation negotiations are ongoing will unnecessarily impede negotiations and may add to the relocation obligations of PCS licensees. Nevertheless, we recognized that some minor technical changes to existing microwave facilities may be necessary for incumbents' continued operations. We also stated that we do not believe that these minor technical modifications will significantly increase the cost to a PCS licensee of relocating a particular link. Thus, while the rulemaking proceeding was pending, we continued to accept applications for primary status; however, we processed only minor modifications that would not add to the relocation costs of PCS licensees. Specifically, we granted primary status for the following limited number of minor technical changes: decreases in power, minor changes in antenna height, minor coordinate corrections (up to two seconds), reductions in authorized bandwidths, minor changes in structure heights, changes in ground elevation (but preserving centerline height), and changes in equipment. Any other modifications were permitted only on a secondary basis, unless (1) a special showing of need justified primary status, and (2) the incumbent was able to establish that the modification would not add to the relocation costs of PCS licensees. In addition, we stated that we would carefully scrutinize any applications for transfer of control or assignment to establish that our microwave relocation procedures are not being abused, and that the public interest would be served by the grant. 87. Comments. PCS licensees generally agree with our licensing policy, although some continue to argue that we should not grant any more 2 GHz licenses to incumbents either on a primary or a secondary basis. By contrast, microwave incumbents argue that our licensing policy is too restrictive, and that all modifications that do not add to the relocation costs of PCS licensees should receive primary status. Commenters also request clarification regarding how licenses with secondary status will be treated for purposes of relocation. PacBell suggests that we establish a procedure for dealing with secondary microwave incumbents who fail to cease operations on their secondary links at the appropriate time. 88. Discussion. As of the effective date of the new rules, we will grant pending and newly filed applications for all major modifications and all extensions to existing 2 GHz microwave systems on a secondary basis. We will grant primary status for the following limited number of technical changes: decreases in power, minor changes in antenna height, minor location changes (up to two seconds), any data correction which does not involve a change in the location of an existing facility, reductions in authorized bandwidths, minor changes in structure heights, changes in ground elevation (but preserving centerline height), and changes in equipment. All other modifications will be permitted on a secondary basis, unless (1) the incumbent affirmatively justifies primary status, and (2) the incumbent establishes that the modification would not add to the relocation costs of PCS licensees. We decline to adopt the suggestion made by PCS licensees that no modifications should be allowed even on a secondary basis, because some incumbents might not need to relocate for several years, and they should be permitted to make modifications to their systems during that time period. We also disagree with incumbents that our licensing policy should be expanded, because we believe that limiting primary site grants is necessary to protect the interests of PCS licensees. In sum, we believe that granting secondary site authorizations serves the public interest, because it balances existing licensees' need to expand their systems with the goal of minimizing the number of microwave links that PCS licensees must relocate. 89. Furthermore, we clarify that secondary operations may not cause interference to operations authorized on a primary basis, and they are not protected from interference from primary operations. Thus, an incumbent operating under a secondary authorization must cease operations if it poses an interference problem to a PCS licensee. However, prior to commencing operations, PCS licensees are obligated to provide all incumbents that are operating within interference range, regardless of whether an incumbent is operating under a primary or a secondary site authorization, with thirty days notice that they will be commencing operations in the vicinity. Finally, PCS licensees are under no obligation to pay to relocate secondary links that exist within their market area and frequency block. D. Application to Other Emerging Technology Licensees 90. Background. The microwave relocation rules that we adopted in the Emerging Technologies proceeding apply to all emerging technologies services. In the Cost-Sharing Notice, we requested comment on whether the changes and clarifications we proposed should also apply to all emerging technology services, including non-PCS services (e.g., 2110-2150 and 2160-2200 GHz) that have not yet been licensed. 91. Comments. AT&T contends that the rules that we adopt in this proceeding should also apply to other emerging technology licensees, even though the services in the 2110-2.150 and 2160-2200 GHz have not yet been licensed. Other commenters argue that each service should have a service-specific rulemaking proceeding to take into account the unique technical, financial, and other considerations presented by each service. 92. Discussion. We agree with AT&T that the cost-sharing plan and rule clarifications adopted in this proceeding should apply to all emerging technology services, including those services in the 2110-2150 and 2160-2200 GHz band that have not yet been licensed, because the microwave relocation rules already apply to all emerging technology services. For the same reasons that these changes will facilitate the deployment of PCS, we believe these changes will also facilitate the deployment of other emerging technology services. For example, these changes and clarifications will provide additional guidance and help to accelerate negotiations between the parties. However, as new services develop, we may review our relocation rules and make modifications to these rules where appropriate. In addition, while we conclude that cost-sharing should apply to all emerging technology services, we do not adopt specific cost-sharing rules for new services at this time, but will develop such rules in future proceedings. V. FURTHER NOTICE OF PROPOSED RULE MAKING 93. In this Further Notice of Proposed Rule Making, we seek comment on whether to shorten the voluntary negotiation period and lengthen the mandatory negotiation period for the D, E, and F blocks. We also seek comment on whether the negotiation periods for the C block should be subject to the same adjustment. Finally, we propose that microwave incumbents be permitted to relocate some of their own links and obtain reimbursement rights pursuant to the cost-sharing plan adopted in the First Report and Order. A. Voluntary and Mandatory Negotiation Periods For C, D, E, and F Blocks 94. Background. As noted in Section IV(A)(1), supra, many PCS licensees have urged the Commission to shorten or eliminate the voluntary negotiation period. In the First Report and Order, we decline to alter the negotiation timetable currently applicable to the A and B Block licensees, because these licensees were on notice of the current rules when they bid for their licenses, and because negotiations between microwave incumbents and A and B block licensees are ongoing. 95. Discussion. We agree with commenters, however, that changing the negotiation timetable for PCS blocks other than the A and B blocks may not raise the same concerns. In the case of the D, E, and F blocks, bidding has not commenced and there are no ongoing negotiations between PCS licensees and incumbents. Therefore, we believe it is appropriate to consider whether the relocation process in these blocks would benefit from adjusting the negotiation periods. Specifically, we seek comment on whether to adjust the negotiation periods for the D, E, and F blocks by shortening the voluntary negotiation period by one year and lengthening the mandatory period by one year. Under this approach, non-public safety incumbents would have a one-year negotiation period instead of the two-year negotiation period provided under current rules, and the mandatory negotiation period would be lengthened from one to two years. Similarly, public safety incumbents would have a two-year voluntary negotiation period instead of a three-years period, and a three-year mandatory negotiation period instead of a two-year period . 96. This approach could potentially accelerate the development of PCS in the D, E, and F blocks by speeding up the negotiation process and creating additional incentives for incumbents to enter into early agreements. At the same time, while incumbents would be required to commence mandatory negotiations sooner than under the existing rules, they would have the same total amount of time for negotiations provided under the existing rules before they become subject to involuntary relocation. We seek comment on whether this adjustment would effectively balance the interests of PCS licensees in bringing service to the public quickly and the interest of microwave incumbents in making a smooth transition to relocated facilities. 97. Finally, we seek comment on whether to make the same changes discussed above to the voluntary and mandatory negotiation periods applicable to C block. We note that C block is in a different posture from the D, E, and F blocks because the C block auction is ongoing and possibly near conclusion, and bidding has been based on the current rules. At the same time, the voluntary negotiation period for C block has not yet commenced, so unlike A and B blocks, there are no ongoing negotiations currently taking place in reliance on the current rules. We seek comment on whether shortening the voluntary period and lengthening the mandatory negotiation period for C block would facilitate the development of PCS in this band and what effect it would have on negotiations between C block licensees and microwave incumbents. B. Microwave Incumbent Participation in Cost-Sharing Plan 98. Background. Several commenters to our Cost-Sharing Notice suggest that microwave incumbents who relocate links themselves should be permitted to collect reimbursement in accordance with our cost-sharing plan. They argue that microwave incumbents may wish to pay to relocate some of their own links so that they can relocate their entire system at once, instead of waiting for PCS licensees to relocate links one at a time as the need arises. Thus, commenters urge the Commission to allow microwave incumbents to participate in the cost-sharing plan and obtain the reimbursement rights for their respective links. 99. Discussion. We tentatively conclude that microwave incumbents that relocate themselves should be allowed to obtain reimbursement rights and collect reimbursement under the cost-sharing plan from later-entrant PCS licensees that would have interfered with the relocated link. We agree with incumbents that allowing incumbent participation might facilitate system-wide relocations and could potentially expedite the deployment of PCS. We are concerned, however, about what the incentive would be for an incumbent to minimize costs, if the incumbent knows in advance that it may be able to recover some of its expenses from PCS licensees. We seek comment, therefore, on how subsequent PCS licensees could be protected from being required to pay a larger amount to an incumbent that relocates itself than to another PCS licensee who has an incentive to minimize expenses. In addition, we also question whether a large number of incumbents would avail themselves of such an option, given that our rules require PCS licensees to pay for the entire cost of providing incumbents with comparable facilities. Assuming we allow incumbent participation, we seek comment on whether, for purposes of the cost-sharing formula, we should treat incumbents as if they were the initial PCS relocator. VI. CONCLUSION 100. We believe that the rules adopted in this Report and Order and Further Notice of Proposed Rule Making will promote the public policy goals set forth by Congress. The cost-sharing formula adopted herein will facilitate the rapid relocation of microwave facilities operating in the 2 GHz band, and will allow PCS licensees to offer service to the public in an expeditious manner. VII. PROCEDURAL MATTERS A. Regulatory Flexibility Act 101. As required by Section 603 of the Regulatory Flexibility Act, an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rule Making in WT Docket No. 95-157, RM-8643. The Commission has prepared a Regulatory Flexibility Analysis of the expected impact on small entities of the proposals suggested in this document. Written comments were requested. The Commission's final analysis is as follows: 102. Need for and purpose of the action: This rulemaking proceeding has implemented Congress' goal of encouraging emerging technologies and bringing innovative commercial wireless services to the public in an efficient manner. The cost- sharing plan will promote the efficient relocation of microwave licensees by encouraging PCS licensees to relocate entire microwave systems rather than individual microwave links. A cost-sharing plan is necessary to enhance the speed of relocation and provide an incentive to PCS licensees to negotiate system-wide relocation agreements with microwave incumbents. This action will result in faster deployment of PCS and delivery of service to the public. We have also clarified some terminology regarding certain aspects of the Commission's rules for microwave relocation contained in the Commission's Emerging Technologies proceeding, Docket No. 92-9. 103. Issues raised in response to the IRFA: The American Public Power Association ("APPA") states that conversion of 2 GHz microwave systems to secondary status in the year 2005 would have a particularly severe impact on the limited budgets of small, non-profit public utility systems. 104. Significant alternatives considered and rejected: Although we have decided not to convert microwave incumbents to secondary status automatically as we proposed in the Cost-Sharing Notice, they will be required to pay for their own relocation costs after the sunset date. We have considered the impact of the ten year sunset date, and we have determined that the benefits of imposing a sunset date outweigh the burdens such a date may impose on these incumbents. For further discussion, see Section IV(A)(6), supra. 105. With respect to this Further Notice of Proposed Rule Making, an Initial Regulatory Flexibility Analysis is contained in Appendix D. As required by Section 603 of the Regulatory Flexibility Act, the Commission has prepared an IRFA of the expected impact on small entities of the proposals suggested in this document. Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments on the rest of the Further Notice, 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, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act. B. Ex Parte Rules - Non-Restricted Proceeding 106. This is a non-restricted notice and comment rulemaking proceeding. Ex parte presentations are permitted except during the Sunshine Agenda period, provided they are disclosed as provided in Commission rules. C. Comment Period 107. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules, interested parties may file comments on or before May 28, 1996, and reply comments on or before June 7, 1996. 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 Reference Center of the Federal Communications Commission, Room 239, 1919 M Street, N.W., Washington, D.C. 20554. A copy of all comments should also be filed with the Commission's copy contractor, ITS, Inc., 2100 M Street, N.W., Suite 140, (202) 857-3800. D. Authority 108. Authority for issuance of this Report and Order and Further Notice of Proposed Rule Making is contained in the Communications Act, Sections 4(i), 7, 303(c), 303(f), 303(g), 303(r), and 332, 47 U.S.C.  154(i), 157, 303(c), 303(f), 303(g), 303(r), 332, as amended. E. Ordering Clauses 109. Accordingly, IT IS ORDERED that Part 15 of the Commission's rules is amended as set forth in Appendix B and will become effective 60 days after publication in the Federal Register. 110. IT IS FURTHER ORDERED that Part 22 of the Commission's rules is amended as set forth in Appendix B and will become effective 60 days after publication in the Federal Register. 111. IT IS FURTHER ORDERED that Part 24 of the Commission's rules is amended as set forth in Appendix B. 112. IT IS FURTHER ORDERED that the cost-sharing plan is conditioned on approval by the Wireless Telecommunications Bureau of an entity (or entities) to administer the plan, as described in Section IV(B)(3), supra. 113. IT IS FURTHER ORDERED that Part 24 rule changes will become effective on the date that the Wireless Telecommunications Bureau selects a clearinghouse to administer the cost-sharing plan. 114. IT IS FURTHER ORDERED that Part 94 (new Part 101, effective August 1, 1996) of the Commission's rules is amended as set forth in Appendix B and will become effective 60 days after publication in the Federal Register. 115. IT IS FURTHER ORDERED that rules requiring Paperwork Reduction Act approval shall become effective upon approval by the Office of Management and Budget pursuant to the Paperwork Reduction Act of 1995, Pub. L. No. 104-13; 116. IT IS FURTHER ORDERED THAT, as of the effective date of the new rules, the Commission will only grant primary status to applications for minor modifications that would not add to the relocation costs of PCS licensees, as described in Section IV(C) supra. 117. IT IS FURTHER ORDERED THAT, as of the effective date of the new rules, the Commission will grant applications for major modifications and extensions to existing 2 GHz microwave systems only on a secondary basis, as described in Section IV(C) supra. 118. IT IS FURTHER ORDERED that the Regulatory Flexibility Analysis, as required by Section 604 of the Regulatory Flexibility Act, and as set forth in Section VII(A) is ADOPTED. 119. IT IS FURTHER ORDERED that the Secretary shall send a copy of this First Report and Order and Further Notice of Proposed Rule Making to the Chief Counsel for Advocacy of the Small Business Administration. F. Further Information 120. For further information concerning this proceeding, contact Linda Kinney, Legal Branch, Commercial Wireless Division, Wireless Telecommunications Bureau at (202) 418-0620. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A MECHANICS OF THE COST-SHARING PLAN Contents Paragraph A. Reimbursement Rights . . . . . . . . . . . . . . . . . . . . . . . . .1 1. Pro Rata Reimbursement Under the Cost-Sharing Formula . . . . . . . .1 2. Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 3. Full Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . 13 4. Compensable Costs . . . . . . . . . . . . . . . . . . . . . . . . . 18 5. Reimbursement Cap . . . . . . . . . . . . . . . . . . . . . . . . . 24 B. Triggering a Reimbursement Obligation. . . . . . . . . . . . . . . . 29 1. Licensed PCS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2. Unlicensed PCS. . . . . . . . . . . . . . . . . . . . . . . . . . . 35 C. Payment Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1. Timing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2. Eligibility for Installment Payments. . . . . . . . . . . . . . . . 40 D. Termination of Cost-Sharing Obligations. . . . . . . . . . . . . . . 45 A. Reimbursement Rights 1. Pro Rata Reimbursement Under the Cost-Sharing Formula 1. Background. Under the plan proposed in our Cost-Sharing Notice, PCS licensees would be entitled to reimbursement based on a cost-sharing formula. The formula is derived by amortizing the cost of relocating a particular microwave link over a ten-year period, to reflect the total number of PCS licensees that benefit from the microwave relocation and the relative time of market entry. The proposed formula takes into consideration the amount paid to relocate the link, the number of PCS licensees that would have posed an interference problem to the link, and the number of months that have passed since the relocator obtained its reimbursement rights. 2. Comments. The overwhelming majority of the commenters support adoption of the proposed formula, although some commenters suggest minor modifications. BellSouth suggests combining two factors into one, as discussed in more detail below, which will render the same result but simplify the calculation. Only a few commenters expressed opposition to our proposal. UTC states that mandating the use of the proposed formula would be inflexible and inequitable, because it will be difficult to apply in certain situations. For example, UTC states that some parties are negotiating compensation packages that include non- cash items, such as participation in a joint-venture, that do not fit easily into the formula. Also, UTC contends that some parties are negotiating relocation agreements for multi-link systems that do not designate a per-path amount. Thus, UTC suggests that the proposed cost-sharing formula should be used as a guideline for determining compensation, but its use should not be mandated. 3. Discussion. Because the formula we proposed in the Cost-Sharing Notice received widespread support from commenters, we adopt the proposed formula along with a few minor modifications. We believe that the formula provides an effective and straightforward means of determining a subsequent PCS licensee's reimbursement obligation. This formula is essential to make cost-sharing administratively feasible, particularly in light of the number of links that will require relocation and the number of PCS licensees potentially involved. We also believe that the formula strikes an appropriate balance between equitable allocation of relocation costs and ease of administration. The new formula is: RN = C x [120 - (Tm)] N 120 RN equals the amount of reimbursement. C equals the actual cost of relocating the link (up to the reimbursement cap). N equals the number of PCS licensees that would have interfered with the link. For the PCS relocator, N = 1. For the next PCS licensee that would have interfered with the link, N = 2, and so on. Tm equals the number of months that have elapsed between the month the PCS relocator obtains reimbursement rights and the month that the clearinghouse notifies a later-entrant of its reimbursement obligation. 4. This formula is derived by amortizing the cost of relocating a particular microwave link over a 10-year period, which is represented by the value 120. As suggested by BellSouth, we have eliminated the T1 variable proposed in the Cost-Sharing Notice, which represented the month that the first PCS licensee obtained reimbursement rights, and the Tn variable, which represented T1 plus the number of months that have passed since the PCS relocator obtained its reimbursement rights. Instead of the Tn - T1 calculation, we substitute a Tm variable, which represents the number of months that have passed since the PCS relocator obtained its reimbursement rights. We agree with BellSouth that combining two variables into one renders the same result but simplifies the calculation. 5. The following is an example of how the formula will work: In January 1996, PCS Licensee A pays $210,000 to relocate microwave Link X and obtain reimbursement rights. Thus, C = $210,000, which is the amount paid to relocate the link. In January 1997, PCS Licensee B files a copy of its PCN with the clearinghouse for a system that would have caused interference to Link X. As a result, Tm = 12, because twelve months have elapsed between the month the PCS relocator obtained reimbursement rights and the month that a later-entrant's reimbursement obligation attaches. Because Licensee B is the second PCS provider to commence operations that benefit from the relocation of Link X, N = 2. The calculation of Licensee B's reimbursement payment is as follows: R2 = 210,000 x [120 - 12] = $ 94,500 2 120 Thus, Licensee B pays $94,500 to Licensee A, while Licensee A remains unreimbursed for $115,500 of its original cost. The $21,000 difference is due to the depreciation factor in the formula, and reflects the fact that Licensee A benefited from the relocation of Link X a year before Licensee B. 6. In January 1998, Licensee C files a copy of its PCN with the clearinghouse for a system that would have caused interference to Link X. Twenty-four months have elapsed since the PCS relocator obtained its reimbursement rights, so Tm = 24. Because Licensee C is the third licensee to benefit from the relocation of Link X, N now increases to 3. Licensee C pays $56,000 under the formula as follows: R3 = 210,000 x [120 - 24] = $ 56,000 3 120 The $56,000 payment is divided equally between Licensees A and B. Thus, the net payment by Licensee A is now reduced by $28,000 to $87,500 and the net payment by Licensee B is similarly reduced to $66,500. Licensee C's share is lower than either because of the additional year of depreciation that has occurred before Licensee C entered the market. The formula can be applied in the same manner to subsequent PCS licensees that interfere with Link X. 7. All calculations must be done on a per-link basis. Therefore, if PCS relocators agree to move a multi-link system, they must do an accounting for each individual link if they want to collect reimbursement under our cost-sharing plan. We believe that calculating reimbursement on a per-link basis is the most equitable way to distribute reimbursement obligations, and that the benefits outweigh the difficulties UTC believes parties will experience in allocating certain costs to certain links. Furthermore, as we proposed in the Cost-Sharing Notice, PCS licensees remain free to negotiate alternative cost-sharing terms or agreements. Therefore, if PCS relocators enter into unique relocation agreements that cannot be easily converted into monetary terms, they may choose to negotiate an alternative cost-sharing agreement with subsequent PCS licensees. We believe that such flexibility addresses UTC's concerns about rigid application of the formula. 2. Depreciation 8. Background. Because the formula is derived by amortizing the cost of relocating a link over a ten-year period, the amount that the PCS relocator receives in reimbursement "depreciates" over time. In the Cost-Sharing Notice, we proposed that the date from which the reimbursement amount begins to depreciate should be the date that the PCS relocator receives its reimbursement rights. Reimbursement rights would be created on the date that a relocation agreement is signed. We also sought comment on whether depreciation should start on a uniform date for all licensees, such as the date the voluntary negotiation period began for the A and B block licensees. 9. Comments. Many commenters agree with our proposal that depreciation should start on the date that the PCS relocator obtains reimbursement rights, which should be the date that a relocation agreement is signed. BellSouth, however, recommends that reimbursement rights be acquired on the day that the microwave incumbent ceases operations, because reliance on a contract execution date would overlook the practicality of a phased-in approach to relocation. Other PCS licensees argue that depreciation should begin on the date that a PCS licensee places its systems in operation, rather than the date it obtains reimbursement obligations via the clearinghouse, because many months may pass between the time a PCS licensee registers with the clearinghouse and the date when service is actually offered. Furthermore, AT&T argues that depreciation begins for the initial PCS relocator when it acquires reimbursement rights from the clearinghouse, but that the depreciation clock stops for later- entrant PCS licensees when they place their facilities into operation, and that this disparity should be eliminated. Several commenters contend that the date a licensee commences operations may be difficult to ascertain, and that requiring confirmation of such date may add to the administrative burden of the clearinghouse. PacBell suggests that cost-sharing rights and obligations should go into effect 60 days after the clearinghouse assigns reimbursement obligations to the PCS licensee, because such a date is easy to confirm. On the other hand, a few small businesses that anticipate bidding for future PCS licenses support a uniform, early date from which depreciation would be calculated, rather than the variable one suggested. These commenters argue that the depreciation start date should be an early date to ensure that later entrants, such as designated entities, pay lower relocation costs due to their limited financial assets. 10. Discussion. We agree with those commenters that suggest that tying depreciation to the acquisition of reimbursement rights is administratively simple and easy to confirm. Therefore, depreciation shall begin on the date that the PCS relocator signs a relocation agreement with a microwave incumbent. Within ten business days of the date the agreement is signed, the PCS licensee shall submit documentation of the agreement to the clearinghouse. If the clearinghouse has not yet been selected, the PCS relocator will be responsible for submitting documentation of a relocation agreement within ten business days of the date that the Wireless Bureau issues a public notice announcing that the clearinghouse has been established and has begun operation. 11. We disagree with those commenters who argue that depreciation should begin when the PCS relocator begins operations. As we stated in the Cost-Sharing Notice, we are concerned that, in some instances, a PCS relocator might place its system in operation after a subsequent licensee has started service, as a result of delays in construction, inadequate equipment supplies, technical difficulties, etc. Such a scenario would make the cost-sharing formula difficult to administer, because the Tm variable would become a negative number. Furthermore, starting depreciation on the date that the PCS relocator signs a relocation agreement will mean that the PCS relocator will always pay the largest portion of relocation costs associated with the link. We believe that PCS relocators will therefore have an additional incentive to negotiate the lowest possible relocation costs. We also agree with those commenters who point out that the date a relocation agreement is signed is easier to identify than the date that the PCS relocator actually begins service. 12. Finally, we are not persuaded by those commenters who argue that a uniform, early start date, such as the date that the voluntary negotiation period began for A and B block licensees, is preferable. Although a uniform date may be the simplest alt