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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FEDERAL COMMUNICATIONS COMMISSION Washington D.C. 20554 In the Matter of ) ) Revision of Part 22 and Part 90 ) WT Docket No. 96-18 of the Commission's Rules to Facilitate ) Future Development of Paging Systems ) ) Implementation of Section 309(j) ) PP Docket No. 93-253 of the Communications Act -- ) Competitive Bidding ) SECOND REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: February 19, 1997 Released: February 24, 1997 Comment Date: April 17, 1997 Reply Comment Date: May 1, 1997 By the Commission: Table of Contents Paragraph No. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 1 II. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . 2 III. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . 3 IV. DISCUSSION A. Geographic Licensing for Non-Nationwide Channels. . . 7 1. Overview . . . . . . . . . . . . . . . . . . . . 7 2. Geographic Area Licensing for Exclusive 929 MHz and 931 MHz Bands . . . . . . . . . . . . . . . . . . . . . . . 10 3. Geographic Area Licensing for Common Carrier Paging in the 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz Bands 20 a. Common carrier paging services in the 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz bands . . . . 20 b. Other services in the 152-159 MHz and 454-460 MHz bands 26 4. Shared PCP Channels. . . . . . . . . . . . . . . 37 5. Exempting Certain Incumbents from Competitive Bidding 44 B. Geographic Area Licensing for Nationwide Channels . . 46 C. Protection for Incumbents . . . . . . . . . . . . . . 55 D. Coverage Requirements . . . . . . . . . . . . . . . . 59 E. Co-Channel Interference Protection. . . . . . . . . . 66 1. Co-Channel Interference Protection -- Incumbent Licensees 66 2. Co-Channel Interference Protection -- Adjacent Geographic Licensees 70 3. Maximum Power and Height-Power Limits. . . . . . 74 F. Licensing in Mexican and Canadian Border Areas. . . . 80 G. Eligibility to Participate in Competitive Bidding . . 83 H. Channel Aggregation Limit . . . . . . . . . . . . . . 86 I. Competitive Bidding Issues. . . . . . . . . . . . . . 89 1. Competitive Bidding Design . . . . . . . . . . . 89 a. Bidding methodology . . . . . . . . . . . . 89 b. License grouping. . . . . . . . . . . . . . 93 c. Bidding procedures. . . . . . . . . . . . . 98 2. Procedural and Payment Issues. . . . . . . . . 117 a. Pre-auction application procedures. . . . .117 b. Short-form applications . . . . . . . . . 122 c. Amendments and modifications. . . . . . . 129 d. Upfront payments. . . . . . . . . . . . . 132 e. Down payments . . . . . . . . . . . . . . 137 f. Bid withdrawal, default, and disqualification 141 g. Long-form applications. . . . . . . . . . 147 h. Petitions to deny and limitations on settlements 150 3. Regulatory Safeguards. . . . . . . . . . . . . 151 a. Anti-collusion rules. . . . . . . . . . . 151 b. Transfer disclosure requirements. . . . . 160 4. Treatment of Designated Entities . . . . . . . 163 a. Overview and objectives . . . . . . . . . 163 b. Small businesses. . . . . . . . . . . . . 165 c. Minority- and women-owned businesses. . . 169 d. Bidding credits . . . . . . . . . . . . . 174 e. Installment payments and down payments. . 182 f. Partitioning . . . . . . . . . . . . . . 188 g. Unjust enrichment provisions for full transfers 196 h. Spectrum set-aside. . . . . . . . . . . . 200 V. FURTHER NOTICE OF PROPOSED RULEMAKING A. Coverage Requirements for Nationwide Channels . . . 203 B. Partitioning and Disaggregation . . . . . . . . . . 204 C. Shared Channels . . . . . . . . . . . . . . . . . . 220 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . .222 VII. PROCEDURAL MATTERS and ORDERING CLAUSES. . . . . . . . .223 APPENDIX A: Final Rules APPENDIX B: List of Commenters APPENDIX C: Final Regulatory Flexibility Analysis (Second Report and Order) APPENDIX D: Initial Regulatory Flexibility Analysis (Further Notice of Proposed Rulemaking) I. INTRODUCTION 1. In this Second Report and Order (Order) we adopt rules governing geographic area licensing of Common Carrier Paging (CCP) and 929 MHz Private Carrier Paging (PCP), and competitive bidding procedures for auctioning mutually exclusive applications for these licenses. We also allow geographic area paging licensees to partition their license area. In this Further Notice of Proposed Rulemaking (Further Notice) we seek comment on (1) whether we should adopt coverage requirements for nationwide licenses, (2) various issues related to geographic partitioning by paging licensees and whether spectrum disaggregation is appropriate for paging, and (3) whether to revise the application procedures for shared channels. II. EXECUTIVE SUMMARY 2. In the Notice, we proposed a transition to geographic area licensing for CCP and PCP channels, and competitive bidding procedures for resolving mutually exclusive applications for these licenses. We received 83 comments and 17 reply comments to the issues raised in the Notice. After considering the record of this proceeding, we are adopting geographic area licensing and competitive bidding procedures for paging, as follows:  All mutually exclusive applications for non-nationwide 931 MHz channels and exclusive non-nationwide 929 MHz channels will be subject to competitive bidding for geographic area licenses for 51 Major Trading Areas (MTAs). In addition to the 47 Rand McNally MTAs, we are adding three MTAs for the U.S. territories of (1) Guam and the Northern Mariana Islands, (2) Puerto Rico and the U.S. Virgin Islands, and (3) American Samoa. We are also licensing Alaska as a single area separate from the Seattle MTA.  Nationwide 931 MHz and 929 MHz geographic area licenses will be granted for the nationwide channels. The three nationwide CCP channels are those identified in 47 C.F.R.  22.531(b). The 23 nationwide 929 MHz channels are those channels where a licensee had sufficient authorizations as of February 8, 1996 to qualify for nationwide exclusivity under 47 C.F.R.  90.945. The nationwide geographic area licenses will not be subject to competitive bidding.  All remaining CCP channels (i.e., 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz) will be subject to competitive bidding for geographic area licenses in 172 Economic Areas (EAs) for each channel. The Rural Radiotelephone Service, including Basic Exchange Telecommunications Radio Service (BETRS), is included in the geographic area licensing and the competitive bidding process on paging channels for which these services are also eligible. Rural Radiotelephone Service and BETRS operators may also obtain additional facilities on a secondary basis.  Shared Part 90 paging channels will not be subject to geographic area licensing or competitive bidding.  After receiving an MTA or EA license for a channel, licensees will be subject to the following coverage requirements: for each MTA or EA, the licensee must provide coverage to one-third of the population within three years of the license grant, and to two-thirds of the population within five years of the license grant. In the alternative, the MTA or EA licensee may provide substantial service to the geographic license area within five years of license grant.  If the MTA or EA licensee fails to meet the above coverage requirements, the geographic area license will be terminated and subject to auction. The licensee may retain any sites that were authorized, constructed, and operating at the time the geographic area license was granted.  For co-channel interference protection (with respect to incumbent licensees) we will use the fixed distances in Tables E-1 and E-2 in Section 22.537 of the Commission's rules for the exclusive 929 MHz and 931 MHz channels. The formulas for determining the service and interference contours for the remaining CCP channels will not be changed.  All pending mutually exclusive applications for paging licenses filed with the Commission on or before the adoption date of this Order will be dismissed. All non-mutually exclusive applications filed with the Commission on or before July 31, 1996 will be processed. All applications (other than applications on nationwide and shared channels) filed after July 31, 1996 will be dismissed. Further Notice of Proposed Rulemaking  In the Further Notice, we seek comment on coverage requirements for nationwide licensees, partitioning of paging licenses by small businesses, the feasibility of disaggregating paging spectrum, and modifying the application process for shared channels to reduce or eliminate paging license application fraud. * * * * * The Commission makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that an FCC auction represents an opportunity to become an FCC licensee in this service, subject to certain conditions and regulations. An FCC auction does not constitute an endorsement by the FCC of any particular services, technologies or products, nor does an FCC license constitute a guarantee of business success. Applicants should perform their individual due diligence before proceeding as they would with any new business venture. III. BACKGROUND 3. In this proceeding we examine our paging regulations for Part 22 and Part 90 paging services pursuant to the statutory objective for regulatory symmetry for all Commercial Mobile Radio Services (CMRS) set forth in the Omnibus Budget Reconciliation Act of 1993 (1993 Budget Act). The 1993 Budget Act mandated that substantially similar mobile services receive comparable regulatory treatment. In the CMRS Second Report and Order, we held that PCP services offered for profit were subject to reclassification as CMRS as of August 10, 1996. In our Further Notice of Proposed Rulemaking, we tentatively concluded that these paging services, CMRS and former PMRS reclassified as CMRS, should be deemed substantially similar for statutory purposes. In the CMRS Third Report and Order, we concluded that all CMRS are substantially similar services. We noted, however, that not all substantially similar services must have identical technical and operational rules, especially if the imposition of such identical rules would require carriers to reconfigure their services in ways that would adversely affect their ability to compete. We also stated that our goal is to give carriers offering substantially similar services the flexibility to compete in whatever manner they choose. 4. In our Notice, we proposed a transition from site-by-site licensing to geographic area licensing for all exclusive, non-nationwide paging services. We also proposed to adopt competitive bidding rules for the geographic area licenses. We stated that a goal in this proceeding is to ensure that our rules for paging services are consistent with our rules for competing services, such as narrowband Personal Communications Services (PCS), so that competitive success is dictated by the marketplace, rather than by regulatory distinctions. 5. Due to the fundamental changes we proposed in the Notice, we suspended acceptance of new applications for paging channels as of February 8, 1996. We observed that continuing to accept new applications after releasing the Notice with the proposed rule changes would impair the objectives of this proceeding. Subsequently, we partially lifted the paging freeze for incumbent licensees by allowing incumbents to file applications for additional sites within 65 kilometers (40 miles) of operating sites in the First Report and Order in this docket. We stated that the Bureau would process all paging applications filed by July 31, 1996 for additional sites under the interim rules. 6. In this Order we adopt final rules governing licensing of paging systems, including a transition to geographic area licensing for exclusive, non-nationwide channels in the 35-36 MHz, 43-44 MHz, 152-159 MHz, 454-460 MHz, 929-930 MHz, and 931-932 MHz bands allocated for paging; competitive bidding rules for granting the mutually exclusive geographic area non- nationwide licenses; and a standard methodology for providing protection to incumbent licensees from co-channel interference for the 929-930 MHz and 931-932 MHz paging bands. Due to the transition to geographic area licensing in this Order, all pending mutually exclusive paging applications will be dismissed, including those filed under the interim rules. Non-mutually exclusive paging applications filed on or before July 31, 1996 will be processed. All applications filed after July 31, 1996 will be dismissed (other than applications for nationwide or shared channels) and, other than for the shared channels, no additional site-by-site applications will be accepted (with the exception of applications filed pursuant to Sections 22.369 and 90.177, applications filed for coordination with Mexico and Canada, and applications required under Section 1.1301 et seq.) The Bureau will also release a Public Notice setting forth the deadlines and instructions for filing the FCC Form 175 for geographic area licenses. IV. DISCUSSION A. Geographic Licensing for Non-Nationwide Channels 1. Overview 7. Common Carrier Paging. Under our current rules, all CCP channels are assigned on an exclusive basis. Licensees must apply for additional transmitter locations on a site-by-site basis when expanding their systems. On CCP applications for the paging channels below 931 MHz, the applicant specifies a channel. Any timely filed applications for the same channel in the same area are considered mutually exclusive. A paging license applicant may request a particular channel in the 931 MHz band, but the Commission has the discretion to assign a channel different from the one requested. Mutually exclusive CCP applications are subject to selection by competitive bidding; however, competitive bidding procedures had not been adopted prior to commencement of this proceeding. 8. Private Carrier Paging. Under the rules in effect when the Notice was adopted, applicants for all non-929 MHz Part 90 paging channels and five of the forty 929 MHz channels submit their applications to a frequency coordinator who recommends a channel to be assigned by the Commission. In the PCP Exclusivity Order, we established a mechanism for exclusive licensing on thirty-five of the forty 929 MHz channels in order to encourage the development of wide-area paging systems. We allowed licensees to earn exclusivity on a local, regional, or nationwide basis by constructing multi-transmitter systems meeting certain minimum criteria. Incumbent 929 MHz systems that met the new criteria were granted immediate exclusivity. Applications for the exclusive PCP channels were to be submitted to a frequency coordinator and processed on a first- come, first-served basis. 9. Notice of Proposed Rulemaking. In the Notice, we explained that in other CMRS services, such as cellular, PCS, and Specialized Mobile Radio (SMR), we recognized that licensing based on pre-defined service areas has significant advantages over site-by-site licensing because of the greater flexibility it gives licensees and the greater ease of administration. We tentatively concluded that the public interest would be served by converting to geographic area licensing for exclusive, non-nationwide paging channels. We also observed that geographic area licensing may be advantageous in the paging industry because paging has evolved from single-site systems toward multi-site systems, regulatory symmetry between paging and narrowband PCS would be enhanced, and inefficiencies in the paging licensing process would be eliminated. We proposed that incumbent systems would be entitled to continue to operate under current authorizations with full protection from co-channel interference. Parties were invited to comment on our geographic licensing proposals. We asked the commenters to address whether geographic licensing would be practicable on all bands, and the appropriate geographic area for such licensing. 2. Geographic Area Licensing for Exclusive 929 MHz and 931 MHz Bands 10. Comments. The commenters, including the Personal Communications Industry Association (PCIA) and the Federal Trade Commission (FTC), generally support the proposal to convert to geographic area licensing for 931 MHz and 929 MHz exclusive channels. AT&T Wireless, MTel, PageNet, and Source One observe that the regulatory flexibility afforded by geographic area licensing will enable paging operators to react quickly to modify their systems to meet the demands of customers, and will facilitate further build-out of wide-area paging systems. PCIA contends that geographic area licensing for 931 MHz systems would provide greater flexibility for the paging operators in these frequencies, reduce the number of license filings, minimize processing delays, provide greater parity with narrowband PCS licensees, and strengthen the carriers' ability to obtain capital. PCIA states that it reluctantly supports transitioning to geographic licensing for the exclusive frequencies in the 929 MHz band. 11. The FTC supports geographic area licensing to combat paging license application fraud. According to the FTC, this fraud is of two types: (1) application mills that sell application preparation services for a fee of several thousand dollars per license; and (2) build-out schemes in which investors are sold interests in limited liability companies or partnerships that claim they will acquire licenses and build and operate telecommunications systems. These schemes are carried out by deceiving consumers about the profitability of the paging licenses. The FTC notes that geographic licensing, combined with the use of auctions to select licensees, will reduce the volume of applications on which application mills depend and will make it more difficult for speculators to deceive unsophisticated investors with offers of "free" (i.e., unauctioned) licenses. 12. Not all the commenters support geographic area licensing for the exclusive 929 MHz and 931 MHz channels. Ameritech argues that the FTC's concern -- consumer fraud -- does not justify disrupting a multi-billion dollar industry. Ameritel and Ameritech contend that the competitive bidding process will not stop consumer fraud. Word argues that geographic area licensing would be disruptive to existing licensees, as well as to the public, without promising any overriding benefit. 13. PCIA and several of the larger paging companies support the use of MTAs for geographic area licensing. These commenters contend that geographic licensing of paging systems using MTAs would offer substantial administrative benefits to both the Commission and the paging licensees, as well as service benefits to customers. Some commenters, however, disagree with the proposal to use MTAs, and offer other suggestions for appropriate geographic areas for these channels, such as BTAs or EAs. 14. Discussion. In the Notice we stated that geographic licensing may be particularly appropriate for exclusive 929 MHz and 931 MHz paging channels because of the large number of wide-area systems in these bands. We noted that the two services are virtually identical, and that the differences in regulatory treatment are due to the pre-1993 Budget Act dichotomy between common carrier and private paging services. Our recent revisions to the rules for 929 MHz and 931 MHz channels, in the PCP Exclusivity Order and the Part 22 Rewrite Order, recognized that paging in these bands has evolved from single-site to multi-site systems. 15. The commenters contend, and we agree, that geographic area licensing provides flexibility for licensees and ease of administration for the Commission, facilitates further build-out of wide-area systems, and enables paging operators to act quickly to meet the needs of their customers. We find, therefore, that converting the 931 MHz channels and the exclusive 929 MHz channels to geographic area licensing will further our goal to give carriers offering substantially similar services more flexibility to compete, and will enhance regulatory symmetry between paging and narrowband PCS. Exclusive 929 MHz and 931 MHz licensees will be extended the same flexibility as narrowband PCS licensees in terms of the location, design, construction, and modification of their facilities throughout their geographic areas. 16. In the Notice we stated that the geographic definition should correspond as much as possible to the geographic area that paging licensees seek to serve, and we proposed using MTAs as the market areas. We conclude that MTAs form an appropriate geographic area for most of the paging systems because they are economically-defined regions that appear to best mirror the size and development of existing paging systems. We are implementing geographic area licensing in lieu of the current site-by-site licensing, with MTAs as the geographic area for the 931 MHz and exclusive 929 MHz channels. We are licensing these channels using 51 MTA geographic areas. In addition to the 47 Rand McNally MTAs, we are adding three MTAs for the U.S. territories of (1) Guam and the Northern Mariana Islands, (2) Puerto Rico and the U.S. Virgin Islands, and (3) American Samoa. We are also licensing Alaska as a single area separate from the Seattle MTA. The concerns raised by Ameritech, Ameritel, Metrocall, Source One, and other commenters that MTAs are not the appropriate size for geographic area licensing, can be alleviated by geographic partitioning. 17. Geographic area licensees will have the flexibility to construct transmitters at any place within their license area, subject to the co-channel interference rules discussed in Section E, and will not be required to file applications with the Commission for additional sites or modifications. Geographic area licensees will be able to act quickly to add sites or make modifications of existing sites to meet the needs of their customers. Due to the prevalence of wide-area paging systems on these channels and the flexibility geographic area licensing will afford paging licensees, we believe that geographic area licensing for exclusive 929 MHz and 931 MHz channels, with MTAs as the geographic area, is consistent with the public interest, convenience and necessity, and the purposes of the Communications Act of 1934, as amended (Communications Act). We believe that our rules for geographic area licensing for exclusive 929 MHz and 931 MHz channels, with MTAs as the geographic area, fulfill the objectives of Section 309(j)(4)(C) because a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women may have an opportunity to successfully compete against larger, well- financed bidders for MTAs through the use of bidding credits and installment payments. 18. We conclude that spectrum within a geographic area recovered by the Commission will revert automatically to the geographic area licensee. We will consider transfers and assignments between a geographic area licensee and incumbents operating in the geographic area presumptively to be in the public interest. We conclude that granting these rights to geographic area licensees will give them greater flexibility in managing their spectrum, establish greater consistency with our cellular and PCS rules, and reduce the regulatory burdens on both licensees and the Commission with respect to future management of the spectrum. We also eliminate finders' preferences immediately for paging services. All pending finders' preference requests are dismissed, and we will no longer accept finders' preference requests following the adoption of this Second Report and Order. 19. Mutually exclusive applications for geographic area licenses will be processed pursuant to the competitive bidding rules set forth below in Section IV.I. The incumbent (non-geographic) paging licensees will continue to operate under their existing authorizations with full protection from co-channel interference, and will not be required to file applications for additional internal sites. Incumbents will not be permitted to expand their composite interference contours unless the incumbent and the geographic licensee have reached agreement on such modifications. 3. Geographic Area Licensing for Common Carrier Paging Services in the 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz Bands a. Common carrier paging services in the 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz bands 20. Comments. Many commenters, including the smaller and medium-sized paging companies, the Organization for the Promotion and Advancement of Small Telecommunications Companies (OPASTCO), and Small Business in Telecommunications (SBT), are generally opposed to geographic area licensing for the 35-36 MHz, 43-44 MHz, 152-159 MHz, and 454-460 MHz paging channels and contend that geographic area licensing will prevent the continued growth of small paging businesses presently using these channels. These commenters state that the Commission has not shown that geographic licensing is needed, that regulatory symmetry among CMRS is necessary or practical, or that our proposals, if adopted, would provide such regulatory symmetry. Commenters observe that once the geographic license is auctioned, an incumbent (non- geographic) licensee will not be able to expand the range of its paging system beyond the existing interference contour. Commenters note that the paging spectrum is heavily licensed, and that while sites are needed for fill-in purposes, much of the application processing has already been accomplished so that the administrative savings will be minimal. Commenters contend that geographic area licensing may make sense for a new service, but in paging it would impede rather than facilitate service in the industry. 21. Some commenters, however, support geographic area licensing for these bands. PCIA states that it previously opposed implementation of geographic licensing in these bands because overlaying a geographic area licensing scheme on existing operations would be highly complex and would have reduced regulatory benefits for licensees, the Commission, and the public. PCIA now endorses the Commission's proposal to transition these paging bands to geographic area licensing because it has determined that the industry is better served by a quick resolution of this rulemaking proceeding, permitting licensees to understand new processing policies and resuming the filing of applications for necessary authorizations. 22. Several commenters suggest that if geographic area licensing is implemented, the Commission should use BTAs or EAs for the VHF and UHF bands instead of MTAs. Sunbelt suggests that incumbent licensees should be able to aggregate their licenses into one license that covers the entire geographic area, and should be allowed to expand on a transmitter-by-transmitter basis. PCIA, however, contends that MTAs should apply to all of the paging bands where the Commission decides to implement geographic licensing. 23. Discussion. We believe that the advantages of geographic licensing -- flexibility, enhanced regulatory symmetry with other CMRS, and eliminating the inefficiencies in the licensing process -- are applicable to these channels, particularly for regional and wide-area paging services. One of our goals in this proceeding is to revise the paging rules so that substantially similar mobile services receive comparable regulatory treatment, to the extent feasible, in a manner consistent with the public interest, convenience, necessity, and the purposes of the Communications Act. We note that paging providers on these CCP channels generally have smaller paging systems than the 931 MHz band paging services, and therefore smaller market areas would be more appropriate than MTAs for these bands. Most commenters addressing this issue contend that MTAs do not mirror their geographic areas, primarily because MTAs are too large for the numerous small- and medium- sized paging systems on these bands. The United States is organized into 487 BTAs, some of which are smaller than counties, and we believe that BTAs, suggested by several commenters, would be too small for most paging systems. EAs, which are larger than BTAs, would be an appropriate size for geographic licensing on these bands. The Bureau of Economic Analysis of the Department of Commerce has divided the United States into 172 EAs. Each EA consists of metropolitan areas or similar areas that serve as centers of economic activity -- and the surrounding counties that are economically related to the nodes. Allowing licensees to operate over EAs, instead of smaller BTAs, will enhance their ability to construct wide-area systems. Consequently, we adopt EAs as the geographic area for these paging bands, a suggestion offered by commenters. 24. We agree with the commenters that the geographical definition used should correspond as much as possible to the geographic area that the paging licensees seek to serve. EAs, which are smaller than MTAs, will facilitate the ability of paging operators of smaller systems to participate in geographic area licensing. Geographic area licensees will have the flexibility to construct transmitters at any place within their EA, subject to the co-channel interference rules discussed in Section IV.E. Our rules for geographic area licensing for these channels, with EAs as the geographic area, will fulfill the objectives of Section 309(j)(4)(C) because a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women may have an opportunity to successfully compete against larger, well-financed bidders for EAs through the use of bidding credits and installment payments. These smaller market areas will also provide more opportunities for the entry of new applicants into the paging market. 25. The EA geographic area licenses will be assigned pursuant to the competitive bidding rules set forth below in Section IV.I. Incumbent (non-geographic) paging licensees will continue to operate under their existing authorizations with full protection from co-channel interference, and will not be required to file applications for additional internal sites. Incumbents will not be permitted to expand their composite interference contour, as suggested by Sunbelt, unless the incumbents and the geographic licensee have reached agreement on such modifications. b. Other services in the 152-159 MHz and 454-460 MHz bands 26. Background. Rural Radiotelephone Service and two-way mobile telephone service also use the paired channels allocated to paging services. BETRS, licensed under the Rural Radiotelephone Service, is a fixed service and by definition is not CMRS. BETRS uses these channels to provide basic exchange telephone service to rural areas where it would be impractical to provide wireline telephone service. Only local exchange carriers (LECs) that have been state certified to provide basic exchange telephone service, or others having state approval to provide such service, are eligible to hold authorizations for BETRS. Conventional Rural Radiotelephone Service is provided on the channels listed in Section 22.725. These channels are also allocated for assignment for paging services. In the Notice, we stated that it is important to ensure that any changes to our paging rules do not prevent BETRS from providing service to areas that otherwise would lack basic telephone service. We noted that new wireless services, such as PCS, may eventually provide telecommunications service to remote areas. 27. Comments. Commenters disagree with our observation that new mobile technologies such as PCS may be widely available in the near future to serve sparsely populated or remote areas. Rule contends that there is substantial demand for two-way mobile telephone service in rural America and in the western United States. Rule notes that the carriers providing two-way mobile telephone service are unlike paging operators in that they do not license a common frequency over a wide area; instead they operate on numerous radio channels within a frequency band. Rule recommends that we continue licensing on a site-by-site basis, but suggests that the paired channels be licensed on a county-by-county basis if geographic area licensing is imposed. 28. The United States Telephone Association (USTA) and other commenters argue that it is not in the public interest to use competitive bidding to select between applications for BETRS and paging, as this may leave some rural areas without any local exchange service. Commenters observe that requiring LECs to bid for BETRS spectrum would defy the 1996 Telecommunications Act's requirements for universal service and jeopardize the Commission's goal to increase subscriber penetration. 29. In ex parte comments filed on July 24, 1996, Puerto Rico Telephone contends that if BETRS channels are subject to competitive bidding, BETRS will no longer be a cost-effective means for providing rural service. Puerto Rico Telephone argues that an auction would result in additional costs imposed on the BETRS operator. Additionally, access to spectrum needed for BETRS expansion could be blocked by the geographic area license winner. Puerto Rico Telephone contends that the practical result of this would be to deny basic telephone service to rural areas. Puerto Rico Telephone argues that under Section 307(b) of the Communications Act the Commission must take into the account the needs of rural communities, like those in Puerto Rico. Puerto Rico Telephone suggests that instead of requiring BETRS operators to bid at auction for a geographic area license, the Commission should allow BETRS operators to apply for additional licenses on a site-by-site basis; additionally (1) BETRS operators would have preferential treatment over paging operators for mutually exclusive applications (on a site-by-site basis), and (2) the Commission should designate a frequency block from reallocated frequencies solely for BETRS use. According to Puerto Rico Telephone, this proposal will preserve the status of BETRS licensees and provide for the future opportunity for telecommunications carriers to expand service in rural areas. 30. In ex parte comments filed on September 6, 1996, Puerto Rico Telephone observes that BETRS technology is a cost-effective means to provide basic telephone service to rural areas. Puerto Rico Telephone explains that on the island of Puerto Rico, BETRS and paging sites that serve different constituencies are located in the same geographic licensing area, and may even have adjacent interference contours. Puerto Rico Telephone contends that a geographic area licensee should not be able to charge a fee to the BETRS operator if it is necessary to expand the existing interference contour to extend telephone service. Puerto Rico Telephone proposes that consent from the geographic area licensee should not be required to permit changes in the BETRS licensee's interference contour if (1) the BETRS provider can demonstrate that change in its service area will enable the provision of basic telephone service to an unserved area, or (2) the geographic area licensee has not met its build-out requirement. 31. In reply to the comments filed by the parties, Arch and AirTouch contend that there is no need to provide special considerations for BETRS operators, and that alternatives exist for providing telephone service to remote areas, such as PCS, cellular, and mobile satellite services. SBT charges that the commenters fail to explain with particularity how the Commission could reasonably continue to offer BETRS while auctioning wide-area UHF licenses. 32. Discussion. In order to discuss the implementation of geographic area licensing for paging systems on these channels, we must define the rights of BETRS and Rural Radiotelephone Service operators to obtain spectrum within each area. In the Competitive Bidding Second Report and Order, we stated that we would not conduct auctions to resolve mutual exclusivity between initial BETRS or rural radiotelephone applications and common carrier mobile service applications. We noted that it would not serve the public interest for the Commission to establish services such as BETRS as a potential less costly alternative to wireline service, and then require the BETRS applicant to bid against a radio common carrier applicant for those frequencies. Since the release of the Competitive Bidding Second Report and Order we have expanded our rules to allow CMRS licensees the flexibility to provide fixed or mobile services, or a combination of the two, over spectrum allocated for CMRS services. In the CMRS Flex Report and Order we observed that fixed wireless services could be used to provide wireless local loop as an alternative to end-to-end wiring by the carrier from the switch to the end user in rural areas. Thus the local exchange service currently offered by BETRS could be offered by wireless or wireline providers in the future. In such a potentially competitive environment, it may not be logical to continue to exempt BETRS from geographic area licensing and auctions. 33. BETRS operators argue that they should be exempted from the geographic licensing process and from competitive bidding so that they will be able to obtain authorizations to use these channels regardless of whether a paging operator has acquired the geographic area license. Two paging operators, Arch and AirTouch, disagree and argue that BETRS operators should be required to obtain licenses under the same rules and procedures applicable to paging licensees. 34. We conclude that BETRS and Rural Radiotelephone Service licensees can participate in the geographic area licensing framework we are adopting for paging, but we will also allow them to obtain site licenses on a secondary basis. We do not believe it is necessary to exempt BETRS from geographic area licensing or adopt the plan proposed by Puerto Rico Telephone. In terms of auctionability, we see no basis for distinguishing BETRS from other services that use radio spectrum to provide commercial communications service to subscribers and are therefore auctionable under Section 309(j) of the Communications Act. We are aware that BETRS primarily serves rural, mountainous, and sparsely populated areas that might not otherwise receive basic telephone service. Our decision to apply geographic licensing to BETRS will not deprive rural areas of local exchange service or result in higher costs to BETRS customers. All existing BETRS systems will remain in place and will be fully protected from interference by geographic area licensees. We also note that there has been only limited demand for expansion by BETRS into new areas in recent years. Thus, it does not appear that geographic licensing of paging systems will significantly preempt growth of BETRS. 35. To the extent that demand for expanded Rural Radiotelephone Service or BETRS exists or arises in the future, our geographic area licensing and partitioning rules are tailored to accommodate any potential expansion. The channels for which BETRS is eligible will be licensed using EAs rather than MTAs, creating more opportunities for licensing of smaller markets to BETRS. In addition, our partitioning rules allow BETRS licensees to enter into partitioning agreements with geographic area licensees both before and after geographic licensing occurs. Finally, we will allow the Rural Radiotelephone Service or BETRS licensee to obtain site licenses and operate facilities on a secondary basis. If any geographic area licensee subsequently notifies the Rural Radiotelephone or BETRS licensee that a secondary facility must be shut down because it may cause interference to the paging licensee's existing or planned facilities, the Rural Radiotelephone or BETRS licensee must discontinue use of the particular channel at that site no later than six months after such notice. 36. With respect to mobile telephone service on the two-way channels under Section 22.561, we do not believe these licensees should be exempt from the geographic area licensing process and competitive bidding. Two-way service primarily serves rural areas in the western part of the country, and typically does not conflict geographically with paging service. It would not be feasible to license the service on a county-by-county basis, as one commenter suggested, instead of EAs. It would be difficult to license two-way mobile radiotelephone service by counties and paging services by EAs, when both services use the same channels. Additionally, counties are too small in many states to be a practical geographic area for paging services which precludes using counties instead of EAs as the geographic area for all services on these channels. Therefore, two-way mobile telephone operators on these channels will be subject to geographic area licensing on the same basis as paging operators. 4. Shared PCP Channels 37. Background. In the Notice we tentatively concluded that if we were to convert to exclusive licensing of shared paging channels, a geographic licensing approach would be appropriate. We asked for comment on whether we should (1) convert lower band shared channels to exclusive use and implement geographic area licensing; (2) issue only a certain number of licenses per shared channel and use competitive bidding to choose among mutually exclusive applications once the limit is reached; or (3) retain the status quo. 38. Comments. Most of the commenters addressing this issue are opposed to geographic area licensing for the shared channels and request that the Commission maintain the present licensing process. Commenters contend that the Commission lacks authority to impose competitive bidding for these channels because mutual exclusivity, i.e., the grant of one application that would preclude the grant of another, cannot occur. OPASTCO opposes geographic area licensing for shared channels and contends that geographic area licensing for these channels would have a crippling effect on taxi cabs and ambulances and the communities they serve if they are "frozen" and cannot expand beyond the existing interference contour. Teletouch contends that the policy considerations set forth in the Notice -- such as enhancing symmetry between paging and narrowband PCS -- do not apply to the shared PCP channels because one-way paging is fundamentally different from narrowband PCS. Teletouch explains that narrowband PCS users can use the service for two-way response paging as well as sending e-mail, data, and documents, whereas shared-use paging licensees generally provide only a simple, low cost paging service. In addition, Teletouch, along with Page Hawaii, observe that auctioning the shared channels to combat speculation and consumer fraud is unwarranted because the harm from consumer fraud pales in comparison with the harm to the industry and its customers that will result from geographic area licensing. 39. Several commenters suggest that certain shared channels with extensive regional coverage should be subject to exclusivity and geographic area licensing. A+ Network states that if auctions are adopted for the exclusive channels, there will be a "stampede" to the shared channels, and urges the Commission to protect the commercial incumbents with some form of exclusivity. PNI suggests that the Commission impose a cap on the number of licensees which may operate on a shared channel in a geographic area. ProNet, on the other hand, opposes such a licensing cap, and argues that the shared channels should continue to be licensed under current procedures. 40. Discussion. While it is theoretically possible to convert shared channels to exclusive channels and to license them using competitive bidding, we conclude that the cost and disruption that would be entailed by such a transition outweighs any benefits that would be achieved. Only a relatively small amount of paging spectrum -- approximately 10 percent -- is licensed on a shared basis. The comments indicate that these channels are heavily used by incumbent systems, many of whom have entered into time-sharing or interconnection arrangements to avoid interference with one another. Most of these systems provide service on a local, rather than a regional or nationwide basis. In addition, many of the systems on these channels are licensed to businesses, hospitals, and other entities for private, internal use rather than for provision of service to commercial subscribers. For example, SERS, a limited eligibility service restricted to emergency service providers, may be offered on shared channels in bands listed in Section 90.53 and also may be offered on the PCP channels. The SERS operators provide essential life-saving services in localized areas, and sharing of the SERS channels and PCP channels is working effectively. 41. We believe that it is unlikely that creating geographic overlay licenses on these channels would significantly improve efficiency of spectrum use. Because of the heavy existing use of the channels on a shared basis, granting "exclusive" rights to a geographic licensee would have little practical value: the geographic licensee would either have to share the channel with incumbents throughout most of its licensed area, or it would have to buy out all existing incumbents in order to use the channel on an exclusive basis. The conversion process would also be highly disruptive to existing incumbents, many of whom operate small, private systems and have no need for or interest in obtaining geographic area licenses. As several commenters point out, these incumbents would not benefit from receiving interference protection for their existing service areas, because systems on shared channels have not developed based on a protected service area model. Thus, the primary impact on incumbents would be to preclude them from adding to or modifying their systems even though such additions or modifications would have been allowed in a shared-use environment. 42. We also decline to adopt a "cap" on licensing of shared channels, or to convert some but not all shared channels to exclusive licensing. The difficulty with a licensing cap, as noted by several commenters, is that it is the amount of time a paging channel is used and the transmission equipment and protocol used, not the number of licensees, that determine the capacity limits of a paging channel. Thus, closing off licensing of a channel after a particular number of licenses have been granted would not necessarily ensure efficient spectrum use. We are also concerned that picking certain shared channels to be designated as exclusive would only cause greater pressure on the remaining shared channels and could limit opportunities for entry by smaller systems. 43. While we conclude that the existing shared paging channels should continue to be licensed on a shared basis, we are concerned about the consumer fraud and license application speculation issues raised in the comments filed by the FTC. Therefore, in order to ensure that these channels are not susceptible to speculative applications, we seek comment in our Further Notice on changes in our license application and frequency coordination procedures. Pending resolution of the issues raised in the Further Notice, we will retain our interim licensing rules for these channels, which limit applications to incumbent licensees seeking to expand their current systems. We will, however, eliminate the 40-mile requirement for new sites; thus incumbents may file for new sites at any location. Additionally, we will allow new applicants to file applications for private, internal- use systems. We do not believe that granting private licensees' applications for sites will encourage speculative applications, because these systems cannot be operated on a commercial basis. SERS providers will also remain exempt from the licensing freeze and may continue to file applications on shared channels under the existing rules. 5. Exempting certain incumbents from competitive bidding 44. Comments. Commenters contend that the Commission should adopt a procedure whereby channels already extensively used by an existing carrier be exempted from the auction procedure. For example, several commenters suggest that the Commission should award geographic area licenses without competitive bidding to any incumbent providing coverage to 70 percent or more of the population in the license area. Other commenters suggest that the Commission award geographic area licenses without competitive bidding if the incumbent covers two-thirds of the population of the geographic area. SBT contends that if a designated entity provides service to one-third or greater of the population, or one-half or greater of the geographic area, it should be awarded a dispositive preference for the wide-area license. Priority states that auctions are unnecessary where incumbents already provide substantial service in their markets and that geographic area licenses should be issued to incumbents providing substantial service. Pass Word contends that auctions should not be held where, in the geographic area involved, the relevant channel is serving at least 50 percent of that area or the population therein. 45. Discussion. We are not persuaded by the commenters that channels already extensively used by an incumbent should be exempt from the competitive bidding procedures or that eligibility should be restricted to incumbent licensees. We believe that all otherwise qualified paging applicants should be eligible to bid for any geographic area license. We note that if an incumbent already has a significant presence in a geographic area, other potential applicants may choose not to bid for that geographic area. Nevertheless, we believe that the market, not regulation, should determine participation in competitive bidding for geographic area licenses. We believe that open eligibility for paging licenses will result in a more competitive auction and potentially will result in further wide-area coverage of paging services. B. Geographic Area Licensing for Nationwide Channels 46. Background. Three 931 MHz channels, 931.8875, 931.9125, and 931.9375, ("CCP nationwide channels") were allocated for nationwide network paging, and have been assigned to licensees on a nationwide basis. The three CCP nationwide channels have been exclusively allocated for nationwide network paging for over ten years. We have recently allowed 929 MHz licensees to earn nationwide exclusivity under Section 90.495 by constructing networks of at least 300 transmitters that meet certain criteria for coverage of major markets and regional areas. In the Notice, we proposed to grant nationwide geographic area licenses, without competitive bidding, for the three CCP nationwide channels and the PCP channels for which licensees had met the construction requirements for nationwide exclusivity as of February 8, 1996. We also asked for comment on MTel's request to have its 931.4375 MHz channel designated a nationwide channel. 47. Comments. Some commenters contend that our proposal would be anti-competitive because nationwide licensees offer local and regional service on the nationwide channels as well as nationwide service and directly compete with licensees that will be subject to competitive bidding. PCIA, PageNet, Arch, and MTel, on the other hand, contend that channels already authorized on a nationwide basis should be awarded nationwide geographic area licenses and excluded from competitive bidding. Several commenters argue that licensees who had obtained sufficient authorizations to be eligible for conditional nationwide exclusivity prior to the Notice should also receive nationwide geographic area licenses and be exempt from competitive bidding. TSR argues the Commission's only justification for including the conditional nationwide channels in geographic area licensing is to increase revenues from auctions, which is in violation of Section 309(j)(7)(A) of the Communications Act. SBT contends that if the Commission exempts nationwide channels from competitive bidding it would be consistent to exempt all local paging systems that serve a substantial portion of an MTA from competitive bidding for that MTA. 48. MTel contends that 931.4375 MHz is operated by SkyTel, in concert with 931.9375 MHz, to provide nationwide paging service. MTel argues that 931.4375 MHz should be redesignated on a nationwide basis to promote the Commission's goal of creating regulatory parity among CCP and PCP providers, and notes that no other party is licensed on 931.4375 MHz. MTel argues that if the Commission does not designate this as a nationwide channel, SkyTel would be at a disadvantage compared to its PCP competitors. 49. MobileMedia contends that it also operates de facto nationwide channels, 931.8125 and 931.8625 MHz, that have more transmitters than MTel's channel and that its channels therefore should also be awarded nationwide geographic licenses and be exempt from geographic licensing. PageNet opposes the treatment of MTel's second channel as a nationwide channel and states that unless the Commission is willing to consider other substantially constructed 931 MHz local channels as eligible for nationwide geographic area licenses, it should not grant 931.4375 MHz a nationwide geographic area license. TeleBEEPER contends that 931.4375 MHz should not be designated a nationwide channel, and states that MTel has only constructed on this channel in urban areas. 50. Discussion. At the time the Notice was adopted, licensees on three 931 MHz channels and on eighteen 929 MHz channels had constructed sufficient stations to obtain nationwide exclusivity under our prior rules. As we proposed in the Notice, we will award nationwide licenses for these channels and exclude them from competitive bidding adopted for non-nationwide channels. In our view, it would not serve the public interest or be fair to take away exclusivity rights that these licensees earned before the commencement of this proceeding. The record indicates that they have developed successful and efficient nationwide networks under the pre-existing rules -- in fact, in most cases they have substantially exceeded the construction thresholds required to earn nationwide exclusivity under those rules. Thus, we do not believe imposition of competitive bidding is needed to further the goal of developing competitive nationwide paging networks on these channels. 51. We also grant nationwide geographic area licenses, without competitive bidding, to those 929 MHz paging licensees with sufficient authorizations as of February 8, 1996 to qualify for nationwide exclusivity on a conditional basis. Our records indicate that four licensees -- Tri-State Radio Co., Inc. (929.2125 MHz), AirTouch (929.4875 MHz), PageMart II, Inc. (929.7625), and Communications Innovations Corp. (929.8125 MHz) -- had conditionally qualified for nationwide exclusivity under our rules, although they had not completed construction at the time the Notice was adopted. All of these licensees have since met this condition by constructing the required number of transmitters to earn permanent nationwide exclusivity. We agree with the commenters that licensees who had obtained sufficient authorizations to be eligible for conditional nationwide exclusivity prior to the Notice, and have since constructed nationwide systems, should also receive nationwide geographic area licenses and be exempt from competitive bidding. These licensees have sufficient operating sites to now qualify for nationwide exclusivity, and we see no reason to treat them differently than the licensees who had built out as of February 8, 1996. 52. We are also granting the request of Nationwide 929.8875 LLC ("Nationwide") for nationwide exclusivity on the frequency 929.8875 MHz. Nationwide is jointly owned and controlled by AirTouch and Arch who are in the process of securing Commission consent to assign their respective exclusive regional system licenses to Nationwide. AirTouch and Arch have regional exclusivity under Section 90.495(a)(2) on 929.8875 MHz for four regional systems. AirTouch and Arch are parties to an agreement to operate their 929.8875 MHz facilities on an integrated basis to provide nationwide service. On November 22, 1995, prior to the adoption of the Notice, AirTouch and Arch requested nationwide exclusivity on 929.8875 MHz for their combined systems. AirTouch and Arch certify that they had more than 300 transmitters in over 40 states as of February 8, 1996 for the combined systems to meet the nationwide exclusivity criteria under Section 90.495(a)(3). We find that the public interest is served by granting a nationwide geographic area license to Nationwide. 53. We decline to extend nationwide exclusivity rights to MTel's 931.4375 MHz channel. Although MTel has been extensively licensed on this channel for some time, we did not recognize it as having nationwide exclusive rights at the time this proceeding commenced. Thus, granting MTel exclusivity would confer benefits that it did not expect or earn under the old rules, and that it would not be otherwise eligible for under our geographic licensing rules. For the same reasons, we decline to confer nationwide exclusivity on MobileMedia's 931 MHz channels. We recognize that many paging carriers, including MTel and MobileMedia, have built out extensively on channels that are not specifically designated as nationwide channels. We decline to award presumptive nationwide exclusivity on this basis, however, because these licensees had no expectation that nationwide exclusivity would result from their build-out. 54. With respect to licensees who are granted nationwide geographic area licenses by virtue of this order, we will issue single nationwide licenses for each channel. In addition, while we conclude that nationwide licenses should not be subject to competitive bidding, we believe that the long-term rules governing development of nationwide paging systems warrant further notice and comment. Our existing Part 90 and Part 22 requirements for construction of nationwide systems are not consistent, and both sets of requirements differ from the construction and coverage requirements applicable to nationwide narrowband PCS licensees. Therefore, we seek comment in our Further Notice below on possible changes to our rules governing nationwide paging channels. C. Protection for Incumbents 55. Background. In the Notice, we tentatively concluded that the public interest would be served by allowing all incumbent paging licensees to either continue operating under existing authorizations, or trade in their site-specific licenses for a single system-wide license, demarcated by the aggregate of the service contours around each of the incumbents' contiguous sites operating on the same channel. We also tentatively concluded that the incumbent licensees would be able to continue to operate, and the geographic licensee would be required to provide protection to all co- channel systems operating within their service areas. The incumbent licensees would not, however, be allowed to expand beyond their existing interfering contours without the consent of the geographic licensee. 56. Comments. Several commenters agree that incumbent licensees should not be permitted to expand beyond their interference contours without the consent of the geographic licensee. Other commenters contend that if wide-area licensing is adopted it would be contrary to the public interest to lock in non-geographic licensee incumbents within their present interference contour, and that paging carriers must be able to add to or modify their systems in response to the customers' needs. CCMS contends that the geographic licensee could interfere with the incumbent's signal, and drive the incumbent's customers away. CCMS offers two proposals: (1) incumbents should be allowed to move into unserved areas after having given the geographic licensee fair opportunity to provide service; and (2) the Commission should declare all contiguous unserved areas to be immediately and continually available to the incumbent. Western Radio Services suggests that incumbents should be permitted to add stations so long as 50 percent or more of the proposed coverage of the new facility overlapped the coverage provided by the existing station. Ameritech proposes that incumbent (non-geographic) licensees be allowed to expand their systems after the auction under the following criteria: (1) each additional site is located within 40 miles of one of the incumbent's previously authorized transmitter sites; or (2) the area to be served by the additional site is surrounded by the incumbent's authorized co-channel transmitters within 70 miles, forming a pocket around the proposed site. 57. Discussion. In the CMRS Third Report and Order we discussed co-channel interference protection for incumbents and stated that incumbent 900 MHz SMR systems are entitled to full co- channel interference protection for existing facilities, but are not allowed to expand beyond existing service areas unless they obtain the MTA license for the relevant channels. In the 900 MHz Second Report and Order we explained that our objective is to allow 900 MHz SMR incumbents to continue existing operations without harmful interference and to give them the flexibility to modify or augment their systems so long as they do not encroach on the MTA licensee's operations. We believe that in paging services the public interest would be served by allowing incumbent (non-geographic) paging licensees to continue to operate under their existing authorizations with full protection from co-channel interference, and similarly protecting the geographic area licensees from co-channel interference from the incumbent licensees. Therefore, consistent with our rules for 900 MHz SMR, we will not allow incumbent (non-geographic) licensees to expand beyond their composite interference contour unless the incumbents and the geographic licensee have reached agreement on such modifications. 58. We believe that the public interest would be served by allowing all incumbent paging licensees to either continue operating under existing authorizations or trade in their site-specific licenses for a single system-wide license demarcated by the aggregate of the interference contours around each of the incumbents' contiguous sites operating on the same channel. The incumbent (non-geographic) licensees may add or modify sites without filing site specific applications; however, they cannot expand their existing interfering contours without the consent of the geographic licensee. D. Coverage Requirements 59. Background. In the Notice, we requested comment on whether geographic paging licensees should be subject to minimum coverage requirements as a condition of licensing. We observed that we have imposed coverage requirements on licensees in other services to ensure that spectrum is used effectively and service is implemented promptly. We tentatively concluded that the geographic area licensees should be required to provide coverage to one-third of the population within their licensing areas within three years of the license grant, and to two-thirds of the population within five years, or that in the alternative, they provide substantial service to the geographic license area within five years of the license grant. 60. Comments. Several commenters agree with the coverage requirements proposed in the Notice. Most commenters, however, contend that more stringent coverage requirements are needed to deter speculation while promoting prompt service to the public. For example, some commenters suggest that we should require licensees to construct facilities covering ten percent of the population of the geographic area within one year of the license grant. TeleBEEPER proposes that geographic licensees be required to cover 75 percent of the geographic area covered by the license in the first five years. Rule suggests that licensees be required to place at least one transmitter in operation within six months, that at least 25 percent of the unserved population should receive service within the first year, and that 50 percent of the population should receive service within the second year. AT&T Wireless proposes that geographic licensees cover one-third of the population within one year of licensing, rather than three years. Several commenters oppose allowing a geographic licensee to meet its construction requirement by showing it provided substantial service to the area, contending that this standard is too vague and would allow geographic area licensees to block expansion of competitors' systems. 61. Commenters propose that if a geographic licensee fails to meet the coverage requirements, the cancellation of the geographic license should be automatic, without public notice or correspondence from the Commission. Additionally, ProNet suggests that the Commission reinstate all operational sites held prior to auction and those constructed pursuant to the geographic area license. PageNet proposes that if an incumbent licensee acquires a geographic license and fails to meet its coverage requirements, it should be allowed to retain constructed sites licensed prior to the auction on a site-specific basis. PageNet further suggests that additional facilities constructed under the geographic license would be converted to secondary status pending relicensing of the geographic area. 62. Discussion. Section 309(j)(3) of the Communications Act states in part that, when designing competitive bidding systems, "the Commission shall include safeguards to protect the public interest in the use of the spectrum . . . ." In addition, Section 309(j)(4)(B) states that the Commission shall include performance requirements, such as appropriate deadlines and penalties for performance failures, to ensure prompt delivery of service to rural areas, to prevent stockpiling or warehousing of spectrum by licensees or permittees, and to promote investment in and rapid deployment of new technologies and services. 63. We agree with the commenters that coverage requirements are needed as performance requirements to deter speculation while promoting prompt service to the public. Coverage requirements are also necessary to prevent warehousing, promote rapid deployment of new technologies and services, and promote service to rural areas. We believe that the coverage requirements proposed in the Notice will be sufficient performance requirements: for each MTA or EA, the geographic area licensee must provide coverage to one-third of the population within three years of the license grant, and to two-thirds of the population within five years of the license grant. In the alternative, the MTA or EA licensee may provide substantial service to the geographic license area within five years of license grant. Substantial service is defined as service that is sound, favorable, and substantially above a level of mediocre service, which would barely warrant renewal. 64. The failure to meet these coverage requirements will result in automatic termination of the geographic area license. This is consistent with our rules for broadband PCS, 900 MHz SMR services, and Multipoint Distribution Services (MDS). We will reinstate any licenses that were authorized, constructed, and operating at the time of termination of the geographic area license. 65. We also note that paging licensees remain subject to performance standards elsewhere in our rules. In the CMRS Third Report and Order, we adopted a uniform ten-year license term and renewal expectancy for all CMRS providers, including paging providers. Under this provision, a CMRS licensee will be entitled to a renewal expectancy if it demonstrates that it has provided substantial service during the license term and has complied with the Commission rules and policies, and the Communications Act. This renewal expectancy standard provides additional incentive for licensees to provide service, thereby promoting investment in and rapid deployment of new technologies and services in compliance with Section 309(j)(4)(B) of the Communications Act. E. Co-Channel Interference Protection 1. Co-Channel Interference Protection -- Incumbent Licensees 66. Background. Under our current rules, exclusive paging systems are protected from co- channel interference by a variety of rules that govern transmitter height and power, distance between transmission stations, the licensee's protected service area, and/or the field strength of the licensee's service and interfering signals. The purpose of the co-channel interference rules is to protect the service of each licensee's facilities from interference caused by the operation of co-channel facilities of other licensees. We believe that it is necessary to have a uniform methodology to determine the service and interference contours of incumbent licensees to allow them to make minor modifications without exceeding the interference contour and causing interference to the geographic licensee. We also need a uniform methodology to determine the service and interference contours of the geographic area licensee to allow the geographic licensee to construct a paging system without causing interference to an incumbent licensee. 67. For the CCP channels below 931 MHz, we currently use formulas to determine the distance from each transmitting antenna site to its service and interference contours along the eight cardinal radials from the transmitter site. We proposed in the Notice that we would continue to use these formulas for interference protection purposes if we adopted geographic area licensing for these bands. For the 931 MHz channels, the rules contain two tables of fixed radii, Tables E-1 and E-2, rather than formulas, to establish the distance to the service and interference contours. For the 929 MHz exclusive channels, assignments are made using geographic separation rules that agree with the separations which result from the application of the fixed radii for 931 MHz. In the Notice, we proposed to adopt formulas to determine the service and interference contours for the exclusive 929 MHz and the 931 MHz channels similar to the formulas used in the lower bands. 68. Comments. Commenters addressing this issue strenuously object to the proposal to change the method by which service and interference contours are determined for the exclusive 929 MHz and 931 MHz facilities, and state that the proposed method of computing these contours could require incumbents to reduce coverage or be required to accept interference from geographic licensees. Ameritech notes that adoption of the formulas, and subsequent degradation of existing service, could threaten public safety because many of Ameritech's customers are medical, police, and fire personnel. PCIA, and other commenters, suggest that the Commission use the Tables E-1 and E-2 in Section 22.537 for both 929 MHz and 931 MHz because these standards generally provide appropriate levels of interference protection. Several commenters suggest that we should consider all exclusive 929 MHz and 931 MHz as having a circular service contour radius of 20 miles and a circular interference contour radius of 50 miles. 69. Discussion. We proposed using the specified formulas in the Notice for the 929 MHz and 931 MHz channels because we believed that these formulas would produce service and interference contours that would better reflect actual coverage. The formulas would be a function of the technical parameters actually used rather than of the maximum technical parameters that could be used for a given set of radii. Additionally, using these formulas would provide licensees with flexibility to establish transmitter sites nearer the periphery of their systems by adjusting the effective antenna height and transmitting power, instead of having to obtain written consent from co-channel licensees. After review of the record, however, we are persuaded that the advantages of adopting the proposed formulas are outweighed by the disadvantages noted by the commenters. As the commenters observed, changing from Tables E-1 and E-2 to the proposed formulas would, in most cases, reduce the service area and composite interference contour that incumbent licensees have relied on in developing their systems to date. Additionally, the proposed formulas may underestimate the actual reliable coverage of the paging systems. Using the fixed distances in Tables E-1 and E-2 in Section 22.537 for the 929 MHz and 931 MHz channels would maintain the status quo for 931 MHz channels and conform 929 MHz channels to the current procedure for 931 MHz. Therefore, we are adopting the fixed distances in Tables E-1 and E-2 in Section 22.537 for the exclusive 929 MHz and 931 MHz channels. Geographic area licensees must provide co-channel protection to all incumbent licensees, including incumbents on the nationwide channels and incumbents in other geographic areas. We will allow geographic and incumbent licensees to use short-spaced locations pursuant to mutual written consent. As we proposed in the Notice, we will continue to use the current formulas for the CCP channels below 931 MHz. 2. Co-Channel Interference Protection -- Adjacent Geographic Licensees 70. Background. In the Notice we discussed the interference obligations of geographic licensees with respect to neighboring geographic licensees, and proposed that interference protection should be provided by (1) reducing the signal level at the service area boundary or (2) negotiating a mutually acceptable agreement with the neighboring geographic licensees. 71. Comments. Pacific contends that licensees should have the option of providing interference protection either by reducing the signal strength or negotiating some other agreement with those affected. Ameritech and Ameritel contend that the Commission should require the geographic licensee to give advance notice to co-channel incumbents before activating transmitters that are located less than 70 miles from existing facilities, and should comply with a request by the incumbent for interference testing prior to operation. PCIA supports the proposal that geographic licensees should provide interference protection either by reducing the signal level at the service area boundary by positioning directional antennas, or some other mutually acceptable agreement. 72. PageNet contends that paging licensees should have the flexibility to reach the best solution for the carrier's business goals and for service to the public, and that licensees should be given wide latitude in permissible sharing and other arrangements geared toward eliminating harmful interference in the border areas. PageNet suggests that in the absence of an agreement with the adjacent co-channel licensees, the geographic licensee should employ technical solutions, such as directional antennas, to reduce the signal level at the service area boundary. PageNet contends that the Commission should only entertain complaints regarding border area transmitters in this situation if the complaining geographic licensee is able to demonstrate actual harmful interference to its operations. 73. Discussion. We note that the co-channel interference protection discussed above requires incumbents and geographic licensees to provide interference protection to each other, but does not apply to interference between geographic licensees. Geographic licensees generally are not required to file applications with the Commission, therefore it is possible that a geographic licensee with a transmitter at or close to the border of the MTA or EA could unknowingly cause interference to a neighboring geographic licensee. It is in the interest of the geographic licensees to find mutually beneficial ways to accommodate their needs in providing service within their respective MTAs and EAs. Instead of specifying a minimum distance a geographic licensee's transmission site must be from the geographic border, which may result in unserved areas, we are allowing geographic licensees to negotiate mutually acceptable agreements with all adjacent geographic area licensees if the interfering contour of one geographic area licensee will extend into the adjacent geographic area or areas. Adjacent geographic area licensees have a duty to negotiate with each other in good faith regarding co-channel interference protection. We believe that informal negotiations between parties in determining mutually agreeable arrangements between adjacent MTAs and EAs will achieve the most expeditious and effective resolution of co-channel interference. The lack of adequate service to the public due to failure to negotiate reasonable solutions to co-channel interference problems with adjacent geographic area licensees could reflect negatively on licensees seeking renewal. 3. Maximum Power and Height-Power Limit 74. Background. Under our existing rules, the maximum effective radiated power (ERP) limit for 931 MHz, nationwide 929 MHz, and narrowband PCS facilities is 3500 Watts ERP. In the Part 22 Rewrite Order, we concluded that a maximum power limit of 3500 Watts ERP is appropriate for paging facilities in the 931 MHz band, because it allows for the use of high power facilities where needed, yet provides sufficient protection from intermodulation interference and receiver desensitization. For example, high power facilities might be needed in areas where shadowing or building penetration is a problem, for high speed data transmission, or where the use of several smaller facilities would not be economical. In the PCP Exclusivity Order, we established the ERP limit of 1000 Watts for local and regional 929 MHz systems, and 3500 Watts for nationwide systems. In the PCP Exclusivity Reconsideration we allowed non-nationwide 929 MHz PCP systems to operate sites within their existing service area at up to 3500 Watts ERP, provided that such operation would not increase the minimum geographical separation applicable to co-channel systems under Section 90.495(b)(2). 75. In the Notice, we tentatively concluded that the maximum ERP limit for non-nationwide 929 MHz PCP systems should be raised to a maximum of 3500 Watts in order to bring the rules governing non-nationwide 929 MHz facilities into conformity with those for 931 MHz, nationwide 929 MHz, and narrowband PCS facilities. We observed that this would provide 929 MHz licensees with the benefits of higher power operation without unduly increasing the risk of interference. We proposed to retain the current maximum ERP limits for the various CCP lower band paging channels. These limits were increased in 1989 after careful consideration, and we believe that the limits adopted in that proceeding remain appropriate. 76. Height-power limits serve to limit the service and interfering range of a facility to a constant distance. If a facility is modified to raise the antenna height, the power must be lowered so that the service and interfering ranges remain essentially unchanged. Height-power limits are useful when co-channel assignments are made on a site-by-site basis using a single fixed minimum geographical separation distance requirement, because they allow licensees flexibility to employ various combinations of antenna height and transmitting power while maintaining the validity of the fixed separation method. Height-power limits are also useful for limiting the area that can be covered by a single facility. In the 931 MHz band, we eliminated the height-power limit, because most systems in that band are multi-transmitter wide-area systems covering large areas. We concluded that it is more cost-effective for licensees to cover a large area with a high power facility than with numerous smaller facilities. In the Notice, we proposed to eliminate the height-power limit for 929 MHz licensees, because many of the paging systems in the 929 MHz band are also multi-transmitter wide-area systems. We proposed to maintain the current height-power limits for the lower band CCP channels because most of these channels are occupied by smaller systems. 77. Comments. Pacific agrees with our proposal to eliminate the height-power limit for 929 MHz systems, and argues that we should also eliminate the height-power requirement for the lower band channels. Rule contends that the existing height/power requirements for 150 and 450 MHz should be changed, and observes that the Part 90 licensees do not have such requirements. AirTouch agrees that the Commission should retain the current maximum ERP limit for the lower bands, and should conform the 929 MHz height-power and power rules to those for the 931 MHz band. PCIA, PageMart, and Caraway support the Commission's proposal to increase the maximum power for 929 MHz non-nationwide facilities to 3500 watts, and to eliminate the height- power limit for 929 MHz. PageNet and TeleBEEPER contend that the non-nationwide 929 MHz carriers should be able to operate their facilities at up to 3500 watts effective radiated power. 78. Discussion. One of our goals in this proceeding is to promote technical parity within the paging industry, when feasible. Paging systems operating on the 929 MHz band are virtually identical to those operating on the 931 MHz band and should be subject to the same power and height-power rules. We also note that conforming these rules will allow paging operators to design their systems in the most economical manner, particularly when integrating two systems where one operates in the 931 MHz band and the other operates in the 929 MHz band. Most of the commenters addressing this issue contend that the Commission should eliminate the disparity between the rules governing the 931 and those governing the 929 MHz channels, and conform the ERP limit and the height-power limit in these two bands. We agree with these commenters that carriers operating on 929 MHz and 931 MHz should operate with the same power and height-power rules. Therefore, we are eliminating the height-power limit for 929 MHz systems, to conform them to the 931 MHz systems. We are also increasing the maximum permitted ERP for all 929 MHz systems to 3500 Watts, to conform these systems with the nationwide 929 MHz systems and the 931 MHz systems. 79. With respect to the CCP bands below 931 MHz, we proposed to retain the current maximum ERP limits for these channels. In CC Docket No. 88-135, we completed a comprehensive evaluation of our power and height-power rules governing these channels. In that proceeding, we developed an extensive record and considered many technical factors, including co-channel and adjacent channel interference potential, interference to TV reception, accuracy limitations of propagation prediction tools, blanketing interference and service area gains. As a result of our evaluation in that proceeding, we increased the power limits for certain frequency bands, declined to increase them for other frequency bands, adopted certain geographic separations to protect adjacent channel Public Safety and other private radio operations, and provided for averaged height- power limits instead of radial-by-radial limits. These power limits and other rules were incorporated without substantial change into the power limit and technical channel assignment criteria rules we adopted subsequently in the Part 22 Rewrite Order. There have been no substantial technological changes to the systems operating on these channels since the existing power limits were adopted. Accordingly, we believe that the carefully considered power and height-power limits adopted in the aforementioned proceedings remain appropriate. Discarding the results of our previous analysis and increasing the maximum ERP limits again for the sake of sameness, without a more detailed record analyzing the possible consequences, could pose an unacceptable increased risk of interference to other CMRS, public safety and private radio systems and television reception. Therefore, we are maintaining the current power and height-power limits for the CCP bands below 931 MHz. F. Licensing in Mexican and Canadian Border Areas 80. Background. In the Mexican and Canadian border areas, paging channel availability may be restricted by international agreement, and there may be limitations on ERP and antenna height. In other services where we have converted to geographic area licensing, we have decided not to distinguish between border areas and non-border areas for licensing purposes. In the Notice, we proposed that geographic licensees be entitled to use any available border-area channels, subject to the relevant rules regarding international assignment and coordination of such channels. 81. Comments. Commenters agree that border areas should be treated like any other geographic area for licensing purposes. Ameritech observes that the lower CCP bands still require site-by-site coordination with Canada. PageNet contends that the Commission should continue the practice of allowing the placement of transmitters by the U.S. geographic licensee on the U.S. side of the border if the U.S. licensee has consent from the foreign licensee and the appropriate foreign regulatory authority. PageNet states that this cooperation is vital to the development of international roaming service offerings and will serve the public interest. 82. Discussion. Commenters agree with our proposal that border areas should be treated like any other area for licensing purposes and carriers can determine whether spectrum is usable in border areas under applicable treaties and protocols. Therefore, we will not distinguish between border and non-border areas in geographic licensing. We note that the geographic licensees will be responsible for advising the Commission of any transmitter site changes or additions if site-by-site coordination is required by Canada or Mexico. G. Eligibility to Participate in Competitive Bidding 83. Background. In the Notice we tentatively concluded that both incumbents and new entrants could apply for geographic area licenses, without restrictions on eligibility, and that the marketplace should determine the level of demand for licenses. 84. Comments. PageNet and AirTouch contend that eligibility should not be restricted. AT&T Wireless suggests that short form applications should be filed only by entities that already provide coverage to 70 percent of the geographic area. Ameritel contends that the Commission should restrict eligibility to existing carriers or entities with applications pending as of February 8, 1996, the date of the Notice. Priority suggests that eligibility to bid on 931 MHz spectrum should be limited to incumbents already providing service on the particular channel to ensure that the high bidder is a serious applicant intending to provide paging service to the public. 85. Discussion. We believe that it is important to allow all parties to participate in the competitive bidding process for geographic area licenses, and accordingly, apart from foreign ownership limitations, we will not restrict eligibility. We believe that non-incumbents should be allowed to bid for available spectrum, or to enter into joint ventures with incumbents for purposes of bidding in a geographic area. The competitive bidding process itself should deter speculation by those not genuinely interested in providing service to the public. In addition, we believe that the open eligibility for the geographic area licenses will be pro-competitive and potentially will result in a diverse group of entities providing paging services to the public. H. Channel Aggregation Limit 86. Background. In the Notice, we requested comment on whether a channel aggregation limit would be appropriate for the paging channels, and if so, what the limit should be. We noted that significant aggregation of paging channels has not occurred. 87. Comments. The commenters addressing this issue generally argue that we should not impose a channel aggregation limit or spectrum cap for paging channels. Ameritech notes that incumbents should not be limited in the number of paging channels they hold because they have already developed existing paging operations and may have to bid at auction to defend the integrity of such systems. PageNet observes that broadband carriers have a spectrum cap of 45 MHz, and a paging channel is 25 kHz, which is 1/40 of 1 MHz. AirTouch contends that no carrier is remotely close to having the channel position or market power to dominate the paging industry, therefore channel aggregation limits would not be in the public interest. Additionally, notes AirTouch, cellular and PCS licensees are allowed to and do provide paging services, and it would be unfair to arbitrarily limit paging carriers when they are competing against broadband licensees. TeleBEEPER supports aggregation limits insofar as an applicant would not be permitted to have a 929 MHz and a 931 MHz license in the same geographic area. 88. Discussion. In the CMRS Third Report and Order, we imposed a spectrum aggregation cap of 45 MHz as the total amount of combined PCS, cellular, and SMR spectrum classified as CMRS in which an entity may have an attributable interest in any geographic area at any point in time. We declined to include narrowband radio services in the spectrum cap, noting that it is highly unlikely that one entity could ever accumulate as much as 5 MHz in any given geographic market. For similar reasons, we conclude that a channel aggregation limit is unnecessary for paging. The record indicates that the paging market is highly competitive and diversified, making it unlikely that any one licensee could accumulate sufficient spectrum to dominate the paging market, much less the CMRS market as a whole. There are between 500 and 600 paging carriers in the United States today. Fifteen large companies account for approximately sixty percent of the paging customers. In most markets, paging service is provided by several competing carriers, and large metropolitan areas typically have twelve or more carriers. There has been some merger activity among large paging carriers in recent years, but these mergers have been geographic market extension mergers for the most part, and no showing has been made that these mergers have increased horizontal concentration to levels that are significant for purposes of competitive analysis. Therefore, we do not find any evidence that excessive channel aggregation has occurred in the paging industry; to the contrary, paging channel use is highly dispersed among numerous competing licensees. Additionally, we anticipate that many applicants for geographic area paging licenses will be incumbents seeking to obtain geographic area licenses where their existing facilities reside. Thus, we do not believe that geographic area licensing is likely to increase market concentration in the paging industry. Finally, we believe that a cap could arbitrarily limit a carrier's capacity to provide services that may require multiple channels. Therefore, we are not imposing a spectrum or channel aggregation cap on paging licenses at this time. I. Competitive Bidding Issues 1. Competitive Bidding Design a. Bidding methodology 89. Background. In the Notice we sought comment on which auction methodology should be used to award paging licenses. We noted that we had conducted simultaneous multiple round auctions for broadband and narrowband PCS, 900 MHz SMR, and Multipoint Distribution Service (MDS), observing that this is the preferred auction design where licenses have strong value interdependencies. We also noted, however, that a large number of paging licenses might be auctioned. Given this large number, we sought comment on whether simultaneous multiple round bidding might be too burdensome administratively, and whether another bidding design would be more appropriate for auctioning paging licenses. 90. Comments. A number of commenters support the use of a simultaneous multiple round auction design for paging licenses. ProNet, for example, asserts that this design will give bidders maximum information about license values and result in bids that reflect licenses' true value. 91. A number of commenters suggest other approaches to competitive bidding for paging licenses. For instance, A+ Communications proposes that each available market or frequency be auctioned separately. Other commenters propose that auctions be held only after competing applications are filed. Thus, when two or more parties seek a particular license, an auction would be held, limited to these interested parties. An open outcry auction or a sealed bid auction would, these commenters contend, be most appropriate to then resolve mutual exclusivity among applicants. Ameritel disagrees with the use of sealed bidding, contending that it would force small businesses to overbid or risk losing the license to speculators. Instead, Ameritel supports a sequential multiple round auction on a frequency-by-frequency basis. 92. Discussion. Based on the record in this proceeding and our successful experience conducting simultaneous multiple round auctions for other CMRS services and MDS, we believe this type of auction is most appropriate for paging licenses. We believe that, for certain bidders, these licenses will be significantly interdependent because of the desirability of aggregation across spectrum blocks and geographic areas and because some licenses are likely to be substitutes. Given such interdependence, simultaneous multiple round bidding generates more information about license values during the course of the auction and provides bidders with more flexibility to pursue back-up strategies than if the licenses were auctioned separately or through sealed bidding. We likewise expect the value of these licenses to be sufficiently high to warrant simultaneous multiple round bidding. Our experience in running simultaneous multiple round auctions shows that they can be run very efficiently and the aggregate value of the large number of licenses is likely to justify the use of this system. We will retain the discretion, however, to use a different methodology if that proves to be more efficient administratively. Prior to the auction, we will provide information about the bidding design to be used. b. License grouping 93. Background. In the Notice, we sought comment on how paging licenses should be grouped for competitive bidding purposes. We sought comment on the benefits of various possible license groupings, including, but not limited to the grouping of all paging licenses together for a single simultaneous multiple round auction and the grouping of licenses on a channel-by- channel basis by geographic license area. 94. Comments. Most commenters support grouping licenses by frequency bands. For example, API, AirTouch, Arch, and PageNet propose that the licenses in the 929 and 931 MHz bands be auctioned together, followed by auctions, if appropriate, of the lower band paging frequencies. The best method for striking the balance between making substitutable channels available simultaneously while avoiding auctioning too many licenses at the same time, these commenters contend, is achieved by grouping the 929 and 931 MHz licenses together in a single auction. They also state that auctioning the 900 MHz licenses together would ensure that technically similar services would be auctioned at the same time and those licenses most in demand would be auctioned first. 95. ProNet proposes a single simultaneous multiple round auction for all paging licenses with no license grouping. Under this framework, ProNet contends, participants will have access to the maximum amount of information available concerning the paging market. In the event this approach proves unwieldy, ProNet prefers auctioning by band. API states that should auctioning of the 900 MHz licenses as a group prove administratively burdensome, licenses should be grouped, to the maximum extent feasible, based upon frequency or channel blocks. Metrocall expresses the concern that license grouping would favor bidders for one service over bidders for other services. 96. A+ Communications proposes a separate auction for each frequency by license areas. Rule argues against auctioning the smaller markets last, noting that such a license grouping may encourage speculators, unsuccessful in prior auctions, to bid prices up in order to have something to promote investor sales. 97. Discussion. Although it may be desirable to hold a single simultaneous multiple round auction for all paging licenses, such an auction is not currently feasible from an operational standpoint because there will be more than 15,000 paging licenses available for auction. We agree with API, AirTouch, Arch, and PageNet that there is significant interdependence among licenses in the 929 and 931 MHz services, and similar interdependency among the licenses of the lower band paging services. We also think that grouping interdependent licenses and putting them up for bid at the same time promotes awarding licenses to bidders who value them most highly by providing bidders with information about the prices of complementary and substitutable licenses during the course of an auction and by facilitating back up strategies. We therefore will award the paging licenses in a series of simultaneous multiple round auctions, grouping them based on interdependency and operational feasibility. We reserve the discretion to decide on specific license groupings as administrative circumstances dictate. c. Bidding procedures i. Bid increments and tie bids 98. Background. In a multiple round auction the bid increment is the amount or percentage by which the bid must be raised above the previous round's high bid in order to be accepted as a valid bid in the current bidding round. The application of a minimum bid increment speeds the progress of the auction and, along with activity and stopping rules, helps to ensure that the auction comes to closure within a reasonable period of time. In the Notice, we sought comment on appropriate minimum bid increments for paging auctions. We proposed to adopt a minimum bid increment of five percent of the high bid for the previous round, or $0.01 per activity unit, whichever was greater. In addition, we proposed to retain the discretion to vary the minimum bid increments for individual licenses or groups of licenses at any time before or during the course of the auction, based on the number of bidders, bidding activity, and the aggregate high bid amounts. 99. Comments. Commenters generally support the use of a minimum bid increment for paging licenses. AirTouch agrees that a minimum bid increment of five percent of the high bid in the previous round or $0.01 per activity unit, whichever is greater, is the appropriate formula for paging license auctions, and also believes that the Commission should have the discretion to vary the minimum bid increment. PageNet proposes an increment of 10 percent of the high bid, with no minimum bid for the first round. Rule asserts there should be no minimum bid amount. 100. Discussion. The Commission will announce, by Public Notice prior to the auction, general guidelines for minimum bid increments. Minimum bid increments for individual paging licenses or groups of licenses may vary over the course of the auction and will be announced before or during the auction. In the case of a tie bid, the high bidder will be determined by the order in which the bids are received by the Commission. ii. Stopping rules 101. Background. In the Notice, we indicated that if a simultaneous multiple round auction design is used for the paging licenses, we believed a market-by-market stopping rule would be most appropriate. We noted that a market-by-market stopping rule would be the least complex approach from an administrative perspective. We also sought comment on whether a stopping rule is needed should the Commission elect not to use a simultaneous multiple round auction design. We further proposed to retain the discretion to declare when the auction would end. 102. Comments. The majority of commenters agree that a market-by-market, frequency-by- frequency or license-by-license stopping rule is most appropriate for the paging services because such a rule would avoid prolonging the auction, and thus facilitate more expeditious service to the public. Second, they argue that such a rule would bring an earlier end to the auction by reducing the complexity of the auction and permitting the earlier close of uncontested markets. Commenters also assert that a market-by-market stopping rule will reduce the likelihood that speculators will bid on all markets indiscriminately and will permit bidders interested in applying for only a limited number of licenses to more easily manage their participation in the auction. Several commenters suggest that bidding on a market or a license close after a specified number of rounds pass without any acceptable bids. The suggested number of rounds ranged from two to ten. They contend that such a rule would provide bidders with a last clear opportunity to bid for a license and a safety valve to avoid inadvertent failure to bid. AirTouch also noted that a license-by- license stopping rule might be implemented only in Stages II or III of the auction to preserve more of the simultaneous quality of the auction. They also argued that back up strategies are likely to be far less important in this auction than for PCS because pagers are tuned to specific channels and because highly encumbered licenses may have little value except to incumbents. ProNet, on the other hand, strongly prefers use of a simultaneous stopping rule. MobileMedia, however, states that the use of a simultaneous stopping rule encourages "bid parking" (i.e., placing bids solely for the purpose of maintaining bidding eligibility) and leads to prolonged auctions. 103. Discussion. With more than ten times the largest number of licenses the Commission has ever auctioned simultaneously, there is an increased risk of an excessively prolonged auction if a significant proportion of the licenses are auctioned simultaneously using a simultaneous stopping rule. To reduce this risk and to promote expeditious service to the public, while at the same time preserving most of the efficiency benefits of a simultaneous stopping rule, we adopt a hybrid simultaneous/license-by-license stopping rule. The hybrid rule has three phases. During Phase I, which lasts one month, or 100 rounds, whichever comes later, we will employ our standard simultaneous stopping rule whereby bidding will remain open on all licenses until bidding stops on every license. The auction will close after one round passes in which no new valid bids or proactive activity rule waivers are submitted. This provides bidders some protection against the risk that bidding on a license will be closed before they have sufficient information to start bidding on it as a back up strategy. In Phase II, the Wireless Telecommunications Bureau will assess the extent to which bidders are pursuing back up strategies and implement a license-by-license stopping rule if the Bureau determines that the use of back up strategies is minimal. Under the license-by-license stopping rule, bidding on a license will close whenever 10 consecutive rounds pass with no new valid bids for that license. The remaining licenses will close according to the standard simultaneous stopping rule -- when a round passes with no new valid bids on any license. Phase III begins after two months and 100 rounds have passed. If the auction has not closed by then, the Commission intends to implement the license-by-license stopping rule that is discretionary in the second phase. This approach balances concerns about the time to complete the paging auction and the benefits of preserving back up strategies which give bidders the flexibility to acquire licenses that are consistent with their business plans. We reserve the discretion not to employ this hybrid stopping rule in future paging auctions based on our experience in this auction and depending on the circumstances in future auctions with respect to factors such as the number of licenses and degree that licenses are encumbered. 104. We further retain the discretion, in Phase III, to declare after 200 rounds that the auction will end after some specified number of additional rounds. If we choose to employ this method, bids will be accepted only on licenses where the high bid has increased in the last three rounds. This will provide the Commission with a mechanism to end the auction in the unlikely event that a small number of bidders are continuing to bid on a few low value licenses solely to delay the closing of the auction. It also will enable the Commission to end the auction when it determines that the benefits of terminating the auction and issuing licenses exceed the likely benefits of continuing to allow bidding. The disadvantage of declaring an imminent end to an auction, however, is that the procedure may result in a far less efficient allocation of licenses than if the auction closed under either the hybrid or the simultaneous stopping rule. Therefore, we will declare the imminent end of the auction only in the case of extremely dilatory bidding. iii. Revealing bidders' identities 105. In the Competitive Bidding Second Memorandum Opinion and Order, because of the advantages of providing more information to bidders, and the difficulties involved in ensuring that bidder identities remain confidential, the Commission determined that it generally would release the identities of bidders before each auction. However, we retained the flexibility to conceal bidder identities if further experience showed that it would be feasible and desirable to do so. Consequently, we reserved the option to withhold bidder identities on an auction-by auction basis. 106. In the case of the upcoming paging auctions, we have determined that the advantages of limiting information disclosed to the bidders outweigh the disadvantages of this approach. Given the large number of licenses involved, we believe that shielding certain information from the bidders will help to speed the bidding along since there will be less of an opportunity for strategic gaming practices to occur. We will announce by Public Notice prior to the auction the precise information that will be revealed to bidders during the auction. This information may be limited to the high bids (no identities of bidders) and may also include the total number of bids on each license. We note also that limiting information is likely to speed the pace of the auction by reducing the time the Commission needs to report round results, and reducing the time that bidders need to analyze the data. The loss of efficiency from denying bidders the identities of likely winners of adjacent licenses should be minimal because, in contrast to broadband PCS, for paging there is no roaming and little uncertainty about technologies (i.e., GSM versus CDMA technology). iv. Activity rule 107. Background. In the Notice, we tentatively concluded that it would not be necessary to adopt an activity rule for paging auctions because of our proposal to use a market-by-market stopping rule. We sought comment on this tentative conclusion, and also asked commenters to address what activity rules, if any, would be appropriate if an alternative stopping rule was adopted. 108. Comments. Most commenters agree that there is no need for an activity rule if a market-by-market stopping rule is used. API, however, disagrees, proposing that an activity rule still be used in order to guard against opportunistic bidders seeking to prolong the auction. API proposes the use of the Milgrom-Wilson activity rule with percentages of 60 percent for Stage I, 80 percent for Stage II, and 95 percent for Stage III. Having supported use of a simultaneous stopping rule, ProNet urges adoption of the Milgrom-Wilson activity rule to prevent a protracted auction. A+ Communications proposes that the Commission severely limit the number of waivers an applicant may utilize in each auction. 109. Discussion. We will employ the Milgrom-Wilson activity rules for the paging auctions. These rules discourage delay by bidders and expedite simultaneous multiple round auctions in which a simultaneous stopping rule is used. Under the Milgrom-Wilson rules, the auction is divided into three stages and the minimum required activity level, measured as a fraction of the bidder's eligibility in the current round, will increase during the course of the auction. We establish the following minimum required activity levels for each stage of the auction:  In each round of Stage One, a bidder that wishes to maintain its current eligibility is required to be active on licenses encompassing at least 60 percent of the activity units for which it is currently eligible. Failure to maintain the requisite activity level will result in a reduction in the amount of activity units upon which a bidder will be eligible to bid in the next round of bidding (unless an activity rule waiver, as defined in paragraphs 111-113, is used). During Stage One, if bidding activity is below the required minimum level, eligibility in the next round will be calculated by multiplying the current round activity by five-thirds (5/3). Eligibility for each applicant at the start of the auction is determined by the amount of the upfront payment received and the licenses identified in its auction application.  In each round of Stage Two, a bidder that wishes to maintain its current eligibility is required to be active on at least 80 percent of the activity units for which it is eligible in the current round. During Stage Two, if activity is below the required minimum level, eligibility in the next round will be calculated by multiplying the current round activity by five-fourths (5/4).  In each round of Stage Three, a bidder that wishes to maintain its current eligibility must be active on licenses encompassing at least 98 percent of the activity units for which it is eligible in the current round. In Stage Three, if activity in the current round is below 98 percent of current eligibility, eligibility in the next round will be calculated by multiplying the current round activity by fifty forty-ninths (50/49). We believe that starting at this level in Stage Three, a higher activity level for this stage than that used in previous auctions, will encourage bidders to bid more of their eligibility in each round and thus make the auction more efficient.  We reserve the discretion to set and, by announcement before or during the auction, vary the requisite minimum activity levels (and associated eligibility calculations) for each auction stage. Retaining this flexibility will improve the Commission's ability to control the pace of the auction and help ensure that the auction is completed within a reasonable period of time. 110. For paging auctions, we will use the following general transition guidelines. The auction will start in Stage One and typically will move to Stage Two when the auction activity level is below ten percent for three consecutive rounds in Stage One. In general, the auction will move from Stage Two to Stage Three when the auction activity level is below ten percent for three consecutive rounds in Stage Two. In no case can the auction revert to an earlier stage. However, we retain the discretion to determine and announce during the course of an auction when, and if, to move from one auction stage to the next. These determinations will be based on a variety of measures of bidder activity including, but not limited to, the auction activity level defined above, the percentage of licenses (measured in terms of activity units) on which there are new bids, the number of new bids, and the percentage increase in revenue. 111. To avoid the consequences of clerical errors and to compensate for unusual circumstances that might delay a bidder's bid preparation or submission in a particular round, we will provide bidders with five activity rule waivers that may be used in any round during the course of the auction. If a bidder's activity level is below the required activity level, a waiver automatically will be applied. That is, if a bidder fails to submit a bid in a round, and its activity level from any standing high bids (high bids at the end of the bid withdrawal period in the previous round) falls below its required activity level, a waiver automatically will be applied. A waiver will preserve current eligibility in the next round, but cannot be used to correct an error in the amount bid. An activity rule waiver applies to an entire round of bidding and not to a particular service area. 112. Bidders will be afforded an opportunity to override the automatic waiver mechanism when they place a bid, if they wish to reduce their bidding eligibility and do not want to use a waiver to retain their eligibility at its current level. If a bidder overrides the automatic waiver mechanism, its eligibility permanently will be reduced (according to the formulas specified above), and it will not be permitted to regain its bidding eligibility from a previous round. An automatic waiver invoked in a round in which there are no valid bids will not keep the auction open. Bidders will have the option to proactively enter an activity rule waiver during the bid submission period. If a bidder submits a proactive waiver in a round in which no other bidding activity occurs, the auction will remain open. 113. We retain the discretion to issue additional waivers during the course of an auction for circumstances beyond a bidder's control. We also retain the flexibility to adjust, by Public Notice prior to an auction, the number of waivers permitted, or to institute a rule that allows one waiver during a specified number of bidding rounds or during specified stages of the auction. v. Duration of bidding rounds 114. Background. In the Notice, we proposed to retain the discretion to vary the duration of bidding rounds or the interval at which bids are accepted (e.g., run two or more rounds per day rather than one), in order to move the auction toward closure more quickly. 115. Comments. Commenters support our proposal to retain the discretion to vary the duration of bidding rounds and the interval between rounds. AirTouch and Arch suggest that we permit bidding on an every-other-day basis during the first week or so of the auction, with the expectation of running one or two rounds a day relatively soon after the auction commences. PageNet suggests that we conduct one round a day for the first few rounds, noting that, if other commenters prefer, it would accept bidding on an every-other-day basis. After two weeks of Monday, Wednesday and Friday bidding, PageNet continues, we should implement one round per day and then assess whether more than one round a day would be more appropriate for the remaining licenses. PCIA urges us to ensure that bidders have adequate time between rounds for review of bids, verification of bid accuracy, and decision making about bidding strategy. 116. Discussion. We retain the discretion to vary the duration of the bidding rounds or the interval at which bids are accepted in order to move the auction to closure more quickly. The duration of and intervals between bidding rounds will be announced either by Public Notice prior to the auction or by announcement during the auction. 2. Procedural and Payment Issues a. Pre-auction application procedures 117. Background. In the Notice, we proposed to follow the procedural and payment rules established in the Competitive Bidding Second Report and Order, with certain minor modifications designed to address the particular characteristics of the paging services. 118. Comments. PCIA, for the most part, supports imposition of the competitive bidding rules that have been generally applied in the context of a number of other services. The FTC suggests, however, that our application and competitive bidding procedures should require that bidding agents and application preparers disclose material information about paging license regulations to their customers -- potential licensees and real parties-in-interest. A fundamental problem in FCC license-related fraud cases, the FTC contends, has been that the consumer licensees do not have adequate information about FCC licenses when they make an investment decision. 119. Discussion. We will use the pre-auction application procedures established in the Competitive Bidding Second Report and Order for the paging services. A Public Notice announcing the auction will specify the licenses to be auctioned and the time and place of the auction in the event that mutually exclusive applications are filed. The Public Notice will also specify, inter alia, the short-form filing deadline. 120. We will adopt the same general bidding procedures used for the PCS, 900 MHz SMR, and MDS auctions. Under these procedures, bidders will be able to submit bids remotely, either electronically or by telephone. We have established a schedule of fees that participants in the competitive bidding process will be assessed for certain on-line computer services, bidding software, and Bidder Information Packages. However, bidders will be permitted to bid electronically only if they have filed a short-form application electronically. Bidders who file their short-form applications manually may bid only telephonically. 121. Like the FTC, we are greatly concerned about reports of consumer fraud in connection with the acquisition of FCC licenses. Indeed, the Commission has taken a number of initiatives to combat fraud. For example, in 1995 the Commission released a Consumer Alert warning consumers about the existence of scams and providing information to enable them to evaluate investment proposals. In addition, FCC staff operating call centers have been trained to answer consumer investment inquiries and provide information about specific investment proposals to the FTC, SEC, and the National Fraud Information Center. We also now include a warning about the seriousness of false certifications in applications and signs of fraudulent business opportunities in public notices announcing auctions. Finally, our auction bidder packages include strong language alerting potential bidders in the auctions to guard against unscrupulous fraudulent conduct in connection with the acquisition of licenses. We believe the foregoing safeguards will serve to greatly reduce the likelihood of deceptive conduct in the paging license auction process. We will also take the FTC's suggestions under advisement and will consider implementing stricter safeguards in conjunction with our Further Notice of Proposed Rule Making, which seeks comment on revising our application procedures to help reduce fraud. b. Short-form applications 122. Background. In the Competitive Bidding Second Report and Order, we determined that we should require only a short-form application (FCC Form 175) prior to an auction, and that only winning bidders should be required to submit a long-form license application (FCC Form 600) after the auction. In the Notice, we proposed to require applicants for paging licenses to file an initial short-form application in order to qualify for competitive bidding. 123. Comments. Several commenters suggest that we require bidders to identify all of the licenses for which they intend to bid on the short-form application. Otherwise, these commenters assert, bidders will apply for all markets, including markets they are not interested in acquiring. In this connection, they argue that permitting "blanket" applications will artificially create mutual exclusivities where none actually exist, will delay carriers' good faith efforts to expand, and will allow speculators to "gridlock" or "game" the system. PageNet also argues that blanket bidding produces "bid jumping," a technique that may have had utility when the spectrum was fungible, but is inappropriate in the highly encumbered paging spectrum. Certain commenters propose that applicants make separate upfront payments and maintain separate eligibility for each license. 124. The FTC suggests that applicants should be required to disclose the real party-in- interest on the short-form application, such as the general partners, and whether the company is a limited partnership or limited liability corporation. The FTC likewise suggests that applicants certify before the auction that they will comply with transfer rules and performance requirements for paging licenses. 125. Discussion. Section 309(j)(5) of the Communications Act provides that no person may participate in an auction unless such bidder "submits such information and assurances as the Commission may require to demonstrate that such bidder's application is acceptable for filing." Moreover, "[n]o license shall be granted to an applicant selected pursuant to this subsection unless the Commission determines that the applicant is qualified pursuant to [Section 309(a)] and Sections 308(b) and 310" of the Communications Act. The legislative history also explains that the Commission may require that bidders' applications contain all information and documentation sufficient to demonstrate that the application is not in violation of Commission rules and that applications not meeting those requirements may be dismissed prior to the competitive bidding. We will, therefore, dismiss applications not meeting the requirements of our rules prior to the auction. 126. We disagree with commenters who state that we should no longer permit bidders to apply for all market areas by checking the "all" markets box on their FCC Form 175. While a party may not intend to bid for every license offered, we believe bidders should have the flexibility to pursue back-up strategies if they are unable to obtain their first choice of licenses. Indeed, without flexibility, we believe the true value of individual licenses may not be reflected in the ultimate bid price. Moreover, any potential problems associated with so-called blanket bidding will be cured through our eligibility rules and the submission of a corresponding upfront payment. We have seen no evidence that "bid jumping" or other "gaming" has had an adverse impact upon previous auctions. Finally, because we have permitted incumbents to expand their systems pending the commencement of the auction, as described in the interim Orders, we believe current application rules will have no impact on planned expansions by incumbents. We therefore see no reason to change our current application procedures at this time. 127. If we receive only one application that is acceptable for filing for a particular market, and thus there is no mutual exclusivity, we will issue a Public Notice cancelling the auction for that license and establish a date for the filing of a long-form application, the acceptance of which will trigger the procedures permitting petitions to deny, as discussed below. 128. Finally, we agree with the FTC's concerns about ensuring that bidders in our auctions are serious about providing service to the public. As discussed above, we have taken steps to educate bidders and the public about fraudulent practices in connection with acquiring FCC licenses, and we will consider taking other anti-fraud measures in the context of our Further Notice of Proposed Rule Making. We therefore decline at this time to add further requirements to our short- form applications. c. Amendments and modifications 129. Background. In the Notice, to encourage maximum bidder participation, we proposed to provide applicants for paging auctions with an opportunity to correct minor defects in their short- form applications prior to the auction. 130. Comments. The comments received support the approach outlined in the Notice. AirTouch notes that the public interest is served by the proposal to give applicants a reasonable chance to correct their short-form applications before the auction. The harsh results experienced by applicants for cellular licenses, AirTouch contends, should not be repeated. 131. Discussion. We will adopt the procedures proposed in the Notice for amendments to and modifications of short-form applications in the paging services. Upon reviewing the short-form applications, we will issue a Public Notice listing all defective applications. Applicants with minor defects in their applications will be given an opportunity to cure them and resubmit a corrected ver