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*****************************************************                             Before the
                Federal Communications Commission
                      Washington, D.C. 20554

In the Matter of                )
                                )
Amendment of Parts 21 and 74 to Enable) MM Docket No. 97-217
Multipoint Distribution Service and)
Instructional Television Fixed Service) File No. RM-9060
Licensees to Engage in Fixed    )
Two-Way Transmissions           )


                        REPORT AND ORDER



   Adopted:  September 17, 1998        Released:  September 25, 1998

By the Commission:

                       TABLE OF CONTENTS

                                                        Paragraph

I.  INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . .1

II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . .3

III.     DISCUSSION. . . . . . . . . . . . . . . . . . . . . . 11
    A.   Revised Definition of MDS . . . . . . . . . . . . . . 14
    B.   Technical Standards . . . . . . . . . . . . . . . . . 19
         1.   Channelization . . . . . . . . . . . . . . . . . 19
         2.   Modulation Methods . . . . . . . . . . . . . . . 22
         3.   Spectral Mask. . . . . . . . . . . . . . . . . . 26
         4.   Frequency Tolerance and Equipment Certification. 33
         5.   Protection from RF Emissions . . . . . . . . . . 34
    C.   Interference. . . . . . . . . . . . . . . . . . . . . 39
    D.   Proposals Specifically Regarding Use of 
         125 kHz Channels. . . . . . . . . . . . . . . . . . . 57
    E.   Application Processing Issues . . . . . . . . . . . . 61
    F.   Proposals and Issues Primarily Involving ITFS . . . . 75
         1.   ITFS Programming Requirements. . . . . . . . . . 78
              a.   Redefinition of Eligible Content. . . . . . 80
              b.   Analog Programming Requirements . . . . . . 84
              c.   Digital Educational Usage Requirements. . . 86
              d.   Measurement of Educational Usage. . . . . . 92
         2.   Channel Loading, Shifting and Swapping . . . . . 95
              a.   Channel Loading . . . . . . . . . . . . . . 98
              b.   Channel Shifting. . . . . . . . . . . . . .100
              c.   Downstream Channel Reservation. . . . . . .102
              d.   Channel Swapping. . . . . . . . . . . . . .104
              e.   Effects on ITFS License Renewal . . . . . .110
         3.   Autonomy of ITFS Licensees and Agency Role . . .112
              a.   Engineering Autonomy. . . . . . . . . . . .116
              b.   Involuntary Modifications . . . . . . . . .119
              c.   Financial Autonomy. . . . . . . . . . . . .122
              d.   Commission Role . . . . . . . . . . . . . .126
              e.   Grandfathering of Excess Capacity Lease Provisions130
              f.   Length of Leases. . . . . . . . . . . . . .133
              g.   Other Lease Requirements. . . . . . . . . .135
         4.   ITFS Call Sign Transmission. . . . . . . . . . .139

IV.  PROCEDURAL MATTERS. . . . . . . . . . . . . . . . . . . .142

Appendix A:   List of Petitioners and Commenters
Appendix B:   Regulatory Flexibility Analysis
Appendix C:   Rules
              Appendix D:   Methodology for Predicting Interference From Response Station Transmitters and To
              Response Station Hubs and For Supplying Data on Response Station Systems

                   I. INTRODUCTION AND SUMMARY

    1.   In this Report and Order, we amend Parts 21 and 74 of our Rules to provide Multichannel
Multipoint Distribution Service ("MDS") and Instructional Television Fixed Service ("ITFS") licensees with
increased technical and operational flexibility.  We believe this action will facilitate the provision of a wide
array of new, enhanced services including new digital and two-way communications services.  Specifically, we
are: (1) permitting both MDS and ITFS licensees to provide two-way services on a regular basis; (2) permitting
increased flexibility on permissible modulation types; (3) permitting increased flexibility in spectrum use and
channelization, including combining multiple channels to accommodate wider bandwidths, dividing 6 MHz
channels into smaller bandwidths and channel swapping; (4) adopting a number of technical parameters to
mitigate the potential for interference among service providers and to ensure interference protection to existing
MDS and ITFS services; (5) simplifying and streamlining the licensing process; and (6) modifying the ITFS
programming requirements in a digital environment.  Attached to this Report and Order is a set of amendments
to the Commission's Rules implementing these changes.

    2.   We believe our adoption of these new Rules will provide increased service to consumers,
upgrade the tools available to educational institutions and enhance the competitive position of MDS operators. 
 We also believe the changes to our Rules will further the mandate of Section 257 of the Telecommunications
Act of 1996, which requires the Commission to identify and eliminate market entry barriers for entrepreneurs
and other small businesses to promote diversity of media voices, vigorous economic competition, technological
advancement and promotion of the public interest.  

                         II.  BACKGROUND

    3.   Our Rules permit educational institutions to obtain licenses to use spectrum in the 2500-2686
MHz band, which is divided into groups of 6 MHz channels,  for the operation of facilities for the transmission
of educational and instructional material.  This spectrum is shared with that used by MDS operators, also
primarily divided into 6 Mhz channels, for the provision of services, including wireless cable, to subscribers. 
Currently, the ITFS/MDS spectrum is primarily used for the provision of either one-way video service to
students, in the ITFS context, or wireless cable service to subscribers, in the MDS context.  As discussed more
fully below, even in the current, typically one-way video environment, some of the subject spectrum has been
used in recent years for the provision of two-way service by licensees and users.  

    4.   Subject to certain technical limitations and programming requirements, ITFS entities may lease
channel-capacity on the spectrum that is licensed to them, but which they are not using, to MDS operators. 
As a result, ITFS and MDS systems typically operate in a symbiotic relationship, with MDS operators
providing funding used by ITFS licensees for their educational mission in exchange for the extra channel
capacity needed to make most MDS systems viable.  This symbiotic relationship has resulted in a history of
cooperation that has allowed MDS and ITFS entities to reach their mutual goals.  It also creates an
environment that is appropriate for the deregulatory approach we adopt here, which is itself premised on
cooperation between all the parties involved rather than on the Commission acting as an arbiter of every
possible dispute that may arise, especially in regard to interference resolution.

    5.   This proceeding was commenced in response to a petition for rulemaking filed by a group of
over one hundred participants in the wireless cable industry,  including wireless cable system operators, MDS
and ITFS licensees, equipment manufacturers and consultants, (collectively "Petitioners"), who requested that
the Commission amend its Rules to facilitate the provision of two-way communication services by MDS and
ITFS licensees.  Virtually all of the comments we received in response to that petition, as well as virtually all
of the comments we received in response to the NPRM that we subsequently released, strongly supported
amending our Rules to enhance the ability of licensees to provide two-way service.  Although there was some
disagreement on the specifics of how best to proceed in a two-way digital environment, support for the basic
two-way concept was close to unanimous.  Following the release of the NPRM, the WCA and the National
ITFS Association ("NIA") crafted a Joint Statement which set forth a series of positions on various issues
including application processing, programming, recapture requirements and lease considerations in a two-way
digital environment.  We commend the parties to the Joint Statement for cooperating in this manner and thereby
demonstrating their commitment to facilitating a viable two-way environment, a commitment which we share.

    6.   We agree with the Petitioners, the bulk of the commenters and the parties to the Joint
Statement that amending our Rules to enhance the ability of MDS and ITFS licensees to provide two-way
service will benefit commercial operators, educational institutions and the public.  As we stated in the NPRM,
our goals in instituting this proceeding were to facilitate the most efficient use of the affected spectrum, to
enhance the competitiveness of the wireless cable industry, and to provide benefits to the educational
community through the use of two-way services, such as high-speed Internet service.  We believe the Rules we
adopt today will facilitate the realization of these goals, while still permitting traditional use of the spectrum,
and will give both MDS and ITFS licensees the flexibility they need to best serve the public interest.

    7.   In our order in Request for Declaratory Ruling on the Use of Digital Modulation by
Multipoint Distribution Service and Instructional Television Fixed Service Stations, Declaratory Ruling and
Order, 11 FCC Rcd 18839 (1996) (petitions for clarification and partial reconsideration pending) ("Digital
Declaratory Ruling"), we authorized wireless cable operators to employ digital compression technology in
order to increase the number of usable channels available to them, and also encouraged the use of digital
technology by the educational community.  In spite of the increased capacity offered by digital compression
that the Digital Declaratory Ruling was intended to facilitate, growth in the industry has remained limited due
to economic and technological constraints.  As we discussed in our Annual Assessment of the Status of
Competition in the Market for the Delivery of Video Programming, Fourth Annual Report, 13 FCC Rcd 1034
(1998) ("1997 Competition Report"), the number of homes capable of receiving an MDS operator's signal
(commonly referred to as "homes seen") did not increase in the first half of 1997.  In that same period, MDS
subscribership decreased by 6.8% from 1,180,000, to 1,100,000.  Likewise, MDS penetration (the number
of homes seen that actually subscribe) decreased from 3.7% to 3.5% from the end of 1996 through June 1997. 
On the financial side, the MDS industry's negative cash flow increased from $3.9 million in 1995 to $40.5
million in 1996. 

    8.   MDS operators also face challenges posed by the convergence of different information delivery
systems.  For example, the cable operators with which MDS operators compete previously operated as
providers of one-way video programming, but now are increasingly providing a variety of two-way services,
including Internet access.  As has been discussed in the press and as we noted in the 1997 Competition
Report, other services, including direct broadcast satellite ("DBS"), satellite master antenna television services
("SMATV"), and the nascent local multipoint distribution services ("LMDS"), are also moving toward the
provision of Internet services.  The MDS industry will need to be able to offer comparable, competitively-
priced services to compete against these players.  We believe the rule changes we adopt in this proceeding will
enable the industry to meet this competitive challenge.

    9.   The rules we adopt today will also provide significant benefits to consumers.  A new,
competitive group of players will now enter the market for high speed two-way communications service.  Both
individual and business consumers will be able to use the high-speed and high-capacity data transmission and
Internet service that will be available through the new systems.  Also, consumers will be able to take advantage
of new video-conferencing, distance learning and continuing education opportunities.  Commenters have also
suggested cutting edge applications like tele-medicine for the new two-way systems.  Most importantly from
a consumer perspective, there will be another choice of provider for these services, helping to drive down the
costs in a more competitive market.

    10.  In addition to the competitive benefits to the MDS industry, and the resulting benefit to
consumers because of a larger number of choices, increased two-way capacity over the frequencies at issue will
benefit educational institutions.  By enhancing the flexibility of the ITFS spectrum, our revised Rules should
increase the value of that spectrum to ITFS licensees both for their own use and as a leasable asset. 
Furthermore, the increased Internet access abilities available to ITFS licensees as a result of this rulemaking
will help further the goal of providing fast, reliable and affordable Internet access to every student in the
country.  Although there is some chance that implementation of digital two-way operations may restrict the
ability of ITFS licensees of new stations to provide service due to the interference protections we adopt, we
believe this risk of restricting some future service is greatly outweighed by the enormous benefits to existing
ITFS licensees, both in increasing the value of their licensed spectrum and in permitting them to provide an
array of new services.

                         III.  DISCUSSION

    11.  Although our Rules permit MDS operators to provide "any kind of communications service
consistent with the Commission's Rules," including non-video services, the industry has generally limited itself
to the provision of video primarily because of technical restraints.  However, as far back as 1974, when the
Commission established the MDS service, we specifically listed the transmission of high speed computer data
as a potential use of MDS facilities.  Since then, we consistently have recognized that MDS licensees enjoy
the flexibility to provide a variety of video and non-video services, subject to compliance with, or the grant of
a waiver of, our Rules.  For example, the Mass Media Bureau has made clear that leased ITFS frequencies
(as well as MDS channels) can be used for asymmetrical high speed digital data applications, including Internet
access, if that usage complies with our technical rules and the Digital Declaratory Ruling.  We now
implement a series of technical rule changes that will give MDS and ITFS licensees the needed flexibility to
fully exploit digital technology in delivering two-way communications services.

    12.  Although MDS licensees are permitted under our existing Rules to provide two-way service,
commenters in this proceeding have argued that those rules are too cumbersome and impose too great a
financial burden on operators to lead to large-scale system development.  For example, in a recent
authorization for two-way operation in the MDS band, each subscriber location had to be individually
licensed.  We have received comments that argue this type of approach is not commercially viable for most
two-way wireless applications and that it is an example of the impediments to expansion.  In contrast, under
the system we adopt here, licensees will be permitted to use all or part of a 6 MHz channel for return path
transmissions from subscriber premises, to cellularize their transmission systems to take advantage of
spectrally efficient frequency reuse techniques, and to employ modulation schemes consistent with bandwidths
either larger or smaller than 6 MHz, all while providing incumbent MDS and ITFS licensees interference
protection equivalent to what they currently receive.

    13.  We emphasize that we are not reallocating the spectrum at issue.  The ITFS spectrum remains
allocated for the use of educators and any use of it by MDS operators is subject, within the parameters of our
Rules, to the needs of those educators.  This proceeding modifies the technical rules governing the spectrum
already allotted to MDS and ITFS and creates greater flexibility in terms of programming and other
requirements so that MDS operators and ITFS licensees can maximize the value of their spectrum resources. 
We also re-emphasize, noted above, that the types of service that we anticipate will be offered as a result of
this Order are already permitted and these new Rules are designed to better facilitate their deployment. 

    A.   Revised Definition of MDS

    14.  In the NPRM, we proposed to create a regulatory system that will facilitate the use of response
stations and response station hubs to enhance the ability of  wireless cable systems and ITFS licensees to
engage in two-way operations.  Under this system, response stations will be the means of transmission from
a subscriber's premises and may be used as separate transmitters or as parts of a transceiver (combined
transmitter and receiver).  These response stations may use either separate transmitting antennas for return
paths or combined transmitting/receiving antennas.  Response station hubs will serve as the collection points
for signals from the response stations in a multipoint-to-point configuration for upstream signal flow.

    15.  Under our current regulatory scheme, MDS operators typically only provide two-way service
to subscribers using telephone return links or individually licensed subscriber premises stations.  This is an
outgrowth of the basic one-way approach to MDS transmission from which our current Rules originated.  We
now expand the definition of the Multipoint Distribution Service in Section 21.2 of our Rules to fully
incorporate the concept of two-way transmission.  This changed definition represents the reorientation of the
regulatory treatment of MDS, no longer regarding it as a one-way service with two-way service permitted on
a limited basis, but instead as a fully flexible service in which licensees can provide either one-way or two-way
service in response to the demands of the competitive marketplace.

    16.  As fully set out in Appendix C, we also amend the definition for a "Multipoint distribution
service response station," to indicate that licensees will be permitted to use all or part of any 6 MHz MDS (4
MHz for MDS channel 2A) or ITFS channel as a response channel consistent with the other technical and
service rules adopted by this order.

    17.  A key element of two-way systems will be the use of "response station hubs," facilities that
receive the transmissions of response stations.  These hubs are intended to permit MDS response stations to
operate at lower power because the response stations hubs will be located closer to subscriber premises than
are current transmitter sites.  The hubs are expected to improve service reliability and permit greater frequency
reuse than if each subscriber were required to communicate directly with their associated main transmitter site. 
Channels adjacent to the channels received at response station locations most probably will be used for
response station transmissions.  Since the adjacent channels used in a wireless cable system are usually
assigned to different licensees as a result of the interleaved channel allocation pattern in the 2.5 GHz band, it
is likely that most hubs and associated response stations will be facilities shared by multiple licensees. In other
words, a response station hub and associated response stations will operate under multiple authorizations,
which will be identical in all respects other than in the name of the licensee and the authorized channels of
operation.

    18.  By our action today, we also expand the definition for "signal booster stations" such that it
will be clear that those stations will be authorized to originate transmissions, as well as to relay transmissions
from other stations.  Booster stations will be used to cellularize wireless cable operations, which now may
operate in areas too large to be served by a single station.  Permitting boosters to originate as well as relay
programming facilitates frequency reuse, cellular configurations, two-way high speed Internet access, and other
services.  The location restriction in the current definition will be removed because it unnecessarily duplicates
a restriction already contained in  21.913 that is retained essentially intact.  We agree with the comments
of several parties that all licenses for all downstream booster stations and any associated return paths that
employ ITFS licensed channels should be held by the ITFS licensee. This approach will be administratively
efficient and will help to prevent the anomalous situation of an ITFS licensee being in conflict with a booster
station on its own licensed frequency.  Booster station signals will receive interference protection within the
booster station's protected service area.  Booster stations will not be permitted to have overlapping service
areas, and, although a booster station may provide service to receive sites beyond its service area, those sites
will not be entitled to interference protection.

    B.   Technical Standards

         1.   Channelization

    19.  In our current MDS and ITFS rules, channels are fixed at bandwidths of 6 MHz for
downstream (i.e., point-to-multipoint) transmissions (except for MDS channel 2A, which is 4 MHz wide) and
125 kHz for upstream (i.e., point-to-point) response signals.  These bandwidths were selected several decades
ago because they represented the common bandwidths then necessary, respectively, for NTSC analog video
signals and high quality FM audio signals.  In typical systems, licensees are assigned the use of one or more
non-contiguous 6 MHz channels and the associated (paired) 125 kHz response channels, and do not alter their
channel bandwidths or otherwise deviate from the mandated channelization scheme.  In the Digital
Declaratory Ruling, the Commission amended its channel utilization policy to permit the transmission of more
than one video (and composite audio) signal within each 6 MHz channel, so long as it was done using an
approved digital emission (i.e. VSB or QAM) with uniform power spectral density.  However, the
channelization plan was not changed, despite the fact that a video (and composite audio) signal could be
transmitted by either of these emissions in only a fraction of 6 MHz.  In the NPRM, we proposed to amend our
rules to permit licensees to both "subchannelize" and "superchannelize" the 6 MHz and 125 kHz channels to
take advantage of the flexibility offered by the use of digital emissions.  By subchannelize, we mean the division
of a standard channel of fixed bandwidth into multiple (but not necessarily equal) channels of lesser bandwidth. 
For example, a 6 MHz channel could be divided into four subchannels of 1.5 MHz bandwidth, each of which
might carry a video and associated audio signal, or into two channels, one with a 2 MHz bandwidth and the
other with a 4 MHz bandwidth.  For narrow bandwidths, the 6 MHz channel might be divided into many
smaller non-video channels, such as 120 channels of 50 kHz each.  A 125 kHz response channel could be
similarly divided, either symmetrically or non-symmetrically, to form narrower channels of equal or unequal
bandwidths.  By superchannelize, we meant the aggregation of multiple contiguous channels of standard
bandwidth into channels of larger bandwidth, e.g., three 6 MHz channels could be combined to form a single
channel with an 18 MHz bandwidth, or four 125 kHz channels could be combined to form a 500 kHz channel. 

    20.  Subchannelization and superchannelization were broadly supported in the Comments and
Replies to the NPRM.  For example, Wireless One stated that allowing this flexibility would enhance wireless
cable two-way service because "An operator, in consultation with the licensees, could combine channels or
subchannelize as needs of the public dictate the market."  In some areas of the country, all of the MDS and
ITFS channels are already in use and thus no additional spectrum is available.  With channelization flexibility
and the use of digital emissions, licensees can create very large numbers of 'virtual' channels to carry their
current and future communications needs.  Of course, the creation of superchannels will typically involve the
participation of multiple licensees, each of whom will contribute some portion of the combined spectrum. 
These voluntary spectrum sharing arrangements will clearly benefit all of the parties, in that it will give all of
them the means to communicate at the data rates optimal for their particular operations and at speeds greater
than would currently be permissible within a single 6 MHz channel.  We believe this flexibility to subdivide
and combine channels is essential in order to take maximum advantage of the digital emissions with uniform
power spectral density that MDS and ITFS licensees will be using in the years to come.  We are therefore
adopting our proposals in this regard to permit the maximum possible flexibility for digital subchannelization
and superchannelization at individual MDS and ITFS systems, and between multiple licensees who wish to
share their spectrum and configure their bandwidths in accordance with agreements among themselves.  This
flexibility will include permitting the use of individual and aggregated 125 kHz channels for both response
(upstream) use and point-to-multipoint (downstream) use, and the subchannelization of superchannels, e.g.,
an 18 MHz superchannel could be redivided into two 9 MHz channels or any other combination which sums
to 18 MHz.  We will continue to issue individual authorizations to individual systems for 6 MHz and 125 kHz
channels and will not issue specific authorizations for superchannels or subchannels, nor will we require
licensee notification in this regard.  For purposes of interference protection and other responsibilities, each
licensee of a channel comprising a superchannel will be held individually accountable, as well as jointly
accountable with other contributing licensees, for ensuring all operations comply with the Commission's Rules.
  
    21.  Although implicit in the NPRM at Appendix C, but not explicitly discussed in the text of the
NPRM, the rules we proposed and are now adopting will permit licensees to both "statically" and "dynamically"
choose the bandwidths in use at their stations.  What we mean is that a licensee may configure its system so
that the bandwidths in use at all of its stations are fixed and unchanging, i.e., static, or a licensee may configure
its system so that, at one or more (or all) stations, the bandwidths in use are not fixed and may change rapidly
over time, i.e., dynamically.  The advantage of such flexibility is that, on a real-time basis, a licensee or system
operator can control and allocate bandwidth among its transmitters so as to optimize the efficiency and speed
of information flow.  For example, if a response station were located at a business site, a narrow bandwidth
might be used one moment to send a short outgoing query and a wide bandwidth might be used the next moment
(or an hour later) in order to respond to a request to upload  the business' Internet home page resident on site. 
Different emissions/emitters might be used at the same station, depending on the type and volume of message
flow and bandwidth requirements at any particular time, and simultaneous transmissions (e.g., one narrowband
and one wideband signal) could be used if needed.  This form of flexibility is a natural outgrowth of the use
of digital emissions and the fact that, no matter what bandwidth is in use at a given moment, the power spectral
density of the digitally transmitted signal per unit of bandwidth will be uniform and fixed.  
         2.   Modulation Methods
   
    22.  In the MDS/ITFS  Digital Declaratory Ruling, the Commission interpreted its rules as
enabling the use of digital modulation formats, provided such use would not result in harmful interference. 
 Based on test data submitted in that proceeding, we examined the interference potential of VSB and QAM
emissions vis-a-vis the current 45 dB cochannel and 0 dB adjacent channel D/U interference standards for
NTSC analog modulation and concluded that these two digital emissions should be permitted at MDS and ITFS
stations because they presented no greater interference potential than NTSC.  Therein, we stated that we would
consider authorizing additional emissions based on similar demonstrations of noninterference.  In the NPRM
in the instant proceeding, we solicited comment on "whether there is a basis for concluding that use of
particular modulation types by MDS and ITFS stations other than VSB and QAM would not be prone to
interference, based on the current 45 dB/0 dB protection ratios for cochannel and adjacent channel interference
respectively, i.e., that such modulation formats should be permitted without requiring test data."  In response,
several commenters specifically addressed the issue of permissible emissions, arguing for flexibility in the
selection of modulation methods.  Furthermore, on December 2, 1997, ADC Telecommunications, ATI, CAI
and PCTV ("ADC") submitted a request for declaratory ruling asking that the Commission expand the scope
of its original July 10, 1996  Digital Declaratory Ruling to permit the use of two additional forms of digital
modulation, QPSK and CDMA.  ADC noted that, in the July 10, 1996 ruling, the Commission had authorized
only VSB and QAM because those modulation types were the only ones for which test data was submitted, and
that the Commission specifically deferred consideration of the adoption of other modulation techniques, noting
that future requests for declaratory rulings would be considered "where the requesters demonstrate that their
proposals satisfy the MDS and ITFS technical rules" and where requesters demonstrated that the proposed
modulation techniques "could be used in a manner that would not interfere with MDS and ITFS analog
operations."  In the filing, ADC stated that adequate test data has now been compiled with respect to CDMA
to justify its inclusion on the list of permissible modulation methods, and that QPSK should be added to the
list because it is "essentially an alternative designation for 4-QAM," which the Commission has already
authorized.

    23.  We agree with ADC that use of QPSK should be permissible without submission of test data
because 4-QAM is already permitted.   With respect to CDMA, ADC  submitted, as an attachment to the
declaratory ruling request, a document entitled "Rationale for Authorization of Additional Modulation Types
(CDMA and QPSK) Under the Wireless Cable Digital Declaratory Ruling."  This document presented the
results of a detailed  study involving laboratory tests designed to evaluate the interference potential of CDMA
as compared to VSB and QAM.  The outcome of those tests was characterized as showing "that CDMA
undesired signals provide substantially the same performance levels of the desired analog signals as do QAM
and VSB when the same interference protection ratios are used," and that variations present "fall well within
the threshold performance levels used to evaluate the protection ratios of QAM and VSB."  BellSouth urged
the Commission to authorize QPSK and CDMA without further testing, and Wireless One supported QPSK
and CDMA and stated that "any emission should be permissible for any channel of any bandwidth for any class
of MDS or ITFS station, utilizing permissible power, so long as the emission meets applicable out-of-band
emission requirements and is capable of causing no greater interference than 8-VSB or 64-QAM."  Upon
reviewing and evaluating ADC's submission, we believe that the CDMA interference test results, together with
the revised interference protection methodology which will apply to systems using CDMA assure that no
greater interference potential will exist with CDMA than now exists for QAM or VSB.  For the above reasons,
we are amending our rules to permit use of QPSK and CDMA on a regular basis at all MDS and ITFS
stations.  

    24.  We will continue our policy of authorizing the use of other digital modulation formats where
such use can be demonstrated to be within the confines of the interference protection standards for the MDS
and ITFS services.  Given the large numbers of existing stations and the sizeable financial investments in these
services, we do not want to authorize routinely the use of untested  emissions that could possibly result in
harmful interference.  As licensees and system operators gain experience in digital system design and operation,
we expect that test data will be submitted leading to a further expansion in permitted modulation types. 
However, we also seek to facilitate, to the extent possible, the variety of service offerings available to MDS
and ITFS licensees through use of different digital emissions.  Moreover, we wish to create opportunities for
such emissions to be tested through actual operations, but without risking unwanted interference.  

    25.  Accordingly,  we will permit licensees and system operators to use any digital emission in
circumstances where  interference is unlikely, or where all parties potentially affected by interference have
consented to such use.  In such cases, licensees and operators could choose emission or emissions most suitable
for their particular system architecture and message traffic, so long as these have channel-edge power rolloff
characteristics which conform to the general emission masks required for all MDS and ITFS operations, and
meet the requirements for uniform power spectral density set out in the Digital Declaratory Ruling. 
Specifically, we will permit the use of any such emission in the following circumstances:   (1) at any main or
booster transmitter located more than 100 miles from the nearest boundary of all co- and adjacent channel ITFS
and MDS protected service areas, including Basic Trading Areas and partitioned service areas (as these
protected areas are specified in Section 21.938 of the Commission's Rules); (2) at response stations within a
response service area whose boundary is, at all points, at least 100 miles from the nearest boundary of all co-
and adjacent channel ITFS and MDS protected service areas, including Basic Trading Areas and partitioned
service areas; or alternatively, (3) where all parties potentially affected by interference in an area (i.e., parties
at lesser distances than those set out in (1) and (2), above) have consented to use of the emission(s).
  
         3.   Spectral Mask

    26.  In the Digital Declaratory Ruling, the Commission determined that the spectral mask for
digital signals should be different than that applied to analog signals of the same bandwidth because the digital
signals had been demonstrated to have less interference potential, given that their power is uniformly distributed
across occupied bandwidth, rather than concentrated in one or more segments of the bandwidth.  This principle
was applied in the spectral mask proposed for digital signals in the NPRM, where the proposed edge-of-channel
and out-of-channel power suppression requirements for digital signals are less stringent than those for analog
signals.  Specifically, we proposed that the out-of-band power of each main station transmitter, booster
transmitter (with EIRP>-9 dBW) and response station transmitter using digital emissions and operating on a
single 6 MHz channel must be attenuated (relative to the average power level within the channel) by at least
38 dB at the channel edges, increasing linearly to an attenuation of 60 dB at all frequencies more than 3 MHz
above the upper edge and below the lower edge of the channel.  For booster transmitters using analog or
digital modulation and capable of operating on multiple channels simultaneously carrying separate signals (i.e.,
broadband booster), similar attenuation requirements with slightly relaxed parameters were proposed.  For low
power booster transmitters (EIRP ó -9 dBW) using analog or digital modulation, no attenuation requirements
were proposed.  Instead, a requirement was proposed that such transmitters be shut down if it is determined
that they are causing harmful interference.  For response stations utilizing digital modulation on the 125 kHz
channels, we proposed to require 35 dB of attenuation at the channel edges, increasing to 60 dB of attenuation
at all frequencies more than 125 kHz above the upper edge and below the lower edge of the channel.

    27.  For main, booster and response stations utilizing digital emissions on more than one contiguous
channel (i.e., a superchannel), we proposed that the out-of-band power suppression requirements be applied
only at the upper and lower edges of the superchannel.  For example, if three 6 MHz channels were combined
to form an 18 MHz superchannel, then 38 dB of attenuation would be required at the upper and lower edges
of the superchannel, as would the 60 dB attenuation requirement for frequencies more than 3 MHz removed
from the upper and lower edges of the superchannel.  If the 18 MHz superchannel were redivided into two 9
MHz channels, the out-of-band attenuation requirements would still apply only at the upper and lower edges
(and beyond) of the superchannel, and would not apply at the intra-channel boundary which forms between the
upper edge of one 9 MHz channel and the lower edge of the other 9 MHz channel.  Similarly, when a 6 MHz
channel is subchannelized, the out-of-band power suppression requirements would only be applicable at the
upper and lower edges (and beyond) of the 6 MHz channel.  For example, if the 6 MHz channel were divided
into 120 channels of 50 kHz bandwidth, the lowermost channel (i.e., 50 kHz channel No. 1) and the uppermost
channel (i.e., 50 kHz channel No. 120) would be the only channels to which any explicit attenuation standards
would apply, as required to meet the overall standards applicable to the edges of the 6 MHz channel.  In this
example, the lower edge of channel No. 1 and the upper edge of channel No. 120 would have to meet the
attenuation requirements, while no particular requirements would apply to channels 2 through 119, so long as
all of the power from these channels was contained within the 6 MHz bandwidth.  As a practical matter,
licensees may choose not to utilize a few of the lowermost and uppermost narrowband subchannels, in effect
creating a guardband that isolates the out-of-band power of the inner subchannels from the edges of the 6 MHz
channel.  In this circumstance, the power spectral density requirement for the 6 MHz channel would still be
applied as if the entire bandwidth were in use, i.e., the creation of intra-channel guardbands or unused interior
subchannels does not alter the calculation for power spectral density over the entire channel. 

    28.  In response to the spectral mask proposals, CTN argued that the exception in the mask which
permitted response stations to emit discrete spurious emissions with a suppression of only 40 dB presented an
unacceptable interference threat to ITFS receivers.  In certain circumstances, CTN stated that these emissions
will be present as cochannel interference at ITFS receive sites at signal levels as great as +23 dBm for response
stations operating at an EIRP of +63 dBm.  CTN suggested that greater suppression of these emissions is
needed, on the order of 60 dB for response stations operating at +48 dBm, up to 75 dB for response stations
operating at +63 dBm.  Replying to CTN's concerns, Petitioners stated that "as a result of technological
advances in the year since the Petition was filed, the proposed exception to the emission mask for discrete
spurious signals is no longer necessary."  Petitioners proposed that it be eliminated when final rules are
adopted "so as to provide a more interference-free operating environment." The General Instrument Corporation
("General Instrument") (formerly NextLevel Systems, Inc.) suggested that the digital emission mask "be
modified to incorporate a maximum attenuation for spurious emissions of 43 + 10 log(power) or 60 dB,
whichever is less stringent."  General Instrument calculated that this mask cutoff would result "in an absolute
emission power limit of -43 dBW in a 100 kHz reference bandwidth."  General Instrument's proposal was
supported by Gulf Coast, which said that this change would "conform the MDS/ITFS rules with the rules of
other radio services, including PCS."

    29.  General Instrument requested that the Commission clarify its specification of the proposed
emission mask for digital emissions, in particular asking for confirmation that the references to 38 dB and 60
dB attenuation "mean that the measured power in the measurement bandwidth at an out-of-band channel
frequency is to be attenuated by those amounts with respect to the total in-channel power in a 6 MHz
bandwidth."  Spike Technologies, Inc. ("Spike") sought a similar clarification.  Petitioners addressed this
issue in both their Comments and Reply Comments to the NPRM.  Petitioners argued that the emission mask
interpretation put forward by General Instrument "would result in shifting the emission mask by 17.78 dB from
the mask used in all of the testing done in support of the Petition that led to the Digital Declaratory Ruling and
upon which the currently proposed rules are based," an outcome which "would result in increased interference
from digital transmissions absent a corresponding reduction in the average power utilized."  Petitioners stated
that the best way to clarify the specification and measurement procedures for the attenuations required by the
emission masks is to utilize the formulas which they provided in their Comments, which take into account the
spectrum analyzer resolution bandwidth used and whether the transmitter power output measurement is
absolute or relative.

    30.  General Instrument also suggested that the emission mask power suppression requirement
should be slightly modified within the first 250 kHz beyond the upper edge and lower edge of the 6 MHz
channel.  Specifically, General Instrument proposed that, rather than 38 dB attenuation at the channel edges,
there should be 25 dB of attenuation at the edges, increasing linearly to 40 dB of attenuation at 250 kHz above
and below the edges, and then increasing linearly to 60 dB at 3 MHz above and below the edges.  General
Instrument argued that the transmitters used for the tests performed in connection with the Digital Declaratory
Ruling actually produced an occupied bandwidth pattern conforming to their proposed revised emission mask,
rather than to that proposed in the NPRM.  This occurred, according to NextLevel, because the actual occupied
bandwidth of the test signal was 6.5 MHz, not 6 MHz, thus creating a discrepancy of 500 kHz, or 250 kHz
on each side of the 6 MHz channel.  Petitioners supported General Instrument's proposal, saying that General
Instrument "correctly notes that the testing that supported the initial Petition for Declaratory Ruling used some
equipment that essentially followed the mask proposed by General Instrument."  Petitioners also agreed with
General Instrument's conclusion that such an amendment to the emission mask would have no practical effect
on the MDS/ITFS interference environment because it would not alter in any way the actual interference test
results using this gear, which demonstrated its limited interference potential.

    31.  With respect to the spectral mask for digital emissions, the Commission emphasized in the
Digital Declaratory Ruling that the essential requirement is that the power spectral density of the digital signal
be as uniform as possible across the bandwidth in use, no matter what that bandwidth might be.  For the
purposes of this proceeding, because we will permit the routine use of channels of essentially any bandwidth,
we believe it is important to specify the maximum permissible transmitter power in units of bandwidth,
something which, until now, has been implicit in the rules for discrete emissions within fixed bandwidths.  For
example, the maximum power for a main station transmitter is 33 dBW EIRP for an NTSC video signal within
a standard 6 MHz channel.  The power distribution for this signal is very non-uniform, varying several orders
of magnitude depending upon which part of the channel is examined.  For digital signals, power uniformity is
essential for producing a 'noise-like' signal which can be evaluated for interference purposes as if no portion
of the signal had any greater (or lesser) interference impact than any other portion of the signal.  For digital
transmitters operating under the rules we are adopting, we will continue the policies for uniform power spectral
density, including the requirement for continuous energy dispersal during times of no modulation, as set out
in the Digital Declaratory Ruling and 6 MHz will be used as the reference bandwidth for power limitations. 
With respect to the spectral mask to be used for the time being, we are adopting the mask parameters specified
in the NPRM, except that we have amended them to take into account the issue raised by General Instrument
concerning the first 250 kHz above and below the channel edges.  We agree that the test data support a slight
modification to the suppression levels set out in our proposals and we are incorporating that modification into
the rules being adopted.  We do not believe that this minor adjustment at the edges of the channels will have
any impact on the interference environment in the services, inasmuch as the interference tests conducted for
the Digital Declaratory Ruling encompassed this slightly greater spectral occupancy.

    32.  We also agree with General Instrument and others who raised concerns about the proper
interpretation of how out-of-band suppression levels were to be measured and interpreted.  The text of the
NPRM was not precise concerning where and how the attenuation requirements should be applied to the digital
emission's spectrum and we believe this should be resolved.  As Petitioners noted in their Comments, there are
numerous ways to measure the power spectrum inside and outside the digital emission's designated channel,
and each of these measurements could result in the calculation of different suppression levels.  In order to avoid
this situation, we are incorporating into our rules the two formulas provided by Petitioners.  These formulas
take into account all the relevant factors necessary to assure that, no matter what exact measurement procedure
is used, the results of the tests will be interpreted uniformly and in accordance with the rules we are adopting. 
We are not, however, adopting General Instrument's suggestion that a maximum suppression limit be placed
on digital emitters which would, in effect, remove the out-of-band attenuation requirements for power levels
below a certain minimum.  Although this approach has been used in some other radio services, such a
relaxation of out-of-band limits, in the context of a cellularized CDMA system, could result in an adverse
impact on the interference environment.  With respect to CTN's concern about discrete spurious emissions and
their potential interference impact, we are adopting Petitioners' recommended modification to the spectral mask
for response stations which completely eliminates the exception proposed in the NPRM for such emissions. 
As Petitioners noted, such an exception should not now be necessary for the new equipment which will become
available for two-way MDS/ITFS systems.

         4.   Frequency Tolerance and Equipment Certification

    33.  In the NPRM, we sought comment on Petitioners' request that the existing +/- 1 kHz frequency
tolerance requirement be retained for all main station digital and analog transmitters and for all digital and
analog booster transmitters with an EIRP exceeding -9 dBW, and that for all booster transmitters with less than
-9 dBW EIRP and for all response station transmitters, no frequency tolerance requirement be imposed.  These
concepts were generally supported in the Comments and Replies and we are adopting them in our rules.  The
extra interference potential of individual low power boosters and response stations which might arise from
frequency instability is very limited, and thus imposing a tolerance requirement on them would result in added
equipment cost and complexity with no corresponding benefit to the interference environment.  This would be
especially true for narrowband response stations which operate on subchannels within, and removed from the
edges of, larger channels.  For main station and high power booster transmitters, there is a much more
significant potential interference impact and we believe that requiring the emissions from these stations to be
held steady within their assigned channels is much more important.  With respect to certification of devices
used in these services, we proposed and are adopting rules which would require that all response station
transmitters receive  certification and we are retaining our rules requiring type certification of main and booster
transmitters.  In addition, we are continuing the interim policy set out in the Digital Declaratory Ruling
allowing the use, without certification, of existing analog equipment for digital emissions so long as the
emissions generated by this equipment conform to the appropriate spectral mask specifications.

         5.  Protection from RF Emissions

    34.  In the NPRM, we sought comment on whether to follow the Petitioners' suggestion and amend
the provisions of Section 1.1307 to provide rules, similar to those adopted for  LMDS licensees, to govern radio
frequency ("RF") emissions for MDS/ITFS return path transmissions.  We noted that all FCC-regulated
transmitters, including the subscriber terminals used in LMDS systems, are required to meet the applicable
guidelines regarding RF exposure limits.  We recognized that subscriber antennas are very small and can be
mounted in a variety of places at subscriber locations.  However, we found that the RF exposure could be
mitigated by the fact that these antennas are ordinarily mounted so that neither subscriber nor passersby will
venture into their transmit beams, because the person will block the signal and interrupt the transmissions
between the hub and subscriber transceivers.  Therefore, we decline to adopt special RF rules for return path
transmissions.  In addition, we found that exposure could be mitigated by the fact that LMDS subscriber
equipment probably will be installed by professional personnel, thereby minimizing the possibility that
subscribers or passersby will intercept the transceiver signal.  At the same time, we recognize that due to the
frequency reusage and greater permissible power limits there are differences between these services and LMDS
that may warrant greater care in the installation and deployment of subscriber units.  We, therefore, will require
such devices to be installed by the hub station licensee, its employees or its agents.

    35.  Further, we stated that it was incumbent upon LMDS licensees to exercise reasonable care
to protect users and the public from exposure from the operation of LMDS transceivers.  We noted that
LMDS licensees are required to provide user and installation information, to label subscriber antennas
properly, and to provide adequate notice regarding the potential safety hazards of LMDS subscriber
transceivers.  While we declined to require interlock features, we found that such features could enhance the
safety of LMDS subscriber transceivers and we strongly encouraged their use. 

    36.  With the exception of the Cellular Phone Taskforce ("CPT"), most parties commenting on this
issue support our proposals.  While not specifically opposing our plan, CPT states that "[B]ecause of health
concerns familiar to the Commission . . . [CPT] opposes the introduction any more new, or the expansion of
existing digital cellular networks of any type within the United States of America."  CPT states that its
members "are already suffering profound disability and disease because of such existing service networks." 
CPT notes that it filed these comments in both this proceeding and ET Docket No. 93-62, the Commission's
rulemaking proceeding concerning guidelines for evaluating the effects of RF emissions.  We agree with the
Petitioners that this is not the appropriate venue for considering CPT's concerns.  CPT does not provide any
discussion concerning the potential impact of adoption of the specific rules proposed in the NPRM.  The
appropriate proceeding for resolving CPT's concerns is ET Docket No. 93-62, where CPT has been an active
participant.  We find that the public interest will not be served by delaying the introduction of two-way service
by MDS and ITFS licensees pending further decisions in that proceeding.

    37.  We are generally adopting the proposals contained in the NPRM.  We will adopt our proposal
and modify the provisions of Section 1.1307 of our Rules for MDS and ITFS in a manner similar to the
approach we adopted for LMDS.  We will require MDS and ITFS licensees employing two-way technology
to attach labels to every subscriber transceiver in a conspicuous fashion.  Such labels should include reference
to the Commission guidelines that apply.  In addition, MDS and ITFS licensees employing two-way technology
must include a full explanation of the labels that appear on their transceivers, as well as reference to the
applicable Commission guidelines in the instruction manuals and other information accompanying their
subscriber transceivers.  This information should include advice as to the minimum separation distances
required between users and radiating antennas to meet the Commission's exposure guidelines.  As we declined
to do with LMDS, we will not mandate the specific language that must be used, however, we will require use
of the ANSI-specified warning symbol for RF exposure.

    38.  As with LMDS, we encourage MDS and ITFS licensees employing two-way technology to
use safety interlock features on their subscriber units to the extent that such features can be made available at
a reasonable cost.  We expect that MDS and ITFS licensees will work with all interested parties to achieve the
protection intended and, in the future, if we find that the requirements and procedures adopted herein do not
provide adequate protection from RF emissions, to subscribers and the general public, we may revisit this issue.

    C.   Interference

    39.  As discussed in the NPRM, the interference standards in the MDS and ITFS services are
intended to minimize the occurrence of destructive interference between neighboring systems.  We proposed
to carry over the existing 45 dB/0 dB D/U co- and adjacent channel protection ratios and the  -73 dBW/m2
contour protection criterion and apply them to the digital cellularized systems proposed by the Petition,
although with adjustments which account for the particular bandwidths involved in the calculations. 
Additional adjustments were proposed to account for the fact that multiple cochannel transmitters will be
operating simultaneously in some systems and for the fact that the actual locations of response stations in two-
way communications systems will not be used for interference calculations.  With respect to the operation of
simultaneous cochannel transmitters, we proposed to calculate the total power flux density radiated by all such
transmitters per channel and use that total flux in calculating conformance with the required D/U ratios and
contour flux limits at service area boundaries.  Because the digital signals to which this process is being applied
are 'noise-like' with uniform power spectral density across each channel, subchannel and superchannel, a
straightforward process can be applied whereby the power per channel per station is arithmetically added to
the power per channel for all other stations pertinent to the interference calculation.  If a main station
transmitter, one or more booster station transmitters and one or more response station transmitters in a given
system are simultaneously active on channels which fully or partially overlap, then the calculation of
aggregated power would involve all such simultaneously active stations on all of the overlapping portions of
the channels.  This procedure for interference calculations for cellularized systems was proposed because
Petitioners expect, and we believe it is reasonable to assume, that these systems will involve large numbers of
transmitters with heavy frequency reuse and simultaneous operation, and that the interference effects of such
large numbers of emitters must be taken into account in a manner drastically different than is now done on a
site-specific basis under our current interference protection rules.

    40.  With respect to calculating the interference effects of response stations in cellularized systems,
we proposed to implement a process proposed by the Petitioners which utilizes theoretical estimations and
statistical modeling of response station locations, necessitated by the fact that the locations of the individual
response stations will not be known at the time the interference calculations for the overall system are made. 
This situation arises because, in the type of system proposed, the application for licensing of the system will
contain specific site locations for only the transmitters at main and booster stations.  All response station
transmitters would be licensed under blanket authorizations which specify only the locations of the receiving
hub stations associated with the response stations.  The response stations themselves would be installed and
activated over an indefinite period of time commencing after the system was licensed.  This sequence of system
design, development and authorization thus necessitates a radical departure from the customary process
whereby interference calculations are made based on specific information concerning specific stations at
specific locations with specific operating parameters.

    41.  The process devised by Petitioners for calculating response station interference, entitled
"Proposed Text of Attachment to Report and Order Setting Forth Method for Predicting Accumulated Signal
Power From a Multiplicity of Statistically-Located Transmitters," ("Methodology") was attached to the NPRM
as Appendix D.  This Methodology involves essentially two tasks;  first, a theoretical model is constructed for
use in estimating the amount of interference likely to be generated by the response stations operating within a
system;  and second, this estimate of response station interference is combined with specific calculated
interference levels from main and booster stations and the total is used to determine compliance with the
Commission's interference standards.  A detailed description of the proposed Methodology is given in the
NPRM, beginning at paragraph 34, and will not be repeated here.  The essential elements of the theoretical
model are as follows:  A system of intersecting lines in checkerboard fashion ("the grid") is created within a
selected response station service area within the system.  Each grid point (i.e., each point where lines intersect)
is considered to be the location of one or more hypothetical response stations with defined parameters for a
class of response station, e.g., frequency, EIRP and antenna pattern/orientation/polarization/height AGL. 
A number of theoretical measurement points are established at locations surrounding the grid and the theoretical
signal strengths of all assumed response stations at all of the measurement points are calculated and evaluated
for sufficient uniformity to test the adequacy of the grid.  Once the uniformity test is met, all subsequent
interference calculations involving response station transmitters are based on the hypothetical equivalent
response stations located at the grid points.

    42.  Numerous parties took issue with all or part of the Methodology and some parties suggested
various alternatives to it.  Dallas County was critical of the proposed techniques, arguing that the proposal
presents insufficient details for an incumbent to evaluate or validate the conclusions as to no potential
interference from a two-way application.  BellSouth supported the use of models to predict interference, but
recommended the establishment of a working group to refine the modeling process as actual systems are tested
and interference issues are resolved.  EDX argued that the approach to establishing the grid is flawed in
several ways, including the omission of terrain considerations in performing field strength calculations and the
fact that multiple grids, each with different point densities, are possible within a given service area and could
lead to different interference calculation results that would be incompatible.  EDX suggested that the spacing
of grid lines be based on fixed latitude/longitude increments, rather than mileage as proposed by Petitioners,
and that terrain be used as a determinant of grid point density.  EDX also proposed an alternate interference
methodology in which all response station transmitters within a defined area would be represented by "a single
hypothetical aggregate response station located at the RSA hub location, using an omnidirectional antenna, and
with a power level set as a function of the maximum power level and number of response stations associated
with that RSA hub."  Spike commented that the EDX methodology, while flawed in Spike's opinion, might
prove useful in areas where terrain shielding is not an important factor.  Spike argued that Petitioners' use
of census data for estimating the distribution of response stations is flawed, and that Petitioners' Methodology
does not properly account for Time Division Multiple Access ("TDMA") type systems, where transmitters
operate sequentially rather than simultaneously.  Spike suggested that there should be more flexibility in the
way interference is calculated, with applicants free to choose their own particular methodologies as long as they
adequately describe their procedures and the assumptions used to reach their conclusions.  With reference to
hub stations, Spike proposed that the definition of hubs be expanded to permit transmission as well as reception
of signals.  CTN, in addition to challenging the use of census data, argued that the proposal "raises many
questions which have not been answered," and that "there is no procedure for ensuring that the actual
installation of response stations corresponds to what the applicant predicted."

    43.  In response to criticism of their Methodology, Petitioners proposed to make several
modifications to the way the grid system is configured and the theoretical transmitter parameters established. 
Petitioners proposed to specify the separation of grid points in terms of latitude and longitude rather than miles; 
to revise the grid uniformity test to eliminate the possibility that increasing the density of points in a grid
already meeting the uniformity test could result in the grid failing the test;  to increase the number of grid points
within a sector if the number falls below a predetermined minimum;  to revise the methods of considering
terrain blockage and of the sharing of channels by response stations;  and to use a fewer analytical steps for
TDMA systems.  In addition, responding to parties who asked for a more detailed explanation of exactly how
the procedures in the Methodology  would be applied to the calculations of response station interference,
Petitioners submitted a sample interference study which, they said, "provides a step-by-step description of how
an engineer can employ software products that are readily available in the marketplace to perform analyses of
the potential for interference from response stations."  In response to Spike and others who challenged
Petitioners' use of census data for predicting the geographical distribution of response station locations,
Petitioners agreed that this data reflects residential, not business, populations, but argued that this "will result
in the creation of additional regions within response service areas in order to meet the uniformity of population
test required by the methodology," and, thus "the more regions that are created, the more accurate predictions
of interference tend to be."  In a subsequent filing, Petitioners proposed further modifications to their
Methodology, wherein the actual terrain elevations at, and around, all grid points are taken into account in the
specification of the theoretical response station parameters used at each grid point for interference
calculations.  Additionally, Petitioners proposed to eliminate the use of census data for estimating response
station locations in CDMA systems.  With reference to CTN's concern that the numbers or types of response
stations actually put into operation may differ from what was contained in the system application and
interference analysis, Petitioners responded that the Commission relies upon licensees to construct their systems
in accordance with the terms of their authorizations which would provide a maximum number of response
stations for each class, and that the Commission has a number of tools, including license revocation, to sanction
unlawful operation.

    44.  With respect to Spike's suggestion that Petitioners' methodology should be more flexible, and
to EDX's proposed alternative to the Methodology, Petitioners argued that neither proposition has merit. 
Petitioners stated that the use of a standard methodology "will provide a high degree of certainty to applicants
and licensees and will avoid unnecessary disputes before the Commission regarding the efficacy of any
particular model."  Petitioners further argued that if a common, Commission-mandated, methodology is not
established, then the licensees of neighboring systems will not only have to verify the calculations within an
interference analysis submitted to the Commission, but also will have to verify the assumptions and
formulations which went into development of whatever methodology is being used.  Such an approach,
Petitioners said, would be antithetical to the goals of applicants and the Commission of providing the most
expeditious possible processing of applications within the services, in that the number and complexity of
disputes which might arise with the use of a common methodology will be far less than would arise if there
were multiple unspecified methodologies.  With respect to EDX's proposed alternative methodology, Petitioners
argued that it is "fundamentally flawed," in that EDX's use of a single emitter at each hub station location as
a proxy for all response stations within the associated response station service area ("RSA") does not take into
account the actual interference effects along the various line-of-sight and obstructed paths within the RSA, and
thus will inevitably misstate the interference potential of the response stations in a way that could not be
corrected by adjustments to the parameters set for the hypothetical hub station transmitter.  Additionally,
Petitioners argued that EDX's methodology is "flawed by its failure to provide any mechanism for modeling
the potential for interference from a non-circular RSA," nor does EDX's methodology "accurately model the
potential for interference in those situations where response station transmitters are located in close proximity
to an adjacent market receive site or PSA boundary."  Responding to Spike's request that hub stations be
permitted to transmit, as well as receive, signals, Petitioners argued that such a change would fundamentally
alter the type of interference analysis necessary for hub stations, and that Spike has erroneously assumed that
booster stations cannot be co-located with hub stations.

    45.  In addition to concerns about the response station interference Methodology, CTN  contended
that interference could be caused to ITFS receive sites by nearby response stations as a result of brute force
overload ("BFO") to broadband downconverters used at these sites.  CTN pointed out that WCA petitioned
the Commission for expedited reconsideration of the Report and Order which established the Wireless
Communications Service ("WCS") in the 2.3 GHz band, where WCA raised concerns about BFO interference
and asked for immediate relief to avoid serious  and irreparable injury.  CTN cited WCA's request that WCS
stations be limited to 20 watts EIRP, although the WCS is separated from MDS/ITFS spectrum by 140 MHz,
and contrasted it to Petitioners' request that response stations be permitted an EIRP of 2000 watts, and
concluded that "surely response station transmitters operating at 2000 watts with no guardband at all would
present a much greater problem to ITFS downconverters."  CTN also questioned how response stations can
be properly installed so as to minimize BFO interference if customer-installed equipment is permitted.

    46.  As a solution to the potential problem of interference from response stations, including BFO
interference, CTN proposed that a spectrum buffer be created which "places a 24 MHz guardband between
downstream ITFS and upstream MDS operation, in which only downstream MDS operations are permitted." 
CTN argued that such a guardband would have several benefits, in that it would:  (1) moot the need for
calculating response station interference into ITFS receive sites;  (2) allow the installation of bandpass filtering,
when needed, at ITFS receive sites to give broadband downconverters greater immunity to BFO interference; 
and (3) confine the risk of BFO interference, as well as conventional cochannel and adjacent channel
interference, solely to the MDS spectrum authorized to MDS licensees and wireless cable operators, where it
could more readily be solved on an intrasystem basis.  To implement this plan, CTN proposed to "refarm" (i.e.,
change specific channels used by certain stations, but with no net reduction in the number of  channels available
to any station) the E, F, G and H Group channels to create a contiguous band of spectrum for ITFS use at
2500--2620 MHz and a contiguous band of spectrum for response station use at 2644-2690 MHz.  As an
alternative to their 24 MHz guardband plan, CTN proposed a plan whereby a 6 MHz guardband between
downstream ITFS and upstream MDS operations would be combined with a notification and testing procedure
for all response stations installed in proximity to ITFS receive sites.  Under this procedure, no response
station could be installed until a notification was sent to each ITFS licensee with any receive site within a
distance of 1960 feet of the of the location of the proposed response station.  In addition, for proposed response
stations located within 300 feet of any ITFS receive site, or within 300 feet either side of the boresight
azimuthal orientation of any ITFS receive site antenna along a line extending from the antenna for a distance
of 1960 feet, an on-air test would be required in order to establish that, in fact, no interference would result
from operation of the response station.  CTN stated that the notification and testing procedure is necessary
in order to compensate for the fact that bandpass filters are not usable if the guardband is reduced from 24 to
6 MHz.  As a second alternative to the 24 MHz guardband plan, CTN proposed that the Commission designate
eight 6 MHz channels, A4, B4, C1, D1, E4, F4, G1 and H1, for upstream use at response stations.  Single
channel guardbands, consisting of channels B3, C2, F3 and G2, would be established to separate response
station upstream channels from downstream ITFS channels.  In addition, under this plan, response stations
would also be required to perform the notification/testing procedure set out above for the other 6 MHz
guardband proposal.  In a filing in response to the Commission's establishment of a comment period on ex parte
pleadings, CTN reiterated their requests for a 6 MHz guardband and for notification and testing procedures.

    47.  A number of parties disputed CTN's allegations that interference would be a serious problem
and questioned the need for guardbands.  Region IV Educational  Service Center ("Region IV") argued that
CTN had created a "theoretical monster," coupled with a "staggeringly complicated and restrictive solution
which could well result in a still birth of the basic two-way service concept."  ITFS Parties argued that the
guardband proposal and refarming of spectrum "creates a host of problems," and that "this cure would be much
worse than the purported disease."  ITFS Parties  urged CTN to "focus more on simply crafting rules that
require proponents of a two-way, cellularized system to resolve interference problems caused by the system,
and to shut down any interfering operations until a resolution can be achieved."  Petitioners argued that the risk
of BFO interference is de minimis, saying that "detailed analyses conducted by Petitioners demonstrate that
under any realistic scenario, ITFS receive sites located in less than 1% of a protected service area would even
be at risk, and mitigation techniques generally can eliminate any interference at those few sites."  Petitioners
presented calculations made for four different system architectures (i.e., configurations of response station
transmitters and ITFS receive sites) which they claim demonstrate that, under typical real-world conditions,
the amount of vulnerable area within a PSA is always less than 1% and sometimes as little as 0.003%. 
Petitioners also described numerous techniques which they claim can be used alone, or in combination, to
mitigate the effects of any BFO interference which might occur within the small areas of a PSA which are
vulnerable.

    48.  With respect to CTN's guardband proposals, Petitioners argued that restrictions on the
channels available for upstream use would "unnecessarily hamper the commercial viability of two-way
services."  Petitioners charged that CTN "has provided the Commission with absolutely no technical analysis
which even purports to show that the operation of response stations within 6 MHz of an ITFS channel will
invariably lead to interference," and that "CTN would have the Commission sacrifice the ability of ITFS
licensees to deploy their spectrum flexibly merely to avoid the need for the development of interference
protection rules."  With respect to the notification and testing procedures advocated by CTN, Petitioners said
that these measures are "both unnecessary and so onerous that they would threaten the commercial viability
of two-way service offerings," and that it is "impossible to establish an inflexible zone around each ITFS
receive site that reflects the area in which a response station installation threatens to result in [BFO
interference]."  Petitioners argued that there are many variables, "including orientation and polarization of
the antennas relative to each other, distance between antennas, sidelobe suppression of the antennas,
[downconverter] dynamic range and response station power" that all determine whether interference might
occur.  In response to CTN's arguments concerning WCA's action seeking reconsideration of the power limits
in the WCS, Petitioners argued that the reconsideration applied only to mobile stations and that the power limit
for fixed WCS stations remained at 2000 watts EIRP, identical to that proposed for response stations. 
Petitioners also cited six differences between the interference protection requirements placed on WCS stations
as compared to those proposed for MDS/ITFS response stations, saying that all six place heavier burdens on,
and insure greater protection from, response stations.

    49.  In addition to the issues discussed above relating to the response station interference
Methodology and the creation of guardbands, Petitioners and various other parties raised concerns about,
and/or counterproposals for, several other technical issues in the NPRM, specifically:

Response Station Power Limit  Petitioners requested that the response station power limit be fixed at 33 dBW,
identical to that already permitted for main stations and proposed for high-power booster stations.  In the
NPRM, we proposed to apply an EIRP limit of 18 dBW to response stations, citing concerns about the
extremely complex interference environment in which such stations would be functioning.  Petitioners
responded that the proposed 18 dBW limit is "far too low to permit wireless cable to be a commercially viable
service."  Petitioners submitted a technical analysis which contained detailed calculations which, they argued,
supported their proposal for the higher power level.  Responding to Petitioners' argument, CTN did not
dispute Petitioners' calculations, but did question the basis for Petitioners' assumption that response stations
would transmit with 33 dBW EIRP into hub stations with +10 dBi gain receiving antennas, arguing that equal
results could be obtained with 23 dBW EIRP and +20 dBi hub receiving antennas.  Petitioners disputed
CTN's claim that the larger antennas could be used at hub stations, saying that "it may be physically impossible
to mount a sufficient number of antennas with high horizontal gains at a hub location to provide the necessary
omnidirectional coverage."  CTN replied that they found Petitioners' arguments unpersuasive, and "find
Petitioners' claims of tower loading constraints, the lack of tower vertical real estate, and tower sway, to be
particularly unpersuasive."

Protection of Hub Stations  In the NPRM, the Commission proposed that the protected signal level at a hub
station receiver would be "the minimum received signal level that the proposed hub can actually utilize in the
provision of service, specified in dBW/m2/Hz."  Commenters were requested to respond specifically
concerning whether "such an important element in the interference analysis [should] be permitted to be specified
by a system operator without some objective basis which could be validated, or alternatively, [whether] a
suitably representative value [could] be determined for this purpose."  CTN objected to this specification of
hub protection, saying that this would mean that an ITFS applicant "would have to show that its proposed
modification or newcomer ITFS station would be 45 dB or 0 dB (as appropriate) below the weakest level signal
that the Response Station Hub licensee's receivers could conceivably detect," and that requiring such protection
for omnidirectional Response Station Hubs "would either result in a de facto freeze to the ITFS service, or
would give Response Station Hub licensees such powerful leverage as a result of the need for "no objection"
letters from those licenses that any semblance of a "level playing field" would be lost."  In response,
Petitioners proposed to revise the interference protection for hub stations, eliminating the minimum-received-
signal criterion and substituting for it a specification for the maximum permissible degradation of the 'noise
floor' of the hub receiver.  Specifically, Petitioners proposed that a response station hub receiver be deemed
protected from interference when the interfering power  flux density generated by a neighboring system
(accumulating the signals of the main station and any booster stations or simultaneously operating response
stations) received by the hub antenna is no greater than -190 dBW/m2/Hz if the interfering signal is cochannel,
or -151 dBW/m2/Hz if the interfering signal is adjacent channel, with a 20 dB reduction in either case when
the interfering signal is cross-polarized.  Petitioners also proposed to amend the protection standard to take into
account the actual antennas in use at the hub station, rather than assuming an omnidirectional antenna. 
These modifications, Petitioners argued, should satisfy the Commission's concern "that an applicant could
specify an inappropriate required receive signal level in order to secure undue protection to the response station
hub."  Gulf Coast and Spike agreed with Petitioners' proposal to use the noise floor, while CTN stated that the
proposed numbers "appear to be technically valid for uniform density signals, but not for conventional NTSC
analog signals," and that the proposed numbers would penalize NTSC signals because of their nonuniform
power spectral distribution.  CTN also argued that the proposed numbers posed a 3 dB disadvantage for
NTSC signals because they referred to the peak, rather than average, power of the NTSC signal.  Petitioners
responded that using peak power for NTSC signals and average power for digital signals "continues the
practice established in the Digital Declaratory Ruling of licensing just one power level for a station and
calculating interference the same way for both analog and digital signals."  In their comments on the
Petitioners' ex parte filings, CTN reiterated their contention that Petitioners' protection criteria for hub stations
would have a preclusionary effect on future expansion or modification of ITFS facilities, and, as a solution,
proposed that response station hubs be given secondary status with respect to all ITFS facilities more than 35
miles away.

Terrain Shielding  Petitioners questioned the justification in the current interference protection rules for
providing protection to receive sites from response stations if the signal strength of the response station is
beneath the noise floor of the victim receiver, noting that "in areas where the desired signal has significant
excess path loss due to terrain blockage between the receiver and desired transmitter, it can be impossible to
provide the 45 dB protection required."  Petitioners proposed that, in conducting interference studies where
the desired signal falls below the appropriate noise floor, "no calculations of compliance with the 45 dB
benchmark should be required."  Spike and BellSouth both supported this proposal, although BellSouth added
a caveat that the undesired signal should not add more than 1 dB to the aggregate C/N+I of the desired
signal.  CTN also supported the proposal and would extend it to apply to situations where the desired signal
is above the noise floor but is nevertheless so weak that "there would be no reasonable expectation of useful
service at that low level."

Propagation Formulas/System Data  Dallas County raised a concern, also expressed by others, that the
Methodology developed by Petitioners and proposed in the NPRM is insufficiently detailed to permit
independent verification of interference analysis results.  Dallas County wants Petitioners to "make available
to the Commission for application evaluation purposes a set of step-by-step calculations for all to follow,
including all assumptions and equations, if not the derivative software itself."  ITF argued that the Commission
"can assume an important role by making public the databases and engineering software which it uses to
evaluate MDS and ITFS applications."  ITF stated that it will "petition the FCC to postpone filing windows
if the ITFS community cannot gain reasonable access to the essential engineering tools."  The University of
Maryland ("Maryland") requested that the software and databases used by the Commission for conducting
interference analyses be made available to the public in order to "alleviate the burden placed on all ITFS
operators in evaluating numerous booster and response station proposals."  In response to these concerns,
Petitioners proposed to amend their Methodology to increase "the level of specificity in the proposed rules as
to the substance and format of information required to be filed with an application for a response station hub
license (particularly information regarding the channel plan and the methodology employed for calculating
potential interference), and the possible requirement that filings be made on computer diskettes in order to
provide the Commission and interested parties improved access to relevant data."

    50.  Our proposals to continue, as well as extend, use of the 45 dB/0 dB D/U interference
protection ratios and the -73 dBW/m2 contour protection standard were unopposed.  Therefore, we are adopting
rules requiring their use in calculating interference from multiple response stations licensed under blanket
authority of hub station licenses, as well as in situations where the signals from main, booster and/or response
stations (for both analog and digital systems) must be combined to determine interference levels.  With
respect to the Methodology proposed by Petitioners for calculating the interference potential of response
stations, we agree with EDX and others who pointed out that the original formulation of the proposed grid
system ignored terrain data and thus may not be representative of the actual interference potential of the
response stations in the grid.  Petitioners have, we believe, corrected this deficiency with their proposal to
assign to each grid point the highest elevation AMSL of all the geographic area surrounding that grid point,
thus making the theoretical stations assigned to each grid point much more likely to result in more sensitive
interference calculations.  With respect to the use of census data, we agree with Spike and others who argued
that this procedure would not produce results that were necessarily accurate or representative of the actual
distribution of response stations.  Petitioners have, we believe, corrected this deficiency with their proposal to
drop the use of census data and, instead, to assume a worst-case distribution of response stations in CDMA
systems by assigning all of the simultaneously active cochannel response stations to the grid points in an RSA
which have the greatest interference potential.  For TDMA systems, we concur with Petitioners' proposal to
also modify their Methodology to conduct interference analyses from the grid points which have the greatest
interference potential.  

    51.  With the major modifications discussed above, we believe that Petitioners' Methodology for
calculating response station interference is sufficiently comprehensive and conservative that we are adopting
it as a requirement of our rules.  We are also adopting other modifications to the Methodology, including two
provisions involving the receiver noise floor.  We agree with CTN and others who argued that Petitioners'
original 'minimum receivable signal' hub receiver protection standard would have, in some instances,
overprotected the hub station and thus potentially precluded the construction of other stations.  We believe that
Petitioners' amended proposal to protect the hub receiver's noise floor, and to take into account the actual
antenna(s) in use at the hub, is a better way to protect hubs without penalizing other potential operations and
we are therefore adopting it in our rules.  We reject CTN's request to protect hub receivers only to a distance
of 35 miles and make them secondary beyond that distance.  We understand CTN's concerns with respect to
hub station protection acting as a possible brake on ITFS growth in certain circumstances.  However, we
believe that the detailed interference analysis and other safeguards we have adopted in this Order will minimize
any such effects to the most reasonably possible extent.

    52.  With respect to response station protection of nearby systems, we agree with Petitioners'
proposal to take into account the actual received signal levels of the desired and undesired signals in the system
receiving protection and we are adopting this procedure as an amendment to the Methodology.  We do not
believe that EDX's alternative to Petitioners' response station interference Methodology is usable because, for
many two-way system configurations, EDX's interference calculations will inevitably give erroneous results,
a shortcoming conceded by EDX itself.  Nor do we agree that applicants should be free to choose any
methodology they wish for making interference calculations, as this would drastically slow the evaluation of
applications and almost certainly result in many Petitions to Deny, as licensees and applicants struggled to
understand the differing and potentially incompatible assumptions and calculations incorporated into the
various methodologies.  We also decline to adopt Spikes' recommendation that hub stations be redefined to
include transmitting capability.  This is not necessary because booster and main stations may be co-located
with hub stations to provide transmission capability, and permitting hubs to also transmit would simply add
redundancy and unnecessary complexity to the interference protection requirements of the rules.  With respect
to CTN's concern that the actual numbers and types of response stations may not conform to those for which
application was made and interference calculated, it should be understood that the assumptions for these items
used by an applicant in the interference analysis become, upon grant of the license, terms of the authorization
and, as such, must be observed.  We do, however, agree with CTN that response stations should not be
installed by end users and we are therefore adopting a requirement that all response stations be installed by the
hub station licensee or its employees or agents.  Given the interference environment in which response stations
will operate, we do not believe it would be prudent to permit them to be installed by nonprofessionals with no
knowledge of the protection requirements for nearby ITFS receive sites.

    53.  With respect to response station power limits, we have decided to grant Petitioners' request
to permit the use of up to 33 dBW EIRP.  Although we continue to be concerned about interference, we concur
with the conclusions of Petitioners' propagation analysis that the proposed 18 dBW power limit would
adversely impact system range and reliability, thereby increasing the number of stations needed and increasing
system costs. The 33 dBW power limit is predicated on a bandwidth of 6 MHz, and the power limit for stations
using lesser bandwidth must be reduced proportional to that bandwidth.  For the 125 kHz channels, for
example, the EIRP limit will be 16 dBW.  As a practical matter, we do not expect that all, or even most,
response stations will utilize the maximum power permitted.  The most efficient operation of hub station
receivers will typically occur when the received signal levels from the multiplicity of associated response
stations are roughly equal.  We would therefore expect that maximum facilities would be used only on paths
which are relatively long and/or paths with unfavorable intervening terrain.  Main station and high power
booster stations will be permitted to operate at a maximum EIRP of 33 dBW, except that, when directional
antennas are utilized at either type of station, a maximum EIRP of up to 39 dBW will be permitted, depending
upon the directivity of the antennas used.  

    54.  After carefully considering CTN's concerns about potential interference problems, we have
decided to deny their request that guardbands be established separating upstream (response station)
transmissions from downstream ITFS transmissions.  CTN's first proposal, involving the creation of 24 MHz-
wide guardbands, could result in partially or completely eliminating many MHz of potentially useful upstream
spectrum on the speculative assumption that such action was necessary to protect ITFS receive sites from
interference.  CTN's second and third proposals, involving 6 MHz guardbands, while precluding less upstream
spectrum on the same assumption, would involve establishing notification and testing procedures for response
stations in proximity to ITFS receive sites.  In their fourth guardband proposal, requiring 6 MHz guardbands
within a 35 mile radius of ITFS main transmitters, CTN argued that the proposed response station interference
Methodology is "unduly complex" and will be ineffective in determining interference when the potential victim
ITFS receive site is within a hub station's RSA.  This is not the case, however, because the Methodology, as
amended in Petitioners' most recent ex parte submission,  now calculates interference from both TDMA and
CDMA systems based on identification of worst-case matrix grid points.  In this way, calculations to potential
victim receive sites inside, as well as outside, the RSA can be made.  With respect to the complexity of the
Methodology, it is, of necessity, not a simple procedure and CTN offered no alternative methodology to its use,
nor any explanation of how guardbands would eliminate the need for its use for interference calculations
beyond whatever geographic radius was set for the use of guardbands.  In summary, we believe guard bands
would deprive parties the flexibility to design and operate their systems in a manner that best meets their needs,
and would deprive them of spectrum which, in some, if not most, geographical areas could be partially or
wholly utilized for two-way operations without danger of interference to ITFS sites.  

    55.  With respect to the potential for BFO interference, we agree with CTN that, in certain limited
circumstances, ITFS receive sites could be adversely affected by downconverter overload and that some
appropriate relief should be available.  CTN is correct that the interference from digital response stations will
be 'noise like' and thus will present significantly greater problems than current analog emissions in terms of
evaluation and location of the responsible transmitters.  Additionally, as it is highly likely that, in many
instances, the interference will be intermittent, as various response stations alternate transmissions with each
other and with booster and/or main stations,  solving such interference problems will clearly require a highly
coordinated and cooperative effort between system licensees.  For these reasons, we are adopting CTN's request
to require a hub station licensee to formally notify an ITFS licensee when a response station is to be located
in the vicinity of any of the ITFS licensee's receive sites.  Specifically, we are creating a notification zone with
a radius of 1960 feet around each ITFS receive site, and we will require that, at least 20 days prior to the
activation of any response station within such a zone, the hub station licensee notify, by certified mail, the
appropriate ITFS licensee.  The notification must contain the street address and geographic coordinates of the
response station, a specification of the station's EIRP, antenna pattern, orientation, polarization and height
AMSL, channels to be used, as well as the name and telephone number of a contact person who will be
responsible for coordinating the resolution of any interference problems.  We expect, and will require, that
licensees of stations causing interference fully cooperate with other licensees by promptly and thoroughly
responding to any notifications that their systems are causing interference.  In that event,  we would expect that
the licensee of the offending station would immediately commence a cooperative effort with any licensees
receiving interference to solve the problem as quickly as possible at the expense of the offending licensee.  If
a licensee fails to promptly and adequately perform these obligations, the Commission will require appropriate
remedial action by that licensee.  It should be understood clearly that the Commission is prepared to, and
will, order the immediate de-activation of part, or all, of a system if that system is causing interference and
the licensee has not cooperated fully and in a timely manner to eliminate the interference.  We do not find
the additional burden of mandatory response station testing is necessary at this time.  We believe the best
course of action now would be to permit an adequate and thorough evaluation of the notification procedure
prior to any consideration of a testing requirement or other more restrictive actions.

    56.  With reference to the technical sufficiency of the formulations, calculations and data
requirements necessary for utilization of Petitioners' Methodology, we are satisfied that Petitioners' most recent
proposed revisions in this regard are adequate and we are making them part of the Methodology being adopted. 
The last section of the Methodology now consists of information and examples relating to the formatting of data
and information to be submitted to the Commission in connection with applications for cellularized systems. 
We will require that, beyond the information contained on FCC Forms 304 and 330, additional data be filed
in the specified formats and submitted on diskettes accompanying the application forms.  This additional
information must be sufficiently complete and accurate for any competent party to verify the validity of the
interference analyses.  Good engineering practice must be followed in the performance of these analyses and,
in the event that an examination of the analyses submitted by any applicant demonstrates that due diligence was
not given, the Commission may dismiss the associated applications, or, in the event the applications have been
granted, order that the system be de-activated and/or take steps for suspension or revocation of those licenses. 


    D.   Proposals Specifically Regarding Use of 125 kHz Channels

    57.  Under current rules, the bulk of the 2686-2690 MHz band is comprised of 125 kHz channels
which are utilized at response stations.  In the NPRM, we proposed to amend our rules in accordance with the
most flexible framework requested by Petitioners for use of the 125 kHz channels.  Pursuant to these
proposals, the 125 kHz channels could continue to be used at response stations, but we also would permit them
to be used for point-to-multipoint transmissions, in which case they would be licensed and afforded interference
protection in the same manner as other point-to-multipoint MDS and ITFS channels.  In addition, we proposed
to permit the 125 kHz channels to be superchannelized or subchannelized regardless of whether they are used
as response stations or for point-to-multipoint transmissions.  We further proposed to remove the requirements
of current Section 74.939(d) that each 125 kHz channel be used solely in conjunction with a specifically
associated 6 MHz channel, and noted the proposal of the Instructional Telecommunications Foundation, Inc.
("Foundation") that we allow ITFS licensees to swap 125 kHz channels on a routine basis, to create larger
bandwidth channels.  Moreover, to avoid confusion, we advanced the suggestion that each of the 125 kHz
channels receive an independent designation, rather than be referenced to the primary 6 MHz channel with
which it is associated. Finally, we clarified suggested changes to Section 74.902(d)(1) of the Commission's
Rules to provide that an ITFS licensee is limited to the assignment of no more than four 6 MHz and four 125
kHz channels for use in a single area of operation.

    58.  Wireless One supports most of the NPRM's proposals for increased flexibility in use of the
125 kHz channels, though Wireless One does not address specifically the issues of using 125 kHz channels
other than in conjunction with their associated 6 MHz channels, nor of providing each 125 kHz channel an
independent designation.  The Bay Area Consortium agrees with the proposed use of the 125 kHz channels
for downstream transmissions, "upon proper application to the Commission by the associated primary channel
licensee," in order to promote efficient use of the spectrum.  The Foundation supports the NPRM's proposals
regarding the 125 kHz channels, and adds that the Commission should allow the content of those channels to
be independent of that transmitted on related 6 MHz channels.  The Foundation also specifically supports our
clarification in the NPRM with respect to Petitioners' suggested changes to Section 74.902(d)(1).  A few
commenters, however, appear to take issue with the concept of licensees swapping 125 kHz channels.  HITN,
for instance, requests that all existing and currently proposed response stations associated with ITFS licenses
continue to be licensed to, controlled by, and exclusively associated with those ITFS licenses pursuant to
currently existing rules.  While Maryland supports sub- and superchannelization of the 125 kHz channels,
as well as their use for upstream or downstream transmissions, it states that use of 125 kHz channels licensed
to ITFS entities "for purposes other than for ITFS should be secondary to ITFS operations."  And CTN, as
part of its "refarming" plan, advocates that all 125 kHz channels be reallocated to ITFS and used only for
response transmissions.  Petitioners "vehemently oppose" the suggestion by CTN, and add that CTN has not
discussed how the MDS auction winner, who has the rights to the channels to be reallocated, would be
compensated, nor how the reallocated channels would be assigned amongst ITFS licensees.

    59.  We believe that this approach will provide licensees with the maximum possible flexibility will
enhance the architecture of two-way systems in the MDS/ITFS bands, we adopt all of the proposed changes
in the NPRM with respect to the rules governing the 125 kHz channels.  For instance, removing requirements
that each 125 kHz channel be used solely in conjunction with a specifically associated 6 MHz channel offers
flexibility to create channels with bandwidths exceeding 125 kHz, and we amend Section 74.939(i) of the
Commission's Rules to eliminate such requirements.  For the sake of simplicity and consistency with the
MDS/ITFS database, we also amend the frequency table in new Section 74.939(i) to redesignate the 125 kHz
channels as the I Channels.  Furthermore, we amend Section 74.939(i) to reflect greater flexibility with
respect to uses of the I Channels, such as sub- and superchannelization, provision for point-to-multipoint
transmissions, and swapping of I channels between licensees.  We see no reason to disallow swapping of the
I Channels where we allow swapping of 6 MHz channels.  In response to concerns expressed by some
commenters, we reiterate, as reflected in our amended rules, that use of any specific 125 kHz channel is
completely at the discretion of the licensee, who remains licensed for, and whose main station is associated
with, that particular channel.  Moreover, such use may encompass swapping of I Channels between licensees,
and leasing of I Channels to a wireless cable operator or another licensee in the market.  We also find that the
Foundation's suggestion of allowing the content of those channels to be independent of that transmitted on
related 6 MHz channels is consistent with our flexible approach, and is a corollary to our elimination of the
requirement that each 125 kHz channel be used solely in conjunction with its specifically associated 6 MHz
channel.

    60.  Further consistent with our flexible approach, we deny CTN's request to reallocate all of the
125 kHz channels to ITFS and to use them solely for response transmissions.  As we stated in the NPRM with
respect to a similar proposal similar, we believe that such a reallocation and the ensuing complications are
unduly restrictive and counter-productive.  Moreover, allowing the I channels to be used for point-to-
multipoint transmissions promotes greater options for two-way system design and more efficient use of the
spectrum, as described above.  Where the I channels are used for point-to-multipoint transmissions, they will
be afforded interference protection in the same manner as other point-to-multipoint MDS and ITFS facilities
including adjustment of the protection ratios for bandwidth.  A licensee who wishes to use its associated I
channels for downstream transmissions should file with the Commission a modification application, using FCC
Form 331.  In the modification application, the licensee should state that it is applying for authority to use the
I channels for downstream transmissions, and specify which of its associated I channels it intends to operate
in that manner.  Specific instructions for filing the application will be set out in a Public Notice prior to the
date such applications are accepted for filing.  However, we note here that these modification applications will
be considered minor changes for I channels associated with ITFS stations, including ITFS stations licensed to
wireless cable entities pursuant to Sections 74.990-92 of the Commission's Rules, in order to enhance
flexibility by avoiding relegation of the filing of such applications to filing windows.  While applicants for
minor changes to ITFS facilities normally are not required to prepare interference showings or serve them on
potentially affected parties, we will require preparation and service of interference analyses by ITFS licensees
who seek to use their associated I channels for downstream transmissions, particularly in light of the potential
for having I channels with upstream and downstream transmissions on adjacent channels within a market or
on cochannels in adjacent markets.  Finally, for the same reasons that we decline CTN's request to render
low power boosters secondary, we also deny Maryland's request that we mandate that any non-ITFS use of I
channels licensed to an ITFS entity be secondary to ITFS use.

    E.   Application Processing Issues

    61.  In the NPRM, we tentatively rejected  the automatic grant proposal made by Petitioners in
which the Commission would grant without review any unopposed two-way license application after a 60-day
comment period.  Instead, we proposed to adopt a system under which the staff would review the filed
applications and issue a grant or denial.  We were concerned that Petitioners' proposed process would not allow
a sufficient opportunity for either interested parties or for the Commission to review applications and, where
necessary, to evaluate the potential for interference to existing sites.  A number of commenters, both ITFS and
MDS parties, have raised concerns that this approach will unnecessarily delay the introduction of two-way
service and prove so cumbersome that such service may never be implemented.  Upon review of these
comments, we have been persuaded that failure to adopt an expedited processing system will be seriously
detrimental to the provision of two-way service.   Therefore, we have revised our proposed application
processing system, as discussed below, and will adopt a certification procedure that we believe will
dramatically expedite the licensing process. 

    62.  The certification procedure we are adopting is a modification of the automatic grant system
that was proposed by the Petitioners, which was discussed in the NPRM and on which we solicited comments. 
As such, adoption of it complies with the requirements of the Administrative Procedure Act ("APA") regarding
adequate notice "of either the substance of the proposed rule or a description of the subjects and issues
involved."  Courts have held that this notice requirement is satisfied where the final rule is a "logical
outgrowth" of the rulemaking proposal.  Moreover, notice has been held to be sufficient where the description
of the "subjects and issues involved" affords interested parties a reasonable opportunity to participate in the
rulemaking.  In this instance, we both solicited and received comments on the Petitioners' automatic grant
proposal.  A requirement that parties certify that their applications comply with the Commission's technical
and notice rules, and thereby take full responsibility for the accuracy and completeness of their applications,
is a logical requirement in an environment where the staff is not performing an in-depth review of the
applications.  This is especially appropriate where, as here, the consequences of an application containing
engineering errors include a complete and immediate shut-down of any site that causes interference to existing
or previously proposed sites.  Therefore, the certification process we adopt here is consistent with the
requirements of the APA. 

    63.  The process we adopt today for two-way applications represents a fundamental shift from the
Commission's traditional review function in MDS/ITFS licensing and from our review function in other areas
of MDS/ITFS licensing, for example in applications for new ITFS stations.  It will require increased diligence
by MDS and ITFS licensees in tracking and monitoring the impact of applications by other parties on their own
services.  However, we believe this new approach is needed to facilitate two-way service to the public and that
without it two-way service by MDS operators and/or ITFS licensees may not become a reality.  This approach
is consistent with methods we have adopted in other proceedings where similar certification procedures rely
primarily on the certifications of the applicants as the basis for the licensing system.  However, this approach
is not necessarily appropriate for all services.  MDS and ITFS licensees have a long history of mutual
cooperation in their operations.  The realities of their operations compel such cooperation.   An MDS operator
trying to run a system across its BTA must cooperate with the various ITFS licensees in its BTA.  Likewise,
many ITFS licensees depend on the compensation paid by their local MDS operator to make their own systems
a reality.  Therefore, the viability of the services depends on the parties working together in good faith, a
situation which reinforces the appropriateness of a certification system in this context. Furthermore, MDS is
a subscription service, only reaching paying subscribers.  Unless it can provide reliable and interference free
service to those subscribers the MDS operator will be out of business.  We believe the imperative to provide
such reliability, in the face of a shut-down threat should interference occur, will compel honest and reliable
certifications.  Neither the  history of cooperation like that between the MDS/ITFS services nor the same type
of business imperatives faced by those services necessarily exist in other services.  Therefore, this licensing
model may not be appropriate in other areas despite its suitability here.  We also believe that our existing
sanctions for misrepresentation, including designation for hearing and license revocation, will protect the
integrity of the certification process.

    64.  We note here, however, that no changes have been made in this proceeding to Sections 74.901,
74.913, and 74.932 of our Rules which would modify the basic eligibility requirements or responsibilities of
ITFS licensees.  Similarly, no changes have been made in this proceeding with respect to Section 74.990 of our
Rules, pertaining to the use of available ITFS frequencies by wireless cable entities and, therefore, no changes
have been proposed to Section 74.990(e), which will govern the preferences between mutually exclusive ITFS
licensees seeking two-way authorization and MDS applicants for vacant ITFS channels.

    65.  The procedure we adopt will use the rolling, one-day filing window discussed in the NPRM
to govern the filing of MDS/ITFS applications for response station hubs or boosters.  Each applicant will have
to provide interference protection to all facilities existing or proposed prior to the filing of its application, but
its application will take precedence over all subsequently filed applications.  As suggested by the Petitioners
in their initial request for rulemaking and reiterated in their comments, applications filed on the same day will
not be treated as mutually exclusive by the Commission and it will be the responsibility of the parties to resolve
any conflicts.  Because parties will be unable to offer reliable service without resolving such conflicts, we
believe the incentive to reach a resolution will be so great that Commission involvement will be unnecessary
to resolve disputes. 

    66.  The applicant will be required to certify that it has met all requirements regarding interference
protection to existing and prior proposed facilities. The applicant will also be required to certify that it has
served all potentially affected parties with copies of its application and with its engineering materials.  The
engineering analysis must comply with the methodology set out in Appendix D.  The applicant must also certify
that it has obtained any necessary consent letters in lieu of interference protection.  Any application that does
not contain the proper certifications will be dismissed with prejudice and will lose its priority over subsequently
filed applications.  

    67.  The Commission will rely on the applicant's certifications in issuing licenses and will not
conduct an independent engineering review of each application filed.  The applicant will only be required to
file the application form with the Commission.  However, in the interest of making sure that engineering
information is available to all present and future affected parties, applicants will be required to provide copies
of their applications, with all of their engineering materials, in both hard copy and on disk, to the 
Commission's contractor for public service records duplication, International Transcription Services, Inc.
("ITS"), 1231 20th Street, N.W., Washington, DC 20036 and to certify on their application they have done
so.  Because the ready availability of complete applications to interested parties is essential to the functioning
of the application processing system, failure to certify that the application and supporting material have been
provided to ITS will result in dismissal.  

    68.  In order to monitor applicant compliance with our Rules and to protect the integrity of the
certification process, the staff will conduct random audits, either prior to the expiration of the 60 day petition
to deny period, described below, or after a license has been issued in reliance on a certification.  In the event
that an audit reveals that an applicant improperly certified or that an application is incomplete or contains a
material error, the staff shall dismiss the application or revoke the license.  In addition, if there is evidence that
a certification was made in bad faith, we delegate to the Mass Media Bureau the authority to impose a
monetary forfeiture or it may refer the matter to the Commission for designation for hearing.

    69.  The staff will review applications to make sure all required materials are included, excluding
the interference analysis submitted to ITS.  Complete applications filed with the proper certifications will be
placed on public notice without further review.  As we stated in the NPRM, we believe placing the applications
on public notice without prior staff interference analysis will serve to speed the review process by making the
relevant data available to all interested parties as quickly as possible.  Parties will have 60 days from the date
of the public notice to file petitions to deny against the application.  Due to the complex nature of the
engineering matters, we believe a 60 day petition to deny period is more reasonable than the usual 30 day
period.  If no petitions to deny are received, the application shall be granted.  However, after a complete and
properly certified application is granted, if a new facility operated pursuant to that grant causes unauthorized
interference to any protected facility it must immediately cease operations, regardless of whether any petitions
to deny were filed against the application during the application process.  The burden of proving that a two-way
facility is not causing unauthorized interference lies on the two-way licensee following the filing of a
documented complaint of interference by an affected party.  

    70.  In the NPRM, we expressed concern that ITFS licensees would not have adequate time or
resources to evaluate a two-way applicant's proposed service plan.  We were concerned that this would occur
because of the limited technical, legal and financial resources of educational institutions.  However, a number
of commenters, including ITFS licensees, stated that the Petitioners' automatic grant proposal contained
adequate safeguards to protect ITFS licensees.  These commenters believed that the notice provisions
contained in the proposal, coupled with the requirement that a two-way system immediately cease operation
in the event of interference to another party, discussed supra, would protect the interests of ITFS parties.  We
believe that the certification process we adopt here, which is very similar to the automatic grant procedure
discussed in the NPRM, provides equal protection.  The combination of service requirements, staff audits and
the potential for punitive actions in response to applicant misconduct, along with the requirement for automatic
shut-down in the case of interference, provides sufficient protection to the interests of ITFS licensees.

    71.  As discussed in the NPRM, it is likely that a large number of applications will be filed once
the new rules become effective and that many of the applications submitted at that time may conflict with others
filed simultaneously.  In order to smooth the transition to the rolling one-day filing window application
processing system, we are adopting a special one-week initial filing window, the opening of which will be
announced by public notice.  All applications filed during that week will be deemed filed as of the same day. 
Following the publication of a public notice announcing the tendering for filing of applications submitted during
that window, applicants would have a period of 60 days to amend their applications to resolve conflicts,
provided such amendments do not result in any increase in harmful interference to any previously proposed or
authorized station (including facilities proposed during the window), absent consent of the applicant for or
licensee of the station that would receive such interference.  During this 60-day period, no additional
applications could be filed, affording those who filed during the one-week window an opportunity to resolve
any conflicts without fear that, during the pendency of settlement discussions, third parties will propose
facilities that will have to be protected.

    72.  At the conclusion of that 60-day period, we will release a public notice of the acceptance for
filing of all applications submitted during the initial window, as amended during the 60-day period.  Interested
parties will then have 60-days from the date of that public notice to file petitions to deny.  Following the 60-day
period, all properly certified, unopposed applications shall be granted.  On the 61st day after the date of the
second public notice, the rolling one-day filing window will be in effect.

    73.  We believe our adoption of the one-week initial filing window will lessen the burden on all
affected parties, including the Commission's staff, during the first round of application filing.  We also believe
that providing parties with an initial 60-day period during which they can resolve any apparent conflicts and
then amend their applications without prejudice will serve to expedite service to the public by allowing parties
to resolve their differences without the need to seek Commission review through the petition to deny process.

    74.  In the NPRM, we solicited comment on whether an applicant who has obtained authorization
for two-way service should be permitted to switch from common carrier to non-common carrier service and
back without seeking subsequent authorizations.  In order to be eligible for this type of flexibility, an
applicant would have had to have requested it at the time it filed its application.  We also sought comment on
whether operators should be required to give the Commission notice when they are switching back and forth
between common carrier and non-common carrier service, even if prior approval is not required.  What little
comment we received on this subject was supportive of providing the requested flexibility.  Because we are
attempting to provide the maximum possible flexibility to two-way service, we will permit licensees  to switch
from common carrier to non-common carrier service and back without seeking subsequent authorizations. 
However, in keeping with our oversight functions, we will also require such licensees to provide the
Commission with 30-days advance notice of such changes.

    F.   Proposals and Issues Primarily Involving ITFS

    75.  Section 74.931 of the Commission's Rules describes the purpose and permissible service of
ITFS stations, and also sets forth the minimum ITFS programming requirements for ITFS licensees.  ITFS
stations are operated by educational organizations and are "intended primarily to provide a formal educational
and cultural development in aural and visual form," to students enrolled for credit in accredited secondary
schools, colleges and universities.  Currently, section 74.931(e)(9) specifies that an ITFS licensee who leases
excess channel capacity to a wireless cable operator must provide a total of at least 20 hours per channel per
week of ITFS programming on its authorized channels.  ITFS licensees in such lease arrangements also retain
the right to recapture "an average of an additional 20 hours per channel per week for simultaneous
programming on the number of channels for which it is authorized."  In addition, Section 74.931(e)(9)now
allows an ITFS licensee to shift its required educational programming onto fewer than its authorized number
of channels via channel loading or channel mapping.  The licensee may further agree to transmission of
recapture time on channels not authorized to it but which are included in the wireless cable system of which
it is a part.

    76.  All of the commenting ITFS parties support the concepts and goals underlying the NPRM. 
Nonetheless, even within the ITFS community, the tenor of the call for rule changes differs dramatically
between some commenters.  Generally, these differences are reflected in the tension between allowing ITFS
licensees maximum flexibility in tailoring their relationships with wireless cable operators, and imposing ITFS-
protective lease restrictions designed to safeguard the primary educational purpose of the ITFS spectrum. 
The commenting parties, including ITFS entities such as CTN and NIA who tend to seek a structured and
protective approach towards use of the ITFS spectrum, generally are unified, however, in acknowledging the
symbiotic relationship between wireless cable operators and most ITFS licensees.  CTN recognizes that the
Commission's policy on leasing ITFS spectrum to wireless cable operators is based on the financial benefits
that ITFS entities acquire in such arrangements, and states that the policies permitting these benefits should
be preserved.  While asserting that ITFS licensees should not be required to lease excess capacity for
commercial use, NIA nevertheless observes that if ITFS channels are leased for commercial two-way offerings,
there could be "substantial new revenues to be shared with ITFS."  Other ITFS parties discuss more
specifically the benefits to ITFS licensees from leasing excess capacity to wireless cable operators.

    77.  In the NPRM, the Commission asserted the belief that enhancing the competitive viability of
wireless cable service through maximization of flexibility and service offerings promotes the underlying
educational purpose of ITFS.  Indeed, the growth of wireless cable has led to the continued development of
ITFS by supporting and funding approximately 95 percent of all new ITFS applicants.  As the Commission
has stated, "revenues are key to this ITFS-MMDS partnership.  Leasing channel capacity . . . generates
revenues that may be vital to the continuing operations of authorized ITFS systems, to the successful
deployment in many markets of ITFS service, and to the service's public interest benefits."  By our actions
here, we intend to balance the maximization of flexibility for all MDS and ITFS applicants, licensees and
operators with the need to accommodate ITFS growth where new uses or needs may be unforeseen now but
may arise later, or where the ITFS licensee's relationship with the wireless cable operator ends.

         1.   ITFS Programming Requirements

    78.  In the NPRM, the Commission sought comment on several issues related to the question of
whether to change our ITFS programming requirements in light of the use of digital technology by ITFS
licensees.  It asked whether there should be different rules depending on whether the wireless cable system
employs digital or analog transmissions, or some combination of both.  It further asked whether our existing
program content requirements should be retained or whether they should be modified.  Specifically, the
Commission sought comment on whether data transmission and voice transmission should count toward the
fulfillment of minimum programming requirements, and if they were to count, how they would be measured. 
The Commission also welcomed suggestions on whether education-related upstream transmissions should be
applied towards satisfaction of minimum ITFS programming requirements, and, if so, how they should be
measured for that purpose.

    79.  The Joint Statement takes positions on many of the issues relating to ITFS programming and
content requirements on which we sought comment.  While proposing to retain the current minimum ITFS
programming requirements regardless of whether analog or digital transmissions are utilized, the Joint
Statement provides that each ITFS licensee utilizing digital transmissions, shall, at a minimum, have the right
to use 25% of the capacity of its channels.  Of this 25% of capacity, at least 5% would be absolutely
reserved for immediate ITFS usage and ineligible for leasing, and the licensee also would be required to
maintain the ability to recapture for the transmission of ITFS programming at least an additional 20% of the
capacity of the channels it leases.  To the extent that the Joint Statement and its supporters represent an
agreement by most of the parties in the wireless cable industry and MDS and ITFS services, we have accorded
it deference in formulating our policies.  Nonetheless, while we find some of its approaches sound, as
elaborated upon below, we find some of its provisions unworthy of adoption.  Thus, notwithstanding the
Joint Statement's self-characterization of its "series of compromises" as "inextricably intertwined," as well as
its plea that we adopt it "en toto without change," we will adopt some of its resolutions and modify or reject
others.

         a.   Redefinition of Eligible Content

    80.  We received several comments on how to change the educational content requirements of
Section 74.931, and these comments unanimously supported the proposal that spectrum usage beyond video
programming should be eligible to satisfy ITFS educational usage requirements.  For example, the Bay Area
Consortium suggests that transmissions, including Internet and other interactive services, should qualify as
fulfilling educational usage requirements as long as the use is part of an academic program for students enrolled
in an accredited institution, and within the ITFS licensee's reasonable judgment is directly related to the
education of students.  HITN proposes that educational usage requirements should be defined with respect
to "any transmissions originated or controlled by the ITFS licensee which are used to further the educational
objectives of the ITFS licensee."  In addition, HITN contends that qualifying educational service should not
be limited to that offered by accredited institutions.  HITN suggests that limiting eligible educational service
providers to accredited institutions deprives populations of educational techniques such as distance learning,
continuing education, ESL instruction, refresher courses, and "life long learn[ing]."  We disagree with HITN. 
Accredited institutions can and do provide such useful educational techniques, and requiring that a qualified
licensee be an accredited institution provides greater certainty of the integrity of the licensee's educational
function.  The accreditation of the appropriate state department of education or national accrediting
organization is uniquely geared towards recognizing the educational institutions fit to meet those needs. 
Furthermore, accredited schools have been the intended users of ITFS since the origin of the service.  Thus,
we will keep intact our eligibility requirements of Section 74.932(a).

    81.  The Commission has long been loath to substitute its judgment for the judgment of educational
authorities concerning what precise ITFS usage is regarded as educational, where such usage otherwise
complies with Commission requirements that it be provided to students enrolled in accredited institutions. 
We believe that availability of advanced technologies dictates that it is now time to accord ITFS licensees
increased flexibility in determining which transmissions qualify as satisfying ITFS educational usage
requirements, so long as such transmissions are in furtherance of the educational mission of an accredited
public or private school, college or university, or other eligible institution, offering courses to enrolled
students.  Such uses may include downstream or upstream video, data and voice transmissions.  In addition,
while heretofore not qualifying to satisfy educational usage requirements, qualifying uses now may include,
but are not limited to, teacher conferencing, remote test administration, distribution of reports and assignments,
research towards and sharing works of progress in projects for courses, professional training, continuing
education, and other similar uses.  Furthermore, in light of the myriad of possible uses of the spectrum for
courses by accredited schools, we no longer need a separate rule pertaining to where transmissions are not to
on-campus receive sites.  Because we fully expect several qualifying transmissions to and from homes and
other off-campus sites, retention of such a rule would be unduly burdensome to ITFS applicants and licensees. 
We will amend Section 74.931 and other pertinent ITFS rules to reflect all of these changes.

    82.  We also will subject ITFS signal booster stations to educational usage requirements, in
conjunction with those to which main ITFS stations are subject.  High power ITFS signal booster stations
originating signals on ITFS channels are hardly distinguishable from main instructional television fixed
stations, and subjecting booster stations to educational usage requirements preserves the primary purpose of
ITFS by ensuring that licensees have no incentive to "crowd out" required educational usage on main
instructional television fixed stations by overlapping transmissions which otherwise would not be subject to
such requirements.  We note that, like main ITFS stations, educational usage requirements for h boosters may
be shifted off of the channels served by the booster.  Furthermore, boosters may satisfy these requirements
through retransmission of signals from the main ITFS station.  We will not, however, subject ITFS response
stations or response station hubs to educational usage requirements, because the ITFS licensee has no control
over which upstream transmissions would qualify to satisfy the requirements.  Moreover, the educational usage
requirements attached to an ITFS main station and booster station will be based on the number of channels
allocated to the main station, including channels which the licensee "turns around" for upstream
transmissions.  Nevertheless, as stated above, qualifying ITFS upstream transmissions may be utilized to fulfill
an ITFS licensee's educational usage requirements.

    83.  HITN recommends that ITFS licensees be permitted to satisfy educational usage requirements
by providing 20 hours per week of qualifying services "per 6 MHZ block" on their ITFS systems.  The Mass
Media Bureau found in Comband II, that it was useful where digital compression technologies are employed
to conceptualize a channel as a 6 MHz block, capable of being compressed into multiple "paths."  Henceforth,
unless otherwise specified in the Rules, a "channel" shall refer to any of the 6 MHz frequency blocks assigned
pursuant to Sections 21.901(b) and 74.902(a) of the Commission's Rules, and we will add definitions to
Sections 21.2 and 74.901 to reflect this clarification.  This clarification is a necessary frame of reference for
the sub- and superchannelization scheme that we set forth here, and where common parlance may refer, for
example, to a video programming path or data stream as a channel.  Thus, this clarification should encourage
certainty, preventing future confusion over what is a "channel."

         b.   Analog Programming Requirements

    84.  Commenters who addressed analog programming requirements unanimously believe that the
current programming requirements should be retained for ITFS licensees solely engaged in transmission of
downstream analog programming.  We agree, and we will impose no changes to programming requirements
where licensees solely utilize analog transmissions.  However, for some commenters there is still discord over
what the extent is of the recapture time requirement.  In the NPRM, the Commission rejected Petitioners'
proposed changes to Section 74.931(e) that sought to revise the absolute 20 hours per channel per week
recapture time requirement to provide that the ITFS programming requirements constitute a total of 40 hours
per channel per week, including both actual programming and recapture time.  Under the proposed changes,
if an ITFS licensee were to actually provide more than an average of 20 hours per channel per week of ITFS
programming, reserved recapture time would only need to make up the difference to achieve a total of 40 hours
per channel per week.  The Commission explained that while the recapture time requirement originally was to
bring the total, including actual programming, to 40 hours per channel per week, the Commission subsequently,
in the Wireless Cable Reconsideration Order, added the absolute 20 hour recapture time language in its
revisions to Section 74.931(e)(2).  While the Commission acknowledged the great value to wireless cable
operators of maximization of spectrum available for leasing, it also emphasized the primary educational
purpose of ITFS and the importance of maintaining sufficient capacity for programming by ITFS licensees
which fulfills that purpose.

    85.  Petitioners argue that in an analog environment, an absolute requirement for 20 hours of
recapture per channel per week deters investment.  BellSouth fears that under the Commission's
interpretation, recapture could continue until all of the excess capacity initially made available was recaptured,
presumably with no financial or operational detriment.  In contrast to these commenters, Mississippi ETV
sees no reason for us to adopt Petitioners' proposed requirement for 40 total hours per channel per week for
ITFS programming and recapture.  We agree with Mississippi ETV, for the same reasons presented in the
NPRM.  However,  we clarify that the 20 hours recapture time requirement is also a maximum over the
duration of the lease for systems that continue in an analog environment, unless the lease allows for more
recapture time.  The rules do not require that 20 hours always be reserved without accounting for the amount
of recapture already exercised.

         c.   Digital Educational Usage Requirements

    86.  We received extensive comment on the ability of ITFS licensees currently to meet
programming requirements, and on whether we should increase educational usage requirements when ITFS
licensees employ digital transmissions.  The overwhelming majority of commenters on these issues is in favor
of retaining the current minimum educational usage requirements in a digital environment.  One strain of
comment is represented by BellSouth's observation that "there is no direct correlation between technological
advancements and the need for ITFS programming."  BellSouth relies on Comband II, where the Mass Media
Bureau declined to increase ITFS programming requirements despite the increased capacity resulting from use
of Comband analog compression technology.  BellSouth reports that in some cases, it has entered into
channel lease agreements providing for ITFS airtime usage in excess of the minimum educational usage
requirements.  In other cases in BellSouth's experience, the ITFS licensee negotiated for benefits other than
airtime above the minimum required, such as increased compensation, construction of additional receive sites,
or furnishing of special equipment.  Wireless One observes that in many cases under the current rules ITFS
licensees are having difficulty fulfilling their programming obligations, and Wireless One maintains that
increasing educational usage obligations would help neither ITFS licensees nor wireless cable operators, and
in fact could discourage ITFS licensees from taking advantage of advanced technologies by instituting
unrealistic burdens upon them.  However, in contrast to most of the commenters on this issue, CTN insists
that educational usage requirements must be modified to reflect increased capacity arising from use of digital
technology, and argues that a proportionate increase in instructional usage is needed to prevent the dilution of
the instructional nature of ITFS channels.

    87.  Several commenters assume the posture reflected in the Joint Statement: that while the
educational usage requirements should not be changed, 25% of an ITFS licensee's capacity should be
immediately available to the ITFS licensee or subject to recapture.  While supporting the Joint Statement and
the overall 25% ITFS capacity reservation, Petitioners nonetheless respond to the arguments justifying a 25%
reservation as proportional to current requirements for educational usage, by noting that the 25% reservation
is more effective than in an analog environment in light of the efficiencies created through use of digital
compression techniques.  BellSouth, which operates digital video wireless cable systems in New Orleans and
Atlanta, "strongly opposes" the proposed 25% set-aside.  It argues that subjecting a full 25% of a licensee's
channel capacity to ITFS immediate use or recapture could have the unintended effect of encouraging many
operators to abandon their digital video plans and focus exclusively on less capacity intensive uses such as data
services, which in turn could undermine the plans of many ITFS licensees seeking to provide traditional video
services.  Instead, BellSouth is willing to support a reservation of 5% of the capacity of ITFS digital
channels.

    88.  BellSouth also "strongly objects" to the Joint Statement's proposal to set aside 20% of ITFS
digital capacity for recapture purposes beyond the 5% minimum retention amount.  BellSouth explains:

     An operator that places video programming or other content on capacity that is subject to
     recapture does so at the risk that this capacity could be lost down the road, potentially
     resulting in an operational and customer relations nightmare that could have serious financial
     repercussions.  A prudent operator either refrains from making substantial use of capacity
     subject to recapture, or factors these risks and uncertainties into such use.  Either way,
     capacity encumbered by recapture rights is inherently less valuable to the operator than
     unencumbered capacity, whether or not the ITFS licensee ever exercises its recapture rights. 
     As such, ITFS licensees necessarily will receive fewer benefits for encumbered capacity. . .
     .  This situation will only be exacerbated if recapture time is substantially increased.
     
BellSouth adds that if the Joint Statement's recapture provisions are adopted by the Commission, "the
complicated terms . . . would reduce the operational flexibility of educators and commercial operators, would
redirect limited resources from more productive efforts and, in the end, would preclude parties from agreeing
to terms that maximize desired benefits of ITFS and MDS partners."  The Bay Area Consortium observes
further that few ITFS licensees have completely developed their systems to fully utilize the recapture time
presently required under the Commission's rules, and argues that an increase in recapture time requirements
also would conflict with the Comband II precedent.  Region IV supports additional digital recapture rights
to allow for a total of four program tracks per four channel ITFS group, but states that requiring more would
undermine the incentive for wireless cable operators to digitize.

    89.  In light of the varied market strategies that different wireless cable operators will implement
in a digital environment, and likewise in light of the broad range of educational uses to which different ITFS
licensees will seek to devote their channels, it is not a simple matter to arrive at a "one size fits all" approach
towards minimum ITFS educational usage requirements and reservation of spectrum solely for instructional
purposes, whether immediate or future.  Therefore, because we seek to maximize the flexibility of educators
and wireless cable operators to design systems which best meet their varied needs, we will adopt ITFS excess
capacity leasing rules which best promote this flexibility while at the same time safeguarding the primary
educational purpose of the ITFS spectrum allocation.  After a careful review of the comments in this
proceeding, we decide that these goals are best harmonized where digital transmissions are utilized by
retaining the current 20 hours per channel per week educational usage requirements, adopting the Joint
Statement's proposed absolute reservation of a minimum of 5% of an ITFS station's capacity for instructional
purposes only, and eliminating requirements setting aside capacity for ready recapture by ITFS licensees.  This
5% reservation shall apply spectrally over the ITFS licensee's whole protected service area.  Therefore, a
minimum of 5% of an ITFS licensee's capacity is guaranteed to be available to the licensee immediately at all
times.  Eliminating recapture requirements eliminates the potential for uncertainty about which BellSouth
is concerned.  We emphasize that the 20 hours per channel per week minimum educational usage requirement
is independent from, but concurrent with, the minimum 5% capacity reservation; further, the reserved capacity
can be devoted to satisfying minimum educational usage requirements.  We will add provisions to Section
74.931 of the Commission's Rules to reflect these new standards.

    90.  We believe that taken together, these complementary standards are in the public interest.  In
retaining the 20 hours per channel per week requirement, we insure the immediate devotion of ITFS spectrum
to formal educational usage, and the provision by ITFS licensees of at least as much educational usage as they
provide under the current rules.  In addition, the Commission long has been concerned with providing for
expansion of ITFS service offerings.  While henceforth where digital transmissions are employed we no
longer will require reservation of recapture time, which heretofore has been the primary mechanism for
providing capacity to meet expanding needs, this minimum 5% absolute reservation of ITFS capacity should
embody the same balance which is the basis for recapture provisions; namely, maximizing the spectrum
available for leasing to wireless cable operators, while maintaining sufficient capacity for expanded educational
usage by ITFS licensees.  To what extent the minimum 5% reserved capacity actually is utilized by the
licensee, and whether such utilization is sufficient to meet the 20 hours per channel per week minimum usage
requirements, let alone provide for future expansion of service, will depend both on the digital compression
ratio employed by the licensee, and on the particular form of transmissions utilized by the licensee to meet its
usage requirements.  For instance, at a low (e.g., 2:1) compression ratio where the licensee is transmitting video
to satisfy its usage requirements, the licensee would need to reserve at least 6% of its capacity just to satisfy
its educational usage requirements, and this would not allow for any future expansion of service.  This
demonstrates that where a licensee utilizes a low digital compression ratio, it may need to reserve more than
5% of its capacity in order to fulfill the 20 hours per channel per week bedrock educational usage requirement. 
However, at a 5:1 ratio and reserving just 5% of its capacity, the licensee would both be able to fulfill its 20
hours per channel per week usage requirements, and provide for more room to expand than is provided for by
our current recapture rules.

    91.  Thus, depending on the form of the transmissions and the compression ratio employed, a 5%
spectrum reservation may lead to some spectrum, beyond that necessary to meet educational usage
requirements, being used for other purposes by the ITFS licensee or lying in wait for immediate usage upon
future need by the ITFS licensee.  Or, a licensee may need to reserve more than 5% of its capacity in order to
satisfy minimum educational usage requirements or to provide room for future expansion of services by the
licensee.  However, we believe that the combination of increasingly efficient compression techniques, coupled
with our adoption here of a broad definition of what content satisfies ITFS educational usage requirements,
will result in future growth of ITFS educational usage.  We also emphasize that an ITFS licensee may reserve
for itself in excess capacity lease negotiations more than the minimum required reservation of capacity, and
is free not to lease its excess capacity at all if it does not wish to do so.  We urge ITFS licensees to exercise
cautious judgment in lease negotiations pertaining to the amount of spectrum to be made available for future
educational needs.

         d.   Measurement of Educational Usage

    92.  We did not receive extensive comment on this issue, and the comments that we did receive did
not provide much by way of specificity.  Mississippi ETV suggests measuring data transmission on "an hour-
by-hour basis," and education-related upstream transmissions through "traditional logging," but provides no
further insights into these proposals.  Higher Education Alliance urges the Commission to find that
educational usage requirements are satisfied where Internet access is available "at ITFS receive sites during
the entire school day at a data transmission rate satisfactory to an ITFS licensee, together with a reasonable
expectation on the part of such ITFS receive sites that Internet access use will collectively amount to at least
20 hours per channel per week."  Petitioners express preference for measuring non-video educational usage
with respect to an amount equivalent to the current 20 hours per channel per week requirement; and with
respect to a requirement which instead would utilize a percentage of capacity gauge.  However, Petitioners
concede that both proposed requirements are difficult to measure, and conclude that at least for now, the
Commission should defer to good faith efforts by the ITFS licensee to comply with the requirements.

    93.  In addition, Petitioners "strongly oppose" time-of-day requirements.  They argue that when
the Commission repealed its former such requirements, the record at that time established that there were a
variety of legitimate uses of ITFS outside the mandated hours.  Petitioners further assert that college and
university students have been known to study at unusual hours.  Or, in order to conserve bandwidths, schools
may utilize their ITFS capacity at off-peak hours to download, using the Internet, educational material from
a central location to multiple schools, where such material will be stored on a local file server and accessed by
students the next day via an intranet within each school.  The Foundation challenges Petitioners' grounds for
opposing time-of-day requirements for ITFS educational usage, out of concern that unscrupulous licensees
would seek to satisfy all educational usage requirements between the hours of midnight and 6 A.M.  Rather,
the Foundation envisions that educational usage should be on a steady, 24 hour basis, and not relegated to
obscure times of day.  Consistent with the revised ITFS content requirements that we adopt in this
proceeding, which seek to fulfill our goal of according ITFS licensees maximum flexibility in determining
which uses of their spectrum enhance their formal educational mission, we decline to adopt time-of-day
requirements for measuring educational usage.

    94.  In the foregoing, we have retained two different but complementary requirements of ITFS
spectral usage: a minimum of 20 hours per channel per week for educational usage, and a minimum reservation
of 5% of a licensee's capacity that it may not lease.  As reflected in the comments of Petitioners and others,
both are difficult to measure in light of the varied forms that such usage can take.  We agree with those parties
commenting on this issue that at least for now, the best course is to rely on the good faith efforts of ITFS
licensees to meet the requirements set forth here.  We are not instituting any new, formal, proof of compliance
reporting submissions in this area.  However, under certain circumstances, ITFS licensees may bear the burden
of proving compliance with these requirements, such as a Commission audit.  In responding to audits, licensees
must be ready and able to describe and document how they complied with these requirements.  We find that
this approach to enforcing the minimum amounts of educational usage and absolute capacity reservation
required of ITFS licensees utilizing digital transmissions will preserve the formal educational goals which
underlie ITFS.  Moreover, as suggested by Petitioners, if we find that experience dictates the necessity for
a more structured mechanism for measuring compliance, for instance in order to curb abuses and/or to promote
certainty, we can revisit this issue in a future rulemaking proceeding.

                       2.   Channel Loading, Shifting and Swapping

    95.  In the NPRM, the Commission advanced Petitioners' proposal to amend Section 74.931(e)(9)
to allow ITFS licensees, at their sole discretion, to satisfy their educational usage requirements on other
channels within the wireless cable system ("channel loading"), and not mandate that licensees meet these
requirements using at least one of their own channels ("channel shifting.).  Petitioners promoted this proposal
as being of utmost importance to construction of two-way systems.  Petitioners also propose that ITFS
licensees be allowed to trade some or all of their licensed spectrum for spectrum licensed to MDS operators
("channel swapping.").  Petitioners anticipate that system developers will attempt to utilize contiguous 6 MHz
channels for two-way services in order to minimize the amount of spectrum that would be lost to the proposed
spectral mask whenever a return path is adjacent to a downlink channel.  Furthermore, depending on the
demand for two-way services, entire ITFS channel groups may need to be devoted for return paths.  The
Commission described how this channel "shifting" proposal would be the next step in a progression of rule
changes that have afforded ITFS licensees increased flexibility in the implementation of their minimum
educational usage requirements.  The Commission found this progression consistent with the view that "it
is most practicable to view a licensee's group of four ITFS channels as an integral constituent of a market-wide
set of channels."

    96.  The Commission inquired regarding what restrictions on channel shifting, if any, should be
adopted.  Responding to comments received leading up to the NPRM, the Commission further proposed
to allow the trading of channels between licensees, channel "swapping."  The Commission also solicited
comment on the effects of allowing complete flexibility in the number of channels "turned around" for return
paths, and on whether we should require ITFS licensees to retain one or more channels for downstream
transmissions and the ramifications of such a requirement.  Finally, the Commission welcomed further
proposals for providing flexibility in usage of ITFS channels while ensuring that ITFS licensees are not
deprived of capacity for downstream programming.

    97.  The Joint Statement addresses all of these issues.  It supports channel shifting, so long as the
educational usage is on another ITFS channel within the same wireless cable system.  It would permit any
ITFS licensee to swap channels with any other ITFS or MDS licensee in the 2.5 GHz band operating in the
same geographic area, and calls for expedited consideration by the Commission of channel swap
applications.  Furthermore, it provides that each ITFS licensee leasing channels to be used for return paths
shall be required to maintain at least 25% of its licensed channels to be used for downstream transmissions both
during the term of the lease and following termination of its leasing arrangement.  The general concepts of
channel loading, shifting, and swapping similarly are supported by several commenting parties who do not
expressly endorse the Joint Statement; in fact, very few commenters express any opposition to these general
concepts.  With the exception of our channel loading rules and intra-ITFS channel swaps between licensees
utilizing analog transmissions only, the concepts which we permanently adopt in this section apply only to
licensees utilizing digital transmissions, leasing excess capacity to an operator which utilizes digital
transmissions, or swapping channels with a licensee which utilizes digital transmissions.

         a.   Channel Loading

    98.  In the NPRM, the Commission revisited its channel loading rules because, in the ITFS Channel
Loading Order, we provided that the channel loading rules adopted there would remain in effect until the
Commission assessed the impact of digital compression on MDS and ITFS in a future notice and comment
rulemaking proceeding.  The Commission recognized in the NPRM that the continued allowance of channel
loading is "an almost necessary component" of the scheme to devote significant blocks of the MDS and ITFS
spectrum to return paths.  While expressing the belief that our channel loading rules have provided additional
much-needed flexibility to ITFS licensees and wireless cable operators, and proposing to retain the rules, the
Commission requested that interested parties comment on whether the rules have been beneficial to ITFS
licensees and wireless cable operators, or whether they have been detrimental.

    99.  Those parties commenting on our channel loading rules unanimously support their retention,
and we shall do so as modified below.  Petitioners believe that, consistent with promoting ITFS licensee
flexibility, the Commission should eliminate the portion of Section 74.931(e)(9) that requires each ITFS
licensee engaged in channel mapping or channel loading to preserve the ability to transmit all of its ready
recapture time simultaneously on the number of channels for which it is licensed.  "Simply put, the Commission
should defer to the local educator to determine the best method for scheduling the capacity available for
recapture."  BellSouth echoes Petitioners' request, and adds that the simultaneous recapture provision
"unnecessarily requires educators to set aside limited resources for unlikely contingencies," resulting in
devaluation of the spectrum and a lost opportunity cost to the ITFS licensee.  We agree with Petitioners and
BellSouth for the reasons advocated by them, and we note that with our abolition in this proceeding of
recapture requirements where the ITFS licensee employs digital technology, there would be much less occasion
for invoking the simultaneous recapture rule anyway.  We will amend Section 74.931(e)(9) to reflect its
elimination.  Furthermore, in light of our broadening in this proceeding of eligible educational usage for all
licensees, regardless of what technology they utilize, we clarify that to the extent the ITFS Channel Loading
Order is concerned with the time of day of loaded usage, these concerns no longer apply.  In accord with the
ITFS Channel Loading Order, however, we reiterate that channel loading remains permissive only, and not
mandatory, for all licensees, regardless of whether they utilize analog or digital transmissions.

         b.   Channel Shifting

    100. The overwhelming majority of commenters on this proposal wholeheartedly support it. 
BellSouth states that channel shifting offers considerable benefits to licensees and operators even when
downstream-only digital services are offered, and is particularly critical to maximizing spectrum efficiencies. 
For example, BellSouth describes how channel shifting will allow ITFS usage to be grouped with all other local
content in each market, permitting use of remote encoding, compression, encryption and multiplexing systems
in each market.  These systems, in turn, reduce costs and network complexity, and improve reliability and
efficiency of spectrum use.  BellSouth also, like several other commenters, emphasizes that channel shifting
must be voluntary.  Higher Education Alliance supports channel shifting so long as the licensee's "legitimate
expectation of renewal" is not adversely affected by the fact that none of its required educational usage was
transmitted on its own licensed channels.  As summarized above, the Joint Statement is supportive of channel
shifting so long as the usage is shifted onto channels licensed to other ITFS entities.

    101. We are amending Section 74.931(e)(9) to permit maximum flexibility in channel shifting for
an ITFS licensee which itself utilizes, or leases excess capacity to a wireless cable operator which utilizes,
digital transmissions.  Such flexibility encompasses the right of an eligible ITFS licensee to shift its required
educational usage onto any other channel(s) within the same wireless cable system, regardless of whether
licensed to an MDS or ITFS entity.  As the Commission expressed in the NPRM, channel shifting greatly
assists in assembling the contiguous frequency blocks which are essential to a two-way architecture.  We
further hope that the flexibility we accord to ITFS licensees to lease their channel capacity, along with the
maintenance of minimum ITFS educational usage requirements, also encourages educators to apply for new
ITFS stations and leads to more educational usage.  We believe that such benefits of allowing eligible
licensees maximum flexibility outweigh any issues relating to licensee control, and we emphasize that an ITFS
licensee's decision to enter into a channel shifting arrangement is completely voluntary.  In the event that an
ITFS licensee is dissatisfied with the transmission of its educational usage over others' channels, we expect the
wireless cable operator to work with the licensee in good faith to resolve the conflict.  Given that some or all
of the ITFS licensee's channels may have been turned around for upstream transmissions, for example,
returning those channels to downstream transmissions may be extremely disruptive to the two-way system.  
However, we will entertain complaints where the downstream channels devoted to ITFS educational usage are
subject to harmful interference such that the ITFS licensee cannot meet its service obligations.  In fact, the
pursuit of complaints under such circumstances is consistent with the ITFS licensee's responsibilities.

         c.   Downstream Channel Reservation

    102. In the NPRM, the Commission solicited comment on proposals that each ITFS licensee be
required to preserve at least one downstream channel, and that each ITFS licensee devote at least half of its
capacity for downstream use.  Of the few comments that we received on this issue, the majority favors a
mandatory preservation of one downstream channel.  Wireless One, for instance, believes that it should
alleviate concerns over how ITFS entities will be able to continue operations after terminating their relationship
with a wireless cable operator.  Higher Education Alliance likewise supports the required preservation of one
downstream channel per each ITFS licensee, though it diverts from the Joint Statement's similar position by
allowing that the channel need not necessarily be from amongst the licensee's own channel group.  The
Foundation, which was the original proponent of the half-capacity downstream preservation, reiterates that
position.  The Bay Area Consortium, on the other hand, generally "opposes the proposals discussed in the
[NPRM] which would dedicate specific channels to upstream or downstream use."

    103. We are adopting the Joint Statement's proposal, as modified by the Higher Education Alliance
comments, and we are adding appropriate provisions to Section 74.931.  Specifically, each ITFS licensee
leasing channels to be used for return paths shall be required to maintain at least 25% of its capacity to be used
for downstream transmissions both during the term of the lease and following termination of its leasing
arrangement.  This 25% of capacity downstream preservation need not be over the licensee's own licensed
channels.  We believe that this solution provides maximum flexibility in usage of the channels within a wireless
cable system, while at the same time safeguarding the continued reservation of spectrum for downstream
transmission of ITFS educational programming so that the licensee can continue to deliver such programming
if its relationship with the wireless cable operator ends.  In order to provide additional safeguards of the ITFS
spectrum allocation, we stipulate further that in the event this relationship ends, the wireless cable operator
must return to the ITFS licensee unfettered use of as many 6 MHz channels as are authorized to the licensee;
only 25% of these channels, however, must be devoted to downstream transmissions.  Finally, when none of
these returned channels are from the licensee's originally licensed channel group, the Commission will
expeditiously grant channel swap applications reflecting the channel return, shortly after mutual submission
of such applications by all relevant licensees.

         d.   Channel Swapping

    104. In the NPRM, the Commission solicited comment on whether ITFS channel swaps should only
be just between ITFS channels, or whether ITFS licensees should be able to swap their spectrum for channels
in the MDS band.  The Commission also sought input on related proposals, including a requirement that
wherever an exchange of ITFS channels is permitted, reimbursement of all costs of channel changes should
occur; and a reallocation counter-proposal that the Commission institute a five to ten year plan to convert MDS
channels 1, 2, and 2A from their current point-to-multipoint use to upstream multipoint-to-point transmissions,
leaving the rest of the ITFS and MDS spectrum for point-to-multipoint use.

    105. All of the comments that we received on channel swapping issues are in favor of the concept. 
Aside from its initial "refarming" plan, CTN merely comments in favor of channel swaps among ITFS
licensees.  However, most of those commenting on these issues indicate full support for swaps both between
ITFS channels, as well as between ITFS and MDS channels.  The Joint Statement seeks to limit swaps to those
channels in the 2.5 GHz band, but most of the comments do not contain this stipulation.  SWM supports
channel swaps so long as they are voluntary, and views them as a method to decrease the interference risks
attendant to two-way transmissions.  SWM also reiterates its cost reimbursement proposal on which the NPRM
sought comment.  Wireless One, one of a couple of commenters expressing support for SWM's cost
reimbursement proposal, adds that channel swapping, like channel shifting, will help to allow the wireless cable
operator and the ITFS licensee to group channel usage to their best advantage.

    106. In light of the overwhelming support for channel swapping and its obvious benefits particularly
where two-way transmissions are envisioned, the question here is not whether to allow it; rather, the focus must
be on the nature and breadth of the rules governing it.  We note that Part 21 of our Rules already allows within-
service MDS channel swaps.  We emphasize that channel swapping is completely voluntary, and we also
will allow nearly maximum flexibility in the types of swaps that may take place: First, parties may swap any
ITFS channels and parties may swap almost any ITFS and MDS channels in the same market or geographic
area.  Second, we do not limit swaps to channels within the 2.5 GHz band; rather, ITFS channels also may
be swapped with MDS channels 1 & 2.  Third, a licensee may swap as many or as few of its channels as it
chooses.  Furthermore, we specify that channel swaps represent a change in the licensee of the swapped
channels, and are not tied to the duration of any excess capacity lease or other agreement. This will provide
certainty both to wireless cable operators, that their systems will not be disrupted, and to ITFS licensees, who
can plan post-relationship issues accordingly, and with certainty that others' swaps also are permanent.  In this
regard, we agree with the Foundation's suggestion that "[i]f an ITFS channel is swapped for a channel which
is normally assigned to MDS/MMDS, the former MDS/MMDS channel should be regulated as an ITFS
channel, and vice versa."

    107. Because channel swapping is voluntary and its terms negotiable, contrary to SWM's proposal
we see no need to require that the wireless cable operator cover all of the costs of it.  However, we anticipate
that as the system coordinator, the wireless cable operator usually will be the proponent of the channel swap,
and an ITFS licensee requested to swap its channels is free to seek payment in its lease negotiations or
otherwise.  In addition, CTN has suggested that when accommodating channel relocations, exchanges, or
shared-time agreements, Section 74.902(d)(1) of the Commission's Rules should not apply.  While it is not
clear to which exact element of that rule CTN is referring, rather than carve out broad exceptions to the
application of the rule, we believe that the scenarios contemplated by CTN will be facilitated by amending the
rule to stipulate that a licensee initially must select its maximum of four channels from amongst the same
channel group, but that subsequently it may be licensed to channels within different channel groups through
Commission authorized channel swaps.

    108. While the Commission sought comment in the NPRM on the proposal to convert MDS
channels 1, 2, and 2A from their current point-to-multipoint use to upstream multipoint-to-point transmissions,
leaving the rest of the ITFS and MDS spectrum for point-to-multipoint use, the Commission tentatively rejected
the proposal, because it would artificially limit the amount of spectrum that could be used for upstream
transmissions and unnecessarily prevent ITFS licensees from using their own channels for upstream
transmissions.  For the same reasons cited by the Commission, the parties commenting on this proposal
unanimously support the Commission's rejection of it.  Some commenters also argue that the proposal would
harm existing licensees relying on downstream use of channels 1, 2, and 2A.  Based on the comments and
on our own further consideration, we see no reason to limit response channels to MDS channels 1, 2, and 2A. 
We also decline to adopt other proposals limiting the location of response channels.

    109. Regarding channel swap application and processing procedures, the few comments that we
received suggest that channel swaps be governed by current rules and procedures for formal license
assignments.  Commenters also urge that we adopt specific expedited procedures for processing assignment
applications filed pursuant to channel swap agreements.  We will implement simple procedures for channel
swap applications: Each licensee seeking to swap channels shall file a pro forma assignment application with
the Commission, attaching an exhibit which clearly specifies that the application is filed pursuant to a channel
swap agreement.  Because pro forma assignment applications typically are processed rapidly, however, we
do not believe that special expedited processing procedures are necessary at this juncture.

         e.   Effects on ITFS License Renewal

    110. Several commenters seek to impress upon us that it is important that we clarify that channel
shifting, in particular, will not constitute a basis for, or be a factor in, a license renewal proceeding.  The
Joint Statement also contains a provision to this effect.  This concern arises over possible effects of an ITFS
licensee not providing any educational usage over its own licensed channels, even if it satisfies its educational
usage requirements on other channels in the same wireless cable system.  BellSouth relies on notions of
fairness, arguing that "ITFS licensees should not be jeopardized because shifting has occurred in order to use
the technology more efficiently."  The Foundation presents a more dire observation, suggesting that ITFS
licensees will be unlikely to allow use of their channels for two-way operation "unless renewal expectancy is
assured."

    111. In the NPRM, the Commission stated its belief that consideration of renewal expectancy is
beyond the scope of this proceeding.  While we do believe that the issue of renewal expectancy in ITFS is best
to be considered fully in another proceeding, we also recognize that two-way system design may be based
largely on the implementation of channel shifting, and that wireless cable operators and their ITFS lessors may
be deterred from utilizing these efficiencies without assurances that doing so will not have an adverse effect
at the time the ITFS licensee seeks renewal.  In other contexts, we have assured ITFS licensees that so long
as they meet their overall educational usage requirements, they will not be penalized for not providing
educational usage on each of their authorized channels, where their scheme for meeting their requirements will
promote the wireless cable system in their market and prevent "'balkanization of the ITFS spectrum.'"  We
find it wise to provide similar assurances to ITFS licensees which employ channel shifting, which we have
described above as the next step in an increasingly flexible progression of rule changes concerning fulfillment
of minimum educational usage requirements.  Accordingly, we amend Section 74.93 to reflect that the fact that
an ITFS licensee utilizes channel shifting will not itself be considered adversely to the licensee in seeking a
license renewal.  However, we steadfastly maintain that any other consideration of renewal expectancy is
beyond the scope of this proceeding.  Furthermore, we note that we have struck the words "or otherwise" from
the language that we add to Section 74.931, because we also do not believe it appropriate in this proceeding
to evaluate what treatment channel shifting techniques should be accorded, for example, in initial licensing of
new ITFS stations.

         3.   Autonomy of ITFS Licensees and Agency Role

    112. When the Commission solicited comments in preparation for the NPRM, several of the ITFS
parties who commented at that time expressed concern that the proposed two-way scheme would threaten the
independence of ITFS licensees and their future ability to use spectrum capacity for instructional purposes. 
Some of those concerned commenters focused on the effect that the proposed rules could have on the
engineering autonomy of ITFS licensees.  Concerned commenters also identified issues relating to possible
encroachment upon the financial autonomy of ITFS licensees by implementation of the proposed two-way
framework.  Recognizing the symbiosis between the MDS and ITFS worlds, and the increasing entanglement
that they believed will result from wireless cable two-way operations, these commenters sought precautions
to ensure that no ITFS licensee would be forced to engage in two-way operations, and that those ITFS licensees
that do cellularize can continue to provide educational services should their relationship with their wireless
cable lessee end or should their wireless cable lessee become insolvent.  While the Commission, in the NPRM,
sought comment on the effects that cellularization would have on the engineering and financial autonomy of
ITFS licensees, we also acknowledged that any proposed solutions inherently would implicate the fundamental
question of what degree of oversight the Commission should maintain in regulating the wireless cable industry
and ITFS.  The Commission solicited views on this fundamental question, and on one of its principal offshoots,
the question of what impact the proposed two-way rules should have on the Commission's requirements
regarding excess capacity lease agreements.

    113. The comments that we received in response to the NPRM evince many of the same concerns
expressed by some of the ITFS commenting parties in earlier rounds of comment, and likewise are met with
opposing comments conveying responses comparable to those previously conveyed.  For example, the
Foundation argues that the need for safeguards over post-termination aspects of leases increases in a two-way
environment "which makes licensees depend more than ever on the facilities of third parties."  Wireless One
counters that threats to ITFS autonomy in a two-way system are minimal, because "[i]n reality, there will be
no greater dependence than exists currently, and that which exists currently was based on a multitude of
individual decisions made by ITFS licensees."  Similarly, while Petitioners reiterate that post-relationship
arrangements should be addressed by contract, not by regulation, in part because there is no "one size fits all"
approach and educators' needs will vary, the Foundation "could not disagree more."  CTN charges that "there
can be no dispute that it is the Commission's responsibility, rather than the responsibility of individual ITFS
licensees or wireless cable operators, to preserve the essential educational character of ITFS and to promote
its use consistent with the public interest."  Some of our decisions here, such as requiring ITFS licensees to
retain 25% of their capacity for downstream transmissions, and generally prohibiting involuntary modifications
to ITFS stations in a two-way environment, should help address some of the concerns of ITFS licensees
regarding their autonomy and ability to continue providing service should they no longer be in a relationship
with a wireless cable operator.  However, as our decisions below will show, while we will continue to require
certain provisions in excess capacity leases between ITFS licensees and wireless cable operators, and likewise
will continue to prohibit certain provisions, we believe generally that ITFS licensees  can -- and should -- in
their negotiations with wireless cable operators arrange for lease terms that best protect their own individual
interests and needs.

    114. As a starting point, we reiterate the ultimate safeguard of the autonomy of ITFS licensees and
their ability to maintain the provision of educational services.  The Commission declared in the NPRM: 

     Those ITFS licensees desiring to abstain from cellularization are free to deny efforts by
     wireless cable lessees to modify leases for cellularization, and ITFS licensees also may decline
     altogether to lease their excess airtime.  We emphasize that cellularization would be
     permissive only.  We will not authorize a two-way framework which involves the mandatory
     participation of any ITFS licensee.
     
The significant number of commenters addressing this directive unanimously support it.  Some commenters
ask that we endorse the closely related concept, as stated by the MDS Licensees, that "lessees may not compel
licensees without their consent to file for any of the new facilities made possible by the two-way proposal." 
We reiterate that only the licensee may file an application for a two-way facility or application to modify a
facility on the licensee's authorized channels, so it is impossible for any two-way facility license to be obtained
without that licensee's consent.  The Foundation seeks redress of a more subtle form of coercion of ITFS
licensees, specifically, that under the rules proposed in the NPRM, an ITFS licensee that offered high-speed
Internet service pursuant to a lease with a wireless cable operator would enjoy protected service area (PSA)
protection, but an ITFS licensee that provided exactly the same service on its own would not.  The Foundation
argues that the effect of this "anomaly" is to mandate the leasing of excess channel capacity if an ITFS entity
is to be able to operate with any assurance that it will remain free of interference.  In recognition of concerns
such as those expressed by the Foundation, we have decided to grant all ITFS licensees psa protection.

    115. Other commenters in addition to the Foundation seek to protect the rights of ITFS licensees
which do not lease excess capacity.  For instance, Higher Education Alliance states that the Commission's rules
must permit, and observes that the rules proposed in the NPRM appear to permit, ITFS licensees to implement
two-way services on their own.  It goes on to say that ITFS licensees  will provide such services to enhance
distance learning interactivity, provide students with high speed Internet access, or fill in downstream coverage
gaps.  HITN argues that the Commission recognize that many stand-alone ITFS providers offer a number
of telecommunications services which are not educational services, and that more ITFS providers will desire
to provide such services.  We reaffirm the ability of stand-alone ITFS licensees to provide communications
services that are not specifically educational over their frequencies, so long as they meet the educational usage
requirements set forth in our Rules. 

         a.   Engineering Autonomy

    116.  Petitioners concede that it is "inevitable" that MDS licensees and ITFS licensees in a market
all will lose some degree of autonomy when they choose in their own discretion to have their channels combined
into a two-way system, and they may find it impossible to return to their pre-lease configuration upon
termination of their lease.  Higher Education Alliance echoes Petitioners' observations, and adds that if the
prospect of two-way ITFS use is sufficiently attractive to an ITFS licensee, however, "the risk of not being able
to return to the status quo ante may simply be a price that is worth paying."  Nonetheless, we received
suggestions on how an ITFS licensee may be able to continue providing educational services should its
relationship with the wireless cable operator terminate.  One commenter proposes that we require site leases
to provide that the ITFS licensee can continue to operate its facilities from such locations upon reasonable
terms.  Another commenter concludes that if the excess capacity lease terminates, the ITFS licensee should
recover "full unencumbered usage of its originally licensed spectrum."  While we acknowledge that our
solution requires substantial foresight on the part of the ITFS licensee, we believe that these post-relationship
configuration issues should be arranged by the ITFS licensee in the course of negotiating the terms of its excess
capacity lease with the wireless cable operator.  We also agree with the commenters who recognize that our
requirement that each ITFS licensee retain 25% of its capacity for downstream transmissions will present
significant assistance to ITFS licensees in continuing to provide downstream educational services.

    117. Another issue related to engineering autonomy is the issue of licensee control.  Some
commenters specify that ITFS licensees must maintain independent control of all of their ITFS facilities and
licenses, whether or not they participate in the cellularized system.  It is axiomatic, as these commenters
suggest, that an ITFS licensee have ultimate control over its facilities and license.  While two-way services will
increase the entanglement of the wireless cable system operating environment, particularly when techniques
such as channel shifting are employed, nevertheless we anticipate that, given the system-wide coordination
necessary to successfully design and operate a two-way system, as well as the fact that the ITFS licensee must
initially consent to take part in cellularization, conflicts over control and use of ITFS facilities will be minimal. 
In addition, as the Commission has observed previously, "[o]peration of facilities by lessees is not necessarily
inconsistent with the performance of an ITFS licensee's responsibilities, and no . . . loss of control need occur
when an ITFS physical plant is leased from an MDS operator. . . .  [L]icensees will continue to be held
ultimately responsible for full compliance with . . . Commission rules."  We also will continue to review
excess capacity leases to ensure that they contain no provisions abdicating ultimate licensee control.  Therefore,
we are not concerned that an ITFS licensee's ultimate control over its facilities and licenses will be jeopardized
significantly by two-way operations.

    118. SWM additionally asserts that the ITFS licensee must at all times preserve "ultimate legal
control over broadcast and content of the specified bandwidth."  While we note that in the past, the
Commission has placed primary emphasis on a licensee's programming control, we believe that attempting
to measure a licensee's control over the content transmitted over its licensed bandwidth is an unduly difficult
standard to meet in an environment where, for instance, an ITFS licensee may shift all of its required
educational usage off of its own licensed channels, leaving control over the content transmitted over those
channels to the wireless cable operator.  Furthermore, with the provisions that we adopt for flexible alteration
between common carrier and non-common carrier service offerings, the issue of a licensee's control over content
on its authorized bandwidth may be rendered irrelevant, where the operator is providing service on a common
carrier basis.  We conclude that, particularly in light of the primary educational function of ITFS licensees,
where an ITFS licensee is not the source of transmissions over its licensed bandwidth, we will not regard the
ITFS licensee as having legal control over the content of such transmissions.  We believe that the originating
source of such transmissions should be regarded as having legal control over their content.  At most, an ITFS
licensee's legal control over content transmitted over its authorized bandwidth is a contractual matter between
the leasing parties.  Nevertheless, we strongly encourage ITFS licensees to incorporate into their excess
capacity leases provisions specifying that responsibility over the content transmitted by a lessee over bandwidth
licensed to an ITFS entity is borne by the lessee.  We do emphasize,  however, that control over and
responsibility for the content and amount of an ITFS licensee's educational usage is solely vested in the ITFS
licensee, no matter whose channels it uses to transmit the educational usage.

         b.   Involuntary Modifications

    119. In the NPRM, the Commission solicited comment on whether it should prohibit the filing of
involuntary modification applications.  The Commission asked commenters to recount the extent to which they
are currently employed, and to anticipate to what degree they likely would be utilized in a two-way digital
environment, and whether such utilization would constitute abuse of the mechanism.  The Commission further
asked whether it should restrict the scope of Section 74.986 of the Commission's Rules to involuntary
modifications that are consistent with downstream transmissions only.

    120. In their comments, Petitioners argue that the Commission "must take care to avoid empowering
any one licensee in a market with the ability to unreasonably frustrate the introduction of new technologies by
its neighbors," as, Petitioners believe, too often occurs under the current rules.  Petitioners assert that given
the ease of retuning ITFS and MDS transmitters to other frequencies in the 2.5 GHz band, the Commission
should coordinate the retuning of transmitters to other frequencies in the band at the expense of the proponent
of such retuning, when doing so promotes the introduction of advanced technologies in a spectrally efficient
manner and where "comparable facilities" in the 2.5 GHz band are available.  Petitioners note that the
Commission already requires ITFS licensees to make certain involuntary modifications "in order to promote
the most efficient use of the spectrum under certain circumstances," and likewise has required licensees in other
services to do so in a similar or more intrusive manner than retuning to other frequencies within the same
band.  Acknowledging that voluntary agreements certainly are to be promoted, Petitioners outline a three-step
process for handling retuning proposals.  Finally, Petitioners comment that it "is specious" to suggest that
the involuntary modification mechanism either has been abused, or will be abused upon implementation of two-
way digital services, because only a handful of such applications pursuant to Section 74.986 have been filed,
and the Commission apparently never has denied such an application.

    121. While not opposing the concept of involuntary retuning, the Foundation nonetheless points to
several flaws in Petitioners' proposal.  Some of these flaws include the lack of provisions for the affected ITFS
licensee to oppose retuning applications; the inefficiency of maintaining multiple mechanisms for involuntary
modifications; and the lack of provision for involuntary retuning of MDS channels.  We note that
Petitioners' involuntary retuning proposal is at odds with their initial emphasis that no ITFS licensee would be
required even to shift educational usage off of its own channels, let alone be forced to trade its licensed
frequencies, safeguards which received support from some commenters.  CTN opposes involuntary retuning
of ITFS stations on ITFS autonomy grounds, and, although our existing rules permit some involuntary
retuning, we agree with CTN that disallowing involuntary retuning modifications is another measure that will
protect the autonomy of ITFS licensees in a two-way environment.  In addition, because of the complex
interference environment inherent where there are two-way operations, we also will not grant involuntary
modifications under Section 74.986 in any market where response station hubs have been proposed or are
operating.  Such involuntary modifications may render it more difficult for a licensee to later modify its station
voluntarily than it would be had the involuntary modification never occurred.  Finally, rejecting the proposal
for involuntary retuning and discouraging many other involuntary modifications will keep us from getting more
involved in relationships between participants in the industry, at a time when we are taking measures to become
less involved in such relationships and attempting to let the market dictate outcomes where possible.

         c.   Financial Autonomy

    122. In the NPRM, the Commission recounted the concerns of several commenters at that stage of
the proceeding that ITFS licensees will be unable to sever their relationship with the wireless cable operator
and acquire the equipment to either continue cellular operations or return to non-two-way transmissions.  The
Commission sought comment on that matter and on what type of equipment  MDS lessees of ITFS channels
should be required to make available to the ITFS licensees upon termination of a lease.  The Commission
also solicited comment on what solutions, if any, it should implement to combat potential encroachment upon
the general financial autonomy of ITFS licensees resulting from a two-way framework.

    123. CTN reiterates its concern that dependence of ITFS licensees on wireless cable operators will
be fostered in a two-way environment, because the cost of installation and maintenance of two-way systems
is likely to be far beyond the means of ITFS licensees.  Such dependence also leads some commenters to
express concern regarding an ITFS licensee's welfare and continuation of operations should the wireless cable
operator become insolvent.  Some commenters propose as a solution the required establishment by two-way
wireless cable operators of a performance bond or escrow account, with sufficient funds to ensure the
uninterrupted operation of participating ITFS stations for a given period.  Opposed commenters argue that
any ITFS licensee is free to negotiate for a performance bond when it enters into the lease, but that it should
not be required and ITFS licensees should retain the flexibility to negotiate whatever consideration under the
excess capacity lease best suits their needs.  We agree with the opposed commenters' stance on this issue,
and believe that the same approach and rationale applies towards other proposals that would have transmission
systems transfer automatically to the ownership and control of the ITFS licensee upon termination of the
lease, or upon commencement of a lease term.

    124. Citing our Turner precedent, the NPRM asserted that the Commission consistently has
maintained that an ITFS licensee should be permitted to purchase the ITFS equipment necessary to maintain
its operation in the event the excess capacity lease is terminated.  However, in a two-way environment where
several licensees may be using common equipment, or where ITFS licensees may shift their required
educational usage off of their own channels, the application of the Turner principle is not as clearly defined
as it was at the time it was enunciated.  CTN argues that upon termination of a lease, an ITFS licensee should
have access to all equipment necessary for continued distribution of its signal consistent with that during the
lease term.  CTN further maintains that the Commission's policy should include reference to dedicated
(individual station) and common (shared by stations) equipment, or the equivalent thereof, and the parties can
negotiate more specific terms.

    125. We believe that the Turner principle is still good policy, in order to assure as seamless a
transition as possible for the ITFS licensee to continue providing educational services following termination
of the lease.  Furthermore, we agree with CTN's approach, and will require that each excess capacity lease
contain a provision assuring the ITFS licensee's right to purchase the actual equipment, or equipment
comparable to that, used by the ITFS licensee during the lease for educational purposes.  This means, for
example, that if the ITFS licensee was providing educational services during the lease period utilizing digital
transmissions, the wireless cable operator is not obligated to retain analog transmission equipment for ITFS
licensees seeking to return to traditional downstream analog transmissions.  In addition, as requested by CTN,
this required lease provision applies to dedicated or common equipment used for educational purposes.  By
specifying that this obligation can be fulfilled by providing the right to purchase comparable equipment, we
hope to ensure that service over the system is not disrupted when the wireless cable operator's relationship with
one licensee transmitting over shared equipment terminates, but the relationships with the other licensees
sharing the equipment do not.  Nonetheless, as further indicated by CTN, negotiations between the parties
to the lease still will be required to spell out the appropriate specific equipment that must be made available. 
Because provision for ITFS licensee access to purchase equipment upon termination of an excess capacity lease
is a longstanding requirement, we do not believe that our adaptation of the requirement here should conflict with
our decision to grandfather certain excess capacity leases.

         d.   Commission Role

    126. In the NPRM, the Commission invited comment on the degree of oversight that it should
maintain in regulating the wireless cable industry and ITFS.  The Commission described how in the past, it has
adopted rules and procedures to accommodate and protect what has been viewed as the special needs of
educational institutions and organizations, out of a belief that these entities should be treated differently in
many situations due to limited financial and staff resources, governmental constraints, and similar factors.  One
of these protections has been required review by the staff of ITFS excess capacity lease agreements, for overly
restrictive provisions affecting the licensee's rights and obligations and for compliance with the Commission's
leasing policies.  The Commission requested comment on whether parties should continue to be required to
file written agreements governing the ITFS licensee's lease of excess capacity on its channels.  Petitioners
"strenuously take issue" with the belief that ITFS licensees are incapable of protecting their own interests
without Commission micro-management. They assert that many ITFS licensees are major universities, state-
wide organizations, non-commercial broadcast licensees, or other organizations with resources that dwarf those
of their wireless cable lessees.  Petitioners believe that the Commission's well-meaning efforts to protect ITFS
licensees too often have had the unintended consequence of denying ITFS licensees flexibility to craft
contractual arrangements that best serve local educational needs, and that, as a matter of principle, the
Commission thus should refrain from dictating the provisions of ITFS excess capacity leases to the greatest
extent possible.  Some commenters, however, such as the Public Broadcasting Commenters, ask that the
Commission remain cognizant that ITFS licensees frequently find themselves in precarious financial positions
due to their being nonprofit entities.

    127. We have considered carefully the opposing viewpoints that have been presented to us: on the
one hand, that many ITFS licensees are well-funded and have "come of age"; on the other hand, that many still
have very limited resources, and often those that they have to devote to ITFS are obtained completely through
their excess capacity leases with wireless cable operators.  Because we believe that many examples supporting
both viewpoints exist, we find it still appropriate for us to maintain some degree of oversight regarding the
relations between the wireless cable industry and ITFS, albeit a limited role which allows for maximum
possible flexibility of the parties in establishing excess capacity lease provisions, while at the same time
ensuring educational use of ITFS and a licensee's ability to continue uninterrupted in that use should its
relationship with the wireless cable operator terminate.  In this regard, we will heed the prescriptions of the
numerous commenters who request that we continue to review excess capacity leases for provisions overly
restrictive of ITFS licensees and in order to police established safeguards, and require amendment of
noncompliant leases.  However, consistent with many of our decisions here regarding the substance of such
leases, we intend this review to be on a lesser scale than previously, and to be more deferential to the burdens
and benefits which constitute the agreement between the parties to the leases, and to allowing of flexibility in
implementation of two-way services.

    128. In the NPRM, the Commission also sought comment on a proposal, advanced by the
Foundation, that the Commission require that two-way digital applications and interference consents be
reviewed by legal and engineering counsel that do not represent commercial interests, and that these
independent advisors certify that in their professional opinion the submission will not harm future instructional
service.  The Commission noted that past attempts to require all leasing parties to hire separate counsel have
been declined by the Commission, having found it an unnecessary safeguard and relying instead on the staff's
review and monitoring of leases.  Seeing no reason to change position on this issue, the Commission
tentatively rejected the Foundation's proposal in the NPRM.  The Foundation continues to advocate this
proposal in its comments.  The Foundation argues that with the advent of two-way services, interference studies
will grow far more complex, and the motives for operators to "gull" ITFS licensees will expand even further
than today, when operators act on such impulses with some degree of frequency.  The Foundation further
asserts that the matter of interference consents is distinguishable from that of leases, because in contrast with
leases, the Commission has no formal mechanism for evaluating interference consents, and there are no rules
governing what interference can be accepted by licensees and what cannot.  The Foundation concludes that
adoption of its proposal is necessary "if the Commission's goal of protecting ITFS service is to be achieved."

    129. Petitioners reiterate their arguments in opposition that were recounted in the NPRM: namely,
that the proposal is inappropriate, and unworkable in that no one can predict the impact of an application or
consent on "future instructional service"; and that it is the licensee educators, not lawyers or consulting
engineers, who are in the best position to determine the educational needs of their community.  Region IV
contributes that "if the Commission were to begin dictating to ITFS entities which lawyers and engineers they
must use, the boundary of legitimate FCC oversight and supervision would have been obliterated."  While
we believe it wise for ITFS licensees to seek impartial review of applications and consents where resources
allow for such review, we agree with Petitioners and Region IV that ITFS licensees are best suited to decide
how to allocate their resources in this regard.  In addition, as stated above, we will continue to review excess
capacity leases with an eye towards provisions which are overly restrictive of the role of the ITFS licensee. 
Therefore, we continue to find the Foundation's proposal unnecessary, and we will not adopt it.

         e.   Grandfathering of Excess Capacity Lease Provisions
    
    130. The Joint Statement recommends that excess capacity lease agreements that provide for digital
usage and were entered into prior to release of this Order be "grandfathered for their duration."  Although
some commenters consider this proviso "critical," others, such as CTN, maintain that because many ITFS
excess capacity leases were negotiated before the parties understood the nature of digital service or had
considered the availability of two-way services, the Commission should adopt a policy that requires such
agreements "to be consistent with current rules rather than the rules in effect when the lease took effect." 
We will adopt a slightly modified version of the approach recommended by the Joint Statement, in recognition
of the fact, as described by Petitioners, that since no ITFS facility can be modified without the licensee
executing an application form, "every ITFS licensee will have an opportunity to consider its contractual rights
and obligations before technical changes are implemented, and can insist upon an amendment if necessary." 
In addition, because we are not changing our minimum educational usage requirements, grandfathering lease
agreements does not present a lost opportunity cost with respect to an immediate increase in educational usage
by ITFS licensees.

    131. We seek to ensure a transition as smooth as possible to two-way operations, and we believe
that effectively requiring amendment of numerous existing leases could prove unduly burdensome to ITFS
licensees and wireless cable operators who did not anticipate such changes.  In this regard, we are persuaded
by commenters who describe how having to go back and renegotiate excess capacity agreements will require
ITFS licensees to make other concessions that may seriously undermine their expectations and damage their
ability to provide educational services.  However, since the March 31, 1997 release of our Public Notice
announcing the filing of the petition for rulemaking which initiated this proceeding, no party can be heard
to argue that it did not have notice that ITFS/MDS two-way operations were anticipated in the not-too-distant
future.  Thus, any excess capacity lease entered into, renewed, or extended after March 31, 1997 is expected
to be brought into compliance immediately with all of the rule changes and policies that are adopted here,
as is each new such lease, renewal, or term extension from here onward.  Finally, we emphasize that we will
not adjudicate whether the provisions of any specific lease contemplated digital operations as a general matter. 
In the absence of resolution between the parties to the lease, we believe this issue to be a matter of contract law
properly heard before a state tribunal.

    132. In framing our policies towards grandfathering of certain excess capacity leases, we have
considered, and rejected, SWM's proposal that in order to protect the rights of incumbent ITFS licensees, the
Commission require that leases approved or submitted under the previous rules "be amended to make clear that
the wireless cable lessee and the ITFS licensee have together considered the rule changes adopted and made
any appropriate changes to lease terms, prior to the commencement of commercial operations on the
frequencies using cellularization, sectorization or differing channelization plans."  We also decline to adopt
any rules in response to HITN's comment that unless "expressly provided for" in the lease agreement, wireless
cable operators should be required to renegotiate agreements with ITFS licensees in order to obtain additional
capacity in a digital environment or to provide services other than downstream wireless cable video.  As
HITN itself states, and we reiterate, the "construction of existing agreements is a matter of contract law."

         f.   Length of Leases

    133. In the NPRM, the Commission solicited comment on whether to retain several present
requirements for excess capacity leases, including, inter alia, those dealing with length of lease.  The Joint
Statement urges that the Commission allow excess capacity leases of up to 15 years duration, provided that
any lease extending beyond the term of a licensee's authorization provides for termination of the lease in the
event the Commission denies the subject station's application for renewal.  Virtually all of the commenters
who address this proposal support it, and we are adopting it, permitting such lease terms subject to negotiation
by the parties.  In extending permissible excess capacity lease term limits to 10 years a few years ago, the
Commission recognized that "the wireless cable industry requires substantial equity investment in order to
become a viable competitor. . . .  We also realize that a potential financier is likely to exercise caution . . .
where there is uncertain long-term availability of the ITFS channels that provide the basic capacity for that
system."  As several commenters have persuaded us, the conversion to digital operations, whether two-way
or merely downstream, will entail a substantial increase in operational and infrastructure costs, and the
investment community will require even far greater comfort regarding the long-term availability of excess
capacity on ITFS channels.  In addition, we agree with the commenters who have suggested that a 15 year
lease term limit will help to place wireless cable on a more equal footing with its competitors.  Higher
Education Alliance, for instance, argues that 15 years is the customary period for traditional cable franchises,
so that extending the term limits here hopefully would enable wireless cable operators to access capital markets
that traditionally support wired cable.  Furthermore, as other commenters have described, a 15 year lease
term limit also will help provide greater certainty to ITFS licensees, which, for instance, may appreciate the
assurance of long-term, stable maintenance and operational support offered by a longer lease term.

    134. Because we find that these policies apply equally regardless of service offering, we reject the
Foundation's suggestion of maintaining the 10 year lease limit for downstream-only digital and analog systems,
while allowing a 15 year limit for two-way systems.  ITFS licensees concerned by lease limits longer than
10 years are free to negotiate for lease limits of 10 years or less.  Finally, as the Commission stated in the ITFS
Window Filing Order, the existence of a lease "in no way affects the duration of that license or the licensee's
use of the frequency, but it nevertheless allows the benefits discussed above."  Thus, we emphasize, as
reflected in the Joint Statement's proviso on this issue, that any lease extending beyond the term of a licensee's
authorization must specify that such an extension is subject to the renewal of the ITFS license.

         g.   Other Lease Requirements

    135. Petitioners urge that the Commission reverse two policies which, Petitioners assert, were
not formed in rulemaking proceedings: 1) Barring lease provisions that require an ITFS licensee to assign its
remaining obligations under an excess capacity lease if it chooses to assign its underlying license; and 2)
Rejecting lease provisions which require that an ITFS licensee, seeking to cease operating its facility during
the excess capacity lease term, provide the wireless cable operator a reasonable opportunity to secure an
eligible ITFS assignee before the license is returned to the Commission for cancellation.  Petitioners contend
that these policies have played a role in deterring investment in wireless cable, by diluting investor confidence
in the duration of availability of leased channels.  HITN's opposition to such provisions, on the basis of
undermining the autonomy of ITFS licensees, is consistent with the justification that traditionally has been
provided for banning the second aforementioned set of provisions; namely, that allowing them "intrudes in an
area that has been the sole province of the licensee."

    136. We believe that it is appropriate to continue our ban of provisions  that would require an ITFS
licensee to assign its remaining obligations under an excess capacity lease, while henceforth allowing provisions
that would permit a wireless cable operator to find a qualified  ITFS assignee to assume the license prior to
its cancellation.  The first policy has previously been justified out of the belief that such provisions place an
unreasonable impediment on the assignment or transfer of the ITFS facility.  We still believe that this
rationale applies, because banning such provisions enhances the ITFS licensee's flexibility in finding a buyer
should it decide to seek a buyer.  Thus, we will continue to bar lease provisions that require an ITFS licensee
to assign its remaining obligations under an excess capacity lease if it chooses to assign its underlying license. 
However, with respect to the second policy, allowing such provisions should keep the ITFS channels, which
have been designated by the licensee for cancellation, from lying fallow, because the wireless cable operator
will have incentive to find a buyer quickly.  This results in a win-win situation, because the wireless cable
operator may maintain commercial use of some of the channels; educational service is available again in a
much quicker manner than if the Commission were to make the station available to competing applicants as
a new station; and the educational institution that merely was going to turn in its license instead also may
receive some remuneration for its license, without expending many, if any, efforts towards its sale.

    137. Thus, henceforth we will allow, but not require, provisions which require that an ITFS
licensee, seeking to cease operating its facility during the excess capacity lease term, provide the wireless cable
operator a reasonable opportunity to secure an eligible ITFS assignee before the license is cancelled by the
Commission.  Under such provisions, the ITFS licensee would give the cable operator six months notice that
it intends to relinquish its license.  The wireless cable operator will then have a period of six months both to
continue utilizing the same amount of spectrum permitted under the lease, and to find an assignee for the
station.  If an assignee was found within the appropriate time period, the incumbent ITFS licensee would make
its best efforts to cooperate with the transfer of the license to the new licensee.  If no assignee was found within
the appropriate time, the cancellation of the license would become final, the wireless cable operator would be
forced to cease transmissions over the spectrum at issue, and the station then would be eligible for licensing
by the Commission according to then  current procedures for disposition of new stations.  During the period
that the wireless cable operator is attempting to find a new licensee for the ITFS station, the ITFS licensee is
obligated to continue meeting its educational programming requirements. This requirement serves the public
interest by maintaining the availability of the educational programming until a new licensee can assume the
duties of providing such programming.  Of course, we will prohibit lease provisions which require a licensee
to refrain from submitting its license from cancellation should it desire to do so.

    138. The Joint Statement contains provisions which call for all excess capacity leases to state that
the ITFS licensee "shall have the right to use any Internet services offered over the system at no greater than
the lowest prevailing commercial rate and shall have reasonable access, at rates to be negotiated between the
parties, to other services offered over the system (such as addressability and two-way capability)."  We
decline to implement these provisions of the Joint Statement.  We do not wish to get involved in arbitrating 
rate complaints in MDS/ITFS, and we believe that these are best private contractual matters between the
parties.  While we will not mandate either of these proposals, we particularly expect that reasonable access will
be a vital component to any healthy two-way system.

         4.   ITFS Call Sign Transmission

    139. In the NPRM, the Commission presented Petitioners' arguments that continued enforcement
of the ITFS call sign transmission requirement in a two-way environment will impose substantial costs on
ITFS licensees.  Petitioners concluded that because it is proposed that the Commission's records will reflect
who is transmitting on what channels at all times, the burdens of the call sign transmission requirement far
outweigh the benefits.  Nevertheless, the Commission recognized the complexity of the interference
environment that would result from implementation of the two-way scheme, and the difficulty that it may pose
in determining sources of harmful interference.  Thus, the Commission sought comment on the proposed
elimination of Section 74.982, and solicited alternative solutions for maintaining the accountability of ITFS
licensees.

    140. The few commenters which addressed this proposal unanimously favored eliminating the call
sign transmission requirement where digital transmissions are utilized.  The Foundation, for instance, argues
that the two-way use of ITFS spectrum renders station identification requirements inapplicable, and that the
"superannuation of the current rules" is reinforced by complexities related to subchannelization and
superchannelization.  We believe that the complexity of the engineering environment that will ensue as a
result of adoption and implementation of the rules in this proceeding presents arguments both for retaining and
eliminating call sign transmission requirements.  On the one hand, the greater interference risk of two-way
operations justifies retention of the rules to help identify interferers.  On the other hand, redefining the
requirement becomes a daunting and perhaps fruitless task where subchannelization and superchannelization
are involved in a system, and the costs of enabling each upstream transmitter to transmit a call sign, and
perhaps even assigning each a separate call sign, could be staggering.

    141. As the Commission stated in the Digital Declaratory Ruling and replicated in the NPRM, "the
burdens of requiring ITFS licensees to transmit call signs may outweigh the benefits, especially where the
channels are leased to a wireless cable operator, whose identity is readily discernible and whose licensing status
is readily ascertainable."  In a two-way environment, alleviation of interference problems primarily will be
left to the wireless cable operator, because of all the coordination it must do to make a two-way system function
properly.  In recognition of this and the greater efficiency of digital transmissions, we believe that the burdens
embedded in Section 74.982, such as costs, outweigh the benefits of applying the rule to any ITFS station
utilizing any digital transmissions.  Thus, any ITFS station utilizing digital modulation, whether or not in a
lease agreement with a wireless cable operator and whether or not in a two-way system, will be exempt from
the requirements of Section 74.982.  However, because these costs would not be prohibitive to ITFS stations
utilizing only analog transmissions, and because the benefits of interference identification can still be realized
economically where transmissions are in analog, we will retain Section 74.982 and apply it to ITFS stations
which transmit only in analog.

                    IV.  PROCEDURAL MATTERS
    
    142. Accordingly, IT IS ORDERED that, pursuant to the authority contained in Sections 4(i) and
(j), 301, 303(f), 303(g), 303(h), 303(j), 303(r), and 308(b) of the Communications Act of 1934, as amended,
47 U.S.C.  154(i), 154(j), 301, 303(f), 303(g), 303(h), 303(j), 303(r), and 308(b), this Report and Order
IS ADOPTED, and Parts 1, 21, and 74 of the Commission's Rules, 47 C.F.R.  1, 21, and 74, ARE
AMENDED as set forth in the attached Appendix C.

    143. IT IS FURTHER ORDERED that the rule amendments set forth in Appendix C WILL
BECOME EFFECTIVE 60 days after their publication in the Federal Register.

    144. IT IS FURTHER ORDERED that the Petition of Wireless Cable Ass'n Int'l for
Reconsideration and Clarification, MM Docket No. 93-106 (filed August 12, 1994), and Petition of Alliance
for Higher Education, et al., MM Docket No. 93-106 (filed August 5, 1994), are granted to the extent
described above in note 230.

    145. The action contained herein has been analyzed with respect to the Paperwork Reduction Act
of 1995 and found to impose new or modified reporting and recordkeeping requirements or burdens on the
public.  Implementation of these new or modified reporting and recordkeeping requirements will be subject to
approval by the Office of Management and Budget as prescribed by the Act.  The new or modified paperwork
requirements contained in this Report and Order (which are subject to approval by the Office of Management
and Budget) will go into effect upon OMB approval.  

    146. As required by the Regulatory Flexibility Act, see 5 U.S.C. Section 604, the Commission has
prepared a Regulatory Flexibility Analysis of the possible impact on small entities of the rules adopted in this
document.  See Appendix B.  IT IS FURTHER ORDERED that the Office of Public Affairs Reference
Operations Division SHALL SEND a copy of this Report and Order, including the Regulatory Flexibility
Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

                             FEDERAL COMMUNICATIONS COMMISSION



                             Magalie Rom n Salas
                             Secretary