******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) In re Application of ) ) Corporate Telecom Services, Inc.) File No. 10274-CL-P-537-A-88 ) For Facilities in the Domestic Public Cellular) Telecommunications Radio Service on) Frequency Block A, in Market No. 537,) Nebraska 5 - Boone ) ) MEMORANDUM OPINION AND ORDER Adopted: May 7, 1997 Released: May 12, 1997 By the Commission: I. INTRODUCTION 1. In this Order, we consider the application of Corporate Telecom Services, Inc. (CTSI) for the Nebraska - Boone 5 Rural Service Area (Boone RSA) on remand from the United States Court of Appeals for the District of Columbia Circuit. In 1994, the Commission denied CTSI's application, affirming the findings of the Common Carrier Bureau and the Mobile Services Division that CTSI's application violated our prohibition against a single person or entity holding interests in multiple cellular lottery applications ("one-to-a-market rule"). CTSI appealed the Commission's decision; in 1995, the Court of Appeals remanded the matter to the Commission. On remand, we conclude that CTSI's application should be granted. II. BACKGROUND 2. At the time initial applications were filed for the Boone RSA, CTSI was a wholly-owned subsidiary of SSE Telecom, Inc. (SSE), a publicly-traded corporation. One of SSE's shareholders was Frank Trumbower (Trumbower), who held a 4 percent interest in SSE. Trumbower also held a 33 percent interest in First Cellular Limited Partnership (First Cellular), a mutually exclusive applicant for the Boone RSA. On May 5, 1989, following a lottery, the Commission designated CTSI as the tentative selectee for the Boone RSA. 3. On June 21, 1989, CTSI filed an amendment to its application, explaining that on February 23, 1989, SSE had transferred all of CTSI's stock to a trust ("CTSI Trust"). The CTSI Trust named as trustee W.L. Pritchard, CTSI's president and SSE's chairman of the board, chief operating officer, and largest stockholder. The trust named SSE's then-existing stockholders, including Trumbower, as beneficiaries. Thus, Trumbower, as a 4 percent shareholder of SSE, obtained a 4 percent beneficial interest in CTSI. The trust agreement stated that it preserved the then-existing SSE stockholders' beneficial interest in CTSI, and it directed the trustee to hold CTSI's stock solely and exclusively for their benefit. The trust agreement also stated that no investor who acquired SSE stock after the effective date of the trust would obtain any interest thereby in CTSI. 4. Shortly after the creation of the CTSI Trust, SSE recapitalized and issued additional shares of stock. This process resulted in a substantial change in ownership of SSE, with the new stockholders owning approximately 65% of stock. As part of the recapitalization, Frank Trumbower obtained an additional 12 percent share of SSE's stock. 5. At the time of CTSI's application, our one-to-a-market rule stated: "For Rural Service Areas, no party to a non-wireline application shall have an ownership interest, direct or indirect, in more than one application for the same Rural Service Area, including an interest of less than one per cent." Our rules also stated that, for publicly traded corporate applicants, interests of less than five per cent would not be considered. 6. By letter dated May 2, 1990, the Mobile Services Division (MSD) of the Common Carrier Bureau (CCB) denied CTSI's application, finding that Trumbower's interests in CTSI and First Cellular violated the one-to-a-market rule. The MSD first reasoned that the creation of the CTSI Trust did not effectively insulate SSE from CTSI, because the trustee was CTSI's president and SSE's chairman of the board, chief operating officer, and major stockholder. In addition, it appeared that the trustee intended to transfer CTSI's interest in the Boone RSA application back to SSE's new stockholders, suggesting that SSE's new stockholders could exert substantial influence over CTSI. Consequently, the MSD concluded that Trumbower's additional 12 percent interest in SSE was attributable to CTSI, rendering CTSI's application defective. 7. Alternatively, the MSD reasoned that even if the trust did insulate SSE from CTSI, CTSI's application remained defective because Trumbower's 4 percent interest in CTSI was no longer held as stock in a publicly-held corporation. Because Trumbower's interest had been transferred to the CTSI Trust, the MSD concluded that it no longer fell within the exemption for interests of less than 5 percent held in publicly traded corporations, but was subject to the general one-to-a-market rule. In an order released October 11, 1991, the Common Carrier Bureau affirmed the MSD on all grounds. CTSI then filed an application for review with the Commission. 8. On March 1, 1994, the Commission denied CTSI's application for review and affirmed the CCB order. In its order, the Commission addressed only the issue of whether the CTSI Trust insulated SSE from CTSI, and agreed with the Bureau's findings on this issue in all respects. As a result, the Commission did not address the alternative basis for the MSD/CCB decision, i.e., whether the transfer of CTSI's stock to the trust caused Trumbower's interest to fall outside the 5 percent exemption for stock in publicly traded corporations. The Commission stated that in light of its affirmation of the CCB on the insulation issue, the issue of the 5 percent exemption was moot. CTSI appealed the Commission's decision to the Court of Appeals. 9. On June 2, 1995, the Court of Appeals reversed and remanded the Commission's order. The court reasoned that the purpose of the cellular one-to-a-market rule was "to prevent excessive accumulations of chances to win the economic benefits of the license lottery." The court then questioned whether the CTSI Trust structure gave such an impermissible advantage to Trumbower, stating that it did not "see how Trumbower could possibly use whatever influence he might have over [the trustee] by virtue of their common interests in SSE to gain a greater than 4% economic interest in CTSI's application." The court distinguished the Commission's reliance on previous decisions involving trusts in the broadcast and cable arena, stating that such decisions were supported by different reasoning (i.e., preserving diversity of viewpoint) and by different regulatory language (i.e., disallowing not only multiple direct and indirect ownership, but also direct and indirect control and operation). The court remanded the matter to the Commission, stating that if the Commission were to continue to reject the application, it should articulate "some theory under which its rejection of CTSI's application, and the idea of ownership implicit in that rejection, might fit within the purposes of [the one-to-a-market rule]." III. DISCUSSION 10. In light of the court's opinion, and after further review of the record in this proceeding, we conclude that CTSI's application does not violate the policy objectives of the one-to-a-market rule and should therefore be granted. As the court observed, the underlying purpose of the one-to-a- market rule is to prevent cellular lottery applicants from gaining cumulative chances to win the lottery. The court concluded that the transfer of CTSI's stock to the CTSI Trust sufficiently insulated SSE from CTSI that Trumbower's subsequently-obtained 12 percent interest in SSE was not attributable to CTSI. Therefore, we conclude that Trumbower's subsequent interest in SSE does not cause CTSI to violate the rule. 11. The remaining issue before us is whether Trumbower's 4 percent beneficial interest in the CTSI Trust causes CTSI's application to violate the one-to-a-market rule because his interest in CTSI and First Cellular violates the general prohibition against any overlapping interests in mutually exclusive applicants, or whether his interest in CTSI falls within the 5 percent exemption for stock held in a publicly traded corporation. Because we dismissed this question as moot in our prior order, it was not addressed by the court. In light of the court's remand, we turn to that issue now. 12. In its original decision, the CCB affirmed the MSD's finding that Trumbower's 4 percent interest in CTSI fell outside the scope of the 5 percent exemption because the interest, previously held as stock in SSE, was converted to a trust interest and therefore no longer fell within the scope of the exemption. While we believe that this is a correct reading of the rule, we conclude that strict application of the rule in this instance would not serve the policy goals of the rule, and that a waiver of the rule would be in the public interest. The 5 percent ownership exemption for publicly traded corporations recognizes that ownership of such corporations is typically diffuse, and that holders of less than 5 percent interests generally do not exercise control over such entities. Therefore, it is unlikely that such interest holders can manipulate the lottery process to gain cumulative chances to win the lottery. Prior to the creation of the CTSI Trust, Trumbower clearly fell within the scope of the exemption as a 4 percent shareholder of SSE. We do not see how the conversion of Trumbower's stock interest to a trust interest creates a greater risk of lottery manipulation. As a beneficial interest holder in the CTSI Trust, Trumbower has no more control over CTSI or greater probability of success in the lottery than he had as an SSE shareholder. Therefore, we conclude that the underlying purpose of the one-to-a-market rule is not undermined by allowing Trumbower to retain his interest. 13. We also conclude that strict application of the rule would be inequitable to CTSI in light of the court's directive on remand. The court concluded that creating the CTSI Trust was a valid mechanism for insulating SSE from CTSI so that subsequently-acquired interests in SSE, including Trumbower's, would not be attributable to CTSI. Yet if we applied the rule literally, we would be penalizing CTSI for using this very mechanism to come into compliance with our rules. We see no reason to take this approach where it serves no independent public interest purpose. IV. CONCLUSION 14. For the foregoing reasons, we grant the application of Corporate Telecom Services, Inc. V. ORDERING CLAUSE 15. IT IS HEREBY ORDERED that, pursuant to Sections 4(i) and 309(a) of the Communications Act, as amended, 47 U.S.C.  154(i), 309(a), the application of Corporate Telecom Services, Inc. referenced in the caption above is GRANTED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary