FCC Adopts Order Allowing Some Secondary Leasing of Spectrum

May 15, 2003. The Federal Communications Commission (FCC) adopted, but did not release, a Report and Order (R&O) and a Further Notice of Proposed Rulemaking (FNPRM) which allows certain FCC spectrum licensees to enter into leasing arrangements with third parties.

The FCC released a press release [4 pages in PDF] announcing the R&O and FNPRM. It states that this item "(1) authorizes spectrum leasing in a broad array of wireless radio services, (2) adopts streamlined processing for certain categories of license transfer and assignment applications, and (3) seeks comment on additional steps to improve the functioning of secondary markets."

Neither the FCC release, nor the FCC Commissioners, spoke in terms of creating "property", "rights", or "ownership". The release describes the item as "a step in the Commission's evolution toward greater reliance on the marketplace".

This item is part of WT Docket No. 00-230, which was opened in 2000, during the tenure of former Chairman William Kennard. The FCC adopted its original Notice of Proposed Rulemaking [61 pages in PDF] in on November 9, 2000. See, TLJ story titled "FCC Discusses Secondary Markets for Wireless Spectrum", and TLJ news analysis titled "Mobile Internet Access Devices and the Internet", both dated November 10, 2000.

This R&O and FNPRM also builds upon the work of the FCC's Spectrum Policy Task Force (SPTF), which Chairman Powell formed in June of 2002. The SPTF solicited comments and held hearings, outside of the context of WT Docket No. 00-230, or any other rule making proceeding. See, story titled "Powell Creates Task Force to Conduct Spectrum Inquiry" in TLJ Daily E-Mail Alert No. 446, June 7, 2002. The FCC announced the completion of a SPTF report on November 7, 2002. See, story titled "FCC Announces Report on Spectrum Policy" in TLJ Daily E-Mail Alert No. 545, November 8, 2002. The SPTF released this Report [73 pages in PDF] on November 15, 2002. One of the many topics addressed by the report is moving towards markets for spectrum. The report recommends that "spectrum policy must evolve towards more flexible and market oriented regulatory models."

Commissioners' Comments. FCC Commissioner Kathleen Abernathy stated at the May 15 meeting that this item is "groundbreaking". FCC Chairman Michael Powell and Commissioner Kevin Martin wrote a joint separate statement [PDF] in which they stated that "Today's action is one of the most important spectrum reform decisions by this Commission in the last decade. For years, the Commission has rhetorically praised the concept and possibilities created by secondary markets in spectrum. Today that rhetoric turns into reality."

Powell and Martin also wrote that "we adopt a new regime for spectrum leases, allowing leases for which there is no change in de facto control to proceed without prior Commission approval and providing a streamlined approval process for other leases. We also adopt a streamlined approval process for transfers and assignments of licenses. Together, the rules we adopt will create new opportunities for licensees with under-utilized spectrum, to the benefit of consumers. A carrier with a business plan that calls for serving only the most densely populated portions of its service area now has every incentive to lease the balance of their spectrum to an entrepreneur. Similarly, the cost-benefit equation for spectrum sharing has been transformed. Where formerly the risk of interference imposed only costs, those costs must now be weighed against the value that may be negotiated in a lease or transfer. When cognitive radios and frequency-agile technologies are introduced to the mix, the opportunities multiply."

Commissioner Abernathy (at right) wrote in a separate statement [PDF] that "I believe that adoption of today’s Report and Order shepards in a monumental shift in spectrum policy in the United States. This item recognizes the importance of creating a market-based approach to regulation by creating a secondary market for spectrum in the wireless radio services. In doing so, it substantially updates the FCC’s standard for interpreting Section 310(d) of the Communications Act set forth in the 1963 Intermountain Microwave decision for purposes of spectrum leasing."

FCC Commissioner Jonathan Adelstein wrote in a separate statement [PDF] that "The Commission should encourage healthy and robust secondary markets. At the same time, we must ensure that license obligations continue to be satisfied and enforced. A regulatory framework for innovation should promote a secondary market that accommodates new technologies, but does not cause the Commission to lose or cede ultimate control over the spectrum."

FCC Commissioner Michael Copps (at right) focused on several matters that are not in the R&O and FNPRM. For example, he wrote in his dissenting statement [PDF] that "I want to thank my colleagues for agreeing to eliminate several sections of the NPRM." He continued that "Beginning the process of allowing television and radio broadcasters to sell to non-broadcasters access to spectrum rights that Congress and the FCC gave them for free would have been a terrible mistake. It would have meant that broadcasters could sell control of part or all of their spectrum rights to others, potentially without Commission review. Broadcasters were given these spectrum rights for free because they are engaged in work that is critically important to our country -- the provision of free over-the-air TV and radio. To allow them to sell these spectrum rights for other uses would have been deeply troubling." He added that this would have undermined the digital transition.

He also stated that "proposing to do away with traditional FCC review of transfers of control of all licenses, including broadcast licenses, would have been a mistake. It would have meant that the FCC would no longer need actually to conduct a review of mergers and acquisitions involving FCC licenses."

Finally, he stated that "I appreciate eliminating the section that would have proposed allowing licensees to mortgage their licenses as a way to raise money." He referred to the FCC's NextWave debacle.

Highlights of the Report and Order. The R&O, as described in the FCC's release, "authorizes most wireless radio licensees with "exclusive" rights to their assigned spectrum to enter into spectrum leasing arrangements. These policies and rules affect both mobile and fixed services, including Cellular, Personal Communications Services (PCS), Specialized Mobile Radio (SMR), Local Multipoint Distribution Service (LMDS), fixed microwave, 24 GHz, and 39 GHz, among others."

This R&O replaces the FCC's 1963 Intermountain Microwave decision. See, 12 FCC 2d 559 (1963). Chairman Powell joked that that decision is as old as he is, and it is time to "put it to its long deserved rest".

The R&O's leasing rules provide that "licensees in the covered services may lease some or all of their spectrum-usage rights to third parties, for any amount of spectrum and in any geographic area encompassed by the license, and for any period of time within the term of the license."

The R&O creates two different mechanisms for spectrum leasing. First, there is the "spectrum manager" option. This "enables parties to enter into spectrum leasing arrangements without obtaining prior Commission approval so long as the licensee retains both de jure control (i.e., legal control) of the license and de facto control (i.e., working control) over the leased spectrum pursuant to the updated de facto control standard for leasing." (Parentheses and emphasis in original.)

Second, there is the "de facto transfer leasing" option. This "permits parties to enter into long-term or short-term leasing arrangements whereby the licensee retains de jure control of the license while de facto control is transferred to the lessee for the term of the lease. De facto transfer leases under this option will require prior Commission approval under a streamlined approval process."

Reaction. Tom Wheeler, P/CEO of the Cellular Telecommunications and Internet Association (CTIA), stated in a release that "Permitting secondary markets for spectrum will deliver to carriers improved access to the airwaves, increasing their flexibility and bringing down their costs, which should ultimately result in lower prices for consumers ... Football teams aren’t done after draft day. They continue to meet their changing needs through trades and late season acquisitions. Wireless carriers deserve, and will now receive, similar flexibility."

Related Proceeding. Also, there is another open proceeding related to this one. The FCC announced a Notice of Inquiry (NOI) regarding "Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 GHz Band" on December 11, 2002. This is OET Docket No. 02-380. The comment period is still open. See, story titled "FCC Announces Notice of Inquiry Re More Spectrum for Unlicensed Use" in TLJ Daily E-Mail Alert No. 566, December 12, 2002.