Subject: [NEXTEL-1] Secondary-Market Decision Disappoint Two-Way Arena

From: [email-masked]
Date: Mon, 30 Jun 2003 03:06:31 -0400

Secondary-Market Decision Disappoint Two-Way Arena

May 21, 2003

Nearly three years after it first was proposed, the rule change the Federal
Communications Commission adopted May 15 that allows spectrum license holders to
lease bandwidth to other companies isn't likely to fulfill its most significant
mandate. Entrepreneurs and startups with designs for gaining access to spectrum
through the secondary-market mechanism and for launching new services probably
won't be able to follow through on their plans.

When the Wireless Telecommunications Bureau asked the FCC commissioners in
November 2000 to issue a notice of proposed rulemaking that would allow spectrum
owners to transfer bandwidth, then-Chairman William Kennard championed secondary
market mechanisms as opportunities for new entrants to introduce innovative
services. Kennard also touted secondary transfers as an effective method of
putting unused spectrum to use by allowing existing wireless carriers to have
access to more bandwidth.

The American Mobile Telecommunications Association (AMTA), which represents
two-way radio operations and manufacturers selling products to them, isn't so sure
there is a chance for small companies to participate in this new process for
acquiring access to spectrum. The series of connected but separate events that
would lead to entrepreneurs using secondary market transfers for launching new
services stalled while the proposal was being considered. As long as the FCC
didn't produce the order allowing secondary transfers, those companies with new
ideas for services weren't going to convince venture capital groups and other
founding sources to back their plans. And manufacturers weren't going to start
producing for the entrepreneurs until they had financial support. In addition, the
amount of capital available at all shrank as the worldwide economy slowed.

"It's really difficult for any small player now to get into the marketplace," says
Alan Shark, president and CEO of Arlington, Va.-based AMTA. "I think there was a
feeling back then that this would be an opportunity for some small players to get
in there and do something, but it takes money to compete and the venture capital
is just real scarce. The big have gotten bigger, and the small have not gotten
smaller--they've become non-existent, almost."

Enabling new uses for unused spectrum is something AMTA backs. Its support for
this new rule, however, wasn't based on achieving the results that are now most
likely. "It was our hope that, had this been enacted more quickly, certain
manufacturers in our realm would see this as an opportunity to build equipment in
those areas that are already used for cellular and PCS, and instead use those
areas for niche-market kinds of operations," Shark tells Wireless Data News. "We
continue to believe there is a need for non-cellular, non- PCS communications. I
think the idea of doing this just comes a little late for that to occur.
"This will really serve to help the competing forces to lease things out, to help
each other out," he adds. "It will help the existing players do better. That was
never the original intent."

Mobile broadband technology developer ArrayComm also doesn't anticipate secondary
market transfers to make spectrum available for entrepreneurs with new ideas. "My
overall impression is it's positive," ArrayComm CEO Martin Cooper tells Wireless
Data News. "However, it doesn't go quite far enough for the people who have new
ideas, but who don't have enough money to get into this game."

San Jose, Calif.-based ArrayComm, through a consortium formed to finance a
subsidiary in Australia, has launched mobile broadband service in that country
using its I-Burst technology (WDN, May 8, 2002). ArrayComm expects to be able to
acquire access to spectrum in other Asia-Pacific markets, but the new U.S.
spectrum trading rule doesn't appear to open any doors. Owners of spectrum
licenses for U.S. cellular and PCS operations, Cooper says, will keep bandwidth
out of ArrayComm's reach. "It will be just too costly--these guys have enormous
economic power."

Not Unanimous At FCC

Michael Copps, the only commissioner who voted against adopting the order, doesn't
question whether secondary- market transfers would spur small business activity.
Rather, Copps says the FCC isn't allowed to relinquish direct control of the radio
spectrum it allocates. Allowing spectrum licensees to lease bandwidth to other
companies removes that spectrum from the commission's control, he reports.

Copps cited Section 310(d) of the Communications Act requiring that no "station
license or any rights thereunder shall be transferred, assigned or disposed of in
any manner...except upon application to the Commission and upon finding by the
Commission that the public interest, convenience, and necessity will be served
thereby." Copps says, "But today we allow licensees to transfer a significant
right--the right to control the spectrum on a day-to-day basis--without applying
to the Commission and without the requirement of any Commission public interest
finding."

Chairman Michael Powell and the three other commissioners had no such misgivings.
The rule "is one of the most important spectrum reform decisions by this
Commission in the last decade," Powell said in a written statement, adding, "Our
decision unlocks value trapped for too many years in a regulatory box."

This order, however, could open another regulatory box. This issue, concerning
bankruptcies of spectrum license holders, penned the FCC in a regulatory fix
during its legal battle with Nextwave Telecom, which prevailed when the Supreme
Court ruled that the commission's policies are clearly subordinate to U.S.
bankruptcy laws (WDN, Jan. 29). The High Court in January released its 8-1
decision upholding a lower court's decision allowing NextWave to retain the 95
30-MHz licenses in the 1900 MHz band it bid $4.8 billion on in a 1996 auction.

Bankruptcy Question Looms

The FCC should consider how it will handle situations in which spectrum licensees
file for bankruptcy protection after leasing bandwidth to other companies, the
Bennet & Bennet firm, which represents the Rural Telecommunications Group
suggests. The Supreme Court has already told the FCC that "you're not bankruptcy
lawyers and there's not much you can do with regards to bankruptcy," says Ken
Johnson, an attorney with Bennet & Bennet in Washington, D.C.

Rural Players Have Best Chance

Unlike the smaller players, nationwide brands and rural operators are more than
pleased--even ecstatic--about the possibilities of secondary market transfers.
Once the new rule is posted in the Federal Register and processed through the
FCC's inventory of regulations, probably in two to three months, the commission
could be inundated with bandwidth- transfer applications.
Rural operators are expected to be the most active in early license transfers
because they've already deployed their infrastructure and their larger competitors
are likely to have excess bandwidth in their markets.

"A small rural carrier has got the switch; it's got the network already there,"
Johnson says. "So if it can get more spectrum, it's just an incremental cost for
them to make some money. The rural carriers look at it as a good opportunity. The
success of secondary markets depends a lot on whether there's the capital to even
pursue some of the opportunities. That may or may not be there, but at least you
have a chance."

However, it's possible that carriers with available capacity would decide that
it's not in their best competitive interests to lease bandwidth to another
operator, not matter how small. "Maybe the bigger companies would look at the
smaller companies and say no, just to keep them out," says Bill Gordon, vice
president of regulatory affairs for Aircell, which provides equipment and service
for air-to-ground cellular service from general aviation aircraft.

Louisville, Colo.-based Aircell, operating under a waiver from the FCC lifting its
ban on cellular service aboard aircraft, offers voice and data services by
providing its own technology to customers and re-using spectrum from its cellular
network partners. It also provides combined cellular-satellite coverage through an
agreement with Iridium Satellite.

>>Alan Shark, [email-masked]; Michael Copps, 202/418-2000; Michael
Powell, 202/418-1000; Ken Johnson, [email-masked]; Bill Gordon,
[email-masked]<<

WT Docket 00-230 At A Glance

Authorizes mobile and fixed wireless operators--including those providing
cellular, PCS, specialized mobile radio, local multi-point distribution service,
fixed microwave, 24 GHz, and 39 GHz services--the exclusive right to assign
spectrum and to enter into spectrum-leasing arrangements.  Replaces the
facilities-based standard established in 1963 Intermountain Microwave decision.
The FCC determined this standard, as applied to spectrum leasing, is not required
by law because it imposes unnecessary barriers to efficient and effective access
to spectrum along with being out of step with flexible, market-based spectrum
policies developed by Congress and the FCC.

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