FCC Poses New Questions to Improve Secondary Market Spectrum Transactions

On March 15, 2019, the Federal Communications Commission ("FCC" or the "Commission") released a notice of proposed rulemaking ("NPRM") seeking comment on how the Commission can improve its secondary market rules for spectrum transactions. Specifically, the FCC wants to know whether and how it can improve its secondary market rules to get more spectrum in the hands of small carriers for deployment in rural areas. While improving the FCC's secondary market rules is something all the Commissioners generally support, the FCC released the NPRM to satisfy its obligation under the MOBILE NOW Act. The Act became law on March 23, 2018, and required the FCC to initiate a proceeding to consider improvements to the Commission's rules related to spectrum partition and disaggregation.

For more than 20 years, the Commission has encouraged secondary market transactions as a means for efficiently distributing spectrum. While the FCC initially assigns spectrum to licensees - now typically via auctions - once a licensee has its authorization it can transfer part of its license authorization to another entity using the FCC's secondary market rules. These transactions come in three types: partition, disaggregation, and spectrum leases. The recently released NPRM focuses on partition and disaggregation issues.

• Partition is the geographic division of a spectrum license. All of the licensed spectrum in the partitioned area would be assigned to the assignee.
• Disaggregation involves assigning certain blocks of spectrum (e. channels or bands of spectrum) in a licensee's entire geographic area associated with a license. The FCC's rules allow licensees to both partition and disaggregate a license, thus providing licensees with considerable flexibility on how they want to sell their geographically licensed areas and spectrum.
• Spectrum leases allow a lessee to use a licensee's spectrum without the assigning the license to the new user. The arrangement may involve the leasing of any amount of licensed spectrum, in any geographic area or site encompassed by the license, for any period of time during the term of the license authorization.

The FCC often proposes new rules in an NPRM if the Commission has a plan for its rule changes; however, with this NPRM, the Commission took an open-ended approach, likely because it does not know how exactly to change its partition and disaggregation rules yet. The FCC, and Congress's, intent is to incentivize more small, rural carriers to obtain spectrum using the secondary market and to deploy services in underserved rural areas using that spectrum.

To encourage those providers to enter the secondary market (and for current licensees to make more spectrum available on the secondary market) the Commission asks three overarching questions. First, the Commission asks: should the FCC reduce performance requirements in rural areas? While this may seem counterintuitive at first, the Commission asks if either reducing buildout requirements or extending deadlines for spectrum deployment metrics would allow more small and rural carriers to enter the secondary market by reducing the risk that the carrier will lose the spectrum or face other penalties if the carrier fails to meet the performance requirements for the license. Second, the Commission asks: what conditions should it impose on secondary market spectrum transfers for small carriers? Here, the FCC focuses on barriers that exist for small carriers interested in entering the secondary market, and whether it can minimize the conditions it imposes on small carriers that obtain spectrum in the secondary market while still ensuring that carriers build out in a reasonable timeframe. Finally, the Commission asks: what steps can it take to further incentivize secondary market transaction? For example, the FCC questions whether allowing for the "reaggregation" of spectrum - up to the original license area size - would encourage more carriers to make spectrum available on the secondary market.

With the FCC's open-ended approach, carriers and other interested parties may have more latitude than normal to propose innovative ideas to the Commission. Commissioner O'Rielly specifically encouraged the industry to think outside the box with respect to this proceeding. While options to partition and disaggregate spectrum have not opened spectrum access as much as initially envisioned, Chairman Pai and the other FCC Commissioners appear enthusiastic about promoting further use of the secondary market to get spectrum into the hands of providers that can deploy service in rural, underserved communities.

Comments on the NPRM are due June 3, 2019, and reply comments are due July 1, 2019.