1995, Pacific Bell ("PacBell") filed a Petition for Rulemaking. In its petition, PacBell proposed a detailed cost-sharing plan in which PCS licensees on all blocks, licensed and unlicensed, would share in the cost of relocating microwave stations. On May 16, 1995, we requested comment on PacBell's proposal.15 Most parties that commented on PacBell's Petition for Rulemaking supported the cost-sharing concept, although the comments reflected some differences regarding the details of the proposal. On October 12, 1995, we adopted a Notice of Proposed Rule Making, which sought comment on a modified version of the plan proposed by PacBell.16 A list of commenters is attached as Appendix C.

IV. FIRST REPORT AND ORDER

9. In the Cost-Sharing Notice, we proposed a number of changes and clarifications to the microwave relocation rules adopted in the Emerging Technologies docket." We suggested that additional guidance with respect to certain aspects of our rules would facilitate negotiations, reduce disputes, and expedite deployment of PCS. As explained below, we adopt many of the changes and clarifications we proposed, along with some suggestions made by commenters. By adopting these rule changes and clarifications, as well as the cost-sharing plan discussed in Section B, infra, we intend to expedite the clearing of the 2 GHz band and the introduction of PCS to the public, while protecting the rights of incumbents. We seek to promote an efficient and equitable relocation process, which minimizes transaction costs and maximizes benefits for all parties, including incumbents, PCS licensees, and the public.

A. Microwave Relocation Rules

1. Voluntary Negotiations

10. Background. In the ET Third Report and Order, we established a voluntary period during which parties are encouraged to negotiate and reach agreement on relocation but are not required to do so.18 As we stated in the Cost-Sharing Notice, negotiations are strictly voluntary during this period and are not defined by any parameters. 19 We also observed that the existing relocation procedures for microwave incumbents adopted in the Emerging Technologies docket were the product of extensive comment and deliberation prior to the

14 See PCIA Petition for Partial Reconsideration, GEN Docket No. 90-314 (filed July 25, 1994) at 5-7.

initial licensing of PCS.20 Thus, we stated that our intent was not to reopen that proceeding, because we believe that the general approach to relocation in our existing rules is sound and equitable.21 Nevertheless, we sought comment on whether additional information about the value of the incumbent's 2 GHz system and the anticipated cost of relocation would help to facilitate negotiations.22 For example, we suggested that two independent cost estimates prepared by third parties not associated or otherwise affiliated with either the incumbent licensee or the PCS provider - could be filed with the Commission by parties that have not reached an agreement within one year after the commencement of the voluntary negotiation period. 23

11. Comments. Despite the fact that we did not propose to alter the basic structure or length of the relocation negotiation periods in the Cost-Sharing Notice, some PCS licensees request that we shorten or dispose of the voluntary period 24 They argue that incumbents are abusing the relocation process by demanding large premium payments or refusing to negotiate, and that the deployment of PCS is being delayed as a result.25 Microwave incumbents, on the other hand, dispute that such actions are widespread and argue that we should not make the changes requested by PCS licensees because, inter alia, any such changes would be beyond the scope of this proceeding.26

12. In response to our inquiry about whether independent cost estimates should be required during the voluntary period, PCS licensees express their support and contend that such a requirement would facilitate stalled negotiations.27 PCIA states that independent cost estimates that are disaggregated by link would give the parties an independent basis around which to come to an agreement, which would reduce the need to utilize dispute resolution procedures.28 Western Wireless Corporation asserts, however, that requiring such estimates

24 See, e.g., Western Comments at 12; SBMS Comments at 3; STV Comments at 17; AT&T Comments at 14-15; CTLA Comments at 8; PCIA Comments at 14; Infocore Comments at 3-6.

25 See, e.g., AT&T Comments at 14-15; CTIA Comments at 8; PCLA Comments at 14; Omnipoint Reply Comments at 4.

26

See, e.g., Colorado Springs Utilities Reply Comments at 5; Entergy Reply Comments at 5; Omaha Public Power Reply Comments at 5.

27

See, e.g., PCLA Comments at 20; PrimeCo Reply Comments at 10; BellSouth Comments at 11-12.

28 PCIA Comments at 20.

parties are not even obligated to negotiate in good faith during the voluntary period.29 Microwave incumbents argue that adopting such a requirement would impose an affirmative obligation on the parties during the voluntary period, which contradicts the voluntary nature of this period.30

31

13. Discussion. We agree with commenters who argue that the public interest would not be served by changing the rules regarding the voluntary period for the A and B blocks at this time.31 First, the A and B block licensees who are now negotiating with incumbents were on notice of the voluntary period when they bid for their licenses, and they presumably have factored the length of the period and the potential cost of relocation into their bids. They have offered no persuasive justification to shorten the period now. Second, we note that many voluntary agreements have already been reached or are now being negotiated between A and B block licensees and incumbents. We are concerned that altering the voluntary period could inadvertently delay the deployment of PCS, because negotiations are likely to be interrupted while parties reassess their bargaining positions. Nevertheless, we agree with PCS licensees that changing the negotiation period for blocks other than the A and B blocks may not raise the same concerns, because negotiations in these blocks have not commenced. Therefore, in the Further Notice of Proposed Rule Making below, we seek comment on the possibility of adjusting the voluntary and mandatory negotiation periods for the D, E, and F blocks. We also seek comment on whether the same adjustments should be made to the negotiation periods for the C block.

14. Whether or not the negotiation periods are changed, we also agree with PCS licensees that additional information about the value of an incumbent's system, the estimated amount of time it would take to relocate the incumbent, and the anticipated cost of relocation may help facilitate negotiations during the voluntary period, as we suggested in the CostSharing Notice.32 Therefore, we require that, if the parties have not reached an agreement within one year after the commencement of the voluntary period, the incumbent must allow the PCS licensee, if the PCS licensee so chooses, to gain access to the microwave facilities to be relocated so that an independent third party can examine the incumbent's 2 GHz system and prepare an estimate of the cost and the time needed to relocate the incumbent to comparable facilities. The PCS licensee must pay for any such cost estimate. Because the one-year anniversary of the commencement of the voluntary period for A and B block licensees has already passed, this requirement shall become effective for the A and B block on the effective

29 Western Wireless Comments at 16.

30

See, e.g., API Comments at 16; UTC Comments at 26; Valero Comments at 5; City of Dallas Reply Comments at 4.

31

32

See, e.g., API Comments at 4, AAR Comments at 4, APCO Comments at 3-5.

Cost-Sharing Notice, 11 FCC Rcd at 1959, ¶ 78; see, e.g., PCLA Comments at 20; PrimeCo Reply Comments at 10; BellSouth Comments at 11-12.

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date of the rules adopted in this proceeding. We disagree with incumbents that a cost estimate paid for by the PCS licensee changes the nature of the voluntary period, because participation in negotiations remains voluntary.

15. Finally, although we are not altering the basic structure or length of the voluntary period for A and B block PCS licensees, we emphasize that our rules provide incentives for voluntary agreements. We have stated in the past that PCS licensees may choose to offer incumbents premiums to relocate quickly.33 "Premiums" could include: replacing the analog facilities with digital facilities, paying all of the incumbent's transactions costs, or relocating an entire system as opposed to just the interfering links. These incentives are available only to microwave incumbents who consent to relocation by negotiation. By contrast, PCS licensees are not obligated to pay for such premiums during an involuntary relocation, which is discussed in Section IV(A)(3), infra.

2. Mandatory Negotiations

16. Background. If a relocation agreement is not reached during the voluntary period, the PCS licensee may initiate a mandatory negotiation period. Like the voluntary period, the mandatory period is intended as a period of negotiation between the parties resulting in a contractual relocation agreement. The major difference between the voluntary period and the mandatory period is that (1) an incumbent may not refuse to negotiate once the mandatory period has commenced, and (2) the parties are required to negotiate in good faith.34

17. PCS licensees have requested that we provide guidance with respect to what constitutes good faith in the context of mandatory negotiations. In the Cost-Sharing Notice, we proposed that, for purposes of the mandatory period, an offer by a PCS licensee to replace a microwave incumbent's system with comparable facilities would be considered a good faith offer, whereas, failure on the part of an incumbent to accept an offer of comparable facilities would create a rebuttable presumption that the incumbent is not acting in good faith.35 We also sought comment on the appropriate penalty to impose on a licensee who does not negotiate in good faith during the mandatory period.36

18. Comments. PCS licensees support clarification of how the term good faith will be applied during the mandatory negotiation period, because they believe that additional guidance

34

47 C.F.R. § 94.59(b); see also ET Third Report and Order, 8 FCC Rcd at 6595, ¶ 15.

Id

demands by microwave incumbents that exceed twice the cost of comparable facilities are prima facie unreasonable and are evidence of bad faith during the mandatory period.38 Furthermore, many PCS licensees argue that they should not have to pay to relocate an incumbent that does not negotiate in good faith.39 CTIA recommends that microwave incumbents who fail to negotiate in good faith should have their licenses revoked and should lose their right to be relocated to new spectrum.40 PCIA suggests that, if the incumbent fails to negotiate in good faith, the relocating PCS provider should only be required to tender a cash payment to the incumbent in an amount not to exceed the greater of two independent appraisals of what constitutes comparable replacement facilities." U.S. Airwaves contends that it is premature to decide what penalty to apply if either party refuses to negotiate in good faith 42

44

19. By contrast, microwave incumbents argue that the clarification we proposed reflects an improper level of government management of negotiations and has no rightful place in the Commission's rules.43 They also claim that enforcement of such a standard would be administratively burdensome on the Commission and may delay the relocation process. Moreover, they assert that clarification of the term good faith is unnecessary, because local, state, and federal laws and regulations already govern how the term is applied in the context of contract negotiations.45 Commenters also express uncertainty and confusion over how our proposed clarification of the term good faith would apply in practice. For example, incumbents voice concern over whether a counteroffer by an incumbent would constitute an act of bad faith. In addition, incumbents claim that the proposed clarification is one-sided.4

47

37

See, e.g., DCR Comments at 9; GTE Comments at 17; PacBell Comments at 9; PCIA Comments at 16; STV Comments at 18; US Airwaves Comments at 9; UTAM Comments at 14.

38 CTIA Comments at 9.

39

See, e.g., PacBell Comments at 9-10; PrimeCo Comments at 17; UTAM Comments at 14.

43

AAR Comments at 14; see also County of Los Angeles at 4; APCO Comments at 5.

46

See, e.g., UTC Reply Comments at 21; AAR Comments at 14; APPA Comments at 3; County of LA Comments at 4; Tenneco Comments at 8.