Federal Communications Commission FCC 06-185 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Applications for the Assignment of License from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc. ) ) ) ) ) ) ) ) ) WT Docket No. 06-114 MEMORANDUM OPINION AND ORDER Adopted: December 21, 2006 Released: December 22, 2006 By the Commission: Commissioners Copps and Adelstein concurring and issuing separate statements. TABLE OF CONTENTS Heading Paragraph # I. INTRODUCTION................................................................................................................ 1 II. BACKGROUND.................................................................................................................. 2 A. Description of the Applicants.......................................................................................... 2 1. Alaska DigiTel, LLC................................................................................................. 2 2. Denali PCS, LLC ...................................................................................................... 3 3. General Communication, Inc..................................................................................... 4 B. Description of Transaction .............................................................................................. 5 C. Application Review Process............................................................................................ 8 III. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK ........................... 15 IV. PUBLIC INTEREST ANALYSIS ...................................................................................... 20 A. Qualifications of Applicants.......................................................................................... 20 B. Competitive Analysis.................................................................................................... 21 1. Market Definition.................................................................................................... 25 a. Product Market.................................................................................................. 25 b. Geographic Market............................................................................................ 26 c. Input Market for Spectrum ................................................................................ 28 d. Market Participants............................................................................................ 31 2. Initial Screening ...................................................................................................... 36 a. Spectrum Aggregation....................................................................................... 40 b. Market Concentration........................................................................................ 61 3. Horizontal Effects ................................................................................................... 67 Federal Communications Commission FCC 06-185 2 a. Unilateral Effects............................................................................................... 69 b. Coordinated Effects........................................................................................... 77 4. Other Considerations............................................................................................... 86 a. Spectrum Warehousing...................................................................................... 87 b. Roaming............................................................................................................ 91 c. Submarine Cable ............................................................................................... 95 d. Predatory Pricing............................................................................................. 107 C. Public Interest Benefits ............................................................................................... 109 V. CONDITIONS/REMEDIES ............................................................................................. 117 VI. CONCLUSION ................................................................................................................ 124 VIIORDERING CLAUSES ................................................................................................... 125 APPENDICES APPENDIX A - Conditions APPENDIX B - List of Commenters I. INTRODUCTION 1. In this Order, we consider applications filed by Alaska DigiTel, L.L.C. (“Alaska DigiTel”), Denali PCS, L.L.C. (“Denali”), and General Communication, Inc. (“GCI”) for consent to: (1) the assignment of a license held by Denali to Alaska DigiTel, and (2) the transfer of control of a 78 percent non-controlling interest in Alaska DigiTel to GCI.1 The applications pertain to licenses in the Part 22 Cellular Radiotelephone Service (“cellular”), the Part 24 Personal Communications Service (“PCS”), and the Part 101 Common Carrier Fixed Point-to- Point Microwave Service. Pursuant to section 310(d) of the Communications Act of 1934, as amended (“Communications Act”),2 we must determine whether Alaska DigiTel, Denali, and GCI (collectively, the “Applicants”) have demonstrated that the applications would serve the public interest, convenience, and necessity. Based on the record before us, we find that the Applicants have met that burden and grant their applications subject to the conditions set out below.3 We deny the petition to deny the applications or designate the applications for an evidentiary hearing filed by Matanuska-Kenai, Inc., d/b/a/ Matanuska Wireless (“MTA Wireless”).4 Finally, since we are denying the petition for an evidentiary hearing, we also 1 Application to Assign Licenses Held by Denali PCS, L.L.C. to Alaska DigiTel, L.L.C., File No. 0002453582 (filed Jan. 27, 2006) (“Assignment Application”); Application to Transfer Control of Licenses Held by Alaska DigiTel, L.L.C., File No. 0002453706 (filed Jan. 27, 2006) (“Transfer of Control Application”). Both applications contain the identical Exhibit 1, “Description of Transaction and Public Interest Statement” (including Attachments A and B), referenced herein as “Application Exhibit 1.” 2 47 U.S.C. §§ 214(a), 310(d). 3 See para. [47] and Appendix A. 4 Petition to Deny Applications filed by Matanuska-Kenai., d/b/a/ Matanuska Wireless (“MTA Wireless Petition to Deny”) at 2, 7, 15-16. MTA Wireless filed an erratum to update its name to MTA Communications, Inc., d/b/a MTA Wireless. See Letter from Stefan M. Lopatkiewicz, Dorsey & Whitney (continued….) Federal Communications Commission FCC 06-185 3 dismiss as moot the petition to intervene in the evidentiary hearing filed by ACS Wireless, Inc. (“ACS Wireless”).5 II. BACKGROUND A. Description of the Applicants 1. Alaska DigiTel, LLC 2. Alaska DigiTel is a limited liability company organized under the laws of the state of Alaska.6 The company holds 15 megahertz of the A-block broadband PCS license (KNLF297), with a coverage area over the entire State of Alaska, a 20 megahertz cellular license (WPON879) with a coverage area over St. Paul Island, Alaska,7 and three microwave licenses (WQAP303, WQAP304, and WQPA305).8 Alaska DigiTel provides wireless services to approximately 24,000 subscribers in and around Anchorage, Mat-Su, Girdwood, Homer, Seward, Soldotna, Fairbanks and Juneau,9 using its all-digital Code Division Multiple Access (“CDMA”) network.10 It has roaming relationships with “the major U.S. CDMA wireless carriers.”11 Alaska DigiTel also offers a data services bundle to its wireless telephone subscribers, which includes web browsing and access to downloadable content.12 2. Denali PCS, LLC 3. Denali is a limited liability company organized under the laws of the state of Alaska.13 Denali holds 15 megahertz of the A-block broadband PCS license (WPVZ815) with a coverage area over the entire State of Alaska.14 Based on the record before us, Denali does not (Continued from previous page) LLC, Counsel for MTA Wireless, to Catherine W. Seidel, Acting Chief, Wireless Telecommunications Bureau, Federal Communications Commission (Mar. 24, 2006). 5 Comments/Ex Parte Filing and Petition to Intervene filed by ACS Wireless, Inc. (“ACS Wireless July 21, 2006 Comments/Petition”) at 5, 19-20. 6 See https://myalaska.state.ak.us/business/soskb/Corp.asp?259680 (last visited Dec. 15, 2006). 7 See Application Exhibit 1; www.alaskadigitel.com (last visited Dec. 15, 2006) (“Alaska DigiTel Website”). St. Paul Island is one of four Pribilof Islands lying in the Bering Sea, and has a population of less than 600 people and is approximately 40 square miles. See http://en.wikipedia.org/wiki/Saint_Paul_Island%2C_Alaska (last visited Dec. 15,, 2006). 8 See Application Exhibit 1 at 2. 9 See www.gci.com, News Release of Dec. 7, 2005 (“GCI Announces $29.5 Million Investment in Alaska DigiTel, LLC”) (“GCI-Alaska DigiTel News Release”). 10 Alaska DigiTel Website. 11 See GCI-Alaska DigiTel News Release. 12 Alaska DigiTel Website. 13 See https://myalaska.state.ak.us/business/soskb/Corp.asp?270943 (last visited Dec.15, 2006). 14 See Application Exhibit 1 at 1. Federal Communications Commission FCC 06-185 4 appear currently to provide wireless service to the public.15 Denali and Alaska DigiTel are commonly controlled affiliates under the control of William Yandell.16 3. General Communication, Inc. 4. GCI is a publicly traded corporation incorporated under the laws of the state of Alaska and headquartered in Anchorage.17 Through various subsidiaries, GCI holds the 30 megahertz B-block broadband PCS license,18 with a coverage area over the entire State of Alaska, a B-block Local Multipoint Distribution System (“LMDS”) license19 that serves Anchorage, a Specialized Mobile Radio (“SMR”) license,20 as well as several Industrial Industrial/Business Pool Service,21 and Common Carrier Fixed Point-to-Point Microwave licenses.22 With regard to wireless services, GCI offers mobile telephony services by reselling the services of Dobson Cellular Systems, Inc. (“Dobson”) pursuant to a 10-year distribution agreement implemented in 2004.23 Currently GCI provides local access services over its own facilities, operating on its PCS license and its other licenses.24 In addition, through various subsidiaries, GCI provides wireless service, local and long distance wireline telephone service, as well as Internet and data communication services in Alaska.25 It also owns and operates cable 15 MTA Wireless asserts that Denali “has never offered a commercial PCS service to the public.” MTA Wireless Petition to Deny at 3. There is no contrary evidence before us. 16 See Pro Forma Application to Partially Assign a License Held by Alaska DigiTel, L.L.C. to Denali PCS, L.L.C., File No. 0001034967 at Exhibit 1 (filed Sept. 20, 2002) (disaggregating 15 MHz from KNLF297) (“Pro Forma Application”). 17 GCI 2005 Annual Report on Form 10-K at 1 (filed Mar. 14, 2006) (“GCI 10-K”), available at http://www.sec.gov/Archives/edgar/data/808461/000110465906017334/a06-6639_110k.htm. 18 Call Sign: KNLF298. 19 Call Sign: WPLM396. 20 Call Sign: KNCD389. 21 Call Signs: KNHN226, KNJA855, KNNT594, KTJ272, WNAP874, WNJY380, WNPU406, WNPU410, WNRG645, WPOY279, WPQG371. 22 Call Signs: WHA559, WHA560, WHA629, WHA646, WLC631, WLC632, WLR 379, WLT719, WLT720, WLT721, WLU551, WLV263, WLV267, WMT650. 23 GCI 10-K at 15, 40, 53. As discussed below, GCI has leased a total of 12 megahertz of its PCS spectrum to Dobson pursuant to long term de facto transfer spectrum leasing arrangements. See note 147, infra. 24 The licenses are held by GCI’s subsidiary, GCI Communication Corp. 25 See, e.g., GCI 10-K at 12, 15. GCI also “provide[s] (or join[s] in providing with other carriers) communications services to and from Alaska, Hawaii, the continental United States, and certain foreign nations and territories.” GCI 10-K at 20. GCI further reports that it “provided broadband, IP Data, Private Line and Private Network communications products and services, including SchoolAccess® and rural health Private Line facilities to 403 commercial and government customers at the end of 2005.” GCI 10-K at 25. Federal Communications Commission FCC 06-185 5 systems throughout Alaska,26 and has ownership interests in submarine cables used for wholesale transport of communications to the Lower 48 States.27 B. Description of Transaction 5. As described in the applications, the proposed transaction would occur in a series of contemporaneous steps. First, GCI would acquire all of the membership interests in Denali. Then, Alaska DigiTel would be reorganized, and its new membership interests would be distributed to its current members and GCI. GCI would receive 78 percent of Alaska DigiTel’s membership interests and, in return, GCI would contribute cash and its membership interests in Denali to Alaska DigiTel.28 Additionally, as part of this reorganization, Alaska DigiTel would be governed by a Board of Managers. The Board of Managers would have between four to eight members, with GCI having the power to appoint only one of these members while the original owners of Alaska DigiTel would appoint the remainder of the Board of Managers. GCI would, however, receive “non-controlling investor protection rights” that would prevent Alaska DigiTel from taking certain major actions without the consent of GCI.29 6. After the step reorganizing Alaska DigiTel, Denali would either be merged into Alaska DigiTel or the Denali license would be assigned to Alaska DigiTel, so that, post- transaction, the Denali license would be held by Alaska DigiTel. In the last step of the transaction, GCI would place its interests in Alaska DigiTel in a wholly-owned subsidiary, GCI Holdings, Inc (“GCI Holdings”).30 Post transaction, Alaska DigiTel would directly hold 30 megahertz of PCS spectrum consisting of the two 15 megahertz A-block PCS licenses currently held by Alaska DigiTel and Denali. GCI, in turn, would have an indirect 78 percent interest, through GCI Holdings, in Alaska DigiTel and its two PCS licenses.31 7. The Applicants contend that control of Alaska DigiTel would not change because “GCI will have the power to appoint only one of the members of [Alaska DigiTel’s] Board of Managers, leaving the power to appoint a majority of the Board of Managers with the original owner of [Alaska DigiTel].”32 The Applicants nonetheless seek prior approval of the 26 GCI 10-K at 29-30. 27 General Communication, Inc., Application for a License to Land and Operate in the United States a Digital Submarine Cable System Extending Between the Pacific Northwest United States and Alaska, File No. SCL-LIC-19980602-00008, Cable Landing License, 12 FCC Rcd 18292, 18293 ¶ 4, 18303 ¶ 40 (1997) (IB 1997) (“Alaska United East Order”), Order on Review, 16 FCC Rcd 4314 (2001). 28 Application Exhibit 1 at 2. 29 Application Exhibit 1 at 3-5, n.9. 30 Application Exhibit 1 at 2-3. 31 See id. The Applicants also note that the applications do not seek approval of GCI’s option to acquire all of the issued and outstanding ownership interests in Alaska DigiTel, and that any such approval would have to be sought in a separate application. Id. at 2-3 n.6. 32 Application Exhibit 1 at 3. Federal Communications Commission FCC 06-185 6 applications,33 asserting that approval of the proposed transaction is in the public interest. They state that it would result in an infusion of capital into Alaska DigiTel and that increased resources would allow Alaska DigiTel “to improve its services to the public and to compete more effectively against other large competitors in the market.” Further, the Applicants state that this proposed transaction would have no adverse effect on competition in the relevant market. Thus, they conclude that approval of this proposed transaction would serve the public interest.34 C. Application Review Process 8. On January 27, 2006, pursuant to section 310(d) of the Communications Act,35 Alaska DigiTel, Denali, and GCI filed an application seeking consent to the assignment of a license held by Denali to Alaska DigiTel,36 and an application seeking consent to the transfer of control of a 78 percent “non-controlling” interest in Alaska DigiTel to GCI.37 On February 1, 2006, the Wireless Telecommunications Bureau (“Bureau”) sought comment on these applications via public notice.38 On February 15, 2006, MTA Wireless, which holds a cellular license in south central Alaska (Matanuska Valley) just outside of Anchorage and provides mobile telephony service, filed a petition to deny the applications or designate the applications for an evidentiary hearing,39 to which the Applicants responded with a joint opposition.40 MTA Wireless countered with a reply to the joint opposition, and supplemental filings.41 9. On June 9, 2006, the Bureau adopted a protective order, pursuant to which third parties would be allowed to review confidential or proprietary documents submitted by the 33 Application Exhibit 1 at 1 n.2 (stating that they seek approval “out of an abundance of caution”). 34 Application Exhibit 1 at 4. 35 47 U.S.C. § 310(d). 36 Assignment Application. 37 Transfer of Control Application. 38 Wireless Telecommunications Bureau Assignment of License Authorization Applications, Transfer of Control of Licensee Applications, and De Facto Transfer Lease Application Accepted for Filing, Public Notice, Report No. 2383, at 2, 6 (rel. Feb. 1, 2006) (“Comment Public Notice”). The Comment Public Notice set the Petition to Deny deadline at 14 days after the release of the Public Notice. See id. at 1. Pleadings and comments are available on the Commission’s Universal Licensing System (“ULS”) by searching the application file numbers and Electronic Comment Filing System (“ECFS”) website at www.fcc.gov/cgb/ecfs/ by searching under the docket number. 39 See MTA Wireless Petition to Deny. 40 Applicants Joint Opposition to Petition to Deny Applications, filed by General Communication, Inc., Alaska DigiTel, LLC, Denali PCS, LLC (Mar. 1, 2006) (“Applicants March 1, 2006 Joint Opposition”). 41 Reply to Applicants Joint Opposition to Deny Applications, filed by Matanuska-Kenai, Inc., d/b/a Matanuska Wireless (Mar. 13, 2006) (“MTA Wireless March 13, 2006 Reply”); Letter from Stefan M. Lopatkiewicz, Dorsey & Whitney LLC, Counsel for MTA Wireless, to Marlene H. Dortch, Secretary, Federal Communications Commission (May 9, 2006). Federal Communications Commission FCC 06-185 7 Applicants.42 The Bureau also released a public notice changing the ex parte status of the proceeding from restricted to permit-but-disclose.43 Contemporaneously with these releases, Bureau staff requested additional information from the Applicants (“Information Request”).44 The Applicants their response to the Information Request on June 16, 2006.45 The Applicants voluntarily provided additional information on July 17, 2006, including: (1) the Reorganization Agreement among GCI, Alaska DigiTel, and Denali dated as of June 16, 2006 which contains exhibits of proposed agreements including the proposed operating agreement that would govern the post-transaction relationship between GCI, Alaska DigiTel, and Denali (“Operating Agreement”), a proposed management agreement (“Management Agreement”), and a proposed non-compete agreement; (2) the 2004 distribution agreement by which GCI resells Dobson’s mobile telephony services in Alaska (“Resale Agreement”); and (3) the agreements whereby GCI is leasing portions of its PCS spectrum to Dobson (“Lease Agreements”). 46 10. Also on June 9, 2006, the Bureau announced by public notice that information contained in the Numbering Resource Utilization and Forecast (“NRUF”) and disaggregated, carrier-specific local number portability (“LNP”) data related to wireless telecommunications carriers would be placed into the record, subject to a separate protective order (“NRUF Protective Order”).47 GCI, MTA Wireless, and ACS Wireless requested access to this data.48 42 Applications for the Assignment of Licenses from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc., Protective Order, WT Docket No. 06-114, Protective Order, DA 06-1246 (rel. June 9, 2006). 43 Ex Parte Status of Applications for the Assignment of Licenses from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc., WT Docket No. 06-114, Public Notice, DA 06-1247 (rel. June 9, 2006). 44 Letter from James D. Schlichting, Deputy Chief, Wireless Telecommunications Bureau, Federal Communications Commission, to Thomas Gutierrez, Lukas, Nace, Gutierrez & Sachs, and Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP (June 9, 2006). 45 Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP, to Marlene H. Dortch, Secretary, Federal Communications Commission (confidential version filed June 16, 2006; redacted version filed June 14, 2006) (“Applicants’ June 16, 2006 Response to Information Request”). Subsequently, Applicants submitted a revised redacted version of the Noncompetition Agreement requested by Bureau staff because portions of this document were later publicly filed with the U.S. Securities and Exchange Commission and are no longer confidential. See Letter from Michael Lazarus, Paul, Hastings, Janofsky & Walker, LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 29, 2006). 46 Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (July 17, 2006). The Applicants also submitted an Agreement for WAP Deck Access and an Agreement for Temporary Access to Dobson’s Billing and Activation Systems, effective September 29, 2004 (“Billing Access Agreement”). 47 Applications for the Assignment of Licenses from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc.; Numbering Resource Utilization and Forecast (NRUF) Reports and Local Number Portability Reports Placed into the Record, Subject to Protective Order, WT Docket No. 06-114, Public Notice, DA 06-1249 (continued….) Federal Communications Commission FCC 06-185 8 The Bureau placed the NRUF and LNP reports into the record, pursuant to a protective order, and provided the NRUF and LNP reports to the Applicants on July 21, 2006. 11. On July 21, 2006, ACS Wireless, which holds cellular licenses in Alaska’s major communities and broadband PCS licenses across the State of Alaska and which provides mobile telephony services, submitted comments and a petition to intervene in support of the MTA Wireless Petition to Deny.49 In its comments, ACS Wireless argues that the Commission should deny the applications or designate the applications for an evidentiary hearing. If the Commission determines to designate a hearing, ACS Wireless asks the Commission to grant its petition to intervene in the hearing. ACS Wireless also argues that if the Commission grants the applications, it should impose conditions on GCI such as ordering GCI to divest spectrum and ordering Alaska DigiTel to remain an independent facilities-based provider.50 Subsequently, the Applicants, MTA Wireless, and ACS Wireless made a number of filings regarding ACS Wireless’s intervention,51 access to confidential information,52 and the pending applications.53 (Continued from previous page) (rel. June 9, 2006); Applications for the Assignment of Licenses from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc., Protective Order, WT Docket No. 06-114, Protective Order, DA 06-1248 (rel. June 9, 2006). 48 See Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP, to Marlene H. Dortch, Secretary, Federal Communications Commission (June 19, 2006); Letter from Thomas Gutierrez, Lukas, Nace, Gutierrez & Sachs, to Marlene H. Dortch, Secretary, Federal Communications Commission (June 23, 2006); Letter from Stefan M. Lopatkiewicz, Dorsey & Whitney, Counsel for MTA Wireless, to Marlene H. Dortch, Secretary, Federal Communications Commission (June 20, 2006); Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, to Marlene H. Dortch, Secretary, Federal Communications Commission (July 21, 2006). 49 ACS Wireless July 21, 2006 Comments/Petition. ACS Wireless also requested that its counsel be able to review confidential information covered by both protective orders adopted by the Bureau on June 9, 2006. Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (July 21, 2006). 50 ACS Wireless July 21, 2006 Comments/Petition at 5. 51 Letter from Russell D. Lukas, Lukas, Nace, Gutierrez & Sachs, to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 4, 2006) (“Applicants August 4, 2006 Joint Reply”); Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 9, 2006). ACS Wireless supplemented this letter with additional arguments in an August 14, 2006 letter. See Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, PC, to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 14, 2006) (“ACS Wireless August 14, 2006 Comments”). 52 See Applicants Joint Opposition to ACS Wireless, Inc.’s Acknowledgement of Confidentiality, filed by GCI and Alaska DigiTel (July 26, 2006); Reply to Applicants Joint Opposition to Confidentiality Acknowledgements, filed by ACS Wireless (July 28, 2006); Comments on Filing of ACS Wireless, Inc., filed by MTA Wireless (Aug. 2, 2006) (“MTA Wireless August 2, 2006 Comments”); Letter from Carl W. Northrop, Paul, Hastings, Janofsky, & Walker, LLP and Thomas Gutierrez, Lukas, Nace Gutierrez & Sachs to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 23, 2006); Letter (continued….) Federal Communications Commission FCC 06-185 9 On August 24, 2006, the Applicants submitted a letter outlining the procedural agreement reached on August 23, 2006, by GCI, Denali, Alaska DigiTel, ACS Wireless, and MTA Wireless.54 In this agreement, the Applicants agreed to provide MTA Wireless and ACS Wireless certain redacted copies of the roaming and service agreements that Alaska DigiTel had entered with SprintCom (respectively, Roaming Agreement and Service Agreement). These documents were also provided to Bureau staff on September 14, 2006.55 The agreement between the Applicants, MTA Wireless, and ACS Wireless, and the submission of the Sprint Agreements, resulted in the filing of additional pleadings and ex parte letters.56 12. On September 15, 2006, Applicants submitted a redacted version of a letter of intent that had been executed by GCI and Dobson in 2004 (“Letter of Intent”) that related to their Resale Agreement.57 On September 25 and 28, 2006, respectively, MTA Wireless and ACS Wireless submitted redacted letters addressing their concerns relating to the Letter of Intent.58 (Continued from previous page) from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 23, 2006); Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 28, 2006). 53 See Supplementary Comments in Support of Petition to Deny Applications, filed by MTA Communications, Inc., d/b/a MTA Wireless (July 24, 2006) (“MTA Wireless July 24, 2006 Comments”); Applicants Joint Opposition to MTA Wireless Supplemental Comments, filed by GCI and Alaska DigiTel, (Aug. 8, 2006) (“Applicants August 8, 2006 Joint Opposition ”). 54 Letter from Michael L. Lazarus, Paul, Hastings, Janofsky & Walker, LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Aug. 24, 2006) (“Agreement Between Applicants, MTA Wireless, and ACS Wireless”). 55 Letter from Thomas Gutierrez, Lukas, Nace, Gutierrez & Sachs to Marlene H. Dortch, Secretary, Federal Communications Commission (Oct. 10, 2006) (memorializing the document delivery for the record) (“Sprint Agreements Letter”). Also included in this document delivery is a letter from Sprint Nextel providing notice of terminating the Service Agreement between SprintCom and Alaska DigiTel. Letter from Wes Coffindaffer, Sprint Nextel to Stephen Roberts, Alaska DigiTel (June 9, 2006) (“Notice of Service Agreement Termination Letter”). 56 Request that the Commission Ask for a Limited, Supplemental Production of Documents for Purposes of its Public Interest and Competitive Effects Analyses, filed by ACS Wireless (Sept. 6, 2006) (“ACS Wireless September 6, 2006 Request for Supplemental Documents”); Reply to Applicants Filings, filed by MTA Wireless (confidential version filed Sept. 6, 2006; redacted version filed Sept. 7, 2006) (“MTA Wireless September 6, 2006 Comments”); Supplemental Comments, filed by ACS Wireless (confidential version filed Sept. 6, 2006; redacted version filed Sept. 7, 2006) (“ACS Wireless September 6, 2006 Comments”); Applicants Joint Response to September 6, 2006 Submissions of MTA Wireless and ACS Wireless, filed by GCI and Alaska DigiTel (confidential version filed Sept. 13, 2006; redacted version filed Sept. 14, 2006) (“Applicants September 13, 2006 Joint Response”). 57 Letter from Carl W. Northrop, Paul Hastings, Janofsky & Walker LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Sept. 15, 2006). This document had not been identified in response to the Commission’s General Information Request of June 9, 2006. 58 Letter from Stefan M. Lopatkiewicz, Dorsey & Whitney LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Sept. 25, 2006) (“MTA Wireless September 25, 2006 Comments”); (continued….) Federal Communications Commission FCC 06-185 10 13. On October 27, 2006, the Bureau released a public notice to inform all interested parties of the Commission’s intent to utilize in its analyses and to place in the record of this proceeding updated NRUF and LNP data, subject to the provisions of the protective order adopted on June 9, 2006.59 On November 17, 2006, the Bureau placed these NRUF and LNP reports into the record. 14. On November 21, 2006, Applicants submitted proposed conditions to address potential harms from coordinated interaction.60 On December 4, 2006, ACS Wireless and MTA Wireless submitted letters addressing their concerns on the proposed conditions.61 On December 6, 2006, the Applicants submitted a letter responding to MTA Wireless’s and ACS Wireless’s concerns on the proposed conditions,62 and on December 19, submitted a letter outlining additional proposed conditions.63 III. STANDARD OF REVIEW AND PUBLIC INTEREST FRAMEWORK 15. Pursuant to sections 214(a) and 310(d) of the Communications Act, the Commission must determine whether the Applicants have demonstrated that the proposed assignment of a license held by Denali to Alaska DigiTel and the transfer of control of a 78- percent indirect ownership interest in Alaska DigiTel to GCI would serve the public interest, (Continued from previous page) Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (confidential version filed Sept. 27, 2006; redacted version filed Sept. 28, 2006) (“ACS Wireless September 27, 2006 Comments”). 59 Applications for the Assignment of Licenses from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communication, Inc.; Numbering Resource Utilization and Forecast (NRUF) Reports and Local Number Portability Reports Placed into the Record, Subject to Protective Order, WT Docket No. 06-114, Public Notice, DA 06-2230 (rel. Oct. 27, 2006). 60 Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP to Marlene Dortch, Secretary, Federal Communications Commission (Nov. 21, 2006) (“Applicants Proposed Conditions”). 61 Letter from Elisabeth H. Ross, Birch, Horton, Bittner and Cherot, P.C. to Marlene H. Dortch, Secretary, Federal Communications Commission (Dec. 4, 2006) (“ACS Wireless December 4, 2006 Comments”); Letter from Stefan M. Lopatkiewicz, Dorsey & Whitney LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Dec. 4, 2006) (“MTA Wireless December 4, 2006 Comments”). On December 5, 2006, the Alaska Telephone Association submitted a letter addressing their concerns with this transaction. Letter from James Rowe, Alaska Telephone Association to Marlene H. Dortch, Secretary Federal Communications Commission (Dec. 5, 2006) (“Alaska Telephone Association Comments”). 62 Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP to Marlene Dortch, Secretary, Federal Communications Commission (Dec. 6, 2006) (“Applicants December 6, 2006 Joint Response”). On December 14, 2006, Applicants submitted a letter addressing GCI’s and Dobson’s relationship. Letter from Carl W. Northrop, Paul Hastings Janofsky & Walker, LLP to Marlene Dortch, Secretary, Federal Communications Commission (Dec. 14, 2006) 63 Letter from Michael Lazarus, Paul Hastings Janofsky & Walker, LLP to Marlene H. Dortch, Secretary, Federal Communications Commission (Dec. 19, 2006) (“Applicants December 19 Joint Comments). Federal Communications Commission FCC 06-185 11 convenience, and necessity.64 In applying our public interest test, we must assess whether the proposed transaction complies with the specific provisions of the Communications Act, the Commission’s rules, and federal communications policy.65 If a proposed transaction would not violate a statute or rule, the Commission considers whether it could result in public interest harms by substantially frustrating or impairing the objectives or implementation of the Communications Act or related statutes. The Commission then employs a balancing test weighing any potential public interest harms of a proposed transaction against any potential public interest benefits to ensure that, on balance, the proposed transaction would serve the public interest. The applicants involved with each transaction bear the burden of proving, by a preponderance of the evidence, that the proposed transaction, on balance, serves the public interest.66 If we are unable to find that the proposed transaction serves the public interest for any reason, or if the record presents a substantial and material question of fact, section 309(e) of the Act requires that we designate the application for hearing.67 64 47 U.S.C. §§ 214(a), 310(d). 65 Section 310(d), 47 U.S.C. § 310(d), requires that the Commission consider the applications as if the proposed transferee were applying for the licenses directly under section 308 of the Act, 47 U.S.C. § 308. See, e.g., Applications of Guam Cellular and Paging, Inc. and DoCoMo Guam Holdings, Inc., WT Docket No. 06-96, Memorandum Opinion and Order, FCC 06-167, at 9-10 ¶ 13 (rel. Nov. 13, 2006) (“DoCoMo- Guam Cellular Order”). Applications of Midwest Wireless Holdings, L.L.C. and ALLTEL Communications, Inc., WT Docket No. 05-339, Memorandum Opinion and Order, FCC 06-146, at 10 ¶ 16 (rel. Oct. 2, 2006) (“ALLTEL-Midwest Wireless Order”); Applications of Nextel Partners, Inc., Transferor, and Nextel WIP Corp. and Sprint Nextel Corporation, Transferees, Memorandum Opinion and Order, 21 FCC Rcd 7358, 7360 ¶ 7 (2006) (“Sprint Nextel-Nextel Partners Order”); SBC Communications Inc. and AT&T Corp. Applications for Approval of Transfer of Control, WC Docket No. 05-65, Memorandum Opinion and Order, 20 FCC Rcd 18290, 18300 ¶ 16 (2005) (“SBC-AT&T Order”); Verizon Communications Inc. and MCI, Inc. Applications for Approval of Transfer of Control, WC Docket No. 05-75, Memorandum Opinion and Order, 20 FCC Rcd 18433, 18442-43 ¶ 16 (2005) (“Verizon-MCI Order”); Applications of Nextel Communications, Inc. and Sprint Corporation, WT Docket No. 05-63, Memorandum Opinion and Order, 20 FCC Rcd 13967, 13976 ¶ 20 (2005) (“Sprint- Nextel Order”); Applications of Western Wireless Corporation and ALLTEL Corporation, WT Docket No. 05-50, Memorandum Opinion and Order, 20 FCC Rcd 13053, 13062 ¶ 17 (2005) (“ALLTEL-Western Wireless Order”); Applications of AT&T Wireless Services, Inc. and Cingular Wireless Corporation, Memorandum Opinion and Order, 19 FCC Rcd 21522, 21542-43 ¶ 40 (2004) (“Cingular-AT&T Wireless Order”). 66 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 10 ¶ 13; ALLTEL-Midwest Wireless Order, FCC 06-146 at 10 ¶ 16; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7360 ¶ 7; Sprint-Nextel Order, 20 FCC Rcd at 13976-77 ¶ 20; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13063 ¶ 17; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21543 ¶ 40. 67 47 U.S.C. § 309(e). See also DoCoMo-Guam Cellular Order, FCC 06-167 at 11 ¶ 14; ALLTEL- Midwest Wireless Order, FCC 06-146 at 10 ¶ 16; Sprint-Nextel Order, 20 FCC Rcd at 13977 ¶ 20; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13063 ¶ 17; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21542-43 ¶ 40. Section 309(e)’s requirement applies only to those applications to which Title III of the Act applies, i.e., radio station licenses. The Commission is not required to designate for hearing (continued….) Federal Communications Commission FCC 06-185 12 16. Among the factors the Commission considers in its public interest review is whether the applicant for a license has the requisite “citizenship, character, financial, technical, and other qualifications.”68 Therefore, as a threshold matter, the Commission must determine whether the applicants to the proposed transaction meet the requisite qualifications to hold and transfer licenses under section 310(d) of the Act and the Commission’s rules.69 In making this determination, the Commission does not, as a general rule, re-evaluate the qualifications of transferors and/or assignors unless issues related to basic qualifications have been designated for hearing by the Commission or have been sufficiently raised in petitions to warrant designation for hearing.70 Conversely, section 310(d) obligates the Commission to consider whether the proposed transferee and/or assignee is qualified to hold Commission licenses.71 When evaluating the qualifications of a potential licensee, the Commission previously has stated that it will review allegations of misconduct directly before it,72 as well as conduct that takes place outside of the Commission.73 (Continued from previous page) applications for the transfer or assignment of Title II authorizations when we are unable to find that the public interest would be served by granting the applications, see ITT World Communications, Inc. v. FCC, 595 F.2d 897, 901 (2d Cir. 1979), but of course may do so if we find that a hearing would be in the public interest. 68 See 47 U.S.C. §§ 308, 310(d); see also ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 24; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13063 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21546 ¶ 44. 69 See 47 U.S.C. § 310(d); 47 C.F.R. § 1.948; see also DoCoMo-Guam Cellular Order, FCC 06-167 at 11 ¶ 14; ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7361 ¶ 10; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 24; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13063 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21546 ¶ 44. 70 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 11 ¶ 14; ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7362 ¶ 10; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 24; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13063-64 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21546 ¶ 44. See also Stephen F. Sewell, Assignment and Transfers of Control of FCC Authorizations under Section 310(d) of the Communications Act of 1934, 43 FED. COMM. L. J. 277, 339-40 (1991). The policy of not approving assignments or transfers when issues regarding the licensee’s basic qualifications remain unresolved is designed to prevent licensees from evading responsibility for misdeeds committed during the license period. See id. 71 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 11 ¶ 14; ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7362 ¶ 10; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13064 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21546 ¶ 44. 72 See, e.g., ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13064 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21548 ¶ 47. The Commission will consider any violation of any provision of the Act, or of the Commission’s rules or policies, as predictive of an applicant’s future truthfulness and reliability and, thus, as having a bearing on an applicant’s character qualifications. ALLTEL-Western Wireless Order, 20 FCC Rcd at 13064 n.85; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21548 ¶ 47; Policy Regarding Character Qualifications In Broadcast Licensing Amendment of Rules of Broadcast Practice and Procedure Relating to Written (continued….) Federal Communications Commission FCC 06-185 13 17. Our public interest evaluation necessarily encompasses the “broad aims of the Communications Act,” which include, among other things, a deeply rooted preference for preserving and enhancing competition in relevant markets, accelerating private sector deployment of advanced services, ensuring a diversity of license holdings, and generally managing the spectrum in the public interest. Our public interest analysis may also entail assessing whether the proposed transaction will affect the quality of communications services or will result in the provision of new or additional services to consumers. In conducting this analysis, the Commission may consider technological and market changes, and the nature, complexity, and speed of change of, as well as trends within, the communications industry.74 18. In determining the competitive effects of the proposed transaction, our analysis is informed by, but not limited to, traditional antitrust principles.75 Because the Commission is charged with determining whether the transfer and assignment of licenses serves the broader public interest, we take into account factors beyond those considered under a traditional antitrust analysis. In the communications industry, competition is shaped not only by antitrust rules, but also by the regulatory policies that govern the interactions of industry players. In addition to (Continued from previous page) Responses to Commission Inquiries and the Making of Misrepresentations to the Commission by Permittees and Licensees, Gen. Docket No. 81-500, Report and Order and Policy Statement, 100 F.C.C. 2d 1179, 1209-10 ¶ 57 (1986), modified, 5 FCC Rcd 3252 (1990), recon. granted in part, 6 FCC Rcd 3448 (1991), modified in part, 7 FCC Rcd 6564 (1992). 73 See, e.g., ALLTEL-Midwest Wireless Order, FCC 06-146 at 11 ¶ 17; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13064 ¶ 18; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21548 ¶ 47. The Commission previously has determined that in its review of character issues, it will consider forms of adjudicated, non-Commission related misconduct that include: (1) felony convictions; (2) fraudulent misrepresentations to governmental units; and (3) violations of antitrust or other laws protecting competition. See, e.g., ALLTEL-Western Wireless Order, 20 FCC Rcd at 13064 n.86; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21548 ¶ 47. 74 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 12 ¶ 15; ALLTEL-Midwest Wireless Order, FCC 06-146 at 12 ¶ 18; Sprint-Nextel Order, 20 FCC Rcd at 13977 ¶ 21; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13065 ¶ 19; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21544 ¶ 41. 75 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 12 ¶ 16; ALLTEL-Midwest Wireless Order, FCC 06-146 at 12 ¶ 19; Sprint-Nextel Order, 20 FCC Rcd at 13977-78 ¶ 22; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13065 ¶ 20; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21544 ¶ 42. See also Satellite Business Systems, Memorandum, Opinion, Order, Authorization and Certification, 62 F.C.C.2d 997, 1088 (1977), aff’d sub nom United States v. FCC, 652 F.2d 72 (DC Cir. 1980) (en banc); Northern Utilities Service Co. v. FERC, 993 F.2d 937, 947-48 (1st Cir. 1993) (stating that public interest standard does not require agencies “to analyze proposed mergers under the same standards that the Department of Justice . . . must apply”). The Commission and the Department of Justice (“DOJ”) each have independent authority to examine telecommunications mergers, but the standards governing the Commission’s review differ from those of DOJ. See, e.g., ALLTEL-Midwest Wireless Order, FCC 06-146 at 12 ¶ 19; Sprint- Nextel Order, 20 FCC Rcd at 13978 ¶ 22; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13065 ¶ 20; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21544 ¶ 42. DOJ reviews mergers pursuant to section 7 of the Clayton Act, which prohibits mergers that are likely to lessen competition substantially in any line of commerce. 15 U.S.C. § 18. Federal Communications Commission FCC 06-185 14 considering whether a transaction or merger will reduce existing competition, therefore, the Commission also must focus on whether the transaction or merger will accelerate the decline of market power by dominant firms in the relevant communications markets and the merger’s effect on future competition. We also recognize that the same consequences of a proposed transaction or merger that are beneficial in one sense may be harmful in another. For instance, combining assets may allow a merged entity to reduce transaction costs and offer new products, but it may also create market power, create or enhance barriers to entry by potential competitors, and create opportunities to disadvantage rivals in anticompetitive ways.76 19. Our public interest authority also enables us to impose and enforce narrowly tailored, transaction-specific conditions that ensure that the public interest is served by the transaction.77 Section 303(r) of the Communications Act authorizes the Commission to prescribe restrictions or conditions not inconsistent with law that may be necessary to carry out the provisions of the Act.78 Similarly, section 214(c) of the Act authorizes the Commission to attach to the certificate “such terms and conditions as in its judgment the public convenience and necessity may require.”79 Indeed, unlike the role of antitrust enforcement agencies, our public 76 See, e.g, DoCoMo-Guam Cellular Order, FCC 06-167 at 13 ¶ 16; ALLTEL-Midwest Wireless Order, FCC 06-146 at 13 ¶ 19; SBC-AT&T Order, 20 FCC Rcd at 18302 ¶ 18; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13065 ¶ 20; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21545 ¶ 42. 77 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167, at 13 ¶ 17; ALLTEL-Midwest Wireless Order, FCC 06-146 at 13 ¶ 20; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7361 ¶ 9; Sprint-Nextel Order, 20 FCC Rcd at 13978 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13065 ¶ 21; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21545 ¶ 43 (conditioning approval on the divestiture of operating units in select markets). See also Application of Worldcom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to Worldcom, Inc., CC Docket No. 97-211, Memorandum Opinion and Order, 13 FCC Rcd 18025, 18032 ¶ 10 (1998) (conditioning approval on the divestiture of MCI’s Internet assets); Applications of VoiceStream Wireless Corporation, PowerTel, Inc., Transferors, and Deutsche Telekom AG, Transferee, IB Docket No. 00-187, Memorandum Opinion and Order, 16 FCC Rcd. 9779 (2001) (“Deutsche Telekom-VoiceStream Wireless Order”) (conditioning approval on compliance with agreements with Department of Justice and Federal Bureau of Investigation addressing national security, law enforcement, and public safety concerns). 78 47 U.S.C. § 303(r). See also DoCoMo-Guam Cellular Order, FCC 06-167 at 13 ¶ 17; ALLTEL- Midwest Wireless Order, FCC 06-146 at 13 ¶ 20; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7361 ¶ 9; Sprint-Nextel Order, 20 FCC Rcd at 13978-79 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13066 ¶ 22; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21545 ¶ 43; FCC v. Nat’l Citizens Comm. for Broadcasting, 436 U.S. 775 (1978) (upholding broadcast-newspaper cross-ownership rules adopted pursuant to section 303(r)); United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968) (section 303(r) powers permit Commission to order cable company not to carry broadcast signal beyond station’s primary market); United Video, Inc. v. FCC, 890 F.2d 1173, 1182-83 (D.C. Cir. 1989) (syndicated exclusivity rules adopted pursuant to section 303(r) authority). 79 47 U.S.C. § 214(c). See also DoCoMo-Guam Cellular Order, FCC 06-167 at 13-14 ¶ 17; ALLTEL- Midwest Wireless Order, FCC 06-146 at 13-14 ¶ 20; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13066 ¶ 21; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21545 ¶ 43. Federal Communications Commission FCC 06-185 15 interest authority enables us to impose and enforce conditions to ensure that the transaction will, overall, serve the public interest.80 Despite broad authority, the Commission has held that it will impose conditions only to remedy harms that arise from the transaction (i.e., transaction-specific harms) and that are related to the Commission’s responsibilities under the Communications Act and related statutes.81 Thus, we will not impose conditions to remedy pre-existing harms or harms that are unrelated to the transaction. IV. PUBLIC INTEREST ANALYSIS A. Qualifications of Applicants 20. In this proceeding, no issues have been raised with respect to the basic qualifications of Alaska DigiTel, GCI, and Denali. Thus, we find that there is no reason at this time to reevaluate the qualifications of these entities. B. Competitive Analysis 21. In our analysis of the proposed GCI-Alaska DigiTel-Denali transaction, we consider the potential competitive effects that might result from increased concentration within the mobile telephony market. Horizontal transactions may lead to a loss of a competitor, and such loss could also result in reduced competition. Horizontal transactions, including mergers, raise competitive concerns when they reduce the availability of choices to the point that the resulting firm has the incentive and the ability, either by itself or in coordination with other firms, to raise prices. The ability to raise prices above competitive levels is generally referred to as “market power.” Market power may also enable sellers to reduce competition on dimensions other than price, including innovation and service quality. A fundamental tenet of the Commission’s public interest review is that, absent significant offsetting efficiencies or other public interest benefits, a transaction that creates or enhances significant market power or facilitates its use is unlikely to serve the public interest. 82 80 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 14 ¶ 17; ALLTEL-Midwest Wireless Order, FCC 06-146 at 14 ¶ 20; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13066 ¶ 21; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21545 ¶ 43. See also Schurz Communications, Inc. v. FCC, 982 F.2d 1043, 1049 (7th Cir. 1992) (discussing Commission’s authority to trade off reduction in competition for increase in diversity in enforcing public interest standard). 81 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 14 ¶ 17; ALLTEL-Midwest Wireless Order, FCC 06-146 at 14 ¶ 20; Sprint Nextel-Nextel Partners Order, 21 FCC Rcd at 7361 ¶ 9; Sprint-Nextel Order, 20 FCC Rcd at 13979 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13066 ¶ 22; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21546 ¶ 43. 82 See, e.g., ALLTEL-Midwest Order, FCC 06-146 at 14 ¶ 22; Sprint-Nextel Order, 20 FCC Rcd at 13981 ¶ 30; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13066 ¶ 22; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21556 ¶ 68; Horizontal Merger Guidelines, issued by the U.S. Department of Justice and the Federal Trade Commission, at § 0.1, n.6. (Apr. 2, 1992, revised Apr. 8, 1997) (“DOJ/FTC Merger Guidelines”). Federal Communications Commission FCC 06-185 16 22. A horizontal transaction or merger is unlikely to create or enhance market power or facilitate its exercise unless the transaction significantly increases concentration and results in a concentrated market, properly defined and measured. Transactions that do not significantly increase concentration or do not result in a concentrated market ordinarily require no further competitive analysis. Market concentration is generally measured by the Herfindahl-Hirschman Index (“HHI”), and changes in concentration are measured by the change in the HHI. However, HHI data provide only the beginning of the analysis. The Commission then examines other market factors that pertain to competitive effects, including the incentive and ability of other firms to react and of new firms to enter the market. Ultimately, the Commission must assess whether it is likely that the combined firm could exercise market power in any particular market. 83 23. As the Commission has discussed, transactions such as mergers can diminish competition and firms can exercise market power in a number of ways. A transaction may create market power in a single firm and allow that firm to act on its own in raising prices, lowering quality, reducing innovation, or restricting deployment of new technologies or services. A transaction also may diminish competition if it makes the firms selling in the market more likely to engage in a coordinated manner that harms consumers, such as tacit or express collusion. The effects of such coordinated behavior may include increased prices, reduced number of minutes in a given price plan, degraded output quality, or some combination of these effects. It may also include adverse effects such as reduced innovation and restricted deployment of new technologies and services.84 24. We begin our competitive analysis by determining the appropriate market definitions to employ with respect to the proposed transaction, as well as identifying the relevant market participants. We then examine possible post-transaction concentration concerns, applying our initial screens pertaining to spectrum aggregation and to subscriber-based concentration measures. Next, we consider the possible horizontal competitive harms that could occur due to a significant increase in market concentration or market power85 or due to the circumstances and structure of a particular transaction.86 Finally, we examine other concerns that have been raised by MTA Wireless and ACS Wireless. 83 See, e.g., ALLTEL-Midwest Order, FCC 06-146 at 15 ¶ 23; Sprint-Nextel Order, 20 FCC Rcd at 13981 ¶ 31; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13067 ¶ 23; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21556 ¶ 69; DOJ/FTC Merger Guidelines at § 1.0. 84 See, e.g., ALLTEL-Midwest Order, FCC 06-146 at 15 ¶ 24; Sprint-Nextel Order, 20 FCC Rcd at 13982 ¶ 32; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13067 ¶ 24; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21557 ¶ 70. 85 See, e.g., ALLTEL-Midwest Order, FCC 06-146 at 16 ¶ 25; Sprint-Nextel Order, 20 FCC Rcd at 13981 ¶ 32; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13067 ¶ 24; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21557 ¶ 70. 86 See Section IV.B.3(b), infra. Federal Communications Commission FCC 06-185 17 1. Market Definition a. Product Market 25. For purposes of analyzing this transaction, we adopt the same product market definition as applied by the Commission in its recent wireless merger orders – the ALLTEL- Midwest Order, Sprint-Nextel Order, ALLTEL-Western Wireless Order, and Cingular-AT&T Wireless Order. In these orders, the Commission found that there are separate relevant product markets for interconnected mobile voice services and mobile data services, and also for residential services and enterprise services. Nevertheless, it analyzed all of these product markets under the combined market for mobile telephony service. Based on consideration of various factors, including the nature of these services and their relationship with each other, the Commission found that this approach provided a reasonable assessment of any potential competitive harm resulting from the transactions under review. 87 The Applicants, MTA Wireless, and ACS Wireless do not challenge this product market definition in their submissions. b. Geographic Market 26. We find that the relevant geographic market for analyzing the competitive effect of the GCI-Alaska DigiTel-Denali transaction on mobile telephony is local. As discussed below, this finding is based on the observation that consumers obtain their wireless service in a local area, not on a state-wide basis. 27. In prior orders, the Commission has found that the relevant geographic markets are local, are larger than counties, may encompass multiple counties and, depending on the consumer’s location, may even include parts of more than one state.88 In these orders, the Commission has identified two sets of geographic areas that may be used to define local markets – Component Economic Areas (“CEAs”) and Cellular Market Areas (“CMAs”).89 MTA Wireless argues that the relevant market is the Anchorage Basic Trading Area (“BTA”)90 and 87 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 15 ¶ 19; ALLTEL-Midwest Order, FCC 06- 146 at 16 ¶ 26; Sprint-Nextel Order, 20 FCC Rcd at 13983 ¶ 38; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13068 ¶ 28; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21558 ¶ 74. 88 See DoCoMo-Guam Cellular Order, FCC 06-167 at 15-16 ¶ 20, Sprint-Nextel Order, 20 FCC Rcd at 13990 ¶ 56; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070 ¶ 35; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21562-63 ¶¶ 89-90. This finding is primarily rooted in the premise that consumers obtain their wireless service in a local area, not on a national basis. See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 13989 ¶ 51. 89 See DoCoMo-Guam Cellular Order, FCC 06-167 at 16 ¶ 20, Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 57; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13072-73 ¶¶ 44-45; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21567-68 ¶¶ 104-105. 90 BTAs and Major Trading Areas (“MTAs”) are Material Copyright © 1992 Rand McNally & Company. Rights granted pursuant to a license from Rand McNally & Company through an agreement with the Federal Communications Commission. See Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect (continued….) Federal Communications Commission FCC 06-185 18 secondarily the state-wide mobile telephony market.91 MTA Wireless does not provide any evidence that the relevant market is either the Anchorage BTA or state-wide for purposes of analyzing this transaction. Therefore, we are not persuaded by MTA Wireless’s argument for a state-wide geographic market, and therefore for purposes of analyzing the competitive effects of this transaction, we find that the relevant geographic market is local, and continue to analyze the local markets using CEAs and CMAs, consistent with Commission precedent. c. Input Market for Spectrum 28. Since wireless carriers need access to spectrum in order to compete in the provision of service, we analyze potential competitive effects of spectrum aggregation that may result from this transaction.92 The Commission has previously evaluated whether spectrum should be included within the input market for mobile telephony service by examining its suitability for mobile voice service: its physical properties; the state of equipment technology; whether the spectrum is licensed with a mobile allocation and corresponding service rules; and whether the spectrum is committed to another use that effectively precludes its uses for mobile telephony.93 Consistent with previous Commission determinations, we find that the input market currently includes cellular, PCS, and SMR spectrum94 and currently totals approximately 200 MHz of spectrum.95 29. The Applicants argue that additional spectrum is scheduled to become available in the near term, including 90 MHz in the Advanced Wireless Services (“AWS”) auction and 60 MHz of 700 MHz spectrum that has been scheduled for auction, and that this additional spectrum (Continued from previous page) to Commercial Mobile Services, WT Docket No. 06-17, Eleventh Report, FCC 06-142, at 10, n.26 (rel. Sept. 29, 2006) (“Eleventh Competition Report”). 91 MTA Wireless September 6, 2006 Comments at 33. 92 Cingular-AT&T Wireless Order, 20 FCC Rcd at 21568 ¶ 109; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49. 93DoCoMo-Guam Cellular Order, FCC 06-167 at 15-16 ¶ 21; ALLTEL-Midwest Order, FCC 06-146 at 18 ¶ 31; Sprint-Nextel Order, 20 FCC Rcd at 13992 ¶ 61; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13071 ¶ 41; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21560-61 ¶ 81. 94 Under these decisions, Broadband Radio Service/Educational Broadband Service (“BRS/EBS”) 2.5 GHz spectrum is not considered part of the input market for mobile telephony service. Currently, this spectrum is committed to uses other than mobile telephony. See DoCoMo-Guam Cellular Order, FCC 06-167 at 15-16 ¶ 21, n.102; ALLTEL-Midwest Order, FCC 06-146 at 18 ¶ 31 n.129; Sprint-Nextel Order, 20 FCC Rcd at 13992-93 ¶ 61; ALLTEL-Western Wireless Order, 20 FCC Rcd at 10371 n.127; Cingular- AT&T Wireless Order, 19 FCC Rcd at 21561 n.283. 95 The approximately 200 MHz of spectrum includes 50 MHz for cellular services, 120 MHz for Broadband PCS, and additional spectrum for SMR. See Eleventh Competition Report at ¶¶ 62-64. See also DoCoMo-Guam Cellular Order, FCC 06-167 at 15-16 ¶ 21, n. 103; ALLTEL-Midwest Order, FCC 06-146 at 18 ¶ 31 n.130; Sprint-Nextel Order, 20 FCC Rcd at 13992 n.155; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13071 ¶ 41; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21561 ¶ 81. Federal Communications Commission FCC 06-185 19 should be included in analyzing this transaction.96 Also, the Applicants argue that both MTA Wireless and ACS Wireless were participants and qualified bidders in the AWS Auction, and therefore both carriers have an actual and immediate capability to acquire spectrum in Alaska in order to provide additional facilities-based service.97 In contrast, MTA Wireless and ACS Wireless argue that the AWS spectrum should not be included in the spectrum input market because this spectrum is encumbered and will not provide immediate capacity for auction winners. 98 In addition, MTA Wireless argues that although some of the 700 MHz spectrum has been auctioned, this spectrum band is encumbered by broadcast users.99 Further, MTA Wireless notes that mobile telephony equipment is not currently being produced for either the AWS or 700 MHz spectrum bands.100 Finally, MTA Wireless asserts that in recent orders that the Commission has limited the input market for spectrum to cellular, PCS, and SMR spectrum, and that this transaction should be considered on the basis of this spectrum only.101 30. For purposes of analyzing this transaction, we do not find it necessary to include either AWS or 700 MHz spectrum in the input market for spectrum as suitable for the provision of mobile telephony service. We note that time is still required to relocate existing government users of the AWS spectrum recently auctioned 102 and for licensees to build systems that operate 96 Applicants March 1, 2006 Joint Opposition at 14-15; Applicants August 8, 2006 Joint Opposition at 3. 97 Applicants August 8, 2006 Joint Opposition at 3. We note that MTA Wireless had the winning bid in Auction No. 66 for CMA187-A Anchorage Alaska (20 MHz), CMA316-A Alaska 2-Bethel (20 MHz), and REA007-F Alaska (20 MHz), and the Bureau granted MTA Wireless the licenses on December 18, 2006. ACS Wireless was not one of the winning bidders in any of the Alaska markets. See Auction of Advanced Wireless Services Licenses Closes; Winning Bidders Announced for Auction No. 66, Public Notice, Report No. AUC-06-66-F (Auction No. 66), DA 06-1882 (rel. Sept. 20, 2006) at Attachment A. See also Wireless Telecommunications Bureau Grants Advanced Wireless Service Licenses, Public Notice, DA 06-2536 (rel. Dec. 18, 2006) at Attachment A. 98 MTA Wireless March 13, 2006 Reply at 9-10; Declaration of Richard Kenshalo on behalf of Matanuska-Kenai, Inc., d/b/a Matanuska Wireless (Mar. 13, 2006) (“Kenshalo March 13, 2006 Declaration”) at 4-5 ¶ 8; MTA Wireless September 6, 2006 Comments at 28; Declaration of Richard Kensahlo on behalf of MTA Communications, Inc., d/b/a MTA Wireless (confidential version filed Sept. 6, 2006; redacted version filed Sept. 7, 2006) at 1-2; ACS Wireless September 6, 2006 Comments at 20 n.62. 99 MTA Wireless March 13, 2006 Reply at 10; Kenshalo March 13, 2006 Reply Declaration at 5 ¶ 9. 100 MTA Wireless March 13, 2006 Reply at 10; Kenshalo March 13, 2006 Reply Declaration at 5-6 ¶ 10. 101 MTA Wireless March 13, 2006 Reply at 10; MTA Wireless September 6, 2006 Comments at 29 citing ALLTEL-Western Wireless Order, 20 FCC Rcd. at 13071 n.127. 102 See “FCC’s Advanced Wireless Services (AWS) Spectrum Auction Concludes”, News Release (rel. Sept. 18, 2006) available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-267467A1.doc (last visited Dec. 15, 2006). Federal Communications Commission FCC 06-185 20 in this spectrum.103 We similarly note that in the 700 MHz band more time is required to relocate existing analog broadcast users, to auction spectrum and issue new licenses, and for licensees to build systems that operate in this spectrum.104 We do, however, anticipate that sometime in the near future, as this spectrum becomes available for more immediate use, as technological developments lead to performance and equipment advances, and as spectrum allocations are revised, the Commission will need to re-evaluate whether additional spectrum should be viewed as suitable for the provision of mobile telephony services.105 d. Market Participants 31. The Commission has previously found that mobile telephony services offered by cellular, PCS, and SMR licensees employing various technologies provide the same basic voice and data functionality and are indistinguishable to the consumer.106 Generally, when computing initial measures of market concentration, the Commission has limited its analysis of market participants to facilities-based carriers, excluding mobile virtual network operators (“MVNOs”) and resellers107 as well as satellite carriers and wireless Voice over Internet Protocol (“VoIP”) providers from consideration.108 103 See ALLTEL-Midwest, FCC 06-146 at 18 ¶ 31 n.129; Sprint-Nextel Order, 20 FCC Rcd at 13992-93 ¶ 61; ALLTEL-Western Wireless Order, 20 FCC Rcd at 10371 n.127; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21561 n.283. 104 With respect to the 700 MHz Band, the Digital Television and Public Safety Act of 2005 (“DTV Act”), amends Section 309(j)(14) of the Communications Act, 47 U.S.C. § 309(j)(14), to establish February 17, 2009 as a firm deadline for the end of the digital television (DTV) transition period, and requires the Commission to commence the auction of recovered analog broadcast spectrum no later than January 28, 2008. See Deficit Reduction Act of 2005, Pub.L. No. 109-171, 120 Stat. 4 (2006) (Title III constituting the DTV Act). Before the DTV Act, the Commission had been required to extend the end of the DTV transition at the request of individual broadcast licensees on a market-by-market basis if one or more of the four largest network stations or affiliates were not broadcasting in digital, digital-to-analog converter technology was not generally available, or 15 percent or more of television households were not receiving a digital signal. See 47 U.S.C. § 309(j)(14)(B)(i)-(iii) (2005). Despite the certainty afforded by the DTV Act in providing a date certain for the end of the DTV transition period, until the transition is complete the 700 MHz Band remains occupied by television broadcasters. 105 See ALLTEL-Midwest, FCC 06-146 at 18 ¶ 31 n.129; Sprint-Nextel Order, 20 FCC Rcd at 13992-93 ¶ 61; ALLTEL-Western Wireless Order, 20 FCC Rcd at 10371 n.127; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21561 n.283. 106 See ALLTEL-Midwest Wireless Order, FCC 06-146 at 19 ¶ 32; Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070-71 ¶ 38; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21563 ¶ 92. 107 MVNOs are one kind of reseller, distinguished from “traditional” resellers by a variety of factors including brand appeal, distribution channels, bundling wireless and non-wireless products, and value added services. See Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Ninth Report, 19 FCC Rcd 20597 (2005) at 20614 n.71 (“Ninth Competition Report”). (continued….) Federal Communications Commission FCC 06-185 21 32. MTA Wireless and ACS Wireless argue that because the Commission has acknowledged that, in some instances, MVNOs and resellers may have an impact on the market, it should find that GCI through its resale relationship with Dobson would have a significant effect on competition in this market.109 As a result, MTA Wireless argues that GCI should be considered a potential competitor and the transaction would result in the loss of two potential competitors (GCI and Denali) and one actual competitor (GCI).110 According to MTA Wireless, (Continued from previous page) The resale sector accounts for approximately 5 percent of all mobile telephony subscribers. See Ninth Competition Report, 19 FCC Rcd at 20613 ¶ 38. 108 See DoCoMo-Guam Cellular Order, FCC 06-167 at 15-16 ¶ 22; ALLTEL-Midwest Wireless Order, FCC 06-146 at 19 ¶ 33; Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070-71 ¶ 38; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21563 ¶ 92. Although satellite providers offer facilities-based mobile voice and data services, the price of these services is currently significantly higher than for services offered by cellular, PCS, or SMR carriers. Therefore, most consumers would not view satellite phones as substitutes for mobile telephony. See Global Com, Iridium Satellite Phone Service Plans, at http://www.globalcomsatphone.com/satellite/ services/iridium_service_plans.html (last visited Dec.. 15, 2006); GlobalStar, Airtime Pricing, Voice Pricing, at http://www.globalcomsatphone.com/satellite/services/globalstar.html/ (last visited Dec. 15, 2006). See also DoCoMo-Guam Cellular Order, FCC 06-167 at 17 n.104; ALLTEL-Midwest Order, FCC 06-146 at 19 ¶ 33; Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070 ¶ 8. We also do not consider wireless VoIP carriers in our initial market analysis, in part because they currently provide nomadic service, as opposed to the mobile service provided by the mobile telephony providers. Id. By nomadic, we mean that customers are able to use wireless VoIP services from a number of different locations (for example, by using a laptop at different internet cafes all over a town). DoCoMo-Guam Cellular Order, FCC 06-167 at 17 n.104; ALLTEL- Midwest Order, FCC 06-146 at 19 ¶ 33 n.134; Sprint-Nextel Order, 20 FCC Rcd at 13991 n.151. 109 MTA Wireless March 13, 2006 Reply at 10-11; ACS Wireless July 21, 2006 Comments/Petition at 9. 110 MTA Wireless Petition to Deny at 6. In their Joint Opposition, the Applicants argue that MTA Wireless lacks standing to challenge the instant applications because it has not demonstrated that it is a “party in interest” as required by 47 U.S.C. § 309(d)(1). Applicants March 1, 2006 Joint Opposition at ii, 3-6. MTA Wireless states that it is a competitor “in the Alaska MTA” (MTA Wireless March 1, 2006 Reply at 2) and “seeks to expand its coverage area into Anchorage and other parts of Alaska and to increase its available operating capacity . . .” (MTA Wireless Petition to Deny at 2). MTA Wireless does not claim to compete directly with any of the Applicants for wireless telephone customers in its specific service area, which it describes as the Matanuska Valley, “immediately to the north and west of Anchorage.” MTA Wireless Petition to Deny at 2. Even if MTA Wireless lacks standing, however, we have discretion to consider the Petition as an informal objection. See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 14021 n.335 (citing Nextel License Holdings 4, Inc., Order, 17 FCC Rcd 7028, 7033 (WTB 2002) (noting “there is no standing requirement to file an informal objection pursuant to [47 C.F.R. § 1.41].”)); Application of Tabback Broadcasting Company for Renewal of License of Station KAZM(AM), Sedona, Arizona, Memorandum Opinion and Order, 15 FCC Rcd 11899, 11900 (2000) (denying standing but treating petition to deny as informal objection). Accordingly, in the interest of having a full and complete record on which to evaluate the proposed transaction, we consider the merits of MTA Wireless’s arguments herein. For the reasons discussed below in this Order, however, we do not find persuasive MTA Wireless’s arguments for denial of the applications. See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 14021 n.335 (citing Cingular-AT&T Wireless Order, 19 FCC Rcd at 21547 n.196). Federal Communications Commission FCC 06-185 22 GCI and Denali would be lost as potential competitors because both hold PCS licenses but do not currently provide service using this spectrum. Because GCI resells Dobson mobile telephony services, it also allegedly would be lost as an actual competitor because, post-transaction, it would no longer act independently of Alaska DigiTel.111 33. The Applicants argue that in the ALLTEL-Western Wireless Order the Commission concluded that the relevant market participants were facilities-based cellular, PCS, and SMR carriers.112 Further, they assert that a reseller is unable to develop new or innovative services and its ability to price competitively is based on the rate it pays to the underlying facilities-based carrier.113 They also argue that, if the Commission counted resold spectrum against an applicant, it would undermine a reseller’s ability to become a facilities-based mobile telephony provider.114 Thus, the Applicants contend that spectrum on which a carrier has resale rights should not be considered attributable for purposes of a competitive analysis.115 Under Commission precedent, we generally limit our competitive analysis to facilities-based carriers, either nationwide or regional, excluding MVNOs and resellers from consideration when computing initial concentration measures. The Commission has acknowledged, however, that non-facilities based service options have an impact in the marketplace and in some instances may provide additional constraints against anti-competitive behavior.116 34. Our review of the Resale Agreement between GCI and Dobson indicates that GCI is limited in its ability to set price and to offer innovative and new products and services and does not have the ability to constrain anti-competitive behavior in the relevant markets.117 Specifically, the Resale Agreement prohibits GCI from: [REDACTED]118 [REDACTED]119 [REDACTED].120 There is also no difference in either GCI’s or Dobson’s network coverage 111 MTA Wireless Petition to Deny at 6. 112 Applicants March 1, 2006 Joint Opposition at 12; see also ALLTEL-Western Wireless Order, 20 FCC Rcd at 13071 ¶ 39. 113 Applicants March 1, 2006 Joint Opposition at 12-13; Applicants September 13, 2006 Joint Response at 15, 17-18. 114 Applicants August 8, 2006 Joint Opposition at 16. 115 Applicants March 1, 2006 Joint Opposition at 13; Applicants August 8, 2006 Joint Opposition at 15- 16; Applicants September 13, 2006 Joint Response at 17. 116 See DoCoMo-Guam Cellular Order, FCC 06-167 at 17 ¶ 22; ALLTEL-Midwest Wireless Order, FCC 06-146 at 19 ¶ 33; Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070-71 ¶¶ 38-39; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21563 ¶ 92. To date, in evaluating mergers among wireless carriers, the Commission has not included resellers or MVNOs in its initial screen. 117 See generally Resale Agreement. 118 Resale Agreement at Art. I, 3(b)(iv), 3(c). 119 Resale Agreement at Art. I, 2(a). 120 [REDACTED] Resale Agreement at Art. I , 3(b)(iii). Federal Communications Commission FCC 06-185 23 footprint which is often an important differentiation between mobile telephony carriers.121 Finally, even though the Resale Agreement allows for non-price product differentiation by GCI through [REDACTED], we find that this limited amount of non-price product differentiation does not allow GCI to significantly impact the market.122 MTA Wireless and ACS Wireless, after reviewing the Resale Agreement, also acknowledge that GCI will not compete with Dobson on [REDACTED].123 35. In sum, after review of the Resale Agreement, we do not find that GCI should be considered the competitive equivalent of a facilities-based carrier. For purposes of this transaction, consistent with Commission precedent, we exclude GCI’s subscribers from the combined entity’s total when computing initial measures of market concentration. Nevertheless, because non-facilities based service options such as those offered by GCI throughout its Resale Agreement with Dobson may have some impact in the marketplace,124 we consider the role of MVNOs and resellers in our analysis of the likely competitive effects of this transaction.125 2. Initial Screening 36. In evaluating this transaction, we apply the same screening criteria that the Commission has used in prior wireless industry merger orders to identify whether particular markets in any proposed transaction potentially are adversely affected.126 This initial analysis is designed to eliminate from further review those markets in which there is no competitive harm relative to today’s generally competitive mobile telephony market.127 121 Resale Agreement at Art. I, 2(a). See also Eleventh Competition Report, FCC 06-142 at ¶¶ 130-135; Sprint-Nextel Order, 20 FCC Rcd at 14002 ¶ 95; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13077 ¶ 59; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21573 ¶ 125. 122 Resale Agreement at Art. I, 2(a)(iii), 3(c), 3(d), 3(e). [REDACTED] Resale Agreement at Art. I, 3(d). GCI awards a bonus number of miles for signing a contract as well as awards one mile for every dollar spent on mobile telephony service. See http://www.gci.com/forhome/cellular/gsmfactsbenefitsfaqs.htm (last visited Dec. 15, 2006). 123 MTA Wireless July 24, 2006 Comments at 11, 17 [REDACTED]. ACS Wireless September 6, 2006 Comments at 10 [REDACTED]. 124 Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070-71 ¶ 38; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21563 ¶ 92. 125 See Section IV.B.3, infra. 126DoCoMo-Guam Cellular Order, FCC 06-167 at 17 ¶ 23; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 20 ¶ 34; Sprint-Nextel Order, 20 FCC Rcd at 13993-94 ¶¶ 63-65; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13071-74 ¶¶ 40-49; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568-69 ¶¶ 106-109. 127 ALLTEL-Western Wireless Order, 20 FCC Rcd at 13073-74 ¶ 48; Alltel-Western Wireless Order 20 FCC Rcd at 10373-74 ¶ 48; Sprint-Nextel Order, 20 FCC Rcd at 13993 ¶ 62; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 108. Federal Communications Commission FCC 06-185 24 37. First, because spectrum is a necessary resource for carriers to compete effectively, we have examined the impact of the proposed GCI-Alaska DigiTel-Denali transaction on the concentration of spectrum holdings, or spectrum aggregation that would occur in each geographic market.128 Consistent with the approach the Commission has taken when examining previous transactions involving aggregation of PCS and other spectrum used in the provision of mobile telephony services, we give further review to geographic markets where, post-transaction, the merged entity would have a 10 percent or greater interest in 70 MHz or more of cellular, PCS, and SMR spectrum.129 In our analysis of GCI’s spectrum holdings, we found have only one geographic area, St. Paul Island, where GCI would have a 10 percent or greater interest in 70 MHz or more of spectrum, and our analysis of the competitive effects of this spectrum aggregation is discussed below.130 38. Second, we have estimated subscriber-based market concentration measures for various geographic markets in order to examine potential market concentration concerns that might arise from the proposed transaction. A horizontal transaction is unlikely to create or enhance market power or facilitate its exercise unless the transaction significantly increases concentration and results in a concentrated market.131 Specifically for each geographic market, we have calculated the HHI and the change in the HHI for various geographic markets.132 Our market concentration analysis of the GCI-Alaska DigiTel transaction applies the same thresholds as the Commission used in previous merger orders: an HHI of 2800 with a change of 100 or greater or a change in the HHI of 250 regardless of the level of the HHI.133 These thresholds are based on our current evaluation of the mobile telephony market.134 As discussed above, we 128 DoCoMo-Guam Cellular Order, FCC 06-167 at 17 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49. 129 See DoCoMo-Guam Cellular Order, FCC 06-16, at 17-18 ¶ 23; ALLTEL-Midwest Order, FCC 06-146 at 22 ¶ 39; Sprint-Nextel Order, 20 FCC Rcd at 13993-94 ¶¶ 63, 65; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568-69 ¶¶ 106, 109. 70 megahertz represents a little more than one third of the total bandwidth available for mobile telephony today, leaving approximately 130 megahertz of capacity available for a competitive response by other carriers in a local market. ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49. 130 See discussion below in Section IV.B.2(a). 131 DoCoMo-Guam Cellular Order, FCC 06-16 at 17 ¶ 23; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13067 ¶ 23; see also DOJ/FTC Merger Guidelines § 0.1, n.6. 132 DoCoMo-Guam Cellular Order, FCC 06-16 at 17 ¶ 23; ALLTEL-Midwest Order, FCC 06-146 at 22 ¶ 38; Sprint-Nextel Order, 20 FCC Rcd at 13993-94 ¶ 63; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 50; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 106. 133 See DoCoMo-Guam Cellular Order, FCC 06-16 at 17 ¶ 23; ALLTEL-Midwest Wireless Order, FCC 06-146 at 21 ¶ 36; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 46; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 106. 134 The Commission previously concluded that a market in which a transaction causes a change of less than 100 in the HHI need not be examined further because, even if the post-transaction HHI for such a market would be greater than 2800, the loss of a competitor with such a small market share is not likely to (continued….) Federal Communications Commission FCC 06-185 25 conclude that GCI, as a reseller, is not an independent competitor,135 and therefore the change in the HHI for all relevant geographic markets is zero because GCI’s subscribers are excluded from the combined entity’s total subscriber count.136 Accordingly, we find no need for a further, in depth analysis of any relevant geographic market. We do go on to examine other horizontal effects that arise from the structure of the particular transaction.137 39. In the discussion that follows, we explain in more detail our evaluation of the spectrum aggregation and subscriber-based market concentration that would result from the proposed GCI-Alaska DigiTel-Denali transaction. a. Spectrum Aggregation 40. To apply the initial screen examining spectrum aggregation for our competitive review, we must first determine the amount of spectrum that should be attributed to GCI. In the filings before us, there is significant disagreement between the MTA Wireless, ACS Wireless, and Applicants on this issue. 41. MTA Wireless contends that the Commission should attribute 125 MHz of spectrum to GCI. This would include: (1) all 30 MHz of GCI’s B-block PCS license; (2) Alaska DigiTel’s 30 MHz of spectrum holdings post-transaction (the 15 MHz A-block PCS license and Denali’s 15 MHz A-block PCS license that Alaska DigiTel would acquire from Denali); (3) Dobson’s 55 megahertz of spectrum (both its 25 MHz cellular license and its 30 MHz C-block PCS license in Anchorage); 138 and (4) 10 MHz of PCS spectrum in Anchorage held by SprintCom, a Sprint Nextel subsidiary.139 In particular, MTA Wireless argues that Dobson’s spectrum should be attributed to GCI because the GCI-Dobson resale agreement essentially makes GCI and Dobson technical and operational partners,140 and contends that the SprintCom spectrum should be attributed because of roaming and service agreements that SprintCom currently has with Alaska DigiTel to serve Sprint Nextel customers.141 ACS Wireless, meanwhile, contends that the Commission should attribute 115 MHz of spectrum to GCI, generally agreeing with MTA Wireless’s contentions with respect to attributing GCI’s 30 MHz, Alaska DigiTel’s 30 MHz, and Dobson’s 55 MHz of spectrum to GCI.142 MTA Wireless and (Continued from previous page) cause significant transaction-specific harm. ALLTEL-Western Wireless Order, 20 FCC Rcd at 13073 ¶ 47; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 107. 135 See Section IV.B.1(d), supra. 136 See para. 65, infra. 137 See Section IV.B.3(b), infra. 138 MTA Wireless Petition to Deny at 9-11; MTA Wireless July 24, 2006 Comments at 19; MTA Wireless September 6, 2006 Comments at 22. 139 MTA Wireless August 2, 2006 Comments at 4; MTA Wireless September 6, 2006 Comments at 27. 140 MTA Wireless July 24, 2006 Comments at 12-14. 141 MTA Wireless August 2, 2006 Comments at 4; MTA Wireless September 6, 2006 Comments at 27. Federal Communications Commission FCC 06-185 26 ACS Wireless ask the Commission to deny the applications or designate the applications for an evidentiary hearing.143 ACS Wireless and MTA Wireless further contend that, if the Commission grants the applications, it should order GCI to divest spectrum.144 42. In their application, the Applicants assert that no more than 50 MHz of spectrum should be attributed to GCI – which would include only 20 MHz of GCI’s 30 MHz broadband PCS license (because GCI currently is leasing 10 MHz of that spectrum to Dobson) plus Alaska DigiTel’s 30 MHz of PCS spectrum – except with regard to St. Paul Island, where Alaska DigiTel holds an additional 20 MHz of cellular spectrum.145 In later pleadings, the Applicants argue that the Commission should not even attribute any of Alaska DigiTel’s spectrum holdings to GCI.146 43. After reviewing the record and the various arguments made by the parties, we find that a total of 60 MHz of spectrum should be attributed to GCI throughout the state of Alaska except with regard to St. Paul Island, where a total of 80 MHz of spectrum should be attributed to GCI. Because we conclude that it is unlikely that GCI’s attributable interest would result in competitive harms, even with regard to St. Paul Island, we do not impose conditions requiring the GCI to divest any of the spectrum holdings associated with the proposed transaction. Below, we address in more detail the various claims that the parties make with regard to spectrum aggregation. 44. GCI’s 30 MHz of PCS spectrum. The Applicants contend that, for purposes of the Commission’s review of spectrum aggregation, only 20 of the 30 MHz of the spectrum that GCI currently holds under its PCS license should be attributed to GCI because it is leasing 10 MHz of its PCS spectrum to Dobson pursuant to a long-term de facto transfer spectrum leasing (Continued from previous page) 142 ACS Wireless July 21, 2006 Comments/Petition at 6, 8-9; ACS Wireless September 6, 2006 Comments at 15-17; MTA Wireless August 2, 2006 Comments at 4-5. 143 MTA Wireless Petition to Deny at 2, 7, 15; MTA Wireless December 4, 2006 Comments at 1; ACS Wireless July 21, 2006 Comments/Petition at 5, 20. 144 ACS Wireless July 21, 2006 Comments/Petition at 5, 20; MTA Wireless August 2, 2006 Comments at 10-11. MTA Wireless argues that this capacity should be made available for lease or acquisition. MTA Wireless December 4, 2006 Comments at 5. 145 Application Exhibit 1 at 4; Applicants March 1, 2006 Joint Opposition at 10-14; Applicants August 8, 2006 Joint Opposition at 3-4, 22; Applicants September 13, 2006 Joint Response at 6; Applicants December 6, 2006 Joint Response at 3. The Applicants also argue that the spectrum being acquired is PCS and not cellular spectrum and that the Commission has previously recognized that cellular carriers have certain advantages, particularly in rural areas, including first-mover advantages and superior propagation characteristics of cellular frequencies to PCS frequencies. According to the Applicants, as this transaction involves PCS spectrum in markets that are dominated by cellular carriers, it would not result in competitive harms to the market. See Applicants March 1, 2006 Joint Opposition at 11-12. 146 Applicants September 13, 2006 Joint Response at 6-7. Federal Communications Commission FCC 06-185 27 arrangement.147 MTA Wireless and ACS Wireless disagree, arguing that the Commission should attribute all 30 MHz of GCI’s B-block PCS license to GCI.148 45. Because GCI holds the PCS license, and as licensee ultimately controls use of its spectrum, we will continue to attribute to GCI all 30 MHz of spectrum associated with its license. This approach is consistent with the Commission’s conservative approach when performing a competitive analysis in the context of a proposed merger, where all spectrum in which the merged entity would have a 10 percent or greater interest is attributed to that entity.149 46. Alaska DigiTel’s 30 MHz of PCS spectrum and its 20 MHz of cellular spectrum on St. Paul Island. MTA Wireless and ACS Wireless assert that the Commission should attribute to GCI all 30 MHz of Alaska DigiTel’s post-transaction spectrum holdings (in Alaska DigiTel’s 15 MHz PCS license and Denali’s 15 MHz PCS license) because GCI would be obtaining a 78 percent ownership interest in Alaska DigiTel as well as board membership and super-majority rights. According to MTA Wireless and ACS Wireless, GCI’s equity interest and single seat on Alaska DigiTel’s board would provide GCI with control of the Alaska DigiTel/Denali spectrum.150 In several of their pleadings, the Applicants assert that GCI would not control Alaska DigiTel , and that those spectrum holdings should not be attributed to GCI.151 47. The parties have submitted extensive pleadings in support of their respective contentions. Specifically, MTA Wireless contends that GCI would be obtaining both de jure and 147 Application Exhibit 1 at 4; Applicants March 1, 2006 Joint Opposition at 10-11; Applicants August 8, 2006 Joint Opposition at 22-23. The Applicants argue that the 10 MHz of spectrum leased to Dobson should not be attributed to GCI. This spectrum was first leased pursuant to a spectrum manager lease. See Notification of Spectrum Manager Lease between Dobson and GCI, File No. 0001825292 (filed July 30, 2004);. Application Exhibit 1 at 4. We note, however, that GCI subsequently filed a long-term de facto transfer lease application and is currently leasing this spectrum along with an additional 2 MHz of spectrum to Dobson pursuant to a long-term de facto transfer leasing arrangement. See Application for Dobson to De Facto Transfer Lease Spectrum held by GCI, File No. 0002134968 (filed April 22, 2005). 148 MTA Wireless Petition to Deny at 10; ACS Wireless July 21, 2006 Comments/Petition at 6 n21. Among other things, MTA Wireless argues that the current GCI/Dobson spectrum leasing arrangement is limited to three years, and expires in approximately 30 months, and thus the Commission should continue to attribute it to GCI. MTA Wireless Petition to Deny at 10. [REDACTED]. GCI will have access to the spectrum it leases to Dobson in the long run. ACS Wireless July 21, 2006 Comments/Petition at 6 n.21. 149 See DoCoMo-Guam Cellular Order, FCC 06-167 at 17-18 ¶ 23; ALLTEL-Midwest Order, FCC 06- 146 at 22 ¶ 39; Sprint-Nextel Order, 20 FCC Rcd at 13993-94 ¶¶ 63, 65; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568-69 ¶¶ 106, 109. 150 MTA Wireless Petition to Deny at 9-10; MTA Wireless March 13, 2006 Reply at 4-9; ACS Wireless July 21, 2006 Comments/Petition at 6-7; ACS Wireless December 4, 2006 Comments at 1-2 151 Applicants March 1, 2006 Joint Opposition at 8-9; Applicants August 8, 2006 Joint Opposition at 5-14; Applicants September 13, 2006 Joint Response at 7-14; Applicants December 6, 2006 Joint Response at 2 Federal Communications Commission FCC 06-185 28 de facto control of Alaska DigiTel and thus should be attributed with its 30 MHz of spectrum.152 MTA Wireless cites to provisions in the Operating Agreement to support its claim that GCI would have de facto control of Alaska DigiTel – including GCI’s majority equity position, GCI’s veto rights over major managerial decisions, GCI’s veto power over the adoption of Alaska DigiTel’s annual budget, and GCI’s right to acquire the remaining minority ownership interest in Alaska DigiTel.153 ACS Wireless agrees with MTA Wireless’s arguments about attributing Alaska DigiTel spectrum to GCI because of the degree of interest it would be acquiring in Alaska DigiTel.154 In addition, ACS Wireless contends that GCI’s investor presentation at its 2006 annual stockholder meeting suggested that it planned to manage and/or develop Alaska DigiTel as part of GCI’s own business strategy.155 ACS Wireless and MTA Wireless recommend that the Commission adopt conditions that would prevent GCI from exercising control over Alaska DigiTel.156 48. The Applicants claim that the Commission should apply its “designated entity” control standards and conclude that GCI will not have de facto control of Alaska DigiTel.157 The Applicants further contend that they will not have day-to-day control of Alaska 152 MTA Wireless March 13, 2006 Reply at 4-9; MTA Wireless July 24, 2006 Comments at 3-9, 18; MTA Wireless September 6, 2006 Comments at 3-20; MTA Wireless December 4, 2006 Comments at 2. For instance, MTA Wireless argues that the Commission should apply its traditional rules governing de jure and de facto control of the post-transaction licenses and conclude that GCI will have both. MTA Wireless July 24, 2006 Comments at 5-9, 18 (discussing various control analyses, including Application of Baker Creek Communications, L.P., DA 98-1921, Memorandum Opinion and Order, 13 FCC Rcd 18709 (1998)). 153 MTA Wireless July 24, 2006 Comments at 3-9, 18; MTA Wireless September 6, 2006 Comments at 12-18. MTA Wireless argues that by exercising control over Alaska DigiTel’s budget, GCI will effectively be able to control the identification and funding of all the operational aspects of Alaska DigiTel. Further, MTA Wireless contends that GCI, through its unconditional right to acquire the remaining minority interest in Alaska DigiTel, will be able to exercise control because if the Board of Managers chooses to defy GCI, GCI will be able to buy them out. MTA Wireless July 24, 2006 Comments at 7, 10-11. 154 ACS Wireless July 21, 2006 Comments/Petition at 4, 6-8; ACS Wireless September 6, 2006 Comments at 2, 4, 24 -28; ACS Wireless December 4, 2006 Comments at 3. 155 ACS Wireless July 21, 2006 Comments/Petition at 8, Exhibit B (noting that, at the presentation, GCI included Alaska DigiTel’s subscribers in its wireless subscriber count and presented the wireless sector, including Alaska DigiTel, as a major growth area). 156 These conditions include eliminating GCI’s ability to veto certain Alaska DigiTel managerial decisions, eliminating GCI’s right to requiring the remaining interest in Alaska DigiTel, and prohibiting GCI from consolidating Alaska DigiTel’s financial statements with its own. ACS Wireless September 6, 2006 Comments at 36-37; ACS Wireless December 4, 2006 Comments at 4-5; MTA Wireless December 4, 2006 Comments at 3. 157 Applicants August 8, 2006 Joint Opposition at 11; Applicants March 1, 2006 Joint Opposition at 8 n.18. Federal Communications Commission FCC 06-185 29 DigiTel/Denali.158 In response to MTA Wireless’s contentions regarding GCI’s veto power over Alaska DigiTel’s annual budget, the Applicants agree to amend the Operating Agreement to remove any veto rights of GCI with regards to Alaska DigiTel’s budget.159 We therefore condition this Order on the Applicants’ amendment of the Alaska DigiTel Operating Agreement to remove GCI’s veto rights with regard to Alaska DigiTel’s budget.160 49. In determining whether to attribute Alaska DigiTel’s spectrum to GCI for purposes of applying the Commission’s initial screen for spectrum aggregation, we do not need to reach or address the various arguments about control presented by MTA Wireless, ACS Wireless, or the Applicants.161 In attributing spectrum where ownership issues are raised, the Commission generally follows a conservative approach. Specifically, the Commission’s practice has been to include in its screen all cellular, PCS, and SMR spectrum in which the merged or resulting entity would have a 10 percent or greater interest.162 Because GCI would be obtaining a 78 percent equity interest in Alaska DigiTel/Denali’s spectrum, we will attribute to GCI the following: Alaska DigiTel/Denali’s 30 MHz of A-block PCS spectrum across the State of Alaska and, in addition, Alaska DigiTel’s 20 MHz of cellular spectrum on St. Paul Island. 50. Dobson’s 55 MHz of PCS and cellular spectrum. Both MTA Wireless and ACS Wireless argue that the Commission should attribute all 55 MHz of Dobson’s spectrum in the Anchorage market to GCI because it resells Dobson’s mobile services and leases spectrum to Dobson. The Applicants contend that, consistent with previous orders and Commission practice, in which the Commission has not attributed spectrum associated with a resale arrangement to the reseller, the Commission should not attribute Dobson’s spectrum to GCI. 51. Specifically, MTA Wireless and ACS Wireless contend that all of Dobson’s spectrum holdings should be attributed to GCI due to the 2004 Resale Agreement, its companion Letter of Intent, and the Lease Agreements. MTA Wireless and ACS Wireless argue that these 158 Applicants August 8, 2006 Joint Opposition at 2, 4, 8. For instance, the Applicants assert that GCI will only have the power to appoint one out of four to eight board members, and will not have control of the Board of Managers. 159 Applicants December 19 Joint Comments at 1; See also Applicants August 8, 2006 Joint Opposition at 13-14; Applicants December 6, 2006 Joint Response at 2-3 (offering to amend the Operating Agreement to provide that the consent of the GCI Board Member to the Alaska DigiTel budget “shall not be unreasonably withheld”). 160 See list of conditions in Appendix A. 161 As discussed above, the Applicants contend that the 78 percent ownership interest that GCI would be acquiring would in fact be “non-controlling,” while MTA Wireless and ACS Wireless assert that GCI would be obtaining de facto control of Alaska DigiTel. Applicants acknowledge that were GCI to determine to exercise its option to acquire more than what they would deem to be a non-controlling interest, they would have to file new applications. Application Exhibit 1 at 2 n.6; Applicants December 6, 2006 Joint Response at 3. See supra note 31. 162 See DoCoMo-Guam Cellular Order, FCC 06-167 at 17-18 ¶ 23; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21597 ¶ 196. Federal Communications Commission FCC 06-185 30 agreements reveal a collaborative relationship that encompasses Dobson’s access to GCI’s spectrum through leasing and GCI’s reliance on Dobson’s platform and reselling of Dobson’s wireless services without the need to build its own infrastructure. They also allege that the Resale Agreement establishes close and strategic cooperation with regard to [REDACTED], and thus shows that GCI and Dobson are not acting as competitors but instead as partners. MTA Wireless and ACS Wireless assert that the Letter of Intent further substantiates the alleged collaborative relationship evidenced by the Resale Agreement.163 The Letter of Intent, executed at the same time as the Resale Agreement, sets forth an additional agreement between GCI and Dobson to engage in further discussions and good faith negotiations on possible future cooperative arrangements, including [REDACTED].164 Finally, MTA Wireless and ACS Wireless contend that the close relationship has been constructed with the express prospect of GCI ultimately acquiring Dobson’s wireless assets in Alaska.165 MTA Wireless and ACS Wireless request that the Commission broaden its previous general information request to require Applicants to produce all other documents that might exist between GCI and Dobson relating to possible cooperation.166 Further, ACS Wireless requests that the Commission require GCI to end any further negotiations with Dobson regarding matters (discussed above) referenced in the Letter of Intent.167 Finally, MTA Wireless requests that the Commission condition approval of this transaction on elimination of several elements in the Resale Agreement.168 52. The Applicants present several arguments as to why Dobson’s spectrum should not be attributed to GCI. The Applicants contend that there is no legal precedent for MTA Wireless’s and ACS Wireless’s position and that the Commission has never considered resale agreements when assessing spectrum aggregation, stating that the Commission’s focus generally is on assessing facilities-based competition in the market. They assert that, as a reseller of Dobson’s services, GCI neither owns nor controls any of Dobson’s network facilities, and is beholden to Dobson for all critical aspects of service deployment, including [REDACTED]. They state that if an applicant acting as a reseller is attributed with the spectrum associated with a resale of mobile telephony services, then the Commission would be undermining the ability of 163 MTA Wireless July 24, 2006 Comments at 9-18; MTA Wireless September 6, 2006 Comments at 21- 25; MTA Wireless September 25, 2006 Comments 1-5; MTA Wireless December 4, 2006 Comments at 3; ACS Wireless July 21, 2006 Comments/Petition at 9; ACS Wireless September 6, 2006 Comments at 8-12, 16-18; ACS Wireless September 27, 2006 Comments at 1-6; ACS Wireless December 4, 2006 Comments at 2-3. 164 See generally Letter of Intent. 165 MTA Wireless September 6, 2006 Comments at 24-25; ACS Wireless September 6, 2006 Comments at 11-12. 166 MTA Wireless September 25, 2006 Comments at 4-5; ACS Wireless September 6, 2006 Request for Supplemental Documents at 1-3; ACS Wireless September 27, 2006 Comments at 5. 167 ACS Wireless September 27, 2006 Comments at 6-7; MTA Wireless December 4, 2006 Comments at 4. 168 These elements include [REDACTED] and the “other cooperative arrangements” that are parts of the Resale Agreement. MTA Wireless December 4, 2006 Comments at 4. Federal Communications Commission FCC 06-185 31 the reseller to become a facilities-based provider in its own right. As for collaboration, the Applicants state that the general cooperation procedures are necessary features of a reseller agreement and are appropriately designed to give the reseller notice of network changes and input on certain operational issues.169 As regards the good faith negotiations discussed in the Letter of Intent, GCI states that there has been no progress on any of these topics and argues that this verifies that GCI and Dobson are acting independently and on an arms-length basis.170 Finally, the Applicants point out that any later effort by GCI to acquire Dobson’s Alaska properties would have to be approved by the Commission.171 53. We are not persuaded that Dobson’s spectrum should be attributed to GCI for purposes of our competitive analysis. Such a decision would depart from Commission practice not to attribute spectrum associated with a resale of mobile telephony services to the reseller.172 As discussed above, as a general matter the Commission has not considered resellers to be competitors for purposes of conducting the initial screen. A reseller generally does not have the ability to control price, service, coverage, or contract terms, and our examination of the Resale Agreement and the Letter of Intent establishes [REDACTED].173 Further, in contrast to its ownership interest in Alaska DigiTel (where we attribute Alaska DigiTel’s spectrum, as discussed above), GCI holds no ownership interest in Dobson, and thus does not have any of the influence over Dobson that would be associated with ownership interests. Consistent with our determination above that GCI not be considered the competitive equivalent of a facilities-based carrier, we would not expect that GCI in its role as reseller would act as a full competitor with Dobson. 54. After examining these agreements, we find that nothing in them changes the fact that GCI, a reseller, does not have control over Dobson’s spectrum or its business decisions related to use of that spectrum. As Applicants suggest, significant cooperation and communication between Dobson and its reseller is appropriate, and does not mean here that Dobson’s spectrum should be attributed to GCI. Even though the Resale Agreement provides GCI with [REDACTED], this is consistent with the general practice associated with resale arrangements to provide a reseller with the ability to accommodate technical and operational changes to the network and does not provide GCI with the ability to control these changes.174 In 169 Applicants March 1, 2006 Joint Opposition at 12-14; Applicants August 8, 2006 Joint Opposition at 15-22; Applicants September 13, 2006 Joint Response at 15-20. 170 Letter of Intent at 1-2. 171 Applicants September 13, 2006 Joint Response at 19. 172 See DoCoMo-Guam Cellular Order, FCC 06-167 at 17 ¶ 22; ALLTEL-Midwest Order, FCC 06-146 at 19 ¶ 33; Sprint-Nextel Order, 20 FCC Rcd at 13991 ¶ 58; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13070-71 ¶ 38; Cingular-AT&T Wireless Order, 20 FCC Rcd at 21563 ¶ 92. 173 See Section IV.B.1(d), supra. 174 Resale Agreement at Art. I, 3(b)(v). To the extent that this [REDACTED] raises the potential for coordinated interaction, we address that issue below. See Section IV.B.3(b), infra. Federal Communications Commission FCC 06-185 32 the Resale Agreement, Dobson agrees [REDACTED].175 This provision does not give GCI any control over Dobson’s decisions with regard to the use of its spectrum or the development of its network, and thus does not give rise to any potential competitive harm. The Letter of Intent, which by its own terms is merely an agreement to negotiate in good faith, likewise does not give GCI any control over Dobson’s business decisions. Indeed, the fact that GCI and Dobson have reached no agreement on any of the topics in the Letter of Intent in almost two and a half years demonstrates that GCI does not have the ability to influence Dobson’s network decisions. Finally, we observe that even were Dobson ultimately to implement the network and service enhancements suggested as possibilities in the Letter of Intent, GCI still would not have any control over Dobson, and the network improvements could result in public interest benefits in providing additional services to the public. Having requested and reviewed the documents most relevant to our examination of the GCI-Dobson relationship, we do not believe additional information is necessary at this time, and we deny the requests of MTA Wireless and ACS Wireless that the Commission seek additional information on this matter176 as well as their requests for additional conditions on the Resale Agreement and Letter of Intent.177 55. SprintCom’s 10 MHz of PCS spectrum in Anchorage. MTA Wireless asserts that 10 MHz of PCS spectrum in the Anchorage market held by SprintCom, a subsidiary of Sprint Nextel, should be attributed to GCI when the Commission considers spectrum aggregation.178 MTA Wireless bases its argument on its and ACS Wireless’s joint contention that GCI will be acquiring control of Alaska DigiTel under the proposed transaction, and that Alaska DigiTel currently is providing roaming and other services to Sprint Nextel.179 Both argue that GCI’s 175 Resale Agreement at Art. I, 9 (b). See also [REDACTED], Art. III, 18 [REDACTED]. 176 Of course, we note that were GCI ultimately to seek to acquire Dobson, which is not before us, we would attribute Dobson’s spectrum to GCI when evaluating potential competitive concerns. 177 This includes any condition relating to the spectrum leasing arrangements that, as we discuss elsewhere, are consistent with Commission policies. See Section IV.B.4(a), infra. Also, we have already taken GCI’s leased spectrum into account in evaluating the spectrum aggregation issues related to this proposed transaction when we attributed all of the leased spectrum to GCI. See paras. 44-45, supra. 178 MTA Wireless August 2, 2006 Comments at 4. SprintCom holds the 10 MHz D-block PCS license in BTA014 Anchorage, Alaska. 179 ACS Wireless July 21, 2006 Comments/Petition at 6; ACS Wireless December 4, 2006 Comments at 2. ACS Wireless and MTA Wireless argue that the Commission should request the Applicants to submit any agreements it has with Sprint Nextel concerning the use by Sprint Nextel of Alaska DigiTel’s facilities in Alaska as well as any other cooperative arrangements between or among the parties for the provision of mobile telephony services. See id. at 14; MTA Wireless August 2, 2006 Comments at 4. In the Agreement Between Applicants, MTA Wireless, and ACS Wireless Alaska DigiTel agreed to [REDACTED]. See Agreement Between Applicants, MTA Wireless, and ACS Wireless at 2. Alaska DigiTel provided the Roaming Agreement and the Service Agreement to MTA Wireless and ACS Wireless. See MTA Wireless September 6, 2006 Comments at 25; ACS Wireless September 6, 2006 Comments at 17-18 n.58. On October 10, 2006, Alaska DigiTel filed a letter stating that they had provided Wireless Telecommunications Bureau staff with copies of the Sprint-Alaska DigiTel Roaming Agreement and Service Agreement. See Sprint Agreement Letter. Federal Communications Commission FCC 06-185 33 interests will be able to competitively align itself with SprintCom, increasing its market power.180 Further, MTA Wireless and ACS Wireless argue that, even though both the Alaska DigiTel-Sprint Nextel Service Agreement will terminate in December 2006, the future status of the joint network181 is unknown, and therefore there may be an ongoing relationship between Sprint Nextel and Alaska DigiTel.182 MTA Wireless claims the post-termination status of the joint network may be relevant to the Commission’s analysis of this transaction.183 56. The Applicants argue that the Commission should reject MTA Wireless’s and ACS Wireless’s arguments that are based upon the Roaming Agreement and the Service Agreement between Sprint Nextel and Alaska DigiTel. The Applicants contend that MTA Wireless even concedes that the Service Agreement expires in December 2006 and that notice has been given that this agreement will not be renewed. Therefore, the Applicants reason that MTA Wireless’s and ACS Wireless’s contentions amount to unsupported speculation that these agreements would be harmful to competition.184 57. After review of the record, including the Roaming Agreement and the Service Agreement, we do not find evidence that there will be an ongoing relationship between Sprint Nextel and Alaska DigiTel that would result in competitive harm. Furthermore, the provisions of the Roaming Agreement do not provide Alaska DigiTel with control or influence over Sprint Nextel spectrum in Anchorage, and therefore we conclude that, post-transaction, GCI will not have either control or influence over the Sprint Nextel spectrum. Lastly, on [REDACTED], Sprint Nextel provided notice to Alaska DigiTel that it was terminating the Service Agreement, and therefore the Service Agreement would expire on December 15, 2006.185 Further, the Service Agreement provides specific termination provisions that require: [REDACTED].186 Therefore, [REDACTED], the joint network would no longer exist since Sprint Nextel and Alaska DigiTel would regain sole possession of their respective facilities/sites.187 58. Conclusion. In sum, for purposes of analyzing spectrum aggregation in this transaction, we will attribute 60 MHz of spectrum to GCI throughout the state of Alaska, except for St. Paul Island where we will attribute 80 MHz of spectrum to GCI.188 Accordingly, 180 ACS Wireless July 21, 2006 Comments/Petition at 6; MTA Wireless August 2, 2006 Comments at 4. 181 [REDACTED] See [REDACTED]at 2. [REDACTED]. 182 MTA Wireless September 6, 2006 Comments at 27; ACS Wireless September 6, 2006 Comments at 17-18 n.58. 183 MTA Wireless September 6, 2006 Comments at 27-28. 184 Applicants September 13, 2006 Joint Response at 26-27. 185 See Notice of Service Agreement Termination Letter. 186 See Service Agreement at 5. 187 [REDACTED] Since the Letter of Intent does not demonstrate that GCI would have access to Sprint Nextel’s spectrum, it similarly does not persuade us that we should attribute Sprint Nextel’s spectrum to GCI. 188 Application Exhibit 1 at 5. Federal Communications Commission FCC 06-185 34 consistent with Commission precedent relating to the initial screen pertaining to spectrum aggregation, we conclude that further analysis is only necessary with regard to St. Paul Island, where GCI would be attributed with more than 70 MHz of spectrum,189 and no further analysis is necessary where less than 70 MHz of spectrum is attributed to the entity that would result from the proposed transaction.190 In a subsequent subsection, we go on to examine other horizontal effects that arise from the structure of the particular transaction.191 59. As for St. Paul Island, after further analysis we do not find that the aggregation of 80 MHz of spectrum by GCI will result in undue competitive harm. First, we note that post- transaction, there would be sufficient spectrum available for rival carriers to deploy mobile telephony service on St. Paul Island. Currently, Bristol Bay Cellular holds the 25 MHz B-block cellular license, Jasper Wireless, Inc., holds 5 MHz of the A-block cellular license, Dobson holds 30 MHz of PCS spectrum, ACS Wireless and Lewis and Clark each hold 10 MHz of PCS spectrum, and Sprint Nextel holds approximately 14 MHz of PCS and SMR spectrum. Therefore, we find that there is sufficient spectrum for other carriers to provide facilities-based service on St. Paul Island. 60. In conclusion, after examining the potential concerns that might arise from the spectrum aggregation that would result from this proposed transaction, we determine not to impose any conditions requiring the GCI to divest any of its spectrum holdings throughout Alaska or on St. Paul Island. b. Market Concentration 61. For purposes of examining subscriber-based market concentration for the relevant geographic markets that are affected by the proposed GCI-Alaska DigiTel-Denali transaction, we calculated the HHI and the change in HHI that would result from the proposed transaction, consistent with the Commission’s practice in its recent orders.192 In calculating HHIs and the change in the HHIs, we analyzed NRUF data193 using two sets of geographic areas, Component 189 See DoCoMo-Guam Cellular Order, FCC 06-167 at 17-18 ¶¶ 23-24; ALLTEL-Midwest Order, FCC 06-146 at 22 ¶ 39; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49; Cingular-AT&T Wireless Order, 20 FCC Rcd at 21568-69 ¶ 109. 190 See, e.g., Sprint-Nextel Order, 20 FCC Rcd at 13994 ¶ 65 (although 70 MHz represents a little more than one-third of the total bandwidth available for mobile telephony today, a market may contain more than three viable competitors even where one entity controls this amount of spectrum because many carriers are competing successfully with less bandwidth); ALLTEL-Western Wireless Order, 20 FCC Rcd at 13074 ¶ 49; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568-69 ¶ 109. 191 See Section IV.B.3(b), infra. 192 See DoCoMo-Guam Cellular Order, FCC 06-167, at 18 ¶ 24; ALLTEL-Midwest Order, FCC 06-146 at 21 ¶ 36; Sprint-Nextel Order, 20 FCC Rcd at 13993-94 ¶ 63; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13073 ¶ 46; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 106. 193 These data indicate the number of assigned phone numbers that a wireless carrier has in a particular wireline rate center. Rate centers are geographic areas used by local exchange carriers for a variety of reasons, including the determination of toll rates. See HARRY NEWTON, NEWTON’S TELECOM (continued….) Federal Communications Commission FCC 06-185 35 Economic Areas (“CEAs”)194 and Cellular Market Areas (“CMAs”).195 As discussed in the ALLTEL-Western Wireless Order and Cingular-AT&T Wireless Order, both geographic areas are consistent with the local market definition the Commission has applied in these recent orders and each brings a different perspective to the analysis.196 We conclude from our analysis that GCI, (Continued from previous page) DICTIONARY: 19TH EXPANDED & UPDATED EDITION 660 (July 2003). All mobile wireless carriers must report to the FCC the quantity of their phone numbers that have been assigned to end users, thereby permitting the Commission to calculate the total number of mobile subscribers. For purposes of geographical analysis, the rate center data can be associated with a geographic point, and all of those points that fall within a county boundary can be aggregated together and associated with much larger geographic areas based on counties. 194 CEAs are defined by the Bureau of Economic Analysis (“BEA”), and are composed of a single economic node and surrounding counties that are economically related to the node. There are 348 CEAs in the 50 states and the District of Columbia. Of the 3,141 U.S. counties, 2,267 are non-nodal counties that are assigned to a CEA based first on county-to-county commuting flows from the 1990 Census and second on locations of the most widely read regional newspapers. Three quarters of non-nodal counties were assigned based on commuting patterns. See Kenneth P. Johnson, Redefinition of the BEA Economic Areas, SURV. OF CURRENT BUS., Feb. 1995, at 75-81. In November 2004, the Bureau of Economic Analysis updated definitions for CEAs. The total number of CEAs decreased from 348 to 344. Non- nodal county assignment continued to be based on county-to-county commuting flows and locations of the most widely read regional newspapers. See Kenneth P. Johnson & John R. Kort, 2004 Redefinition of the BEA Economic Areas, SURV. OF CURRENT BUS., Nov. 2004 at 68-71. For purposes of this transaction, we did not adopt the new CEA definitions. 195 See DoCoMo-Guam Cellular Order, FCC 06-167 at 18 ¶ 24, n.110; ALLTEL-Midwest Order, FCC 06- 146 at 21 ¶ 35; Sprint-Nextel Order, 20 FCC Rcd at 13993 ¶ 63; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13072 ¶ 44; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21567 ¶ 104. CMAs are the regions originally used by the Commission for issuing cellular licenses. There are 734 CMAs, made up of 305 Metropolitan Statistical Areas, 428 Rural Service Areas, and a market for the Gulf of Mexico. See Eleventh Competition Report, FCC 06-142 at 28 ¶ 62. RSAs are regions defined by the Commission for the purpose of issuing spectrum licenses. See Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, WT Docket No. 05-71, Tenth Competition Report, 20 FCC Rcd 15908, 15935 ¶ 70 n.145. 196 ALLTEL-Midwest Order, FCC 06-146 at 21 ¶ 35; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13072 ¶ 45; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21567 ¶ 105. CEAs were designed to represent consumers’ patterns of normal travel for personal and employment reasons and should replicate areas within which groups of consumers would be expected to shop for wireless service. In addition, CEAs generally constitute areas within which any service providers present would have an incentive to provide relatively ubiquitous service. See Kenneth P. Johnson, Redefinition of the BEA Economic Areas, SURV. OF CURRENT BUS., Feb. 1995, at 75; ALLTEL-Midwest Order, FCC 06-146 at 21 ¶ 35; ALLTEL- Western Wireless Order, 20 FCC Rcd at 13072 ¶ 45; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21567 ¶ 105. CMAs, in turn, are the areas in which the Commission initially granted licenses for cellular service. Although license partitioning has altered this initial licensing structure in many areas, CMAs continue to serve as reasonable areas for determining the number of competitors from which consumers may choose, because the Commission’s licensing programs, to a large extent, have shaped the mobile telephony services market by defining the initial areas where carriers were able to provide facilities-based (continued….) Federal Communications Commission FCC 06-185 36 as a reseller, is not an independent competitor, and therefore the change in the HHI for all relevant geographic markets would be zero.197 62. MTA Wireless and ACS Wireless both argue that there currently are four competitors in the Anchorage market – ACS Wireless, Alaska DigiTel, Dobson, and GCI (as a reseller) – and that this transaction would result in a reduction of actual competitors from four to three, resulting in competitive harm.198 MTA Wireless and ACS Wireless also argue that because of the Alaska DigiTel-Sprint Nextel and the GCI-Dobson relationships, respectively, the Commission should conclude that, post-transaction, there would only be two competing groups of mobile telephony carriers in the Anchorage market – the GCI-Alaska DigiTel-Dobson-Sprint Nextel group and the ACS Wireless group.199 63. ACS Wireless analyzes the impact of this proposed transaction on market concentration based on the assumption that GCI is a fully independent competitor in the market. In particular, using the subscriber totals submitted by GCI and Alaska DigiTel plus its own subscriber data for itself and Dobson, ACS Wireless calculates the HHI and the change in HHI that would result from the transaction in three Boroughs – Anchorage, Juneau, and Matanuska- Susitna. ACS Wireless argues that the HHI increases and the overall HHI totals far exceed the levels found acceptable in prior proceedings. More specifically, the estimates reveal a post- transaction HHI [REDACTED] in all three markets, and a change in HHI [REDACTED]. ACS Wireless concludes that these estimates demonstrate a significant potential for anticompetitive effects.200 64. The Applicants argue that, both pre- and post-transaction, there will be four primary providers of mobile telephony service – ACS Wireless, Alaska DigiTel, Dobson, and GCI reselling over Dobson’s network – and that Alaska DigiTel will continue to compete on all aspects of providing mobile telephony service, including price. Also, the Applicants argue that (Continued from previous page) service. See 47 C.F.R. § 22.909; ALLTEL-Midwest Order, FCC 06-146 at 21 ¶ 35; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13073 ¶ 45; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 105. As CEAs are derived from factors related to consumer demand for mobile telephony services and CMAs reflect to some extent the initial supply of mobile telephony services, we have found that they are useful cross-checks on each other and together help ensure that our analysis identifies all local areas that require more detailed analysis. See ALLTEL-Midwest Order, FCC 06-146 at 21 ¶ 35; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13073 ¶ 45; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21568 ¶ 105. 197 See Section IV.B.1(d), supra. 198 MTA Wireless Petition to Deny at 5-6; MTA Wireless December 4, 2006 Comments at 4. 199 MTA Wireless August 2, 2006 Comments at 4; MTA Wireless December 4, 2006 Comments at 4; ACS Wireless December 4, 2006 Comments at 2. For discussion of GCI-Dobson relationship, see paras. 50-54, supra. For discussion of the Alaska DigiTel and Sprint Nextel relationship, see paras. 55-57, supra. 200 ACS Wireless September 6, 2006 Comments at 20-21, Exhibit B; Declaration of Robert Doucette filed on behalf of ACS Wireless, Inc. (Sept. 6, 2006). Federal Communications Commission FCC 06-185 37 ACS Wireless fails to show any significant potential for anticompetitive effects based on the HHI measure of market concentration. The Applicants reject ACS Wireless’s contention that the estimated HHI increases and overall post-transaction HHI totals far exceed the levels found acceptable in prior proceedings. The Applicants further argue that none of the data put forth by ACS Wireless supports either of the two alternative theories of possible competitive harm recognized by the Commission – namely, unilateral effects or coordinated interaction – in any of the three local geographic markets analyzed. The Applicants also stress that the combined GCI- Alaska DigiTel would have [REDACTED] in Anchorage. Similarly, the Applicants note that the combined GCI-Alaska DigiTel market share in Matanuska-Susitna [REDACTED].201 65. As discussed above, for purposes of calculating our initial subscriber-based market concentration measures, we have already concluded that we do not consider GCI to be a facilities-based market participant.202 Accordingly, we do not find that there is a loss of an actual, independent competitor in the market as a result of this transaction, and we conclude that the number of actual, independent competitors in the Anchorage market, both pre- and post- transaction, is three. Because we do not consider GCI to be an independent competitor in the market prior to the transaction, we do not accept ACS Wireless’s estimates of the HHI and change in HHI that would result from this transaction, and therefore we are not persuaded by ACS Wireless’s conclusion that these estimates demonstrate a significant potential for anticompetitive effects. Instead, we find that there is no change in the HHI in any local market for mobile telephony services as a result of this transaction. 66. Although the various contractual arrangements between GCI and Dobson do not result in spectrum concentration or HHI change figures that exceed our thresholds, MTA Wireless and ACS Wireless have raised questions about the totality of the horizontal relationships that would exist in the relevant Alaskan markets if this transaction was completed. To address the concerns, we conduct additional, in-depth analysis of the likely horizontal effects of the proposed transaction in the analysis below. 3. Horizontal Effects 67. In their various pleadings (discussed above), MTA Wireless and ACS Wireless generally assert that the GCI-Alaska DigiTel-Denali transaction is likely to have adverse effects on competition in Alaska. Therefore, this section examines in more detail how the transaction could affect competitive behavior in markets in Alaska. As discussed in previous orders, competition may be harmed either through unilateral actions by the combined entity or through coordinated interaction among firms competing in the relevant market.203 201 Applicants September 13, 2006 Joint Response at 20-22. 202 See Section IV.B.1(d), supra. 203 DOJ/FTC Merger Guidelines § 2. Federal Communications Commission FCC 06-185 38 68. Unilateral effects occur when the combined firm finds that, as a result of the transaction, it is now profitable to alter its behavior in an anticompetitive manner.204 Examples of unilateral effects include the ability of the combined firm to raise its price or reduce the features it includes in a given service plan it supplies. Coordinated effects occur when the remaining firms in the market, recognizing their interdependence, take actions “that are profitable for each of them only as a result of the accommodating reactions of others.”205 Examples of coordinated effects include explicit collusion, tacit collusion, and price leadership. Because coordinated effects may be more likely if there are fewer firms in a market, horizontal transactions may significantly increase the likelihood of coordinated effects by reducing the number of firms in the market. In previous merger orders, we discussed our analysis for potential unilateral effects and coordinated interaction in the mobile telephony services market extensively,206 and we do not find it necessary to repeat those discussions here. We limit our 204 DOJ/FTC Merger Guidelines § 2.2. The term “unilateral” refers to the method used by firms to determine strategy, not to the fact that the merged entity would be the only firm to change its strategy. The term unilateral is used to indicate that strategies are determined unilaterally by each of the firms in the market and not by explicit or tacit collusion. Other firms in the market may find it profitable to alter their behavior as a result of the merger-induced change in market structure by, for example, repositioning their products, changing capacity, or changing their own prices. These reactions can alter the total effect on the market and must be taken into account when evaluating potential unilateral effects. See Sprint- Nextel Order, 20 FCC Rcd at 14001 n.199; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13076 n.155; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21570 n.341. 205 DOJ/FTC Merger Guidelines § 2.1. See also W. KIP VISCUSI, JOHN M. VERNON & JOSEPH E. HARRINGTON, JR., ECONOMICS OF REGULATION AND ANTITRUST 107 (2000); DOUGLAS GREER, INDUSTRIAL ORGANIZATION AND PUBLIC POLICY 269 (1992). 206 For unilateral effects, our analyses have included the following aspects: (1) product differentiation and substitutability (see Sprint-Nextel Order, 20 FCC Rcd at 14002-07 ¶¶ 94-107; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13077-79 ¶¶ 59-64; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21571-75 ¶¶ 119-133); (2) network effects (see ALLTEL-Western Wireless Order, 20 FCC Rcd at 13082-83 ¶¶ 75-77; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21578 ¶¶ 142-145); (3) marginal cost reductions (see Sprint-Nextel Order, 20 FCC Rcd at 14009 ¶ 115). Sprint-Nextel Order, 20 FCC Rcd at 13087 ¶¶ 91-92; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21584-85 ¶¶ 160-162); (4) competitive response by rivals (see ALLTEL-Midwest Order, FCC 06-146 at 26-27 ¶¶ 50-52; Sprint-Nextel Order, 20 FCC Rcd at 14007-09 ¶¶ 108-114; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13079-81 ¶¶ 65-72; Cingular- AT&T Wireless Order, 19 FCC Rcd at 21575-76 ¶¶ 134-137); (5) spectrum and advanced wireless services (see ALLTEL-Midwest Order, FCC 06-146 at 27 ¶¶ 53-54; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13819-21 ¶¶ 73-74; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21577-78 ¶¶ 138-141); (6) market share (see ALLTEL-Midwest Order, FCC 06-146 at 27-28 ¶¶ 55-57; Sprint-Nextel Order, 20 FCC Rcd at 14001 ¶ 92; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13076-77 ¶ 58; Cingular- AT&T Wireless Order, 19 FCC Rcd at 21570-71 ¶¶ 117-118); and (7) penetration (see ALLTEL-Midwest Order, FCC 06-146 at 28-29 ¶¶ 58-59; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13083-85 ¶¶ 78- 83; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21578-80 ¶¶ 146-149); . For coordinated interaction, our analyses have included: (1) firm and product homogeneity (see Sprint-Nextel Order, 20 FCC Rcd at 13997 ¶¶ 75-78; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13087 ¶ 90; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21582-84 ¶¶ 156-159); (2) existing cooperative ventures (see Cingular-AT&T (continued….) Federal Communications Commission FCC 06-185 39 discussion of potential unilateral and coordinated interaction effects to those that appear to be raised by the transaction before us. a. Unilateral Effects 69. Both MTA Wireless and ACS Wireless contend that the proposed transaction would create the potential for unilateral effects. As the Commission has previously discussed, unilateral effects arise when the merged firm finds it profitable to alter its behavior following the transaction by “elevating price and suppressing output.”207 As explained in previous Commission orders, in the case of mobile telephony, this might take the form of delaying improvements in service quality or adversely adjusting plan features without changing the plan price.208 Incentives for such unilateral competitive actions vary with the nature of competition in the relevant markets. After reviewing the record, we conclude that this transaction is unlikely to result in adverse unilateral effects. 70. MTA Wireless argues that this transaction should be evaluated for potential unilateral effects.209 Further, MTA Wireless claims that the Resale Agreement may indicate that post-transaction, GCI would have the ability to engage in unilateral anti-competitive actions.210 Also, ACS Wireless argues that, post-transaction, GCI would have the ability and incentive to engage in anticompetitive actions, such as raising prices or reducing output due to its cooperative arrangements with other carriers in Alaska. Further, ACS Wireless claims that Alaska DigiTel today prevents GCI from unilaterally raising prices, reducing service quality, or restricting output in an anticompetitive manner, and as a result of this transaction Alaska DigiTel would no longer be in a position to be a disciplining force in the market.211 71. MTA Wireless also claims that GCI should be considered a potential competitor in the Anchorage market because it holds PCS spectrum but does not provide facilities-based (Continued from previous page) Wireless Order, 19 FCC Rcd at 21585 ¶ 163); (3) number of firms (see Sprint-Nextel Order, 20 FCC Rcd at 13996 ¶¶ 71-72); (4) technology development (see Sprint-Nextel Order, 20 FCC Rcd at 13998-99 ¶¶ 81-83); (5) response of rivals (see Sprint-Nextel Order, 20 FCC Rcd at 13999-14000 ¶¶ 84-88); (6) transparency of information (see Sprint-Nextel Order, 20 FCC Rcd at 13996 ¶¶ 73-74; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13086 ¶ 89; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21581-82 ¶¶ 154-155); and (7) presence of mavericks (see Sprint-Nextel Order, 20 FCC Rcd at 13997-98 ¶¶ 79-80; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13087 ¶¶ 91-92; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21584-85 ¶¶ 160-162). 207 See ALLTEL-Midwest Order, FCC 06-146 at 25 ¶ 47; Sprint-Nextel Order, 20 FCC Rcd at 14001 ¶ 91; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13075 ¶ 54; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21570 ¶ 115; DOJ/FTC Merger Guidelines § 2.2. 208 See ALLTEL-Midwest Order, FCC 06-146 at 25 ¶ 47; Sprint-Nextel Order, 20 FCC Rcd at 14001 n.199; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13075-76 ¶ 54; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21570 ¶ 115. 209 MTA Wireless March 13, 2006 Reply at 11. 210 MTA Wireless September 6, 2006 Comments at 24. 211 ACS Wireless September 6, 2006 Comments at 13, 18. Federal Communications Commission FCC 06-185 40 mobile telephony service. Therefore, MTA Wireless argues that this transaction will result in a loss of two independent, potential competitors in the Anchorage market (GCI and Denali).212 However, ACS Wireless argues that it is unlikely that a new facilities-based mobile telephony carrier will enter the Alaskan market to constrain GCI because of high infrastructure costs and population dispersion.213 72. The Applicants argue that unilateral effects are unlikely to occur as a result of this transaction. The Applicants contend that in Anchorage the combined GCI-Alaska DigiTel entity would have less than a 20 percent market share, and that in the Matanuska-Sustina market the combined share would be approximately 23 percent. The combined share in both of these markets is well below the DOJ threshold of 35 percent for unilateral effects. Further, the Applicants argue that the market share for the combined firm is low, in part, because the transaction does not involve cellular spectrum. The Applicants claim that cellular licensees in Alaska have a competitive advantage over PCS licensees in Alaska because cellular frequencies have superior propagation characteristics in areas with rugged terrain and sparse and dispersed population.214 73. Further, the Applicants argue that there is not a loss of two potential competitors as a result of this transaction. First, the Applicants claim that Denali and Alaska DigiTel today are commonly-controlled affiliates. The Applicants argue that Denali originally obtained its 15 MHz license as a result of a pro forma assignment disaggregating 15 MHz from Alaska DigiTel’s 30 MHz A-block PCS license. However, the Applicants do not refute MTA Wireless’s claim that GCI is a potential entrant, but argue that GCI will not be lost as a potential competitor because GCI will not control Alaska DigiTel.215 74. We find that it is unlikely that this transaction will result in unilateral effects in any local mobile telephony market in Alaska and that a loss of a potential competitor is unlikely to result in undue competitive harm. For purposes of our competitive review we find that Alaska DigiTel and Denali are under the common control of William Yandell,216 and therefore we do not consider Denali a potential entrant. We do find that GCI is a potential facilities-based entrant into the Anchorage mobile telephony market as well as in other markets in the state of Alaska. 75. We conclude, however, that even the loss of GCI as a potential competitor would not result in competitive harms in the Anchorage market or in any other market in the state of Alaska. First, there are three facilities-based carriers in the Anchorage market, and post- transaction, there would be two remaining potential entrants in the market, Sprint Nextel and 212 MTA Wireless Petition to Deny at 6. 213 ACS Wireless September 6, 2006 Comments at 19-20. 214 Applicants September 13, 2006 Joint Response at 22-23. See also DOJ/FTC Merger Guidelines at Section 2.211. 215 Applicants March 1, 2006 Joint Opposition at 7-9. 216 Pro Forma Application at Exhibit 1. Federal Communications Commission FCC 06-185 41 Lewis and Clark Communications holding the PCS D and F blocks, respectively.217 Further, Alaska Native Wireless, Sprint Nextel, and Lewis and Clark hold other PCS licenses that cover other local markets in Alaska. These licensees currently do not provide facilities-based service in Alaska and therefore are potential entrants. Second, the ability of a potential competitor in disciplining the market in the near term is limited. In order for a potential entrant to mitigate any anticompetitive effects entry needs to occur in a timely and sufficient manner.218 In previous orders, the Commission has considered other licensed firms’ abilities to reposition themselves if the merged entity exercises market power.219 There is no evidence presented in the record that indicates that, absent this transaction, GCI has plans for the near-term future to enter the market as a facilities-based mobile telephony provider. 76. After reviewing the agreements submitted into the record, we conclude that GCI’s and Alaska DigiTel’s relationships with other carriers is unlikely, post-transaction, to provide either GCI or Alaska DigiTel with the incentive or ability to raise prices, reduce service quality, or restrict output in the mobile telephony market. Post-transaction, GCI will continue to resell Dobson mobile telephony services subject to the Resale Agreement which includes restrictions on the [REDACTED] for those services.220 Therefore post-transaction, consumers will continue to choose from three independent actual competitors – Alaska DigiTel, ACS Wireless, and Dobson – as well as GCI as a reseller. Further, in each of the four CMAs in Alaska, [REDACTED].221 Therefore, it is unlikely that, post-transaction, GCI or Alaska DigiTel would be able to successfully unilaterally raise price or reduce service in any relevant market in Alaska. b. Coordinated Effects 77. We also examined the transaction for possible coordinated effects. As discussed in previous orders, in markets where only a few firms account for most of the sales of a product, those firms may be able to exercise market power by either explicitly or tacitly coordinating their 217 MTA Wireless Petition to Deny at 6; Declaration of Carolyn Hanson filed on behalf of Matanuska- Kenai, Inc., d/b/a MTA Wireless (Feb. 15, 2006)(“Hanson February 15, 2006 Declaration”) at 2 ¶ 6. 218 DOJ/FTC Merger Guidelines at § 3. 219 See ALLTEL-Midwest Order, FCC 06-146 at 26-27 ¶¶ 50-52; Sprint-Nextel Order, 20 FCC Rcd at 14007-10 ¶¶ 108-114, 118; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13079-81 ¶¶ 65-72, 13094- 5 ¶¶ 112-113; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21575-6 ¶¶ 134-137, 21593-4 ¶¶ 185-186. Also, the ALLTEL-Western Wireless Order concluded that generally new entrants are unable to enter in a timely or sufficient manner to discipline the market. ALLTEL-Western Wireless Order, 20 FCC Rcd at 13085 ¶ 84. 220 See Resale Agreement Art. I, 2(a) ,3(b)(iv). 221 Using June 2006 NRUF data and excluding GCI’s subscribers from market share calculations, [REDACTED]. Federal Communications Commission FCC 06-185 42 actions.222 Accordingly, one way in which a transaction or merger may create or enhance market power or facilitate its exercise is by making such coordinated interaction among firms more likely, more successful, or more complete.223 Successful coordination depends on two key factors. The first is the ability to reach terms that are profitable for each of the firms involved, and the second is the ability to detect and punish deviations that would undermine the coordinated interaction. 224 78. MTA Wireless argues that this transaction requires an analysis of potential coordinated interaction because there is a loss of a competitor in the Anchorage market225 and the relationship between Dobson and GCI meets the Commission’s test for explicit and tacit collusion.226 Further, MTA Wireless and ACS Wireless contend that the Lease Agreements and the Resale Agreement reflect an extraordinary degree of cooperation between GCI and Dobson.227 In particular, they argue that the recitals to the Resale Agreement reflect a larger cooperative agreement between GCI and Dobson that encompasses [REDACTED], and that the individual agreements are “of greater value when taken together than the sum of each arrangement separately.”228 MTA Wireless and ACS Wireless argue that the parties have agreed to [REDACTED].229 [REDACTED].230 [REDACTED].231 79. MTA Wireless also argues that the Lease Agreements, the Resale Agreement, and the Letter of Intent show the extent of cooperation between GCI and Dobson, and concludes that 222 See ALLTEL-Midwest Wireless Order, FCC 06-146 at 29 ¶ 60; Sprint-Nextel Order, 20 FCC Rcd at 13995 ¶ 69; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13085 ¶ 85; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21580 ¶¶ 150; DOJ/FTC Merger Guidelines § 0.1. 223 See ALLTEL-Midwest Wireless Order, FCC 06-146 at 29 ¶ 60; Sprint-Nextel Order, 20 FCC Rcd at 13995 ¶ 69; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13085 ¶ 85; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21580 ¶ 150. 224 See ALLTEL-Midwest Wireless Order, FCC 06-146 at 29 ¶ 60; Sprint-Nextel Order, 20 FCC Rcd at 13995 ¶ 69; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13085 ¶ 85; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21580 ¶ 151; DOJ/FTC Merger Guidelines § 2.11. 225 MTA Wireless Petition to Deny at 14; MTA Wireless March 13, 2006 Reply at 11. 226 MTA Wireless July 24, 2006 Comments at 18-19. 227 MTA Wireless July 24, 2006 Comments at 9-10, 17-18; ACS Wireless September 6, 2006 Comments at 8. 228 MTA Wireless July 24, 2006 Comments at 10; ACS Wireless September 6, 2006 Comments at 9. 229 MTA Wireless July 24, 2006 Comments at 17; MTA Wireless September 6, 2006 Comments at 24; ACS Wireless September 6, 2006 Comments at 9-11. The Resale Agreement provisions include: [REDACTED]. See Resale Agreement; MTA Wireless July 24, 2006 Comments at 11-14. Further, GCI uses the spectrum leasing agreements as a means to meet its construction deadlines. See MTA Wireless July 24, 2006 Comments at 15-16; see also paras.87-90, infra. ] 230 MTA Wireless July 24, 2006 Comments at 17. 231 ACS Wireless September 6, 2006 Comments at 11. Federal Communications Commission FCC 06-185 43 the strategic relationship between Dobson and GCI represents coordinated interaction of direct competitors.232 MTA Wireless claims that Dobson [REDACTED].233 80. ACS Wireless argues that, post-transaction, GCI would have a significant incentive and ability to coordinate with other firms.234 Further, ACS Wireless argues that, given the relationship between GCI and Dobson, any explicit or tacit collusive behavior would have a significant impact on the mobile telephony market in Alaska. ACS Wireless also argues that GCI would have strong financial incentives to coordinate its GCI-branded offering with Alaska DigiTel and would not treat Alaska DigiTel as a fully separate competitor.235 ACS Wireless contends that GCI’s 78 percent ownership interest in Alaska DigiTel gives GCI incentives to minimize direct product or service competition wherever possible. Further, ACS Wireless claims that it would not be in GCI’s interest to cannibalize its own wireless service, especially its bundled service offerings, because GCI needs to offer its own wireless product in its bundled services to compete effectively. Therefore, according to ACS Wireless, if GCI, through its investment, does strengthen Alaska DigiTel, it is likely to do so in a coordinated manner.236 81. The Applicants argue that although there are areas where Dobson and GCI are coordinating, they do not have an adverse effect on the public, and that GCI can and does compete against Dobson for retail customers. Further, the Applicants assert that Dobson and GCI have entered into arms-length agreements with each other that cover a full range of products and services. However, the Applicants argue that MTA Wireless and ACS Wireless have failed to prove that these types of agreements are anticompetitive under the DOJ/FTC Merger Guidelines.237 Also, the Applicants contend that, in Anchorage, neither GCI nor Alaska DigiTel would be one of the two leading carriers, and therefore the transaction would be unlikely to facilitate coordinated interaction. Finally, the Applicants argue that neither MTA Wireless nor ACS Wireless has provided any evidence that coordinated interaction has or would take place as a result of this transaction.238 82. As a result of our analysis, we do not find that there would be an increased likelihood of coordinated interaction due to a loss of an actual, facilities-based service provider 232 MTA Wireless July 24, 2006 Comments at 14, 17; MTA Wireless September 25, 2006 Comments at 1- 5. MTA Wireless and ACS Wireless argue that the Letter of Intent further supports their claims of a close coordinated relationship between Dobson and GCI. See MTA Wireless September 25, 2006 Comments at 1-5; ACS Wireless September 27, 2006 Comments at 2-4. See also paras. 50-54, supra. 233 MTA Wireless July 24, 2006 Comments at 14-15. 234 ACS Wireless September 6, 2006 Comments at 13. 235 ACS Wireless July 21, 2006 Comments/Petition at 8-9; ACS Wireless September 6, 2006 Comments at 35. 236 ACS Wireless July 21, 2006 Comments/Petition at 8-9. 237 Applicants September 13, 2006 Joint Response at 16-18. 238 Applicants September 13, 2006 Joint Response at 21-22 (citing the Sprint-Nextel Order, 20 FCC Rcd at 13999 ¶ 85). Federal Communications Commission FCC 06-185 44 as a result of this transaction.239 Further, we find that the existing relationship between Dobson and GCI is not a result of this transaction, and that allegations raised by MTA Wireless and ACS Wireless are not transaction specific. However, we find that coordinated interaction would be more likely and more successful because of certain provisions of the Resale Agreement combined with GCI’s seat on Alaska DigiTel’s Board of Managers. 83. From our review of the Resale Agreement, certain provisions indicate that GCI’s investment in Alaska DigiTel/Denali may provide the ability and incentive for coordinated interaction. In order to meet various Resale Agreement provisions, GCI has [REDACTED] may provide an opportunity for coordinated interaction between Dobson and Alaska DigiTel through GCI as a conduit of market-sensitive information.240 GCI also receives other information about [REDACTED].241 [REDACTED].242 [REDACTED].243 84. Further, pursuant to the Resale Agreement, both Dobson and GCI have “relationship Officers” that provide for the easy exchange of information reagarding [REDACTED].244 In addition, the Resale Agreement [REDACTED].245 85. Whether coordinated interaction would be more likely or successful is directly affected by the proposed structure of GCI/Alaska DigiTel/Denali. We have reviewed the GCI/Alaska DigiTel/Denali Operating Agreement and Management Agreement to determine the extent of involvement by GCI in the proposed management of Alaska DigiTel and whether this involvement would provide a conduit for information concerning Dobson’s future prices and service plans to be passed on to Alaska DigiTel. Our review indicates that this transaction would increase the potential for coordinated interaction. Due to the information that GCI receives about Dobson under the Resale Agreement, along with its position on Alaska DigiTel’s Board of Managers, it is possible for market-sensitive information to be conveyed between Alaska DigiTel, GCI, and Dobson, which could result in coordinated interaction among these service providers. Thus, we impose conditions to eliminate concerns that this transaction could increase the potential for coordinated interaction.246 4. Other Considerations 86. In this section, we consider the potential vertical or other non-horizontal harms of the proposed transaction. A vertical merger is one that occurs between firms at different but 239 See paras. 34-35, 65, supra.. 240 Resale Agreement at Art. I, 3(b)(v). 241 Resale Agreement at Art. I, 4, 7, and 9. 242 Resale Agreement at Art. I, 10(a)(ii). 243 Resale Agreement at Art. I, 10(a)(iii); Billing Access Agreement. 244 Resale Agreement at Art. I, 8(a)(i). 245 Resale Agreement at Art. I 8(a)(ii). 246 See discussion Part V, supra. Federal Communications Commission FCC 06-185 45 adjacent levels of production or distribution of a good or service.247 Several potential non- horizontal harms were raised in the record. These potential non-horizontal harms include spectrum warehousing, roaming, tying of wholesale transport over GCI’s submarine cables with roaming, and predatory pricing, and each is analyzed below. a. Spectrum Warehousing 87. MTA Wireless and ACS Wireless contend that GCI is “warehousing” the spectrum associated with its broadband PCS license because GCI itself is only using that spectrum to provide fixed wireless service.248 MTA Wireless contends that GCI instead should be using the PCS spectrum to provide mobile telephony service because of its particular suitability for that purpose, and because other spectrum not as well-suited for mobile services could be used to provide fixed wireless services.249 MTA Wireless also claims that the spectrum leasing between GCI and Dobson further illustrates GCI’s close ties to Dobson in that it ensured that GCI would meet its build-out requirement without investing in its own facilities-based network.250 Although MTA Wireless acknowledges that GCI has not committed any “technical infractions” in its use of PCS spectrum, MTA Wireless nonetheless contends that GCI’s action does not eliminate “the effect of warehousing this spectrum from its original and primary intended use – mobile telephony.”251 MTA Wireless requests that the Commission require GCI to divest 20 MHz of its PCS license as well as the 15 MHz of the Denali license because this spectrum is not currently being used to provide mobile telephony service.252 ACS Wireless requests that the Commission require some divestiture of spectrum to reduce post-transaction spectrum concentration.253 88. In response, the Applicants assert that the Commission’s rules do not require that a broadband PCS license be used to provide mobile telephony services, and expressly permit the use of that license to provide fixed wireless service.254 As for MTA Wireless’s claims about 247 See Brown Shoe Co. v. United States, 370 U.S. 294 (1962) (“Economic arrangements between companies standing in a supplier-customer relationship are characterized as ‘vertical.’”). 248 MTA Wireless Petition to Deny at 12-15; MTA Wireless March 13, 2006 Reply at 12; ACS Wireless September 6, 2006 Comments at 18-20. The Alaska Telephone Association alleges that GCI desires to “hoard statewide, wireless spectrum in Alaska by acquiring a ‘non-controlling’ 78% ownership of Alaska DigiTel.” Alaska Telephone Association Comments at 2. 249 See MTA Wireless Petition to Deny at 12. 250 MTA Wireless July 24, 2006 Comments at 15; MTA Wireless December 4, 2006 Comments at 4. 251 MTA Wireless March 13, 2006 Reply at 13. 252 MTA Wireless August 2, 2006 Comments at 10-11; MTA Wireless December 4, 2006 Comments at 4. MTA Wireless argues that this capacity should be made available for lease or acquisition. MTA Wireless December 4, 2006 Comments at 5. 253 ACS Wireless September 6, 2006 Comments at 37. 254 Applicants March 13, 2006 Joint Opposition at 16. Federal Communications Commission FCC 06-185 46 spectrum leasing, the Applicants point out that Commission rules expressly allow it to rely on any build-out by its spectrum lessee to meet the licensee’s construction requirements.255 89. We find that the record and the Commission’s rules do not support the relief requested by MTA Wireless and ACS Wireless. With regard to allegations that GCI is warehousing its spectrum because it is providing fixed service, the Commission’s broadband PCS service rules expressly permit the provision of fixed services on a co-primary basis with mobile services.256 In 1996, the Commission found that Commercial Mobile Radio Services (“CMRS”) carriers should have this flexibility in order to provide innovative wireless services and to stimulate wireless competition in the local exchange market.257 The Commission also has determined that CMRS carriers could provide exclusively fixed services.258 90. The allegations regarding GCI’s spectrum lease with Dobson similarly are not based on any violation of the Commission’s buildout policies. The Commission’s secondary markets rules expressly permit a licensee to rely on any buildout performed by its spectrum lessee in order to meet applicable construction requirements pertaining to the license.259 Finally, Commission records show that GCI filed in a timely manner its five-year and ten-year 255 Applicants August 8, 2006 Joint Opposition at 23-24. 256 Section 24.3 of the Commission’s rules states: “PCS licensees may provide any mobile communications service on their assigned spectrum. Fixed services may be provided on a co-primary basis with mobile operations. Broadcasting as defined in the Communications Act is prohibited.” 47 C.F.R. §24.3. 257 See Amendment of the Commission’s Rules to Permit Flexible Service Offerings in the Commercial Mobile Radio Services, Second Report and Order and Order on Reconsideration, 15 FCC Rcd 14680, 14681(2000) (“CMRS Flex Second R&O”) (citing Amendment of the Commission’s Rules to Permit Flexible Service Offerings in the Commercial Mobile Radio Services, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd 8965, 8977 ¶ 24 (1996)). 258 In this regard, the Commission has stated that, “[b]y not having any thresholds or ceilings on the relative levels of fixed or mobile services associated with the term ‘co-primary,’ the Commission allowed providers to choose to provide exclusively fixed services, exclusively mobile services, or any combination of the two.” CMRS Flex Second R&O, 15 FCC Rcd at 14681 n.4. 259 See generally Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets, Report and Order, 18 FCC Rcd 20604 (2003) (“Secondary Markets First R&O”), at 20653 ¶¶ 114-115 (spectrum manager leases), 20665 ¶ 146 (long-term de facto transfer leases); see also 47 CFR § 1.1920(d)(5)(i) (spectrum manager leases), 1.9030(d)(5)(i) (long-term de facto transfer leases). GCI and Dobson have entered into a long-term de facto transfer leasing arrangement. In establishing the spectrum leasing rules in 2003, the Commission expressly stated that “[w]e will allow licensees using [the long-term de facto transfer] leasing option to rely on the activities of their spectrum lessees for purposes of complying with the build-out requirements that are conditions of the license authorization.” Secondary Market First R&O, 18 FCC Rcd at 20665 ¶ 147; see also 47 C.F.R. § 1.9030(d)(i) (rules pertaining to de facto transfer leasing arrangements provides that “[t]he licensee may attribute to itself the build-out or performance activities of its spectrum lessee(s) for purposes of complying with any applicable build-out or performance requirement”). Federal Communications Commission FCC 06-185 47 construction notifications, and that GCI has met the applicable construction requirements.260 Based on the filings before us, we believe that GCI was relying on the buildout by its spectrum lessee Dobson to meet the ten-year construction requirement.261 b. Roaming 91. Roaming occurs when the subscriber of one CMRS provider travels beyond the service area of that provider and utilizes the facilities of another CMRS provider to place an outgoing call, to receive an incoming call, or to continue an in-progress call.262 A subscriber may establish a roaming arrangement with a CMRS provider “manually” by personally entering into a contractual agreement with that provider for the right to roam on its network (e.g., giving the provider a credit card number to pay for roaming charges).263 In contrast, “automatic” roaming involves an agreement between two carriers and allows all of the subscribers of a carrier to make calls on the network of the other without taking any action beyond the making of the call.264 Thus, automatic roaming is more convenient for a subscriber than manual roaming and, as a practice, has become increasingly widespread.265 92. Section 20.12 of the Commission’s rules imposes on CMRS providers the obligation to provide manual roaming arrangements to the subscriber of another provider on request.266 This rule does not impose any obligation to provide automatic roaming 260 For its five-year notification in June 2000, GCI reported that it had constructed a fixed wireless network in Anchorage, Alaska. See Notification of Construction of KNLF298 by GCI Communication Corporation, ULS File No. 0000175068 (filed June 23, 2000). This network consisted of three sites and covered over one- third of the population of MTA049-Alaska. For its ten-year construction notification in May 2005, GCI reported that it met its buildout obligations based on a constructed GSM network that covered over two-thirds of the population of MTA049-Alaska. See Notification of Construction of KNLF298 by GCI Communication Corporation ULS File No. 0002181339 (filed May 31, 2005). GCI’s ten-year notification does not specify whether it is providing a mobile or a fixed service, but its filing demonstrates a sufficient signal strength to serve two-thirds of the population in its licensed area regardless of whether the service is fixed or mobile. 261 [REDACTED]. 262 See DoCoMo-Guam Cellular Order, FCC 06-167, at 22 ¶ 33; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13090 ¶ 101; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21586 ¶ 166; see also Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers, Automatic and Manual Roaming Obligations Pertaining to Commercial Mobile Radio Service, WT Docket No. 05-265, 00-193, Memorandum Opinion & Order and Notice of Proposed Rulemaking, 20 FCC Rcd 15047, 15048 ¶ 2 (2005) (“Roaming Notice”). 263 Roaming Notice, 20 FCC Rcd at 15049 ¶ 3. 264 Id. 265 Cingular-AT&T Wireless Order, 19 FCC Rcd at 21588-89 ¶ 174. 266 47 C.F.R. § 20.12(c) provides: “Each carrier subject to this section must provide mobile radio service upon request to all subscribers in good standing to the services of any carrier subject to this section, including roamers, while such subscribers are located within any portion of the licensee’s licensed service (continued….) Federal Communications Commission FCC 06-185 48 arrangements.267 The Commission is currently reviewing whether roaming requirements applicable to CMRS providers should be modified given the current state of the CMRS market.268 93. MTA Wireless, which provides service using a CMDA air interface, argues that it is important for regional carriers to have access to an array of mobile telephony carriers in order to negotiate roaming agreements.269 Further, MTA Wireless argues that carriers with state-wide licenses, such as GCI, can build out their networks to reduce roaming expenses and over time be in a position to refuse to negotiate roaming agreements with regional carriers.270 MTA Wireless claims that it has had difficulty in securing roaming agreements within Alaska as well as in the Lower 48, and that post-transaction the collaboration between Alaska DigiTel, GCI, and Dobson will further limits its ability to secure neutral roaming terms.271 MTA Wireless concurs with ACS Wireless’s contention that approval of the applications should be conditioned in a manner that prevents GCI from aggregating an overwhelming amount of spectrum in the Anchorage market.272 MTA Wireless further adds that it would be reasonable for the Commission to require GCI to divest itself of the 15 MHz of PCS capacity previously leased to Denali and of GCI’s own unused 20 MHz of statewide PCS spectrum that it has not leased to Dobson or any other party.273 Finally, MTA Wireless requests that the Commission condition its approval of this transaction on GCI-Alaska DigiTel providing data roaming services on request and on commercially reasonable, nondiscriminatory terms.274 (Continued from previous page) area where facilities have been constructed and service to subscribers has commenced, if such subscribers are using mobile equipment that is technically compatible with the licensee’s base stations.” 267 Id. 268 Roaming Notice, 20 FCC Rcd at 15048 ¶ 2. 269 Hanson February 15, 2006 Declaration at 3 ¶ 10; Kenshalo March 13, 2006 Declaration at 4 ¶ 7; MTA Wireless August 2, 2006 Comments at 2-3. 270 Hanson February 15, 2006 Declaration at 3 ¶ 9; Kenshalo March 13, 2006 Declaration at 3-4 ¶¶ 5, 7; 271 Declaration of Richard Kenshalo filed on behalf of MTA Communications, Inc., d/b/a MTA Wireless (Aug. 2, 2006) (“Kenshalo August 2, 2006 Declaration”) at 3 ¶ 6; MTA Wireless July 24, 2006 Comments at 20. 272 MTA Wireless August 2, 2006 Comments at 10; ACS Wireless July 21, 2006 Comments/Petition at 15. 273 MTA Wireless August 2, 2006 Comments at 11; MTA Wireless December 4, 2006 Comments at 4. MTA Wireless argues that this capacity should be made available for lease or acquisition. MTA Wireless December 4, 2006 Comments at 5. 274 MTA Wireless December 4, 2006 Comments at 5. Federal Communications Commission FCC 06-185 49 94. The Commission in previous orders found that existing rules address many of these concerns.275 Our manual roaming rule requires other carriers to complete calls initiated by MTA Wireless’s customers where MTA Wireless cannot because it has neither its own signal nor an automatic roaming agreement.276 In addition, we adopt as a condition to our grant in this order a reciprocal duty, i.e., that Alaska DigiTel may not prevent its customers from reaching another carrier and completing their calls in these circumstances, unless specifically requested to do so by a subscriber.277 We decline to impose any additional roaming obligations upon the Applicants. We also note that if a roaming partner believes that Alaska DigiTel is charging unreasonable roaming rates, it can file a complaint with the Commission under section 208 of the Communications Act.278 c. Submarine Cable 95. Another issue raised by MTA Wireless and ACS Wireless concerns how GCI’s ownership of two of the three submarine cables used for wholesale transport of communications to the Lower 48 States should affect review of the proposed transaction. 96. Specifically, GCI is the owner and submarine cable landing licensee for the Alaska United East and Alaska United West submarine cables.279 The cables land at or near Seward, Whittier, Valdez and Juneau, Alaska, Warrenton, Oregon, and Seattle, Washington, and use long-term leased capacity to connect GCI’s network in Anchorage with the Seward cable landing station and to connect GCI’s network in Seattle with the Warrenton cable landing 275 ALLTEL-Midwest Order, FCC Rcd 06-146 at 38 ¶ 103; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 127; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13093 ¶ 108; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21592 ¶ 182. 276 See 47 C.F.R. § 20.12; see also Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 127; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13093 ¶ 108; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21592 ¶ 182. 277 See ALLTEL-Midwest Order, FCC Rcd 06-146 at 38 ¶ 103; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 127; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13093 ¶ 108; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21592 ¶ 182. 278 47 U.S.C. § 208. See also ALLTEL-Midwest Order, FCC Rcd 06-146 at 38 ¶ 103; Sprint-Nextel Order, 20 FCC Rcd at 14012-13 ¶ 127; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13093 ¶ 108; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21592 ¶ 182. 279 See Alaska United East Order, 12 FCC Rcd 18292, Order on Review, 16 FCC Rcd 4314; General Communication, Inc., File No. SCL-97-003A, Landing Points Notification, Public Notice, Report No. TEL-161-B (IB June 12, 1998); Alaska United Fiber System Partnership, File No. SCL-LIC-20020522- 00047, Submarine Cable Landing License, Public Notice, Actions Taken Under Cable Landing License Act, 17 FCC Rcd 14780 (IB 2002) (“Alaska United West Public Notice”) (authorizing Alaska United West as a non-common carrier cable); Alaska United Fiber System Partnership, File No. SCL-LPN- 20030912-00026, Landing Points Notification, Public Notice, Report No. TEL-00716NS (IB Sept. 26, 2003). The two GCI cables operate in a ring configuration. See Alaska United West Public Notice, 17 FCC Rcd at 14781. Federal Communications Commission FCC 06-185 50 station.280 A third fiber optic cable, the Alaska Northstar submarine cable, competes with GCI for traffic on the Alaska-Pacific Northwest route.281 All three cables operate on a non-common carrier basis.282 Fixed-Satellite Service providers also offer transponder capacity that may be used for services to, from and within Alaska.283 97. ACS Wireless and MTA Wireless claim that this transaction would provide GCI with the ability and incentive to tie284 its wholesale transport service between Alaska and the Lower 48 with roaming service in Alaska.285 In order to ameliorate this potential harm, ACS Wireless and MTA Wireless propose that the Commission change the status of GCI’s submarine 280 See GCI Form 10-K at 19. 281 See GCI 10-K at 26. See also Alaska Telecom Ltd., LC, Application for a License to Land and Operate a Submarine Fiber Optic Cable between the Pacific Northwest United States and the State of Alaska, File No. SCL-94-004, Cable Landing License, 10 FCC Rcd 6072 (IB 1995) (“Alaska Northstar Order”); Alaska Northstar Communications, LLC, Application for a License to Land and Operate a Submarine Cable Fiber Optic Cable Extending between Two Cable Landing Points in South Central Alaska, Cable Landing License, 11 FCC Rcd 16842 (IB 1996) (“Whittier-Valdez Order”); Alaska Northstar Communications, LLC, Transferor, and WCI Cable, Inc., Transferee, Application for Modification of Submarine Cable Landing Licenses, File Nos. SCL-94-004-TC and SCL-96-002-TC, Memorandum Opinion and Order, 12 FCC Rcd 20330 (IB 1997); AMP Life Limited, Transferor, and Neptune Communications LLC, Transferee, File Nos. SCL-T/C-20020123-00002 and SCL-ASG- 20020123-00003, Transfer of Control, Public Notice, Cable Landing Licenses Granted, 17 FCC Rcd 6053 (IB 2002); Northstar License Corporation, File No. SCL-T/C-20030130-00007, Transfer of Control, Public Notice, International Authorizations Granted, Report No. TEL-00646, 18 FCC Rcd 4524 (IB 2003). The cable lands at or near Whittier, Valdez, and Juneau, Alaska, and Nedonna Beach, Oregon. 282 Alaska United East Order, 12 FCC Rcd at 18298 ¶ 21; Alaska United West Public Notice, 17 FCC Rcd at 14781; Alaska Northstar Order, 10 FCC Rcd at 6072-73 ¶ 6, Whittier-Valdez Order, 11 FCC Rcd at 16844-45 ¶ 9. 283 See, e.g., Constellation, LLC, Carlyle PanAmSat I, LLC, Carlyle PanAmSat II, LLC, PEP PAS, LLC, and PEOP PAS, LLC, Transferors, and Intelsat Holdings, Ltd., Transferees, Consolidated Application for Authority to Transfer Control of PanAmSat Licensee Corp. and PanAmSat H-2 Licensee Corp., IB Docket No. 05-290, Memorandum Opinion and Order, FCC 06-85 (June 19, 2006), at ¶¶ 70 n.200, 71 n.203 (six Intelsat, eight PanAmSat, and ten SES Americom satellites serve, or soon will serve, Alaska for the provision of voice, data, broadband, and cable television services). 284 Tying occurs when a customer can buy a product or service only if another product or service in which the seller has an economic interest is also purchased. See DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN INDUSTRIAL ORGANIZATION 247-51 (3rd ed. 1999) (“CARLTON & PERLOFF”); Northern Pacific Railway Co. et al. v. United States, 356 U.S. 1, 5-6 (1958). Even in the absence of an express requirement to buy both, tying may be found if the seller’s pricing policy makes purchase of the two products together the only viable economic option. United States v. Loew’s Inc., 317 U.S. 38, 52 (1962). 285 ACS Wireless July 21, 2006 Comments/Petition at 13-14; Declaration of Robert Doucette filed on behalf of ACS Wireless, Inc. (July 21, 2004) (“Doucette July 21, 2006 Declaration”) at 4-5 ¶ 18; ACS Wireless August 14, 2006 Comments at 1-2; ACS Wireless September 6, 2006 Comments at 3, 22; ACS Wireless December 4, 2006 Comments at 3, 6; MTA Wireless August 2, 2006 Comments at 2. Federal Communications Commission FCC 06-185 51 cables from private line to common carrier,286 and prohibit GCI from tying wholesale transport and roaming services.287 98. ACS Wireless and MTA Wireless contend that GCI’s ownership of two of the three submarine fiber optic cables that connect Alaska to the Lower 48 gives GCI dominant market strength in the provision of wholesale transport services because construction of new submarine cables by other carriers is cost-prohibitive; and satellite technology is not an effective substitute for fiber-based transport because of latency and cost issues, especially for data transmissions.288 Further, ACS Wireless and MTA Wireless argue that GCI has a monopoly on redundant transport facilities to the Lower 48 required by certain customers, such as the banking industry and the military.289 ACS Wireless also argues that special access transport service is strategically important because of the growth in data, Internet and other private line traffic.290 99. ACS Wireless and MTA Wireless claim that GCI could use its control over Alaska DigiTel to restrict competition in the roaming market, in several ways.291 First, GCI could offer Lower 48 carriers a “sweetheart deal” on roaming if the carriers use GCI for wholesale transport.292 Further, GCI could anti-competitively tie wholesale transport and roaming through coercion;293 below-cost pricing of either transport or roaming services;294 in contract negotiations;295 and through deals offered to integrated wireline and wireless carriers.296 286 ACS Wireless July 21, 2006 Comments/Petition at 16-17; Doucette July 21, 2006 Declaration at 5 ¶ 19; ACS Wireless September 6, 2006 Comments at 4, 38; MTA Wireless August 2, 2006 Comments at 11. 287 ACS Wireless September 6, 2006 Comments at 4, 38; ACS Wireless December 4, 2006 Comments at 4, 6. 288 ACS Wireless July 21, 2006 Comments/Petition at 10-13, n.56; Doucette July 21, 2006 Declaration at 3 ¶¶ 11-12; MTA Wireless August 2, 2006 Comments at 3; Kenshalo August 2, 2006 Declaration at 1-2 ¶¶ 2-4; ACS Wireless September 6, 2006 Comments at 22; ACS Wireless December 4, 2006 Comments at 6. 289 ACS Wireless July 21, 2006 Comments/Petition at 12-13; Doucette July 21, 2006 Declaration at 3-4 ¶¶ 13-14; MTA Wireless August 2, 2006 Comments at 2-3; Kenshalo August 2, 2006 Declaration at 2 ¶ 5. 290 ACS Wireless July 21, 2006 Comments/Petition at 13-14; ACS Wireless August 14, 2006 Comments at 2. 291 ACS Wireless July 21, 2006 Comments/Petition at 13. 292 ACS Wireless July 21, 2006 Comments/Petition at 13; Doucette July 21, 2006 Declaration at 4-5 ¶ 18; ACS Wireless August 14, 2006 Comments at 2. 293 GCI could coerce carriers that require wholesale transport between Alaska and the Lower 48 to use GCI for roaming. ACS Wireless July 21, 2006 Comments/Petition at 13. 294 ACS Wireless July 21, 2006 Comments/Petition at 14; ACS Wireless August 14, 2006 Comments at 2; Doucette July 21, 2006 Declaration at 4-5 ¶ 18. 295 Doucette July 21, 2006 Declaration at 4-5 ¶ 18; ACS Wireless September 6, 2006 Comments at 22. 296 Doucette July 21, 2006 Declaration at 4-5 ¶ 18. Federal Communications Commission FCC 06-185 52 100. ACS Wireless argues that provisions in the Resale Agreement, the Letter of Intent, and the Operating Agreement further support its allegation that, post-transaction, GCI is likely to tie transport and roaming. According to ACS Wireless, under the Resale Agreement, GCI has already implemented a strategy to [REDACTED].297 ACS Wireless also argues that GCI can bundle Dobson’s wireless services with its own services at a blended rate. Further, ACS Wireless argues that the Operating Agreement aligns GCI’s and Alaska DigiTel’s financial interests through the sharing of Alaska DigiTel’s profits and losses and the consolidation of the two companies’ financial statements, and that this consolidation would permit any losses from pricing one service below cost to be offset by gains from the other bundled services.298 ACS Wireless also argues that GCI has the ability to charge below-cost prices for transport services because Section 112 of Title I of Division J of the Consolidated Appropriations Act, 2005 does not affect GCI’s prices for interstate special access services, and therefore GCI would have flexibility to offer below-cost transport pricing if it ties wholesale transport and roaming services.299 101. In addition, ACS Wireless claims that there is no prohibition in the Operating Agreement to prevent GCI from bundling its and Alaska DigiTel’s services.300 ACS Wireless also claims that the Letter of Intent shows that GCI is already employing strategies to [REDACTED].301 ACS Wireless and MTA Wireless argue that in the Letter of Intent, Dobson and GCI commit to enter negotiations to [REDACTED].302 102. ACS Wireless requests the Commission consider barring GCI from tying wholesale transport and roaming.303 Further, ACS Wireless and MTA Wireless argue that the Commission should initiate a proceeding to reclassify GCI’s cable landing licenses as common carrier licenses to prevent GCI from tying its wholesale transport and roaming services, based on changes in market circumstances since GCI obtained its submarine cable licenses, including increased demands for data transmission and redundancy.304 ACS Wireless and MTA Wireless 297 ACS Wireless [REDACTED]. ACS Wireless September 6, 2006 Comments at 23; Resale Agreement, Art. II, 2(a)(ii). 298 ACS Wireless September 6, 2006 Comments at 22-24. 299 ACS Wireless August 14, 2006 Comments at 2. 300 ACS Wireless September 6, 2006 Comments at 22-23; see also Operating Agreement Art. 5, 5.2, 10.5. 301 ACS Wireless September 27, 2006 Comments at 4. 302 ACS Wireless September 27, 2006 Comments at 4; MTA Wireless September 25, 2006 Comments at 3; see also Letter of Intent at 2. 303 ACS Wireless September 6, 2006 Comments at 4, 38. 304 ACS Wireless July 21, 2006 Comments/Petition at 16-17; Doucette July 21, 2006 Declaration at 5 ¶ 19; ACS Wireless September 6, 2006 Comments at 4, 38; MTA Wireless August 2, 2006 Comments at 11. Federal Communications Commission FCC 06-185 53 argue that the Commission may change the regulatory status of GCI’s non-common carrier licenses if it is in the public interest.305 103. The Applicants claim that ACS Wireless’s arguments regarding the potential tying of wholesale transport and roaming services are speculative, and the Commission rejected a similar argument because it was based on “speculation and surmise.”306 Further, the Applicants argue that they have no pricing flexibility on interstate wholesale switched service elements provided over GCI’s undersea cables. The Applicants claim that they are bound by the statutory pricing mechanism set forth in Section 112 of Title I of Division J of the Consolidated Appropriations Act, 2005, which codified the pricing for these service elements from the Alascom, Inc. Tariff FCC No. 11 and made the pricing applicable to GCI. The Applicants argue that ACS Wireless’s request that the Commission reclassify GCI’s cable landing licenses as common carrier has no place in this proceeding.307 Further, the Applicants argue that the International Bureau reviewed the competitive situation in the wholesale transport market and found that GCI’s submarine cable should not be licensed as common carrier.308 The Applicants claim that the International Bureau’s conclusions do not change as a result of this transaction, and because there are no transaction-specific effects on the transport market, the Commission should not consider these allegations. Further, the Commission has previously noted that it will not consider allegations that are not transaction-specific. 309 104. We deny ACS Wireless’s request that we condition our approval of this transaction on a bar against GCI’s ability to tie wholesale transport service and roaming services.310 Under some circumstances, the bundling or tying of two products or services may result in economic efficiencies, including consumer benefits and the lowering of production costs, although in other circumstances tying may result in competitive harms.311 We find, however, that ACS Wireless and MTA Wireless have failed to provide any evidence that this transaction increases the risk of tying transport and roaming services in the future, and as such 305 ACS Wireless July 21, 2006 Comments/Petition at 16; MTA Wireless August 2, 2006 Comments at 11-12; ACS Wireless September 6, 2006 Comments at 38. 306 Applicants August 4, 2006 Joint Reply at 4; Applicants September 13, 2006 Joint Response at 25-26 (citing Cable & Wireless, PLC, 12 FCC Rcd 17669, 17683 (1997)). The Applicants also cite the Cingular-AT&T Wireless Order where the Commission found claims of harms to the roaming market to be unsupported speculation. See Applicants September 13, 2006 Joint Response at 25-26. 307 Applicants August 4, 2006 Joint Reply at 4. 308 Applicants September 13, 2006 Joint Response at 24. 309 Applicants September 13, 2006 Joint Response at 25. 310 ACS Wireless September 6, 2006 Comments at 4, 38. 311 See, e.g., Christian Ahlborn, David S. Evans, and A. Jorge Padilla, “The Antitrust Economics of Tying: A Farewell to Per Se Illegality,” The Antitrust Bulletin, Spring-Summer 2004 at 318; Jefferson Parish Hospital District No. 2 v. Edwin G. Hyde, 466 U.S. 2 (1984) (“Jefferson Parish”). Federal Communications Commission FCC 06-185 54 their tying claims amount to unsupported speculation.312 In making these tying claims, neither ACS Wireless nor MTA Wireless have presented any specific allegations that GCI intends to tie the provision of wholesale transport service and roaming service in a manner that results in competitive harm.313 Moreover, as discussed below, we find that adequate alternative capacity exists in the wholesale transport market to enable companies to purchase such capacity separate from roaming services. 105. We also deny the request to consider reclassification of the regulatory status of the Alaska United submarine cables at this time. ACS Wireless and MTA have not demonstrated that there is a reason to compel GCI to operate these cables on a common carrier basis.314 The Commission maintains both non-common carrier and common carrier regulatory options for operating a submarine cable system.315 In determining the regulatory status of a submarine cable, the Commission applies the two-part test set forth by the court in NARUC I.316 The Commission generally has focused on the availability of alternative facilities in assessing whether to require that a submarine cable operate on a common carrier basis.317 Here, as noted above, the Alaska Northstar submarine cable competes with GCI for traffic on the Alaska-Pacific Northwest route. Fixed Satellite Service providers offer additional transport capacity. In addition, Lower 48 traffic to Alaska may be able to transit Canadian facilities, as there is some 312 See Cingular-AT&T Order, 19 FCC Rcd at 21591 ¶ 181 (rejecting a claim by consumer protection groups that, post-merger, Cingular would have the ability and the incentive to exact discriminatory rates from roaming partners because the claim was based on unsupported speculation). 313 For tying to be found illegal under the antitrust laws, courts look for the following factors at a minimum: (1) the tying and tied products or services are separate; (2) the firm effecting the tie has market power in the tying market; (3) the firm can use its market power in the tying market to “force” customers to purchase the tied product; and (4) the tying arrangement forecloses a substantial amount of interstate commerce. See, e.g., Jefferson Parish at 12-18. In most circumstances a court will then analyze the reasonableness of the effects of the tie, i.e., whether the economic, technological or competitive effects of tying the good or services outweighs the competitive harms. See United States v. Microsoft Corp., 253 F.3d 34, 89-96 (D.C. Cir. 2001); Jefferson Parish at 29-32. 314 See In the Matter of Cable & Wireless, PLC, Application for a License to Land and Operate in the United States a Private Submarine Fiber Optic Cable Extending Between the United States and the United Kingdom, File No. SCL-96-005, Cable Landing License, FCC 97-204, 12 FCC Rcd 17669, 17683 ¶ 38 (1997) (declining to require common carrier treatment of the proposed submarine cable facility based on unsubstantiated discrimination concerns). 315 See Review of Commission Consideration of Applications under the Cable Landing License Act, IB Docket No. 00-106, Report and Order, 16 FCC Rcd 22167, 22202-03 ¶ 70 (2001). 316 Id.; see also National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630, 642 (D.C. Cir. 1976) (NARUC I), cert. denied, 425 U.S. 992 (1976) (whether an entity holds itself out to serve the public indifferently or whether there is a public policy reason to require the entity to hold out indifferently). 317 See Alaska United East Order, 12 FCC Rcd at 18297 ¶ 15 (authorizing Alaska United East as a non- common carrier cable), Order on Review, 16 FCC Rcd at 4315-16 ¶ 4. Federal Communications Commission FCC 06-185 55 common carrier terrestrial microwave capacity between Alaska and Canada.318 Thus, we find that adequate alternative capacity exists and the claims of competitive harm are largely speculative. 106. Should MTA Wireless or ACS Wireless have evidence at some future date that the Alaska United cable system has become a potential bottleneck or that GCI has engaged in anticompetitive conduct in providing Alaska United cable capacity, it may ask the Commission to reconsider the regulatory status of the Alaska United cables separate from this proceeding. The Commission retains the ability to reclassify a submarine cable to common carrier status if the public interest requires that the facilities be offered to the public indifferently.319 d. Predatory Pricing 107. ACS Wireless alleges that GCI through its relationship with Dobson and its control over Alaska DigiTel would provide it with the incentive and ability to deploy a predatory pricing strategy.320 Predatory pricing occurs when a firm first lowers its price to drive its rivals out of the market as well as to deter entry, and then raises its price once its rivals exit the market.321 Generally, when a firm adopts a predatory pricing strategy it sets price below some 318 See, e.g.,< http://wireless2.fcc.gov/UlsApp/UlsSearch/searchLicense.jsp> (Alascom’s facilities with call signs WFY510, WGW718 and WBA894 provide transborder links into Canada). 319 In the Matter of Review of Commission Consideration of Applications Under the Cable Landing License Act, Report and Order, 16 FCC Rcd 22167, 22203 ¶ 70 n.164 (2001) (“Submarine Cable Report and Order”); 47 C.F.R. § 1.767(g)(10). In authorizing the Alaska United East cable in 1997, the Commission explicitly noted that its decision to grant the cable landing license to GCI on a non-common carrier basis was predicated in part on the current and planned facility alternatives on the route. Alaska United East Order, 12 FCC Rcd at 18298 ¶ 20 (1997), Order on Review, 16 FCC Rcd at 4315 ¶ 4 (alleged lack of sufficient facility/service capacity on route proven wrong). The Commission stated that, should the Alaska United East cable become a potential bottleneck facility, or should concerns be raised about anticompetitive conduct, it could consider common carrier regulation. Id. Moreover, the Commission imposed a recordkeeping requirement on GCI to improve the Commission’s ability to monitor for any anticompetitive activity on Alaska United East. That condition requires GCI to maintain complete records including the percentage of circuits conveyed on the cable, to whom capacity is sold, and on what terms and conditions capacity is conveyed. These records are to be made available to the Commission on request. Alaska United East Order, 12 FCC Rcd at 18302 ¶ 33, 18304 ¶ 40(5). 320 ACS Wireless September 6, 2006 Comments at 38. 321 See CARLTON & PERLOFF at 334-339, 739. ALLTEL-Western Wireless Order, 20 FCC Rcd at 13098- 99 ¶ 126; Deutsche Telecom-VoiceStream Wireless Order, 16 FCC Rcd at 9828-30 ¶¶ 88-92. Finding it unlikely that predatory pricing would occur in the United States mobile telephony market. The Supreme Court explained in Matsushita Electric Industrial Co. v. Zenith Radio Corp that “the success of such [predatory] schemes is inherently uncertain: the short-run loss is definite, but the long-run gain depends on successfully neutralizing the competition. Moreover it is not enough simply to achieve monopoly power, as monopoly pricing may breed quick entry by new competitors eager to share in excess profits. The success of any predatory scheme depends on maintaining monopoly power for long enough both to recoup the predators’ losses and to harvest some additional gain…. For this reason, there is consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.” (continued….) Federal Communications Commission FCC 06-185 56 measure of cost.322 ACS Wireless claims that post-transaction, GCI may package Alaska DigiTel services in its bundles or otherwise offer GCI and Alaska DigiTel services jointly.323 ACS Wireless requests that the Commission bar GCI from offering any wireless services below its (GCI’s) cost.324 For example when GCI resells Dobson or Alaska DigiTel services, ACS Wireless argues that the Commission must require GCI to charge a price that has a positive contribution margin net of all of its costs, both direct and allocated.325 Further, ACS Wireless argues that because GCI is a “passive investor” it should be prohibited from using intra-company (GCI-Alaska DigiTel) trades, in-kind payments, or eliminations in order to justify below-cost pricing.326 108. We conclude that we need not adopt such an unprecedented condition here. We are not persuaded that GCI and Alaska DigiTel would be able to engage in successful price predation. We find it unlikely that such a strategy would succeed since Dobson and ACS Wireless both have extensive network coverage and have more subscribers than GCI and Alaska DigiTel combined would have post-transaction.327 Post-transaction, if GCI and Alaska DigiTel were to attempt to engage in predatory pricing, it is highly unlikely that either carrier could maintain an artificially low price for a sufficient period of time to drive out either Dobson or ACS Wireless. Finally, neither the record nor our analysis of market conditions indicates that this transaction would likely provide GCI with the ability to engage in a long-term successful price predation strategy. Therefore, we deny ACS Wireless’s request to impose a condition on the price GCI could charge for its bundled services post-transaction. C. Public Interest Benefits 109. In addition to assessing the potential competitive harms of the GCI-Alaska DigiTel-Denali transaction, we also consider whether the proposed transaction would be likely to generate verifiable, transaction-specific public interest benefits.328 In doing so, we ask whether, (Continued from previous page) See Matsushita Electric Industrial Co v. Zenith Radio Corp., 475 U.S. 574,589 (1986) (citing ROBERT BORK, THE ANTITRUST PARADOX 149-155 (1978)). 322 See CARLTON & PERLOFF at 334-339, 739. 323 ACS Wireless September 6, 2006 Comments at 38. 324 ACS Wireless September 6, 2006 Comments at 4, 38. 325 These costs include general and administrative expenses, marketing, and handset subsidies. ACS Wireless September 6, 2006 Comments at 38-39. 326 ACS Wireless September 6, 2006 Comments at 39. In-kind trades would be equivalent to barter services. See ACS Wireless September 6, 2006 Comments at 39 n.138. Eliminations is an accounting procedure where one affiliate may eliminate expenses and/or revenues for reporting purposes when it provides a service to another affiliate. For example if GCI provides local transport service to Alaska DigiTel, then this should appear as revenue for GCI and as an expense for Alaska DigiTel in order to calculate “true costs”. See ACS Wireless September 6, 2006 Comments at 39 n.139. 327 See para. 76, supra. 328 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 24 ¶ 39; ALLTEL-Midwest Wireless Order, FCC 06-146 at 39 ¶ 105; SBC-AT&T Order, 20 FCC Rcd at 18384 ¶ 182; Verizon-MCI Order, 20 FCC (continued….) Federal Communications Commission FCC 06-185 57 post-transaction, GCI and Alaska DigiTel would be able, and would be likely, to pursue business strategies resulting in demonstrable and verifiable benefits to consumers that could not be pursued but for the transaction.329 110. As discussed below, we find that the proposed transaction may result in certain transaction-specific public interest benefits. We recognize that many of these benefits may be challenging to achieve in the near future because of sizable technological and financial requirements. As a result, it is difficult for us to precisely quantify either the magnitude of or the time period in which these benefits will be realized. Further, the Applicants did not provide sufficient details and documentation of claimed benefits to enable us to arrive at a definitive conclusion regarding transaction-specific public interest benefits. 111. Analytical Framework. The Commission has recognized that efficiencies generated through a transaction or merger can mitigate competitive harms if such efficiencies enhance the combined entity’s ability and incentive to compete and therefore result in lower prices, improved quality, enhanced service or new products.330 Under Commission precedent, the Applicants bear the burden of demonstrating that the potential public interest benefits of the proposed transaction outweigh the potential public interest harms.331 112. There are several criteria the Commission applies in deciding whether a claimed benefit should be considered and weighed against potential harms. First, the claimed benefit must be transaction- or merger-specific. This means that the claimed benefit must be likely to be accomplished as a result of the proposed transaction or merger but unlikely to be realized by other means that entail fewer anticompetitive effects.332 Second, the claimed benefit must be (Continued from previous page) Rcd at 18530 ¶ 193; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 129; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13100 ¶ 132; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21599 ¶ 201. 329 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 24 ¶ 39; ALLTEL-Midwest Wireless Order, FCC 06-146 at 39 ¶ 105; SBC-AT&T Order, 20 FCC Rcd at 18384 ¶ 182; Verizon-MCI Order, 20 FCC Rcd at 18530 ¶ 193; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 129; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13100 ¶ 132; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21599 ¶ 201. 330 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167 at 24-25 ¶ 41; ALLTEL-Midwest Wireless Order, FCC 06-146 at 39 ¶ 107; SBC-AT&T Order, 20 FCC Rcd at 18384 ¶ 183; Verizon-MCI Order, 20 FCC Rcd at 18530 ¶ 194; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 129; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13101 ¶ 135; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21599 ¶ 204; see also DOJ/FTC Merger Guidelines § 4. 331 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-167, at 24-25 ¶ 41; ALLTEL-Midwest Wireless Order, FCC 06-146 at 39 ¶ 107; SBC-AT&T Order, 20 FCC Rcd at 18384 ¶ 183; Verizon-MCI Order, 20 FCC Rcd at 18530 ¶ 194; Sprint-Nextel Order, 20 FCC Rcd at 14013 ¶ 129; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13101 ¶ 135; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21599 ¶ 204. 332 DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, 2006 WL FCC 06-146 at 39 ¶ 108; SBC-AT&T Order, 20 FCC Rcd at 18384 ¶ 184; Verizon-MCI Order, 20 FCC Rcd at 18530 ¶ 195; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13101 ¶ 136; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21599-600 ¶ 205; accord Application of EchoStar Communications Corporation (A Nevada Corporation), General Motors (continued….) Federal Communications Commission FCC 06-185 58 verifiable. Because much of the information relating to the potential benefits of a merger is in the sole possession of the applicants involved in such a transaction, they are required to provide sufficient evidence supporting each claimed benefit so that the Commission can verify its likelihood and magnitude.333 In addition, as the Commission has noted, “the magnitude of benefits must be calculated net of the cost of achieving them.”334 Furthermore, as the Commission explained in the ALLTEL-Midwest Wireless Order and Cingular-AT&T Wireless Order, “benefits that are to occur only in the distant future may be discounted or dismissed because, among other things, predictions about the more distant future are inherently more speculative than predictions about events that are expected to occur closer to the present.”335 Third, the Commission has stated that it “will more likely find marginal cost reductions to be cognizable than reductions in fixed cost.”336 The Commission has justified this criterion on the ground that, in general, reductions in marginal cost are more likely to result in lower prices for consumers.337 (Continued from previous page) Corporation, and Hughes Electronics Corporation (Transferors) and EchoStar Communications Corporation (A Delaware Corporation) (Transferee), CS Docket No. 01-348, Hearing Designation Order, 17 FCC Rcd 20559, 20630 ¶ 189 (2002) (“EchoStar-DirecTV HDO”); Applications of NYNEX Corporation, Transferor, and Bell Atlantic Corporation, Transferee, Memorandum Opinion and Order, 12 FCC Rcd 19985, 20063-64 ¶ 158 (“Pro-competitive efficiencies include only those efficiencies that are merger-specific, i.e., that would not be achievable but for the proposed merger. Efficiencies that can be achieved through means less harmful to competition than the proposed merger . . . cannot be considered to be true pro-competitive benefits of the merger.”); Applications of Ameritech Corp., Transferor, and SBC Communications Inc., Transferee, CC Docket No. 98-141, Memorandum Opinion and Order, 14 FCC Rcd 14712, 14825 ¶ 255 (“Public interest benefits also include any cost saving efficiencies arising from the merger if such efficiencies are achievable only as a result of the merger. . . .”). Cf. DOJ/FTC Merger Guidelines § 4. 333 See DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, 2006 FCC 06-146 at 39 ¶ 108; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13101-02 ¶ 136; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 205. 334 DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 39 ¶ 108; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13101-02 ¶ 136; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 205. 335 DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 39 ¶ 108; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13102 ¶ 136; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 205 (citing EchoStar- DirecTV HDO, 17 FCC Rcd at 20630 ¶ 190). 336 DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 39 ¶ 108; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13102 ¶ 136; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 205. See also DOJ/FTC Merger Guidelines § 4. 337 See DoCoMo-Guam Cellular Order, FCC 06-167 at 25 ¶ 42; ALLTEL-Midwest Wireless Order, FCC 06-146 at 39 ¶ 108; Sprint-Nextel Order, 20 FCC Rcd at 14014 ¶ 130; ALLTEL-Western Wireless Order, (continued….) Federal Communications Commission FCC 06-185 59 113. Finally, the Commission applies a “sliding scale approach” to evaluating benefit claims.338 Under this sliding scale approach, where potential harms appear “both substantial and likely, a demonstration of claimed benefits also must reveal a higher degree of magnitude and likelihood than we would otherwise demand.”339 On the other hand, where potential harms appear less likely and less substantial, as in this case, we will accept a lesser showing to approve the transaction.340 114. Discussion. The Applicants assert that the assignment of Denali’s PCS license to Alaska DigiTel and the transfer of control of a 78-percent non-controlling interest in Alaska DigiTel to GCI will yield “significant public interest benefits.”341 The Applicants state that the reorganization of Alaska DigiTel and GCI’s acquisition of a 78 percent ownership interest in Alaska DigiTel “will result in an infusion of capital into [Alaska DigiTel].”342 The Applicants further state that these increased resources will allow Alaska DigiTel “to improve its services to the public and to compete more effectively against other large competitors in the market.”343 The Applicants also note that there will be continuity in the management of Alaska DigiTel and in the service provided to customers.344 115. In rebuttal to these claims, ACS Wireless notes that the capital infusion from GCI may create a stronger GCI/Alaska DigiTel combined entity aligned with Dobson that would concentrate spectrum and market power, thus harming rather than serving the public interest.345 Applicants respond that the capital infusion will enhance the ability of Alaska DigiTel to (Continued from previous page) 20 FCC Rcd at 13102 ¶ 137; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 206; see also DOJ/FTC Merger Guidelines § 4. 338 DoCoMo-Guam Cellular Order, FCC 06-167 at 26 ¶ 43; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 40 ¶ 109; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13102 ¶ 137; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 206. 339 DoCoMo-Guam Cellular Order, FCC 06-167 at 26 ¶ 43; ALLTEL-Midwest Wireless Order, FCC 06- 146 at 40 ¶ 109; SBC-AT&T Order, 20 FCC Rcd at 18385 ¶ 185; Verizon-MCI Order, 20 FCC Rcd at 18531 ¶ 196; ALLTEL-Western Wireless Order, 20 FCC Rcd at 13102 ¶ 137; Cingular-AT&T Wireless Order, 19 FCC Rcd at 21600 ¶ 206. Cf. DOJ/FTC Merger Guidelines § 4 (“The greater the potential adverse competitive effect of a merger . . . the greater must be cognizable efficiencies in order for the Agency to conclude that the merger will not have an anticompetitive effect in the relevant market. When the potential adverse competitive effect of a merger is likely to be particularly large, extraordinarily great cognizable efficiencies would be necessary to prevent the merger from being anticompetitive.”). 340 See, e.g., DoCoMo-Guam Cellular Order, FCC 06-16, at 26 ¶ 43; ALLTEL-Midwest Wireless Order, FCC 06-146 at 40 ¶ 109; SBC-AT&T Order, 20 FCC Rcd at 18385 ¶ 185; Verizon-MCI Order, 20 FCC Rcd at 18531 ¶ 195. 341 Application Exhibit 1 at 4. 342 Id. 343 Id. 344 See id. 345 ACS Wireless July 24, 2006 Comments/Petition at 15. Federal Communications Commission FCC 06-185 60 compete against the two most dominant wireless carriers in the market, ACS Wireless and Dobson Communications, and so the transaction is pro-competitive.346 Applicants also note that MTA Wireless argues in its September 7, 2006 Reply that Alaska “DigiTel will provide a vehicle for GCI to jumpstart its own state-wide system … [and] to develop a facilities-based system.”347 This statement, the Applicants claim, contradicts the MTA Wireless argument that the proposed transaction would harm competition. 116. We find that the proposed transaction may result in the transaction-specific public interest benefits discussed above and result in the combined company being a more effective competitor. Although the Applicants did not provide sufficient details and documentation of claimed benefits to enable us to arrive at any conclusions, we accept a lesser showing to approve a transaction where potential harms appear less likely and less substantial. As discussed above, we find that this transaction would increase the potential for coordinated interaction based on various contracts entered into by and the corporate structure of GCI/Alaska DigiTel/Denali, and we have conditioned this order to ensure that such coordinated interaction does not occur.348 Further, besides the contractual issues that are resolved by the imposed conditions, we find that it is unlikely that this transaction would result in any potential harm. Thus, using the sliding-scale approach described above,349 we are able to conclude that this transaction is in the public interest. V. CONDITIONS/REMEDIES 117. Using the analytical standards outlined above, we find that the Applicants’ proposed transaction poses a risk of coordinated interaction.350 That is, certain provisions of the Resale Agreement between GCI and Dobson indicate that GCI’s investment in Alaska DigiTel/Denali may provide the ability and incentive for coordinated interaction between Dobson and Alaska DigiTel. Under the Resale Agreement, GCI will have advance notice of competitively sensitive information about [REDACTED], among other things, and could serve as the conduit for such information. The proposed relationship between GCI and Alaska DigiTel, as outlined by the Operating Agreement and Management Agreement, under which GCI occupies a position on Alaska DigiTel’s Board of Managers, increases the opportunity for such competitively sensitive information to be conveyed between Alaska DigiTel, GCI, and Dobson, resulting in coordinated interaction among these service providers. 118. In its review of proposed transactions, the Commission is empowered to impose conditions to mitigate the harms the transaction would likely create, including coordinated interaction. Such conditions are tailored to address the specific harms anticipated based on economic analysis, examination of documents submitted in response to our inquiry, and public comment contained in the record of this proceeding. 346 Applicants September 13, 2006 Joint Response at i. 347 Id. at 5. 348 See para. 85, supra, and Part V, infra. 349 See para. 113, supra. 350 See paras. 82-85, supra. Federal Communications Commission FCC 06-185 61 119. Subsequent to the original filing of its applications GCI proposed certain conditions to guard against the transmission to Alaska DigiTel of competitively sensitive information received by GCI under its reseller arrangement with Dobson, and the transmission to Dobson of competitively sensitive information received by the GCI member of the Alaska DigiTel Board, following consummation of the proposed transaction.351 These conditions consist of modifications to the Resale Agreement and the Operating Agreement between GCI and Dobson, to establish a definition for competitively sensitive information, and establish procedures and policies for the protection of such information. Among other things, the conditions provide that the GCI Relationship Officer appointed under the Resale Agreement shall be responsible for protecting the confidentiality of competitively sensitive information provided by Dobson to GCI. The GCI Relationship Officer is prohibited from serving as the GCI- appointed member of the Alaska DigiTel Board both during service as the Relationship Officer and for two years following such service; likewise, a former GCI-appointed Alaska DigiTel Board Member may not serve as the GCI Relationship Officer for two years following departure from the Board. In addition, reciprocal restrictions are established on the flow of competitively sensitive information regarding Dobson to Alaska DigiTel employees or representatives and on the flow of competitively sensitive information regarding Alaska DigiTel to Dobson employees or representatives. Finally, GCI will appoint a compliance officer to oversee its compliance with these conditions. 120. ACS Wireless and MTA Wireless contend that the conditions proposed by the Applicants would not prevent coordination between Dobson and Alaska DigiTel.352 ACS Wireless and MTA Wireless argue that GCI would still be able to use the competitively sensitive information from Dobson and Alaska DigiTel in an anticompetitive manner.353 Both ACS Wireless and MTA Wireless advocate that changes should be made to the conditions submitted by the Applicants. They state that the conditions should be expanded to include competitively sensitive information from all sources rather than just from the Board Member or Relationship Officer and that penalties should be detailed in the order.354 Further, ACS Wireless argues that the definition of “trade secrets” should include operation, marketing, and strategic business plans, and that the Commission should require that the Commission approve the compliance procedures and should require regular filings certifying compliance.355 121. The Applicants argue that their proposed conditions directly and effectively address the transmission of competitively sensitive information between Dobson and Alaska 351 Applicants Proposed Conditions. 352 ACS Wireless December 4, 2006 Comments at 1-2; MTA Wireless December 4, 2006 Comments at 1- 2. 353 ACS Wireless December 4, 2006 Comments at 2-3; MTA Wireless at 2 (arguing that GCI would need to be divided in half to prevent the flow of proprietary information between Dobson and Alaska DigiTel through GCI, and that this would be difficult to implement and enforce. 354 ACS Wireless December 4, 2006 Comments at 4; MTA Wireless December 4, 2006 Comments at 2. 355 ACS Wireless December 4, 2006 Comments at 4. Federal Communications Commission FCC 06-185 62 DigiTel through GCI.356 Further the Applicants argue that changes to the conditions proposed by ACS Wireless and MTA Wireless are overly broad and would interfere with normal day-to-day operations, and therefore would not serve the public interest.357 122. We adopt the Applicants’ proposed conditions, with certain additions and clarifications, as fully set forth in Appendix A to this order. For example, we expand the scope of the conditions to cover any non-public information about Alaska DigiTel and Dobson obtained by any GCI employee, thus addressing the concerns ACS Wireless and MTA Wireless have expressed about non-public information being conveyed by GCI employees other than the GCI Relationship Officer and the Alaska DigiTel Board member. We decline to adopt other changes to the conditions proposed by ACS Wireless and MTA Wireless. We find that it is unnecessary to set forth specific penalties in the event of a violation, because any violation would constitute a violation of this order and would be subject to enforcement action. We also find that it is unnecessary to expand on the broad definition of trade secrets found in state law, which would, in general, includes all non-public information that has an “economic value.”358 Further, we do not require the Applicants to seek approval of the compliance procedures or file regular certifications of compliance. If we suspect or are informed that the conditions adopted herein are not being implemented, we have the authority to request information regarding the implementation of these conditions.359 123. We conclude that these conditions mitigate the harm identified with this transaction360 and require that the appropriate agreements be amended in accordance with these conditions. Accordingly, with the conditions that we adopt in this order, and assuming the Applicants compliance with these conditions, we find that the Applicants have demonstrated that the proposed transaction would serve the public interest, convenience and necessity. VI. CONCLUSION 124. We conclude that approval of this transaction, subject to the conditions set forth herein, is in the public interest. We deny MTA Wireless’s petition to deny the applications or, in the alternative, order an evidentiary hearing because we do not find that the petition or the record raises substantial and material questions of fact. Finally, we deny, as moot, ACS Wireless’s petition to intervene in an evidentiary hearing. We therefore grant the applications of Alaska DigiTel, Denali, and GCI, subject to the conditions specified in this Order. 356 Applicants Joint Response December 6, 2006 at 5. 357 Applicants Joint Response December 6, 2006 at 5. 358 See ALASKA STAT. § 45.50.940(3), which defines “trade secret” as information that “(A) derives independent value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” 359 See 47 U.S.C. § 308(b). 360 See paras.82-85, infra. Federal Communications Commission FCC 06-185 63 VII. ORDERING CLAUSES 125. Accordingly, having reviewed the applications, the petitions, and the record in this matter, IT IS ORDERED that, pursuant to sections 4(i) and (j), 309, 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), (j), 309, 310(d), the applications for the assignment of license from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the transfer of control of a 78 percent ownership interest in Alaska DigiTel to GCI are GRANTED, to the extent specified in this order and subject to the conditions specified in Appendix A. 126. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), (j), 309, 310(d), the Petition to Deny the applications for the assignment of license from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the transfer of control of a 78-percent non-controlling interest in Alaska DigiTel, L.L.C. to General Communication, Inc. filed by MTA Communications, Inc., d/b/a MTA Wireless is DENIED for the reasons stated herein. 127. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and (j), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), (j), 309, 310(d), the Petition to Intervene filed by ACS Wireless is DISMISSED, for the reasons stated herein. 128. IT IS FURTHER ORDERED that this Order SHALL BE EFFECTIVE upon release. Petitions for reconsideration under section 1.106 of the Commission's rules, 47 C.F.R. § 1.106, may be filed within thirty days of the date of public notice of this Order. FEDERAL COMMUNICATIONS COMMISSION Marlene H. Dortch Secretary Federal Communications Commission FCC 06-185 64 APPENDIX A Conditions The grants by the Commission of the Joint Applications361 filed by Denali PCS, L.L.C. (“Denali”), Alaska DigiTel, L.L.C (“Alaska DigiTel”) and General Communication, Inc. (“GCI”) are subject to the following conditions: 1. The Agreement entered into between GCI and Dobson Cellular Systems, Inc. (“Dobson”) as of July 26, 2004 (“Resale Agreement”) and the concurrent letter of intent (“LOI”) associated therewith shall be amended prior to the consummation of the transaction contemplated by the Joint Applications to provide that: (a) Any Non-Public Competitively Sensitive Information, as defined in paragraph 7 herein (which definition shall be incorporated into the Resale Agreement and the LOI), provided by Dobson to GCI shall be shall be treated as “Confidential” by GCI. (b) The role of the “Relationship Officer;” appointed by GCI pursuant to Section 8(a)(i) of the Reseller Agreement ( “GCI Relationship Officer”) shall be expanded to include responsibility for overseeing all aspects of the contractual relationship with Dobson. Any Non-Public Competitively Sensitive Information provided by Dobson to GCI shall be so designated to the GCI Relationship Officer by Dobson at the time of delivery so that the GCI Relationship Officer may take appropriate steps to protect the confidentiality of the Non-Public Competitively Sensitive Information. 2. The GCI Relationship Officer designated by GCI under the Reseller Agreement with Dobson shall not be the individual designated by GCI to serve on the Alaska DigiTel Board (“Alaska DigiTel Board Member”). (a) Once a GCI employee ceases serving as the GCI Relationship Officer, that employee shall not serve as the Alaska DigiTel Board Member designated by GCI for a period of at least two years. (b) Once a GCI employee ceases serving as the Alaska DigiTel Board Member designated by GCI, that employee shall not serve as the GCI Relationship Officer for a period of at least two years. 3. Neither the GCI Relationship Officer, nor any GCI employee that becomes privy to any Non- Public Competitively Sensitive Information pertaining to Dobson shall provide, communicate, or 361 See Application to Assign Licenses Held by Denali PCS, L.L.C. to Alaska DigiTel, L.L.C., File No. 0002453582 (filed Jan. 27, 2006); Application to Transfer Control of Licenses Held by Alaska DigiTel, L.L.C., File No. 0002453706 (filed Jan. 27, 2006). Federal Communications Commission FCC 06-185 65 convey in any manner such Non-Public Competitively Sensitive Information to any officer, director, employee or representative of Alaska DigiTel, including, without limitation, the individual designated by GCI to serve on the Alaska DigiTel Board. 4. Any officer, director, employee or representative of GCI who, by the nature of his or her duties, requires access to Non-Public Competitively Sensitive Information concerning both the Reseller Agreement and LOI, and the Alaska DigiTel investment shall not be permitted to be either the GCI Relationship Officer or Alaska DigiTel Board Member. (a) Once a GCI officer, director, employee or representative has ceased to receive Non- Public Competitively Sensitive Information from Dobson for a period of two years, he or she may be permitted to be the Alaska DigiTel Board Member. (b) Once a GCI officer, director, employee or representative has ceased to receive Non- Public Competitively Sensitive Information from Alaska DigiTel for a period of two years, he or she may be permitted to be the GCI Relationship Officer. 5. Any Non-Public Competitively Sensitive Information provided by Alaska DigiTel to the Alaska DigiTel Board Member shall be so designated to the Alaska DigiTel Board Member by Alaska DigiTel at the time of delivery so that the Alaska DigiTel Board Member may take appropriate steps to protect the confidentiality of the Non-Public Competitively Sensitive Information. 6. Neither the Alaska DigiTel Board Member designated by GCI, nor any GCI employee that becomes privy to any Non-Public Competitively Sensitive Information pertaining to Alaska DigiTel shall provide, communicate, or convey in any manner such Non-Public Competitively Sensitive Information to the GCI Relationship Officer or to any officer, director, employee or representative of Dobson. 7. For the purpose of these conditions, the term “Non-Public Competitively Sensitive Information” shall refer to any and all non-public information provided by Dobson to GCI pursuant to the Reseller Agreement or the LOI or by Alaska DigiTel to the Alaska DigiTel Board Member designated by GCI that, if released to a competitor, would allow the competitor to gain a significant advantage in the marketplace, such as (i) customer and subscriber data, (ii) customer proprietary network information (CPNI), (iii) rate and pricing data, (iv) trade secrets, (v) information pertaining to new product or service offerings, (vi) information pertaining to network changes, system coverage and technology selection, and (vii) information relating to the terms and conditions of service. Non-Public Competitively Sensitive Information pertaining to Dobson also shall include non-public information provided by Dobson to GCI pursuant to Sections 3(b)(v), 4(a)(i), 7(a)(i), 7(a)(iii), and 9(a)(i) of the Distribution Agreement and non- public information provided by Dobson to GCI with respect to the possible network enhancements and service enhancements referenced in the LOI. Federal Communications Commission FCC 06-185 66 8. GCI will appoint a compliance officer (the “Conditions Compliance Officer”) to oversee GCI’s compliance with the foregoing provisions. The Conditions Compliance Officer shall (i) communicate the nature and extent of the confidentiality restrictions to potentially affected GCI personnel along with the fact that GCI would consider any violation of the restrictions to be a serious matter that could result in disciplinary action or dismissal; (ii) act as a point of contact for GCI personnel who have information to report regarding a violation or possible violation of the foregoing provisions; (iii) review the appointments of the GCI Relationship Officer and the individual designated by GCI to serve on the Alaska DigiTel Board to ensure compliance with the foregoing provisions; (iv) investigate and act upon any known or reported violations of the foregoing provisions. 9. The Applicants will amend the Alaska DigiTel Operating Agreement to remove any veto rights of GCI with regard to the Alaska DigiTel budget. 10. These conditions will terminate if GCI terminates it relationship with Dobson, except for conditions 2(a), 3, 4(a), 7, 8, and 9, which will remain in effect. Federal Communications Commission FCC 06-185 67 APPENDIX B Commenting Parties ACS Wireless, Inc. Alaska DigiTel, L.L.C. Denali PCS, L.L.C. General Communications, Inc. MTA Wireless, Inc. d/b/a/ MTA Wireless Petitioners MTA Wireless, Inc. d/b/a/ MTA Wireless Federal Communications Commission FCC 06-185 68 CONCURRING STATEMENT OF COMMISSIONER MICHAEL J. COPPS Re: Applications for the Assignment of License from Denali PCS, L.L.C. to Alaska DigiTel, L.L.C. and the Transfer of Control of Interests in Alaska DigiTel, L.L.C. to General Communications, Inc., (WT Docket No. 06-114) We have an obligation in transactions coming before the Commission to weigh their proposed benefits against their potential harms to ensure that the transaction is in the public interest. For me, this particular transaction was a close call. There are benefits to this proposed transaction, specifically in making Alaska DigiTel a stronger competitor. In this regard, I also recognize and appreciate GCI’s agreement to remove any veto rights over Alaska DigiTel’s budget. At the same time, as the order points out, there is a real potential for post-transaction coordinated interaction among the applicants and through contracts with third parties. The Bureau should be commended for pointing out this concern and in crafting proposed conditions designed to remedy this potential harm. Ultimately, I would have preferred to have had stronger firewalls in place to help ensure that competitively sensitive information does not find its way into improper hands. As a result, I will concur in today’s decision. Nevertheless, the Commission should keep a careful eye on future developments in the market and act swiftly in response to any evidence of anti-competitive or anti-consumer tactics. The good people of Alaska deserve no less. Federal Communications Commission FCC 06-185 69 CONCURRING STATEMENT OF COMMISSIONER JONATHAN S. ADELSTEIN Re: Applications for the Assignment of License from Denali PCS, LLC to Alaska DigiTel, LLC and the Transfer of Control of Interests in Alaska DigiTel, LLC to General Communications, Inc., (WT Docket No. 06-114) This is a surprisingly complicated set of assignment and transfer of control applications. I cannot recall a transaction that implicates so many of the major communications providers in a market because of a variety of existing overlapping business arrangements and ventures. I have tried to ask the hard questions regarding this transaction. I have explored the complicated relationships that GCI has with both Alaska DigiTel and Dobson. But it feels like we are leaving a stone unturned here – that there is more to the transaction that meets the eye. While I appreciate the several voluntary conditions advanced by the applicants, I am only able to concur in this transaction. I am concerned that GCI has such a close relationship with Dobson at the same time GCI is acquiring a 78 percent of Alaska DigiTel’s membership interests, is receiving certain non-controlling investor protection rights, and has an option to acquire the remaining equity interest in Alaska DigiTel. And I am concerned that GCI has such a close relationship with Alaska DigiTel at the same time GCI has a distribution agreement with Dobson, is leasing PCS spectrum to Dobson pursuant to a long-term de facto transfer spectrum leasing arrangement, and has a Letter of Intent with Dobson to possibly pursue further strategic goals. Indeed our own item concludes that the proposed transaction poses a risk of coordinated interaction. We rightly put in a place conditions regarding the GCI Relationship Officer and on the flow of competitively sensitive information regarding Alaska DigiTel to Dobson employees. These are important steps to limit the transfer of potentially damaging information. I hope they are enough. For the sake of Alaskans, I encourage the Commission to monitor this market carefully to make sure our conditions have the required effect of promoting a vibrant and competitive wireless marketplace.