FCC Denies Sagebrush Cellular Request For Waiver Of 700 MHz Final Buildout Requirement; Terminates Two Spectrum Licenses Covering Rural Montana

January 7, 2020 – The FCC’s Wireless Telecommunications Bureau has denied a request filed by Nemont Telephone Cooperative, Inc. on behalf of its wireless subsidiary, Sagebrush Cellular, Inc., for waiver of the final buildout requirement for three lower 700 MHz B Block spectrum licenses.[1] For one license, the Bureau dismissed the request as moot after determining the previous licensee satisfied the final buildout requirement for the license in 2016. For the other two licenses, Nemont was unable to demonstrate it is actually providing service in the geographic areas that have coverage, which caused the Bureau to conclude the licenses “automatically terminated in their entirety as of June 13, 2019.”

The denial affirms the FCC’s position that requests to extend buildout obligations of spectrum licenses will not be routinely granted. But there is another lesson to be learned from this situation. Any entity that purchases a spectrum license on the secondary market should be aware of whether the license still has buildout requirements that must be met. Before entering into a transaction to purchase a license with upcoming deployment benchmarks, an entity should determine whether it has a solid plan for meeting those requirements. Nemont purchased the 700 MHz licenses roughly nine months prior to the final buildout deadline. It seems there was a miscalculation as to whether this was enough time to meet that requirement. Also, it is very strange that Nemont filed a request to waive the final buildout requirement for one of the licenses even though the prior licensee had satisfied the requirement a few years earlier.

Lower 700 MHz B Block licenses were auctioned with interim and final construction requirements (also referred to as buildout requirements or deployment benchmarks). To meet the interim buildout requirement, licensees needed to “provide signal coverage and offer service over at least 35 percent of the geographic area of each of their license authorizations” by June 13, 2013, which was later extended to December 13, 2016.[2] The final buildout rule requires lower 700 MHz B Block licensees to provide signal coverage and offer service over at least 70 percent of the geographic area of their licenses by the end of the initial license term, which was June 13, 2019. Licensees that failed to meet the interim benchmark, had their license term accelerated by two years, meaning they were required to meet the final benchmark two years earlier.

Lower 700 MHz B Block licenses are subject to a keep-what-you-serve condition. Licensees that fail to meet the construction benchmarks keep the areas of the license that they serve, and the remaining unserved areas are returned to the FCC for eventual relicensing. To receive a renewal term for their licenses, lower 700 MHz B Block licensees are required to make a showing of substantial service.

Nemont acquired four 700 MHz Lower B licenses, all covering rural Montana, in late 2018. Specifically, the deal was consummated on September 25, 2018, roughly nine months prior to the final buildout deadline. Nemont did not acquire any equipment or customers in the transaction.

Nemont was able to satisfy the 70% final buildout requirement for one of the four licenses. For the other three, Nemont filed applications requesting a waiver of the requirement. The waiver requests were filed on June 13, 2019 – the deadline for meeting the final buildout requirement.[3]

In its waiver request, Nemont stated that one license has 34 percent geographic coverage, but no subscribers receiving service; one has 23.8 percent geographic coverage, but no subscribers receiving service; and for one license there is no coverage or service being provided. Nemont pled the following in support of its request for waiver: it is a longtime wireless provider with a substantial record for completing construction of other licenses; it “tried its best” to meet the final buildout requirement; and it will use the spectrum to provide service to extremely remote, rural markets in Montana.

With respect to two of the three licenses, the Wireless Bureau found that for a number of reasons, the requirements for waiver have not been satisfied. In particular, the Wireless Bureau rejected Nemont’s “tried its best” argument by explaining that having a short time frame within which to complete construction as a result of a business decision to acquire licenses late in the construction period does not support a grant of waiver relief.

Since Nemont was unable to demonstrate it is actually providing service in the geographic areas of the two licenses that have coverage, the Bureau concluded the licenses “automatically terminated in their entirety as of June 13, 2019.” The licenses will eventually become available for reassignment by the FCC.

The Wireless Bureau dismissed as moot Nemont’s request to waive the final buildout requirement for the third license because the previous licensee satisfied the requirement for the license in 2016. However, the Bureau denied Nemont’s request to waive the requirement to show substantial service for renewing the license, and will address Nemont’s pending renewal application as a separate matter. For what it’s worth, Nemont has stated it has not constructed any portion of the license market area and no service is being provided.

The Bureau’s decision to deny the waiver request reaffirms the FCC’s position that requests to extend buildout obligations of spectrum licenses will not be routinely granted. In the past, the FCC has denied requests for an extension of buildout deadlines based on (i) failures to obtain equipment from chosen vendors; (ii) delays in ordering and receiving equipment; (iii) construction delays due to business disputes; (iv) construction delays due to a general economic downturn; (v) construction delays due to a lack of financing; (vi) construction delays due to a purported lack of available equipment; and (vii) decisions to change the type of technology licensee would use. In other words, the FCC will not grant extension of deadlines for “licensees that fail to meet construction obligations because of miscalculations or erroneous predictions about such factors as costs, demand, developments in the market, or timing and success in obtaining permissions that may be necessary for construction.” Requests to waive any buildout requirement will face an even higher bar. Pursuant to the FCC’s rules, extensions of the time period for meeting construction and service requirements are permitted only in two situations – either “involuntary loss of site” or “other causes beyond a licensee’s control.”[4] Notwithstanding, the FCC examines carefully claims that failures to meet construction requirements were due to causes beyond the licensee’s control.

So now the two Nemont 700 MHz licenses that terminated will go back to the FCC, but will eventually be available for reassignment. The process for relicensing unserved areas in the 700 MHz band is outlined in a Wireless Telecommunications Bureau February 2019 Public Notice.

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[1] Nemont Telephone Cooperative, Inc. - Request for Rule Waivers for Call Signs WQJU690, WQJU692, and WQJQ771, Letter from Roger S. Noel, Chief, Mobility Division, Wireless Telecommunications Bureau, to Timothy E. Welch, DA 20-17 (Jan. 7, 2020).

[2] 47 C.F.R. § 27.14(g).

[3] Nemont Telephone Cooperative, Inc., Waiver Request, Call Sign WQJU690, File No. 0008688193 (filed June 13, 2019); Nemont Telephone Cooperative, Inc., Waiver Request, Call Sign WQJU692, File No. 0008688213 (filed June 13, 2019); Nemont Telephone Cooperative, Inc., Waiver Request, Call Sign WQJQ771, File No. 0008572490 (filed June 13, 2019). The waiver requests were filed in connection with renewal applications for all three licenses.

[4] 47 C.F.R. § 1.946(e)(1).