Sec. 101.1003  LMDS eligibility restrictions for incumbent LECs and 
          cable companies.

    (a) Eligibility for LMDS license. Except as provided in paragraph 
(b) of this section, no incumbent LEC or incumbent cable company, as 
defined in paragraph

[[Page 809]]

(c) of this section, nor any entity owning an attributable interest in 
an incumbent LEC or incumbent cable company, shall have an attributable 
interest in an LMDS license whose geographic service area significantly 
overlaps such incumbent's authorized or franchised service area.
    (1) Termination of restriction. This restriction shall terminate 
three years following June 30, 1997 unless the Commission extends its 
applicability based on a determination that incumbent LECs or incumbent 
cable companies continue to have substantial market power in the 
provision of local telephony or cable television services.
    (2) Waiver of restriction. Upon completion of the initial award of 
LMDS licenses, an incumbent LEC or incumbent cable company may petition 
for a waiver of the restriction on eligibility based upon a showing that 
the petitioner no longer has market power in its authorized or 
franchised service area as the result of the entry of new competitors, 
other than an LMDS licensee, into such service area.
    (b) Exception to eligibility restriction. The restriction set forth 
in paragraph (a) of this section shall not apply to any license for the 
31,000-31,075 megahertz and 31,225-31,300 megahertz bands of LMDS 
spectrum.
    (c) Incumbent LECs and cable companies defined. The terms incumbent 
LEC and incumbent cable company shall be defined as follows:
    (1) Incumbent LEC. The term incumbent local exchange carrier or 
incumbent LEC shall be defined, in accordance with section 251(h) of the 
Communications Act, to mean, with respect to an area, that:
    (i) On February 8, 1996, the LEC provided telephone exchange service 
in such area and was deemed to be a member of the exchange carrier 
association pursuant to Sec. 69.601(b) of this chapter; or
    (ii) Is a person or entity that, on or after February 8, 1996, 
became a successor or assign of a member described in paragraph 
(c)(1)(i) of this section; or
    (iii) Is an entity, or a member of a class or category of entities, 
that the Commission has determined under section 251(h)(2) of the 
Communications Act to treat as a local exchange carrier.
    (2) Incumbent cable company. The term incumbent cable company means 
a company that is franchised to provide cable service and is not subject 
to effective competition under the following definition of effective 
competition in section 623(l) of the Communications Act:
    (i) Fewer than 30 percent of the households in the franchise area 
subscribe to the cable service of a cable system; or
    (ii) The franchise area is:
    (A) Served by at least two unaffiliated multichannel video 
programming distributors each of which offers comparable video 
programming to at least 50 percent of the households in the franchise 
area; and
    (B) The number of households subscribing to programming services 
offered by multichannel video programming distributors other than the 
largest multichannel video programming distributor exceeds 15 percent of 
the households in the franchise area; or
    (iii) A multichannel video programming distributor operated by the 
franchising authority for that franchise area offers video programming 
to at least 50 percent of the households of that franchise area; or
    (iv) A local exchange carrier or its affiliate (or any multichannel 
video programming distributor using the facilities of such carrier or 
its affiliate) offers video programming services directly to subscribers 
by any means (other than direct-to-home satellite services) in the 
franchise area of an unaffiliated cable operator which is providing 
cable service in that franchise area, but only if the video programming 
services so offered in that area are comparable to the video programming 
services provided by the unaffiliated cable operator in that area.
    (d) Significant overlap with authorized or franchised service area. 
For purposes of paragraph (a) of this section, a significant overlap of 
an incumbent LEC's or incumbent cable company's authorized or franchised 
service area occurs when at least 10 percent of the population of the 
LMDS licensed service area, as determined by the 1990 census figures for 
the counties contained in

[[Page 810]]

such service area, is within the authorized or franchised service area.
    (e) Definition of attributable interest. For purposes of paragraph 
(a) of this section, an entity shall be considered to have an 
attributable interest in an incumbent LEC, incumbent cable company, or 
LMDS licensee pursuant to the following criteria:
    (1) A controlling interest shall constitute an attributable 
interest. Controlling interest means majority voting equity ownership, 
any general partnership interest, or any means of actual working control 
(including negative control) over the operation of the entity, in 
whatever manner exercised.
    (2) Partnership and similar ownership interests and any stock 
interest amounting to 20 percent or more of the equity, or outstanding 
stock or outstanding voting stock of an entity.
    (3) Stock interests held in trust that exceed the limit set forth in 
paragraph (e)(2) of this section shall constitute an attributable 
interest of any person who holds or shares the power to vote such stock, 
of any person who has the sole power to sell such stock, and, in the 
case of stock held in trust, of any person who has the right to revoke 
the trust at will or to replace the trustee at will. If the trustee has 
a familial, personal, or extra-trust business relationship to the 
grantor or the beneficiary, the stock interests held in trust shall 
constitute an attributable interest of such grantor or beneficiary, as 
appropriate.
    (4) Non-voting stock shall constitute an attributable interest in 
the issuing entity if it exceeds the limit set forth in paragraph (e)(2) 
of this section.
    (5) Debt and interests such as warrants and convertible debentures, 
options, or other interests (except non-voting stock) with rights of 
conversion to voting interests shall not constitute attributable 
interests unless and until conversion is effected.
    (6) Limited partnership interests amounting to 20 percent or more, 
calculated according to both the percentage of equity paid in and the 
percentage of distribution of profits and losses, shall constitute an 
attributable interest of each such limited partner.
    (7) Officers and directors of an incumbent LEC or incumbent cable 
company, an LMDS licensee, or an entity that controls such incumbent 
LEC, incumbent cable company, or LMDS licensee, shall be considered to 
have an attributable interest in such incumbent LEC, incumbent cable 
company, or LMDS licensee.
    (8) Ownership interests that are held indirectly by any party 
through one or more intervening corporations or other entities shall be 
determined by successive multiplication of the ownership percentages for 
each link in the vertical ownership chain and application of the 
relevant attribution benchmark to the resulting product, except that, if 
the ownership for any interest in any link in the chain exceeds 50 
percent or represents actual control, it shall be treated as if it were 
a 100 percent interest.
    (9) Any person who manages the operations of an incumbent LEC or 
incumbent cable company or an LMDS licensee pursuant to a management 
agreement shall be considered to have an attributable interest in such 
incumbent LEC, incumbent cable company or LMDS licensee, if such person 
or its affiliate has authority to make decisions or otherwise engage in 
practices or activities that determine, or significantly influence:
    (i) The nature or types of services offered by such entity;
    (ii) The terms upon which such services are offered; or
    (iii) The prices charged for such services.
    (10) Any person or its affiliate who enters into a joint marketing 
arrangement with an incumbent LEC, an incumbent cable company, an LMDS 
licensee, or an affiliate of such entity, shall be considered to have an 
attributable interest in such incumbent LEC, incumbent cable company, 
LMDS licensee, or affiliate, if such person or its affiliate has 
authority to make decisions or otherwise engage in practices or 
activities that determine:
    (i) The nature or types of services offered by such entity;
    (ii) The terms upon which such services are offered; or
    (iii) The prices charged for such services.

[[Page 811]]

    (f) Divestiture. Any incumbent LEC or incumbent cable company, or 
any entity owning an attributable interest in an incumbent LEC or 
incumbent cable company, that would otherwise be barred from 
participating in an LMDS auction by the eligibility restriction in 
paragraph (a) of this section, may be a party to an LMDS application 
(i.e., have an attributable interest in the applicant), and such 
applicant will be eligible for an LMDS license, pursuant to the 
divestiture procedures set forth in paragraphs (f)(1) through (f)(6) of 
this section.
    (1) Divestiture shall be limited to the following prescribed means:
    (i) An LMDS applicant holding an attributable interest in an 
incumbent LEC or incumbent cable company may divest such interest in the 
incumbent LEC or cable company.
    (ii) Other LMDS applicants disqualified under paragraph (a) of this 
section, will be permitted to:
    (A) Partition and divest that portion of the existing authorized or 
franchised service area that causes it to exceed the overlap restriction 
in paragraph (d) of this section, subject to applicable regulations of 
state and local governments; or
    (B) Partition and divest that portion of the LMDS geographic service 
area that exceeds the overlap restriction in paragraph (d) of this 
section.
    (iii) Divestiture may be to an interim trustee if a buyer has not 
been secured in the required period of time, as long as the LMDS 
applicant has no interest in or control of the trustee and the trustee 
may dispose of the license as it sees fit.
    (2) The LMDS applicant shall certify as an exhibit to its short form 
application that it and all parties to the application will come into 
compliance with paragraph (a) of this section.
    (3) If such LMDS applicant is a successful bidder in an auction, it 
must submit with its long-form application a signed statement describing 
its efforts to date and future plans to come into compliance with the 
eligibility restrictions in paragraph (a) of this section.
    (4) If such an LMDS applicant is otherwise qualified, its 
application will be granted subject to a condition that the applicant 
shall come into compliance with the eligibility restrictions in 
paragraph (a) of this section, within ninety (90) days of final grant of 
such LMDS license.
    (5) An LMDS applicant will be considered to have come into 
compliance with paragraph (a) of this section if:
    (i) In the case of the divestiture of a portion of an LMDS license, 
it has submitted to the Commission an application for license assignment 
or transfer of control of the requisite portion of the LMDS geographic 
service area.
    (ii) In all other cases, it has submitted to the Commission a signed 
certification that it has come into compliance with paragraph (a) of 
this section by the following means, identified in such certification:
    (A) By divestiture of a disqualifying interest in an incumbent LEC 
or incumbent cable company, identified in terms of the interest owned, 
the owner of such interest (and, if such owner is not the applicant 
itself, the relationship of the owner to the applicant), the name of the 
party to whom such interest has been divested, and the date such 
divestiture was executed; or
    (B) By divestiture of the requisite portion of the incumbent LEC's 
or incumbent cable company's existing authorized or franchised service 
area, identified in terms of the name of the party to whom such interest 
has been divested, the date such divestiture was executed, the name of 
any regulatory agency that must approve such divestiture, and the date 
on which an application was filed for this purpose with the regulatory 
agency.
    (6) If no such certification or application is tendered to the 
Commission within ninety (90) days of final grant of the initial 
license, the Commission may consider the short form certification and 
the long form divestiture statement to be material, bad faith 
misrepresentations and shall invoke the condition on the initial 
license, cancelling or rescinding it automatically, shall retain all 
monies paid to the Commission, and, based on the facts presented, shall 
take any other action it may deem appropriate.

    Note to Sec. 101.1003: Waivers of Sec. 101.1003(e) may be granted 
upon an affirmative showing:
    1. That the interest holder has less than a 50 percent voting 
interest in the licensee and

[[Page 812]]

there is an unaffiliated single holder of a 50 percent or greater voting 
interest;
    2. That the interest holder is not likely to affect the local market 
in an anticompetitive manner;
    3. That the interest holder is not involved in the operations of the 
licensee and does not have the ability to influence the licensee on a 
regular basis; and
    4. That grant of a waiver is in the public interest because the 
benefits to the public of common ownership outweigh any potential 
anticompetitive harm to the market.