1. Wireless Utilities 2003 Chicago Special Regulatory Perspective Presented by: Christine M. Gill Telecommunications Practice Group McDermott, Will & Emery Washington, DC 202-756-8283/cgill@mwe.com August 20, 2003

2. Wireless Utilities 2003 Special Regulatory Perspective 1 INTRODUCTION WIRELESS/RF SPECTRUM Subject to FEDERAL Regulation by the Federal Communications Commission Viewed as Scarce Public Resource - Tightly Controlled by the Federal Government for Various Uses Based On “Public Interest” Standard

3. Wireless Utilities 2003 Special Regulatory Perspective 2 OVERVIEW OF UTILITY USE OF WIRELESS SYSTEMS Primarily Internal - Support of Operations Land mobile [voice and data]: –25, 48, 150, 450, 470, and 800/900 MHz MAS/SCADA/Remote Meter Reading: –150, 220, 900 MHz, 2 GHz Microwave - [point-to-point]: –1, 2, 5, 6, 11, 18, 21 and 24 GHz Satellite - WANs/LANs/SCADA

4. Wireless Utilities 2003 Special Regulatory Perspective 3 OVERVIEW OF UTILITY USE OF WIRELESS SYSTEMS Common Carrier Services in Utility Operations Typically Used Only as an Adjunct to Internal Wireless Systems (For Example, Cellular) For-Profit Model at Odds with Utility Requirements –Coverage Often Insufficient –Reliability Not Up to Utility Standards –“Priority Access” Deemed Not Adequate Utilities Receive a Low Level of Priority Access [by law] on Commercial Systems

5. Wireless Utilities 2003 Special Regulatory Perspective 4 OVERVIEW OF UTILITY USE OF WIRELESS SYSTEMS Hybrid Wireless Utility Systems Shared Access to Land Mobile by Private Entities [Currently Non-Profit Only] Shared Access to Microwave Capacity by Private Entities/Carrier [For-Profit or Non-Profit] Leased Access to All Systems [coming soon?] Commercial Utility Wireless Ventures Automated Meter Reading – Metricom Wireless Services – Southern LINC

6. Wireless Utilities 2003 Special Regulatory Perspective 5 THE REGULATORY ENVIRONMENT The Federal Communications Commission Under the Communications Act of 1934, Has Jurisdiction Over Virtually All Non-Government RadioFrequency Operations, Equipment and Structures There Is Virtually No State or Local Jurisdiction over Wireless Operations

7. Wireless Utilities 2003 Special Regulatory Perspective 6 THE REGULATORY ENVIRONMENT The Federal Communications Commission Historically Has Employed a Command and Control Approach to Wireless - Dedicated Allocations of Spectrum for Specific Uses Issues Licenses and Prescribes Technical Parameters, Geographic Restrictions, Permissible Communications Access to Spectrum Determined by the Priority Given to a Particular Group under Government Policy Commercial/ Common CarrierPrivate/Internal UseUnlicensed Cellular Utilities Spread Spectrum Microwave Oil Companies Ultra-Wideband Transportation U-NII

8. Wireless Utilities 2003 Special Regulatory Perspective 7 REGULATORY ENVIRONMENT 1996 Telecom Act Only Major Reform in the Nearly 70-Year History of the Communications Act Objective Was Deregulation of Telecommunications - Move to a Market-Driven Model Where Possible –Increased Use of Auctions to Allocate Spectrum for New Uses –Moving Away from Allocating Spectrum Based on “Public Interest” to Model Based on “Highest Bidder”

9. Wireless Utilities 2003 Special Regulatory Perspective 8 REGULATORY ENVIRONMENT 1996 Telecom Act Introduced “Exempt Telecommunications Company” [ETC] Short-Cut for Public Utilities to Enter Telecommunications Service and Related Markets Utilities Regulated Under “PUHCA” Can Create or Acquire ETCs Subject to Streamlined FCC Approval Process [no SEC Review] Restriction: ETC Must Be Exclusively Engaged, Directly or Indirectly, in the Provision of: Telecommunications or Information Services Products, Services Within the FCC Jurisdiction; or Products, Services Related or Incidental to the Referenced Services

10. Wireless Utilities 2003 Special Regulatory Perspective 9 REGULATORY ENVIRONMENT Balanced Budget Act of 1997 Expanded the FCC’s Spectrum Auction Authority –Previously: FCC Could Auction Spectrum Where it Would Be Used to Provide a Commercial Service –After BBA 1997: FCC Must Auction All Spectrum, Except for Public Safety Radio Service Licenses

11. Wireless Utilities 2003 Special Regulatory Perspective 10 REGULATORY ENVIRONMENT Balanced Budget Act of 1997 [continued] Impact of New Auction Authority –Auctions Are Widely Used, With Approximately 40 Held to Date, Including: 800 MHz and 900 MHz Specialized Mobile Radio 2 GHz Personal Communications Service Lower 700 MHz [UHF TV Channels – Broadcasters to Exit]

12. Wireless Utilities 2003 Special Regulatory Perspective 11 REGULATORY ENVIRONMENT Balanced Budget Act of 1997 [continued] –Under the FCC's Interpretation of 1997 BBA, Current Spectrum Used by Utilities Could Be Auctioned –Access to Spectrum for New Uses Became Intensely Competitive/Prices Escalated –Market Prices for Spectrum Have Recently Dropped, But Remain Volatile

13. Wireless Utilities 2003 Special Regulatory Perspective 12 REGULATORY ENVIRONMENT FCC Auctions The FCC Conducts Auctions Electronically, Allowing Bidders to Place Bids and Monitor Auction Results Round by Round via the Internet. Utilities Often Have Access to Auctioned Spectrum Before and After the Auction Because of: –Permissive Eligibility Standards –Availability of Spectrum in Nationwide, Regional, and Subregional Blocks –Rules Allowing the Partitioning or Disaggregation of Spectrum by Winning Bidders

14. Wireless Utilities 2003 Special Regulatory Perspective 13 REGULATORY ENVIRONMENT FCC Auctions: Auction Prices Vary Depending on the Spectrum Band, Timing and Market –Over $2 Billion for a Single Broadband PCS License in New York City (2001) –Total of Approximately $3.2 million for 2,832 Paging Licenses Located Across the Nation (2003) The Average Bid During Recent Auctions: –$11,428 for a 220 MHz License –$1,713 for a Multiple Address System License –$1,130 for an Upper or Lower Paging Band License

15. Wireless Utilities 2003 Special Regulatory Perspective 14 ONGOING FCC INITIATIVES THAT WILL AFFECT ACCESS TO WIRELESS SPECTRUM Currently - The FCC is Seeking to Advance Several Objectives: –Make More Spectrum Available to More Users –Address Public Safety/Homeland Security Needs –Facilitate Technological Developments –Ensure Efficient Spectrum Use

16. Wireless Utilities 2003 Special Regulatory Perspective 15 ONGOING FCC INITIATIVES Spectrum Refarming Initiated More than 10 Years Ago as a Way to Increase Efficiency in Spectrum Usage Refarms Existing Spectrum - Creating a Greater Number of Narrower Channels

17. Wireless Utilities 2003 Special Regulatory Perspective 16 ONGOING FCC INITIATIVES Spectrum Refarming [continued] Originally Equipment Driven [Increasingly Narrow Channel Capacity Required for Equipment Over Time] Now - Mandatory Licensee Migration to 12.5 kHz Channelization Below 512 MHz Under Consideration - Mandatory 6.25 kHz Migration

18. Wireless Utilities 2003 Special Regulatory Perspective 17 ONGOING FCC INITIATIVES Unlicensed Devices FCC Promotion of Unlicensed Operations Is Consistent with Deregulatory Approach June 2003 – White Paper from FCC Staff –Preliminary Exploration of Unlicensed Operations –Authors Showed Strong Interest in Granting Access to Currently Licensed Spectrum

19. Wireless Utilities 2003 Special Regulatory Perspective 18 ONGOING FCC INITIATIVES Spectrum Leasing/Secondary Markets In an Ongoing Rulemaking, the FCC Is Seeking to Promote the Development of Secondary Markets in Spectrum Relaxed Restrictions on Transferring Licensee Control - Allows Spectrum Leasing in a Wide Variety of Radio Services Streamlined Approval of Requests to Lease Further Measures to Facilitate [NPRM]? More Evidence of Market-Based, Deregulatory Policy - Away from Command and Control.

20. Wireless Utilities 2003 Special Regulatory Perspective 19 ONGOING FCC INITIATIVES Interference Resolution Issues Increased Spectrum Demand/Use Has Led to More Interference For Example, 2001 Nextel White Paper Detailed Interference to 800 MHz High Power, High-Site Public Safety Systems by Nextel's Low-Power, Low-Site Commercial System

21. Wireless Utilities 2003 Special Regulatory Perspective 20 ONGOING FCC INITIATIVES Interference Resolution Issues [continued] Nextel et al. Have Proposed Band Reconfiguration –All Public Safety Moved to Lower Part of Band [851- 854 MHz] and Nextel Moves to Upper Part [861-864 MHz] FCC Has Given No Indication of Views/Anticipated Approach Initial Decision Expected Late 2003/Early 2004

22. Wireless Utilities 2003 Special Regulatory Perspective 21 ONGOING FCC INITIATIVES Enforcement/Compliance Historically –Enforcement Responsibility Divided Up Among Various FCC Bureaus –Private Radio Licensees, Such as Utilities, Were Not Aggressively Targeted

23. Wireless Utilities 2003 Special Regulatory Perspective 22 ONGOING FCC INITIATIVES Enforcement/Compliance [continued] 1999 - FCC Creates a Distinct Enforcement Bureau –Bureau’s Full Time, Attention and Resources Are Devoted to Identifying and Addressing Rule Violations/Unused Spectrum –Across-the-Board Enforcement of Rules Becomes an FCC Priority

24. Wireless Utilities 2003 Special Regulatory Perspective 23 ONGOING FCC INITIATIVES Enforcement/Compliance [continued] Currently –Areas of Particular Focus Include: Antenna Towers/Sites (painting, lighting, signage, RF Radiation Exposure) Unauthorized Operations (expirations and otherwise) Unauthorized Transfers of Control (mergers, asset sales)

25. Wireless Utilities 2003 Special Regulatory Perspective 24 ONGOING FCC INITIATIVES Enforcement/Compliance [continued] Bottom Line on Enforcement/Compliance: –Compliance and License Renewal Programs Are Vital to Avoiding Enforcement Consequences and Protecting Spectrum Assets