Metro PCS 2007 Annual Report Download - page 49

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abide by the FCC’ s control requirements. Subject to certain non-controlling investor protections in Royal Street
Communications’ limited liability company agreement, C9 has control over the operations of Royal Street because it
has the right to elect three of the five members of Royal Street Communications’ management committee, which
have the full power to direct the management of Royal Street. However, the Royal Street business plan may become
so closely aligned with our business plan that there is a risk the FCC may find Royal Street to have relinquished
control over its licenses to us in violation of FCC requirements. Recently the FCC made changes to the DE rules.
The FCC concluded that certain relationships between a DE licensee and its investors would in the future be deemed
impermissible material relationships based on a new FCC view that these relationships, by their very nature, are
generally inconsistent with an applicant’ s or licensee’ s ability to achieve or maintain designated entity eligibility and
inconsistent with Congress’ legislative intent. The FCC cited wholesale service arrangements as an example of an
impermissible material relationship, but indicated that previously approved arrangements of this nature would be
allowed to continue. Further, the FCC has opened a Notice of Further Proposed Rulemaking seeking to determine
what additional changes, if any, may be required or appropriate to its DE program. While the FCC has grandfathered
the existing arrangements between Royal Street and us, there can be no assurance that any changes that may be
required of those arrangements in the future will not cause the FCC to determine that the changes would trigger the
loss of DE eligibility for Royal Street. If the FCC were to determine that Royal Street has failed to exercise the
requisite control over its licenses and lost its status as a DE, Royal Street would be required to repay the FCC the
amount of the bidding credit on a five-year straight-line basis beginning on the grant date of the license, which was
December 2005, and it could lose some or all of the licenses only available to DEs which have not yet been
constructed, which includes several of its licenses in Florida. If Royal Street lost those licenses or was required to
repay the bidding credits it received, it could have a material and adverse effect on us.
Royal Street owns certain licenses which we do not control and which may never be sold to us.
Our agreements with Royal Street Communications allow us in accordance with applicable laws and regulations
to actively participate in the development of the Royal Street licenses and networks, and we have the right to
purchase, on a wholesale basis, 85% of the engineered capacity provided by the Royal Street systems and to resell
those services on a retail basis under our brand. We, however, do not control Royal Street or the Royal Street
licenses. C9, an unaffiliated third party, has the ability to put to us, or require us to purchase through June 2012, all
or part of its ownership interest in Royal Street Communications to us, but we have no corresponding right to call, or
require C9 to sell, its ownership interest in Royal Street Communications to us. C9 may not exercise its put rights
or, if it does, we do not know when such exercise may occur. Further, the FCC’ s rules restrict our ability to acquire
or control Royal Street licenses during the period that Royal Street must maintain its eligibility as a very small
business designated entity, or DE, which is currently through December 2010. Thus, we cannot be certain that the
Royal Street licenses will be developed in a manner fully consistent with our business plan or that C9 will act in
ways that benefit us.
We may not be able to continue to offer our services if the FCC does not renew our licenses when they expire.
We must periodically renew our FCC licenses. Renewal applications are subject to FCC review and potentially
public comment to ensure that licensees meet their licensing requirements and comply with other applicable FCC
mandates. If we fail to file for renewal of any particular license at the appropriate time or fail to meet any regulatory
requirements for renewal, including construction and substantial service requirements, we could be denied a license
renewal. In addition, many of our licenses are subject to interim or final construction requirements and there is no
guarantee that the FCC will find our construction sufficient to meet the applicable construction requirement. If the
FCC finds that our construction is insufficient, the FCC could terminate our license. For all PCS and AWS licenses,
the FCC also requires that a licensee provide substantial service in order to receive a renewal expectancy. There is
no guarantee that the FCC will find our or the prior licensees’ system construction sufficient to meet any build out
requirement or construction requirements for renewal. Additionally, while incumbent licensees enjoy a certain
renewal expectancy if they provide substantial service, there is no guarantee that the FCC will conclude that we are
providing substantial service, that we are entitled to a renewal expectancy, or will renew all or any of our licenses, or
that the FCC will not grant the renewal with conditions. Any termination of a license, failure to renew, or
imposition of conditions could materially adversely affect our business, results of operations, and financial
condition.