I.   INTRODUCTION                                                   398
II.  THE PROCESS OF LICENSE RENEWAL                                 399
III. "SUBSTANTIAL SERVICE"                                          401
     A.   History and Origin                                        401
     B.   "Substantial Service" as Applied to Commercial Radio
          Services                                                  404
IV.  FLEXIBLE USE: ALLOWING THE MARKET TO DETERMINE THE
     BEST USE FOR SPECTRUM                                          407
     A.   The FCC's Standard of Review for "Substantial Service"
          Cases                                                     407
     B.   Examples of FCC Findings of "Substantial Service"         408
          1.   Serving Underrepresented Customers                   408
          2.   Safe Harbor                                          409
          3.   A Combination of Factors                             410
V.   THE PROBLEMS WITH "SUBSTANTIAL SERVICE" AND POSSIBLE
     SOLUTIONS                                                      411
     A.   Why This Policy May Be Inconsistent With the
          Communications Act                                        411
     B.   Why This Policy May Be Inconsistent With the
          Administrative Procedures Act                             412
     C.   Solutions                                                 414
VI.  CONCLUSION                                                     414

I. INTRODUCTION

What is "service which is sound, favorable, and substantially above a level of mediocre service which just might minimally warrant renewal"? (1) It is the Federal Communication Commission's ("FCC" or the "Commission") definition of "substantial service." This Note attempts to make sense of this vaguely articulated, but significant, concept. In recent years, the Commission has aggressively moved to promote the policy of flexible use of the electromagnetic spectrum. In conjunction with this policy, the Commission has used the "substantial service" construct in a variety of contexts, including the auction of commercial radio services.

An FCC license is a valuable asset, but it exists only for a limited duration. Therefore, obtaining a license renewal is vital to a licensee, especially one who has participated in an auction and made substantial investments in order to obtain the rights the license confers. The economic incentive in obtaining a renewal encourages license holders to do everything they can to ensure that they retain their licenses. This Note describes how a licensee can obtain a renewal expectation for commercial radio services and focuses in depth on the "substantial service" requirement and how this requirement is linked to the FCC's policy of flexible use.

The term "substantial service" has become a common fixture in FCC renewal requirements and is identified as an important factor in the promotion of flexible spectrum use. (2) This Note addresses the meaning of flexible use and the potential problems that arise when "substantial service" requirements are used to promote flexible use. The policy of flexible use is centered on the idea of allowing licensees, rather than the FCC, to decide how to use the spectrum they are allocated. One of the most compelling arguments for this policy is that the market drives spectrum to its highest and best use. This Note examines the FCC's current practice of using "substantial service" and explores whether this policy achieves a market-based approach to regulation.

This Note identifies two potential questions that arise when "substantial service" is combined with flexible use: First, is "substantial service," as applied, too ambiguous for licensees to know with certainty that their licenses will be renewed? This question is particularly important because of the substantial investment licensees make in acquiring and building out their licenses. …